DEPOMED INC (Form: 10-Q, Received: 08/03/2012 16:07:45)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-13111

DEPOMED, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

CALIFORNIA		94-3229046
(STATE OR OTHER JURISDICTION OF		(I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)		IDENTIFICATION NUMBER)

1360 O’BRIEN DRIVE

MENLO PARK, CALIFORNIA 94025

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

(650) 462-5900

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No 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, as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of issued and outstanding shares of the Registrant’s Common Stock, no par value, as of August 1, 2012 was 56,028,068.

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DEPOME D, INC.

	PAGE

PART I — FINANCIAL INFORMATION

Item 1. Condensed Financial Statements:

Condensed Balance Sheets at June 30, 2012 (unaudited) and December 31, 2011	3

Condensed Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2012 and 2011 (unaudited)	4

Condensed Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (unaudited)	5

Notes to Condensed Financial Statements (unaudited)	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3. Quantitative and Qualitative Disclosure About Market Risk	31

Item 4. Controls and Procedures	31

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	31

Item 1A. Risk Factors	32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3. Defaults upon Senior Securities	44

Item 4. Mine Safety Disclosures	44

Item 5. Other Information	44

Item 6. Exhibits	44

Signatures	45

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PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

DEPOMED, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share amounts)

	June 30,			December 31,
	2012			2011
	(Unaudited)			(1)
ASSETS
Current assets:
Cash and cash equivalents	$	13,521		$	24,043
Marketable securities	58,691			62,106
Accounts receivable	1,945			4,420
Receivables from collaborative partners	8.943			8,135
Inventories	8,029			5,395
Prepaid and other current assets	6,341			5,390
Total current assets	97,470			109,489
Marketable securities, long-term	16,819			53,644
Property and equipment, net	1,400			1,070
Intangible assets, net	26,995			—
Other assets	425			169
	$	143,109		$	164,372
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	30,168		$	26,784
Deferred product sales	4,519			6,960
Deferred license revenue	5,550			6,032
Other current liabilities	37			64
Total current liabilities	40,274			39,840
Deferred license revenue, non-current portion	15,158			17,932
Other long-term liabilities	2,276			682
Commitments
Shareholders’ equity:
Preferred stock, no par value, 5,000,000 shares authorized; Series A convertible preferred stock, 25,000 shares designated, 18,158 shares issued and surrendered, and zero shares outstanding at June 30, 2012 and December 31, 2011	—			—
Common stock, no par value, 100,000,000 shares authorized; 55,918,318 and 55,506,120 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively	207,492			203,511
Accumulated deficit	(122,162		)	(97,580		)
Accumulated other comprehensive gain (loss)	71			(13		)
Total shareholders’ equity	85,401			105,918
	$	143,109		$	164,372

(1) Derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

See accompanying notes to Condensed Financial Statements.

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DEPOMED, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues:
Product sales	$	3,201		$	16,153		$	5,310		$	31,464
Royalties	9,577			67			18,998			232
License and other revenue	1,332			4,998			6,637			72,623
Total revenues	14,110			21,218			30,945			104,319

Costs and expenses:
Cost of sales	1,442			2,140			1,960			3,775
Research and development expense	3,525			4,043			7,007			9,197
Selling, general and administrative expense:
Promotion fee expense	—			11,055			—			21,317
Other selling, general and administrative expense	25,021			9,976			46,793			17,216
Total selling, general and administrative expense	25,021			21,031			46,793			38,533
Amortization of intangible assets	105			—			105			—
Gain on settlement agreement	—			—			—			(40,000		)
Total costs and expenses	30,093			27,214			55,865			11,505

Income (loss) from operations	(15,983		)	(5,996		)	(24,920		)	92,814

Other income (expense):
Interest and other income	204			357			347			436
Interest expense	—			(39		)	—			(109		)
Total other income (expense)	204			318			347			327

Net income (loss) before income taxes	(15,779		)	(5,678		)	(24,573		)	93,141

Provision for income taxes	(1		)	(1		)	(9		)	(3		)

Net income (loss)	(15,780		)	(5,679		)	(24,582		)	93,138

Unrealized gains (losses) on available-for-sale securities	(9		)	97			84			86
Comprehensive income (loss)	$	(15,789	)	$	(5,582	)	$	(24,498	)	$	93,224

Basic net income (loss) per common share	$	(0.28	)	$	(0.11	)	$	(0.44	)	$	1.73
Diluted net income (loss) per common share	$	(0.28	)	$	(0.11	)	$	(0.44	)	$	1.67

Shares used in computing basic net income (loss) per common share	55,786,617			54,056,064			55,670,598			53,706,617
Shares used in computing diluted net income (loss) per common share	55,786,617			54,056,064			55,670,598			55,883,346

See accompanying notes to Condensed Financial Statements.

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DEPOMED, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended June 30,
	2012			2011
Operating Activities
Net income (loss)	$	(24,582	)	$	93,138
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	320			197
Amortization of investments	484			(74		)
Gain on bargain purchase	(92		)	—
Allowance for inventory obsolescence	696			—
Stock-based compensation	2,541			1,867
Changes in assets and liabilities:
Accounts receivable	1,667			(1,597		)
Inventories	(902		)	(3,443		)
Prepaid and other assets	(1,107		)	(1,572		)
Accounts payable and other accrued liabilities	2,545			4,074
Accrued compensation	(738		)	729
Deferred revenue	(5,697		)	(11,235		)
Net cash (used in) provided by operating activities	(24,865		)	82,084

Investing Activities
Purchases of property and equipment	(502		)	(444		)
Acquisition of Businesses	(26,436		)	—
Purchases of marketable securities	(28,463		)	(94,777		)
Maturities of marketable securities	38,737			21,399
Sales of marketable securities	29,566			—
Net cash provided by (used in) investing activities	12,902			(73,822		)

Financing Activities
Principal payments on long-term debt	—			(2,098		)
Proceeds from issuance of common stock	1,441			7,621
Net cash provided by financing activities	1,441			5,523

Net increase in cash and cash equivalents	(10,522		)	13,785
Cash and cash equivalents at beginning of period	24,043			22,526
Cash and cash equivalents at end of period	$	13,521		$	36,311

See accompanying notes to Condensed Financial Statements.

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DEPOMED, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Depomed, Inc. (Depomed or the Company) was incorporated in California in 1997 and is a specialty pharmaceutical company focused on pain and other conditions and diseases of the central nervous system. The Company has developed two products approved by the U.S. Food and Drug Administration (FDA) that are currently being marketed. Gralise® (gabapentin) is the Company’s once-daily tablet for the management of postherpetic neuralgia that was launched and made commercially available in October 2011. Glumetza® (metformin hydrochloride extended release tablets) is the Company’s once-daily treatment for adults with type 2 diabetes that is commercialized in the United States by Santarus, Inc. (Santarus).

On June 21, 2012, the Company acquired all rights to Zipsor® (diclofenac potassium) liquid filled capsules (Zipsor), from Xanodyne Pharmaceuticals, Inc (Xanodyne). Zipsor is a non-steroidal anti-inflammatory drug (NSAID) indicated for the relief of mild to moderate acute pain in adults. The purchase price for this transaction was $26.4 million in cash for the rights to Zipsor and related inventory as well as potential milestone payments based on sales of Zipsor and assumption of certain liabilities. The Company began distributing Zipsor to wholesalers and retail pharmacies subsequent to the acquisition date. See Note 14 for further information on the acquisition of Zipsor.

The Company also has two product candidates under clinical development, DM-1992 for Parkinson’s disease and Serada for the treatment of menopausal hot flashes.

Basis of Presentation

These unaudited condensed financial statements and the related footnote information of Depomed, Inc. (the Company or Depomed) have been prepared pursuant to the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, the accompanying interim unaudited condensed financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The results for the interim period ended June 30, 2012 are not necessarily indicative of results to be expected for the entire year ending December 31, 2012 or future operating periods.

The accompanying condensed financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2011, included in the Company’s Annual Report on Form 10-K filed with the SEC. The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although management believes these estimates are based upon reasonable assumptions within the bounds of its knowledge of the Company’s business and operations, actual results could differ materially from those estimates.

Revenue Recognition

The Company recognizes revenue from the sale of its products, royalties earned, and on payments received and services performed under contractual arrangements. Revenue arrangements with multiple elements are evaluated to determine whether the multiple elements met certain criteria for dividing the arrangement into separate units of accounting, including whether the delivered element(s) have stand-alone value to the Company’s customer or licensee. Where there are multiple deliverables combined as a single unit of accounting, revenues are deferred and recognized over the period that we remain obligated to perform services.

Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred and title has passed, the price is fixed or determinable and the Company is reasonably assured of collecting the resulting receivable.

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· Product Sales:

· Gralise : The Company sells Gralise (gabapentin) once-daily tablets to wholesalers and retail pharmacies and began shipping to customers in October 2011. The Company accepts returns of unsalable product from customers within a return period of six months prior to, and twelve months following product expiration. Gralise tablets currently have a shelf-life of 24 months from date of manufacture. In October 2011, the Company offered launch incentives for customers to stock Gralise at pharmacies and wholesalers, which included discounts and extended payment terms. Given the limited history of prescriptions of Gralise and launch incentives associated with stocking Gralise, the Company currently cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company defers recognition of revenue on product shipments of Gralise until the right of return no longer exists, which occurs at the earlier of the time Gralise units are dispensed through patient prescriptions or expiration of the right of return. The Company estimates patient prescriptions dispensed using an analysis of third-party information, including third-party market research data and information obtained from wholesalers with respect to inventory levels and inventory movement. As a result of this policy, the Company has a deferred revenue balance of $4.5 million at June 30, 2012 related to Gralise product shipments that have not been recognized as revenue, which is net of wholesaler fees, retail pharmacy discounts, launch discounts and prompt payment discounts. The Company has recognized $3.2 million and $5.0 million in product sales, which is net of wholesaler fees, retail pharmacy discounts, prompt payment discounts, patient support programs, and government chargebacks and rebates for the three and six months ended June 30, 2012, respectively. If the Company underestimates or overestimates patient prescriptions dispensed for a given period, adjustments to revenue may be necessary in future periods.

In addition, the costs of manufacturing Gralise associated with the deferred revenue are recorded as deferred costs, which are included in inventory until the related deferred revenue is recognized.

· Glumetza : The Company sold and recorded product sales on shipments of Glumetza (metformin hydrochloride extended release tablets) to wholesalers and retail pharmacies through August 2011. The Company and Santarus entered into a commercialization agreement in August 2011 under which Depomed transferred the rights to manufacture and distribute Glumetza in the United States to Santarus. Santarus commenced selling Glumetza in September 2011 and began recording product sales. See Note 4 for further information on the Santarus commercialization agreement.

Product distributed by Depomed through August 2011 is subject to rights of return six months before product expiration and up to twelve months after product expiration. The Company recognized revenue for Glumetza sales at the time title transferred to its customers, which occurred at the time product was delivered to its customers. Revenue from sales of Glumetza was recorded net of estimated allowances for returns, wholesaler and retail pharmacy fees, prompt pay discounts, patient discount programs, government rebates and chargebacks and managed care rebates.

· Zipsor : On June 21, 2012 (the acquisition date), the Company acquired all rights to Zipsor (diclofenac potassium) liquid filled capsules from Xanodyne and began distributing Zipsor to wholesalers and retail pharmacies. The Company accepts returns of unsalable product from customers within a return period of six months prior to, and twelve months following product expiration. The Company recognizes revenue for Zipsor sales at the time title transfers to its customers, which occurs at the time product is delivered to its customers. Revenue from sales of Zipsor is recorded net of estimated allowances for returns, wholesaler and retail pharmacy fees, prompt pay discounts, patient discount programs, government rebates and chargebacks. See Note 14 for further information on the acquisition of Zipsor.

· Product Sales Allowances - The Company recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on related sales. These estimates take into consideration the terms of the Company’s agreements with customers, historical product returns, rebates or discounts taken, estimated levels of inventory in the distribution channel, the shelf life of the product, and specific known market events, such as competitive pricing and new product introductions. If actual future results vary from the Company’s estimates, the Company may adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. The Company’s product sales allowances include:

· Product Returns - The Company estimates product returns on sales of Glumetza through August 2011 and on sales of Zipsor since the acquisition date. Under the terms of the Zipsor Asset Purchase Agreement, the Company also assumed certain liabilities relating to product returns, governmental rebates and chargebacks and patient discount programs associated with Zipsor sales that were previously recorded by Xanodyne. See Note 14 for further information on the acquisition of Zipsor.

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The Company allows customers to return product that is within six months before, and up to twelve months after, its product expiration date. The shelf life of the 500mg Glumetza is currently 48 months from the date of tablet manufacture. On product launch in August 2006 and through the second quarter of 2008, the shelf life of 500mg Glumetza product shipped was 36 months from the date of tablet manufacture. The shelf life of the 1000mg Glumetza is 24 to 36 months from the date of tablet manufacture. The shelf life of Zipsor is 36 months from the date of tablet manufacture. The Company monitors actual return history on an individual product lot basis since product launch, which provides it with a basis to reasonably estimate future product returns, taking into consideration the shelf life of product, shipment and prescription trends, estimated distribution channel inventory levels, and consideration of the introduction of competitive products.

As noted earlier, the Company currently does not estimate product returns on sales of Gralise.

· Managed Care Rebates - The Company offers rebates under contracts with certain managed care organizations. The Company establishes an accrual equal to its estimates of future managed care rebates attributable to sales and recognizes the estimated rebates as a reduction of revenue in the same period the related revenue is recognized. The Company estimates its managed care rebates based on the terms of each agreement, estimated levels of inventory in the distribution channel, and historical and expected future utilization of product by the managed care organization.

· Wholesaler and Retail Pharmacy Discounts - The Company offers discounts to certain wholesale distributors and retail pharmacies based on contractually determined rates. The Company accrues the applicable contractual discount on shipment to wholesale distributors and retail pharmacies and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

· Prompt Pay Discounts - The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for prompt payment. Based on the Company’s experience, the Company expects its customers to comply with the prompt payment terms to earn the cash discount. The Company accounts for cash discounts by reducing accounts receivable by the full amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

· Medicaid Rebates - The Company participates in Medicaid rebate programs, which provide assistance to eligible low-income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, the Company pays a rebate to each participating state, generally two to three months after the quarter in which the prescription is filled. The Company estimates and accrues Medicaid rebates based on product pricing, current rebates and changes in the level of discounts the Company offers that may affect the level of Medicaid discount, historical and estimated future percentages of product sold to Medicaid recipients and estimated levels of inventory in the distribution channel.

· Chargebacks - The Company provides discounts to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration under an FSS contract with the Department of Veterans Affairs. These federal entities purchase products from wholesale distributors at a discounted price, and the wholesale distributors then charge back to the Company the difference between the current retail price and the price the federal entity paid for the product. The Company estimates and accrues chargebacks based on estimated wholesaler inventory levels, current contract prices and historical chargeback activity.

· Medicare Part D Coverage Gap - The Company participates in the Medicare Part D Coverage Gap Discount Program under which the Company provides rebates on prescriptions that fall within the “donut hole” coverage gap. The Company estimates and accrues rebates based on historical utilization and recognizes the rebate as a reduction of revenue in the same period the related revenue is recognized.

· Patient Discount Programs - The Company offers patient discount card programs in which patients receive discounts at participating retail pharmacies that are reimbursed by the Company. The Company estimates and accrues future redemptions based on historical redemption activity.

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· Royalties - Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectability is reasonably assured.

Under the commercialization agreement between the Company and Santarus, the Company receives royalties on net sales of Glumetza distributed by Santarus in the United States. Santarus commenced distributing and recording product sales on shipments of Glumetza in September 2011. See Note 4 for further information on the Santarus commercialization agreement.

Royalties received from Santarus and Merck, Inc. (Merck) are recognized in the period earned as the royalty amounts can be estimated and collectability is reasonably assured.

Royalties received under the Company’s agreements with Valeant Pharmaceuticals International, Inc. (Valeant) and LG Life Sciences (LG) are recognized when the royalty payments are received as they cannot reliably be estimated.

· License and other arrangements - Revenue from license and collaborative arrangements is recognized when the Company has substantially completed its obligations under the terms of the arrangement and the Company’s remaining involvement is inconsequential and perfunctory. If the Company has significant continuing involvement under such an arrangement, license and collaborative fees are recognized over the estimated performance period. The Company recognizes milestone payments for its research and development collaborations upon the achievement of specified milestones if (1) the milestone is substantive in nature, and the achievement of the milestone was not reasonably assured at the inception of the agreement; (2) consideration earned relates to past performance, and (3) the milestone payment is nonrefundable. A milestone is considered substantive if the consideration earned from the achievement of the milestone is consistent with the Company’s performance required to achieve the milestone or consistent with the increase in value to the collaboration resulting from the Company’s performance, the consideration earned relates solely to past performance, and the consideration earned is reasonable relative to all of the other deliverables and payments within the arrangement. License, milestones and collaborative fee payments received in excess of amounts earned are classified as deferred revenue until earned.

Recently Issued Accounting Standards

In June 2011, the FASB issued guidance amending the presentation requirements for comprehensive income. Companies have the option to report total comprehensive income, including components of net income and components of other comprehensive income, as a single continuous statement or in two separate but consecutive statements. The Company adopted the presentation requirement effective January 1, 2012 and elected to report the components of comprehensive income in one single continuous statement as part of the Condensed Statement of Operations and Comprehensive Income. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820). ASU 2011-04 is intended to provide a consistent definition of fair value and improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments include those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements, as well as those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This update is effective for annual and interim periods beginning after December 15, 2011. This ASU did not have a material impact on the Company’s financial statements.

In December 2011, the FASB issued Accounting Standards Update 2011-11, “Balance Sheet: Disclosures about Offsetting Assets and Liabilities”. The differences in the requirements for offsetting assets and liabilities in the presentation of financial statements prepared in accordance with U.S. GAAP and financial statements prepared in accordance with International Financial Reporting Standards (IFRS) makes the comparability of those statements difficult. The objective of this update is to facilitate comparison between those financial statements, specifically within the scope instruments and transaction eligible for offset in the form of derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. This update is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within that fiscal year. Management does not expect this update to have a material effect on the Company’s financial statements.

In December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”). ASU 2011-12 defers the requirement in ASU 2011-05 to present reclassification adjustments for each component of accumulated other comprehensive income in both other comprehensive income and net income on the face of the financial statements and the presentation of reclassification adjustments is not required in interim periods. The effective dates of ASU 2011-12 are consistent with the effective dates of ASU 2011-05, which is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.

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NOTE 2. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

Securities classified as cash and cash equivalents and available-for-sale marketable securities as of June 30, 2012 and December 31, 2011 are summarized below (in thousands). Estimated fair value is based on quoted market prices for these investments.

June 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents:
Cash	$	7,640	$	—	$	—		$	7,640
Money market funds	882		—		—			882
Corporate debt securities	4,999		—		—			4,999
Total cash and cash equivalents	$	13,521	$	—	$	—		$	13,521

Available-for-sale securities:
Total maturing within 1 year and included in marketable securities:
Corporate debt securities	35,512		33		(5		)	35,540
Government agency debt securities	19,815		21		—			19,836
U.S. Treasury securities	3,314		1		—			3,315
Total maturing between 1 and 2 years and included in marketable securities:
Corporate debt securities	4,934		14		—			4,948
U.S. government agency debt securities	5,505		10		—			5,515
U.S. Treasury securities	6,359		—		(3		)	6,356
Total available-for-sale securities	$	75,439	$	79	$	(8	)	$	75,510

Total cash, cash equivalents and marketable securities	$	88,960	$	79	$	(8	)	$	89,031

December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents:
Cash	$	5,629	$	—	$	—		$	5,629
Money market funds	12,467		—		—			12,467
Corporate debt securities	5,947		—		—			5,947
Total cash and cash equivalents	$	24,043	$	—	$	—		$	24,043

Available-for-sale securities:
Total maturing within 1 year and included in marketable securities:
Corporate debt securities	49,717		10		(9		)	49.718
U.S. government agency debt securities	5,503		2		—			5,505
U.S. Treasury securities	6,870		13		—			6,883
Total maturing between 1 and 2 years and included in marketable securities:
Corporate debt securities	17,767		7		(62		)	17,712
U.S. government agency debt securities	35,906		30		(4		)	35,932
Total available-for-sale securities	$	115,763	$	62	$	(75	)	$	115,750

Total cash, cash equivalents and marketable securities	$	139,806	$	62	$	(75	)	$	139,793

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The Company considers all highly liquid investments with a maturity at date of purchase of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks, money market instruments and commercial paper. The Company places its cash, cash equivalents and marketable securities with U.S. Treasury and government agency securities, and high quality securities of U.S. and international financial and commercial institutions and, to date has not experienced material losses on any of its balances. All marketable securities are classified as available-for-sale since these instruments are readily marketable. These securities are carried at fair value, which is based on readily available market information, with unrealized gains and losses included in accumulated other comprehensive gain within shareholders’ equity. The Company uses the specific identification method to determine the amount of realized gains or losses on sales of marketable securities. Realized gains or losses have been insignificant and are included in “interest and other income” in the condensed statement of operations.

At June 30, 2012 the Company had eighteen securities in an unrealized loss position. The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2012 (in thousands):

	Less than 12 months					12 months or greater				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate debt securities	$	16,215	$	(5	)	—		—		$	16,215	$	(5	)
U.S. Treasury securities	8,370		(3		)	—		—		8,370		(3		)
Total available-for-sale	$	24,585	$	(8	)	$	—	$	—	$	24,585	$	(8	)

The gross unrealized losses above were caused by interest rate increases. No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers of the Company’s securities. Based on the Company’s review of these securities, including the assessment of the duration and severity of the unrealized losses and the Company’s ability and intent to hold the investments until maturity, there were no material other-than-temporary impairments for these securities at June 30, 2012.

Fair value is defined 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 on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company utilizes the following fair value hierarchy based on three levels of inputs:

· Level 1: Quoted prices in active markets for identical assets or liabilities.

· Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 (in thousands):

Assets:

	Level 1		Level 2		Level 3		Total
Money market funds	$	882	$	—	$	—	$	882
Corporate debt securities	—		45,487		—		45,487
Government agency debt securities	—		25,350		—		25,350
U.S. Treasury securities	—		9,672		—		9,672
Total	$	882	$	80,509	$	—	$	81,391

Liabilities:

	Level 1		Level 2		Level 3		Total
Contingent consideration	$	—	$	—	$	1,303	$	1,303

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The fair value measurement of the contingent consideration obligations arises from the Zipsor acquisition and relates to the potential future milestone payments under the Zipsor agreement which is determined using Level 3 inputs. The key assumptions in determining the fair value are the discount rate and the probability assigned to the potential milestones being achieved. At each reporting date, the Company will re-measure the contingent consideration obligation arising from the Zipsor acquisition to its estimated fair value. Any changes in the fair value of contingent consideration will be recognized in operating expenses until the contingent consideration arrangement is settled.

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2011 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds	$	12,467	$	—	$	—	$	12,467
U.S. corporate debt securities	—		73,378		—		73,378
U.S. government agency debt securities	—		41,437		—		41,437
U.S. Treasury securities	—		6,882		—		6,882
Total	$	12,467	$	121,697	$	—	$	134,164

There were no financial liabilities measured at fair value on a recurring basis as of December 31, 2011.

NOTE 3. NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period, plus dilutive common shares for the period determined using the treasury-stock method. For purposes of this calculation, options to purchase stock are considered to be potential common shares and are only included in the calculation of diluted net income (loss) per share when their effect is dilutive. Basic and diluted earnings per share are calculated as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except for per share amounts)	2012			2011			2012			2011
Numerator:
Net income (loss)	$	(15,780	)	$	(5,679	)	$	(24,582	)	$	93,138

Denominator for basic net income (loss) per share	55,787			54,056			55,671			53,707
Net effect of dilutive common stock equivalents	—			—			—			2,176
Denominator for diluted net income (loss) per share:	55,787			54,056			55,671			55,883

Basic net income (loss) per share	$	(0.28	)	$	(0.11	)	$	(0.44	)	$	1.73
Diluted net income (loss) per share	$	(0.28	)	$	(0.11	)	$	(0.44	)	$	1.67

For the three and six months ended June 30, 2012, 5.5 million common stock equivalents were not included in dilutive shares because their effect is anti-dilutive. For the three and six months ended June 30, 2011, the total number of antidilutive outstanding common stock equivalents excluded from the diluted net income per share computation was 4.0 million and 0.8 million, respectively.

NOTE 4. LICENSE AND COLLABORATIVE ARRANGEMENTS

Santarus, Inc.

In August 2011, the Company entered into a commercialization agreement with Santarus granting Santarus exclusive rights to manufacture and commercialize Glumetza in the United States. The commercialization agreement supersedes the previous promotion agreement between the parties originally entered into in July 2008.

Under the commercialization agreement, the Company transitioned to Santarus responsibility for manufacturing, distribution, pharmacovigilance and regulatory affairs. The Company ceased shipments of Glumetza in August 2011 and Santarus began distributing and recording product sales on shipments of Glumetza in September 2011. Santarus will continue to be responsible at its expense for advertising and promotional marketing activities for Glumetza.

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Santarus is required to pay the Company royalties on net product sales of Glumetza in the United States of 26.5% in 2011; 29.5% in 2012; 32.0% in 2013 and 2014; and 34.5% in 2015 and beyond prior to generic entry of a Glumetza product. In the event of generic entry of a Glumetza product in the United States, the parties will equally share proceeds based on a gross margin split. Santarus has the exclusive right to commercialize authorized generic versions of the Glumetza products. Santarus will not pay additional sales milestones to the Company as was required under the prior promotion agreement. Royalty revenue from Santarus for the three and six months ended June 30, 2012 was $9.4 million and $18.6 million, respectively.

In connection with its assumption of distribution and sales responsibility of Glumetza, Santarus purchased Depomed’s existing inventory of Glumetza and bulk metformin hydrochloride at cost. Depomed is financially responsible for returns of Glumetza distributed by Depomed, up to the amount of the product returns reserve account for Glumetza product returns on the date immediately before Santarus began distributing Glumetza. Depomed is financially responsible for Glumetza rebates and chargebacks up to the amount of its reserve accounts for those items. Santarus is responsible for all other Glumetza returns, rebates and chargebacks.

Under the commercialization agreement, Depomed is responsible for managing the patent infringement lawsuit against Sun Pharmaceutical Industries, Inc. (Sun) subject to certain consent rights in favor of Santarus, including with regard to any proposed settlements. Santarus will reimburse Depomed for 70% of its out-of-pocket costs, and Depomed will reimburse Santarus for 30% of its out-of-pocket costs related to these two infringement cases. The Company was previously responsible for managing the patent infringement lawsuit against Lupin Limited (Lupin), which was settled in February 2012.

During 2011, Depomed distributed Glumetza for the first eight months of the year, recognized Glumetza product sales on those respective sales and paid Santarus a promotion fee equal to 75% of Glumetza gross margin. For the three and six months ended June , 2011, the Company recognized $11.1 million and $21.3 million, respectively, in promotion fee expense to Santarus related to sales of Glumetza by Depomed. In August 2011, the distribution and sales responsibility transitioned to Santarus, and Depomed no longer recorded sales of Glumetza and no longer was responsible for paying promotion fees to Santarus. Accordingly, there was no promotion fee expense in 2012.

Pursuant to the promotion agreement originally entered into in July 2008, Santarus paid the Company a $12.0 million upfront fee. The upfront payment received was originally being amortized as revenue ratably until October 2021, which represented the estimated length of time the Company’s obligations existed under the promotion agreement related to manufacturing Glumetza and paying Santarus promotion fees on gross margin of Glumetza. The commercialization agreement in August 2011 superseded the promotion agreement and removed the manufacturing and promotion fee obligations of the Company. The commercialization agreement includes obligations with respect to manufacturing and regulatory transition to Santarus and managing the ongoing patent infringement lawsuits against Sun and Lupin. These obligations are estimated to be completed in December 2013. Accordingly, on the effective date of the commercialization agreement, the amortization period related to remaining deferred revenue on the $12.0 million upfront fee has been adjusted, and the remaining deferred revenue will be recognized ratably until December 2013. The Company recognized approximately $1.0 million and $2.0 million of license revenue associated with this upfront license fee for the three and six months ended June 30, 2012, respectively. The Company recognized approximately $0.2 million and $0.5 million of license revenue associated with this upfront license fee for the three and six months ended June 30, 2011, respectively. The remaining deferred revenue balance related to this upfront payment is $5.8 million at June 30, 2012.

Ventiv Commercial Services, LLC

In June 2011, the Company entered into a service agreement with Ventiv Commercial Services, LLC (Ventiv), pursuant to which inVentiv Selling Solutions, Ventiv’s outsourced sales business, will provide sales force recruiting, training, deployment and ongoing operational support to the Company to promote Gralise. The agreement provides for a sales force of 164 full-time sales representatives dedicated to the Company, all of whom are employees of Ventiv.

Under the terms of the agreement, the Company paid Ventiv an upfront implementation fee and will pay an agreed upon fixed monthly management fee of approximately $1.8 million, which is subject to adjustment based on actual staffing levels. During the term of the agreement, a portion of Ventiv’s monthly management fee will be subject to payment by the Company only to the extent that specified performance objectives are met. The Company will also pay certain pass-through costs of Ventiv incurred in connection with the agreement, which primarily include bonuses, travel costs and certain administrative expenses. The agreement provides for conversion of sales representatives from Ventiv employees to Depomed employees beginning in September 2012 at an agreed-upon cost per employee converted. In June 2012, the Company exercised an early termination clause under the agreement to end the agreement in September 2012 in conjunction with converting the sales representatives to Depomed employees at that time.

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In May 2012, the Company entered into an additional service agreement with Ventiv that provides for a sales force of 78 part-time sales representatives dedicated to the Company, all of whom are employees of Ventiv. Under the terms of the agreement, the Company paid Ventiv an upfront implementation fee and will pay an agreed upon fixed monthly management fee of approximately $0.5 million, which is subject to adjustment based on actual staffing levels. The term of the agreement is for one year beginning in June 2012.

The Company incurred $7.6 million and $14.4 million of expense related to Ventiv under these two agreements for the three and six months ended June 30, 2012.

Abbott Products Inc. (formerly Solvay Pharmaceuticals, Inc.)

In November 2008, the Company entered into an exclusive license agreement with Solvay Pharmaceuticals, Inc. (Solvay) granting Solvay exclusive rights to develop and commercialize Gralise for pain indications in the United States, Canada and Mexico. In February 2010, Abbott Laboratories acquired the pharmaceutical business of Solvay and Abbott Products (Abbott Products), a subsidiary of Abbott Laboratories, became responsible for the Gralise license agreement with the Company.

In January 2011, Abbott Products received FDA approval of Gralise for the management of postherpetic neuralgia. This triggered a $48.0 million development milestone from Abbott to the Company, which the Company received in February 2011. As the nonrefundable milestone was substantive in nature, achievement of the milestone was not reasonably assured at the inception of the agreement and the milestone was related to past performance, the Company recognized the entire $48.0 million as revenue in the first quarter of 2011.

In January 2011, Abbott Products notified the Company that Abbott Products did not intend to commercialize Gralise. In March 2011, the Company entered into a settlement agreement with Abbott Laboratories which provided for (i) the immediate termination of the Gralise license agreement, (ii) the transition of Gralise back to Depomed; and (iii) a $40.0 million payment to Depomed which the Company received in March 2011. The $40.0 million payment was recognized as a gain within operating income in the first quarter of 2011.

Pursuant to the exclusive license agreement originally entered into in November 2008, Solvay paid the Company a $25.0 million upfront fee in February 2009. The upfront payment received was originally being amortized as revenue ratably until January 2013, which represented the estimated length of time the Company’s development and supply obligations existed under the agreement. In connection with the termination of the license agreement with Abbott Products, the Company no longer has continuing obligations to Abbott Products. Accordingly, all remaining deferred revenue related to the $25.0 million upfront license fee previously received from Abbott Products was fully recognized as revenue in March 2011, resulting in immediate recognition of approximately $11.3 million of license revenue in the first quarter of 2011.

Boehringer Ingelheim International GMBH

In March 2011, the Company entered into a license and service agreement with Boehringer Ingelheim International GMBH (Boehringer Ingelheim) granting Boehringer Ingelheim a license to certain patents related to the Company’s Acuform drug delivery technology to be used in developing fixed dose combinations of extended release metformin and proprietary Boehringer Ingelheim compounds in development for type 2 diabetes. Under the terms of the agreement, Boehringer Ingelheim was also granted a right of reference to the New Drug Application covering the Company’s Glumetza product and associated data for use in potential regulatory submission processes.

In connection with the license and service agreement, the Company received an upfront payment of $10.0 million less applicable withholding taxes of approximately $1.5 million, for a net receipt of approximately $8.5 million in April 2011. The Company received the remaining $1.5 million of taxes previously withheld directly from German tax authorities in June 2011.

The $10.0 million upfront was amortized ratably through November 2011, which was the estimated length of time Depomed was obligated to perform formulation work under the agreement. Accordingly, the Company recognized approximately $3.9 million and $4.9 million of revenue associated with this upfront license fee during the three and six months ended June 30, 2011, respectively.

Under the terms of the agreement, the Company received an additional nonrefundable $2.5 million payment in March 2012 upon delivery of experimental batches of prototype formulations that met required specifications. As the milestone event was substantive in nature, achievement was not reasonably assured at the inception of the agreement and the milestone was related to past performance, the Company recognized the entire amount of this payment as revenue in the first quarter of 2012. The Company is also eligible to receive additional milestone payments based on regulatory filing and approval events, as well as royalties on worldwide net sales of products.

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Depomed is responsible for providing certain initial formulation work associated with the fixed dose combination products. Work performed by the Company under the service agreement will be reimbursed by Boehringer Ingelheim on an agreed-upon FTE rate per hour plus out-of-pocket expenses. The Company recognized approximately zero and $0.1 million of revenue associated with the reimbursement of formulation work under the service agreement during the three and six months ended June 30, 2012, respectively. The Company recognized approximately $0.5 million and $0.6 million of revenue associated with the reimbursement of formulation work under the service agreement during the three and six months ended June 30, 2011, respectively.

Ironwood Pharmaceuticals, Inc.

In July 2011, the Company entered into a collaboration and license agreement with Ironwood Pharmaceuticals, Inc. (Ironwood) granting Ironwood a license for worldwide rights to the Company’s Acuform drug delivery technology for an undisclosed Ironwood early stage development program.

In connection with the agreement, the Company received an upfront payment of $0.9 million which was amortized ratably through June 2012, which was the estimated length of time Depomed was obligated to perform formulation work under the agreement. The Company recognized approximately $0.2 million and $0.5 million of revenue associated with this upfront license fee during the three and six months ended June 30, 2012. There is no remaining deferred revenue related to this upfront payment at June 30, 2012.

Under the terms of the agreement, the Company will assist with initial product formulation and Ironwood will be responsible for all development and commercialization of the product. The initial formulation work performed by the Company under the agreement will be reimbursed by Ironwood on an agreed-upon FTE rate per hour plus out-of-pocket expenses. The Company recognized approximately $0.1 million of revenue associated with the reimbursement of formulation work under the agreement during the six months ended June 30, 2012.

In March 2012, the Company achieved the first milestone under the agreement with respect to delivery of experimental batches of prototype formulations that meet required specifications. The associated $1.0 million milestone payment is nonrefundable and was received in June 2012. As the nonrefundable milestone was substantive in nature, achievement of the milestone was not reasonably assured at the inception of the agreement, the milestone was related to past performance, the Company recognized the $1.0 million as revenue during the first quarter of 2012. Under the terms of the agreement, the Company may receive additional payments pending achievement of certain development and regulatory milestones, as well as royalties on product sales.

NOTE 5. LONG-TERM DEBT

In June 2008, the Company entered into a loan and security agreement with General Electric Capital Corporation, as agent (GECC), and Oxford Finance Corporation (Oxford) that provided the Company with a $15.0 million credit facility. The credit facility was available in up to three tranches. The first tranche of $3.8 million was advanced to the Company upon the closing of the loan agreement. The second tranche of $5.6 million was advanced to the Company in July 2008. The third tranche of $5.6 million was not drawn and is no longer available to the Company, and GECC and Oxford waived the 2% unused line fee related to the unused portion of the credit facility.

The Company paid interest only on the first tranche for the first six months at an interest rate of 11.59%. Beginning in January 2009, the Company began principal payments on the first tranche, plus interest at such rate, which was paid in 30 equal monthly installments. The second tranche was interest-only through December 31, 2008, with principal and interest paid thereafter in 30 equal monthly installments at an interest rate of 11.59%. Interest expense, which includes amortization of debt issuance costs, was approximately $25,000 and $81,000 for the three and six months ended June 30, 2011, respectively. The credit facility was paid in full by July 2011.

NOTE 6. STOCK-BASED COMPENSATION

The following table presents stock-based compensation expense recognized for stock options, stock awards, restricted stock units and the Company’s employee stock purchase program (ESPP) in the Company’s statements of operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011

Cost of sales	$	8	$	14	$	22	$	33
Research and development expense	149		156		346		311
Selling, general and administrative expense	1,026		995		2,173		1,523
Total	$	1,183	$	1,165	$	2,541	$	1,867

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At June 30, 2012, the Company had $7.6 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock option grants that will be recognized over an average vesting period of 2.5 years.

For the three and six months ended June 30, 2011, the Company recognized approximately $0.4 million in stock-compensation expense associated with the accelerated vesting of stock options in connection with a separation agreement and release with Carl A. Pelzel, the Company’s former President and Chief Executive Officer. See Note 11 for further information with regards to the separation agreement and release.

NOTE 7. COMPREHENSIVE INCOME (LOSS)

The following table summarizes components of total comprehensive income (loss) (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Net income (loss)	$	(15,780	)	$	(5,679	)	$	(24,582	)	$	93,138
Change in unrealized gains (losses) on available-for-sale securities	(9		)	97			84			86
Total comprehensive income (loss)	$	(15,789	)	$	(5,582	)	$	(24,498	)	$	93,224

NOTE 8. INVENTORIES

Inventories consist of finished goods, raw materials and work in process and are stated at the lower of cost or market and consist of the following (in thousands):

	June 30, 2012			December 31, 2011
Raw materials	$	1,786		$	1,244
Work-in-process	1,289			643
Finished goods	5,273			2,831
Deferred costs	377			677
Less: allowance for obsolescence	(696		)	—

Total	$	8,029		$	5,395

The fair value of inventories acquired included a step-up in the value of Zipsor inventories of $1.9 million which will be amortized to cost of sales as the acquired inventories are sold.

Deferred costs at June 30 2012 represent the costs of Gralise product shipped for which recognition of revenue has been deferred. Deferred costs at December 31, 2011 represent the costs of Gralise and Proquin XR products shipped for which recognition of revenue has been deferred.

NOTE 9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following (in thousands):

	June 30, 2012		December 31, 2011
Accounts payable	$	2,857	$	2,417
Accrued compensation	2,497		3,235
Accrued clinical trial expense	325		31
Accrued rebates and sales discounts	3,161		2,626
Allowance for product returns	11,909		9,843
Accrued contract sales organization fees	3,560		3,365
Other accrued liabilities	5,859		5,267
Total accounts payable and accrued liabilities	$	30,168	$	26,784

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NOTE 10. SHAREHOLDERS’ EQUITY

Option Exercises

For the three and six months ended June 30, 2012, employees and consultants exercised options to purchase 168,855 and 302,916 shares of the Company’s common stock with net proceeds to the Company of approximately $0.5 million and $1.0 million, respectively.

Employee Stock Purchase Plan

In May 2012, the Company sold 109,282 shares under the ESPP. The shares were purchased at a weighted average purchase price of $4.18 per share with proceeds of approximately $0.5 million.

NOTE 11. RELATED PARTY TRANSACTIONS

Carl A. Pelzel

In April 2011, the Company entered into a separation agreement and release with Carl A. Pelzel, the Company’s former President and Chief Executive Officer. Pursuant to the separation agreement, Mr. Pelzel was being paid $520,000, which is equivalent to one year of his base salary. Payments are being made over one year, and will be reduced dollar-for-dollar by any compensation Mr. Pelzel receives in connection with employment (or full-time consulting) by another employer (or third party). The Company is also paying Mr. Pelzel’s health and dental insurance COBRA premiums for up to 18 months following his separation from the Company. The separation agreement further provides for three months’ accelerated vesting of Mr. Pelzel’s options to purchase the Company’s common stock, and a release of claims in favor of the Company. The Company incurred a one-time severance charge of approximately $1.0 million in the second quarter of 2011 with respect to this separation agreement, consisting of approximately $0.4 million in stock-based compensation related to the accelerated vesting of Mr. Pelzel’s awards and approximately $0.6 million of severance expense related to future payments and health care benefits.

NOTE 12. INCOME TAXES

As of December 31, 2011 and June 30, 2012, the Company had $3.6 million and $3.6 million of unrecognized tax benefits, respectively. All tax years since inception remain open to examination by the Internal Revenue Service and the California Franchise Tax Board until such time the Company’s net operating losses and credits are either utilized or expire. Interest and penalties, if any, related to unrecognized tax benefits, would be recognized as income tax expense by the Company. The Company does not have any accrued interest or penalties associated with unrecognized tax benefits. The Company does not foresee any material changes to unrecognized tax benefits within the next twelve months except as related to any new items impacting the current year operations.

NOTE 13. LEASES

In April 2012, the Company entered into an office and laboratory lease agreement to lease approximately 52,500 rentable square feet in Newark, California commencing on December 1, 2012. The Company is obligated to lease approximately 8,000 additional rentable square feet commencing no later than December 1, 2015. The Lease will expire on November 30, 2022. However, the Company has the right to renew the lease for one additional five year term, provided that written notice is made to the landlord no later than 12 months prior to the lease expiration. The Company will have the one-time right to terminate the lease in its entirety effective as of November 30, 2017 by delivering written notice to the landlord on or before December 1, 2016. In the event of such termination, the Company will pay the landlord the unamortized portion of the tenant improvement allowance, specified additional allowances made by the landlord, waived base rent and leasing commissions, in each case amortized at 8% interest.

The Company was allowed to control physical access to the premises upon signing the lease therefore, in accordance with the applicable accounting guidance, the lease term was deemed to have commenced in April 2012. Accordingly, the rent free periods and the escalating rent payments contained within the lease are being recognized on a straight-line basis from April 2012. The Company will pay approximately $12.2 million in aggregate as rent over the term of the lease for the above premises. Rent expense and deferred rent for the new lease was approximately $0.3 million for the three and six months ended June 30, 2012.

NOTE 14. BUSINESS COMBINATIONS

On June 21 , 2012, the Company entered into an Asset Purchase Agreement with Xanodyne, pursuant to which Depomed acquired Xanodyne’s product Zipsor and related inventory for $26.4 million in cash, and assumed certain product related liabilities relating to Zipsor. In addition, the Company will make a one-time contingent payment to Xanodyne of $2.0 million in cash at the end of the first calendar year in which Depomed’s net sales of Zipsor® products exceed $30.0 million and an additional, one-time contingent payment to Xanodyne of $3.0 million in cash at the end of the first year in which Depomed’s net sales of Zipsor® products exceed $60.0 million.

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In accordance with the authoritative guidance for business combinations, the Asset Purchase Agreement with Xanodyne was determined to be a business combination and was accounted for using the acquisition method of accounting. Neither separate financial statements nor pro forma results of operations have been presented because the acquisition transaction does not meet the qualitative or quantitative materiality tests under Regulation S-X.

Pursuant to the Asset Purchase Agreement, $3.0 million of the initial payment will be held in escrow for eighteen months and applied towards the indemnification obligations of Xanodyne as set forth in the Asset Purchase Agreement.

The following table presents a summary of the purchase price consideration for the Zipsor acquisition (in thousands):

Cash for Zipsor and related inventories	$	26,436
Fair Value of contingent consideration	1,303
Purchase Price	$	27,739

The contingent consideration was recognized and measured at fair value as of the acquisition date and is included within other long-term liabilities in the accompanying balance sheet. The Company determined the acquisition date fair value of the contingent consideration obligation based on an income approach derived from Zipsor revenue estimates and a probability assessment with respect to the likelihood of achieving the level of net sales that would trigger the contingent payment. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement accounting. The key assumptions in determining the fair value are the discount rate and the probability assigned to the potential milestones being achieved. At each reporting date, the Company will re-measure the contingent consideration obligation to estimated fair value. Any changes in the fair value of contingent consideration will be recognized in operating expenses until the contingent consideration arrangement is settled.

The following table summarizes the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date (in thousands):

Intangible asset - Zipsor product rights	$	27,100
Inventories	2,428
Other assets	100
Property, plant and equipment	43
Current liabilities	(1,840		)
Bargain purchase	(92		)
	$	27,739

The Zipsor product rights of $27.1 million have been recorded as intangible assets on the accompanying condensed balance sheet and are being amortized over the estimated useful life of the asset on a straight-line basis through July 2019. Total amortization expense for the three and six months ended June 30, 2012 was approximately $0.1 million.

The fair value of inventories acquired included a step-up in the value of Zipsor inventories of $1.9 million which will be amortized to cost of sales as the acquired inventories are sold. The bargain purchase amount has been recorded within Interest and other income in the accompanying condensed statement of operations and comprehensive income.

NOTE 15. SUBSEQUENT EVENTS

On July 31, 2012, the Company submitted a New Drug Application (NDA) for Serada for the treatment of menopausal hot flashes to the FDA.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

FORWARD-LOOKING INFORMATION

Statements made in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements include, but are not necessarily limited to, those relating to:

· the commercial success and market acceptance of Gralise ® (gabapentin), our once-daily product for the management of postherpetic neuralgia, and Zipsor® (diclofenac potassium) liquid filled capsules, our NSAID for the treatment of mild to moderate pain in adults;

· the commercial success of Glumetza ® (metformin hydrochloride extended-release tablets) in the United States, and the efforts of our Glumetza commercial partner, Santarus, Inc. (Santarus);

· the results of our ongoing litigation against filers of abbreviated New Drug Applications (each, an ANDA) to market generic Gralise in the United States;

· the outcome of our ongoing litigation against filers of ANDAs to market generic Glumetza in the United States;

· any additional patent infringement or other litigation that may be instituted related to Gralise, Zipsor, Glumetza or any other of our products or product candidates;

· our and our collaborative partners’ compliance or non-compliance with legal and regulatory requirements related to the promotion of pharmaceutical products in the United States;

· our plans to in-license, acquire or co-promote other products;

· the commercial success and market acceptance of Serada if we receive approval to market Serada in the United States;

· the results and timing of our clinical trials;

· the results of our research and development efforts;

· submission, acceptance and approval of regulatory filings;

· our need for, and ability to raise, additional capital; and

· our collaborative partners’ compliance or non-compliance with obligations under our collaboration agreements; and

Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described in the “ RISK FACTORS ” section and elsewhere in this Quarterly Report on Form 10-Q. We disclaim any intent or obligation to update or revise these forward-looking statements to reflect new events or circumstances.

ABOUT DEPOMED

Depomed is a specialty pharmaceutical company initially focused on pain and other conditions and diseases of the central nervous system. The centerpieces of our specialty pharmaceutical business are Gralise (gabapentin), a once-daily product for the management of postherpetic neuralgia that we launched and made commercially available in October 2011, and Zipsor (diclofenac potassium) liquid filled capsules, a product for the treatment of mild to moderate acute pain that we acquired from Xanodyne in June 2012. We also have a portfolio of royalty and milestone producing assets based on our proprietary drug delivery technologies. The cornerstone of that portion of our business is Glumetza, a once-daily treatment for adults with type 2 diabetes that we licensed to, and is currently being commercialized by Santarus in the United States. We have a number of other license and development arrangements associated with our Acuform gastroretentive drug delivery technology. In addition, we have two product candidates in clinical development. We submitted a New Drug Application (NDA) in July 2012 for Serada for the treatment of menopausal hot flashes. DM-1992 is currently in Phase 2 trials for Parkinson’s disease.

We are seeking to develop and commercialize a number of pharmaceutical products for pain and other conditions and diseases of the central nervous system that can be promoted together effectively. We are actively seeking to expand our product portfolio through in-licensing, acquiring or obtaining co-promotion rights to commercially available products or late-stage product candidates that could be marketed and sold through our existing sales and marketing capability.

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We also seek to realize value from our drug delivery technology and related intellectual property through licensing and collaborative development partnerships with other companies. Our license agreement with Santarus which we restructured in August 2011, our license and development arrangements with Covidien, Janssen Pharmaceutica N.V. (Janssen), Boehringer Ingelheim International GMBH (Boehringer Ingelheim), and Ironwood Pharmaceuticals, Inc. (Ironwood) and our license agreement with Merck & Co., Inc. (Merck) are examples of this element of our strategy.

The following table summarizes our marketed products and product pipeline.

Commercialized Products

Product	Indication	Status

Gralise ®	Postherpetic neuralgia	Currently sold in the United States. Approved by the FDA in January 2011. Launched in October 2011.

Zipsor ®	Mild to moderate acute pain	Currently sold in the United States. Approved by the FDA in June 2009. Acquired from Xanodyne in June 2012.

Glumetza ®	Type 2 diabetes	Currently sold in the United States and Canada. United States rights held by Santarus. Canadian rights held by Valeant.

Product Pipeline

Product	Indication	Status

Serada ®	Menopausal hot flashes	NDA filed in July 2012. Three Phase 3 studies completed (Breeze 1, Breeze 2, and Breeze 3).

DM-1992	Parkinson’s disease	Phase 2 study commenced in January 2012.

Significant Developments and Highlights for the Quarter Ended June 30, 2012

· In April 2012, we announced our intention to file an NDA for Serada for the treatment of menopausal hot flashes and. The NDA was submitted to the FDA in July 2012.

· In May 2012, we received a $1.0 million payment as a result of our achievement of the first milestone under our agreement with Ironwood related to delivery of experimental batches of prototype formulations that meet agreed upon specifications.

· In June 2012, we acquired all rights to Zipsor from Xanodyne in exchange for $25.9 million in cash and the assumption of certain liabilities. In addition we paid $0.5 million to acquire Zipsor inventory. We began selling Zipsor in June 2012.

PRODUCT DEVELOPMENTS AND TRANSACTIONS

Gralise ® (gabapentin) tablets for the Management of Postherpetic Neuralgia

In October 2011, we launched and announced the commercial availability of Gralise. Gralise product sales for the three and six months ended June 30, 2012 were $3.2 million and $5.0 million, respectively.

Ventiv Commercial Services, LLC. In June 2011, we entered into a service agreement with Ventiv Commercial Services, LLC (Ventiv), pursuant to which Ventiv’s outsourced sales business, inVentiv Selling Solutions, provides us with sales force recruiting, training, deployment and ongoing operational support to promote Gralise. The agreement provides for a sales force of 164 full-time sales representatives dedicated to the Company, all of whom are employees of Ventiv. The sales representatives were hired in September 2011, began promoting Gralise to physicians in October 2011 and began promoting Zipsor to physicians in June 2012. Members of sales management are our employees.

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Under the terms of the agreement, we incurred an upfront implementation fee, and we pay fixed monthly management fees. The monthly management fee is subject to adjustment for actual staffing levels. A portion of the monthly management fee is payable only on Ventiv’s achievement of specified performance objectives. We also pay certain pass-through costs of Ventiv. In June 2012, we exercised an early termination clause under the agreement to end the agreement in September 2012 in conjunction with converting the sales representatives to Depomed employees.

In May 2012, we entered into an additional service agreement with Ventiv, which provides for 78 part-time sales representatives dedicated to the Company, all of whom are employees of Ventiv. Under the terms of the agreement, we incurred an upfront implementation fee, and we pay fixed monthly management fees. The monthly management fee is subject to adjustment for actual staffing levels. The initial term of the agreement is for one year, with the option to extend the agreement for a longer period.

Zipsor (diclofenac potassium) liquid-filled capsules for Mild to Moderate Acute Pain

On June 21, 2012, we entered into an Asset Purchase Agreement with Xanodyne, pursuant to which we acquired Xanodyne’s product Zipsor and related inventory for $26.4 million in cash, and assumed certain liabilities relating to Zipsor. In addition, the agreement requires a one-time contingent payment to Xanodyne of $2.0 million in cash at the end of the first calendar year in which our net sales of Zipsor products exceed $30.0 million and an additional, one-time contingent payment to Xanodyne of $3.0 million in cash at the end of the first year in which our net sales of Zipsor products exceed $60.0 million. We also purchased Xanodyne’s existing inventory and samples of Zipsor for approximately $0.5 million. We assumed responsibility for returns on product previously sold by Xanodyne with a fair value of $1.8 million as of the date of purchase. We began commercial sales of Zipsor in June 2012.

Glumetza for Type 2 Diabetes

Santarus . In August 2011, we entered into a commercialization agreement with Santarus granting Santarus exclusive rights to manufacture and commercialize Glumetza in the United States. The commercialization agreement supersedes the previous promotion agreement between the parties originally entered into in July 2008. Under the commercialization agreement, we granted Santarus exclusive rights to manufacture and commercialize Glumetza in the United States in return for a royalty on Glumetza net sales.

Pursuant to the commercialization agreement, we transitioned to Santarus responsibility for manufacturing, distribution, pharmacovigilance and regulatory affairs. We ceased shipments of Glumetza in August 2011, and Santarus began selling Glumetza in September 2011. Santarus is responsible for advertising and promotional marketing activities for Glumetza. In November 2011, we and Santarus entered into an assignment and assumption agreement pursuant to which Santarus assumed all of our rights and obligations under our commercial manufacturing agreement with Patheon, which provides that Patheon will serve as Santarus’ sole commercial supplier of the 500mg Glumetza in the United States. Santarus pays us royalties on net product sales of Glumetza in the United States of 29.5% in 2012; 32.0% in 2013 and 2014; and 34.5% in 2015 and beyond prior to generic entry of a Glumetza product.

In connection with its assumption of distribution and sales responsibility of Glumetza, Santarus purchased our existing inventory of Glumetza and bulk metformin hydrochloride at cost. We will be financially responsible for returns of Glumetza distributed by us, up to the amount of our product returns reserve account for Glumetza product returns on the date immediately before Santarus began distributing Glumetza. We will also be financially responsible for Glumetza rebates and chargebacks up to the amount of our reserve account for those items. Santarus will be responsible for all other Glumetza returns, rebates and chargebacks.

Under the commercialization agreement, we will continue to manage the ongoing patent infringement lawsuit against Sun Pharmaceutical Industries, Inc. (Sun), subject to certain consent rights in favor of Santarus, including with regard to any proposed settlements. Santarus will reimburse us for 70% of our out-of-pocket costs, and we will reimburse Santarus for 30% of its out-of-pocket costs related to these two infringement cases. We were also responsible for managing the patent infringement lawsuit with Lupin Limited (Lupin), which was settled in February 2012.

During 2011, we sold Glumetza for the first eight months of the year, recognized Glumetza product sales and paid Santarus a promotion fee equal to 75% of Glumetza gross margin. In August 2011, the distribution and sales responsibility transitioned to Santarus and Santarus started paying us a royalty on net sales of Glumetza. For the three and six months ended June 30, 2011, the Company recognized $11.1 million and $21.3 million, respectively, in promotion fee expense to Santarus related to sales of Glumetza by Depomed.

We recognized $9.4 million and $18.6 million in royalty revenue for the three and six months ended June 30, 2012, respectively, under the commercialization agreement.

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Litigation .

We are involved in patent litigation associated with Glumetza against Sun and Watson, as described below under “Legal Proceedings”. In February 2012, we and Santarus entered into a settlement and license agreement with Lupin to resolve patent litigation involving Glumetza. The agreement grants Lupin the right to begin selling a generic version of Glumetza on February 1, 2016, or earlier under certain circumstances.

Serada ® for Menopausal Hot Flashes

Serada is our proprietary extended release formulation of gabapentin in development for the treatment of menopausal hot flashes. We have completed three Phase 3 clinical trials evaluating Serada for menopausal hot flashes.

Study Design. Breeze 3 was a randomized, double-blind, placebo-controlled study of 600 patients. Patients were randomized into one of two treatment arms, with patients receiving either placebo or a total dose of 1800mg of Serada dosed 600mg in the morning and 1200mg in the evening. The co-primary efficacy endpoints in the study were reductions in the mean frequency of moderate-to-severe hot flashes, and the average severity of hot flashes, measured after four and 12 weeks of stable treatment. As in the prior Breeze 1 trial, the treatment duration of the study was 24 weeks, to address the FDA’s view that an effective drug should also show statistically significant persistence of efficacy at 24 weeks. The trial also included a responder analysis to assess the clinical meaningfulness of any reduction in the frequency of hot flashes in the active arm relative to the placebo arm.

In August 2010, we reached agreement with the FDA regarding a Special Protocol Assessment (SPA) on the design and analysis of Breeze 3. An SPA is an agreement with the FDA that a proposed trial protocol design, clinical endpoints and statistical analyses are acceptable to support a product candidate’s regulatory approval. We began enrollment in Breeze 3 in August 2010 and completed enrollment in March 2011.

Study Results. Under the statistical analyses set forth in the SPA, certain primary endpoints did not meet statistical significance. The primary severity endpoints were achieved with statistical significance at four weeks (p < 0.001) and 12 weeks (p < 0.01). The frequency endpoint at four weeks was achieved with statistical significance (p < 0.001). The frequency endpoint at 12 weeks, as well as the key secondary frequency and severity endpoints at 24 weeks, were not met.

Serada was generally well tolerated in Breeze 3. The most common adverse events were dizziness and somnolence. The incidence of dizziness in the active arm was 12.7% compared to 3.4% for the placebo arm. Somnolence was 6.0% in the active arm compared to 2.7% in the placebo arm. Withdrawals due to adverse events in the active arm were 17%, compared to 12% in the placebo arm.

In April 2012, we completed a Type B Pre-NDA meeting with the FDA to discuss the results of our three completed Phase 3 clinical trials for Serada. Based on the results of that meeting, we submitted a New Drug Application with the FDA in July 2012. However, we cannot be certain that the FDA will determine the product candidate is sufficiently safe and effective to allow a New Drug Application to be accepted for review and/or approved.

Merck & Co., Inc.

We have received $12.5 million in upfront and milestone payments and will receive very low single digit royalties on Merck’s net sales of Janumet XR in the United States and other licensed territories through the expiration of the licensed patents under a July 2009 license agreement with Merck & Co., Inc. (Merck). The non-exclusive license agreement grants Merck a license as well as other rights to certain of our patents directed to metformin extended release technology for Janumet XR, Merck’s fixed-dose combination product for type 2 diabetes containing sitagliptin and extended release metformin that was approved by the FDA in January 2012. Merck began selling Janumet XR during the first quarter of 2012.

Boehringer Ingelheim

In March 2011, we entered into a license and service agreement with Boehringer Ingelheim granting Boehringer Ingelheim a license to certain patents related our Acuform drug delivery technology to be used in developing fixed dose combinations of extended release metformin and proprietary Boehringer Ingelheim compounds in development for type 2 diabetes.

In connection with the license and service agreement, we received the upfront license payment of $10.0 million less applicable withholding taxes of approximately $1.5 million, for a net receipt of approximately $8.5 million in April 2011. We received the remaining $1.5 million of taxes previously withheld directly from German tax authorities in June 2011.

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In March 2012, we received an additional $2.5 million upon delivery of experimental batches of prototype formulations that met agreed-upon specifications, and we may receive additional milestone payments based on regulatory filings and approval events, as well as royalties on worldwide net sales of products.

We were responsible for providing certain initial formulation work associated with the fixed dose combination products. Services performed by us under the agreement were reimbursed by Boehringer Ingelheim on an agreed-upon rate, and out-of-pocket expenses were reimbursed. All formulation work required by Depomed has been completed.

Ironwood Pharmaceuticals, Inc.

In July 2011, we entered into a collaboration and license agreement with Ironwood Pharmaceuticals, Inc. (Ironwood) granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to our Acuform drug delivery technology for an undisclosed Ironwood early stage development program. In connection with the research collaboration and license agreement, we received an upfront payment of $0.9 million.

In March 2012, we achieved the first milestone under the agreement upon delivery of experimental batches of prototype formulations that met agreed-upon specifications. This triggered a nonrefundable $1.0 million milestone payment which we received in May 2012. We may also receive milestone payments based on achievement of certain development and regulatory milestones, as well as royalties on product sales.

Under the agreement, we are responsible for assisting with initial product formulation and Ironwood is responsible for all development and commercialization of the product. The initial formulation work we perform is reimbursed by Ironwood on an agreed-upon FTE rate per hour plus out-of-pocket expenses.

DM-1992 for Parkinson’s Disease

In January 2012, we initiated a Phase 2 study to evaluate DM-1992 for the treatment of motor symptoms associated with Parkinson’s disease. The trial enrolled 34 patients at 8 U.S. centers and enrollment was completed in July 2012. The trial is a randomized, active-controlled, open-label, crossover study testing DM-1992 dosed twice daily against a generic version of immediate-release carbidopa-levodopa dosed as needed. The study will assess efficacy, safety and pharmacokinetic variables. The primary endpoint for the study is change in off time as measured by patient self-assessment and clinician assessment.

In September 2010, we initiated a second pharmacokinetic-pharmacodynamic Phase 1 study for the DM-1992 program. We completed the study in February 2011. The trial was a randomized, open-label crossover study that enrolled 16 patients with stable Parkinson’s disease at two leading neurology centers in Russia. The objective of the study was to compare the pharmacokinetics-pharmacodynamics of two distinct twice-daily formulations of DM-1992 and a generic version of Sinemet CR sustained release carbidopa-levodopa dosed three-times daily, as well as the safety and tolerability of the formulations. Patients in the trial received a full day’s dose of each of the three treatments being studied, two doses of each DM-1992 formulation (460mg levodopa and 150mg carbidopa per dose) twelve hours apart, and three doses of generic levodopa-carbidopa over a 12 hour period (200mg of levodopa and 50mg of carbidopa per dose). During the 2 hour period following administration of each treatment, blood samples were drawn and a standard finger tapping test was given to assess efficacy. In the study, both formulations of DM-1992 maintained therapeutic blood levels above the efficacious threshold of 300 ng/mL for 24 hours. DM-1992 was well tolerated in the study.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that require significant judgment and/or estimates by management at the time that the financial statements are prepared such that materially different results might have been reported if other assumptions had been made. We consider certain accounting policies related to revenue recognition, accrued liabilities and stock-based compensation to be critical policies. There have been no changes to our critical accounting policies since we filed our 2011 Annual Report on Form 10-K with the Securities and Exchange Commission on March 8, 2012. For a description of our critical accounting policies, please refer to our 2011 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Our results of operations in 2012 will differ significantly from our reported results for 2011. For example, in 2011 we recognized $48 million in milestone revenue and a $40 million gain on settlement with regard to termination of our agreement with Abbott relating to Gralise. These were one-time payments and will not recur in 2012. In 2011, we reflect eight months of Glumetza product revenue, cost of sales and corresponding promotion expense to Santarus and four months of Glumetza royalty revenue from Santarus. As a result of the restructuring of our agreement with Santarus in August 2011, we will recognize royalty revenue from Santarus in

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2012, but no product revenue or promotion expense for Glumetza. In 2011, we recognized $0.5 million of revenue from sales of Gralise and a partial year of corresponding sales and marketing expense. We expect to recognize a full year of Gralise sales in 2012 and to incur a full year of sales and marketing expense in 2012. Accordingly, we expect Gralise product sales and selling, general and administrative expense to be substantially higher in 2012 than in 2011. In addition, we acquired Zipsor in June 2012 and a small amount of Zipsor revenue and expense is reflected in our results of operations for the quarter ended June 30, 2012.

Three and Six Months Ended June 30, 2012 and 2011

Revenue

Total revenues are summarized in the following table (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012		2011
Product sales:
Gralise	$	3,201		$	—	$	4,950	$	—
Glumetza	—			16,153		—		31,452
Proquin XR	—			—		360		12
Total product sales	3,201			16,153		5,310		31,464

Royalties:
Santarus	9,424			—		18,646		—
Others	153			67		352		232
Total royalty revenue	9,577			67		18,998		232

License and Other revenue:
Gralise	—			—		—		60,592
Glumetza	1,387			626		2,775		4,261
Boehringer Ingelheim	—			4,372		2,617		5,466
Janssen	—			—		—		2,250
Other	(55		)	—		1,245		54
Total license and other revenue:	1,332			4,998		6,637		72,623

Total revenues	$	14,110		$	21,218	$	30,945	$	104,319

Product sales

Gralise. In October 2011, we announced the commercial availability of Gralise and began distributing Gralise to wholesalers and retail pharmacies. We defer recognition of revenue on product shipments of Gralise until the right of return no longer exists, which occurs at the earlier of (a) the time Gralise units are dispensed through patient prescriptions or (b) expiration of the right of return. At June 30, 2012, we have a deferred revenue balance, which is classified as a liability on the balance sheet, of $4.5 million associated with the deferral of revenue on Gralise product shipments, which is net of estimated wholesaler fees, retail pharmacy discounts, stocking allowances and prompt payment discounts. We will recognize revenue upon the earlier of prescription units dispensed or expiration of the right of return until we can reliably estimate product returns, at which time we will record a one-time increase in net revenue related to the recognition of revenue previously deferred. We expect Gralise product sales and prescriptions to increase in the second half of 2012.

Glumetza . In August 2011, we restructured our agreement with Santarus and entered into a commercialization agreement that superseded the July 2008 promotion agreement. Under the commercialization agreement, we granted Santarus exclusive rights to manufacture and commercialize Glumetza in the United States in return for a royalty on Glumetza net sales. We ceased shipments of Glumetza in August 2011, and Santarus began selling Glumetza in September 2011.

Proquin XR . We ceased shipments of Proquin XR in the fourth quarter of 2010 and because of estimated significant levels of inventory at wholesalers and pharmacies in comparison to prescription demand, we deferred revenue recognition on product shipments of Proquin XR until the right of return no longer existed, which occurred at the earlier of the time Proquin XR units were dispensed through patient prescriptions or expiration of the right of return. At March 31, 2012, all rights of return expired and the remaining deferred revenue balance for Proquin XR was recognized as revenue during the first quarter of 2012.

Zipsor. On June 21, 2012, we acquired Zipsor from Xanodyne. Product sales for the period between the acquisition date and June 30, 2012 were immaterial. We expect Zipsor revenues to increase substantially during the remainder of 2012.

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Royalties

Santarus . Santarus royalties relate to royalties we received from Santarus based on net sales of Glumetza in the U.S. Royalty revenue from Santarus for the three and six months ended June 30, 2012 was $9.4 million and $18.6 million and represents a 29.5% royalty on Santarus’ net sales of Glumetza. There were no royalty revenue amounts from Santarus for the same period in the prior year. We currently expect royalty revenue to increase in future periods in 2012 based on our expectation of increasing net sales of Glumetza by Santarus.

Other Royalties . In January 2012, Merck received FDA approval to market Janumet XR in the United States, and Merck began selling Janumet XR during the first quarter of 2012. We currently receive very low single digit royalties on net product sales of Janumet XR. As such, we began recognizing royalty revenue in the first quarter of 2012. Other royalties also include royalties we received from Valeant on net sales of Glumetza in Canada and from LG Life Sciences on net sales of LG’s version of Glumetza, Novamet GR, in Korea.

License and other revenue

Gralise . In January 2011, Abbott Products received FDA approval of Gralise for the management of postherpetic neuralgia, which triggered a $48.0 million development milestone from Abbott to us, which we received in February 2011. Because the milestone was substantive in nature, achieved and based on past performance, the entire $48.0 million was recognized as license revenue in the first quarter of 2011.

Pursuant to the exclusive license agreement originally entered into in November 2008, Solvay paid us a $25.0 million upfront fee in February 2009. The upfront payment received was originally scheduled to be recognized as revenue ratably until January 2013, which represented the estimated length of time our development and supply obligations existed under the agreement. In connection with the termination of the license agreement with Abbott Products, we no longer have continuing obligations to Abbott Products. Accordingly, all remaining deferred revenue related to the $25.0 million upfront license fee previously received from Abbott Products was fully recognized as revenue in March 2011, resulting in immediate recognition of approximately $11.3 million of license revenue.

Glumetza . Glumetza license revenue for the three and six months ended June 30, 2012 and 2011 also consisted of license revenue recognized from the $25.0 million upfront license fee received from Biovail in July 2005 and the $12.0 million upfront fee received from Santarus in July 2008.

We are recognizing the $25.0 million upfront license fee payment from Biovail as revenue ratably until October 2021, which represents the estimated length of time our obligations exist under the arrangement related to royalties we are obligated to pay Biovail on net sales of Glumetza in the United States and for our obligation to use Biovail as our sole supplier of the 1000mg Glumetza.

Pursuant to the promotion agreement originally entered into in July 2008, Santarus paid us a $12.0 million upfront fee. The upfront payment received was originally being amortized as revenue ratably until October 2021, which represented the estimated length of time our obligations existed under the promotion agreement related to manufacturing Glumetza and paying Santarus promotion fees on gross margin of Glumetza. The commercialization agreement in August 2011 superseded the promotion agreement and removed our manufacturing and promotion fee obligations. The commercialization agreement includes obligations with respect to manufacturing and regulatory transition to Santarus and managing the patent infringement lawsuits against Sun and Lupin. These obligations are estimated to be completed in December 2013. Accordingly, on the effective date of the commercialization agreement, the amortization period related to remaining deferred revenue on the $12.0 million upfront fee has been adjusted, and the remaining deferred revenue will be recognized ratably until December 2013. We recognized approximately $1.0 million and $2.0 million of revenue associated with this upfront license fee during the three and six months ended June 30, 2012, respectively. We recognized approximately $0.2 million and $0.5 million of revenue associated with this upfront license fee during the three and six months ended June 30, 2011, respectively. The remaining deferred revenue balance is $5.8 million at June 30, 2012.

In January 2011, we achieved the first sales milestone under the promotion agreement with Santarus related to net sales of Glumetza reaching $50.0 million for the 13 month period ending January 31, 2011, which triggered a milestone payment of $3.0 million, which we received in March 2011. As the milestone was achieved and related to past performance the entire $3.0 million was recognized as milestone revenue in the first quarter of 2011.

Boehringer Ingelheim . Under our license and services agreement with Boehringer Ingelheim entered into in March 2011, Boehringer Ingelheim paid us a $10.0 million upfront license fee which we received in April 2011, less applicable withholding taxes of approximately $1.5 million, for a net receipt of approximately $8.5 million. We received the remaining $1.5 million of taxes previously withheld directly from German tax authorities in June 2011.

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The $10.0 million was amortized ratably through November 2011, which was the estimated length of time we were obligated to perform formulation work under the agreements. As such the entire amount was recognized as license revenue in 2011. We recognized approximately $3.9 million and $4.9 million of revenue associated with this upfront license fee for the three and six months ended June 30, 2011.

Under the terms of the agreement, we received an additional nonrefundable $2.5 million payment in March 2012 upon delivery of experimental batches of prototype formulations that meet required specifications. As the milestone event was substantive in nature, achievement was not reasonably assured at the inception of the agreement and the milestone was related to past performance, we recognized the entire amount of this payment as revenue during the first quarter of 2012.

We also provided certain initial formulation work associated with the fixed dose combination products. Work performed by us under the service agreement was reimbursed by Boehringer Ingelheim on an agreed-upon FTE rate per hour plus out-of-pocket expenses. We recognized approximately $0.1 million of revenue associated with the reimbursement of formulation work under the service agreement during the three and six months ended June 30, 2012. We recognized approximately $0.5 million and $0.6 million of revenue associated with the reimbursement of formulation work under the service agreement during the three and six months ended June 30, 2011, respectively.

Janssen . In August 2010, we entered into a non-exclusive license agreement with Janssen granting Janssen a license to certain patents related to our Acuform drug delivery technology to be used in developing fixed dose combinations of canagliflozin and extended release metformin. Janssen paid us a $5.0 million upfront license fee associated with the license agreement. The $5.0 million was amortized ratably through March 2011, which is the estimated length of time we were obligated to perform formulation work under the agreements. We recognized approximately $1.9 million of revenue associated with this upfront license fee during the first quarter of 2011.

We also entered into a service agreement with Janssen under which we provide formulation work for Janssen and are reimbursed by Janssen on an agreed-upon FTE rate per hour plus out-of-pocket expenses. We recognized approximately $0.3 million of revenue associated with the reimbursement of formulation work under the service agreement during the first quarter of 2011.

All formulation work under the agreement was completed at March 31, 2011 and there is no remaining deferred revenue.

Ironwood Pharmaceuticals, Inc. In July 2011, we entered into a collaboration and license agreement with Ironwood granting Ironwood a license for worldwide rights to the Company’s Acuform drug delivery technology for an undisclosed Ironwood early stage development program . In connection with the research collaboration and license agreement, the Company received an upfront payment of $0.9 million which was amortized ratably through June 2012, which is the estimated length of time Depomed is obligated to perform formulation work under the agreement. We recognized approximately $0.2 million and $0.5 million of revenue associated with this upfront license fee for the three and six months ended June 30, 2012. There is no remaining deferred revenue related to this upfront payment at June 30, 2012.

In March 2012, we achieved a milestone under the agreement with respect to delivery of experimental batches of prototype formulations that meet required specifications. The associated $1.0 million milestone payment is nonrefundable and was received in May 2012. As the nonrefundable milestone was substantive in nature, achievement of the milestone was not reasonably assured at the inception of the agreement, the milestone was related to past performance, and the collectability of the milestone is reasonably assured, we recognized the $1.0 million as revenue during the first quarter of 2012.

Under the terms of the agreement, the Company will assist with initial product formulation and Ironwood will be responsible for all development and commercialization of the product. The initial formulation work performed by the Company under the agreement will be reimbursed by Ironwood on an agreed-upon FTE rate per hour plus out-of-pocket expenses. We recognized approximately $0.1 million of revenue associated with the reimbursement of formulation work under the agreement during the three and six months ended June 30, 2012.

Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, inventory write-downs, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to our product sales of Gralise, Glumetza, Zipsor and Proquin XR. Total cost of sales for the three and six months ended June 30, 2012, as compared to the prior year, was as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Cost of sales	$	1,442	$	2,140	$	1,960	$	3,775

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Cost of sales for the three and six months ended June 30, 2012 primarily relates to Gralise and includes a $0.7 million charge related to slow-moving Gralise starter pack inventory that is not expected to be sold prior to expiry. Cost of sales for the three and six months ended June 30, 2011 primarily relates to Glumetza. We expect cost of sales to increase in 2012 as we expect product sales of Gralise to increase from current levels. We also commenced product sales of Zipsor in June 2012. The fair value of inventories acquired included a step-up in the value of Zipsor inventories of $1.9 million which will be amortized to cost of sales as the acquired inventories are sold.

The costs of manufacturing associated with deferred revenue on Gralise product shipments are recorded as deferred costs, which are included in inventory, until such time as the deferred revenue is recognized.

Research and Development Expense

Our research and development expenses currently include salaries, clinical trial costs, consultant fees, supplies, manufacturing costs for research and development programs and allocations of corporate costs. The scope and magnitude of future research and development expenses cannot be predicted at this time for our product candidates in research and development, as it is not possible to determine the nature, timing and extent of clinical trials and studies, the FDA’s requirements for a particular drug and the requirements and level of participation, if any, by potential partners. As potential products proceed through the development process, each step is typically more extensive, and therefore more expensive, than the previous step. Success in development therefore, generally results in increasing expenditures until actual product approval. Total research and development expense for the three and six months ended June 30, 2012 as compared to the prior year, was as follows (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Research and development expense	$	3,525		$	4,043	$	7,007		$	9,197
Dollar change from prior year	(518		)			(2,190		)
Percentage change from prior year	(12.8		)%			(23.8		)%

We categorize our research and development expense by project. The table below shows research and development costs for our major clinical development programs, as well as other expenses associated with all other projects in our product pipeline.

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2012		2011		2012		2011
Serada	$	1,617	$	2,486	$	2,717	$	5,739
DM-1992	1,160		290		2,122		488
Other projects	748		1,267		2,168		2,970
Total research and development expense	$	3,525	$	4,043	$	7,007	$	9,197

The decrease in research and development expense for the three and six months ended June 30, 2012 as compared to the three and six months ended June 30, 2011 was primarily due to reduced clinical research organization costs associated with our Breeze 3 Phase 3 clinical trial for Serada, which was completed in October 2011.

We submitted a New Drug Application for Serada in July 2012. We incurred a filing fee of $1.8 million and are obligated to pay PharmaNova, under our sublicense agreement for Serada, a remaining $0.7 million milestone on submission of a New Drug Application filing to the FDA. These amounts will be recorded as research and development expenses within the third quarter of 2012.

Selling, General and Administrative Expense

Selling, general and administrative expenses primarily consist of personnel, contract personnel, marketing and promotion expenses associated with our commercial products, personnel expenses to support our administrative and operating activities, facility costs and professional expenses, such as legal fees. Total selling, general and administrative expense, as compared to the prior year, were as follows (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Selling, general and administrative expense:
Promotion fee expense	$	—		$	11,055	$	—		$	21,317
Other selling, general and administrative expense	25,021			9,976		46,793			17,216
Total selling, general and administrative expense	$	25,021		$	21,031	$	46,793		$	38,533
Dollar change from prior year	3,990					8,260
Percentage change from prior year	19.0		%			21.4		%

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The increase in selling, general and administrative expense in 2012 was primarily due to increased sales and marketing costs related to the launch of Gralise including marketing activities and costs associated with our contract sales organization. In October 2011, we initiated commercial sales of Gralise and began promoting Gralise through our contract sales organization, Ventiv, providing for 164 full-time sales representatives dedicated to promoting Gralise. In June 2012, we expanded our contact sales force, adding 78 part-time sales representatives through Ventiv dedicated to promoting Gralise. In the third quarter of 2012, we anticipate converting the 164 full-time sales representative sales force from a contract sales force to full-time employees of Depomed. This conversion is not expected to materially change selling, general and administrative expense. However, we expect selling, general and administrative expense to increase from the current run-rate as a result of the addition of the 78 part-time sales representative sales force in June 2012 and marketing expenses related to Zipsor, which we acquired in June 2012.

As a result of the Santarus commercialization agreement entered into in August 2011, we no longer have promotion fee expense to Santarus.

Amortization of Intangible Assets

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2012		2011		2012		2011
Amortization of intangible assets	$	105	$	—	$	105	$	—

Gain on Settlement with Abbott Products

In March 2011, we entered into a settlement agreement with Abbott Products which provided for (i) the immediate termination of the parties’ license agreement; (ii) the transition of Gralise back to Depomed; and (iii) a $40.0 million payment from Abbott to us which was paid in March 2011. The $40.0 million payment was recognized as a gain within operating income in the first quarter of 2011.

Interest Income and Expense

	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2012		2011			2012		2011
Interest and other income	$	204	$	357		$	347	$	436
Interest expense	—		(39		)	—		(109		)
Net interest income (expense)	$	204	$	318		$	347	$	327

Interest and other income for the three months ended June 30, 2012 include $0.1 million in respect of the gain from a bargain purchase relating to the Zipsor acquisition.

Interest expense relates to interest on the credit facility we entered into in June 2008 with General Electric Capital Corporation and Oxford Finance Corporation. The credit facility was fully repaid in July 2011.

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LIQUIDITY AND CAPITAL RESOURCES

(in thousands)	June 30, 2012		December 31, 2011
Cash, cash equivalents and marketable securities	$	89,031	$	139,793

The decrease in cash, cash equivalents and marketable securities is attributable to the $26.4 million that we paid for the Zipsor acquisition and the utilization of cash to finance our operations.

Since inception through June 30, 2012, we have financed our product development efforts and operations primarily from private and public sales of equity securities, upfront license, milestone and termination fees from collaborative and license partners, and product sales.

As of June 30, 2012, we have accumulated net losses of $122.2 million. We may incur operating losses in future years. We anticipate that our existing capital resources will permit us to meet our capital and operational requirements for at least the next two years. We base this expectation on our current operating plan, which may change as a result of many factors.

Our cash needs may also vary materially from our current expectations because of numerous factors, including:

· sales of our marketed products;

· expenditures related to our commercialization of Gralise and Zipsor, including our contractual obligations to Ventiv and other arrangements we make for the commercialization of Gralise and Zipsor;

· milestone and royalty revenue we receive under our collaborative development and commercialization arrangements;

· acquisitions or licenses of complementary businesses, products or technologies.

· expenditures related to our commercialization and development efforts, including arrangements we make for the commercialization of Serada, if the product is approved for marketing;

· financial terms of definitive license agreements or other commercial agreements we may enter into;

· results of research and development efforts;

· changes in the focus and direction of our business strategy and/or research and development programs; and

· results of clinical testing requirements of the FDA and comparable foreign regulatory agencies.

We will need substantial funds to:

· conduct research and development programs;

· commercialize any products we market;

· conduct preclinical and clinical testing; and

· manufacture (or have manufactured) and market (or have marketed) our marketed products and product candidates.

Our existing capital resources may not be sufficient to fund our operations until such time as we may be able to generate sufficient revenues to sustain support our operations. We currently do not have any other committed sources of capital. To the extent that our capital resources are insufficient to meet our future capital requirements, we will have to raise additional funds through the sale of our equity securities or from development and licensing arrangements to continue our development programs. We may be unable to raise such additional capital on favorable terms, or at all. If we raise additional capital by selling our equity or convertible debt securities, the issuance of such securities could result in dilution of our shareholders’ equity positions. If adequate funds are not available we may have to:

· significantly curtail commercialization of our marketed products or other operations

· obtain funds through entering into collaboration agreements on unattractive terms; and/or

· delay, postpone or terminate clinical trials;

The inability to raise any additional capital required to fund our operations could have a material adverse effect on our company.

Cash Flows from Operating Activities

Cash used in operating activities during the six months ended June 30, 2012 was approximately $24.9 million, compared to cash provided by operating activities of approximately $82.1 million during the six months ended June 30, 2011. Cash used in operating

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activities during the six months ended June 30, 2012 was primarily due to our net loss adjusted for movements in working capital, stock-based compensation and depreciation expense. Cash provided by operating activities during the six months ended June 30, 2011 was primarily as a result of the $48.0 million milestone payment and $40 million termination fee received from Abbott Products during the first quarter of 2011.

Cash Flows from Investing Activities

Net cash provided by investing activities during the six months ended June 30, 2012 was approximately $12.9 million and consisted of a decrease in marketable securities to fund our operations offset by the acquisition of Zipsor for $26.4 million in cash in June 2012. Net cash used in investing activities during the six months ended June 30, 2011 was approximately $73.8 million and consisted primarily of a net increase in marketable securities resulting from a partial investment of the milestone payment and settlement fee received from Abbott Products during the first quarter of 2011.

Cash Flows from Financing Activities

Cash provided by financing activities during the six months ended June 30, 2012 was approximately $1.4 million and consisted of proceeds from employee and consultant option exercises. Cash provided by financing activities during the six months ended June 30, 2011 was approximately $5.5 million and consisted of proceeds from employee and consultant option exercises offset by repayments of principal on our credit facility.

Contractual Obligations

As of June 30, 2012, our aggregate contractual obligations are as shown in the following table (in thousands):

							More than
	1 Year		2-3 Years		4-5 Years		5 Years		Total

Operating leases	$	1,065	$	2,375	$	2,499	$	7,555	$	13,494
Contract sales organization	7,037		—		—		—		7,037
Purchase commitments	2,586		—		—		—		2,586
	$	10,688	$	2,375	$	2,499	$	7,555	$	23, 117

At June 30, 2012, we had non-cancelable purchase orders and minimum purchase obligations of approximately $1.7 million under our manufacturing agreement with Patheon for the manufacture of Gralise, approximately $0.3 under our manufacturing agreement with Accucaps Industries Limited (Accucaps) and approximately $0.6 million under our manufacturing agreement with Mikart, Inc for the manufacture of Zipsor. The amounts disclosed only represent minimum purchase requirements. Actual purchases are expected to exceed these amounts.

In June 2011, we entered in to a service agreement with Ventiv. Ventiv provides us with sales force recruiting, training, deployment and ongoing operational support to promote Gralise and Zipsor in the U.S. through 164 full-time sales representatives. Each month we were required to pay Ventiv a monthly fixed fee of $1.8 million during the term of the agreement. The agreement is expected to end in September 2012.

In May 2012, the Company entered into a service agreement with Ventiv which provides for a sales force of 78 part-time sales representatives dedicated to the Company, all of whom are employees of Ventiv. Under the terms of the agreement, we are required to pay Ventiv a monthly fixed fee of $0.5 million during the term of the agreement. The term of the agreement is for one year beginning in June 2012.

The contractual obligations reflected in this table exclude $2.7 million of contingent milestone payments we may be obligated to pay in the future under our sublicense agreement with PharmaNova related to the development of Serada. The payments relate to various milestones for the product candidate under the sublicense agreement, including submission to the FDA of an NDA, and FDA approval of an NDA. The above table also excludes any future royalty payments we may be required to pay on products we have licensed.

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The contractual obligations reflected in the above table also exclude $1.3 million of contingent milestone payments we may be obligated to pay in the future under our Zipsor agreement.

The table above also exclude non-cancelable purchase orders and minimum purchase obligations of approximately $2.1 million under our supply agreement with Valeant for the supply of 1000mg Glumetza, which will be fully reimbursed by Santarus.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our market risk compared to the disclosures in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2011.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective.

We review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to significantly modify our disclosure controls and procedures.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Depomed v. Sun Pharmaceuticals and Depomed v. Watson Laboratories (Glumetza ANDA Litigation)

In June 2011, we filed a lawsuit in the United States District Court for the District of New Jersey against Sun Pharmaceutical Industries Inc., Sun Pharma Global FZE and Sun Pharmaceuticals Industries Ltd. (Sun), for infringement of five (5) U.S. patents listed in the Orange Book for the Glumetza product. The lawsuit is in response to an Abbreviated New Drug Application (ANDA) filed by Sun with the FDA regarding Sun’s intent to market generic versions of 500mg and 1000mg dosage strengths of Glumetza prior to the expiration of the Orange Book patents, which includes U.S. Patent Nos.: 6,340,475, 6,488,962, 6,635,280, 6,723,340 and 7,780,987. U.S. Patent No.7,736,667 is also being asserted against Sun in the lawsuit. The lawsuit commenced within the 45 days required to automatically stay, or bar, the FDA from approving Sun’s ANDA for 30 months or until a district court decision that is adverse to the patents, whichever occurs earlier. A claim construction hearing, known as a “Markman hearing,” was conducted before Judge Pisano on July 18, 2012. Absent a court order, the 30-month stay is expected to expire in November 2013.

In April 2012, we filed a lawsuit in the United States District Court for the District of Delaware against Watson Laboratories, Inc. — Florida, Watson Pharmaceuticals, Inc. and Watson Pharma, Inc. (collectively, Watson), for infringement of six patents, including the two patents listed in the Orange Book for Glumetza 1000 mg (U.S. Patent Nos. 6,488,962 and 7,780,987). The lawsuit is in response to an ANDA filed by Watson with the FDA regarding Watson’s intent to market a generic version of the 1000 mg dosage strength of Glumetza prior to the expiration of the asserted patents. Valeant International (Barbados) SRL is joined in the lawsuit as a co-plaintiff as the owner of U.S. Patent No. 7,780,987. We commenced the lawsuit within the 45 days required to automatically stay, or bar, the FDA from approving Watson’s ANDA for 30 months or until a district court decision that is adverse to the patents, whichever may occur earlier. Absent a court order, the 30-month stay is expected to expire in September 2014.

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Depomed v. Gralise ANDA Filers

In March 2012, we filed a lawsuit in the United States District Court for the District of New Jersey against Actavis Elizabeth LLC and Actavis Inc. (collectively Actavis), Watson Laboratories, Inc. — Florida, Watson Pharma, and Watson Laboratories (collectively Watson) and Incepta Pharmaceuticals (Incepta) for infringement of six (6) U.S. patents listed in the Orange Book for our Gralise product. The lawsuit is in response to ANDAs filed by each of Actavis, Watson and Incepta with the FDA regarding the defendants’ intent to market generic versions of 300mg and 600mg dosage strengths of Gralise prior to the expiration of the Orange Book patents, which includes U.S. Patent Nos.: 6,340,475, 6,488,962, 6,635,280, 6,723,340, 7,438,927 and 7,731,989. We commenced the lawsuit within the 45 days required to automatically stay, or bar, the FDA from approving the ANDAs for 30 months or until a district court decision that is adverse to the asserted patents, whichever may occur earlier. Absent a court order, the 30-month stays are expected to expire in July 2014 and August 2014.

In April 2012, we filed a lawsuit in the United States District Court for the District of New Jersey against Impax Laboratories (Impax) and Par Pharmaceuticals (Par) for infringement of six (6) U.S. patents listed in the Orange Book for our Gralise product. The lawsuit is in response to ANDAs filed by each of Impax and Par with the FDA regarding the defendants’ intent to market generic versions of 300mg and 600mg dosage strengths of Gralise prior to the expiration of the Orange Book patents, which includes U.S. Patent Nos.: 6,340,475, 6,488,962, 6,635,280, 6,723,340, 7,438,927 and 7,731,989. We commenced the lawsuit within the 45 days required to automatically stay, or bar, the FDA from approving the ANDAs for 30 months or until a district court decision that is adverse to the asserted patents, whichever may occur earlier. Absent a court order, the 30-month stays are expected to expire in September 2014.

In May 2012, we filed lawsuit in the United States District Court for the District of New Jersey against Zydus Pharmaceuticals Inc. and Cadila Healthcare Limited (collectively Zydus) for infringement of six (6) U.S. patents listed in the Orange Book for our Gralise product. The lawsuit is in response to the ANDAs filed by Zydus with the FDA regarding Zydus’s intent to market generic versions of 300mg and 600mg dosage strengths of Gralise prior to the expiration of the Orange Book patents, which includes U.S. Patent Nos.: 6,340,475, 6,488,962, 6,635,280, 6,723,340, 7,438,927 and 7,731,989. We commenced the lawsuit within the 45 days required to automatically stay, or bar, the FDA from approving the ANDAs for 30 months or until a district court decision that is adverse to the asserted patents, whichever may occur earlier. Absent a court order, the 30-month stays are expected to expire in October and November 2014.

On June 13, 2012, the Court held the Case Management Conference. The Court ordered all three suits to be consolidated for purposes of all pretrial proceedings. The Pretrial Conference in the suits is scheduled for March 13, 2014. No specific trial date has been set. We further expect a Markman hearing to occur in the spring 2013. A specific date as of now has not been set.

ITEM 1A. RISK FACTORS

The risk factors presented below amend and restate the risk factors previously disclosed in our Quarterly Report on Form 10-Q for the period ended March 31, 2012, which amended and restated the risk factors previously disclosed in Annual Report on Form 10-K for the year ended December 31, 2011.

The following factors, along with those described above under “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — LIQUIDITY AND CAPITAL RESOURCES” should be reviewed carefully, in conjunction with the other information contained in this Report and our financial statements. These factors, among others, could cause actual results to differ materially from those currently anticipated and contained in forward-looking statements made in this Form 10-Q and presented elsewhere by our management from time to time. See “Part I, Item 2—Forward-Looking Information.”

If we are not able to successfully commercialize Gralise and Zipsor, our business will suffer.

In October 2011, we began commercial sales of Gralise. In June 2012, we acquired and began commercial sales of Zipsor. As a company, we have limited experience selling and marketing pharmaceutical products. We may not be able to adequately maintain or scale the necessary sales, marketing, manufacturing, managed markets or other capabilities on our own that are required to successfully commercialize Gralise and Zipsor, and we may not enter into arrangements with other collaborative partners or other third parties to perform those functions on terms that are acceptable to us, if at all. If we enter into a collaborative co-promotion or licensing arrangement related to Gralise or Zipsor, some of the revenues we receive will depend upon the efforts of one or more third parties, which may not be successful and over which we will have little or no control.

Our third-party contractors and partners may not perform as required under their contracts with us or as expected. If our management of collaborative partners and third-party contractors is not effective or such partners or contractors do not perform as required or as expected, the commercial acceptance and success of Gralise and Zipsor may be limited and our business, financial condition and results of operations would be materially and adversely affected.

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If Santarus does not successfully commercialize Glumetza in the United States, our business will suffer.

In August 2011, we entered into a commercialization agreement with Santarus pursuant to which Santarus assumed broad commercial, manufacturing and regulatory responsibility for the commercialization of Glumetza and we transferred the Glumetza NDA to Santarus. The commercialization agreement replaced the promotion agreement we entered into with Santarus in July 2008. Santarus pays us royalties on net sales of Glumetza and will not pay any additional sales milestones that were required under the promotion agreement. Although we have retained rights to promote Glumetza to physicians not targeted by Santarus, we do not have any immediate plans to exercise our Glumetza co-promotion rights. As a result, the commercial success of Glumetza depends almost entirely on Santarus’ commercialization efforts. Other factors that may affect the success of our commercialization arrangement with Santarus include the following:

· Santarus may acquire or develop alternative products;

· Santarus may pursue higher-priority programs, or change the focus of its marketing programs;

· Santarus may in the future choose to devote fewer resources to Glumetza;

· Glumetza may fail to achieve greater market acceptance;

· the outcome of our ongoing litigation against ANDA filers seeking to prevent the ANDA filers from marketing a generic version of Glumetza in the United States;

· Santarus may experience financial difficulties; and

· Santarus may fail to comply with its obligations under our commercialization agreement.

Any of the preceding factors could affect Santarus’ commitment to the commercialization agreement, which, in turn, could adversely affect the commercial success of Glumetza. Any failure by Santarus to successfully commercialize Glumetza would have a material adverse effect on our business, financial condition and results of operations.

If we are unable to successfully integrate Zipsor in a cost-effective and non-disruptive manner, our business will suffer.

In June 2012, we acquired Zipsor from Xanodyne. We do not have experience acquiring and integrating new products and we do not know if we will be able to successfully integrate Zipsor with our existing business. Integrating Zipsor may be expensive and time consuming, disrupt our ongoing business and distract our management and our sales force. If we are unable to integrate Zipsor effectively, our business will suffer and we will need to perform an impairment test on the related intangible asset and, if evidence of impairment exists, we would be required to take an impairment charge with respect to the asset. Such a charge could have a material adverse effect on our results of operations and financial condition.

If generic manufacturers use litigation and regulatory means to obtain approval for generic versions of our products, our business will suffer.

Under the Federal Food, Drug and Cosmetics Act (FDCA), the FDA can approve an Abbreviated New Drug Application (ANDA), for a generic version of a branded drug without the ANDA applicant undertaking the clinical testing necessary to obtain approval to market a new drug. In place of such clinical studies, an ANDA applicant usually needs only to submit data demonstrating that its product has the same active ingredient(s) and is bioequivalent to the branded product, in addition to any data necessary to establish that any difference in strength, dosage form, inactive ingredients, or delivery mechanism does not result in different safety or efficacy profiles, as compared to the reference drug.

The FDCA requires an applicant for a drug that relies, at least in part, on the patent of one of our branded drugs to notify us of their application and potential infringement of our patent rights. Upon receipt of this notice we have 45 days to bring a patent infringement suit in federal district court against the company seeking approval of a product covered by one of our patents. The discovery, trial and appeals process in such suits can take several years. If such a suit is commenced, the FDCA provides a 30-month stay on the FDA’s approval of the competitor’s application. Such litigation is often time-consuming and quite costly and may result in generic competition if the patents at issue are not upheld or if the generic competitor is found not to infringe such patents. If the litigation is resolved in favor of the applicant or the challenged patent expires during the 30-month stay period, the stay is lifted and the FDA may thereafter approve the application based on the standards for approval of ANDAs.

We are involved in patent infringement litigation against filers of two ANDAs to Glumetza. In June 2011, we filed a lawsuit in the United States District Court for the District of New Jersey against Sun Pharmaceutical Industries Inc., Sun Pharma Global FZE and Sun Pharmaceuticals Industries Ltd. (Sun), for infringement of the patents listed in the Orange Book for Glumetza. The lawsuit is in response to an ANDA filed by Sun with the FDA regarding Sun’s intent to market generic versions of 500mg and 1000mg strengths of Glumetza prior to the expiration of the five listed U.S. patents (U.S. Patent Nos. 6,340,475; 6,488,962; 6,635,280; 6,723,340 and

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7,780,987). We also are asserting U.S. Patent 7,736,667 in the lawsuit. In April 2012, we filed a lawsuit in the United States District Court for the District of Delaware against Watson Laboratories, Inc. — Florida, Watson Pharmaceuticals, Inc. and Watson Pharma, Inc. (collectively, Watson) for infringement of U.S. Patent Nos. 6,488,962 and 7,780,987. The lawsuit is in response to an ANDA filed by Watson with the FDA regarding Watson’s intent to market a generic version of the 1000 mg dosage strength of Glumetza prior to the expiration of the asserted patents. We commenced both lawsuits within the 45 days required to automatically stay, or bar, the FDA from approving the ANDAs for 30 months or until a district court decision that is adverse to the patents, whichever may occur earlier. Absent a court decision, the 30-month stay on the Sun ANDA is expected to expire in November 2013, and the 30-month stay on the Watson ANDA is expected to expire in September 2014. In February 2012, we and Santarus entered into a settlement and license agreement with Lupin to resolve patent litigation involving Glumetza we initiated in November 2009. The agreement grants Lupin the right to begin selling a generic version of Glumetza on February 1, 2016, or earlier under certain circumstances. The introduction of one or more products generic to Glumetza would harm our business, financial condition, results of operations and cash flows.

We are involved in patent infringement litigation against filers of six ANDAs to Gralise. In March 2012, we filed a lawsuit in the United States District Court for the District of New Jersey against Actavis Elizabeth LLC (Actavis), Watson Laboratories (Watson) and Incepta Pharmaceuticals (Incepta) for infringement of six (6) U.S. patents listed in the Orange Book for the Gralise product. In April 2012, we filed a lawsuit in the same court against Impax Laboratories, Inc. (Impax), as well as Par Pharmaceutical, Inc. and Par Pharmaceutical Companies, Inc. (collectively, Par) for infringement of the same patents. In May 2012, we filed a lawsuit in the same court against Zydus Pharmaceuticals USA (Zydus) for infringement of the same patents. The lawsuits are in response to ANDAs filed by each of Actavis, Watson, Incepta, Par, Impax and Zydus with the FDA regarding the defendants’ intent to market generic versions of 300mg and 600mg dosage strengths of Gralise prior to the expiration of the Orange Book patents, which includes U.S. Patent Nos.: 6,340,475, 6,488,962, 6,635,280, 6,723,340, 7,438,927 and 7,731,989. We commenced the lawsuit within the 45 days required to automatically stay, or bar, the FDA from approving the ANDAs for 30 months or until a district court decision that is adverse to the asserted patents, whichever may occur earlier. The 30-month stays expire between July 2014 and September 2014. If the litigation is still ongoing after expiration of the applicable 30-month stay, the termination of the stay could result in the introduction of one or more products generic to Gralise prior to resolution of the litigation. Any introduction of one or more products generic to Gralise would harm our business, financial condition and results of operations.

The filing of the ANDAs described above, or any other ANDA or similar application in respect to any of our products could have an adverse impact on our stock price. Moreover, if the patents covering our products were not upheld in litigation or if a generic competitor is found not to infringe these patents, the resulting generic competition would have a material adverse effect on our business, results of operations and financial condition.

We depend on third parties that are single source suppliers to manufacture Gralise, Zipsor and our product candidates. If these suppliers are unable to manufacture and supply Gralise, Zipsor or our product candidates, our business will suffer.

Patheon is our sole supplier for Gralise pursuant to a manufacturing and supply agreement we entered into with Patheon in September 2011 and our sole supplier of Serada. Accucaps is our sole supplier for Zipsor pursuant to a manufacturing agreement we assumed in connection with our acquisition of Zipsor from Xanodyne in June 2012. We do not have, and we do not intend to establish in the foreseeable future, internal commercial scale manufacturing capabilities. Rather, we intend to use the facilities of third parties to manufacture products for clinical trials and commercialization. Our dependence on third parties for the manufacture of our products and our product candidates adversely affect our ability to deliver such products on a timely or competitive basis, if at all. Any failure to obtain Gralise tablets from Patheon, active pharmaceutical ingredient from suppliers, or excipient suppliers, could adversely affect our business, results of operation and financial condition.

The manufacturing process for pharmaceutical products is highly regulated and regulators may shut down manufacturing facilities that they believe do not comply with regulations. We, our third-party manufacturers and our suppliers are subject to numerous regulations, including current FDA regulations governing manufacturing processes, stability testing, record keeping and quality standards. Similar regulations are in effect in other countries. Our third-party manufacturers and suppliers are independent entities who are subject to their own unique operational and financial risks which are out of our control. If we or any of these third-party manufacturers or suppliers fail to perform as required or fail to comply with the regulations of the FDA and other applicable governmental authorities, our ability to deliver our products on a timely basis or receive royalties or continue our clinical trials would be adversely affected. The manufacturing processes of our third party manufacturers and suppliers may also be found to violate the proprietary rights of others. To the extent these risks materialize and adversely affect their performance obligations to us, and we are unable to contract for a sufficient supply of required products on acceptable terms, or if we encounter delays and difficulties in our relationships with manufacturers or suppliers, our business, results of operation and financial condition would be adversely affected.

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Our collaborative arrangements may give rise to disputes over commercial terms, contract interpretation and ownership of our intellectual property and may adversely affect the commercial success of our products.

We currently have collaboration or license arrangements with Santarus, Covidien, Merck, Janssen, Boehringer Ingelheim, Ironwood and PharmaNova. In addition, we have in the past and may in the future enter into other collaborative arrangements, some of which have been based on less definitive agreements, such as memoranda of understanding, material transfer agreements, options or feasibility agreements. We may not execute definitive agreements formalizing these arrangements.

Collaborative relationships are generally complex and may give rise to disputes regarding the relative rights, obligations and revenues of the parties, including the ownership of intellectual property and associated rights and obligations, especially when the applicable collaborative provisions have not been fully negotiated and documented. Such disputes can delay collaborative research, development or commercialization of potential products, and can lead to lengthy, expensive litigation or arbitration. The terms of collaborative arrangements may also limit or preclude us from developing products or technologies developed pursuant to such collaborations. Additionally, the collaborators under these arrangements might breach the terms of their respective agreements or fail to prevent infringement of the licensed patents by third parties. Moreover, negotiating collaborative arrangements often takes considerably longer to conclude than the parties initially anticipate, which could cause us to enter into less favorable agreement terms that delay or defer recovery of our development costs and reduce the funding available to support key programs.

We may be unable to enter into future collaborative arrangements on acceptable terms, which could harm our ability to develop and commercialize our current and potential future products and technologies. Other factors relating to collaborations that may adversely affect the commercial success of our products include:

· any parallel development by a collaborative partner of competitive technologies or products;

· arrangements with collaborative partners that limit or preclude us from developing products or technologies;

· premature termination of a collaboration agreement; or

· failure by a collaborative partner to devote sufficient resources to the development and commercial sales of products using our current and potential future products and technologies.

Our collaborative arrangements do not necessarily restrict our collaborative partners from competing with us or restrict their ability to market or sell competitive products. Our current and any future collaborative partners may pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Our collaborative partners may also terminate their collaborative relationships with us or otherwise decide not to proceed with development and commercialization of our products.

If we do not obtain orphan drug exclusivity for Gralise in PHN, our business could suffer.

The FDA has granted Gralise Orphan Drug designation for the management of PHN based on a plausible hypothesis that Gralise is “clinically superior” to immediate release gabapentin as contemplated by the FDA’s regulations related to Orphan drug designation and exclusivity. Generally, an Orphan-designated drug approved for marketing is eligible for seven years of regulatory exclusivity for the orphan-designated indication. If the FDA grants Orphan Drug exclusivity for Gralise, the FDA may not approve another application to market the same drug for the same indication until January 2018, except in very limited circumstances. However, the FDA has not yet granted Orphan Drug exclusivity for Gralise pending its determination whether Gralise meets applicable clinical superiority requirements.

We believe a showing of clinical superiority is not required under the statute and regulations related to Orphan Drugs in effect at the time of Gralise’s Orphan Drug designation and approval. We also believe amendments to the FDA’s Orphan Drug regulations proposed in October 2011 do not apply to our pending request to grant Orphan Drug exclusivity for Gralise. According to the FDA, the proposed amendments are intended to clarify certain provisions of the regulations and make minor improvements to address issues that have arisen since the regulations were issued. If adopted as proposed, it is possible the amendments will adversely affect our request for Orphan Drug exclusivity for Gralise.

The FDA may not grant Gralise orphan exclusivity in PHN. If we do not obtain orphan exclusivity for Gralise, the period of market exclusivity in the United States for Gralise may be reduced, which would adversely affect our business, results of operations and financial condition.

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Pharmaceutical marketing is subject to substantial regulation in the United States and any failure by us or our collaborative partners to comply with applicable statutes or regulations could adversely affect our business.

All marketing activities associated with Gralise, Zispor and Glumetza, as well as marketing activities related to any other products for which we obtain regulatory approval, will be subject to numerous federal and state laws governing the marketing and promotion of pharmaceutical products. The FDA regulates post-approval promotional labeling and advertising to ensure that they conform to statutory and regulatory requirements. In addition to FDA restrictions, the marketing of prescription drugs is subject to laws and regulations prohibiting fraud and abuse under government healthcare programs. For example, the federal healthcare program anti-kickback statute prohibits giving things of value to induce the prescribing or purchase of products that are reimbursed by federal healthcare programs, such as Medicare and Medicaid. In addition, federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government. Under this law, the federal government in recent years has brought claims against drug manufacturers alleging that certain marketing activities caused false claims for prescription drugs to be submitted to federal programs. Many states have similar statutes or regulations, which apply to items and services reimbursed under Medicaid and other state programs, or, in some states, regardless of the payer. If we, or our collaborative partners, fail to comply with applicable FDA regulations or other laws or regulations relating to the marketing of our products, we could be subject to criminal prosecution, civil penalties, seizure of products, injunction, and exclusion of our products from reimbursement under government programs, as well as other regulatory actions against our product candidates, our collaborative partners or us.

We may incur significant liability if it is determined that we are promoting or have in the past promoted the “off-label” use of drugs.

Companies may not promote drugs for “off-label” uses—that is, uses that are not described in the product’s labeling and that differ from those approved by the FDA. Physicians may prescribe drug products for off-label uses, and such off-label uses are common across some medical specialties. Although the FDA and other regulatory agencies do not regulate a physician’s choice of treatments, the FDCA and FDA regulations restrict communications on the subject of off-label uses of drug products by pharmaceutical companies. The Office of Inspector General of the Department of Health and Human Services (OIG), the FDA, and the Department of Justice (DOJ) all actively enforce laws and regulations prohibiting promotion of off-label uses and the promotion of products for which marketing clearance has not been obtained. If the OIG or the FDA takes the position that we are or may be out of compliance with the requirements and restrictions described above, and we are investigated for or found to have improperly promoted off-label uses, we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition, management’s attention could be diverted from our business operations and our reputation could be damaged.

If we or our marketing partners are unable to obtain acceptable prices or adequate reimbursement for our products from third-party payers, our business will suffer.

In both domestic and foreign markets, sales of our products and product candidates will depend in part on the availability of adequate reimbursement from third-party payers such as:

· government health administration authorities;

· private health insurers;

· health maintenance organizations;

· pharmacy benefit management companies; and

· other healthcare-related organizations.

If reimbursement is not available for our products or product candidates, demand for these products may be limited. Further, any delay in receiving approval for reimbursement from third-party payers could have an adverse effect on our future revenues. Third-party payers are increasingly challenging the price and cost-effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, including pharmaceuticals. Our products may not be considered cost effective, and adequate third-party reimbursement may be unavailable to enable us to maintain price levels sufficient to realize an acceptable return on our investment.

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Federal and state governments in the United States and foreign governments continue to propose and pass new legislation designed to contain or reduce the cost of healthcare. Existing regulations affecting pricing may also change before many of our product candidates are approved for marketing. Cost control initiatives could decrease the price that we receive for our products and any product that we may develop.

We may be unable to compete successfully in the pharmaceutical industry.

Gabapentin is currently marketed by Pfizer as Neurontin® for adjunctive therapy for epileptic seizures and for postherpetic pain. Pfizer’s basic U.S. patents relating to Neurontin have expired, and numerous companies have received approval to market generic versions of the immediate release product. Pfizer has also developed Lyrica® (pregabalin), which has been approved for marketing in the United States for postherpetic pain, fibromyalgia, diabetic nerve pain, for adjunctive therapy for epileptic seizures and nerve pain associated with spinal cord injury. In June 2012, GlaxoSmithKline and Xenoport, Inc. received approval to market Horizant TM (gabapentin enacarbil extended-release tablets) for the management of PHN. There are other products prescribed for or under development for PHN which are now or may become competitive with Gralise.

Diclofenac, the active pharmaceutical ingredient in Zipsor, is a non-steroidal anti-inflammatory drug (NSAID) that is approved in the United States for the treatment of mild to moderate pain and inflammation, including the symptoms of arthritis. Both branded and generic versions of diclofenac are marketed in the U.S. Zipsor competes against other drugs that are widely used to treat mild to moderate pain in the acute setting. In addition, a number of other companies are developing NSAIDs in a variety of dosage forms for the treatment of mild to moderate pain and related indications. Other drugs are in clinical development to treat acute pain.

Bristol-Myers Squibb is currently selling a sustained release formulation of metformin, Glucophage XR, with which Glumetza competes. A limited license that Bristol-Myers Squibb obtained from us under a November 2002 settlement agreement extends to certain current and internally-developed future compounds, which may increase the likelihood that we will face competition from Bristol-Myers Squibb in the future on products in addition to Glumetza. Several other companies have received FDA approval for and are selling an extended-release metformin product. There are a number other products prescribed for Type 2 diabetes that are competitive with Glumetza, and there are a number of products under development for the treatment of Type 2 diabetes that may become competitive with Glumetza in the future.

Competition in the pharmaceutical industry is intense. We expect competition to increase. Competing products developed in the future may prove superior to our products. Most of our principal competitors have substantially greater financial, sales, marketing, personnel and research and development resources than we do.

Our prior clinical trials evaluating Serada for menopausal hot flashes failed to meet all of their primary endpoints, and we cannot be certain that this product will be approved for marketing. The development of drug candidates is inherently difficult and uncertain and we cannot be certain that any of our product candidates will be approved for marketing or, if approved, will achieve market acceptance.

Each of our three Phase 3 trials evaluating Serada for menopausal hot flashes, including our Phase 3 trial known as Breeze 3, failed to meet all of their primary endpoints. Although we have discussed the results of our Serada trials with the FDA and submitted a New Drug Application for Serada in July 2012, we cannot be certain that the FDA will accept the New Drug Application for filing. In the event the FDA accepts a New Drug Application for Serada for filing, we cannot be certain that the New Drug Application will be approved.

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Clinical development is a long, expensive and uncertain process and is subject to delays and failures. Our own product candidates and those of our collaborative partners are subject to the risk that any or all of them may be found to be ineffective or unsafe, or otherwise may fail to receive necessary regulatory clearances. Positive or encouraging results of prior clinical trial are not necessarily indicative of the results obtained in later clinical trials, as was the case with the Phase 3 trial for Gralise for the management of PHN that we completed in 2007, and with the Phase 3 trials evaluating Serada for menopausal hot flashes, the last of which we completed in October 2011. In addition, data obtained from pivotal clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.

Many other factors could delay or result in termination of our clinical trials, including:

· negative or inconclusive results;

· patient noncompliance with the protocol;

· adverse medical events or side effects among patients during the clinical trials;

· FDA inspections of our clinical operations; and

· actual or perceived lack of efficacy or safety of the product candidate.

We are unable to predict whether any of our product candidates will receive regulatory clearances or be successfully manufactured or marketed. Further, due to the extended testing and regulatory review process required before marketing clearance can be obtained, the time frame for commercializing a product is long and uncertain. Even if these other product candidates receive regulatory clearance, our products may not achieve or maintain market acceptance. Also, substantially all of our product candidates use the Acuform technology. If it is discovered that the Acuform technology could have adverse effects or other characteristics that indicate it is unlikely to be effective as a delivery system for drugs or therapeutics, our product development efforts and our business could be significantly harmed.

Even when or if our products obtain regulatory approval, successful commercialization requires:

· market acceptance;

· cost-effective commercial scale production; and

· reimbursement under private or governmental health plans.

Any material delay or failure in the governmental approval process and/or the successful commercialization of our potential products could adversely impact our financial position and liquidity.

We may be unable to protect our intellectual property and may be liable for infringing the intellectual property of others.

Our success will depend in part on our ability to obtain and maintain patent protection for our products and technologies, and to preserve our trade secrets. Our policy is to seek to protect our proprietary rights, by, among other methods, filing patent applications in the United States and foreign jurisdictions to cover certain aspects of our technology. We hold issued United States patents, and have patent applications pending in the United States. In addition, we are preparing patent applications relating to our expanding technology for filing in the United States and abroad. We have also applied for patents in numerous foreign countries. Some of those countries have granted our applications and other applications are still pending. Our pending patent applications may lack priority over others’ applications or may not result in the issuance of patents. Even if issued, our patents may not be sufficiently broad to provide protection against competitors with similar technologies and may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or may not provide us with competitive advantages against competing products. We also rely on trade secrets and proprietary know-how, which are difficult to protect. We seek to protect such information, in part, through entering into confidentiality agreements with employees, consultants, collaborative partners and others before such persons or entities have access to our proprietary trade secrets and know-how. These confidentiality agreements may not be effective in certain cases, due to, among other things, the lack of an adequate remedy for breach of an agreement or a finding that an agreement is unenforceable. In addition, our trade secrets may otherwise become known or be independently developed by competitors.

Our ability to develop our technologies and to make commercial sales of products using our technologies also depends on not infringing others’ patents or other intellectual property rights. We are not aware of any intellectual property claims against us. However, the pharmaceutical industry has experienced extensive litigation regarding patents and other intellectual property rights. Patents issued to third parties relating to sustained release drug formulations or particular pharmaceutical compounds could in the future be asserted against us, although we believe that we do not infringe any valid claim of any patents. If claims concerning any of our products were to arise and it was determined that these products infringe a third party’s proprietary rights, we could be subject to substantial damages for past infringement or be forced to stop or delay our activities with respect to any infringing product, unless we can obtain a license, or we may have to redesign our product so that it does not infringe upon others’ patent rights, which may not be possible or could require substantial funds or time. Such a license may not be available on acceptable terms, or at all. Even if we, our collaborators or our licensors were able to obtain a license, the rights may be nonexclusive, which could give our competitors access to the same intellectual property. In addition, any public announcements related to litigation or interference proceedings initiated or threatened against us, even if such claims are without merit, could cause our stock price to decline.

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From time to time, we may become aware of activities by third parties that may infringe our patents. Infringement by others of our patents may reduce our market shares (if a related product is approved) and, consequently, our potential future revenues and adversely affect our patent rights if we do not take appropriate enforcement action. We may need to engage in litigation in the future to enforce any patents issued or licensed to us or to determine the scope and validity of third-party proprietary rights. Our issued or licensed patents may not be held valid by a court of competent jurisdiction. Whether or not the outcome of litigation is favorable to us, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns. We may also be required to participate in interference proceedings declared by the United States Patent and Trademark Office for the purpose of determining the priority of inventions in connection with our patent applications or other parties’ patent applications. Adverse determinations in litigation or interference proceedings could require us to seek licenses which may not be available on commercially reasonable terms, or at all, or subject us to significant liabilities to third parties. If we need but cannot obtain a license, we may be prevented from marketing the affected product.

If we are unable to obtain or maintain regulatory approval, we will be limited in our ability to commercialize our products, and our business will suffer.

The regulatory process is expensive and time consuming. Even after investing significant time and expenditures on clinical trials, we may not obtain regulatory approval of our product candidates. Data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval, and the FDA may not agree with our methods of clinical data analysis or our conclusions regarding safety and/or efficacy. Significant clinical trial delays could impair our ability to commercialize our products and could allow our competitors to bring products to market before we do. In addition, changes in regulatory policy for product approval during the period of product development and regulatory agency review of each submitted new application may cause delays or rejections. Even if we receive regulatory approval, this approval may entail limitations on the indicated uses for which we can market a product.

For example, the active ingredients in the products utilizing our Acuform delivery technology that are being developed pursuant to our collaboration with Covidien include acetaminophen in combination with opiates. In connection with concerns that consumers may inadvertently take more than the recommended daily dose of acetaminophen, potentially causing liver damage, an FDA advisory committee has recommended that prescription products containing acetaminophen in combination with prescription analgesics (including opiates) should include black box warnings and/or be removed from the market. The FDA is evaluating the recommendations and has indicated that such an evaluation will take some time. The FDA is not required to accept advisory committee recommendations. Covidien’s ability or willingness to develop and market the products subject to our collaboration may be adversely affected by actions of the FDA in response to the advisory committee recommendations.

Further, with respect to our approved products, once regulatory approval is obtained, a marketed product and its manufacturer are subject to continual review. The discovery of previously unknown problems with a product or manufacturer may result in restrictions on the product, manufacturer or manufacturing facility, including withdrawal of the product from the market. Manufacturers of approved products are also subject to ongoing regulation and inspection, including compliance with FDA regulations governing current Good Manufacturing Practices (cGMP). The FDCA, the Controlled Substances Act and other federal and foreign statutes and regulations govern and influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products. The failure to comply with these regulations can result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, non-renewal of marketing applications or criminal prosecution.

We are also required to report adverse events associated with our products to the FDA and other regulatory authorities. Unexpected or serious health or safety concerns could result in labeling changes, recalls, market withdrawals or other regulatory actions. Recalls may be issued at our discretion or at the discretion of the FDA or other empowered regulatory agencies. For example, in June 2010, we instituted a voluntary class 2 recall of 52 lots of our 500mg Glumetza product after chemical traces of 2,4,6-tribromoanisole (TBA) were found in the product bottle. We cannot be certain that the FDA will determine that we adequately addressed the matters that led to this recall or that the FDA will not seek to impose fines or sanctions against us as a result of this recall.

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We are subject to risks associated with NDAs submitted under Section 505(b)(2) of the Food, Drug and Cosmetic Act.

The products we develop generally are or will be submitted for approval under Section 505(b)(2) of the FDCA which was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. For instance, the NDA for Gralise relies on the FDA’s prior approval of Neurontin® (gabapentin), the immediate release formulation of gabapentin initially approved by the FDA. An NDA for Serada would also rely in part on the FDA’s prior approval of Neurontin.

For NDAs submitted under Section 505(b)(2) of the FDCA, the patent certification and related provisions of the Hatch-Waxman Act apply. In accordance with the Hatch-Waxman Act, such NDAs may be required to includes certifications, known as “Paragraph IV certifications,” that certify any patents listed in the FDA’s Orange Book publication in respect to any product referenced in the 505(b)(2) application, are invalid, unenforceable, and/or will not be infringed by the manufacture, use, or sale of the product that is the subject of the 505(b)(2) application. Under the Hatch-Waxman Act, the holder of the NDA which the 505(b)(2) application references may file a patent infringement lawsuit after receiving notice of the Paragraph IV certification. Filing of a patent infringement lawsuit triggers a one-time automatic 30-month stay of the FDA’s ability to approve the 505(b)(2) application. Accordingly, we may invest a significant amount of time and expense in the development of one or more products only to be subject to significant delay and patent litigation before such products may be commercialized, if at all. A Section 505(b)(2) application may also not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired. The FDA may also require us to perform one or more additional clinical studies or measurements to support the change from the approved product. The FDA may then approve the new formulation for all or only some of the indications sought by us. The FDA may also reject our future Section 505(b)(2) submissions and require us to file such submissions under Section 501(b)(1) of the FDCA, which could be considerably more expensive and time consuming. These factors, among others, may limit our ability to successfully commercialize our product candidates.

If a product liability claim against us is successful, our business will suffer.

Our business involves exposure to potential product liability risks that are inherent in the development and production of pharmaceutical products. We have obtained product liability insurance for clinical trials currently underway and forecasted 2012 sales of our products, but:

· we may be unable to obtain product liability insurance for future trials;

· we may be unable to obtain product liability insurance for future products;

· we may be unable to maintain product liability insurance on acceptable terms;

· we may be unable to secure increased coverage as the commercialization of the Acuform technology proceeds; or

· our insurance may not provide adequate protection against potential liabilities.

Our inability to obtain adequate insurance coverage at an acceptable cost could prevent or inhibit the commercialization of our products. Defending a lawsuit could be costly and significantly divert management’s attention from conducting our business. If third parties were to bring a successful product liability claim or series of claims against us for uninsured liabilities or in excess of insured liability limits, our business, financial condition and results of operations could be materially and adversely affected.

We depend on clinical investigators and clinical sites to enroll patients in our clinical trials and other third parties to manage the trials and to perform related data collection and analysis, and, as a result, we may face costs and delays outside of our control.

We rely on clinical investigators and clinical sites to enroll patients and other third parties to manage our trials and to perform related data collection and analysis. However, we may be unable to control the amount and timing of resources that the clinical sites that conduct the clinical testing may devote to our clinical trials. If our clinical investigators and clinical sites fail to enroll a sufficient number of patients in our clinical trials or fail to enroll them on our planned schedule, we will be unable to complete these trials or to complete them as planned, which could delay or prevent us from obtaining regulatory approvals for our product candidates.

Our agreements with clinical investigators and clinical sites for clinical testing and for trial management services place substantial responsibilities on these parties, which could result in delays in, or termination of, our clinical trials if these parties fail to perform as expected. For example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at those sites. If these clinical investigators, clinical sites or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for, or successfully commercialize, our product candidates.

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Our licensed patent covering the use of gabapentin to treat hot flashes associated with menopause is a method-of-use patent, which increases the risk that prescriptions for gabapentin to treat hot flashes in menopausal women could be written for, or filled with, generic gabapentin.

We have an exclusive sublicense from PharmaNova, Inc. (PharmaNova) to a patent held by the University of Rochester to develop and commercialize in the United States a gabapentin product for the treatment of hot flashes associated with menopause. Because a method-of-use patent, such as the patent we have sublicensed from PharmaNova, covers only a specified use of a particular compound, not a particular composition of matter, we cannot prevent others from commercializing gabapentin for other indications for use. Accordingly, physicians can already prescribe another manufacturer’s gabapentin to treat hot flashes in menopausal women, or pharmacists could in the future seek to fill future prescriptions for Serada, if any, with another manufacturer’s gabapentin. Although any such “off-label” use could violate our licensed patent, effectively monitoring compliance with our licensed patent and enforcing our patent rights against individual physicians and pharmacies may be ineffective, impractical, difficult and costly.

In the event the FDA approves our New Drug Application for Serada based on the results of our three completed Phase 3 clinical trials and we initiate commercial sales of Serada, such competition would reduce any revenues generated by such sales.

Our collaborators and licensors may not adequately protect our intellectual property rights.

In addition to our exclusive sublicense of the University of Rochester patent from PharmaNova, we hold an exclusive worldwide license from AAIPharma Inc. (AAIPharma) that includes rights to: (i) an issued U.S. patent with claims to the formulation of a pharmaceutical product, such as Zipsor, that consists of the formulation technology ProSorb® in combination with diclofenac; and (ii) four issued U.S. patents that expire in 2029 with claims to uses of certain diclfenac formulations (including Zipsor) for certain pain conditions. The ProSorb technology patent expires in 2019 and includes claims to the use of ProSorb to facilitate the rapid, consistent and complete absorption of diclofenac from the gastrointestinal tract.

Our collaborators and licensors may not adequately protect our intellectual property rights. These third parties may have the first right to maintain or defend our intellectual property rights and, although we may have the right to assume the maintenance and defense of our intellectual property rights if these third parties do not, our ability to maintain and defend our intellectual property rights may be comprised by the acts or omissions of these third parties.

Our success is dependent in large part upon the continued services of our Chief Executive Officer and senior management with whom we do not have employment agreements.

Our success is dependent in large part upon the continued services of our President and Chief Executive Officer, James A. Schoeneck, and other members of our executive management team, and on our ability to attract and retain key management and operating personnel. We do not have agreements with Mr. Schoeneck or any of our other executive officers that provide for their continued employment with us. We may have difficulty filling open senior scientific, financial and commercial positions. Management, scientific and operating personnel are in high demand in our industry and are often subject to competing offers. The loss of the services of one or more members of management or key employees or the inability to hire additional personnel as needed could result in delays in the research, development and commercialization of our products and potential product candidates.

If we choose to acquire new and complementary businesses, products or technologies, we may be unable to complete these acquisitions or to successfully integrate them in a cost effective and non-disruptive manner.

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing customer demands, competitive pressures and technologies. One element of our business strategy is to actively seek to acquire products or companies, and to in-license or seek co-promotion rights to products that could be sold by our sales force. Other than our contingent milestone payment obligations to Xanodyne relating to our sales of Zipsor, we have no current commitments with respect to any acquisition, in-licensing or co-promotion. We do not know if we would be able to successfully complete any acquisitions, or whether we would be able to successfully integrate any acquired business, product or technology or retain any key employees. Integrating any business, product or technology we acquire could be expensive and time consuming, disrupt our ongoing business and distract our management. If we were to be unable to integrate any acquired businesses, products or technologies effectively, our business would suffer. In addition, any amortization or charges resulting from the costs of acquisitions could adversely affect our operating results.

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Our operating results may fluctuate and affect our stock price.

The following factors will affect our operating results and may result in a material adverse effect on our stock price:

· the degree of commercial success of Gralise, Zipsor and Glumetza;

· announcements and results regarding clinical trial results and plans for our drug candidates;

· filings and other regulatory actions related to our product candidates;

· developments concerning proprietary rights, including patents, infringement allegations and litigation matters;

· decisions by collaborative partners to proceed or not to proceed with subsequent phases of a collaboration or program;

· adverse events related to our products, including recalls;

· interruptions of manufacturing or supply, or other manufacture or supply difficulties;

· the outcome of our patent infringement litigation against Sun for Glumetza;

· the outcome of our patent infringement litigation against filers of abbreviated new drug applications for Gralise;

· variations in revenues obtained from collaborative agreements, including milestone payments, royalties, license fees and other contract revenues;

· adoption of new technologies by us or our competitors;

· the introduction of new products by our competitors;

· the status of our compliance with laws and regulations applicable to the commercialization of pharmaceutical products;

· any limitations to access to physician prescription data, which may make our marketing efforts more effective;

· manufacturing costs;

· third-party reimbursement policies; and

· the status of our compliance with the provisions of the Sarbanes-Oxley Act of 2002.

As a result of these factors, our stock price may continue to be volatile and investors may be unable to sell their shares at a price equal to, or above, the price paid. Additionally, any significant drops in our stock price, such as the ones we experienced following the announcement of our Serada Phase 3 trial results in October 2009 and October 2011, could give rise to shareholder lawsuits, which are costly and time consuming to defend against and which may adversely affect our ability to raise capital while the suits are pending, even if the suits are ultimately resolved in our favor.

We expect to incur operating losses this year and may incur operating losses in the future.

To date, we have recorded revenues from license fees, product sales, royalties, collaborative research and development arrangements and feasibility studies. For the six months ended June 30, 2012, we recorded total revenues of $30.9 million. for the three years ended 2011, 2010 and 2009 we recorded total revenues of $133.0 million, $80.8 million and $57.7 million, respectively. Collaborative milestones and settlement fees received from Abbott Products, Janssen and Merck resulted in our reaching profitability of $70.7 million and $3.9 million in 2011 and 2010, respectively. For the year ended December 31, 2009, we incurred a net loss of $22.0 million. We expect to incur operating losses in 2012, and we may incur operating losses in future years. Any such losses may have an adverse impact on our total assets, shareholders’ equity and working capital.

Our existing resources may not be sufficient to fund our operations until such time as we may be able to consistently generate sufficient revenues to support our operations.

Our existing capital resources may not be sufficient to fund our operations until such time as we may be able to generate sufficient revenues to consistently support our operations. We currently do not have any committed sources of capital. To the extent that our capital resources are insufficient to meet our future capital requirements, in order to continue our operations, we will have to raise additional funds through the sale of our equity securities, through debt financing, or from development and licensing arrangements. We may be unable to raise such additional capital on favorable terms, or at all. If we raise additional capital by selling our equity or convertible debt securities, the issuance of such securities could result in dilution of our shareholders’ equity positions. If adequate funds are not available we may have to:

· significantly curtail commercialization of our marketed products or other operations;

· delay, postpone or terminate clinical trials; and/or

· obtain funds through entering into collaboration agreements on unattractive terms.

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We have implemented certain anti-takeover provisions.

Certain provisions of our articles of incorporation and the California General Corporation Law could discourage a third party from acquiring, or make it more difficult for a third party to acquire, control of our company without approval of our board of directors. These provisions could also limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain provisions allow the board of directors to authorize the issuance of preferred stock with rights superior to those of the common stock. We are also subject to the provisions of Section 1203 of the California General Corporation Law which requires a fairness opinion to be provided to our shareholders in connection with their consideration of any proposed “interested party” reorganization transaction.

We have adopted a shareholder rights plan, commonly known as a “poison pill”. The provisions described above, our poison pill and provisions of the California General Corporation Law may discourage, delay or prevent a third party from acquiring us.

Increased costs associated with corporate governance compliance may significantly impact our results of operations.

Changing laws, regulations and standards relating to corporate governance, public disclosure and compliance practices, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ Global Market rules, are creating uncertainty for companies such as ours in understanding and complying with these laws, regulations and standards. As a result of this uncertainty and other factors, devoting the necessary resources to comply with evolving corporate governance and public disclosure standards has resulted in and may in the future result in increased general and administrative expenses and a diversion of management time and attention to compliance activities. We also expect these developments to increase our legal compliance and financial reporting costs. In addition, these developments may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Moreover, we may be unable to comply with these new rules and regulations on a timely basis.

These developments could make it more difficult for us to attract and retain qualified members of our board of directors, or qualified executive officers. We are presently evaluating and monitoring regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result. In the event these costs are significant, our selling, general and administrative expenses are likely to increase.

If we are unable to satisfy regulatory requirements relating to internal controls, our stock price could suffer.

Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to conduct a comprehensive evaluation of their internal control over financial reporting. At the end of each fiscal year, we must perform an evaluation of our internal control over financial reporting, include in our annual report the results of the evaluation, and have our external auditors publicly attest to such evaluation. If material weaknesses were found in our internal controls in the future, if we fail to complete future evaluations on time, or if our external auditors cannot attest to our future evaluations, we could fail to meet our regulatory reporting requirements and be subject to regulatory scrutiny and a loss of public confidence in our internal controls, which could have an adverse effect on our stock price.

Business interruptions could limit our ability to operate our business.

Our operations are vulnerable to damage or interruption from computer viruses, human error, natural disasters, telecommunications failures, intentional acts of vandalism and similar events. In particular, our corporate headquarters are located in the San Francisco Bay area, which has a history of seismic activity. We have not established a formal disaster recovery plan, and our back-up operations and our business interruption insurance may not be adequate to compensate us for losses that occur. A significant business interruption could result in losses or damages incurred by us and require us to cease or curtail our operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

(a) Exhibits

3.1 (1)		Amended and Restated Articles of Incorporation
3.2 (2)		Certificate of Amendment to Amended and Restated Articles of Incorporation
3.3 (3)		Certificate of Determination of Series RP Preferred Stock of the Company
3.4 (4)		Bylaws, as amended
4.1 (5)		Rights Agreement, dated as of April 21, 2005, between the Company and Continental Stock Transfer and Trust Company as Rights Agent
10.1 †		Asset Purchase Agreement between Depomed , Inc. and Xanodyne, Inc.
10.2 †		2004 Employee Stock Purchase Plan (as amended May 15, 2012)
10.3 †		Form of Management Continuity Agreement between the Company and certain officers of the Company
31.1		Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 of James A. Schoeneck
31.2		Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 of August J. Moretti
32.1		Certification pursuant to 18 U.S.C. Section 1350 of James A. Schoeneck
32.2		Certification pursuant to 18 U.S.C. Section 1350 of August J. Moretti
101 *		Interactive Data Files pursuant to Rule 405 of Regulation S-T

* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under these sections.

† Filed herewith

(1) Incorporated by reference to the Company’s registration statement on Form SB-2 (File No. 333-25445)

(2) Incorporated by reference to the Company’s Form 10-K filed on March 31, 2003

(3) Incorporated by reference to the Company’s Form 10-Q filed on May 10, 2005

(4) Incorporated by reference to the Company’s Form 8-K filed on April 19, 2005

(5) Incorporated by reference to the Company’s Form 8-A filed on April 22, 2005

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 3, 2012	DEPOMED, INC.


	/s/ James A. Schoeneck
	James A. Schoeneck
	President and Chief Executive Officer


	/s/ August J. Moretti
	August J. Moretti
	Chief Financial Officer

Exhibit 10.1

ASSET PURCHASE AGREEMENT

by and between

DEPOMED, INC.

and

XANODYNE PHARMACEUTICALS, INC.

Dated as of June 21, 2012

TABLE OF CONTENTS

		Page

ARTICLE I PURCHASE AND SALE OF ASSETS		1
1.1	Purchase and Sale of Assets	1
1.2	Excluded Assets	3
1.3	Assumption of Liabilities	4
1.4	Excluded Liabilities	5
1.5	Purchase Price	5
1.6	Closing; Delivery and Payment	7
1.7	Taxes and Fees	9
1.8	Allocation of Purchase Price	9

ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER		10
2.1	Organization, Standing and Power	10
2.2	Authority; No Conflict; Required Filings and Consents	10
2.3	Taxes	11
2.4	Intellectual Property	12
2.5	Contracts	15
2.6	Litigation	15
2.7	Inventory	16
2.8	Compliance With Laws	16
2.9	Permits	16
2.10	Product Liability	16
2.11	Regulatory Matters	17
2.12	Title to Acquired Assets; Condition of Acquired Assets	19
2.13	Sufficiency of Acquired Assets	19
2.14	Solvency	19
2.15	Fair and Adequate Consideration	20
2.16	Financial Statements	20
2.17	Insurance	20
2.18	Absence of Certain Changes	20
2.19	Disclosure	21

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER		21
3.1	Organization, Standing and Power	21
3.2	Authority; No Conflict; Required Filings and Consents	21
3.3	Litigation	22
3.4	Financing	22
3.5	Condition of Business	22

ARTICLE IV ADDITIONAL AGREEMENTS		23
4.1	Confidentiality	23
4.2	Post-Closing Cooperation	23
4.3	Public Disclosure	24
4.4	Further Assurances	24

4.5	Product Returns	25
4.6	Accounts Receivable	25
4.7	Use of Seller Brands	25
4.8	Regulatory Matters	26
4.9	Debarment and Exclusion	27
4.10	Notification of Customers	27
4.11	Government and GPO Contracts	28
4.12	Medicaid and Other State and Private Third Party Payer Rebates	28
4.13	Information for Calculating Prices	30
4.14	Seller Contact	30
4.15	Taxes	31
4.16	U.S. Excise Tax on Branded Pharmaceutical Manufacturers	32
4.17	Transaction Fees	32
4.18	Seller Covenant Not to Compete	32
4.19	Net Sales Reports	33
4.20	Privilege Rights	33
4.21	Corporate Existence	33
4.22	No Transfer of Right to Receive Milestone Payments	33
4.23	Medical Information Phone Number	34
4.24	Business Operation	34

ARTICLE V INDEMNIFICATION		34
5.1	Indemnification by the Seller	34
5.2	Indemnification by the Buyer	35
5.3	Claims for Indemnification	35
5.4	Survival	36
5.5	Limitations	37
5.6	Indemnification Payments	38
5.7	Setoff	38

ARTICLE VI MISCELLANEOUS		39
6.1	Notices	39
6.2	Entire Agreement	40
6.3	No Third Party Beneficiaries; No Successor Liability	40
6.4	Assignment	40
6.5	Severability	40
6.6	Counterparts and Signature	41
6.7	Interpretation	41
6.8	Governing Law	41
6.9	Remedies	41
6.10	Submission to Jurisdiction	41
6.11	Disclosure Schedules	42
6.12	Seller’s Knowledge	42

Seller Disclosure Schedule

Schedules:

Schedule 1.1(a)	Transferred Trademarks
Schedule 1.1(b)	Transferred Domain Names
Schedule 1.1(c)	Acquired Licenses and Seller Licensed Patents
Schedule 1.1(d)	Transferred Permits
Schedule 1.1(f)	Product Inventory
Schedule 1.1(h)	Equipment
Schedule 1.1(i)	Assumed Contracts
Schedule 1.1(j)	Prepaid Expenses
Schedule 1.2(c)	Excluded Assets
Schedule 1.3(e)	Assumed Liabilities
Schedule 1.5	Closing Inventory
Schedule 2.2(b)	Permitted Liens
Schedule 2.3	Tax Liens
Schedule 2.4(c)	USPTO Disclosure
Schedule 2.4(e)	Infringement Notices
Schedule 2.5(a)	Business Material Contracts
Schedule 2.11(d)	Clinical Trials
Schedule 2.16	Financial Statements
Schedule 2.17	Insurance
Schedule 4.2(a)	Transition Teams
Schedule 4.5	List of Product lot numbers sold exclusively by Seller

Exhibits:

Exhibit A	Escrow Agreement
Exhibit B	Bill of Sale
Exhibit C	Patent License Assignment
Exhibit D	Trademark Assignment
Exhibit E-1	Seller FDA Letter (IND)
Exhibit E-2	Seller FDA Letter (NDA)
Exhibit F-1	Buyer FDA Letter (IND)
Exhibit F-2	Buyer FDA Letter (NDA)
Exhibit G	Assumption Agreement
Exhibit H	Seller Counsel Legal Opinion
Exhibit I	Buyer Counsel Legal Opinion
Exhibit J	Transition Plan
Exhibit K	Customer Notification

iii

TABLE OF DEFINED TERMS

Terms		Reference in Agreement
Accountant		4.18.(c)
Acquired Assets		1.1
Acquired Licenses		1.1(c)
Additional Assumption Documents		1.6.(b)(x)
Additional Transfer Documents		1.6.(b)(vii)
Affiliate		4.8.(b)
Agreed Amount		5.3.(b)
Agreement		Preamble
Allocation		1.8
AMP		4.12.(a)
Ancillary Documents		1.6.(b)(x)
ANDA		2.6
Assumed Contracts		1.1.(i)
Assumed Liabilities		1.3
Assumption Agreement		1.6.(b)(viii)
Bill of Sale		1.6.(b)(ii)
Books and Records		1.1.(j)
Business		Preamble
Business Day		1.6.(a)
Business Material Adverse Effect		2.1
Business Material Contracts		2.5.(a)
Buyer		Preamble
Buyer FDA Letter		1.6.(b)(vi)
Buyer Material Adverse Effect		3.1
Buyer Rights Chain Group		1.5(c)
CDAPCA		2.11(a)
Chargebacks		4.11.(b)
cGMP		2.7
Claim Amount		5.3.(b)
Claim Notice		5.3.(b)
Closing		1.6.(a)
Closing Date		1.6.(a)
Closing Date Purchase Price		1.5
CMS		4.12.(a)
Code		1.8.
Composition		Preamble
Confidential Information		4.1
Core Reps		5.5.(a)
CSA		2.11(a)
Damages		5.1, 5.3(a)
DEA		2.11(a)
Deductible		5.5.(a)
Escrow Agent		1.5(a)

Terms		Reference in Agreement
Escrow Fund		1.5(a)
Escrow Agreement		1.5(a)
Excluded Assets		1.2
Excluded Liabilities		1.4
Excluded Tax Damages		5.5(a)
Exclusions		1.5(d)
FDA		1.6.(b)(v)
FDA Act		2.11(a)
Federal Ceiling Price		4.11(c)
First Additional Purchase Price Payment Date		1.5(a)(iv)
First Milestone Payment		1.5(a)(iv)
FSS		4.11(a)
GAAP		1.5(b)
Governmental Entity		2.2(c)
Health Authorities		2.11(a)
Health Laws		2.11(a)
HIPAA		2.11(h)
IND		2.11(b)
Indemnified Party		5.3(a)
Indemnifying Party		5.3(a)
Intellectual Property		2.4(a)
Investment Banker		2.15
Inventory Purchase Price		1.5(a)(ii)
Know-How		1.1(e)
Law		2.8
Laws		2.8
Lead Member		4.2(a)
Lead Members		4.2(a)
Liens		2.2(b)
Marketing Assets		1.1(g)
Medicaid Finished Product		4.12.(c)
Medical Information Phone Number		1.6(m)
NDA		2.11(b)
Net Sales		1.5(b)
Net Sales Report		4.19(a)
New Contact Number		4.23
Non-FAMP		4.11(a)
Order		2.4(e)
Other Assumed Liabilities		1.3(d)
Patent License Assignment		1.6(b)(iii)
Permits		1.1(d)
Permitted Liens		2.2(b)
PHS		4.11(d)
PO Purchase Price		1.5(a)(iii)
Product		Preamble

Terms		Reference in Agreement
Product Inventory		1.1(f)
Purchase Price		1.5(a)(v)
Rebates		4.12(b)
Report Deadline		4.19(a)
Returns Agreed Amount		5.3(c)
Returns Claim Amount		5.3(c)
Returns Claim Notice		5.3(c)
Returns Escrow Fund		1.5(a)
Second Additional Purchase Price Payment Date		1.5(a)(v)
Second Milestone Payment		1.5(a)(v)
Seller		Preamble
Seller Accounts Receivable		1.2(b)
Seller Brands		1.2(d)
Seller Disclosure Schedule		ARTICLE II
Seller FDA Letter		1.6(b)(v)
Seller Licensed Patents		1.1(c)
Seller Permits		2.9
Seller Product Returns		4.5(a)
Seller’s Knowledge		6.12
Tax Payee		4.15(c)
Tax Payor		4.15(c)
Tax Returns		2.3(a)
Taxes		2.3(a)
Taxing Authority		2.3(a)
Territory		1.1(c)
Third Party Claim Amount		5.3(a)
Third Party Claim Notice		5.3(a)
Trademark Assignment		1.6 (b)(iv)
Trademark Period		4.7(b)
Transaction Fees		4.17
Transition Plan		4.2(a)
Transition Team		4.2(a)
Transition Teams		4.2(a)
Transfer Taxes		1.7
Transferred Domain Names		1.1(b)
Transferred Intellectual Property		2.4(a)
Transferred Other IP		1.1(e)
Transferred Permits		1.1(d)
Transferred Trademarks		1.1(a)
VA		4.11(a)

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”) is entered into as of June 21, 2012, by and between Depomed, Inc., a California corporation (the “ Buyer ”), and Xanodyne Pharmaceuticals, Inc., a Delaware corporation (the “ Seller ”).

PRELIMINARY STATEMENT

WHEREAS, the Seller is engaged in the business of formulating, manufacturing, packaging, distributing, marketing and selling one or more pharmaceutical products containing diclofenac potassium in liquid capsule form (the “ Composition ”) (such products and the Composition, collectively, with all improvements, modifications, extensions and formulations thereof, including, but not limited to, XP21B, and including all forms of such products, the “ Product ”), including under the trademark of Zipsor® (the “ Business ”), and has certain rights with respect to the Product on a worldwide basis.

WHEREAS, the Seller desires to sell, convey, transfer, assign and deliver to the Buyer and the Buyer desires to purchase from the Seller all assets, rights and properties of Seller described herein relating to the Business upon the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Buyer and the Seller agree as follows:

ARTICLE I

PURCHASE AND SALE OF ASSETS

1.1 Purchase and Sale of Assets . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 1.6 below), the Seller agrees to sell, convey, transfer, assign and deliver to the Buyer, and the Buyer agrees to acquire, purchase and accept from the Seller, all of the Seller’s right, title and interest in and to the Acquired Assets, wherever located, free and clear of any Liens (as defined in Section 2.2(b) below). For purposes of this Agreement, the term “ Acquired Assets ” means:

(a) all of Seller’s trademarks, service marks, logos, brands, trade names and other source identifiers, or any contraction, abbreviation or simulation thereof, created by or for the Seller, owned by the Seller, licensed by the Seller, or acquired by the Seller, for use with the Product or the Business, including Zipsor®, ProSorb®, and all applications and registrations of the foregoing, all of which are set forth on Schedule 1.1(a) (the “ Transferred Trademarks ”);

(b) the Zipsor.com domain name and all other domain name registrations created by or for the Seller, owned by the Seller, licensed by the Seller, or acquired by the Seller, for use with the Product or the Business, including those domain name registrations set forth on Schedule 1.1(b) (the “ Transferred Domain Names ”);

(c) each third party in-license of the Seller to any issued patent and pending patent application worldwide (the “ Territory ”) that relates to the Product or the Business, or the formulation, manufacture, distribution, sale or use of the Product, all of which are set forth on Schedule 1.1(c) (collectively, the “ Acquired Licenses ”), including any continuation, divisional, continuation in part application, renewal, reexamination, extension of each such patent and patent application, all of which are set forth on Schedule 1.1(c) (collectively, the “ Seller Licensed Patents ”);

(d)

(i) all governmental, regulatory filings, correspondence, submissions, marketing authorizations, permits, licenses, registrations (including product registration data), regulatory clearances, certificates, approvals, variances, consents and similar items (the “ FDA Permits ”) of the Seller with the United States Food and Drug Administration (the “ FDA ”) related to the Product or the Business, including those related to marketing, pricing or reimbursement approval, including those items set forth on Schedule 1.1(d)(i) (the “ Transferred FDA Permits ”); and

(ii) to the extent transferrable, all of the Seller’s state governmental, regulatory filings, correspondence, submissions, marketing authorizations, permits, licenses, registrations (including product registration data), regulatory clearances, certificates, approvals, variances, consents and similar items (“ State Permits, ” together with the FDA Permits, the “ Permits ”) exclusively or primarily related to the Product or the Business, including those related to marketing, pricing or reimbursement approval and including those items set forth on Schedule 1.1(d)(ii) (the “ Transferred State Permits, ” together with the Transferred FDA Permits, the “ Permits ”); and

(e)

(i) (A) all of the Seller’s trade styles, copyrights, records (including, but not limited to, operating records), instructions, methods, processes, formulas, formulation information, technical information, validations, package specifications, chemical specifications, chemical and finished goods analytical test methods, data (including, but not limited to, stability data and clinical data), studies, product specifications, drawings and technology, laboratory notebooks, electronic databases and correspondence related to the Product or the Business (collectively, the “ Know-How ”) and (B) all of the Seller’s clinical, non-clinical, safety and adverse event report data, whether collected or in the process of collection, and manufacturing know-how related to the Product or the Business (collectively, the “ Transferred Other IP ”),

(ii) (A) all other Intellectual Property of the Seller (1) exclusively or primarily related to the Product or the Business or (2) that is essential to the Product or the Business, including all trade secrets and (B) to the extent transferable, all manufacturing technology of the Seller (1) exclusively or primarily related to the Product or the Business or (2) that is essential to the Product or the Business;

(f) all of the inventory of the Product, including, but not limited to, the existing finished quantities, work in process, raw materials, constituent substances, materials

(including, but not limited to, packaging materials and other collateral), stores and supplies, as well as any trade, sample or prototype inventories of the Product wherever located (the “ Product Inventory ”), all of which are set forth on Schedule 1.1(f) ;

(g) all of the Seller’s marketing and sales assets exclusively or primarily related to the Product or the Business or that are material to the Product or the Business, in any form or format, wherever located, including, but not limited to, all promotional materials, collateral, artwork, call lists, sales data, distribution history, marketing or sales analyses, training materials and collateral, customer lists and pricing information (the “ Marketing Assets ”), including the assets set forth on Schedule 1.1(g) , whether purchased by or developed by the Seller; provided , however , that any information not related to the Product or the Business may be redacted from such materials;

(h) all other assets, properties, equipment, fixtures, tooling, machinery, materials and supplies owned or controlled by, or in possession of, the Seller, as set forth on Schedule 1.1(h) hereto;

(i) all of the Seller’s rights under the Business Material Contracts and purchase orders set forth on Schedule 1.1(i) and all rights thereunder (the “ Assumed Contracts ”);

(j) all of the Seller’s prepaid expenses, fees or other similar payments related to the Business made in respect of the Acquired Assets, as set forth on Schedule 1.1(j) ;

(k) all of the Seller’s books, ledgers, files, reports, data, plans and records exclusively or primarily related to the Product or the Business or that are material to the Product or the Business, wherever located (the “ Books and Records ”), including the Books and Records set forth on Schedule 1.1(k) ; provided , however , that any information not related to the Product or the Business may be redacted from such materials and that the Books and Records shall not include any Tax books and records;

(l) copies of (i) all marketing and sales assets that relate to the Product or the Business and (ii) all books, ledgers, files, reports, data, plans and records that relate to the Product or the Business to the extent that such items do not constitute Marketing Assets or Books and Records;

(m) all claims, causes of action or other rights of the Seller, if any, arising out of any of the Acquired Assets arising before, on or after the Closing Date (other than the Seller Accounts Receivable);

(n) all of the Seller’s goodwill associated with the Acquired Assets; and

(o) all other assets, rights and properties of the Seller that (i) exclusively or primarily relate to the Product or the Business or (ii) are essential to the Product or the Business.

1.2 Excluded Assets . Notwithstanding anything to the contrary in this Agreement, the Acquired Assets shall not include any of the Excluded Assets. For purposes of this Agreement, the term “ Excluded Assets ” means the following:

(a) all cash and cash equivalents or similar investments, bank accounts, commercial paper, certificates of deposit, Treasury bills and other marketable securities;

(b) all accounts receivable related to sales of the Product prior to the Closing, including any sales, use or similar Taxes (as defined in Section 2.3 below) levied on or included in such accounts receivable, any unpaid interest accrued on any such accounts receivable and any security or collateral related thereto, and any payments received with respect thereto on or after the Closing Date (as defined in Section 1.6 below), as applicable (collectively, the “ Seller Accounts Receivable ”);

(c) all assets, properties or rights set forth on, or arising under any contracts or agreements set forth on, Schedule 1.2(c) , including but not limited to the deposit pursuant to the contract between the Seller and Relay Health;

(d) all trademarks, tradenames, logos or any contraction, abbreviation or simulation of the Seller not specifically set forth on Schedule 1.1(a) (the “ Seller Brands ”);

(e) all rights that accrue or will accrue to the benefit of the Seller under this Agreement or the Ancillary Documents (as defined in Section 1.6(b)(x) below);

(f) all tangible property of the Seller not specifically set forth on Schedule 1.1(h) or that is not an Acquired Asset; and

(g) all other assets, rights and properties of the Seller that are not included in the Acquired Assets.

1.3 Assumption of Liabilities . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the Buyer shall assume and agree to perform, pay, satisfy or discharge when due, only the Assumed Liabilities. For purposes of this Agreement, the term “ Assumed Liabilities ” means only the following liabilities and obligations of the Seller:

(a) all liabilities and obligations of the Seller arising under the Transferred Permits, including the PREA commitment listed on Schedule 1.3(a) hereto, and the Assumed Contracts after the Closing, excluding any liabilities and obligations resulting from any breach or violation of any Assumed Contract prior to the Closing;

(b) all liabilities and obligations of the Seller in respect of the Acquired Assets arising or incurred by the Buyer after the Closing;

(d) except as set forth in this Agreement, all liabilities and obligations that arise on account of the sale of the Product after the Closing; and

(e) all liabilities and obligations set forth on Schedule 1.3(e) (“ Other Assumed Liabilities ”).

1.4 Excluded Liabilities . Notwithstanding anything to the contrary in this Agreement, the Assumed Liabilities shall not include any of the Excluded Liabilities, and the Buyer does not hereby and shall not assume or in any way undertake to perform, pay, satisfy or discharge the Excluded Liabilities. For purposes of this Agreement, the term “ Excluded Liabilities ” means all liabilities and obligations of the Seller, of every kind, nature, character and description (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due) other than those specifically listed or described in the definition of Assumed Liabilities. Without limitation of the foregoing, the Excluded Liabilities shall include the following:

(a) all liabilities and obligations related to any Excluded Assets;

(b) any liabilities and obligations arising out of the Seller’s operation of the Business or ownership of the Acquired Assets prior to the Closing, including, but not limited to, any liabilities and obligations relating to the returns of the Product received by the Seller prior to the Closing Date, any product liability, or any breach of warranty or similar claim for injury or other harm to person or property, regardless of when asserted, that arises out of the use or misuse of the Product supplied by, for or on behalf of the Seller prior to the Closing;

(c) all liabilities and obligations with respect to the Acquired Assets or the Business to employees or independent contractors of the Seller, or persons or entities asserting claims on behalf of such employees, including any liability for employment, labor, pension or personnel benefits;

(d) all liabilities and obligations of the Seller under this Agreement and the Ancillary Documents;

(e) all liabilities and obligations related to (i) any and all Taxes in respect of the Business or otherwise related to the Acquired Assets for any period ending on or before the Closing Date, as determined pursuant to Section 4.15(a) , and (ii) any and all Taxes of the Seller or any of its Affiliates (as defined in Section 4.8(b) );

(f) all liabilities and obligations of the Seller for costs and expenses incurred in connection with this Agreement or the consummation of the transactions contemplated by this Agreement;

(g) all liabilities and obligations of the Seller arising as a result of any legal or equitable action or judicial or administrative proceeding initiated at any time, to the extent that such action or proceeding relates to any action or omission that occurred prior to the Closing by or on behalf of the Seller; and

(h) all liabilities and obligations of the Seller to pay any bonus, royalty, milestone or similar payment pursuant to any Acquired License.

1.5 Purchase Price . As consideration for the Acquired Assets, in addition to assuming the Assumed Liabilities, subject to the terms and conditions of this Agreement:

(a) Buyer shall pay:

(i) to the Seller at the Closing $25,900,000 (the “ Closing Date Purchase Price ”), of which $3,000,000 (such amount, together with any interest thereon, the “ Escrow Fund ”) shall be paid to Wells Fargo Bank, N.A. as escrow agent (the “ Escrow Agent ”) in accordance with the terms and conditions of the Escrow Agreement attached hereto as Exhibit A (the “ Escrow Agreement ”);

(ii) to the Seller upon receipt by the Buyer or its designee, the amount of inventory set forth on Schedule 1.5 (the “ Inventory Purchase Price ”);

(iii) to the Seller, $2,000,000 (the “ First Milestone Payment ”) within 30 days of the end of the first calendar year in which the Net Sales of the Product exceed $30,000,000 (the “ First Additional Purchase Price Payment Date ”); and

(iv) to the Seller, $3,000,000 (the “ Second Milestone Payment ” and, together with the Closing Date Purchase Price, the Inventory Purchase Price and the First Milestone Payment, the “ Purchase Price ”) within 30 days of the end of the first calendar year in which the Net Sales of the Product exceed $60,000,000 (the “ Second Additional Purchase Price Payment Date ”).

(b) For the purposes of this Agreement, “ Net Sales ” shall mean the gross amount invoiced for sales or other commercial dispositions of a Product by a member of the Buyer Rights Chain Group to a person or entity who is not a member of the Buyer Rights Chain Group minus the Exclusions (as defined in Section 1.5(d) below). Net Sales shall be calculated in accordance with United States generally accepted accounting principles (“ GAAP ”) as consistently applied by the applicable Buyer Rights Chain Group member across all of its products. Sales or other commercial dispositions of a Product among members of the Buyer Rights Chain Group for resale shall be excluded from the computation of Net Sales; provided , however , that any subsequent sale of a Product by any member of the Buyer Rights Chain Group to another person or entity that is not a member of the Buyer Rights Chain Group shall be included within Net Sales. Notwithstanding the foregoing, a Product provided by a member of the Buyer Rights Chain Group for no revenue for administration to patients enrolled in clinical trials or distributed through a not-for-profit foundation at no or nominal charge to eligible patients in conjunction with a patient assistance program will not be included in Net Sales. For purposes of calculating Net Sales, sales in any currency other than U.S. dollars shall be converted to U.S. dollars using the applicable exchange rate published in The Wall Street Journal on the first Business Day of the month immediately following the applicable fiscal quarter of the Buyer in which the sale occurred.

(c) “ Buyer Rights Chain Group ” means (a) the Buyer, the Buyer’s Affiliates (as defined in Section 4.8 below) and their direct and indirect subsidiaries; (b) with respect to the Product, any person or entity to which any right in or to such Product, or any of the Intellectual Property covering such Product, is licensed, sublicensed, assigned or transferred by the Buyer, the Buyer’s Affiliates or their direct or indirect Subsidiaries; (c) with respect to the Product, any person or entity to which any right in or to such Product, or any of the Intellectual Property covering such Product, is licensed, sublicensed, assigned or transferred by any person described in clauses (a) or (b) above; (d) with respect to the Product, any successor or assign of any person or entity described in clauses (a), (b) or (c) above with respect to such person’s or entity’s

interest in such Product; and (e) any Affiliate of any person or entity described in clauses (b), (c) or (d) above.

(d) “ Exclusions ” means, with respect to a Product, the following items to the extent included in the gross invoiced price of such Product and not separately invoiced, in each case to the extent actually and reasonably allowed or incurred in connection with the sale of such Product: (a) amounts invoiced for freight, postage, shipping and insurance, handling and other transportation costs, provided , that, if a shipment contains product(s) other than such Product, then a reasonable allocation shall be made that does not allocate freight, shipping, insurance and other transportation expenses disproportionately to such Product as compared to such other product(s); (b) sales, use, value added and other similar taxes with respect to sales or other dispositions of such Product (reduced by any refunds of such taxes deducted in the calculation of Net Sales for prior periods and excluding income taxes); (c) tariffs, customs duties, surcharges and other governmental charges levied on the sale, transportation or delivery of such Product; (d) government rebates and discounts; (e) reasonable credits or allowances for returns, rejections or recalls (due to spoilage, damage, expiration of useful life or otherwise), retroactive price reductions, billing corrections or bad debts; (f) trade discounts, credits or allowances; (f) rebates, discounts, credits, allowances and charge backs, including those granted to managed care organization, wholesaler, distributor, buying group, health care insurance carrier, chain pharmaceutical, mass merchandiser, staff model HMO, pharmacy benefit manager and hospital buying group/group purchasing organization administration fees; and (g) patient assistance programs. There shall be no double counting in determining the foregoing deductions from gross amounts invoiced to calculate Net Sales. The Exclusions shall be determined in accordance with GAAP, as consistently applied by the applicable Buyer Rights Chain Group member across all of its products.

1.6 Closing; Delivery and Payment .

(a) Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated hereby (the “ Closing ”) shall take place at 12:30 p.m., Pacific time, on the date of this Agreement (the “ Closing Date ”) at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 399 Park Avenue, New York, New York 10022, unless another date, place or time is agreed to in writing by the Buyer and the Seller. For purposes of this Agreement, a “ Business Day ” shall be any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions located in New York, New York are permitted or required by Law, executive order or governmental decree to remain closed.

(b) At the Closing:

(i) the Buyer shall pay the Closing Date Purchase Price and the Inventory Purchase Price by wire transfer of immediately available funds to such account or accounts as the Seller and the Escrow Agent, as applicable, shall designate in writing to the Buyer;

(ii) the Seller shall execute and deliver a Bill of Sale in substantially the form attached hereto as Exhibit B (the “ Bill of Sale ”);

(iii) the Seller shall execute and deliver a Patent and Trademark License Assignment in substantially the form attached hereto as Exhibit C (the “ Patent License Assignment ”);

(iv) the Seller shall execute and deliver a Trademark Assignment in substantially the form attached hereto as Exhibit D (the “ Trademark Assignment ”);

(v) the Seller shall execute and deliver to the Buyer a letter from the Seller to the FDA transferring to the Buyer the rights to the applicable Transferred Permits issued by the FDA, in substantially the form attached hereto as Exhibit E (the “ Seller FDA Letter ”);

(vi) the Buyer shall execute and deliver to the Seller a letter from the Buyer to the FDA assuming responsibility for post-Closing obligations for the applicable Transferred Permits issued by the FDA, in substantially the form attached hereto as Exhibit F (the “ Buyer FDA Letter ”);

(vii) the Seller and the Buyer shall execute and deliver such other instruments of transfer, conveyance and assignment as the Buyer may reasonably request in order to effect the sale, transfer, conveyance and assignment to the Buyer of all right, title and interest in and to the Acquired Assets (the “ Additional Transfer Documents ”);

(viii) the Buyer shall execute and deliver to the Seller an Assumption Agreement in substantially the form attached hereto as Exhibit G (the “ Assumption Agreement ”);

(ix) the Seller shall execute and deliver to the Buyer a certification pursuant to U.S. Treasury regulation § 1.1445-2(b)(2), in a form reasonably acceptable to the Buyer, that the Seller is not a “foreign person” for U.S. federal income tax purposes;

(x) the Buyer and the Seller shall execute and deliver such other instruments as the Seller may reasonably request in order to effect the assumption by the Buyer of the Assumed Liabilities (the “ Additional Assumption Documents ” and, together with the Bill of Sale, the Patent License Assignment, the Trademark Assignment, the Seller FDA Letter, the Buyer FDA Letter, the Additional Transfer Documents, the Assumption Agreement and the Additional Assumption Documents, the “ Ancillary Documents ”);

(xi) the Seller shall deliver or make available to the Buyer, each to the extent existing in physical or electronic form and in the possession of the Seller, the Marketing Assets, the Books and Records and the Transferred Other IP;

(xii) the Seller shall deliver or make available to the Buyer, or otherwise put the Buyer in possession and control of, all of the other Acquired Assets of a tangible nature owned by the Seller, it being understood that physical delivery of the Product Inventory shall be made by the Seller and costs thereof shall be borne by the Seller;

(xiii) the Seller shall deliver to the Buyer a legal opinion of Wilmer Cutler Pickering Hale and Dorr LLP dated as of the Closing Date and addressed to the Buyer in the form attached hereto as Exhibit H ;

(xiv) the Buyer shall deliver to the Seller a legal opinion of Baker Botts L.L.P. dated as of the Closing Date and addressed to the Seller in the form attached hereto as Exhibit I ; and

(xv) the Seller shall deliver to the Buyer such documentation as may be reasonably requested by the Buyer evidencing the receipt or satisfaction, as applicable, of each consent, approval, notification, disclosure, filing and registration set forth or required to be set forth on Schedule 2.2(a) , Schedule 2.2(b) , Schedule 2.2(c) and Schedule 2.5(c) .

1.7 Taxes and Fees . Any and all sales taxes, use taxes, transfer taxes, excise taxes, tariffs, stamp taxes, conveyance taxes, mortgage taxes, intangible taxes, documentary fees, recording taxes, license or registration fees, value added taxes, recording fees or similar taxes or charges, including any interest or penalties thereon, imposed by any Governmental Entity (as defined in Section 2.2(c) below) upon the transfer of the Acquired Assets hereunder (“ Transfer Taxes ”) shall be timely paid by the Seller. The Seller shall timely file all tax returns, bulk sales notices and other documentation with respect to such Transfer Taxes required by applicable Tax Law to be filed by the Seller. If the Buyer is required by applicable Tax Law to file a tax return or other documentation with respect to any Transfer Tax, the Buyer shall timely file such return or documentation. The Seller shall reimburse the Buyer for any Transfer Tax paid by the Buyer within 20 Business Days of such payment. If required by applicable Tax Law, the Parties will join in the execution of any Tax Returns and other documentation relating to Transfer Taxes.

1.8 Allocation of Purchase Price . No later than 60 days after the Closing Date, the Buyer shall prepare and deliver to the Seller for its review, comment and consent (such consent not to be unreasonably withheld, conditioned or delayed) a statement setting forth the allocation of the sum of the Purchase Price, plus any related Assumed Liabilities, plus any other amounts as required by applicable Tax Law among the Acquired Assets, which allocation shall be made in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended (the “ Code ”), and any applicable U.S. Treasury regulations (the “ Allocation ”). The Seller shall notify the Buyer in writing within 30 days after receipt of the Allocation of any reasonable objections the Seller may have with the Allocation, in which case the Buyer and the Seller shall use their good faith efforts to reach agreement thereon. In the event the Buyer and the Seller fail to so agree within 30 days after the Seller’s notice has been delivered, then the Buyer and the Seller shall promptly engage, at the Seller’s expense, an accounting firm of national reputation and mutually agreeable to each of the Buyer and the Seller to resolve the dispute within 60 days of the engagement. The Allocation finally determined pursuant to agreement of the parties or resolution by such accounting firm shall be used by the Seller and the Buyer for all purposes, including preparation and filing of IRS Form 8594, and no party hereto shall take or assert any position inconsistent therewith except to the extent required by applicable Tax Law.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller represents and warrants to the Buyer that the statements contained in this Article II are true and correct, except as set forth herein or in the disclosure schedule delivered by the Seller to the Buyer and dated as of the date of this Agreement (the “ Seller Disclosure Schedule ”).

2.1 Organization, Standing and Power . The Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware, has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted and is duly qualified to do business and, where applicable as a legal concept, is in good standing as a foreign corporation in each jurisdiction in which the character of the properties it owns, operates or leases or the nature of its activities makes such qualification necessary, except for such failures to be so organized, qualified or in good standing, individually or in the aggregate, that would not reasonably be expected to have a Business Material Adverse Effect. For purposes of this Agreement, the term “ Business Material Adverse Effect ” means any material adverse change, event, circumstance or development with respect to, or material adverse effect on, the Product, the Acquired Assets, the Assumed Liabilities, the Business or the ability of the Seller to consummate, including any material delay in the Seller’s ability to consummate, the transactions contemplated by this Agreement.

2.2 Authority; No Conflict; Required Filings and Consents .

(a) The Seller has all requisite corporate power and authority to enter into this Agreement and each of the Ancillary Documents to which it will be a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Seller of this Agreement and each of the Ancillary Documents to which it will be a party and the consummation of the transactions contemplated hereby and thereby by the Seller have been duly authorized by all necessary corporate action on the part of the Seller. The consummation of the transactions contemplated by this Agreement have been approved by all necessary action on the part of the Seller’s stockholders. This Agreement has been, and each such Ancillary Document will be, duly executed and delivered by the Seller, and this Agreement is, and each such Ancillary Document when so duly executed and delivered by the Seller and, if applicable, the Buyer, will be, the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to or affecting the rights of creditors generally and by equitable principles, including those limiting the availability of specific performance, injunctive relief and other equitable remedies and those providing for equitable defenses.

(b) The execution, delivery and performance by the Seller of this Agreement and each of the Ancillary Documents to which it is or will be a party, and the consummation by the Seller of the transactions contemplated hereby and thereby, do not and will not, (i) conflict with, or result in any violation or breach of, any provision of the Certificate of Incorporation or By-laws of the Seller, each as amended to date, (ii) conflict with, or result in any violation or

breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under, require a consent, notice or waiver under, require the payment of a penalty under or result in the imposition of any mortgage, security interest, pledge, conditional sale or other title retention agreement, lien, charge or encumbrance (“ Liens ”), other than Permitted Liens, on or with respect to any of the Acquired Assets, including, but not limited to, the Assumed Contracts, the Acquired Licenses or the Transferred Permits, or (iii) subject to compliance with the requirements specified Section 2.2(c) , conflict with or violate any permit, concession, franchise, license or Law applicable to the Seller or any of its properties or assets. For purposes of this Agreement, the term “ Permitted Liens ” means (A) mechanic’s, materialmen’s, landlord’s, laborer’s, carrier’s, warehouseman’s, supplier’s, vendor’s and similar liens incurred in the ordinary course of business, (B) liens for Taxes not yet due and payable and (C) any other liens set forth Schedule 2.2(b) hereto.

(c) No consent, approval, license, permit, order or authorization of, or registration, declaration, notice or filing with, any U.S. federal, state, municipal or local government, court, tribunal, agency, commission, regulatory authority or instrumentality or any other U.S. entity or person exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to a government (a “ Governmental Entity ”) is required by or with respect to the Seller in connection with the execution, delivery and performance by the Seller of this Agreement and each of the Ancillary Documents to which it will be a party or the consummation by the Seller of the transactions contemplated hereby and thereby, except for such consents, approvals, licenses, permits, orders, authorizations, registrations, declarations, notices and filings which, if not obtained or made, would not reasonably be expected to materially diminish or impair the use or value of the Acquired Assets or the value or operation of the Business.

2.3 Taxes .

(a) The Seller has timely filed all material Tax Returns that it has been required to file, and all such Tax Returns were true, correct and complete in all material respects. The Seller has paid on a timely basis all Taxes that have been due from and payable by the Seller. For purposes of this Agreement, (i) “ Taxes ” means (A) all taxes, charges, fees, duties, levies or other similar assessments or liabilities in the nature of a tax, including income, excess profits, gross receipts, net proceeds, alternative or add-on minimum, ad valorem, premium, value-added, excise, real property, personal property (tangible and intangible), inventory, stamp, capital stock, sales, use, service, transfer, withholding, employment, social security, unemployment, disability, payroll, occupational, severance, estimated and franchise taxes imposed by any Taxing Authority and (B) any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any tax described in clause (A) or any contest or dispute thereof, (ii) “ Tax Returns ” means all reports, returns, declarations, statements or other information required to be supplied to any Taxing Authority in connection with Taxes (including any attachments thereto or amendments thereof), (iii) “ Taxing Authority ” means any U.S. or non-U.S. federal, state, municipal or local government, court, tribunal, agency, commission, regulatory authority or instrumentality or any other entity or person exercising executive, legislative, judicial, regulatory or administrative authority to impose, levy or assess any Tax, and (iv) “ Tax Law ” means any U.S. or non-U.S. federal, state, provincial,

municipal or local law, statute, ordinance, treaty, common law, rule, regulation, standard, judgment, order, writ, injunction, decree, arbitration award, agency requirement, license or permit of any Taxing Authority. The Seller has complied in all material respects with all applicable Tax Laws relating to the filing of Tax Returns and the payment and withholding of Taxes, and all Taxes that the Seller has been required by Tax Law to withhold or collect have been duly withheld or collected and, to the full extent required, have been properly paid to the appropriate Taxing Authorities.

(b) The Seller (i) is not a party to any agreement with any Taxing Authority extending the time within which to file any Tax Return (which Tax Returns are related to the Acquired Assets or the Business) and (ii) has not granted, or been requested to grant, any extension of the statute of limitations for the assessment or collection of Taxes (which Taxes are related to the Acquired Assets or the Business).

(c) There are no Liens with respect to Taxes upon any of the Acquired Assets, other than with respect to Taxes not yet due and payable or being contested in good faith and for which adequate reserves have been set forth on the Seller’s financial statements as set forth on Schedule 2.2(b) .

(d) With respect to the Business or the Acquired Assets, there is no action, suit, proceeding, audit, claim or assessment pending, or to the Seller’s Knowledge (as defined in Section 6.12 below), proposed by a Taxing Authority with respect to any Taxes.

(e) No written claim has been made by any Taxing Authority that the Seller is or may be subject to taxation in a jurisdiction where the Seller does not file a Tax Return related to the Business or the Acquired Assets.

(f) None of the Acquired Assets is subject to or owned by any tax partnership, as defined in Section 761 of the Internal Revenue Code of 1986, as amended, and the related U.S. Treasury regulations.

2.4 Intellectual Property .

(a) The Transferred Intellectual Property constitutes all Intellectual Property that (i) is owned or licensed by the Seller with respect to which the Seller possesses other rights and (ii) (A) relates primarily or exclusively to the Product or the Business or (B) is essential for the sale of the Product or the operation of the Business. The Seller has good, saleable and sole title in and to all of the Transferred Intellectual Property, free and clear of all Liens, other than Permitted Liens, and free and clear of any requirement of any royalty, milestone or similar payments. The Seller has not (i) transferred ownership of, (ii) granted any license or other right to use, or (iii) authorized the retention of any rights to use, any Transferred Intellectual Property to any third party. For purposes of this Agreement, (A) the term “ Intellectual Property ” means any and all intellectual property rights and other similar proprietary rights in any and all jurisdictions, whether registered or unregistered, whether owned or held for use under license, including all rights and interests pertaining to or deriving from (1) patents, trademarks, service marks, trade names, domain names, copyrights, designs and trade secrets, (2) applications for and registrations of such patents, including reexaminations, extensions and counterparts claiming

priority therefrom, inventions, invention disclosures, discoveries and improvements, whether or not patentable, trademarks, service marks, trade names, domain names, copyrights and designs, (3) proprietary or confidential processes, formulae, methods, schematics, technology, know-how and computer software programs and applications, including data files, source code, object code and software-related specifications and documentation, (4) other tangible or intangible proprietary or confidential information and materials, including proprietary databases and data compilations, in each case, including any registrations of, applications to register, and renewals and extensions of, any of the foregoing with or by any Governmental Entity in any jurisdiction, (5) all moral rights and all other proprietary rights that are primarily related to, used or maintained in connection with or for the purpose of the operation, conduct or maintenance of the Business, and (6) any similar or equivalent rights to any of the foregoing anywhere in the world, together with the goodwill and the business appurtenant thereto and the right to sue third parties for infringement (including, without limitation, damages and injunctive relief) of any of the foregoing based on activities occurring prior to and including the Closing Date and any current or future right to receive royalties based on any of the foregoing, whether choate or inchoate, known or unknown, contingent or non-contingent; and (B) the term “ Transferred Intellectual Property ” means the Acquired Licenses, Seller Licensed Patents, Transferred Trademarks, Transferred Domain Names and Transferred Other IP.

(b) Except as to the Acquired Licenses or the Seller Licensed Patents, the Seller is not a party to any agreement pursuant to which the Seller has licensed or obtained any Transferred Intellectual Property from a third party. All registrations, issuances and applications for the Transferred Intellectual Property, including, but not limited to, the Seller Licensed Patents set forth Schedule 1.1(c) , the Transferred Trademarks set forth Schedule 1.1(a) and the Transferred Domain Names set forth Schedule 1.1(b) (A) have been duly filed or registered (as applicable) with the applicable Governmental Entity and properly maintained in all material respects, including without limitation the timely submission of all necessary filings and payment of fees in accordance with the legal and administrative requirements in the appropriate jurisdictions, and (B) have not lapsed or expired. Schedule 1.1(b) of the Seller Disclosure Schedule lists all actions that must be taken by the Seller within 180 days from the date of this Agreement to maintain or renew such registrations, issuances and applications, including the payment of any registration, maintenance, renewal fees, annuity fees and taxes to, or the filing of any documents or certificates with, the relevant patent, copyright, trademark or similar authorities in the United States.

(c) To the Seller’s Knowledge, there is no material fact with respect to any patent application owned or licensed by the Seller and comprised within the Transferred Intellectual Property required to be disclosed to the United States Patent and Trademark Office that was not disclosed and that would reasonably be expected to (i) preclude the issuance of an issued patent from such patent application or (ii) render any issued patent issuing from such patent application invalid or unenforceable. The Seller has complied in all material respects with applicable requirements including the duty to disclose and applicable duties of candor in the filing and prosecution of the patents and patent applications, comprised within the Transferred Intellectual Property.

(d) To the Seller’s Knowledge, no third party is infringing or violating or misappropriating any of the Transferred Intellectual Property or has made any claim of

ownership or right to any Transferred Intellectual Property. The Seller has not sent any notice to or asserted or threatened any action or claim against any person or entity involving or relating to any Transferred Intellectual Property. The Seller has not received any written notice from any third party notifying the Seller of, or requesting, that in relation to the Product, the Acquired Assets or the Business, the Seller enter into a license, under any third party Intellectual Property right.

(e) The operation of the Business, including the Seller’s manufacturing, marketing and sale of the Product, does not infringe or violate or constitute a material misappropriation of any Intellectual Property of any third party, violate the rights of any third party (including rights to privacy or publicity), or constitute unfair competition or an unfair trade practice under any applicable Law. The Seller has not received any written claim or notice alleging any such infringement, violation or misappropriation. There is no pending or, to the Seller’s Knowledge, threatened claim, interference, opposition or demand of any third party challenging the ownership, validity or scope of any Transferred Intellectual Property. The Seller has not been served with or provided written notice that any Transferred Intellectual Property is the subject of any judicial, administrative or arbitral order, award, decree, injunction, lawsuit, judgment, proceeding or stipulation (“ Order ”), and the Seller is not subject to any Order barring or limiting the Seller’s use, license or ownership of any Transferred Intellectual Property.

(f) Neither this Agreement nor the transactions contemplated by this Agreement will result in the Buyer granting or issuing, or being obligated to grant or to issue, any rights or licenses with respect to the Intellectual Property of the Buyer to any third party pursuant to any contract or agreement to which the Seller is bound, including, but not limited to, the Acquired Licenses or the Assumed Contracts.

(g) The Seller has not sought or procured a “freedom to operate” opinion or analysis from patent counsel with respect to the development, manufacture, marketing, distribution, sale or other use of the Product.

(h) The Seller has taken commercially reasonable measures to maintain in confidence all trade secrets and confidential information comprising a part of the Transferred Intellectual Property. The Seller requires each person or entity employed or retained by it as a consultant or independent contractor who contributed to the creation or development of any of the Transferred Intellectual Property to enter into an agreement covering confidentiality and assignment of inventions, a form of which has been made available to the Buyer. No current or former employee, officer, consultant or independent contractor of the Seller, or to the Seller’s Knowledge, any other person or entity, has any right, title, claim or interest in, to or under any Transferred Intellectual Property owned or developed by or on behalf of the Seller, or acquired by the Seller.

(i) All fees, annuities, royalties, honoraria and other payments that are or were due from the Seller on or before the Closing for any of the Transferred Intellectual Property or the Assumed Contracts have been paid.

(j) No government funding or facilities of a university, college, other educational institution or research center, were used by the Seller or to the Seller’s Knowledge

another party in (i) the development of or acquisition by the Seller of the Transferred Intellectual Property or the Product or (ii) the conduct of the Business.

2.5 Contracts .

(a) Schedule 2.5(a) of the Seller Disclosure Schedule sets forth a complete and accurate list of each contract or agreement to which the Seller is a party as of the date of this Agreement that (i) relates exclusively or primarily to the Product or the Business or (ii) has been used by the Seller and is material to the Product or the Business (collectively, the “ Business Material Contracts ”).

(b) The Seller has made available to the Buyer a complete and accurate copy of each Business Material Contract. Each Business Material Contract is the legal, valid and binding obligation of the Seller and is in full force and effect with respect to the Seller and, to the Seller’s Knowledge, with respect to each other party thereto, except to the extent it has previously expired in accordance with its terms. The Seller has not waived any of its material rights under any Business Material Contract. No Business Material Contract restricts the conduct or operation of the Business, including to accommodate the intellectual property rights of a third party. Except as may be reflected in the Business Material Contracts, the Seller has not at any time assigned, transferred or otherwise conveyed any or all of its rights, title, interests, duties or obligations in, to, under or with respect to the Business Material Contracts nor are any such rights encumbered. The Seller is not in violation of or in default under, and to the Seller’s Knowledge, no other party to any Business Material Contract is in violation of or in material default under (nor does there exist any condition which, upon the passage of time or the giving of notice or both, would reasonably be expected to cause such a violation of or material default under or permit termination, material modification or acceleration of any material obligations of the Seller pursuant to) any Business Material Contract.

(c) Except as set forth on Schedule 2.5(c) of the Seller Disclosure Schedule, each Business Material Contract that constitutes an Assumed Contract is assignable or transferable to the Buyer without (i) the written consent of the other party, (ii) the prior written notice to the other party and (iii) the making of any payment or grant of any other consideration or rights to the other party.

2.6 Litigation . There is no action, suit, proceeding, claim, arbitration or investigation pending with respect to the Acquired Assets or the Business (i) to which the Seller is a party, (ii) of which the Seller has received written notice or (iii) with respect to which Seller has Knowledge and, to the Seller’s Knowledge, no such action, suit, proceeding, claim, arbitration or investigation has been threatened against the Seller. There are no unsatisfied judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a court, an administrative agency or by an arbitrator) against any of the Acquired Assets or against the Seller with respect to the Business. The Seller has not received or been notified of and has no knowledge of any Paragraph IV Certification Notice in accordance with 21 U.S.C. § 355(j)(2)(B)(ii) advising either the Seller or the owner or assignee of the Seller Licensed Patents of the filing by an Abbreviated New Drug Application with respect to the Product (“ ANDA ”). To the Seller’s Knowledge, no ANDA filing has been threatened with respect to the Product.

2.7 Inventory .

(a) The Product Inventory consists of bulk tablets, trade inventories and sample inventories. All inventories of the Product consist of a quality usable and saleable, as applicable, in the ordinary course of business. All trade inventories of the Product comprising part of the Product Inventory have an expiration date of at least 24 months from the date of this Agreement. All sample inventories of the Product comprising part of the Product Inventory have an expiration date of at least 12 months from the date of this Agreement. All of the Product Inventory is free of defects (including defects in packaging, labeling, storage and encapsulation), and complies in all material respects with all applicable specifications and all applicable Law, including, without limitation, all regulatory requirements and environmental Laws, including cGMP and may be introduced into interstate commerce in the United States in accordance with applicable Law. All Product Inventory that has been returned, is expired or has been deemed unusable or not fit for sale, has been or will be destroyed in accordance with the policies of the Seller. For purposes of this Agreement, “ cGMP ” means the then-current good manufacturing practices required by the FDA, as defined in 21 C.F.R. Parts 210 and 211, for the manufacture and testing of pharmaceutical materials.

2.8 Compliance With Laws . The Seller is in compliance in all material respects with, is not in material violation of, and, since January 1, 2008, has not received any notice alleging any material violation with respect to, any applicable Law with respect to the Product, the Business or the ownership or operation of the Acquired Assets. For purposes of this Agreement, “ Law ” or “ Laws ” means any U.S. federal, state, provincial, municipal or local law, statute, ordinance, treaty, common law, rule, regulation, standard, judgment, order, writ, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity.

2.9 Permits . The Seller has all Permits necessary for the Seller to own, lease or operate the Acquired Assets and operate the Business in the manner currently conducted and in which the Business has been conducted prior to the date of this Agreement. Schedule 1.1(d) contains a complete listing of all such Permits (the “ Seller Permits ”). The Seller is in compliance in all material respects with the terms of the Seller Permits and has not received any written notices that it is in violation of any of the terms or conditions of such Seller Permits. All such Seller Permits are in full force and effect and no action or claim is pending or, to the Seller’s Knowledge, threatened to revoke, suspend, adversely modify or terminate any such Seller Permit or declare any such Seller Permit invalid in any material respect. The Seller has not received any written notice with respect to any failure by the Seller to timely possess any Seller Permit.

2.10 Product Liability . No product liability claims have been received in writing by the Seller and, to the Seller’s Knowledge, no such claims have been threatened against the Seller, in each case relating to the Product. There is no judgment, order or decree outstanding against the Seller (or to Seller’s Knowledge, any other person or entity) relating to product liability claims with respect to the Product.

2.11 Regulatory Matters .

(a) The Product has been researched, developed, tested, manufactured, supplied, promoted, co-promoted, distributed, marketed, commercialized, stored and sold by Seller and, to the Seller’s Knowledge, by each other person on behalf of the Seller, as applicable, in compliance in all material respects with (i) the Federal Food, Drug and Cosmetic Act (the “ FDA Act ”), the Comprehensive Drug Abuse Prevention and Control Act of 1970 (the “ CDAPCA ”), the Controlled Substances Act (the “ CSA ”), the Patient Protection and Affordable Care Act (“ PPACA ”) and applicable regulations issued by the FDA, including, as applicable, those requirements relating to the FDA’s cGMP, good laboratory practices and good clinical practices, and in all material respects all other Health Laws, rules and regulations and (ii) all Transferred Permits. For purposes of this Agreement, (A) the term “ Health Laws ” means any Law the purpose of which is to ensure the safety, efficacy and quality of medicines by regulating the research, development, manufacturing and distribution of these products, including, but not limited to, Laws relating to good laboratory practices, good clinical practices, investigational use, product marketing authorization, manufacturing compliance and approval, good manufacturing practices, labeling, advertising, promotional practices, pricing, safety surveillance, record keeping and filing of required reports, including, but not limited to, the FDA Act, the Public Health Service Act, as amended, their associated rules and regulations promulgated thereunder and (B) the term “ Health Authorities ” means the Governmental Entities which administer Health Laws, including, but not limited to, the FDA and the United States Drug Enforcement Agency (the “ DEA ”).

(b) The Seller has made available to the Buyer as of the date of this Agreement complete and correct copies of (i) each New Drug Application (“ NDA ”) and each Investigational New Drug application (“ IND ”) submitted to the FDA with respect to the Product, including all supplements and amendments thereto and (ii) all other correspondence, communications or filings submitted to the FDA and received from the FDA, including meeting minutes, with respect to the Product, the Acquired Assets, or the Business, including, but not limited to, all supplements and amendments thereto.

(c) The Seller has made available to the Buyer as of the date of this Agreement complete and correct copies of all (i) material scientific and clinical data of the Seller and all material written and electronic correspondence with all Health Authorities with respect to the Product, (ii) all audit reports performed by the Seller or on its behalf to assess the Seller’s compliance with applicable Health Laws, rules and regulations, and (iii) any material document, correspondence or other communication prepared by or on behalf of the Seller or received by the Seller from the DEA or the United States Department of Justice, in each case with respect to the Product, the Acquired Assets or the Business.

(d) The clinical trials (including any post-marketing studies) conducted by or on behalf of the Seller related to the Product (which, for the avoidance of doubt, shall not include investigator-sponsored clinical trials), each of which are set forth on Schedule 2.11(d) , were, and if still pending, are, being conducted in all material respects in accordance with all applicable Laws and all applicable clinical trial protocols, informed consents and applicable requirements of the FDA, including, as applicable, the FDA’s good clinical practices and good laboratory practices regulations.

(e) The Seller is not subject to any investigation related to the Product, the Acquired Assets or the Business that is pending and of which the Seller has been notified in writing or, to the Seller’s Knowledge, which has been threatened, in each case by (i) the FDA or (ii) the Department of Health and Human Services Office of Inspector General or Department of Justice pursuant to the Federal Healthcare Program Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b) (known as the “ Anti-Kickback Statute ”), the Federal False Claims Act (31 U.S.C. § 3729) or the FDA Act (21 U.S.C. § 301 et seq).

(f) The Seller has not received any written notice that the FDA or any other Governmental Entity has commenced, or overtly threatened to initiate, any action to withdraw its approval or request the recall of the Product, or commenced, or overtly threatened to initiate, any action to enjoin production at any facility at which the Product is manufactured.

(g) The Seller has not submitted any claim for payment to any government healthcare program in connection with any referrals related to the Product that violated in any material respect any applicable self-referral Law, including the Federal Ethics in Patient Referrals Act, 42 U.S.C. § 1395nn (known as the “ Stark Law ”), or any applicable state self-referral Law.

(h) The Seller has not submitted any claim for payment to any government healthcare program related to the Product in material violation of any Laws relating to false claim or fraud, including the Federal False Claim Act, 31 U.S.C. § 3729, or any applicable state false claim or fraud Law.

(i) The Seller has complied in all material respects with all applicable security and privacy standards regarding protected health information under (i) the Health Insurance Portability and Accountability Act of 1996, including the regulations promulgated thereunder (collectively “ HIPAA ”), and (ii) other applicable privacy Laws, in each case as related to the Product, the Acquired Assets or the Business.

(j) To the Seller’s Knowledge, the Product is not adulterated or misbranded within the meaning of the FDCA or any similar governmental act or Law of any jurisdiction.

(k) To the Seller’s Knowledge, there have not been and are not now any investigations, adverse third party allegations or actions, or claims against the Seller, including any pending or threatened action against the Seller, in any court or by or before any Governmental Entity, with respect to the Product, or the Seller’s obligations set forth herein, including any which may adversely affect the Seller’s ability to perform its obligations under this Agreement.

(l) Neither the Seller nor to the Seller’s Knowledge, any officer, employee or agent of the Seller has made an untrue statement of material fact or fraudulent statement to any Health Authority, failed to disclose a material fact required to be disclosed to any Health Authority or any other Governmental Entity, or committed an act, made a statement, or failed to make a statement, including with respect to any scientific data or information, that, at the time such disclosure was made or failure to disclose occurred, would reasonably be expected to provide a basis for the Health Authority or any other Governmental Entity to invoke the FDA

policy respecting “Fraud, Untrue Statements of Material Facts, Bribery and Illegal Gratuities,” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any similar policy, in each case as related to the Product, the Acquired Assets or the Business. Neither the Seller nor, to the Seller’s Knowledge, any officer, employee or agent of the Seller has been convicted of any crime or engaged in any conduct for which debarment or similar punishment is mandated or permitted by 21 U.S.C. § 335a(a) or any similar Laws or authorized by 21 U.S.C. § 335a(b) or any similar Laws. Neither the Seller nor, to the Seller’s Knowledge, any officer, employee or agent of the Seller has been convicted of any crime or engaged in any conduct for which such person or entity could be excluded from participating in the Federal health care programs under Section 1128 of the Social Security Act of 1935, as amended, or any similar Laws.

(m) Neither the Seller nor, to the Seller’s Knowledge, any of its manufacturers of the Product have received any Form 483 observations, warning letters or other communications from a Governmental Entity related to the Product or the Business that would reasonably be expected to adversely impact the manufacture or the marketing of the Product in the United States.

(n) Neither the NDA nor any written correspondence with the FDA made available to the Buyer reflects any material safety concerns with respect to the Product. All such materials have been made available to the Buyer.

(o) Seller has paid for the annual PDUFA Fees for the Products due for all time periods prior to the Closing. For the avoidance of doubt, the PDUFA Fees due on October 1, 2012 shall be the responsibility of the Buyer.

2.12 Title to Acquired Assets; Condition of Acquired Assets . The Seller has (and subject to the Buyer’s own actions after the Closing, the Buyer will have) good, marketable and indefeasible title to, or a valid leasehold interest in, all the Acquired Assets, in each case free of all Liens, other than Permitted Liens. At the Closing, the Seller will convey, transfer, assign and deliver to the Buyer good title to the Acquired Assets, free of all Liens, other than Permitted Liens.

2.13 Sufficiency of Acquired Assets . The Seller does not utilize any assets that are material to the Product or the Business other than the Acquired Assets. Tangible assets that are used partly in the Business but primarily in the operation of the Seller’s overall business are not material to the Product or the Business. The Acquired Assets are sufficient to enable the Buyer to carry on the Business in substantially the same manner as the Business is carried on by the Seller prior to the date hereof; provided , however , the Seller is making no representation or warranty hereby as to the adequacy of the working capital or cash available to fund the Business as it will operate following the Closing or any representation or warranty as to the adequacy of employees available to operate the Business.

2.14 Solvency . On the Closing Date and immediately prior to and after the consummation of the transactions contemplated by this Agreement: (a) the Seller shall not intend, whether by virtue of the sale of the Acquired Assets (and the transactions contemplated hereby and under the Ancillary Documents) or otherwise, to hinder, defraud, or delay any of its present or future creditors, (b) the fair value, on a going concern basis, of the property of the

Seller is greater than the amount of the Seller’s liabilities (including disputed, contingent and unliquidated liabilities as properly discounted by the probability of occurrence), (c) the present fair saleable value, on a going concern basis, of the property of the Seller is not less than the amount that will be required to pay the probable liability of the Seller on its debts as they become absolute and matured in the ordinary course of business, (d) the Seller is able to pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities as properly discounted by the probability of occurrence) as they mature in the normal course of business, (e) the Seller shall not be engaged in business or a transaction, and shall not about to be engaged in business or a transaction, for which any property remaining with the Seller shall be an unreasonably small capital, and (f) the Seller shall not intend to incur, and shall not believe that it is about to incur, debts that would be beyond the Seller’s ability to pay as such debts matured.

2.15 Fair and Adequate Consideration . The amount of consideration to be received by the Seller upon the sale of the Acquired Assets and the Business to the Buyer constitutes reasonably equivalent value and fair consideration for the Acquired Assets and the Business. The Seller directed the party listed on Schedule 2.15 (the “ Investment Banker ”) to solicit and the Investment Banker did solicit indications of interest from, and held discussions with, multiple third parties regarding the possible acquisition of the Business and the Investment Banker concluded that the consideration provided to the Seller in this Agreement is reasonably equivalent to the value of the Acquired Assets. After having considered information provided by the Investment Banker, the Board of Directors of the Seller has determined that the transactions contemplated by this Agreement are fair, just and reasonable to the Seller and the Seller’s stockholders.

2.16 Financial Statements. . Schedule 2.16 of the Seller Disclosure Schedule includes (a) unaudited Product income statements prepared in the format the Seller has historically prepared for each of the three year periods ended December 31, 2011 and (b) interim unaudited Product income statements for the period ending on April 30, 2012. The foregoing financial statements are derived from and in accordance with the books and records of the Seller, fairly represent the Product’s gross margin for the periods related thereto, and have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby.

2.17 Insurance . The Seller maintains the policies of product liability insurance set forth in Schedule 2.17 of the Seller Disclosure Schedule in connection with the Business. Each such policy is in full force and effect and there is no claim pending under any of such policies relating to the Product, the Acquired Assets or the Business as to which coverage has been questioned, denied or disputed by the underwriters of such policies.

2.18 Absence of Certain Changes . Since January 1, 2012, the Seller (i) has sold the Product to wholesalers or distributors only in the ordinary course of business and in amounts that are generally consistent with past sales by the Seller to its wholesale and distributor customers during comparable periods and (ii) has not engaged in any practice with the intent of increasing the levels of inventory of the Product in the distributor or wholesaler channels outside of the ordinary course of business and in anticipation of entering into this Agreement or any similar transactions with respect to the Product.

2.19 Disclosure . None of this Agreement, any Schedule, Exhibit or certificate delivered pursuant to this Agreement or any document or statement in writing which has been supplied to the Buyer or its representatives by or on behalf of the Seller in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact, or omits any statement of a material fact necessary to make the statements contained herein or therein not misleading.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE BUYER

The Buyer represents and warrants to the Seller that the statements contained in this Article III are true and correct as of the date hereof.

3.1 Organization, Standing and Power . The Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation, has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted, and is duly qualified to do business and, where applicable as a legal concept, is in good standing as a foreign corporation in each jurisdiction in which the character of the properties it owns, operates or leases or the nature of its activities makes such qualification necessary, except for such failures to be so organized, qualified or in good standing, individually or in the aggregate, that would not reasonably be expected to have a Buyer Material Adverse Effect. For purposes of this Agreement, the term “ Buyer Material Adverse Effect ” means any material adverse change, event, circumstance or development with respect to, or any material adverse effect on, the ability of the Buyer to consummate, including any material delay in the Buyer’s ability to consummate, the transactions contemplated by this Agreement.

3.2 Authority; No Conflict; Required Filings and Consents .

(a) The Buyer has all requisite corporate power and authority to enter into this Agreement and each of the Ancillary Documents to which it will be a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Buyer of this Agreement and each of the Ancillary Documents to which it will be a party and the consummation of the transactions contemplated hereby and thereby by the Buyer have been duly authorized by all necessary corporate action on the part of the Buyer. This Agreement has been, and each such Ancillary Document will be, duly executed and delivered by the Buyer and this Agreement is, and each such Ancillary Document when so duly executed and delivered by the Buyer and, if applicable, the Seller, will be, the valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to or affecting the rights of creditors generally and by equitable principles, including those limiting the availability of specific performance, injunctive relief and other equitable remedies and those providing for equitable defenses.

(b) The execution, delivery and performance by the Buyer of this Agreement and each of the Ancillary Documents to which it will be a party, and the consummation by the

Buyer of the transactions contemplated hereby and thereby, shall not, (i) conflict with, or result in any violation or breach of, any provision of the organizational documents of the Buyer, (ii) conflict with, or result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under, require a consent or waiver under, constitute a change in control under, require the payment of a penalty under or result in the imposition of any Lien, other than Permitted Liens, on or with respect to the Buyer’s assets under, any of the terms, conditions or provisions of any lease, license, contract or other agreement, instrument or obligation to which the Buyer is a party or by which the Buyer or any of its properties or assets may be bound, or (iii) subject to compliance with the requirements specified in Section 3.2(c) , conflict with or violate any permit, concession, franchise, license or Law applicable to the Buyer or any of its properties or assets, except in the case of clauses (ii) and (iii) of this Section 3.2(b) for any such conflicts, violations, breaches, defaults, terminations, cancellations, accelerations, losses, penalties or Liens, and for any consents or waivers not obtained, that, individually or in the aggregate, would not reasonably be expected to have a Buyer Material Adverse Effect.

(c) No consent, approval, license, permit, order or authorization of, or registration, declaration, notice or filing with, any Governmental Entity or any stock market or stock exchange on which shares of Buyer common stock are listed for trading is required by or with respect to the Buyer in connection with the execution, delivery and performance by the Buyer of this Agreement and each of the Ancillary Documents to which it will be a party or the consummation by the Buyer of the transactions contemplated by hereby and thereby, except for such consents, approvals, licenses, permits, orders, authorizations, registrations, declarations, notices and filings which, if not obtained or made, would not reasonably be expected to have a Buyer Material Adverse Effect.

(d) No vote of the holders of any class or series of the Buyer’s capital stock or other securities is necessary for the consummation by the Buyer of the transactions contemplated by this Agreement or the Ancillary Documents.

3.3 Litigation . There is no material litigation, action, suit, proceeding, claim, arbitration or investigation pending or, to the knowledge of the Buyer, threatened, against the Buyer, and the Buyer is not subject to any outstanding order, writ, judgment, injunction or decree of any Governmental Entity that, in either case, would, individually or in the aggregate, (a) prevent or materially delay the consummation by the Buyer of the transactions contemplated by this Agreement or (b) otherwise prevent or materially delay performance by the Buyer of any of its material obligations under this Agreement.

3.4 Financing . The Buyer has sufficient funds to perform all of its obligations under this Agreement and to consummate the transactions contemplated by this Agreement.

3.5 Condition of Business . Notwithstanding anything contained in this Agreement to the contrary, the Buyer acknowledges and agrees the Seller is not making any representations or warranties whatsoever, express or implied, beyond those expressly given by the Seller in this Agreement (as modified by the Seller Disclosure Schedule).

ARTICLE IV

ADDITIONAL AGREEMENTS

4.1 Confidentiality . From and after the Closing Date, the Seller, and each of Seller’s directors, officers, employees, contractors, agents and representatives, will treat and hold as confidential, and not use or disclose any of the Confidential Information to any third party (other than the stockholders of the Seller who shall agree to be subject to the provisions of this Section 4.1 ), except to pursue its rights under this Agreement or the Ancillary Documents. In the event that the Seller is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process or as otherwise required by Law) to disclose any Confidential Information, the Seller will notify the Buyer promptly of the request or requirement so that the Buyer may seek, at its expense, an appropriate protective order or waive compliance with the provisions of this Section 4.1 . If, in the absence of a protective order or the receipt of a waiver hereunder the Seller is compelled to disclose any Confidential Information to any Governmental Entity or else stand liable for contempt, the Seller may disclose the Confidential Information to the Governmental Entity; provided , however , that the Seller shall use commercially reasonable efforts to obtain, at the request, and at the expense, of the Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall designate. For the purposes of this Agreement, “ Confidential Information ” shall mean any nonpublic, proprietary or confidential information relating to the Product, the Acquired Assets or the Business, including, but not limited to, any information furnished by the Buyer to the Seller after the Closing in accordance with this Agreement, except to the extent that such information shall have become public knowledge other than through improper disclosure by the Seller.

4.2 Post-Closing Cooperation .

(a) Each of the Seller and the Buyer shall appoint the persons set forth on Schedule 4.2(a) as representatives to participate on each party’s transition team (each, a “ Transition Team ” and together, the “ Transition Teams ”) for the purpose of working with the other party’s Transition Team to facilitate the implementation and execution of the transition plan attached hereto as Exhibit J (the “ Transition Plan ”) and to anticipate and resolve issues relating to the sale of the Product, the Acquired Assets and the Business by the Seller to the Buyer and the assumption of the Assumed Liabilities by the Buyer from the Seller. Schedule 4.2(a) shall also set forth each of the Buyer’s and the Seller’s designee as each respective Transition Team’s Lead Member (each a “ Lead Member ” and together, the “ Lead Members ”). Seller shall not terminate the employment of its Transition Team members without cause until their tasks under the Transition Plan are completed. The Seller shall take all actions reasonably necessary to timely carry out the Transition Plan.

(b) Subject to compliance with contractual obligations and applicable Law, following the Closing, each party shall afford to the other party and the other party’s authorized accountants, counsel and other designated representatives during normal business hours in a manner so as to not unreasonably interfere with the conduct of business (a) reasonable access and duplicating rights to all Confidential Information and other information relating to the

Product, the Business or the Acquired Assets within the possession or control of such party and (b) reasonable access to the personnel of such party. Requests may be made under this Section 4.2 for financial reporting and accounting matters, preparing financial statements, preparing and filing any Tax Returns, determining the proration of Taxes under Section 4.15(a) , prosecuting any claims for refund, defending any Tax claims or assessment, preparing securities Law or securities exchange filings, prosecuting, defending or settling any litigation or insurance claim, prosecuting patent applications and pursuing other patent matters, performing obligations under this Agreement and the Ancillary Documents and all other proper business purposes. Except as expressly set forth in the Transition Plan, neither party shall be entitled to receive any compensation for making information or personnel available under this Section 4.2(b) .

(c) Promptly after the Closing Date, upon the Buyer’s written request, the Seller will cooperate with the Buyer in connection with the preparation of unaudited financial statements as of and for the period ending on the Closing Date covering the operations of the Business as of and for the period ending on the Closing Date to enable the Buyer to comply with applicable Legal Requirements with respect to reports and filings with the U.S. Securities and Exchange Commission (the “ SEC ”). In preparing these financial statements the Seller will use efforts similar to those used in connection with its own audited financial statements. Such financial statements shall comply with applicable Legal Requirements including in connection with the Buyer’s acquisition of a “significant business” pursuant to Regulation S-X of the SEC. If requested by the Buyer, the Seller shall engage Ernst & Young LLP, its independent auditors, at the Buyer’s sole cost and expense, to audit the financial statements of the Business for the periods required by Regulation S-X of the SEC and to render an opinion on such financial statements. The Seller will provide, if required by the Buyers’ independent auditors, customary executed representation letters required to enable independent auditors to render an opinion on audited financial statements. The Seller shall request, and take all reasonable steps necessary to encourage, its auditors to cooperate with the Buyer and provide all necessary consents required by the SEC and customary “comfort letters” in connection with securities offerings of the Buyer and with its preparation of any financial statements or other reports pursuant to Legal Requirements. The foregoing financial statements shall be (i) derived from and in accordance with the books and records of the Seller, (ii) fairly represent the financial condition, assets and liabilities of the Business as of periods related thereto, and (iii) prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby. For the avoidance of doubt, all reasonable and documented out-of-pocket costs incurred by the Seller in accordance with this Section 4.2(c) shall be the sole responsibility of the Buyer.

4.3 Public Disclosure . Any press release announcing the execution of this Agreement shall be issued in such form as shall be mutually agreed upon by the Seller and the Buyer. Except as may be required by Law or stock market regulations, the Buyer and the Seller shall consult with the other party before issuing any other press release or otherwise making any public statement with respect to the transactions contemplated by this Agreement prior to the Closing. The Seller shall not make any public statement with respect to the transactions contemplated by this Agreement without the prior written consent of the Buyer.

4.4 Further Assurances . From time to time, as and when requested by either party, each of the parties will, at its expense (except as otherwise expressly provided in this Agreement), execute such additional documents and take such further actions as may be

reasonably requested to carry out the provisions hereof and consummate and evidence the transactions contemplated hereby, including executing and delivering or causing to be executed and delivered to the other party such additional documents as the other party or its counsel may reasonably request as necessary for such purpose. Without limiting the foregoing, if at any time on or after the Closing Date, the Seller retains or obtains possession or control of any assets that existed as of the Closing Date and would have constituted an Acquired Asset on such date, the Seller shall promptly but in no event later than three Business Days after coming into such possession or control, deliver or return (or cause to be delivered or returned) such Acquired Assets to Buyer for no additional consideration.

4.5 Product Returns . The Seller shall be liable only for returns received prior to the Closing Date. The Buyer shall be liable for all Product returns of the Product received on or after the Closing Date. In addition, the Seller will also notify its third party logistics provider not to accept returns of the Product on or after the Closing Date.

(a) In the event the Seller receives and processes returns of Product on or after the Closing Date for which the Buyer is responsible for issuing credit, the Buyer shall reimburse the Seller within 30 days of receiving an itemized invoice from the Seller.

4.6 Accounts Receivable .

(a) The Buyer hereby agrees and acknowledges that the Seller Accounts Receivable will remain the property of the Seller, and will be collected by the Seller regardless of when and by whom such Seller Accounts Receivables are collected or paid. If the Buyer receives any payments of any kind from any obligor with respect to such Seller Accounts Receivable, then the Buyer will, within 30 days of receipt of such payment, remit the full amount of such payment to the Seller.

(b) If the Seller receives any payments of any kind from any obligor related to sales of the Product after the Closing, including any sales, use or similar Taxes levied on or included in such payments, any unpaid interest accrued on any such payments and any security or collateral related thereto, and any payments received with respect thereto, then the Seller will, within 30 days of receipt of such payment, remit the full amount of such payment to the Buyer.

4.7 Use of Seller Brands .

(a) The Seller hereby grants to the Buyer a fully-paid, royalty-free, non-exclusive, sublicensable, non-transferable and non-assignable right and license to use the Seller Brands used in connection with the Product for the purposes expressly set forth below in Section 4.7(b) for the Trademark Period. All other uses by the Buyer of the Seller Brands not contemplated by Section 4.7(b) hereto will be subject to Seller’s prior written consent, which consent may be withheld in the Seller’s sole discretion. All such other uses of the Seller Brands by Buyer shall inure to the benefit of the Seller.

(b) The Buyer will be permitted, for a period commencing on the Closing Date and ending no later than the date of the latest expiration date for any individual unit of finished Products included in the Product Inventory (the “ Trademark Period ”) to use the Seller Brands used in connection with the Product in the Territory, solely to the extent set forth on

packaging materials and labels for Product included in the Product Inventory, and solely in connection with the distribution and sale of such Product Inventory in the Territory.

(c) The Buyer will not, directly or indirectly, challenge the Seller’s sole and exclusive ownership of all right, title and interest in and to the Seller Brands, or the validity or distinctiveness thereof, including the goodwill associated therewith, and acknowledges that all goodwill arising from use of the Seller Brands will inure solely to the benefit of the Seller.

(d) Nothing contained in this Agreement will be construed as an assignment to the Buyer of any right, title or interest in the Seller Brands; it being understood that all rights, title and interest relating to the Seller Brands are expressly reserved by the Seller.

(e) The Buyer will not use the Seller Brands other than as permitted hereunder and will not incorporate the Seller Brands into the Buyer’s corporate or business name in any manner whatsoever. In using the Seller Brands, the Buyer will in no way represent that it has any right, title or interest in any of the Seller Brands other than those expressly granted under the terms of this Agreement. The Buyer will have no right, and is hereby prohibited from, using any Seller Brand on any business card, letterhead, company or divisional name or designation of the Buyer, or any related materials.

4.8 Regulatory Matters .

(a) Each of the Seller and the Buyer shall cooperate and use its commercially reasonable efforts to ensure compliance with all Laws, including but not limited to FDA regulation 21 C.F.R. 314.72, that may be or become applicable to the performance of its and the other party’s obligations pursuant to this Agreement.

(b) Each party shall promptly notify the other party of any communication it or any of its Affiliates receives from any Governmental Entity relating to the matters that are the subject of this Agreement and shall, to the extent permitted by applicable Law, permit the other party to review in advance any proposed communication by such party to any Governmental Entity relating to the matters that are the subject of this Agreement. For the purposes of this Agreement, “ Affiliate ” means, with respect to any party, any other person, firm, trust, partnership, corporation, company or other entity or combination thereof, which directly or indirectly (i) controls such party, (ii) is controlled by such party or (iii) is under common control with such party. The terms “control” and “controlled” mean ownership of 50% or more, including ownership by trusts with substantially the same beneficial interests, of the voting and equity rights of such party, firm, trust, corporation or other entity or combination thereof or the power to direct the management of such party, firm, trust, corporation or other entity or combination thereof.

(c) As soon as possible following the Closing Date, but not later than 30 days after the Closing Date, the parties will enter into an agreement to initiate a process for the transfer to the Buyer or its designee of adverse event safety data in a mutually agreed format, including post-marketing spontaneous reports received by the Seller, in order to monitor the safety of the Product and comply with any applicable regulatory authority requirements.

(d) As soon as possible following the Closing Date, but not later than 30 days after the Closing Date, the parties will enter into an agreement to initiate a process for the transfer to the Buyer or its designee of medical information request responsibilities relating to the Product, the Acquired Assets or the Business. Until such transfer, the Seller will remain responsible for all medical information responsibilities associated with the Product, the Acquired Assets or the Business.

4.9 Debarment and Exclusion . Each party will promptly inform the other party, but in no event later than five Business Days after such party has knowledge, if such party or any director, officer, agent or employee of such party is, or such party uses in any capacity the services of any individual or entity that is:

(a) debarred, or proposed to be debarred 21 U.S.C. Section 335a(a) or 335a(b);

(b) sanctioned by, suspended, excluded or otherwise ineligible to participate in any federal or state health care program, including Medicare and Medicaid or in any federal procurement or non-procurement programs;

(c) charged with or convicted of any felony or misdemeanor under 42 U.S.C. Section 1320a-7(a) or 42 U.S.C. Section 1320a-7(b)(1)-(3), or otherwise proposed for exclusion; or

(d) engaged in any conduct that would reasonably be expected to result in debarment or exclusion under 21 U.S.C. Section 335a(a) or 335a(b), or under 42 U.S.C. Section 1320a-7, or sanction by, suspension, debarment, exclusion, or ineligibility to participate in any federal or state health care program, including Medicare and Medicaid or in any federal procurement or non-procurement programs.

4.10 Notification of Customers . Promptly after the Closing Date, the Buyer and the Seller, in substantially the form of notification attached hereto as Exhibit K , shall jointly notify all wholesale distributors of the Product: (a) of the transfer of the Acquired Assets to Buyer and retention of the Excluded Liabilities by the Seller; (b) that all purchase orders for Products received by the Seller prior to the Closing Date but not shipped prior to 12:01 a.m. (EST) on the Closing Date will be transferred to the Buyer ( provided , that , to the extent that any purchase order cannot be so transferred, the Seller and the Buyer shall cooperate with each other to ensure that such purchase order is filled and that the Buyer receives the same economic benefit and assumes the same liability associated with filling such purchase order as if such purchase order had been so transferred); (c) that all purchase orders for the Product received after the Closing Date should be sent to the Buyer at Telephone: (866) 223-0287, Telecopy: (888) 806-4864, E-mail: aa-ics-depomedorders@icsconnect.com; and (d) any returns for the Product received on or after the Closing Date by the Seller’s third party logistics provider will be returned to the customer with instructions to return Product to Buyer at Depomed, Inc., Attn: Returns Goods Processing, 420 International Road, Suite 500, Brooks, Kentucky 40109.

4.11 Government and GPO Contracts .

(a) Federal Supply Schedule . The Seller shall continue to list the Product under the Seller’s Federal Supply Schedule (“ FSS ”) until the earlier of (i) 30 days after the Closing Date or (ii) when Buyer adds the Product to its FSS contract or interim pricing agreement with the Department of Veterans Affairs (“ VA ”), at which time the Seller shall notify its contracting officer at the VA to remove the Product from Seller’s FSS. The Seller shall provide the Buyer with all necessary information as required by Section 603 of Veterans Health Care Act and applicable “Dear Manufacturer” letters issued thereunder, including all data necessary for the Buyer to calculate Non-FAMPs and Federal Ceiling Prices (as defined in Section 4.11(c) ) after transfer. For purposes of this Agreement, “ Non-FAMP ” means the Non-Federal Average Manufacturer Price, or the average price paid to a manufacturer by wholesalers in the United States for a single form and dosage unit of a covered drug and for a period of time distributed to non-Federal purchasers, taking into account any cash discounts or similar price reductions during that period. Until such time as the Products are removed from the Seller’s FSS, the Buyer shall honor the FSS pricing for the Product established by the Seller.

(b) Chargebacks . The Seller shall be responsible for all credits, chargebacks, reimbursements, administrative fees and other financial obligations to wholesalers and other distributors, group purchasing organizations, VA, insurers and other institutions related to the Product (collectively, “ Chargebacks ”) submitted with respect to the Product sold by the Seller through the Closing Date. The Buyer is responsible for all Chargebacks for product sold by the Buyer or put in the channel by the Buyer after the Closing Date.

(c) Calculation of Non-FAMP and Federal Ceiling Prices . For the period of time the Product is listed under Seller’s FSS, in accordance with applicable Law, the Seller shall accurately calculate the Non-FAMP of each “covered drug” and the Federal Ceiling Price as defined in the Veterans’ Health Care Act of 1992 (38 U.S.C. Section 8126 et seq.) and the Department of Veterans Affairs Master Agreement (the “ Federal Ceiling Price ”), as applicable, and submit to the VA, in a timely manner, the amounts so calculated. Following the transfer of the Product to Buyer’s FSS in accordance with applicable Law, the Buyer shall accurately calculate the Non-FAMP of each “covered drug” and the Federal Ceiling Price, as applicable, and submit to the VA in a timely manner, the amounts so calculated.

(d) Public Health Service (“PHS”) Pricing . On or prior to the Closing Date, the Seller shall provide the Buyer the calculated PHS pricing (also known as 340B pricing) for: (i) the calendar quarter during which the Closing Date occurs and (ii) the calendar quarter prior to the quarter during which the Closing Date occurs. The Seller shall be responsible for all PHS pricing calculations for periods through June 30, 2012, and the Buyer shall be responsible for all PHS pricing calculations for periods starting after June 30, 2012.

4.12 Medicaid and Other State and Private Third Party Payer Rebates .

(a) Access . After the Closing Date, the Seller (i) will provide the Buyer access to the Center for Medicare and Medicaid Services (“ CMS ”) “Drug Data Reporting for Medicaid” database for the Product and (ii) for periods through June 30, 2012 the Seller will be exclusively responsible for reporting and certifying all necessary monthly and quarterly Average

Manufacturer Price (“ AMP ”) calculations and Customer Prompt Pay Discounts in accordance with Federal law. For periods starting after June 30, 2012, the Buyer will be exclusively responsible for reporting and certifying all necessary monthly and quarterly AMP calculations and Customer Prompt Pay Discounts in accordance with Federal law.

(b) Payment of Rebates . The Seller shall process and pay any rebates to state Medicaid and other state and local governmental programs, federal programs, and private third party payers (collectively, “ Rebates ”) for periods through September 30, 2012, including any retroactive adjustments submitted in subsequent quarters, related to the Product reimbursed by the States for periods through September 30, 2012. The Buyer shall be financially responsible for all Rebates with respect to the Product reimbursed by the States for all periods beginning on October 1, 2012. The Seller will forward any applicable Rebate invoices it receives for which the Buyer is responsible to the Buyer within ten Business Days after receipt by the Seller of such invoice. The Buyer will make rebate payments directly to the States.

(c) Medicaid Price Reporting . The Seller shall continue monthly and quarterly reporting to CMS on each Medicaid Finished Product (as defined below) with Seller’s labeler code for periods through June 30, 2012, and shall simultaneously furnish such information to the Buyer. For periods starting after June 30, 2012, the Buyer shall report (i) the “average manufacturer price” to the CMS on a monthly basis within 30 calendar days of the end of each month, and (ii) the “quarterly average manufacturer price,” “Best Price,” “total exempt sales at the nominal price” and “aggregate customary prompt pay discounts” to the CMS on a quarterly basis within 30 calendar days of the end of each quarter, for the Product (“ Medicaid Finished Product ”). During the 12 month period following the expiration dates contained in the last lot of Medicaid Finished Product containing the Seller’s labeler code, the Buyer shall assume monthly and quarterly reporting responsibility on each Medicaid Finished Product through the expiration date contained in the last lot of Medicaid Finished Product containing the Seller’s labeler code. The Buyer shall be solely responsible for all Medicaid Rebate filings and payments relating to the Products sold under its own labeler code.

(d) Other Programs . For periods effective through September 30, 2012, the Buyer is prohibited from entering into any other state supplemental or private third party payer rebate arrangements for Medicaid Finished Products. For periods effective after September 30, 2012, should the Buyer enter into any other state supplemental or private third party payer rebate arrangements for Medicaid Finished Products, the Buyer will pay these invoices as appropriate. Any data reporting required by any such program shall be the Buyer’s responsibility and such data shall be shared between the parties as required to enable the Buyer to fulfill such responsibility. If during at anytime prior to September 30, 2012, the Buyer changes the WAC price or enters into any agreements that would lower the “Best Price”, as defined by guidance from CMS, for the Product, Buyer will be financially liable for the incremental rebates caused by the changes to WAC or Best Price. For the avoidance of doubt, the Seller will pay the invoices for the period through September 30, 2012, and invoice the Buyer for the incremental rebate amount caused by changes in WAC or Best Price, to be paid within 30 days.

(e) Medicare Part D Gap Discount Program . The Seller shall be financially liable for any rebates related to the Medicare Part D Gap Discount Program with respect to the Product for periods through September 30, 2012. The Buyer shall be financially responsible for

all rebates related to the Medicare Part D Gap Discount Program with respect to the Product for all periods beginning on October 1, 2012. Under the Medicare Part D Gap Discount Program, the Seller is required to make all payments for rebates filed with the Seller’s National Drug Code number. For periods that the Buyer is financially liable as described above, the Buyer will reimburse the Seller for payments made on its behalf by the Seller within 30 days of any applicable itemized invoice from the Seller. The Buyer shall be solely responsible for all Medicare Part D Gap Discount Program Rebate filings and payments relating to the Products sold under its own labeler code.

(f) Tricare Rebate Program . The Seller shall be financially liable for any rebates related to the Tricare Rebate Program with respect to the Product for periods through September 30, 2012. The Buyer shall be financially responsible for all rebates related to the Tricare Rebate Program with respect to the Product for all periods beginning on October 1, 2012. The Seller will forward any applicable Rebate invoices it receives for which the Buyer is responsible to the Buyer within five Business Days after receipt by the Seller of such invoice. The Buyer shall be solely responsible for all Tricare Rebate filings and payments relating to the Products sold under its own labeler code.

(g) eVoucher . The Seller shall be financially responsible for any redemptions related to the NDCHealth eVoucher program with respect to the Product through July 31, 2012. The Buyer shall be financially responsible for all redemptions related to the NDCHealth eVoucher program with respect to the Product beginning on August 1, 2012. Relay Health will bill Buyer directly for activity starting August 1, 2012. On August 1, 2012, the existing deposit with Relay Health will be refunded to the Seller and the Buyer and Relay Health will negotiate a new deposit amount.

(h) Fines, Penalties, Interest . Any delays, errors, or omission in data provided by the Buyer to the Seller that result in fines, penalties, interest, or any other charges to the Seller shall be the sole responsibility of the Buyer and the Buyer shall reimburse the Seller for any such payments. Any delays, errors, or omission in data provided by the Seller to the Buyer that result in fines, penalties, interest, or any other charges to the Buyer shall be the sole responsibility of the Seller and the Seller shall reimburse the Seller for any such payments.

4.13 Information for Calculating Prices . Within 10 Business Days following June 30, 2012, the Buyer shall provide to the Seller in a customary format requested by Seller, detailed direct sales and non-return credit information by class of trade, corresponding chargeback detail by class of trade (date of processing of chargeback, chargeback amount, corresponding wholesale purchase price, contract price, name of contract, corresponding units, date of sale from wholesaler to contracted customer, and purchasing contracted customer’s class of trade), and any other information that Seller may request in order for the Seller to accurately calculate an appropriate Non-FAMP and/or the Federal Ceiling Price, and “average manufacturer price”, or “Best Price”, as defined by guidance from CMS, for Medicaid Finished Product, as applicable. The provisions of Section 4.12(e) shall apply to all data provided in accordance with this Section 4.13 .

4.14 Seller Contact . The contact for the Seller for all matters relating to Sections 4.11 through 4.13 is:

Manager, Government Pricing and Report
Xanodyne Pharmaceuticals, Inc.
One Riverfront Place
Newport, Kentucky 41071

4.15 Taxes .

(a) Apportionment of Tax Liability . Proration of liability as between the Seller and the Buyer for personal property, ad valorem and real property Taxes, if applicable, on or with respect to the Acquired Assets or the Business will be made as of the Closing Date on the basis of the number of days before and including the Closing Date and the number of days after the Closing Date that are included in the Tax period. Proration of liability as between the Seller and the Buyer for all other Taxes will be made by an interim closing of the books by assuming that the taxable period ended at the close of business on the Closing Date, except that exemptions, allowances or deductions that are calculated on an annual basis shall be prorated on the basis of the number of days in such portion elapsed through the Closing Date as compared to the number of days in the portion elapsing after the Closing Date. All Taxes constituting Excluded Liabilities shall be for the sole account of the Seller, and all other Taxes shall be for the sole account of the Buyer. The Seller and the Buyer shall furnish each other with such documents and other records as shall be reasonably requested in order to confirm all proration calculations in accordance with Section 4.2 .

(b) Tax Returns . The Seller shall timely file all Tax Returns applicable to the Business or otherwise related to the Acquired Assets required to be filed on or before the Closing Date and shall timely pay all Taxes due with respect to such Tax Returns. The Buyer shall file all Tax Returns applicable to the Business or otherwise related to the Acquired Assets required to be filed after the Closing Date, including IRS Form 8947, and shall timely pay all Taxes due with respect to such Tax Returns. The parties will cooperate with each other after the Closing Date in connection with audits and other proceedings with respect to any Taxes relating to the Business or Acquired Assets in accordance with Section 4.2 .

(c) Payment . The Buyer or the Seller, as applicable (“ Tax Payee ”), shall bill the Seller or the Buyer, respectively (“ Tax Payor ”), for the amount of Taxes paid by the Tax Payee that are for the sole account of the Tax Payor pursuant to Section 4.15(a) or Section 4.16 , with the Tax Payor making payment to the Tax Payee within 20 Business Days of receipt of such bill, but in no case shall such payment be required to be made more than five Business Days prior to the due date of the Tax Return to which such Taxes relate.

(d) Refunds . The Buyer shall promptly forward to or reimburse the Seller for any refunds of Taxes (including any interest paid by a Taxing Authority thereon and any credits in lieu thereof which are clearly attributable to Taxes paid by the Seller), to the extent actually received or utilized by the Buyer or any of its Affiliates, for Taxes paid by or on behalf of the Seller with respect to the Excluded Assets. The Seller shall promptly forward to or reimburse the Buyer for any refunds of Taxes (including any interest paid by a Taxing Authority thereon and any credits in lieu thereof which are clearly attributable to Taxes paid by the Buyer), to the extent actually received or utilized by the Seller or any of its Affiliates, for Taxes paid by or on behalf of the Buyer with respect to the Acquired Assets. Any amount due pursuant to this

Section 4.15(d) shall be reduced by all reasonable expenses and Taxes incurred by the payor and its Affiliates to obtain such refund or credit. No interest shall accrue on any amount due pursuant to this Section 4.15(d) .

4.16 U.S. Excise Tax on Branded Pharmaceutical Manufacturers . The Seller has filed the IRS Form 8947 due by December 15, 2011 and will pay the U.S. excise tax with respect to the Business on branded prescription drug sales, which is due by September 30, 2012. The Buyer will file all appropriate forms relating to the U.S. excise tax with respect to the Business on branded prescription drug sales which are due after the Closing Date, and the Buyer will pay all such taxes due after September 30, 2012.

4.17 Transaction Fees . Each party shall be responsible for its own broker’s, finder’s, financial advisor’s, attorneys’, accounting, consulting or other similar fees, costs, expenses or commissions in connection with any of the transactions contemplated by this Agreement (“ Transaction Fees ”). The Investment Banker has acted as the Seller’s exclusive financial advisor in connection with the transactions contemplated by this Agreement.

4.18 Seller Covenant Not to Compete .

(a) The Seller, on behalf of itself, its subsidiaries, its successors in interest and assigns, covenants and agrees that from and after the Closing Date and for a five year period thereafter, the Seller shall not, directly or indirectly, on its own behalf or on behalf or in conjunction with another, own, control, manage, operate, engage in the business of or otherwise participate in the ownership, control, management, operation, or engagement in any business, whether corporate, proprietorship or partnership form or otherwise, engaged in the research, development, formulation, manufacturing, packaging, distribution, marketing or selling of any non-steroidal anti-inflammatory drug product that is competitive with the Product in the Territory; provided , however , such restriction shall not apply to the Seller’s continued manufacturing, packaging, distribution, marketing and sale of Roxicodone® (oxycodone hydrochloride).

(b) The Seller, on behalf of itself, its subsidiaries, its successors-in-interest and assigns, covenants and agrees that from and after the Closing Date and for the earlier of seven years or final approval of a generic version of the Product, Seller shall not, directly or indirectly, on its own behalf or on behalf or in conjunction with another, own, control, manage, operate, engage in the business of or otherwise participate in the ownership, control, management, operation, or engagement in any business, whether corporate, proprietorship or partnership form or otherwise, engaged in the research, development, formulation, manufacturing, packaging, distribution, marketing or selling of any pharmaceutical product containing (i) the Composition, (ii) any isomers, hydrates, anhydrides, solvates, esters, salt forms, free acids or bases, complexes, metabolites, prodrugs or polymorphs of the Composition and/or (iii) any derivatives of the foregoing having substantially similar activity as the Composition.

(c) The Seller agrees that the restrictions set forth in this Section 4.18 are reasonable in scope and duration and are necessary to protect the Buyer after the Closing. The Seller acknowledges and agrees that the Seller’s breach of this Section 4.18 will cause

irreparable damage and harm to the Buyer, and upon breach of any provision of this Section 4.18 , the Buyer will be entitled to seek injunctive relief, specific performance or other equitable relief without bond other security; provided, however, that the foregoing remedies shall not limit any other remedies that the Buyer may have.

4.19 Net Sales Reports .

(a) Until the earlier to occur of the payment of the Second Milestone Payment or the approval by the FDA of a generic version of the Product, the Buyer shall provide the Seller, within 45 days following January 1st of each calendar year (the “ Report Deadline ”), with reasonably detailed annual reports (each, a “ Net Sales Report ”) regarding Net Sales of the Product for the preceding 12 month period.

(b) Each such Net Sales Report shall include (A) Net Sales during such 12 month period, (B) Net Sales during each consecutive four calendar quarter period ending during such 12 month period, (C) the “gross to net” adjustments with respect to the calculation of Net Sales for such 12 month period.

(c) Upon the written request of the Seller, the Buyer shall, and shall cause its Affiliates and other members of the Buyer Rights Chain Group to, permit an independent public accountant (the “ Accountant ”) selected by the Seller and reasonably satisfactory to the Buyer, at the Seller’s expense, to have reasonable access upon reasonable prior notice and during normal business hours, but no more than once during any calendar year, to inspect the records specified in Section 4.19(a) for the purpose of determining the accuracy of the reports described in Section 4.19(a). If the Accountant concludes that any Net Sales were underreported for any reporting period by more than five percent, the Buyer shall promptly reimburse the Seller for the reasonable out-of-pocket costs of the audit. The Seller may exercise its rights under this Section 4.19(c) only within 60 days of receipt of a Net Sales Report if the amount for the Net Sales of the Product in the Net Sales Report does not agree to the audited financial statements reported to the SEC by the Buyer.

4.20 Privilege Rights . The Seller and the Buyer agree that after the Closing, the Buyer shall be exclusively entitled to assert or waive rights with respect to any privileges to information that either party may assert pursuant to applicable Law relating to the Product, the Acquired Assets, the Business, or the Assumed Liabilities, including any action related to the foregoing or any other action in which the Buyer or its assets are a party. Privileged information includes privileges arising under or relating to the attorney-client relationship, the accountant-client privilege and privileges relating to internal evaluative processes.

4.21 Corporate Existence . The Seller shall maintain its corporate existence and its good standing in the State of Delaware and shall not commence any liquidation or make any voluntary filing for bankruptcy until the 18 month anniversary of the date of this Agreement. The Seller shall provide at least 20 Business Days prior written notice to the Buyer of the Seller’s intent to commence any liquidation or make a voluntary filing for bankruptcy.

4.22 No Transfer of Right to Receive Milestone Payments . The right to receive the First Milestone Payment and the Second Milestone Payment or any portion thereof, if payable

pursuant to the terms and conditions of this Agreement, is not a security and may not be pledged, encumbered, dividended, distributed, sold, assigned or otherwise transferred (including any transfer by operation of Law), by the Seller to any third party (other than to a single representative of the stockholders of the Seller subject to written notice to, and the furnishing of applicable documentary evidence of, such transfer to the Buyer) (i) prior to the payment of either the First Milestone Payment or Second Milestone Payment, respectively, by the Buyer to the Seller or (ii) without the prior written consent of the Buyer. The right of the Seller to receive the First Milestone Payment and the Second Milestone Payment shall not be represented by a certificate or other instrument and shall not represent a security interest or an ownership interest in the Buyer.

4.23 Medical Information Phone Number . The Seller will, and will cause its transferees, successors-in-interest or assigns to, answer and transfer to the Buyer all calls received on the Medical Information Phone Number regarding any Product to the Buyer’s number at (650) 462-5900.

4.24 Business Operation . The Buyer and the Seller agree that the Buyer shall continue to operate its business in the ordinary course and as it deems appropriate in its sole discretion, notwithstanding any provision of this Agreement, express or implied, to the contrary.

ARTICLE V

INDEMNIFICATION

5.1 Indemnification by the Seller . Subject to the terms and conditions of this Article V , from and after the Closing, the Seller shall indemnify, defend and hold harmless the Buyer and the Buyer’s directors, officers and employees from and against any and all losses, damages, obligations, liabilities, claims, fines, fees, penalties, interest, awards, judgments and claims of any kind, including reasonable attorneys’ and consultants’ fees and expenses and other reasonable legal costs and expenses incurred in prosecution, investigation, remediation, defense or settlement (collectively, “ Damages ”) resulting from, based on, arising out of, in connection with or constituting:

(a) the inaccuracy or any breach of any of the representations or warranties of the Seller contained in this Agreement or any agreement or certificate required to be delivered by the Seller pursuant to this Agreement;

(b) any breach or failure to perform by the Seller of any covenant or agreement contained in this Agreement;

(d) any claims brought by employees, independent contractors or consultants of the Seller, including, but not limited to, those who were or are terminated prior to or as of the Closing Date;

(e) Transaction Fees incurred by the Seller;

(f) any Excluded Liabilities;

(g) any Excluded Assets; or

(h) one half (1/2) of any Damages incurred by the Buyer in connection with the matters set forth in Schedules 2.4(a) , 2.4(d) and 2.4(e) of the Seller Disclosure Schedule.

5.2 Indemnification by the Buyer . Subject to the terms and conditions of this Article V , from and after the Closing, the Buyer shall indemnify, defend and hold harmless the Seller and Seller’s directors, officers and employees from and against any and all Damages resulting from, based on, arising out of, in connection with or constituting:

(a) the inaccuracy or any breach of any of the representations or warranties of the Buyer contained in this Agreement or any agreement or certificate required to be delivered by the Buyer pursuant to this Agreement;

(b) any breach or failure to perform by the Buyer of any covenant or agreement contained in this Agreement;

(d) any Assumed Liabilities; or

(e) any Acquired Assets.

5.3 Claims for Indemnification .

(a) Third Party Claims . All claims for indemnification made under this Agreement resulting from, related to or arising out of a third-party claim against an Indemnified Party shall be made in accordance with the following procedures. A person or entity entitled to indemnification under this Article V (an “ Indemnified Party ”) shall give prompt written notification to the Indemnifying Party (a “ Third Party Claim Notice ”) of the commencement of any action, suit or proceeding relating to a third party claim for which indemnification may be sought or, if earlier, upon the assertion of any such claim by a third party. For purposes of this Agreement, “ Indemnifying Party ” means (i) in the case of a claim for indemnification by the Buyer, the Seller and (ii) in the case of a claim for indemnification by the Seller, the Buyer. Such Third Party Claim Notice shall include a description in reasonable detail (to the extent known by the Indemnified Party) of the facts constituting the basis for such third party claim and the amount of the Damages claimed (the “ Third Party Claim Amount ”). Within 10 Business Days after delivery of such Third Party Claim Notice, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such action, suit, proceeding or claim with counsel reasonably satisfactory to the Indemnified Party. If the Indemnifying Party does not assume control of such defense, the Indemnified Party shall control such defense. The party not controlling such defense may participate therein at its own expense; provided that if the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes, based on advice from counsel, that the Indemnifying Party and the Indemnified Party have conflicting interests with respect to such action, suit, proceeding or claim, the reasonable fees and expenses of counsel to the Indemnified Party solely in connection

therewith shall be considered “ Damages ” for purposes of this Agreement; provided , however , that in no event shall the Indemnifying Party be responsible for the fees and expenses of more than one counsel for the Indemnified Party. The party controlling such defense shall keep the other party advised of the status of such action, suit, proceeding or claim and the defense thereof and shall consider recommendations made by the other party with respect thereto. The Indemnified Party shall not agree to any settlement of such action, suit, proceeding or claim without the prior written consent of the Indemnifying Party. The Indemnifying Party shall not agree to any settlement of such action, suit, proceeding or claim that does not include a complete release of the Indemnified Party from all liability with respect thereto or that imposes any liability or obligation, financial or otherwise, on the Indemnified Party without the prior written consent of the Indemnified Party.

(b) Procedure for Claims Not Involving Third Parties . An Indemnified Party wishing to assert a claim for indemnification under this Article V that does not involve a third-party claim shall deliver to the Indemnifying Party a written notice (a “ Claim Notice ”) which contains (i) a description and the amount (the “ Claim Amount ”) of any Damages, (ii) a statement that the Indemnified Party is entitled to indemnification under this Article V and a reasonable explanation of the basis therefor and (iii) a demand for payment in the amount of such Damages. Within 30 days after delivery of a Claim Notice, the Indemnifying Party shall deliver to the Indemnified Party a written response in which the Indemnifying Party shall (A) agree that the Indemnified Party is entitled to receive all of the Claim Amount (in which case such response shall be accompanied by a payment to the Indemnified Party of the Claim Amount by the Indemnifying Party by wire transfer of immediately available funds or, if payment is to be made from the Escrow Fund, authorization to the Escrow Agent (in accordance with the Escrow Agreement) to make payment of the Claim Amount to the Buyer from the Escrow Fund), (B) agree that the Indemnified Party is entitled to receive part, but not all, of the Claim Amount (the “ Agreed Amount ”) (in which case such response shall be accompanied by a payment to the Indemnified Party of the Agreed Amount by the Seller by wire transfer of immediately available funds or, if payment is to be made from the Escrow Fund, authorization to the Escrow Agent (in accordance with the Escrow Agreement) to make payment of the Agreed Amount to the Buyer from the Escrow Fund) or (C) contest that the Indemnified Party is entitled to receive any of the Claim Amount. If such dispute is not resolved within 30 days following the delivery by the Indemnifying Party of such response, the Indemnifying Party and the Indemnified Party shall each have the right to submit such dispute to a court of competent jurisdiction in accordance with the provisions of Section 6.10 .

5.4 Survival .

(a) The representations and warranties of the Seller and the Buyer set forth in this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby and continue until the date 18 months after the Closing Date, at which time they shall expire, other than the Core Reps, which shall survive indefinitely. The covenants and agreements of the Seller and the Buyer set forth in this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby.

(b) If an indemnification claim is asserted in writing pursuant to Section 5.3 prior to the expiration as provided in Section 5.4(a) of the representation or warranty that is the

basis for such claim, then such representation or warranty shall survive until, but only for the purpose of, the resolution of such claim.

5.5 Limitations .

(a) Notwithstanding anything to the contrary contained in this Agreement, the amount of Damages that may be recovered by an Indemnified Party under Section 5.1(a) or Section 5.2(a) shall not exceed the Escrow Fund, provided , however , that such limitation shall not apply with respect to:

(i) those representations and warranties contained in Section 2.1 (Organization, Standing and Power), Section 2.2(a) (Authority), Section 2.3 (Taxes), Section 2.12 (Brokers), Section 2.13 (Title to Acquired Assets), Section 3.1 (Organization, Standing and Power) and Section 3.2(a) (Authority) (the “ Core Reps ”);

(ii) Damages arising from the breach of Section 1.7 (Taxes and Fees) or Section 4.15 (Taxes) (collectively, the “ Excluded Tax Damages ”);

(iii) Damages arising from a claim related to fraud, intentional misrepresentation or for equitable relief made with respect to breaches of any covenant or agreement contained in this Agreement; or

(iv) Damages arising from a claim with respect to the Seller Product Returns.

(b) An Indemnified Party shall not be permitted to recover any Damages under Section 5.1(a) or Section 5.2(a) , as the case may be, until the aggregate amount of all such Damages (excluding Excluded Tax Damages) exceeds an amount equal to $50,000 (the “ Deductible ”), at which point the Indemnified Party shall recover any such and future Damages, including the amount of the Deductible. The Deductible shall not apply to Excluded Tax Damages, any Damages arising from a claim related to fraud, intentional misrepresentation or for equitable relief made with respect to breaches of any covenant or agreement contained in this Agreement.

(c) In no event shall the Seller’s liability under Section 5.1(h) exceed $1,000,000, and the Seller’s liability under any Paragraph IV patent proceeding shall be limited solely to those claims arising directly from the matters set forth in Schedules 2.4(a) , 2.4(d) and 2.4(e) of the Seller Disclosure Schedule, which claims shall be separately monitored by the Buyer.

(d) The amount of Damages recoverable by an Indemnified Party under this Article V with respect to an indemnity claim shall be reduced by the amount of any insurance payment received by such Indemnified Party (or an Affiliate thereof) with respect to such indemnity claim. An Indemnified Party shall use reasonable commercial efforts to pursue, and to cause its Affiliates to pursue, all insurance claims to which it may be entitled in connection with any Damages it incurs, and the parties shall cooperate with each other in pursuing insurance claims with respect to any Damages or any indemnification obligations with respect to Damages. If an Indemnified Party (or an Affiliate) receives any insurance payment in connection with any

claim for Damages for which it has already been indemnified by the Indemnifying Party, it shall pay to the Indemnifying Party, within 30 days of receiving such insurance payment, an amount equal to the excess of (i) the amount previously received by the Indemnified Party under this Article V with respect to such claim plus the amount of the insurance payments received, over (ii) the amount of Damages with respect to such claim which the Indemnified Party has become entitled to receive under this Article V .

(e) In no event shall any Indemnifying Party be responsible or liable for any Damages or other amounts under this Article V that are consequential, in the nature of lost profits, diminution in the value of property, special or punitive or otherwise not actual damages.

(f) Except with respect to claims related to fraud, intentional misrepresentation or for equitable relief made with respect to breaches of any representation, warranty, covenant or agreement contained in this Agreement (i) the rights of the Indemnified Parties under this Article V shall be the sole and exclusive remedies of the Indemnified Parties with respect to claims under, or otherwise relating to the transactions that are the subject of, this Agreement and (ii) and neither the Seller nor the Buyer, or their respective successors or permitted assigns, be entitled to claim or seek rescission of the transactions consummated by this Agreement.

5.6 Indemnification Payments . All indemnification payments made hereunder shall be treated by all parties as adjustments to the Purchase Price for Tax purposes unless otherwise required by Tax Law.

5.7 Setoff . Subject to the limitations set forth in Section 5.5 , the parties acknowledge and agree that in the event (i) the Escrow Fund is depleted or is insufficient to cover the amount of Damages for which the Buyer is entitled to indemnification by the Seller under this Article V and (ii) the Seller has not satisfied its indemnification obligations under this Article V for a period of greater than 30 days, the Buyer may, at its sole discretion, set off any indemnification payment to which it is entitled under this Article V against payment of either or both of the First Milestone Payment and the Second Milestone Payment to the Seller. If the Buyer shall set off any amounts pursuant to this Section 5.7 , and Seller objects to that set off by notice to the Buyer given within 30 days of such set off and it is finally determined that the Buyer has improperly set off any amount, the Buyer shall be required to pay to the Seller interest on such improperly set off portion of the First Milestone Payment or the Second Milestone Payment, as applicable, from and after the First Additional Purchase Price Payment Date or the Second Additional Purchase Price Payment Date, as applicable, at a rate per month equal to the prime rate then in effect plus 2.00%, to the maximum extent permitted by applicable Law. Such interest shall accrue and compound on a daily basis. In addition to accrued interest on any improperly set off portion of the First Milestone Payment or the Second Milestone Payment, as applicable, the Buyer agrees to pay to the Seller reasonable attorneys’ fees and expenses and other reasonable costs and expenses incurred in connection with the collection of any unpaid portion of the First Milestone Payment or the Second Milestone Payment, as applicable.

ARTICLE VI

MISCELLANEOUS

6.1 Notices . All notices and other communications hereunder shall be in writing and shall be deemed duly delivered (i) four Business Days after being sent by registered or certified mail, return receipt requested, postage prepaid, (ii) one Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable nationwide overnight courier service or (iii) on the date of confirmation of receipt (or, the first Business Day following such receipt if the date of such receipt is not a Business Day) of transmission by facsimile, in each case to the intended recipient as set forth below:

(a) if to the Buyer, to

Depomed, Inc.
1360 O’Brien Drive
Menlo Park, California 94025
Attn: General Counsel
Telecopy: (650) 462-9993

with a copy ( which shall not constitute notice ) to:

Baker Botts L.L.P.
1001 Page Mill Boulevard
Building One, Second Floor
Palo Alto, California 94304
Attn: Kyle Guse
K. Amar Murugan
Telecopy: (650) 739-7699

(b) if to the Seller, to

Xanodyne Pharmaceuticals, Inc.
One Riverfront Place
Newport, Kentucky 41071
Attn: General Counsel
Telecopy: (859) 342-2090

with a copy ( which shall not constitute notice ) to:

Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attn: David E. Redlick
Telecopy: (617) 526-5000

Any party to this Agreement may give any notice or other communication hereunder using any other means (including personal delivery, messenger service, ordinary mail or

electronic mail), but no such notice or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Any party to this Agreement may change the address to which notices and other communications hereunder are to be delivered by giving the other parties to this Agreement notice in the manner herein set forth.

6.2 Entire Agreement . This Agreement (including the Seller Disclosure Schedule and the Schedules and Exhibits hereto and the documents and instruments referred to herein that are to be delivered at the Closing) constitutes the entire agreement between the parties to this Agreement and supersedes any prior understandings, agreements or representations by or between the parties hereto, written or oral, with respect to the subject matter hereof; provided that the Mutual Confidentiality Agreement, dated November 29, 2011, shall remain in effect in accordance with its terms until the Closing.

6.3 No Third Party Beneficiaries; No Successor Liability . This Agreement is not intended, and shall not be deemed, to confer any rights or remedies upon any person or entity other than the parties hereto and their respective successors and permitted assigns, to create any agreement of employment with any person or entity or to otherwise create any third party beneficiary hereto. The Buyer shall not be considered a successor to the Seller, any of its Affiliates or any of their respective predecessors by reason of any theory of laws or equity.

6.4 Assignment . Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of Law or otherwise by either of the parties hereto without the prior written consent of the other party, and any such assignment without such prior written consent shall be null and void, except that the Buyer may transfer or assign its rights and obligations under this Agreement, in whole or in part, from time to time to 1 or more of its Affiliates; provided that such transfer or assignment shall not relieve the Buyer of its primary liability for its obligations hereunder or enlarge, alter or change any obligation of any other party hereto or due to the Buyer. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns.

6.5 Severability . Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.

6.6 Counterparts and Signature . This Agreement may be executed in two counterparts, each of which shall be deemed an original but all of which together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties hereto and delivered to the other party, it being understood that both parties need not sign the same counterpart. This Agreement may be executed and delivered by facsimile or .pdf transmission.

6.7 Interpretation . When reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or Section of this Agreement, unless otherwise indicated. The table of contents, table of defined terms and headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. Any reference to any federal, state or local Law or Tax Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

6.8 Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of New York, without giving effect to any choice or conflict of Law provision or rule that would cause the application of Laws of any jurisdiction other than those of the State of New York.

6.9 Remedies . Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity.

6.10 Submission to Jurisdiction . Each of the parties to this Agreement (a) consents to submit itself to the exclusive personal jurisdiction of any state or federal court sitting in the State of New York, County of New York, including the federal district court for the Southern District of New York, in any action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that all claims in respect of such action or proceeding may be heard and determined in any such court, (c) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (d) agrees not to bring any action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement in any other court. Each of the parties hereto waives any defense of inconvenient forum to the maintenance of any

action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto. Any party hereto may make service on another party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 6.1 . Nothing in this Section 6.10 , however, shall affect the right of any party to serve legal process in any other manner permitted by law.

6.11 Disclosure Schedules . The Seller Disclosure Schedule shall be arranged in sections corresponding to the numbered Sections contained in Article II , and the disclosure in any section shall qualify (a) the corresponding section in Article II and (b) the other sections in Article II to the extent that it is reasonably apparent on the face of such disclosure that it also qualifies or applies to such other Sections.

6.12 Seller’s Knowledge . For purposes of this Agreement, the term “ Seller’s Knowledge ” means matters which are known by each of Natasha Giordano, Rita O’Connor, Thomas P. Jennings and Stan Micek after having made due inquiry of each their direct reports and the review of their files.

[Remainder of Page Intentionally Left Blank.]

IN WITNESS WHEREOF, the Buyer and the Seller have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above.

	DEPOMED, INC.


	By:	/s/ James A. Schoeneck
	Name: James A. Schoeneck
	Title: President and Chief Executive Officer


	XANODYNE PHARMACEUTICALS, INC.


	By:	/s/ Natasha Giordano
	Name: Natasha Giordano
	Title: President and Chief Executive Officer

[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]

Exhibit 10.2

DEPOMED, INC.
2004 EMPLOYEE STOCK PURCHASE PLAN

As Amended May 15, 2012

1. Establishment of Plan .

Depomed, Inc. (the “ Company ”) proposes to grant options for purchase of the Company’s common stock (the “ Common Stock ”) to eligible employees of the Company and its Participating Subsidiaries (as hereinafter defined) pursuant to this 2004 Employee Stock Purchase Plan (this “ Plan ”). For the purposes of this Plan, “Parent Corporation” and “Subsidiary” shall have the same meanings as “parent corporation” and “subsidiary corporation” in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the “ Code ”). “Participating Subsidiaries” are Parent Corporations or Subsidiaries that the Board of Directors of the Company (the “ Board ”) designates from time to time as corporations that shall participate in this Plan. The Company intends this Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein.

2. Number of Shares .

The total number of shares of Common Stock reserved and available for issuance pursuant to this Plan shall be 2,500,000 (the “ Share Limit ”), subject to adjustments effected in accordance with Section 15 of this Plan. Shares issued under this Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares reacquired in private transactions or open market purchases, but all shares issued under this Plan shall be counted against the Share Limit.

3. Purpose .

The purpose of this Plan is to provide eligible employees of the Company and Participating Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees’ sense of participation in the affairs of the Company and Participating Subsidiaries, and to provide an incentive for continued employment. For the purposes of this Plan, “employee” shall mean any individual who is an employee of the Company or a Participating Subsidiary. Whether an individual qualifies as an employee shall be determined by the Committee (as hereinafter defined), in its sole discretion. The Committee shall be guided by the provisions of Treasury Regulation Section 1.421-7 and Section 3401(c) of the Code and the Treasury Regulations thereunder, with the intent that the Plan cover all “employees” within the meaning of those provisions other than those who are not eligible to participate in the Plan, provided, however, that any determinations regarding whether an individual is an “employee” shall be prospective only, unless otherwise determined by the Committee. Unless the Committee makes a contrary determination, the employees of the Company shall, for all purposes of this Plan, be those individuals who are carried as employees of the Company or a Participating Subsidiary for regular payroll purposes or are on a leave of absence for not more than 90 days. Any inquiries regarding eligibility to participate in the Plan shall be directed to the Committee, whose decision shall be final.

4. Administration .

This Plan shall be administered by the Compensation Committee of the Board (the “ Committee ”). Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the

Committee and its decisions shall be final and binding upon all participants. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company.

5. Eligibility .

Any employee of the Company or the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following:

a) employees who are not employed by the Company or a Participating Subsidiary prior to the beginning of such Offering Period or prior to such other time period as specified by the Committee;

b) employees who are customarily employed for twenty (20) hours or less per week;

c) employees who are customarily employed for five (5) months or less in a calendar year;

d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries;

e) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax purposes; and

f) employees who reside in countries for whom such employees’ participation in the Plan would result in a violation under any corporate or securities laws of such country of residence.

6. Offering Dates .

The offering periods of this Plan (each, an “ Offering Period ”) shall be of twenty-four (24) months duration commencing on December 1 and June 1 of each year (or at such time or times as may be determined by the Committee). Each Offering Period shall consist of four (4) six (6) month purchase periods (individually, a “ Purchase Period ”) during which payroll deductions of the participants are accumulated under this Plan. The first business day of each Offering Period is referred to as the “ Offering Date .” The last business day of each Purchase Period is referred to as the “ Purchase Date .”

Notwithstanding the immediately preceding paragraph, beginning with the Offering Period commencing on June 1, 2012, each Offering Period shall be of six (6) months duration commencing on December 1 and June 1 of each year (or at such time or times as may be determined by the Committee). Each Offering Period shall consist of a six (6) month Purchase Period during which payroll deductions of the participants are accumulated under this Plan.

For clarity, eligible employees who are participants under the Plan in any Offering Period that commenced on or before December 1, 2011, if the provisions of Section 12(c) regarding enrollment in a subsequent Offering Period apply, any eligible employee will be enrolled in a subsequent six (6) month Offering Period.

The Committee shall have the power to change the Offering Dates, the Purchase Dates and the duration of Offering Periods or Purchase Periods without shareholder approval if such change is announced prior to the relevant Offering Period or prior to such other time period as specified by the Committee.

7. Participation in this Plan .

Eligible employees may become participants in an Offering Period under this Plan on the Offering Date, after satisfying the eligibility requirements, by delivering a subscription agreement to the Company prior to such Offering Date, or such other time period as specified by the Committee. An eligible employee who does not deliver a subscription agreement to the Company after becoming eligible to participate in an Offering Period shall not participate in that Offering Period or any subsequent Offering Period unless such employee enrolls in this Plan by filing a subscription agreement with the Company prior to such Offering Period, or such other time period as specified by the Committee. Once an employee becomes a participant in an Offering Period by filing a subscription agreement, such employee shall automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws or is deemed to withdraw from this Plan or terminates further participation in the Offering Period as set forth in Section 12 below. Such participant is not required to file any additional subscription agreement in order to continue participation in this Plan.

8. Grant of Option on Enrollment .

Enrollment by an eligible employee in this Plan with respect to an Offering Period shall constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Common Stock determined by a fraction, the numerator of which is the amount accumulated in such employee’s payroll deduction account during such Purchase Period and the denominator of which is the lower of (i) eighty-five percent (85%) of the fair market value of a share of Common Stock on the Offering Date (but in no event less than the par value of a share of Common Stock), or (ii) eighty-five percent (85%) of the fair market value of a share of Common Stock on the Purchase Date (but in no event less than the par value of a share of Common Stock), provided, however, that the number of shares of Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 11(c) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 11(b) below with respect to the applicable Purchase Date. The fair market value of a share of Common Stock shall be determined as provided in Section 9 below.

9. Purchase Price .

The purchase price per share at which a share of Common Stock shall be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of:

a) the fair market value on the Offering Date; or

b) the fair market value on the Purchase Date.

For the purposes of this Plan, the term “ fair market value ” means, as of any date, the value of a share of the Common Stock determined as follows:

a) If the Common Stock is traded on any established stock exchange or quoted on a national market system, fair market value shall be the closing sales price for the Common Stock as quoted on that stock exchange or system for the date the value is to be determined (the “ Value Date ”) as reported by such stock exchange or national market system, or, if not reported by such stock exchange or national market system, as reported in The Wall Street Journal or a similar publication. If no sales are reported as having occurred on the

Value Date, fair market value shall be that closing sales price for the last preceding trading day on which sales of Common Stock are reported as having occurred. If no sales are reported as having occurred during the five trading days before the Value Date, Fair Market Value shall be the closing bid for Common Stock on the Value Date. If the Common Stock is listed on multiple exchanges or systems, fair market value shall be based on sales or bid prices on the primary exchange or system on which the Common Stock is traded or quoted;

b) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported on any established stock exchange or quoted on a national market system, fair market value shall be the mean between the high bid and low asked prices on the Value Date. If no prices are quoted for the Value Date, fair market value shall be the mean between the high bid and low asked prices on the last preceding trading day on which any bid and asked prices were quoted; or

c) If the Common Stock is not traded on any established stock exchange or quoted on a national market system and are not quoted by a recognized securities dealer, the Board or Committee will determine fair market value in good faith. The Board or Committee will consider the following factors, and any others it considers significant, in determining fair market value: (i) the price at which other securities of the Company have been issued to purchasers other than employees, directors, or consultants, (ii) the Company’s shareholder’s equity, prospective earning power, dividend-paying capacity, and non-operating assets, if any, and (iii) any other relevant factors, including the economic outlook for the Company and the Company’s industry, the Company’s position in that industry, the Company’s goodwill and other intellectual property, and the values of securities of other businesses in the same industry.

10. Payment of Purchase Price; Changes in Payroll Deductions; Issuance of Shares .

a) The purchase price of the shares is accumulated by regular payroll deductions made during each Offering Period. The deductions are made as a percentage of the participant’s compensation in one percent (1%) increments, not less than one percent (1%), nor greater than fifteen percent (15%), or such lower limit set by the Committee. Compensation shall mean all regular straight-time gross earnings, and shall not include payments for overtime, shift premium, incentive compensation or payments, bonuses, commissions or other compensation. Payroll deductions shall commence on the first payday of the Offering Period and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan.

b) A participant may increase or decrease the rate of payroll deductions during an Offering Period by filing with the Company a new authorization for payroll deductions, in which case the new rate shall become effective for the next payroll period commencing after the Company’s timely receipt of the authorization and shall continue for the remainder of the Offering Period unless changed as described below. Such change in the rate of payroll deductions may be made at any time during an Offering Period, but not more than one (1) change may be made effective during any Purchase Period. A participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Company a new authorization for payroll deductions prior to the beginning of such Offering Period, or such other time period as specified by the Committee.

c) A participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Company a request for cessation of payroll deductions. Such reduction shall be effective beginning with the next payroll period after the Company’s timely receipt of the request and no further payroll deductions shall be made for the duration of the Offering Period. Payroll deductions credited to the participant’s

account prior to the effective date of the request shall be used to purchase shares of Common Stock of the Company in accordance with Section (e) below. A participant may not resume making payroll deductions during the Offering Period in which he or she reduced his or her payroll deductions to zero.

d) All payroll deductions made for a participant are credited to his or her account under this Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.

e) On each Purchase Date, for so long as this Plan remains in effect and provided that the participant has not submitted a signed and completed withdrawal form before that date, which notifies the Company that the participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the participant, as of that date returned to the participant, the Company shall apply the funds then in the participant’s account to the purchase of whole shares of Common Stock reserved under the option granted to such participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 9 of this Plan. Any cash remaining in a participant’s account after such purchase of shares shall be refunded to such participant in cash, without interest, provided, however, that any amount remaining in such participant’s account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock shall be carried forward, without interest, into the next Purchase Period or Offering Period, as the case may be. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date.

f) As soon as practicable after the Purchase Date, the Company shall issue shares for the participant’s benefit representing the shares purchased upon exercise of his or her option.

g) During a participant’s lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The participant shall have no interest or voting rights in shares covered by his or her option until such option has been exercised.

11. Limitations on Shares to be Purchased .

a) No participant shall be entitled to purchase stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in this Plan. The Company shall automatically suspend the payroll deductions of any participant as necessary to enforce such limit provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension.

b) No participant shall be entitled to purchase more than 3,000 shares of Common Stock (the “ Maximum Share Amount ”) on any single Purchase Date. Prior to the commencement of any Offering Period or prior to such time period as specified by the Committee, the Committee may, in its sole discretion, set a new Maximum Share Amount. If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount prior to the commencement of the next Offering Period.

The Maximum Share Amount shall continue to apply with respect to all succeeding Purchase Dates and Offering Periods unless revised by the Committee as set forth above.

c) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company shall make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable or as the Committee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant’s option to each participant affected.

d) Any payroll deductions accumulated in a participant’s account which are not used to purchase stock due to the limitations in this Section 11 shall be returned to the participant as soon as practicable after the end of the applicable Purchase Period, without interest.

12. Withdrawal .

a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Company a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Committee.

b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 7 above for initial participation in this Plan.

c) If the fair market value on the first day of the current Offering Period in which a participant is enrolled is higher than the fair market value on the first day of any subsequent Offering Period, the Company shall automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a participant’s account prior to the first day of such subsequent Offering Period shall be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period, if any.

13. Termination of Employment .

Termination of a participant’s employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee of the Company or of a Participating Subsidiary, shall immediately terminate his or her participation in this Plan. In such event, the payroll deductions credited to the participant’s account shall be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 13, an employee shall not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided, however that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute.

14. Return of Payroll Deductions .

In the event a participant’s interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to

the participant all payroll deductions credited to such participant’s account. No interest shall accrue on the payroll deductions of a participant in this Plan.

15. Capital Changes .

a) Subject to any required action by the shareholders of the Company, the number and type of shares of Common Stock covered by each option under this Plan which has not yet been exercised and the number and type of shares of Common Stock which have been authorized for issuance under this Plan but have not yet been placed under option (collectively, the “ Reserves ”), as well as the price per share of Common Stock covered by each option under this Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a stock split, stock dividend, combination or reclassification of the Common Stock or any other increase or decrease in the number of issued and outstanding shares of Common Stock effected without receipt of any consideration by the Company, provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Committee, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.

b) In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of (i) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company or their relative stock holdings and the options under this Plan are assumed, converted or replaced by the successor corporation, which assumption shall be binding on all participants), (ii) a merger in which the Company is the surviving corporation but after which the shareholders of the Company immediately prior to such merger (other than any shareholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (iii) the sale of all or substantially all of the assets of the Company, or (iv) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, each option under this Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or subsidiary of the successor corporation, unless the successor corporation does not agree to assume the option or to substitute an equivalent option, in which case the Board may determine, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period then in progress by setting a new Purchase Date (the “ New Purchase Date ”). If the Board shortens the Offering Period then in progress, the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 12.

c) The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, or in the event of the Company being

consolidated with or merged into any other corporation.

16. Nonassignability .

Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by the laws of descent and distribution or as provided in Section 23 below) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect.

17. Reports .

Individual accounts shall be maintained for each participant in this Plan. Each participant shall receive, as soon as practicable after the end of each Purchase Period, a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be.

18. Notice of Disposition .

Each participant shall notify the Company in writing if the participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the “ Notice Period ”). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company’s transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates.

19. No Rights to Continued Employment .

Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of the Company or any Participating Subsidiary to terminate such employee’s employment.

20. Equal Rights and Privileges .

All eligible employees shall have equal rights and privileges with respect to this Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company, the Committee or the Board, be reformed to comply with the requirements of Section 423. This Section 20 shall take precedence over all other provisions in this Plan.

21. Notices .

All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

22. Term; Shareholder Approval .

This Plan shall be approved by the shareholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months after the date this Plan is adopted by the Board. No

purchase of shares pursuant to this Plan shall occur prior to such shareholder approval. This Plan shall continue until the earliest to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) ten (10) years from the adoption of this Plan by the Board.

23. Designation of Beneficiary .

a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant’s account under this Plan in the event of such participant’s death subsequent to the end of a Purchase Period but prior to delivery to him of such shares and cash. The participant shall deliver along with such designation a written acknowledgment of the participant’s spouse, if any, consenting to the designation. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant’s account under this Plan in the event of such participant’s death prior to a Purchase Date.

b) Such designation of beneficiary may be changed by the participant at any time by written notice. The participant shall deliver along with such designation a written acknowledgment of the participant’s spouse, if any, consenting to the designation. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant’s death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

24. Conditions upon Issuance of Shares .

Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

25. Applicable Law .

The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California.

26. Amendment or Termination .

The Board may at any time amend, terminate or extend the term of this Plan; provided, however, that: (i) any such termination cannot affect options previously granted under this Plan; (ii) no amendment may make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the shareholders of the Company obtained in accordance with Section 22 above within twelve (12) months of the adoption of such amendment if such amendment would:

a) increase the number of shares that may be issued under this Plan; or

b) change the designation of the employees (or class of employees) eligible for participation in this Plan.

Notwithstanding the foregoing, the Board may make such amendments to the Plan as the Board determines to be advisable, if the continuation of the Plan or any Offering Period would result in financial accounting treatment for the Plan that is different from the financial accounting treatment in effect on the date this Plan is adopted by the Board.

Adopted by the Board on: March 19, 2004

Approved by the shareholders on: May 27, 2004

Effective date of this Plan: May 27, 2004

Amended by the Board on: March 22, 2007, March 25, 2010, March 22, 2012 and May 15, 2012

Exhibit 10.3

DEPOMED, INC.

MANAGEMENT CONTINUITY AGREEMENT

This Management Continuity Agreement (the “ Agreement ”) is dated as of May 15, 2012 by and between [name] (“ Employee ”) and Depomed, Inc., a California corporation (the “ Company ”). This Agreement is intended to provide Employee with certain benefits described herein upon the occurrence of specific events.

RECITALS

A. It is expected that another company may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company’s Board of Directors. The Board of Directors recognizes that such consideration can be a distraction to Employee and can cause Employee to consider alternative employment opportunities. The Board of Directors has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined below) of the Company.

B. The Company’s Board of Directors believes it is in the best interests of the Company and its shareholders to retain Employee and provide incentives to Employee to continue in the service of the Company.

C. The Board of Directors further believes that it is imperative to provide Employee with certain benefits upon certain termination of Employee’s employment in connection with a Change in Control, which benefits are intended to provide Employee with financial security and provide sufficient income and encouragement to Employee to remain with the Company, notwithstanding the possibility of a Change in Control.

D. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by Employee, to agree to the terms provided in this Agreement.

Now therefore, in consideration of the mutual promises, covenants and agreements contained herein, and in consideration of the continuing employment of Employee by the Company, the parties hereto agree as follows:

1. At-Will Employment . The Company and Employee acknowledge that Employee’s employment is and shall continue to be at-will, as defined under applicable law, and that Employee’s employment with the Company may be terminated by either party at any time for any or no reason. If Employee’s employment terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to by the Company. The terms of this Agreement shall terminate upon the earliest of: (i) the date on which Employee ceases to be employed as an

corporate officer of the Company, other than as a result of an Involuntary Termination in connection with or within twelve (12) months following the effective date of a Change in Control, (ii) the date that all obligations of the parties hereunder have been satisfied, (iii) one (1) year after a Change in Control or (iv) June 30, 2014 (or, if later in the case of subclause (iv), the later to occur of (x) the termination of any Pending Change in Control (as defined below) (the date determined pursuant to this clause (iv) being the “ End Date ”) and (y) one year after the completion of any Pending Change in Control). A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement. The rights and duties created by this Section 1 are contingent upon the Employee’s release of claims against the Company (at the time of termination in a form reasonably satisfactory to the Company) within sixty (60) days of his termination of employment and the expiration of any statutory revocation period and may not be modified in any way except by a written agreement executed by an officer of the Company upon direction from the Board of Directors.

2. Benefits Upon a Change in Control; Termination of Employment.

(a) Treatment of Equity Awards Upon a Change in Control . In the event that Employee suffers an Involuntary Termination in connection with or within twelve (12) months following the effective date of a Change in Control, 100% of Employee’s unvested Company option shares and restricted stock units shall become immediately vested on such termination date and the risk of forfeiture of 100% of Employee’s restricted stock shall lapse. Each such equity award shall be exercisable in accordance with the provisions of the award agreement and plan pursuant to which such equity award was granted.

(b) Severance. In the event that Employee suffers an Involuntary Termination in connection with or within twelve (12) months following the effective date of a Change in Control, Employee will be entitled to receive severance benefits as follows: (A) severance payments for [twelve (12) (if Employee is not the CEO ] [twenty-four (if Employee is the CEO)] months after the effective date of the termination (the “ Severance Period ”) equal to the base salary which Employee was receiving immediately prior to the Change in Control, which payments shall be paid during the Severance Period in accordance with the Company’s standard payroll practices; (B) a lump sum payment equal to [two times (if Employee is the CEO) ] Employee’s Average Annual Bonus; and (C) continuation of payment by the Company of its portion of the health insurance benefits provided to Employee immediately prior to the Change in Control pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”) or other applicable law through the earlier of the end of the Severance Period or the date upon which Employee is no longer eligible for such COBRA or other benefits under applicable law. For purposes of this Agreement, “ Average Annual Bonus ” shall mean Employee’s average annual bonus earned for performance during the Company’s three (3) fiscal years immediately preceding the Company’s fiscal year in which the termination occurs; provided, however, that (x) sign-on or other special bonuses shall not be taken into account; (y) any bonus for a partial year shall be annualized; and (z) if Employee has not been employed for three (3) fiscal years, Employee’s target annual bonus at the time of termination shall be used for each fiscal year in which Employee was not employed by the Company. For example, assume Employee was hired on July 1, 2011, earned a bonus of $50,000 for 2011 and

$125,000 for 2012 and had a target bonus of $150,000 for 2013. Further assume that a Change in Control occurred in 2013 and Employee experienced an Involuntary Termination within twelve (12) months thereafter. Employee’s Average Annual Bonus will be equal to $125,000 or $375,000 ($50,000 x 2 for 2011 + $125,000 for 2012 + $150,000 for 2013) divided by 3. The payments to be provided under clauses (a) and (b) shall be paid or commence to be paid within sixty (60) days of Employee’s termination of employment; provided that if the sixty-day period commences in one calendar year and ends in a second calendar year, such payment will be made or commence to be made in the second calendar year. Notwithstanding the foregoing, in the event the Board of Directors concludes in its reasonable judgment that the provision of subsidized COBRA benefits to Employee could cause the Company to become subject to excise tax as a result of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “ Healthcare Reform Act ”), the Company shall pay Employee a monthly amount in cash equal to the amount of the COBRA subsidy during the period the Company is obligated to provide subsidized COBRA benefits to Employee. In addition, Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

(c) Termination for Cause . If Employee’s employment is terminated for Cause at any time, then Employee shall not be entitled to receive payment of any severance benefits or equity award acceleration. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

(d) Voluntary Resignation . If Employee voluntarily resigns from the Company under circumstances which do not constitute an Involuntary Termination, then Employee shall not be entitled to receive payment of any severance benefits or equity award acceleration. Employee will receive payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of Employee’s termination of employment.

3. Definition of Terms . The following terms referred to in this Agreement shall have the following meanings:

(a) Change in Control; Pending Change in Control . “ Change in Control ” shall mean any event so determined by the Board of Directors pursuant to Section 10.4 of the Company’s 2004 Equity Incentive Plan and that also constitutes a “change in the ownership or effective control” of the Company or change in the “ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended (the “ Code ”). “ Pending Change in Control ” shall mean any Change in Control with respect to which the Company enters into a definitive agreement prior to the End Date which has not been completed or terminated as of the End Date. Pending Change in Control shall include any Change in Control with respect to which the Company enters into a binding agreement within thirty days after the termination of any other Pending Change in Control.

(b) Cause . “ Cause ” shall mean (i) gross negligence or willful misconduct in the performance of Employee’s duties to the Company where such gross negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries (ii) repeated unexplained or unjustified absence from the Company, (iii) a

material and willful violation of any federal or state law; (iv) commission of any act of fraud with respect to the Company or (v) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board of Directors.

(c) Involuntary Termination . “ Involuntary Termination ” shall include: (1) any termination by the Company other than for Cause, death or disability, and (2) Employee’s voluntary termination for Good Reason. For purposes of this Agreement, “ Good Reason ” shall mean that Employee has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events: (i) a material diminution in Employee’s responsibilities, authority or duties; (ii) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Employee is required to report, including a requirement that Employee report to a corporate officer or other employee instead of reporting directly to the board of directors of a corporation (or similar governing body with respect to an entity other than a corporation); (iii) a material diminution in Employee’s base salary (other than in connection with a general decrease in base salaries for most officers of the successor corporation); or (iv) a change in the geographic location at which Employee provides services to the Company by more than thirty (30) miles. “ Good Reason Process ” shall mean that (i) Employee reasonably determines in good faith that a “Good Reason” condition has occurred; (ii) Employee notifies the Company in writing of the first occurrence of the Good Reason condition within 90 days of the first occurrence of such condition; (iii) Employee cooperates in good faith with the Company’s efforts, for a period of 30 days following such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) Employee terminates his employment within 90 days after the end of the Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

4. Limitation and Conditions on Payments .

In the event that the severance and other benefits provided to Employee under this Agreement and any other agreement (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then Employee’s severance benefits under Sections 2(a) and 2(b) shall be payable either:

(a) in full, or

(b) as to such lesser amount which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Employee on an after-tax basis, of the greatest amount of severance benefits under Section 2(a) and 2(b), notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and Employee otherwise agree in writing, any determination required under this Section 4 shall be made in writing by independent public accountants selected by the Company (the “ Accountants ”), whose determination shall be conclusive and binding upon Employee and the Company for all purposes. For purposes of making the calculations required

by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.

5. Section 409A . Notwithstanding any provision of this Agreement to the contrary, if, at the time of Employee’s termination of employment with the Company, Employee is a “specified employee” (as defined in Section 409A of the Code) and the deferral of the commencement of any severance payments or benefits otherwise payable pursuant to this Agreement as a result of such termination of employment is necessary in order to prevent any accelerated income recognition or additional tax under Section 409A of the Code, then the Company will not commence any payment of any such severance payments or benefits otherwise required hereunder (but without any reduction in such payments or benefits ultimately paid or provided to Employee) that (a) will not and may not under any circumstances, regardless of when such termination occurs, be paid in full by March 15 of the year following Employee’s termination of employment, and (b) are in excess of the lesser of (i) two (2) times Employee’s then annual compensation or (ii) two (2) times the limit on compensation then set forth in Section 401(a)(17) of the Code and will not be paid by the end of the second calendar year following the year in which the termination occurs, until the first payroll date that occurs after the date that is six (6) months following Employee’s “separation of service” with the Company (as defined under Code Section 409A). If any payments are delayed due to such requirements, such amounts will be paid in a lump sum to Employee on the earliest of (x) the Employee’s death following the date of Employee’s termination of employment with the Company or (y) the first payroll date that occurs after the date that is six (6) months following Employee’s “separation of service” with the Company. For these purposes, each severance payment or benefit is designated as a separate payment or benefit and will not collectively be treated as a single payment or benefit. This paragraph is intended to comply with the requirements of Section 409A of the Code so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A of the Code and any ambiguities herein will be interpreted to so comply. Employee and the Company agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Employee under Section 409A of the Code. Notwithstanding anything to the contrary contained herein, to the extent that any amendment to this Agreement with respect to the payment of any severance payments or benefits would constitute under Code Section 409A a delay in a payment or a change in the form of payment, then such amendment must be done in a manner that complies with Code Section 409A(a)(4)(C).

6. Conflicts . Employee represents that Employee’s performance of all the terms of this Agreement will not breach any other agreement to which Employee is a party. Employee has not, and will not during the term of this Agreement, enter into any oral or written agreement in conflict with any of the provisions of this Agreement. Employee further represents that Employee is entering into or has entered into an employment relationship with the Company of

Employee’s own free will and that Employee has not been solicited as an employee in any way by the Company.

7. Successors . Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Employee’s rights hereunder and thereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

8. Notice . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address which Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

9. Miscellaneous Provisions .

(a) No Duty to Mitigate . Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Employee may receive from any other source.

(b) Waiver . No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Employee and by an authorized officer of the Company (other than Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(c) Whole Agreement . No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement supersedes any agreement of the same title and concerning similar subject matter dated prior to the date hereof, and by execution of this Agreement both parties agree that any such predecessor agreement shall be deemed null and void.

(d) Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without reference to conflict of laws provisions.

(e) Severability . If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or unenforceable, and a suitable and equitable term or provision shall be substituted therefor to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision.

(f) Arbitration . Any dispute or controversy arising under or in connection with this Agreement may be settled at the option of either party by binding arbitration in the County of Santa Clara, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. Punitive damages shall not be awarded.

(g) Legal Fees and Expenses . The parties shall each bear their own expenses, legal fees and other fees incurred in connection with this Agreement.

(h) No Assignment of Benefits . The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Section 8(h) shall be void.

(i) Employment Taxes . All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.

(j) Effective Date . This Agreement shall become effective on the date Employee commences employment with the Company.

(k) Assignment by Company . The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee.

(l) Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

[SIGNATURE PAGE FOLLOWS]

The parties have executed this Agreement on the date first written above.

	DEPOMED, INC.


	By:
	Name:
	Title:


	EMPLOYEE


	[NAME]

	Address:

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James A. Schoeneck, certify that:

1. I have reviewed this Quarterly Report of Depomed, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 3, 2012

	By:	/s/ James A. Schoeneck
		James A. Schoeneck
		Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, August J. Moretti, certify that:

1. I have reviewed this Quarterly Report of Depomed, Inc.;

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 3, 2012

	By:	/s/ August J. Moretti
		August J. Moretti
		Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Depomed, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James A. Schoeneck, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Date: August 3, 2012


	/s/ James A. Schoeneck
	James A. Schoeneck
	President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Depomed, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, August J. Moretti, Principal Accounting and Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Date: August 3, 2012


	/s/ August J. Moretti
	August J. Moretti
	Chief Financial Officer