ZOGENIX, INC. (Form: 10-Q, Received: 08/12/2011 06:04:34)

Large accelerated filer

Accelerated filer

Non-accelerated filer

þ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

¨	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: 001-34962

Zogenix, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware		20-5300780
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

12671 High Bluff Drive, Suite 200 San Diego, California		92130
(Address of Principal Executive Offices)		(Zip Code)

858-259-1165

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

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 þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of August 1, 2011 was 34,084,677.

ZOGENIX, INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2011

Table of Contents


PART I. FINANCIAL INFORMATION
		Page
Item 1	Consolidated Financial Statements:

	Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010		1

	Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (unaudited)		2

	Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited)		3

	Notes to the Consolidated Financial Statements (unaudited)		4

Item 2	Management Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3	Quantitative and Qualitative Disclosures about Market Risk		29

Item 4	Controls and Procedures		29

PART II. OTHER INFORMATION

Item 1	Legal Proceedings		30

Item 1A	Risk Factors		30

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		67

Item 3	Defaults Upon Senior Securities		67

Item 4	(Removed and Reserved)		67

Item 5	Other Information		67

Item 6	Exhibits		67

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Zogenix, Inc.

Consolidated Balance Sheets

(In Thousands)


	June 30, 2011			December 31, 2010
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	7,672		$	49,172
Trade accounts receivable		3,218			4,474
Inventory, net		18,556			18,293
Prepaid expenses and other current assets		2,355			2,251

Total current assets		31,801			74,190
Property and equipment, net		15,009			15,434
Other assets		4,583			4,644

Total assets	$	51,393		$	94,268

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,167		$	5,580
Accrued expenses		8,830			9,439
Accrued compensation		2,769			3,604
Revolving credit facility		3,612			3,449
Long-term debt, current portion		3,504			3,519
Deferred revenue, current portion		6,980			9,973

Total current liabilities		31,862			35,564
Long-term debt, less current portion		19,547			19,934
Deferred rent		330			360
Deferred revenue, less current portion		6,251			9,376
Other long-term liabilities		545			300
Commitments and contingencies
Stockholders’ equity:
Common stock		34			34
Additional paid-in capital		229,087			226,802
Accumulated deficit		(236,263	)		(198,102	)

Total stockholders’ equity (deficit)		(7,142	)		28,734

Total liabilities and stockholders’ equity	$	51,393		$	94,268

See accompanying notes.

Zogenix, Inc.

Consolidated Statements of Operations

(In Thousands, except Per Share Amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Revenue:
Net product revenue	$	8,674		$	4,215		$	16,151		$	6,118
Contract revenue		1,563			920			3,126			1,461

Total revenue		10,237			5,135			19,277			7,579

Operating expenses:
Cost of sales		3,975			3,210			8,850			5,302
Royalty expense		333			310			630			382
Research and development		8,882			7,683			17,406			11,389
Selling, general and administrative		15,039			12,343			27,940			25,422

Total operating expenses		28,229			23,546			54,826			42,495

Loss from operations		(17,992	)		(18,411	)		(35,549	)		(34,916	)
Other income (expense):
Interest income		3			2			19			3
Interest expense		(1,261	)		(929	)		(2,515	)		(1,511	)
Change in fair value of warrant liability		0			(8,600	)		0			(13,020	)
Other income (expense)		79			99			(103	)		139

Total other income (expense)		(1,179	)		(9,428	)		(2,599	)		(14,389	)

Net loss before income taxes		(19,171	)		(27,839	)		(38,148	)		(49,305	)
Provision for income taxes		(6	)		0			(13	)		0

Net loss	$	(19,177	)	$	(27,839	)	$	(38,161	)	$	(49,305	)

Net loss per share, basic and diluted	$	(0.56	)	$	(20.65	)	$	(1.12	)	$	(37.44	)

Weighted average shares outstanding, basic and diluted		34,018			1,348			34,015			1,317

See accompanying notes.

Zogenix, Inc.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Six Months Ended June 30,
	2011			2010
Operating activities
Net loss	$	(38,161	)	$	(49,305	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		2,183			839
Depreciation and amortization		791			676
Amortization of debt issuance costs and non-cash interest		782			805
Change in fair value of preferred stock warrant liability		0			13,020
Changes in operating assets and liabilities:
Trade accounts receivable		1,256			(2,022	)
Inventory, net		(263	)		(2,244	)
Prepaid expenses and other current assets		(104	)		141
Other assets		58			(4,466	)
Accounts payable and accrued expenses		(901	)		3,698
Deferred rent		(30	)		(13	)
Deferred revenue		(6,118	)		3,050

Net cash used in operating activities		(40,507	)		(35,821	)
Investing activities:
Purchases of property and equipment		(366	)		(1,162	)

Net cash used in investing activities		(366	)		(1,162	)
Financing activities:
Proceeds from revolving credit facility		4,242			0
Payments on borrowings of debt and revolving credit facility		(4,883	)		(3,435	)
Proceeds from exercise of common stock options		14			0

Net cash used in financing activities		(627	)		(3,435	)
Net decrease in cash and cash equivalents		(41,500	)		(40,418	)
Cash and cash equivalents at beginning of period		49,172			44,911

Cash and cash equivalents at end of period	$	7,672		$	4,493

See accompanying notes.

Zogenix, Inc.

Notes to Consolidated Financial Statements

1.	Organization and Basis of Presentation

Zogenix, Inc. (the Company) is a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain. The Company’s first commercial product, Sumavel ^® DosePro ^® ( sumatriptan injection) Needle-free Delivery System, offers fast-acting, easy-to-use, needle-free subcutaneous delivery of sumatriptan for the acute treatment of migraine and cluster headache in a pre-filled, single-use delivery system. Sumavel DosePro was approved by the U.S. Food and Drug Administration (FDA) on July 15, 2009 and was launched in the United States in January 2010.

The Company was incorporated in the state of Delaware on May 11, 2006 as SJ2 Therapeutics, Inc. and commenced operations on August 25, 2006. On August 28, 2006, the Company changed its name to Zogenix, Inc.

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through equity financings, debt financings, revenues from the sale of its product Sumavel DosePro and proceeds from business collaborations. As the Company continues to incur losses, successful transition to profitability is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. This may not occur and, unless and until it does, the Company will continue to need to raise additional cash.

On June 30, 2011, the Company amended certain terms of its loan agreement with Oxford Finance LLC, as successor in interest to Oxford Finance Corporation (Oxford), and Silicon Valley Bank (SVB) including the deferral of principal repayment to commence on February 1, 2012 (see note 4) and in July 2011, the Company entered into equity and royalty financing agreements with Cowen Healthcare Royalty Partners II, L.P. (Cowen Royalty) pursuant to which the Company borrowed $30,000,000 from Cowen Royalty and sold $1,500,000 of its common stock resulting in $29,500,000 in net proceeds to the Company (see note 8). Based on the Company’s operating plan, its current cash and cash equivalents, estimated future revenues, availability under its debt facilities as of June 30, 2011 and the proceeds from the recently completed financing with Cowen Royalty and amendment to the loan agreement with Oxford and SVB, the Company expects its cash resources will be sufficient to fund its operations through the fourth quarter of 2011.

Management expects operating losses and negative cash flows to continue for at least the next several years as the Company continues to incur costs related to the continued development of its product candidates and commercialization of its approved product. Management may pursue additional equity or debt financings if required to help support its planned operations beyond December 31, 2011. There can be no assurance that the Company will be able to obtain any source of financing on acceptable terms, or at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

2.	Summary of Significant Accounting Policies

Financial Statement Preparation and Use of Estimates

The unaudited consolidated financial statements have been prepared by Zogenix, Inc. according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted.

In the opinion of management, the accompanying unaudited consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the SEC on March 4, 2011.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Principles of Consolidation

The unaudited interim consolidated financial statements include the accounts of Zogenix, Inc. and its wholly owned subsidiary Zogenix Europe Limited, which was incorporated under the laws of England and Wales in June 2010. All intercompany transactions and investments have been eliminated in consolidation. Zogenix Europe Limited’s functional currency is the U.S. dollar, the reporting currency of its parent.

Cash and Cash Equivalents

The Company considers cash equivalents to be only those investments which are highly liquid, readily convertible to cash and have an original maturity of three months or less.

Restricted Cash

In December 2009, the Company issued a letter of credit for $200,000 in connection with an operating lease. The letter of credit is collateralized by a certificate of deposit in the same amount. Restricted cash of $200,000 at June 30, 2011 and December 31, 2010 is included in other assets on the consolidated balance sheet.

Accounts Receivable

The Company evaluates the collectability of its accounts receivable based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and historical experience. Based upon the review of these factors, the Company did not record an allowance for doubtful accounts at June 30, 2011 and December 31, 2010. The need for bad debt allowance is evaluated each reporting period.

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, accrued compensation, borrowings under the revolving credit facility and current portion of long-term debt included in the Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value.

Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:

Observable inputs such as quoted prices in active markets;

Level 2:

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3:

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010 are as follows (in thousands):


	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
At June 30, 2011
Assets
Money market fund shares ⁽¹⁾	$	2,534		0		0	$	2,534
At December 31, 2010
Assets
Money market fund shares ⁽¹⁾	$	42,615		0		0	$	42,615

(1)	Money market fund shares are included as a component of cash and cash equivalents on the consolidated balance sheet.

Concentration of Credit Risk, Sources of Supply and Significant Customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company maintains accounts in federally insured financial institutions in excess of

federally insured limits. The Company also maintains investments in money market funds and similar short-term investments that are not federally insured. However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held and of the money market funds and other entities in which these investments are made. Additionally, the Company has established guidelines regarding the diversification of its investments and their maturities, which are designed to maintain safety and liquidity.

The Company sells its products primarily to established wholesale distributors in the pharmaceutical industry. Credit is extended based on an evaluation of the customer’s financial condition, and collateral is not required. Approximately 91.2% of the trade accounts receivable balance as of June 30, 2011 represents amounts due from three wholesale distributors. The Company evaluates the collectability of its accounts receivable based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and historical experience. Based upon the review of these factors, the Company did not record an allowance for doubtful accounts at June 30, 2011.

The Company relies on third-party manufacturers for the production of Sumavel DosePro and single source third-party suppliers to manufacture several key components of Sumavel DosePro. If the Company’s third-party manufacturers are unable to continue manufacturing Sumavel DosePro, or if the Company lost one or more of its single source suppliers used in the manufacturing process, the Company may not be able to meet market demand for its product.

Astellas Pharma US, Inc. (Astellas) provides a significant amount of funding for the advertising and promotional costs for Sumavel DosePro and co-promotes the product in the United States.

Inventory

Inventory is stated at the lower of cost or market. Cost, which includes amounts related to materials, labor and overhead, is determined in a manner which approximates the first-in, first-out (FIFO) method. The Company capitalizes inventory produced in preparation for product launches upon FDA approval when costs are expected to be recoverable through the commercialization of the product. The Company provides reserves for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand including estimates of inventory on hand at distributors and on firm purchase commitments compared to forecasts of future sales.

Property and Equipment, Net

Property and equipment is recorded at cost, net of accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets, as follows:


Computer equipment and software		3 years
Furniture and fixtures		3-7 years
Manufacturing equipment and tooling		3-15 years
Leasehold improvements		Shorter of estimated useful life or lease term

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Revenue Recognition

The Company recognizes revenue from the sale of Sumavel DosePro and from license fees and milestones earned on collaborative arrangements. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

Product Revenue

The Company sells Sumavel DosePro product in the United States to wholesale pharmaceutical distributors, and on a limited basis to retail pharmacies, or collectively the Company’s customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. Given the limited sales history of Sumavel DosePro, 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 Sumavel DosePro until the right of return no longer exists, which occurs at the earlier of the time Sumavel DosePro units are dispensed through patient prescriptions or expiration of the right of return. Units dispensed are generally not subject to return, except in the rare cases where the product malfunctions or the product is damaged in transit. The Company estimates patient prescriptions dispensed using an analysis of third-party information, including third-party market research data, information obtained from certain wholesalers with respect to inventory levels at wholesalers and inventory movement and retail

pharmacy re-stocking activity. Sumavel DosePro was launched in January 2010 and, accordingly, the Company does not have significant history estimating the number of patient prescriptions dispensed. If the Company underestimates or overestimates patient prescriptions dispensed for a given period, adjustments to revenue may be necessary in future periods.

As a result of this policy, the Company recognized $8,674,000 and $4,215,000 in Sumavel DosePro product revenue from U.S. customers for the three months ended June 30, 2011 and 2010, and $16,151,000 and $6,118,000 in Sumavel DosePro product revenue from U.S. customers for the six months ended June 30, 2011 and 2010, respectively, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs. The Company had a deferred revenue balance of $729,000 and $3,722,000 at June 30, 2011 and December 31, 2010, respectively, for Sumavel DosePro product shipments, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs.

The Company will continue to recognize revenue upon the earlier to occur of prescription units dispensed or expiration of the right of return until it can reliably estimate product returns, at which time the Company will record a one-time increase in net revenue related to the recognition of revenue previously deferred. In addition, the costs of manufacturing Sumavel DosePro associated with the deferred revenue are recorded as deferred costs, which are included in inventory, until such time the related deferred revenue is recognized.

Sumavel DosePro is also sold to third parties that license the rights to market and sell the product in territories outside of the United States. Under these arrangements, Sumavel DosePro is sold at a specified transfer price with the right of return available for damaged goods upon receipt or in the event of a recall. All risk for retail and wholesaler fees and discounts, collectability of customer receivables, customer returns and expiration of the product remain with the licensee. The Company also receives royalties on net sales of Sumavel DosePro at a predetermined rate as a pass through of royalties payable to Aradigm. As such, the Company recognizes revenues for product sales under license arrangements upon acceptance of the product (generally at point of shipment). The Company did not recognize any product revenues for the three and six months ended June 30, 2011 and 2010, respectively, in sales under license arrangements.

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 the related sales. These estimates take into consideration the terms of the Company’s agreements with customers and third-party payors and the levels of inventory within the distribution channels that may result in future rebates or discounts taken. In certain cases, such as patient support programs, the Company recognizes the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, the Company may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. The Company’s product sales allowances include:

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 discount on shipment to the respective 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. The Company accounts for cash discounts by reducing accounts receivable by the prompt pay discount amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Chargebacks . The Company provides discounts primarily to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs and various organizations under Medicaid contracts and regulations. These entities purchase products from the 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 entity paid for the product. The Company estimates and accrues chargebacks based on estimated wholesaler inventory levels, current contract prices and historical chargeback activity. Chargebacks are recognized as a reduction of revenue in the same period the related revenue is recognized.

Rebates . The Company participates in certain rebate programs, which provide discounted prescriptions to qualified insured patients. Under these rebate programs, the Company pays a rebate to the third-party administrator of the program, generally two to three months after the quarter in which prescriptions subject to the rebate are filled. The Company estimates and accrues for these rebates based on current contract prices, historical and estimated future percentages of product sold to qualified patients and estimated levels of inventory in the distribution channel. Rebates are recognized as a reduction of revenue in the same period the related revenue is recognized.

Patient Discount Programs . The Company offers discount card programs to patients for Sumavel DosePro in which patients receive discounts on their prescriptions that are reimbursed by the Company. The Company estimates the total amount that will be redeemed based on levels of inventory in the distribution and retail channels and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Stocking Allowances . The Company may offer discounts and extended payment terms, generally in the month of the initial commercial launch of a new product, on the first order made by certain wholesale distributors and retail pharmacies based on contractually determined rates. The Company accrues the discount on shipment to the respective wholesale distributors and retail pharmacies and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Contract Revenue

The Company recognizes revenues related to license fees and milestone payments received under its Co-Promotion Agreement with Astellas entered into in July 2009 (Co-Promotion Agreement). Revenue arrangements with multiple deliverables are divided into separate units of accounting if criteria are met, including whether the deliverable has stand-alone value to the customer and the customer has a general right of return relative to the delivered item and delivery or performance of the undelivered item is probable and substantially within the vendor’s control. Arrangement consideration is allocated at the inception of the arrangement to all deliverables on the basis of their relative selling price. The selling price for each deliverable is determined using (i) vendor-specific objective evidence of selling price (VSOE), if it exists, (ii) third-party evidence of selling price (TPE) if VSOE does not exist, and (iii) the Company’s best estimate of the selling price if neither VSOE nor TPE exists. For transactions entered into prior to January 1, 2011, revenue is recognized for each deliverable based upon the applicable revenue recognition criteria discussed above and upon acceptance of goods or performance of service. Effective January 1, 2011, for new or significantly modified transactions, the Company allocates revenue consideration, excluding contingent consideration, based on the relative selling prices of the separate units of accounting contained within an arrangement containing multiple deliverables.

Collaborative Arrangements

Effective January 1, 2009, the Company implemented authoritative guidance related to accounting for collaborative arrangements. The guidance requires that certain transactions between collaborators be recorded in the consolidated statement of operations on either a gross or net basis within revenues or operating expenses, depending on the characteristics of the collaboration relationship, and provides for enhanced disclosure of collaborative relationships. The Company evaluates its collaborative agreements for proper classification of shared expenses, license fees, milestone payments and any reimbursed costs within the consolidated statement of operations based on the nature of the underlying activity. If payments to and from collaborative partners are not within the scope of other authoritative accounting literature, the statement of operations classification for the payments is based on a reasonable, rational analogy to authoritative accounting literature that is applied in a consistent manner. For collaborations relating to commercialized products, if the Company acts as the principal in the sale of goods or services, the Company records revenue and the corresponding operating costs in its respective line items within the consolidated statement of operations based on the nature of the shared expenses. Per authoritative accounting guidance, the principal is the party who is responsible for delivering the product to the customer, has latitude with establishing price and has the risks and rewards of providing product to the customer, including inventory and credit risk. Effective January 1, 2011, for collaborations relating to research or development arrangements the Company will recognize revenue for a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved.

Research and Development Expenses

All costs of research and development are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation expense, outside service providers, facilities costs, fees paid to consultants, professional services, travel costs, dues and subscriptions, depreciation and materials used in clinical trials and research and development. The Company expenses costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until FDA approval. The Company received FDA approval for Sumavel DosePro in July 2009, after which it began capitalizing costs as inventory related to the production of Sumavel DosePro, including the cost of materials, third-party manufacturing costs, freight and indirect personnel and other overhead costs.

The Company reviews and accrues expenses related to clinical trials based on work performed, which relies on estimates of total costs incurred based on completion of patient studies and other events. The Company follows this method since reasonably dependable estimates of the costs applicable to various stages of a research agreement or clinical trial can be made. Accrued clinical development costs are subject to revisions as trials progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known.

Advertising Expense

The Company records the cost of its advertising efforts when services are performed or goods are delivered. The Company incurred approximately $1,263,000 and $1,346,000 in advertising costs for the three months ended June 30, 2011 and 2010 and $2,379,000 and $2,885,000 in advertising costs for the six months ended June 30, 2011 and 2010, respectively. At June 30, 2011 and December 31, 2010, the Company capitalized advertising costs of $6,000, and $93,000, respectively, in prepaid and other current assets.

Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates which will be in effect when the differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax asset will be realized. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

Foreign Currency Transactions

Gains or losses resulting from transactions denominated in foreign currencies are included in other income (expense) in the consolidated statements of operations. The Company recorded gains and losses from foreign currency transactions in other income (expense) of $79,000 and $99,000 for the three months ended June 30, 2011 and 2010 and ($103,000) and $139,000 for the six months ended June 30, 2011 and 2010, respectively.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period on a straight-line basis. As of June 30, 2011, there were no outstanding equity awards with market or performance conditions. Equity awards issued to non-employees are recorded at their fair value on the measurement date and are re-measured at each reporting date as the underlying awards vest unless the instruments are fully vested, immediately exercisable and nonforfeitable on the date of grant.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period reduced by weighted average shares subject to repurchase, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common share equivalents outstanding for the period determined using the treasury-stock method and as-if converted method, as applicable. For purposes of this calculation, stock options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

The following table presents the computation of basic and diluted net loss per share (in thousands, except per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Numerator
Net loss	$	(19,177	)	$	(27,839	)	$	(38,161	)	$	(49,305	)
Denominator
Weighted average common shares outstanding		34,022			1,444			34,021			1,444
Weighted average shares subject to repurchase		(4	)		(96	)		(6	)		(127	)

Weighted average shares outstanding, basic and diluted		34,018			1,348			34,015			1,317

Basic and diluted net loss per share	$	(0.56	)	$	(20.65	)	$	(1.12	)	$	(37.44	)

Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in thousands, of common equivalent shares):


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Common stock warrants		283		1,389		283		1,389
Common stock subject to repurchase		2		52		2		52
Common stock options and restricted stock units		3,389		1,478		3,389		1,478

		3,674		2,919		3,674		2,919

Segment Reporting

Management has determined that the Company operates in one business segment, which is the commercialization and development of pharmaceutical products.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (the FASB) issued an Accounting Standard Update which replaced the concept of allocating revenue consideration amongst deliverables in a multiple-element revenue arrangement according to fair value with an allocation based on selling price. The amended guidance also establishes a hierarchy for determining the selling price of revenue deliverables sold in multiple element revenue arrangements. The selling price used for each deliverable will be based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or management’s estimate of an element’s stand-alone selling price if neither VSOE nor third-party evidence is available. The amendments in this update also require an allocation of selling price amongst deliverables be performed based upon each deliverable’s relative selling price to total revenue consideration, rather than on the residual method previously permitted. The updated guidance is effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. The Company prospectively adopted the updated guidance on January 1, 2011 and will apply the amended guidance to revenue arrangements containing multiple deliverables that are entered into or significantly modified on or after January 1, 2011. As the Company did not enter into any new collaborations or materially modify any existing collaborations, adoption of this guidance had no impact on the Company’s results of operations for the six months ended June 30, 2011.

In March 2010, the FASB Emerging Issues Task Force (EITF) ratified a new accounting standard which amends guidance on the milestone method of revenue recognition. The EITF concluded that the milestone method is a valid application of the proportional performance model when applied to research or development arrangements. Milestones, as defined per the revised guidance, are (1) events that can only be achieved in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting in the entity’s performance (2) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (3) that would result in additional payments being due to the Company. The Company evaluates events under this guidance at the inception of an arrangement to determine the existence of milestones and if they are substantive. This standard allows an entity to make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This standard is effective for fiscal years beginning on or after June 15, 2010 with early adoption permitted. The guidance may be applied prospectively for milestones achieved after the adoption date or retrospectively for all periods presented. The Company adopted this guidance on January 1, 2011 on a prospective basis. Adoption of this guidance did not have a material impact on the Company’s results of operations.

In June 2011, the FASB issued an Accounting Standards Update which requires entities to present reclassification adjustments included in other comprehensive income on the face of the financial statements and allows entities to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate consecutive statements. It also eliminates the option for entities to present components of other comprehensive income as part of the statement of changes to stockholders equity. The updated guidance is effective for fiscal and interim periods beginning after December 15, 2011, with early adoption permitted. The adoption of this updated standard is not expected to have a material effect on the Company’s results of operations.

3.	Consolidated Balance Sheet Details

Inventory, net (in thousands)


	June 30, 2011		December 31, 2010
Raw materials	$	5,971	$	5,727
Work in process		9,299		6,454
Finished goods		3,039		4,861
Deferred costs		247		1,251

	$	18,556	$	18,293

Deferred costs represent the costs of product shipped for which recognition of revenue has been deferred.

Accrued Expenses (in thousands)


	June 30, 2011		December 31, 2010
Accrued clinical expense	$	4,220	$	3,629
Accrued service fee		1,275		1,190
Value added tax payable		0		989
Accrued discounts and allowances		829		813
Accrued interest expense		253		265
Contract manufacturing fees		169		79
Other accrued expenses		2,084		2,474

	$	8,830	$	9,439

Debt

Term Debt

In June 2008, the Company entered into and borrowed $18,000,000 under the Loan and Security Agreement with Oxford and CIT Healthcare LLC (the Oxford Agreement). The obligations under the Oxford Agreement were collateralized by personal property excluding certain intellectual property and all equipment pledged to secure the equipment financing described below. In July and October 2010, the Company amended and restated the Oxford Agreement, and Oxford and SVB became party to the amended agreement. In June 2011, the Company again amended and restated the amended Oxford/SVB agreement (the Amended Oxford/SVB Agreement), which provided among other things, the addition of intellectual property to the collateral securing the Oxford/SVB loan and the deferral of principal repayment to commence on February 1, 2012. The Amended Oxford/SVB Agreement consists of a $25,000,000 term loan and a $10,000,000 revolving credit facility. The obligations under the Amended Oxford/SVB Agreement are collateralized by the Company’s intellectual property and personal property (including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and cash) but excluding, among other things, copyrights, patents, patent applications, trademarks, service marks, and trade secret rights.

The Amended Oxford/SVB Agreement includes financial covenants requiring that the Company achieve, as of the last day of each month measured on a trailing three-month basis, actual revenue of at least a specified percentage of the Company’s projected revenue as provided to Oxford and SVB in the event the Company fails to maintain a liquidity ratio (defined, in general, as the ratio of

(a) cash and cash equivalents deposited with SVB plus unused borrowing capacity under that agreement to (b) all debt, capital lease obligations and contingent obligations owed to the lenders) of 1.25 to 1.00. The agreement also includes a covenant that the audit report accompanying the Company’s year-end consolidated financial statements for fiscal year 2010 and thereafter not include a “going concern” qualification. In March 2011, the Company obtained a waiver from Oxford and SVB for the breach caused by the receipt of the 2010 audit report from our independent registered public accounting firm, which includes a modification of their standard report for the going concern uncertainty. In addition, the Amended Oxford/SVB Agreement prohibits the Company from (1) incurring any debt other than, among other things, debt under the Amended Oxford/SVB Agreement, (2) entering into mergers with, or acquisitions of all or substantially all the assets of, another entity with a value in excess of $100,000, and also prohibits the occurrence of a change in control of the Company, as defined in the Amended Oxford/SVB Agreement. The agreement provides that an event of default will occur if, among other customary events of default, (1) there is a material adverse change in the Company’s business, operations or condition (financial or otherwise) or material impairment in the prospects of the Company repaying any portion of its obligations under the agreement, (2) there is a material impairment in the value of the collateral pledged to secure its obligations under the agreement, (3) the Company defaults in the payment of any amount payable under the agreement when due, or (4) breaches any covenant in the agreement (subject to a grace period in some cases).

The $25,000,000 term loan bears an interest rate of 12.06% per annum. The monthly repayment schedule includes interest only payments through January 2012 followed by principal and interest payments for the subsequent 24 months. The term loan requires a final payment of $1,200,000, in addition to principal repayments, at the loan maturity date, which is January 1, 2014. The Company has the option to prepay the outstanding balance of the term loan in full, subject to the $1,200,000 final payment and a prepayment fee of either 2% or 3% of the principal amount prepaid depending upon when the prepayment occurs. The outstanding principal balance of the term loan as of June 30, 2011and December 31, 2010 is $25,000,000.

Under the terms of the revolving credit facility, the Company may borrow up to $10,000,000 based on eligible accounts receivable and inventory balances, as defined within the Amended Oxford/SVB Agreement. Amounts outstanding under the revolving credit facility accrue interest, payable monthly, at a floating rate per annum equal to the greater of 3.29% above SVB’s prime rate or 7.29%. In addition, the Company pays a monthly fee equal to 0.5% per annum of the average unused portion of the revolving credit facility. The revolving credit facility requires a final payment of $100,000, in addition to principal and interest repayments, at the loan maturity date. The Company has the option to terminate the revolving credit facility prior to the loan maturity date and repay the outstanding balance in full, subject to a termination fee between $100,000 and $300,000 depending upon when the termination occurs.

As of June 30, 2011 and December 31, 2010, the Company had $3,714,000 and $3,585,000, respectively, of outstanding principal under the revolving credit facility, and $6,286,000 and $6,415,000, respectively, was available for future borrowings to the extent of available borrowing base. As of June 30, 2011 and December 31, 2010, $3,612,000 and $3,449,000, respectively, is reflected on the consolidated balance sheet net of debt discounts related to the fees and warrants issued in connection with the Amended Oxford/SVB Agreement.

Equipment Financing

In March 2007, the Company entered into a $10,000,000 master loan and security agreement (GE Agreement) with GE Capital Corporation (GE Capital) for the purpose of financing capital equipment purchases. Each borrowing is under a promissory note repayable in 48 monthly installments based upon a monthly repayment schedule bearing interest at an annual rate determined on the date of borrowing. The first promissory note was executed in March 2007 for $3,500,000 with an interest rate of 10.08%. A second promissory note was executed in December 2007 for $1,000,000 with an interest rate of 9.91%. The Company’s ability to make further borrowing under the GE Agreement expired on December 21, 2007.

The Company had the option to prepay the outstanding balance of the promissory notes in full, subject to a prepayment fee as defined in the GE Agreement. The outstanding principal balance of the GE Agreement as of December 31, 2010 was $675,000 and was repaid in full on June 30, 2011.

5.	Common Stock Warrants

In June 2011, and in connection with entering into the Amended Oxford/SVB Agreement (see Note 4), the Company issued to Oxford and SVB warrants exercisable into an aggregate of 26,455 shares of common stock. The warrants are exercisable at $3.78 per share of common stock and have a term of 7 years. The value of the warrants of approximately $76,000 was recorded as debt discount and additional paid in capital in the accompanying financial statements.

6.	Employee Stock Purchase Plan

During 2010, the Company adopted the 2010 Employee Stock Purchase Plan (the Purchase Plan), which allows employees to purchase shares of the Company’s common stock during a specified offering period. The purchase price is 85% of the lower of the

closing price of the stock on the first day of the offering period or the closing price of the stock on the date of purchase. Eligible employees may elect to withhold up to 20% of their compensation during any offering period for the purchase of stock up to a maximum of 20,000 shares per purchase period. A total of 750,000 shares of common stock are reserved for issuance under the Purchase Plan. The first offering period under the Purchase Plan is from June 1, 2011 through May 31, 2012 with two purchase periods of six months each.

7.	Stock-Based Compensation

The Company uses the Black-Scholes option-pricing model for determining the estimated fair value and stock-based compensation for stock-based awards to employees and the board of directors. The assumptions used in the Black-Scholes option-pricing model for the six months ended June 30, 2011 are as follows:


	Three Months Ended June 30, 2011	Six Months Ended June 30, 2011
Stock Options
Risk free interest rate	1.8 % to 2.6%	1.8 % to 2.6%
Expected term	5.1 to 6.1 years	5.0 to 6.1 years
Expected volatility	72.3 % to 75.2%	72.3 % to 89.7%
Expected dividend yield	0.0%	0.0%
Fair value of underlying stock	$3.87 to $5.04	$3.87 to $5.04

Employee Stock Purchase Plan
Risk free interest rate	0.1%	0.1%
Expected term	0.5 years	0.5 years
Expected volatility	75.2%	75.2%
Expected dividend yield	0.0%	0.0%
Fair value of underlying stock	$4.15	$4.15

The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The weighted average expected term of options was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. This decision was based on the lack of relevant historical data due to the Company’s limited historical experience. In addition, due to the Company’s limited historical data, the estimated volatility was calculated based upon the historical volatility of comparable companies whose share prices have been publicly available for a sufficient period of time.

The Company recognized stock-based compensation expense related to stock options and employee stock purchase plan rights is as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Cost of sales	$	36	$	24	$	62	$	41
Research and development		186		82		331		141
Selling, general and administrative		1,010		235		1,790		657

Total	$	1,232	$	341	$	2,183	$	839

As of June 30, 2011, there was approximately $12,150,000 and $298,000 of total unrecognized compensation costs related to outstanding options and employee stock purchase plan rights, which is expected to be recognized over weighted average periods of 3.22 years and 0.67 years, respectively.

In accordance with accounting guidance for stock-based compensation, the Company re-measured the fair value of stock option grants to non-employees at each reporting date and recognized the related income or expense during their vesting period. Expense recognized for stock options to consultants was immaterial for the six months ended June 30, 2011 and 2010.

Information with respect to the number and weighted average exercise price of stock options and restricted stock units is summarized as follows (number of shares in thousands):


	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2010		1,479		$	3.35
Granted		1,964			4.48
Exercised		(4	)		3.18
Canceled/Forfeited		(50	)		3.96

Outstanding at June 30, 2011		3,389		$	4.01

8.	Subsequent Events

Cowen Royalty Financing Agreement

On July 18, 2011, the Company closed the royalty financing agreement (the Financing Agreement) with Cowen Royalty. Under the terms of the Financing Agreement, the Company borrowed $30,000,000 from Cowen Royalty (the Borrowed Amount) and the Company agreed to repay such Borrowed Amount together with a return to Cowen Royalty, as described below, out of the Company’s direct product sales, co-promotion revenues and out-license revenues (collectively, “Revenue Interest”) that the Company may record or receive as a result of worldwide commercialization of the Company’s products including Sumavel DosePro, Zohydro (formerly ZX002) and other future products.

In addition, upon the closing of and in connection with the Financing Agreement, the Company issued and sold to Cowen Royalty $1,500,000 of the Company’s common stock, or 388,601 shares, at a price of $3.86 per share. The Company also issued to Cowen Royalty a warrant exercisable into 225,000 share of the Company’s common stock. The warrant is exercisable at $9 per share and has a term of 10 years.

Under the Financing Agreement, the Company is obligated to pay to Cowen Royalty:

•

5% of the first $75 million of Revenue Interest recorded (in the case of net product sales) or received (in the case of co-promotion revenues and license fees) by the Company in a calendar year (or 5.75% if the co-promotion agreement with Astellas is terminated prior to June 30, 2013, with a reversion back to 5% possible if certain net sales of Sumavel DosePro are achieved or if Zohydro is commercialized in the four calendar quarters immediately following the effective date of termination);

•

2.5% of the next $75 million of Revenue Interest recorded (in the case of net product sales) or received (in the case of co-promotion revenues and license fees) by the Company in a calendar year; and

•

0.5% of Revenue Interest over and above $150 million recorded (in the case of net product sales) or received (in the case of co-promotion revenues and license fees) by the Company in a calendar year.

Net sales of Sumavel DosePro outside the United States are only included in the Revenue Interest if such net sales exceed $10 million. Once the aggregate payments, including the fixed payments described below, made by the Company to Cowen Royalty equal $75 million, the percentage of Revenue Interest owed to Cowen Royalty is reduced to 0.5% for the remainder of the term of the financing agreement, with only Sumavel DosePro and Zohydro subject to the Revenue Interest payments thereafter. The Company is also obligated to make three fixed payments of $10 million on (or before at the option of the Company) each of January 31, 2015, January 31, 2016 and January 31, 2017. Prepayment requires the consent of the lenders under the Amended Oxford/SVB Agreement while balances remain outstanding under that facility.

The obligation of the Company to make the Revenue Interest payments during the term of the Financing Agreement are secured under a security agreement by a second priority security interest (junior to the security interest of Oxford and SVB under the Amended Oxford /SVB Agreement) in all assets of the Company, including intellectual property and other rights of the Company to the extent necessary or used to commercialize the Company products. The security interest will be extinguished at the end of the term or once the aggregate payments made by the Company to Cowen Royalty equal $75 million, whichever is sooner. Cowen Royalty, Oxford and SVB entered into an intercreditor agreement which governs their respective rights as secured creditors. The Company has agreed to specified positive and negative covenants in connection with the Financing Agreement.

The Company has the option to terminate the Financing Agreement at the Company’s election in connection with a change of control of the Company, upon the payment of a base amount of $52.5 million, or, if higher, an amount that generates a 19% internal rate of return on the Borrowed Amount as of the date of prepayment, in each case reduced by the Revenue Interest and principal payments received by Cowen Royalty up to the date of prepayment.

Cowen Royalty has the option to terminate the Financing Agreement at its election in connection with a change of control of the Company (which includes the sale, transfer, assignment or licensing of the Company’s rights in the United States to either Sumavel DosePro or Zohydro), a bankruptcy event with respect to the Company or an event of default under the financing agreement. Upon such a termination by Cowen Royalty, the Company is obligated to make a payment of a base amount of $45 million, or, if higher, an amount that generates a 17% internal rate of return on the Borrowed Amount as of the date of prepayment, in each case reduced by the Revenue Interest and principal payments received by Cowen Royalty up to the date of prepayment.

Unless terminated earlier as discussed above, the financing agreement terminates on March 31, 2018.

Durect Development and License Agreement

On July 11, 2011, the Company entered into a development and license agreement with Durect Corporation (the License Agreement). Under the License Agreement, the Company will be responsible for the clinical development and commercialization of Relday, a proprietary, long-acting injectable formulation of risperidone using Durect’s SABER™ controlled-release formulation technology in combination with the Company’s DosePro ^® needle-free, subcutaneous drug delivery system. Durect will be responsible for non-clinical, formulation and CMC development responsibilities. Durect will be reimbursed by the Company for its research and development efforts on the product.

The Company paid a non-refundable upfront fee to Durect of $2,250,000. The Company is obligated to pay Durect up to $103,000,000 in total future milestone payments with respect to the product subject to and upon the achievement of various development, regulatory and sales milestones. The Company is also required to pay a mid single-digit to low double-digit percentage patent royalty on annual net sales of the product determined on a jurisdiction-by-jurisdiction basis. The patent royalty term is equal to the later of the expiration of all Durect technology patents or joint patent rights in a particular jurisdiction, the expiration of marketing exclusivity rights in such jurisdiction, or 15 years from first commercial sale in such jurisdiction. After the patent royalty term, the Company will continue to pay royalties on annual net sales of the product at a reduced rate for so long as the Company continues to sell the product in the jurisdiction. The Company is also required to pay to Durect a tiered percentage of fees received in connection with any sublicense of the licensed rights.

Durect granted to the Company an exclusive worldwide license, with sub-license rights, to Durect intellectual property rights related to Durect’s proprietary polymeric and non-polymeric controlled-release formulation technology to make and have made, use, offer for sale, sell and import risperidone products, where risperidone is the sole active agent, for administration by injection in the treatment of schizophrenia, bipolar disorder or other psychiatric related disorders in humans. Durect retains the right to supply the Company’s Phase 3 clinical trial and commercial product requirements on the terms set forth in the License Agreement.

Durect retains the right to terminate the License Agreement with respect to specific countries if the Company fails to advance the development of the product in such country, either directly or through a sublicensee. In addition, either party may terminate the License Agreement upon insolvency or bankruptcy of the other party, upon written notice of a material uncured breach or if the other party takes any act impairing such other party’s relevant intellectual property rights. The Company may terminate the License Agreement upon written notice if during the development or commercialization of the product, the product becomes subject to one or more serious adverse drug experiences or if either party receives notice from a regulatory authority, independent review committee, data safety monitory board or other similar body alleging significant concern regarding a patient safety issue. The Company may also terminate the License Agreement with or without cause, at any time upon prior written notice.

Item 2.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the information incorporated herein by reference contain forward-looking statements that involve substantial risks and uncertainties, including statements regarding the future sales potential for Sumavel DosePro, the progress and timing of clinical trials, the safety and efficacy of our product candidates, the goals of our development activities, estimates of the potential markets for our product candidates, estimates of the capacity of manufacturing and other facilities to support our products, projected cash needs and our expected future revenues, operations and expenditures. The forward-looking statements are contained principally in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Quarterly Report on Form 10-Q in greater detail under the heading “Item 1A — Risk Factors.”

Given these risks, uncertainties and other factors, we urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We undertake no obligation to revise or update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Sumavel ^® , DosePro ^® , Zohydro™, Intraject ^® and Zogenix™ are our trademarks. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Zogenix,” “we,” “us” and “our” refer to Zogenix, Inc., including, as of June 7, 2010, its consolidated subsidiary.

The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2010 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2010.

Overview

Background

We are a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain. Our first commercial product, Sumavel DosePro ( sumatriptan injection) Needle-free Delivery System, offers fast-acting, easy-to-use, needle-free subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache in a pre-filled, single-use delivery system. We launched the commercial sale of Sumavel DosePro in the United States in January 2010 with our co-promotion partner, Astellas Pharma US, Inc., or Astellas. Our sales and marketing organization is comprised of approximately 100 professionals. Our field sales force of approximately 80 representatives is promoting Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists. Given our success in growing Sumavel DosePro prescriptions with these key prescribers, we have initiated activities to expand our sales force in the United States to approximately 95 sales representatives by the end of the third quarter of 2011. Our promotional efforts are complemented by our collaboration with Astellas and approximately 400 of its sales representatives, who are promoting Sumavel DosePro primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists in the United States, or the Astellas Segment. Our lead product candidate, Zohydro (formerly ZX002), is a novel, oral, single-entity extended-release formulation of hydrocodone currently in Phase 3 clinical trials for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy. We initiated the Phase 3 clinical development program for Zohydro in March 2010 and, if successful, expect to submit a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, by early 2012. We in-licensed exclusive U.S. rights to Zohydro from Elan Pharma International Limited, or Elan, in 2007.

In July 2011, we entered into a development and license agreement with Durect Corporation, or the Relday license agreement, pursuant to which, we will be responsible for the clinical development and commercialization of Relday, a proprietary, long-acting

injectable formulation of risperidone using Durect’s SABER™ controlled-release formulation technology in combination with our DosePro ^® needle-free, subcutaneous drug delivery system. Risperidone is used to treat the symptoms of schizophrenia and bipolar I disorder in adults and teenagers 13 years of age and older. Relday™ will be developed to address unmet clinical needs in this patient population and is being developed to be a once-monthly, subcutaneous antipsychotic product. We expect to initiate clinical studies for the new product candidate in patients with schizophrenia in early 2012 following filing of an Investigational New Drug application.

We have experienced net losses and negative cash flow from operating activities since inception, and as of June 30, 2011, had an accumulated deficit of $236.3 million. We expect to continue to incur net losses and negative cash flow from operating activities for at least the next several years primarily as a result of the development expenses in connection with clinical trials and pre-clinical studies for Zohydro and the cost of the sales and marketing expenses associated with Sumavel DosePro. As of June 30, 2011, we had cash and cash equivalents of $7.7 million. On June 30, 2011, we amended certain terms of our loan agreement with Oxford and SVB including the deferral of principal repayment to commence on February 1, 2012 and in July 2011, we entered into equity and royalty financing agreements with Cowen Healthcare Royalty Partners II, L.P., or Cowen Royalty, resulting in net proceeds of $29.5 million to us. Although it is difficult to predict future liquidity requirements, based on our current operating plan we believe that our cash and cash equivalents as of June 30, 2011, together with future product revenue and borrowings available under our $10.0 million revolving credit facility and the net proceeds from the recently completed equity and royalty financing with Cowen Royalty and amendment to the loan agreement with Oxford and SVB, will be sufficient to fund our operations through the fourth quarter of 2011. We will need to obtain additional capital to finance our operations beyond that point. We intend to raise additional capital through debt or equity financings or through collaborations or partnerships with other companies. If we are not be able to raise additional capital on terms acceptable to us, or at all, as and when needed, we may be required to reduce or curtail our operations and costs, and we may be unable to continue as a going concern. In its report on our consolidated financial statements for the year ended December 31, 2010, our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding our ability to continue as a going concern.

Co-Promotion Agreement

Under our co-promotion agreement with Astellas that we entered into in July 2009, or the co-promotion agreement, Astellas primarily promotes Sumavel DosePro to the Astellas Segment in the United States. Our sales force promotes Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists in the United States. We jointly share in the cost of advertising, marketing and other promotional activities related to the Sumavel DosePro brand and are required to provide minimum levels of sales effort to promote Sumavel DosePro. Under the co-promotion agreement, we are responsible for the manufacture, supply and distribution of all Sumavel DosePro commercial product and are principally responsible for entering into any contracts and other arrangements with third parties regarding the sale of Sumavel DosePro.

At the inception of the co-promotion agreement and in exchange for the right to promote Sumavel DosePro, Astellas made a non-refundable up-front payment of $2.0 million to us and agreed to make an additional $18.0 million of payments to us upon the achievement of a series of milestones. As of June 30, 2011, we had received a total of $20.0 million from Astellas. These proceeds are reflected as deferred revenues on our consolidated balance sheets at June 30, 2011 and December 31, 2010. Beginning with the launch of Sumavel DosePro in January 2010, we began recognizing these proceeds as contract revenues on a ratable basis over the remaining term of the agreement, which remains in effect through June 30, 2013, subject to extension by one year at Astellas’ option, contingent upon payment of a predetermined option fee.

In consideration for Astellas’ performance of its commercial efforts, we are required to pay Astellas a service fee on a quarterly basis that represents a fixed percentage of between 45% and 55% of Sumavel DosePro net sales to the Astellas Segment. In addition, upon completion of the co-promotion term, Astellas generally will be eligible to receive two additional annual tail payments calculated as decreasing fixed percentages (ranging from a mid-twenties down to a mid-teen percentage) of net sales in the Astellas Segment in the last 12 months of its active promotion. Astellas pays us the lesser of our direct out-of-pocket costs or a fixed fee for all sample units they order for distribution to their sales force. Amounts received from Astellas for shared marketing costs and sample product are reflected as a reduction of selling, general and administrative expenses, and amounts payable to Astellas for shared marketing expenses and service fees are reflected as selling, general and administrative expenses. For the three months ended June 30, 2011 and 2010, we incurred $1.7 million and $0.8 million, respectively, and for the six months ended June 30, 2011 and 2010, we incurred $3.2 million and $1.1 million, respectively, in service fee expenses.

We record the revenues related to all products sales, including sales generated by the Astellas sales force. Consequently, we record cost of sales for all product sales.

We rely on Astellas and its sales force to promote Sumavel DosePro to the Astellas Segment and any inability of its sales force to effectively sell the product or any termination, amendment or restructuring of the co-promotion agreement could adversely affect our consolidated results of operations and financial condition. For the three and six months ended June 30, 2011, the Astellas

Segment represented approximately 40% of our net product revenue before consideration of the cost of the service fee payable to Astellas for its sales efforts as described above.

Under the terms of the co-promotion agreement, Astellas could terminate the agreement for any or no reason upon 180-days written notice. The co-promotion agreement may also be terminated by Astellas or us for a number of other specified reasons, some of which are beyond our control. In the event Astellas terminates the agreement for specified reasons or a material uncured breach by us of our minimum sales effort obligations, we would be required to pay Astellas only the first of the two annual tail payments described above.

In addition, either party may terminate the agreement based upon a failure of the Sumavel DosePro brand to achieve certain minimum sales levels in 2011 as defined in the co-promotion agreement. Based on our net product revenue through June 30, 2011, we do not expect to meet these 2011 minimum sales levels for Sumavel DosePro, and therefore expect that both we and Astellas will have the right to terminate the agreement on this basis. If either party were to exercise this termination right, it must provide 90 days’ written notice to the other party after the actual net sales of Sumavel DosePro through December 31, 2011 have been ascertained. In the event of such a termination relating to sales levels of Sumavel DosePro, we would be required to make the two annual tail payments described above.

In the event of a termination by us or Astellas, we would expect to either expand our sales force to promote Sumavel DosePro to certain physicians within the Astellas Segment, and/or seek another co-promotion partner in order to support the future sales and marketing of Sumavel DosePro.

Durect License Agreement

In June 2011, we paid a non-refundable upfront fee to Durect of $2.25 million under the Relday license agreement. We are obligated to pay Durect up to $103.0 million in total future milestone payments with respect to Relday subject to and upon the achievement of various development, regulatory and sales milestones. We are also required to pay a mid single-digit to low double-digit percentage patent royalty on annual net sales of the product determined on a jurisdiction-by-jurisdiction basis. The patent royalty term is equal to the later of the expiration of all Durect technology patents or joint patent rights in a particular jurisdiction, the expiration of marketing exclusivity rights in such jurisdiction, or 15 years from first commercial sale in such jurisdiction. After the patent royalty term, we will continue to pay royalties on annual net sales of the product at a reduced rate for so long as we continue to sell the product in the jurisdiction. We are also required to pay to Durect a tiered percentage of fees received in connection with any sublicense of the licensed rights.

Revenues

During the year ended December 31, 2010, we began recognizing product revenues from sales of Sumavel DosePro made by us and Astellas under our co-promotion agreement and through sales by us to Desitin Arzneimittel GmbH, or Desitin, under our licensing and distribution agreement. During this same period, we began recognizing contract revenues from license and milestone payments received under the Astellas co-promotion agreement. For the six months ended June 30, 2011 and 2010 we recognized $16.2 million and $6.1 million, respectively, in net product revenues. For the six months ended June 30, 2011 and 2010 we recognized $3.1 million and $1.5 million, respectively, in contract revenues associated with license and milestone payments made to us by Astellas under the co-promotion agreement.

We sell Sumavel DosePro product in a package of six pre-filled, single-dose units to wholesale pharmaceutical distributors, and on a limited basis to retail pharmacies, or, collectively, our customers, at a wholesale acquisition cost, or gross sales price, of $522 per package as of June 30, 2011. Sales to our customers are subject to specified rights of return. We currently defer recognition of revenue on product shipments of Sumavel DosePro to our customers until the right of return no longer exists, which occurs at the earlier of the time Sumavel DosePro units are dispensed through patient prescriptions or expiration of the right of return. We do not have significant history estimating the number of patient prescriptions dispensed. If we underestimate or overestimate patient prescriptions dispensed for a given period, adjustments to net product revenue may be necessary in future periods.

As a result of this policy, we had a deferred revenue balance of $0.7 million at June 30, 2011 for Sumavel DosePro product shipments, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs. We will continue to recognize revenue upon the earlier to occur 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.

In November 2010, Desitin received regulatory approval to market Sumavel DosePro in Denmark and subsequently received approvals in Germany, Sweden, Norway and the United Kingdom. As a result, we started to sell Sumavel DosePro to Desitin under our licensing and distribution agreement in December 2010. We sell our product to Desitin at a specified transfer price with the right

of return available for damaged goods upon receipt by Desitin or in the event of a recall. Desitin maintains all risk for retail and wholesaler fees and discounts, collectability of customer receivables, customer returns and expiration of the product. We will also receive a low single-digit royalty from Desitin on net sales of Sumavel DosePro in Europe and other licensed territories, as a pass through of royalties payable to Aradigm. As such, we recognize revenues for product sales to Desitin upon acceptance of product by Desitin (generally at point of shipment). For the six months ended June 30, 2011 and 2010 we recognized no revenue for sales to Desitin. We recognized an immaterial amount of royalty revenues related to the Desitin agreement for the six months ended June 30, 2011.

Cost of Sales

Cost of sales consist primarily of materials, third-party manufacturing costs, freight and indirect personnel and other overhead costs associated with sales of Sumavel DosePro based on units dispensed through patient prescriptions, as well as reserves for excess, dated or obsolete commercial inventories and production manufacturing variances. Our cost of sales for the three months ended June 30, 2011 and 2010, was $4.0 million and $3.2 million, respectively and for the six months ended June 30, 2011 and 2010, our cost of sales was $8.9 million and $5.3 million, respectively. Our product gross margin for the three months ended June 30, 2011 and 2010 was 54% and 24%, respectively and for the six months ended June 30, 2011 and 2010, our product gross margin was 45% and 13%, respectively. The cost of sales associated with the deferred product revenues are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized. Deferred cost of sales totaled $0.2 million and $1.1 million at June 30, 2011 and December 31, 2010, respectively.

Royalty Expense

Royalty expense consists of the amortization of the $4.0 million milestone payment paid by us to Aradigm Corporation upon the first commercial sale of Sumavel DosePro in the United States (which occurred in January 2010) and royalties payable to Aradigm based on net sales of Sumavel DosePro by us or one of our licensees. We are not required to make any further milestone payments to Aradigm. Our ongoing royalty obligation payable to Aradigm is set forth in the asset purchase agreement we entered into with Aradigm in August 2006 pursuant to which we acquired the rights to the DosePro technology. We incurred $0.3 million in royalty expense to Aradigm during each of the three months ended June 30, 2011 and 2010, and during the six months ended June 30, 2011 and 2010, we incurred $0.6 million and $0.4 million, respectively, in royalty expense to Aradigm.

Research and Development Expenses

Our research and development expenses consist of expenses incurred in developing, testing and seeking marketing approval of our product candidates, including:

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payments made to third-party contract research organizations, or CROs, and investigational sites, which conduct our trials on our behalf, and consultants;

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expenses associated with regulatory submissions, preclinical development and clinical trials;

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payments to third-party manufacturers, which produce our active pharmaceutical ingredient and finished product;

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payments made to third-party CROs, laboratories and consultants in connection with preclinical studies;

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personnel related expenses, such as salaries, benefits, travel and other related expenses, including stock-based compensation; and

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facility, maintenance, depreciation and other related expenses.

We expense all research and development costs as incurred.

In March 2010, we initiated our Phase 3 clinical development program for Zohydro. We utilize CROs, contract laboratories and independent contractors for the conduct of pre-clinical studies and clinical trials. In 2010, we began tracking third party costs by type of study being conducted. We recognize the expenses associated with the services provided by CROs based on the percentage of each study completed at the end of each reporting period. We coordinate clinical trials through a number of contracted investigational sites and recognize the associated expense based on a number of factors, including actual and estimated subject enrollment and visits, direct pass-through costs and other clinical site fees. For the three and six months ended June 30, 2011, we incurred $6.4 million and $12.9 million, respectively, in third party research and development costs related to Zohydro.

We use our employee and infrastructure resources across our product and product candidate development programs. Therefore, we have not tracked salaries, other personnel related expenses, facilities or other related costs to our product development activities on a program-by-program basis. However, we estimate that the majority of our research and development expenses incurred to date are attributable to our Zohydro program.

We expect our research and development costs for 2011 to increase over amounts incurred in 2010 as we progress through the Phase 3 clinical program of Zohydro and with the addition of our Relday program. We expect third party research and development costs for Zohydro remaining through NDA filing to range from $17 million to $19 million. These expenditures are subject to numerous uncertainties regarding timing and cost to completion. Completion of our Phase 3 clinical trials may take longer than currently estimated. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

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the number of sites included in the trials;

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the length of time required to enroll suitable subjects;

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the duration of subject follow-ups;

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the length of time required to collect, analyze and report trial results;

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the cost, timing and outcome of regulatory review; and

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potential changes by the FDA in clinical trial and NDA filing requirements for a specific therapeutic area.

In addition, we may be obligated to pay Elan, from whom we in-licensed exclusive rights to Zohydro in November 2007, up to $4.5 million in total future milestone payments with respect to Zohydro depending upon the achievement of various development and regulatory events. If Zohydro is approved, we are also required to pay a mid single-digit percentage royalty on its net sales for a specified period of time and continue to pay royalties on net sales of the product thereafter at a reduced low single-digit percentage rate in accordance with the terms of the license agreement.

If our Phase 3 clinical trials are successful, we expect to submit an NDA for Zohydro with the FDA by early 2012. However, the successful development and commercialization of Zohydro is highly uncertain. We also expect to incur customary regulatory costs associated with the NDA, if and when submitted, which will be significant. If Zohydro is approved, we also expect to incur significant expenses related to manufacturing and marketing activities. However, at this time, we cannot reasonably estimate or know the nature, specific timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of Zohydro after submission of our NDA filing, if or when Zohydro will receive regulatory approval and, if approved, if and when material net cash inflows may commence from Zohydro or the amount of any such inflows. This is due to the numerous risks and uncertainties associated with developing and commercializing drugs, including the uncertainty of:

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the costs, timing and outcome of our clinical trials and pre-clinical studies of Zohydro;

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the costs, timing and outcome of regulatory review of Zohydro;

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the costs of commercialization activities, including product marketing, sales and distribution;

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the potential for future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development and commercialization plans and capital requirements;

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the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

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the emergence of competing technologies and products and other adverse marketing developments;

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the effect on our product development activities of actions taken by the FDA or other regulatory authorities; and

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our degree of success in commercializing Zohydro, if approved.

A change in the outcome of any of these variables with respect to the development of Zohydro could mean a significant change in the costs and timing associated with these efforts.

We also expect to incur costs associated with pre-clinical studies and formulation work for our early-stage product candidates. However, at this time, due to the inherently unpredictable nature of pre-clinical development and given the early stage of such product candidates, we are unable to estimate with any certainty the costs we will incur for such pre-clinical work.

Selling, General and Administrative Expenses

Our selling expenses, which include sales and marketing costs, consisted primarily of salaries, benefits, consulting fees, costs of obtaining prescription and market data and market research studies related to Sumavel DosePro and Zohydro, including shared marketing and advertising costs under our co-promotion agreement with Astellas, service fees to Astellas and sample costs.

Our general and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, accounting, business development and internal support functions. In addition, general and administrative expenses include facility costs and professional fees for legal, consulting and accounting services. We expect general and administrative expense to increase as a result of the costs we incur operating as a public company. These increases likely will include salaries and related expenses, legal and consultant fees, accounting fees, director fees, increased directors’ and officers’ insurance premiums, fees for investor relations services and enhanced business and accounting systems.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents.

Interest Expense

Interest expense consists of interest incurred in connection with the $4.5 million borrowed under our loan and security agreement with General Electric Capital Corporation, or GE Capital, our $25.0 million loan and security agreement and revolving credit facility with Oxford Finance LLC, as successor in interest to Oxford Finance Corporation, or Oxford, and Silicon Valley Bank, or SVB, and non-cash interest expense associated with amortization of debt discount and debt issuance costs.

On June 30, 2011, we amended and restated the existing loan and security agreement with Oxford and SVB, or the amended Oxford/SVB loan agreement to provide for, among other things, the addition of intellectual property to the collateral securing the Oxford/SVB loan and deferral of principal repayment to commence on February 1, 2012. In connection with entering into the amended Oxford/SVB loan agreement, we issued to Oxford and SVB warrants exercisable into an aggregate of 26,455 shares of our common stock. The warrants are exercisable at $3.78 per share of common stock and have a term of 7 years. The amended Oxford/SVB loan agreement consists of a $25.0 million term loan and a $10.0 million revolving credit facility. As of June 30, 2011, we had borrowed $3.7 million under the revolving credit facility. Concurrently with the amended Oxford/SVB loan agreement in 2010, we issued $15.0 million in new convertible promissory notes, or the 2010 Notes, to current investors. The 2010 Notes were subsequently converted into 3,873,756 shares of common stock in connection with our initial public offering in November 2010. As a result of additional borrowings under the amended Oxford loan agreement, and the deferral of principal payments resulting from the amended Oxford/SVB loan agreement in June 2011 and the $30.0 million royalty financing entered into in July 2011, interest expense related to debt service will increase over 2010 levels.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability for the six months ended June 30, 2010 represents non-cash (expense) income associated with changes in the fair value of the warrants to purchase preferred stock.

In connection with our initial public offering in November 2010, the liability reflected on our consolidated balance sheet for convertible preferred stock warrants was reclassified to stockholders’ equity (deficit) and we will no longer recognize the change in fair value of these warrants in the consolidated statement of operations.

Other Income (Expense)

Other income (expense) consists of foreign currency transaction gains and losses. All of our revenues are currently generated in U.S. dollars while a majority of our manufacturing expenses are payable in foreign currencies, primarily U.K. pounds sterling and the Euro.

Provision for Income Taxes

We incurred $13,000 and $0 in income tax expense for the six months ended June 30, 2011 and 2010, respectively, related to taxable income generated by our wholly-owned subsidiary, Zogenix Europe Limited.

Internal Control Over Financial Reporting

Assessing our staffing and training procedures to improve our internal control over financial reporting is an ongoing process. We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting. Further, our

independent registered public accounting firm has not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting.

For the year ending December 31, 2011, pursuant to Section 404 of the Sarbanes-Oxley Act, management will be required to deliver a report that assesses the effectiveness of our internal control over financial reporting. Pursuant to Section 404(c) of the Sarbanes-Oxley Act, our independent registered public accounting firm will not be required to deliver an attestation report on the effectiveness of our internal control over financial reporting for the year ending December 31, 2011.

Critical Accounting Policies and Estimates

There have been no significant changes in critical accounting policies during the six months ended June 30, 2011, as compared to the critical accounting policies described in “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2010.

Results of Operations

Comparison of the three months ended June 30, 2011 and 2010

Revenue. Revenue for the three months ended June 30, 2011 was $10.2 million and $5.1 million for the three months ended June 30, 2010. Product revenue for the three months ended June 30, 2011 and 2010 consists of $8.7 million and $4.2 million, respectively, of Sumavel DosePro dispensed to patients, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs. The $4.5 million increase in product revenue is primarily due to an increase in prescription volume from the initial launch of Sumavel DosePro in late January 2010. Contract revenue for the three months ended June 30, 2011 and 2010 consists of $1.6 million and $0.9 million, respectively. Contract revenue represents amortization of license fee payments and milestone payments we received in connection with the co-promotion agreement we entered into with Astellas in July 2009 and which we began recognizing upon the commencement of sales of Sumavel DosePro in January 2010. The contract revenue in the second quarter of 2010 reflects a pro-rata amount of amortization of license fees and milestones that did not have recourse provisions as compared to the contract revenues in the second quarter of 2011which reflects the full amortization of all license fees and milestone payments.

Cost of Sales. Cost of sales for the three months ended June 30, 2011 was $4.0 million and $3.2 million for the three months ended June 30, 2010. Product gross margin was 54% for the three months ended June 30, 2011 compared to 24% for the three months ended June 30, 2010. Cost of sales, for the three months ended June 30, 2011and 2010 represents the cost of Sumavel DosePro units dispensed to patients and the impact of underutilized production capacity and other manufacturing variances. We developed production capacity to support higher levels of Sumavel DosePro production than initial sample and prescription demand was required to ensure adequate safety stock levels and to maintain the ability to support increased demand, as necessary. Until our prescription and sample demands are at a level where we can fully utilize the capacity committed to our contract manufacturing facilities, we will continue to experience underutilization of our production capacity. In addition, as we adjust production levels in certain periods to manage our inventory levels, we may incur additional charges for excess capacity which will negatively impact our gross margins.

Royalty Expense. Royalty expense for each of the three months ended June 30, 2011 and 2010,was $0.3 million. Royalty expense represents the amortization of a $4.0 million milestone payment we made in connection with the asset purchase agreement with Aradigm payable on the first commercial sale of Sumavel DosePro, which occurred in January 2010, as well as royalties payable to Aradigm from net sales of Sumavel DosePro during the period.

Research and Development Expenses. Research and development expenses increased to $8.9 million for the three months ended June 30, 2011 compared to $7.7 million for the three months ended June 30, 2010. This increase of $1.2 million primarily was due to:

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an increase of $1.7 million in research and development costs as a result of the ongoing Phase 3 clinical trials for Zohydro, which were initiated in March 2010; offset by

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a decrease of $0.5 million in research and development costs incurred for the Phase 4 study conducted for Sumavel DosePro as it was completed in the second quarter of 2010 and other costs related to product development.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $15.0 million for the three months ended June 30, 2011 compared to $12.3 million for the three months ended June 30, 2010. Selling expenses were $11.5 million for the three months ended June 30, 2011 compared to $10.6 million for the three months ended June 30, 2010. General and administrative expenses were $3.5 million for the three months ended June 30, 2011 compared to $1.7 million for the three months ended June 30, 2010. The increase of $2.7 million in selling, general and administrative expenses primarily was due to:

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an increase of $1.8 million of general and administrative expenses as a result of the costs we incurred for operating as a public company. These costs include salaries and related expenses, stock-based compensation charges, legal and

consultant fees, accounting fees, director fees, increased directors’ and officers’ insurance premiums and fees for investor relations services.; and

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an increase of $0.9 million in sales and marketing expense primarily as a result of higher services fees payable to our co-promotion partner from higher net product revenues over the prior quarter and increased spending in marketing activities related to Zohydro.

Interest Income. Interest income increased to $3,000 for the three months ended June 30, 2011 compared to $2,000 for the three months ended June 30, 2010. This increase of $1,000 was due primarily to the increase in average cash and cash equivalent balances.

Interest Expense. Interest expense increased to $1.3 million for the three months ended June 30, 2011 compared to $0.9 million for the three months ended June 30, 2010. This increase of $0.4 million was primarily due to:

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an increase of $0.5 million in interest expense due to higher debt balances in connection with the amended Oxford loan agreement; and

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an decrease of $0.1 million in the amortization of debt issuance and debt discount costs in connection with the $25.0 million amended Oxford/SVB loan agreement.

Change in Fair value of Warrant Liability . During the three months ended June 30, 2011 there was no warrant liability outstanding due to the termination or conversion of the preferred stock warrants to warrants of common stock in connection with the initial public offering in November 2010. The change in fair value of warrant liability during the three months ended June 30, 2010 of $8.6 million is due to the increase in fair value of convertible preferred stock during the period.

Other Income (Expense) . Other income was $0.1 million of expense for each of the three months ended June 30, 2011 and 2010. Any changes in other income are primarily related to foreign currency transaction gains and losses which primarily related to the settlement of our liabilities payable in Euro and U.K pounds sterling.

Comparison of the six months ended June 30, 2011 and 2010

Revenue. Revenue for the six months ended June 30, 2011 was $19.3 million and $7.6 million for the six months ended June 30, 2010. Product revenue for the six months ended June 30, 2011 and 2010 consists of $16.2 million and $6.1 million, respectively, of Sumavel DosePro dispensed to patients, which is net of estimated wholesaler and retail pharmacy discounts, stocking allowances, prompt pay discounts, chargebacks, rebates and patient discount programs. The $10.1 million increase in product revenue is primarily due to an increase in prescription volume from the initial launch of the Sumavel DosePro in late January 2010. Contract revenue for the six months ended June 30, 2011 and 2010 consists of $3.1 million and $1.5 million, respectively. Contract revenue represents amortization of license fee payments and milestone payments we received in connection with the co-promotion agreement we entered into with Astellas in July 2009 and which we began recognizing upon the commencement of sales of Sumavel DosePro in January 2010. The contract revenue in the first six months of 2010 reflects a pro-rata amount of amortization of license fees and milestones that did not have recourse provisions as compared to the contract revenues in the first six months of 2011,which reflects the full amortization of all license fees and milestone payments.

Cost of Sales. Cost of sales for the six months ended June 30, 2011 was $8.9 million and $5.3 million for the six months ended June 30, 2010. Product gross margin for the six months ended June 30, 2011 was 45% compared to 13% for the six months ended June 30, 2010. Cost of sales, for the six months ended June 30, 2011 represents the cost of Sumavel DosePro units dispensed to patients and the impact of underutilized production capacity and other manufacturing variances. We developed production capacity to support higher levels of Sumavel DosePro production than initial sample and prescription demand was required to ensure adequate safety stock levels and to maintain the ability to support increased demand, as necessary. Until our prescription and sample demands are at a level where we can fully utilize the capacity committed to our contract manufacturing facilities, we will continue to experience underutilization of our production capacity. In addition, as we adjust production levels in certain periods to manage our inventory levels, we may incur additional charges for excess capacity which will negatively impact our gross margins.

Royalty Expense. Royalty expense increased to $0.6 million for the six months ended June 30, 2011 from $0.4 million for the six months ended June 30, 2010. Royalty expense represents the amortization of a $4.0 million milestone payment we made in connection with the asset purchase agreement with Aradigm payable on the first commercial sale of Sumavel DosePro, which occurred in January 2010, as well as royalties payable to Aradigm from net sales of Sumavel DosePro during the period. The $0.2 million increase in royalty expense is primarily due to the increase in sales.

Research and Development Expenses. Research and development expenses increased to $17.4 million for the six months ended June 30, 2011 compared to $11.4 million for the six months ended June 30, 2010. This increase of $6.0 million primarily was due to:

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an increase of $7.1 million in research and development costs as a result of the ongoing Phase 3 clinical trials for Zohydro, which were initiated in March 2010; offset by

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a decrease of $1.1 million in research and development costs incurred for the Phase 4 study conducted for Sumavel DosePro as it was completed in the second quarter of 2010 and other costs related to product development.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $28.0 million for the six months ended June 30, 2011 compared to $25.4 million for the six months ended June 30, 2010. Selling expenses were $21.4 million for the six months ended June 30, 2011 compared to $21.6 million for the six months ended June 30, 2010. General and administrative expenses were $6.5 million for the six months ended June 30, 2011 compared to $3.8 million for the six months ended June 30, 2010. The increase of $2.6 million in selling, general and administrative expenses primarily was due to:

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an increase of $2.7 million of general and administrative expenses as a result of the costs we incurred for operating as a public company. These costs include salaries and related expenses, stock-based compensation charges, legal and consultant fees, accounting fees, director fees, increased directors’ and officers’ insurance premiums and fees for investor relations services; offset by

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a decrease of $0.1 million in sales and marketing expense primarily as a result of a decrease in sampling efforts and other advertising and promotion activities relative to the levels of activity during the initial launch in the first half of 2010 of Sumavel DosePro, partially offset by increased services fees payable to our co-promotion partner from higher net product revenues over the prior quarter

Interest Income. Interest income increased to $19,000 for the six months ended June 30, 2011 compared to $3,000 for the six months ended June 30, 2010. This increase of $16,000 was due primarily to the increase in average cash and cash equivalent balances.

Interest Expense. Interest expense increased to $2.5 million for the six months ended June 30, 2011 compared to $1.5 million for the six months ended June 30, 2010. This increase of $1.0 million was primarily due to higher debt balances in connection with the amended Oxford/SVB loan agreement.

Change in Fair Value of Warrant Liability . During the six months ended June 30, 2011 there was no warrant liability outstanding due to the termination or conversion of the preferred stock warrants to warrants of common stock in connection with the initial public offering in November 2010. The change in fair value of warrant liability during the six months ended June 30, 2010 of $13.0 million is due to the increase in fair value of convertible preferred stock during the period.

Other Income (Expense). Other income (expense) decreased to $0.1 million of expense for the six months ended June 30, 2011 compared to $0.1 million of income for the six months ended June 30, 2010. This decrease was due to foreign currency transaction losses which primarily related to the settlement of our liabilities payable in Euro and U.K. pounds sterling.

Liquidity and Capital Resources

We have experienced net losses and negative cash flow from operations since inception, and as of June 30, 2011, had an accumulated deficit of $236.3 million, and expect to continue to incur net losses and negative cash flow from operations for at least the next several years primarily as a result of, among other things, the development expenses in connection with our clinical trials and pre-clinical studies for Zohydro and the cost of the sales and marketing expenses associated with Sumavel DosePro.

As of June 30, 2011, we had cash and cash equivalents of $7.7 million. On June 30, 2011, we amended certain terms of our loan agreement with Oxford and SVB including the deferral of principal repayment to commence on February 1, 2012 and in July 2011, we entered into equity and royalty financing agreements with Cowen Royalty, pursuant to which we borrowed $30.0 million from Cowen Royalty and sold $1.5 million of our common stock to Cowen Royalty resulting in $29.5 million in net proceeds to us. Although it is difficult to predict future liquidity requirements, based on our current operating plan we believe that our cash and cash equivalents as of June 30, 2011, together with future revenues, the proceeds from the recently completed equity and royalty financing with Cowen Royalty and the deferment of principal payments under the amended Oxford/SVB loan agreement, and borrowings available under our $10.0 million revolving credit facility, will be sufficient to fund our operations through the fourth quarter of 2011. We will need to obtain additional capital to finance our operations beyond that point. We intend to raise additional capital through debt or equity financings or through collaborations or partnerships with other companies. If we are not be able to raise additional capital on terms acceptable to us, or at all, as and when needed, we may be required to reduce or curtail our operations and costs, and we may be unable to continue as a going concern.

In its report on our consolidated financial statements for the year ended December 31, 2010, our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding our ability to continue as a going concern. A “going concern” opinion means, in general, that our independent registered public accounting firm has substantial doubt about our ability to continue our operations without continuing infusions of capital from external sources and this opinion could impair our ability to finance our operations through the sale of debt or equity securities or commercial bank loans.

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in July 2010, we issued unsecured convertible promissory notes in an aggregate amount of $15.0 million under which all the outstanding principal and interest automatically converted to 3,873,756 shares of common stock upon the completion of our initial public offering; and

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in November 2010 and December 2010, we issued and sold a total of 14,436,493 shares of common stock in our initial public offering, including shares issued upon the exercise of the underwriters’ overallotment option, for aggregate net proceeds of $51.7 million.

On June 30, 2011, we amended the existing loan agreement with Oxford and SVB to provide for, among other things, the addition of intellectual property to the collateral securing the Oxford/SVB loan and deferral of principal repayment to commence on February 1, 2012. In connection with entering into the amended Oxford/SVB loan agreement, we issued to Oxford and SVB warrants exercisable into an aggregate of 26,455 shares of our common stock. The warrants are exercisable at $3.78 per share of common stock and have a term of 7 years. In addition, in July 2011 we issued and sold $388,601 shares of our common stock to Cowen Royalty in connection with the equity and royalty financing for net proceeds of $1.5 million to us. The Amended Oxford/SVB Agreement consists of a $25.0 million term loan and a $10.0 million revolving credit facility. The obligations under the amended Oxford/SVB loan agreement are collateralized by our intellectual property (including among other things, copyrights, patents, patent applications, trademarks, service marks and trade secret rights) and personal property (including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and cash).

The amended Oxford/SVB loan agreement includes financial covenants requiring that we achieve, as of the last day of each month measured on a trailing three-month basis, actual revenue of at least a specified percentage of our projected revenue as provided to Oxford and SVB in the event we fail to maintain a liquidity ratio (defined, in general, as the ratio of (a) cash and cash equivalents deposited with SVB plus unused borrowing capacity under that agreement to (b) all debt, capital lease obligations and contingent obligations owed to the lenders) of 1.25 to 1.00. The agreement also includes a covenant that the audit report accompanying our year-end consolidated financial statements for fiscal year 2010 and thereafter not include a “going concern” qualification. In March 2011, we obtained a waiver from Oxford and SVB for the breach caused by the receipt of the 2010 audit report from our independent registered public accounting firm, which includes a modification of their standard report for the going concern uncertainty. In addition, the amended Oxford/SVB loan agreement prohibits us from (1) incurring any debt other than, among other things, debt under the amended Oxford/SVB loan agreement, and (2) entering into mergers with, or acquisitions of all or substantially all the assets of, another entity with a value in excess of $100,000, and also prohibits the occurrence of a change in control of our company as defined in the amended Oxford/SVB loan agreement. The agreement provides that an event of default will occur if, among other customary events of default, (1) there is a material adverse change in our business, operations or condition (financial or otherwise) or material impairment in the prospects of us repaying any portion of our obligations under the agreement, (2) there is a material impairment in the value of the collateral pledged to secure our obligations under the agreement, (3) we default in the payment of any amount payable under the agreement when due, or (4) we breach any covenant in the agreement (subject to a grace period in some cases). The $25.0 million term loan bears an interest rate of 12.06% per annum. Payments consist of monthly interest only payments for the first 12 months followed by principal and interest payments for the subsequent 30 months. The term loan requires a final payment of $1.2 million, in addition to the repayment of unpaid principal, at the loan maturity date, which is January 1, 2014. We have the option to prepay the outstanding balance of the term loan in full subject to a prepayment fee of either 2% or 3% of the principal amount being prepaid depending upon when the prepayment occurs as well as the $1.2 million final payment. Under the terms of the revolving credit facility, we may borrow up to $10.0 million, but not more than a specified percentage of our eligible accounts receivable and inventory balances (as defined in the agreement). Amounts outstanding under the revolving credit facility accrue interest payable monthly at a floating rate per annum equal to the greater of 3.29% above SVB’s prime rate or 7.29%. In addition, we pay a monthly fee equal to 0.5% per annum of the average unused portion of the revolving credit facility. If the revolving credit facility is terminated, a final payment is required in the amount of $0.1 million, $0.2 million or $0.3 million depending upon when the termination occurs. The amended Oxford/SVB loan agreement matures on the earliest of January 1, 2014, the occurrence of an event of default resulting in our obligations becoming due and payable in accordance with the amended Oxford/SVB loan agreement or the date of any prepayment of all outstanding obligations under the Amended Oxford/SVB loan agreement, at which time a final payment of $0.1 million, plus all unpaid principal, must be paid in full. As of June 30, 2011, we had borrowed $3.7 million under the revolving credit facility.

On July 18, 2011, we closed the royalty financing agreement with Cowen Royalty, or the financing agreement. Under the terms of the financing agreement, we borrowed $30.0 million and we are obligated to repay such borrowed amount together with a specified return to Cowen Royalty, through the payment of tiered royalties ranging from .5% to 5% of our direct product sales, co-promotion

revenues and out-license revenues, or collectively, revenue interest that we may record or receive as a result of worldwide commercialization of our products including Sumavel DosePro, Zohydro and other future products.

We are also obligated to make three fixed payments of $10 million on (or before at our option) each of January 31, 2015, January 31, 2016 and January 31, 2017. Prepayment requires the consent of the lenders under the amended Oxford/SVB loan agreement while balances remain outstanding under that facility.

We have the option to terminate the financing agreement at our election in connection with a change of control of our company, upon the payment of a base amount of $52.5 million, or, if higher, an amount that generates a 19% internal rate of return on the borrowed amount as of the date of prepayment, in each case reduced by the revenue interest and principal payments received by Cowen Royalty up to the date of prepayment.

Cowen Royalty has the option to terminate the financing agreement at its election in connection with a change of control of our company (which includes the sale, transfer, assignment or licensing of our rights in the United States to either Sumavel DosePro or Zohydro), a bankruptcy event with respect to our company or an event of default under the financing agreement. Upon such a termination by Cowen Royalty, we are obligated to make a payment of a base amount of $45 million, or, if higher, an amount that generates a 17% internal rate of return on the borrowed amount as of the date of prepayment, in each case reduced by the Revenue Interest and principal payments received by Cowen Royalty up to the date of prepayment.

Unless terminated earlier as discussed above, the financing agreement terminates on March 31, 2018.

We depend in part upon borrowings available under the revolving credit facility provided under the amended Oxford/SVB loan agreement, the term loan obtained under the Oxford/SVB loan agreement and the borrowed amount under the Cowen Royalty financing agreement to finance our ongoing operations. Accordingly, any termination of those agreements, or any requirement that we repay any of our outstanding term loans or the borrowed amount under the financing agreement, whether as the result of our default under the applicable agreement or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

Cash and Cash Equivalents. Cash and cash equivalents totaled $7.7 million and $49.2 million at June 30, 2011 and December 31, 2010, respectively.

The following table summarizes our cash flows used in operating, investing and financing activities for the six months ended June 30, 2011 and 2010:


	Six Months Ended June 30,
	2011			2010
	(In Thousands)
Statement of Cash Flows Data:
Total cash provided by (used in):
Operating activities	$	(40,507	)	$	(35,821	)
Investing activities		(366	)		(1,162	)
Financing activities		(627	)		(3,435	)

Decrease in cash and cash equivalents	$	(41,500	)	$	(40,418	)

Operating Activities. Net cash used in operating activities was $40.5 million and $35.8 million for the six months ended June 30, 2011 and 2010, respectively. Net cash used for the six months ended June 30, 2011and 2010 primarily reflects the use of $34.4 million and $34.0 million, respectively for operations (excluding non-cash items), investments of $0.3 million and $2.2 million, respectively, in commercial inventory of Sumavel DosePro, and cash used of $5.8 million and cash provided of $0.4 million, respectively, for other working capital uses.

Investing Activities. Net cash used in investing activities was $0.4 million and $1.2 million for the six months ended June 30, 2011 and 2010, respectively. These amounts are the result of the purchase of property and equipment primarily for use in manufacturing Sumavel DosePro.

We expect to incur capital expenditures of approximately $0.4 million to $0.9 million in the last six months of 2011. These planned capital expenditures primarily relate to further investments in our manufacturing operations toward enhancing our existing manufacturing technology and equipment.

Financing Activities. Net cash used in financing activities was $0.6 million and $3.4 million for six months ended June 30, 2011 and 2010, respectively. Net cash used in financing activities for the six months ended June 30, 2011 relates to the repayment of

the GE Capital equipment financing of $0.6 million, payment of fees to Oxford in connection with the amended Oxford/SVB loan agreement of $0.1 million and net proceeds from our revolving credit facility of $0.1 million. Net cash used in financing activities for the six months ended June 30, 2010 relates to payments on borrowings of debt.

Our sources of liquidity include our cash balances, cash receipts from the sale of Sumavel DosePro, our debt facilities, and the proceeds from the recently completed equity and royalty financing with Cowen Royalty. As of June 30, 2011, we had $7.7 million in cash and cash equivalents and in July 2011, we received an additional $29.5 million in cash under our equity and royalty financing with Cowen Royalty. Other potential sources of near-term liquidity include (i) entering into a commercialization agreement for Zohydro or a licensing arrangement on our DosePro technology, (ii) equity, debt or other financing or (iii) leveraging our sales force capacity to promote a new product.

Since inception, our operations have been financed primarily through equity and debt financings, the issuance of convertible notes and payments received from Astellas under our co-promotion agreement. Through June 30, 2011, we received aggregate net cash proceeds of approximately $263.9 million from the sale of shares of our preferred and common stock, the issuance of a notes and payments from collaborators. Although we will continue to be opportunistic in our efforts to obtain cash, there is no guarantee that additional funding will be available or that, if available, such funding will be adequate or available on terms that we or our stockholders view as favorable. In addition, as a result of our outstanding loan with Oxford and SVB, our ability to engage in debt financing transactions is subject to certain limitations and certain debt financing transactions, if consummated, may accelerate our repayment obligations to Oxford and SVB.

Successful transition to profitability is dependent upon achieving a level of product revenues adequate to support our cost structure. We will continue to monitor and evaluate our sales progress, the level of our research, development, manufacturing, sales and marketing and general and administrative expenditures and may adjust such expenditures based upon a variety of factors, such as our available cash, our ability to obtain additional cash, the results and progress of our Sumavel DosePro commercialization efforts, results and progress in our clinical program, the time and costs related to clinical trials and regulatory decisions, as well as the U.S. economic environment.

As described above, under our amended Oxford/SVB loan agreement, we are subject to financial covenants that require us to achieve certain revenue targets in the event we fail to maintain a liquidity ratio (defined, in general, as the ratio of (a) cash and cash equivalents deposited with SVB plus unused borrowing capacity under that agreement to (b) all debt, capital lease obligations and contingent obligations owed to the lenders) of 1.25 to 1.00 and we are also subject to other covenants and obligations under that agreement. Likewise, the amended Oxford/SVB loan agreement permits the lenders to demand the immediate repayment of all borrowings and other amounts outstanding thereunder if, among other customary events of default, the lender determines, in its sole discretion that a material adverse change with respect to us has occurred. As noted above, we have agreed to specified positive and negative covenants under the financing agreement with Cowen Royalty and upon a termination by Cowen Royalty, we are obligated to make a payment of a base amount of $45.0 million, or, if higher, an amount that generates a 17% internal rate of return on the borrowed amount as of the date of prepayment, in each case reduced by the payments received by Cowen Royalty up to the date of prepayment. If we were required to accelerate the payment of these amounts upon a default, we would be required to find an alternate source of capital from which to draw funds and there can be no assurances that we would be able to do so on terms acceptable to us, or at all.

If we fail to pay amounts owing under either our loan or financing agreements when due, if we breach our other covenants or obligations under either of these agreements, or if other events of default under either of these agreements occur, the applicable lenders would be entitled to demand immediate repayment of all borrowings and other obligations thereunder and to seize and sell the collateral pledged as security under the agreements to satisfy those obligations. If we were to breach our covenants and obligations and we were unable to obtain a waiver or amendment from the lender, we would be required to seek additional equity or debt financing to refinance our obligations under the agreement. Additional debt or equity financing may not be available to us in amounts or on terms we consider acceptable, or at all. In that regard, we have from time to time been required to obtain waivers and amendments under our debt instruments in order to avoid breaches or other defaults. For example, in each of 2009, 2010 and 2011 we were required to obtain amendments or waivers under our credit facilities.

We cannot be certain if, when and to what extent we will generate positive cash flow from operations from the commercialization of our product and, if approved, product candidates. We expect our development and commercialization expenses to be substantial and to increase over the next few years as we continue to grow the Sumavel DosePro brand and continue to advance our Zohydro product through Phase 3 clinical trials and potentially through commercialization.

Although it is difficult to predict future liquidity requirements, based on our current operating plan we believe that our cash and cash equivalents as of June 30, 2011, together with future product revenue, our recently completed equity and royalty financing with Cowen Royalty , and borrowings available under our $10.0 million revolving credit facility, will be sufficient to fund our operations through the fourth quarter of 2011. We will need to obtain additional capital to finance our operations beyond that point through

public or private equity or debt financings. Although we are currently not a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, businesses, services or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. There can be no assurance that we will be able to raise additional funds from any of these sources on terms we deem acceptable, or at all. In addition, future issuance of equity, convertible or other equity-linked securities could materially dilute the ownership interests of holders of our common stock and additional debt financing could result in a material increase in the amount of cash necessary to fund debt service payments and also could require that we comply with financial and other covenants that limit our flexibility and operations. In addition, the fact that we have pledged substantially all of our assets to secure our existing loan facilities will likely increase the cost, perhaps substantially, of any additional debt financing we may obtain or prevent us from obtaining additional debt financing altogether.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (the FASB) issued an Accounting Standard Update which replaced the concept of allocating revenue consideration amongst deliverables in a multiple-element revenue arrangement according to fair value with an allocation based on selling price. The amended guidance also establishes a hierarchy for determining the selling price of revenue deliverables sold in multiple element revenue arrangements. The selling price used for each deliverable will be based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or management’s estimate of an element’s stand-alone selling price if neither VSOE nor third-party evidence is available. The amendments in this update also require an allocation of selling price amongst deliverables be performed based upon each deliverable’s relative selling price to total revenue consideration, rather than on the residual method previously permitted. The updated guidance is effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. We prospectively adopted the updated guidance on January 1, 2011 and will apply the amended guidance to revenue arrangements containing multiple deliverables that are entered into or significantly modified on or after January 1, 2011. We will now allocate revenue consideration, excluding contingent consideration, based on the relative selling prices of the separate units of accounting contained within an arrangement containing multiple deliverables. Selling prices are determined using fair value, when available, or our estimate of selling price when fair value is not available for a given unit of accounting. As we did not enter into any new collaborations or materially modify any existing collaborations, adoption of this guidance had no impact on our results of operations for the six months ended June 30, 2011.

In March 2010, the FASB Emerging Issues Task Force (EITF) ratified a new accounting standard which amends guidance on the milestone method of revenue recognition. The EITF concluded that the milestone method is a valid application of the proportional performance model when applied to research or development arrangements. Milestones, as defined per the revised guidance, are (1) events that can only be achieved in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting in the entity’s performance (2) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (3) that would result in additional payments being due to us, we evaluate events under this guidance at the inception of an arrangement to determine the existence of milestones and if they are substantive. This standard allows an entity to make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This standard is effective for fiscal years beginning on or after June 15, 2010 with early adoption permitted. The guidance may be applied prospectively for milestones achieved after the adoption date or retrospectively for all periods presented. We adopted this guidance on January 1, 2011 on a prospective basis. Adoption of this guidance did not have a material impact on our results of operations.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet activities.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our cash and cash equivalents as of June 30, 2011 consisted primarily of cash and money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. Instruments that meet this objective include commercial paper, money market funds and government and non-government debt securities. Some of the investment securities available-for-sale that we invest in may be subject to market risk. This means that a change in prevailing interest rates may cause the value of the investment securities available-for-sale to fluctuate. To minimize this risk, we intend to continue to maintain our portfolio of cash and money market funds. Due to the short-term nature of our investments and our ability to hold them to maturity, we believe that there is no material exposure to interest rate risk.

Our $10.0 million revolving credit facility with Oxford and SVB bears interest at the greater of 3.29% above SVB’s prime rate or 7.29%. As of June 30, 2011, we had $3.6 million outstanding on this revolving credit facility.

Foreign Exchange Risk

All of the revenues we have generated to date have been paid in U.S. dollars and we expect that our revenues will continue to be generated primarily in U.S. dollars for at least the next several years. Payments to our material suppliers and contract manufactures are denominated in the Euro and U.K. pounds sterling, thereby increasing our exposure to exchange rate gains and losses on non-U.S. currency transactions. Foreign currency gains and losses associated with these expenditures have not been significant to date. However, fluctuations in the rate of exchange between the U.S. dollar and these or other foreign currencies could adversely affect our financial results in the future, particularly to the extent we increase production to support Sumavel DosePro sales demands. For the six months ended June 30, 2011, approximately $5.3 million (based on exchange rates as of June 30, 2011) of our materials and contract manufacturing costs were denominated in foreign currencies. We do not currently hedge our foreign currency exchange rate risk. We intend to evaluate various options to mitigate the risk of financial exposure from transacting in foreign currencies in the future.

Item 4.

Controls and Procedures

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Securities and Exchange Commission Rule 13a-15(b), we carried out an evaluation, 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 report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2011 at the reasonable assurance level.

This Quarterly Report on Form 10-Q does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

Changes in Disclosure Controls and Procedures

There were no changes in our internal controls over financial reporting during the fiscal quarter ended June 30, 2011 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

We are not currently a party to any legal proceedings.

Item 1A.

Risk Factors

We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in this Quarterly Report on Form 10-Qand our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

We have marked with an asterisk (*) those risk factors that reflect substantive changes from the risk factors included in our previously filed Annual Report on Form 10-K for the year ended December 31, 2010.

Risks Related to Our Business and Industry

We will require additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts. *

Our operations have consumed substantial amounts of cash since inception. To date, our operations have been primarily financed through the proceeds from the issuance of our common and preferred stock, including the proceeds from our initial public offering completed in November 2010, and borrowings under our loan agreements with Cowen Healthcare Royalty Partners II, L.P, or Cowen Royalty, Oxford Finance LLC, as successor in interest to Oxford Finance Corporation, or Oxford, Silicon Valley Bank, or SVB, and General Electric Capital Corporation, or GE Capital. We believe, based on our current operating plan, that our cash and cash equivalents, future revenues, availability under our debt facilities as of June 30, 2011 and the recently completed royalty financing with Cowen Royalty and amended loan agreement with Oxford and SVB to defer principal payments to February 2012, will be sufficient to fund our operations through the fourth quarter of 2011. We will need to obtain additional funds to finance our operations beyond that point in order to:

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maintain and continue to increase our sales and marketing activities for Sumavel DosePro;

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qualify secondary sources for the manufacturing of Sumavel DosePro;

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fund our operations, continue to conduct clinical trials of Zohydro, initiate clinical trials for Relday and fund development of any other product candidate to support potential regulatory approval of marketing applications; and

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commercialize any of our product candidates or any products or product candidates that we may develop, in-license or otherwise acquire, if any of these product candidates receive regulatory approval.

In addition, our estimates of the amount of cash necessary to fund our business and development and commercialization activities may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. Our future funding requirements will depend on many factors, including, but not limited to:

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the commercial success of Sumavel DosePro;

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the timing of regulatory approval, if granted, of Zohydro or any other product candidates;

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the rate of progress and cost of our clinical trials and other product development programs for Zohydro, Relday and our other product candidates and any other product candidates that we may develop, in-license or acquire;

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the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with Sumavel DosePro, Zohydro, Relday and any of our other product candidates;

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the costs and timing of completion of outsourced commercial manufacturing supply arrangements for any product candidate;

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the costs of maintaining and expanding our sales and marketing infrastructure or establishing distribution capabilities, should we elect to do so;

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the effect of competing technological and market developments; and

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the terms and timing of any additional collaborative, licensing, co-promotion or other arrangements that we may establish.

Until we can generate a sufficient amount of product revenue and cash flow from operations and achieve profitability, we expect to finance future cash needs through public or private equity offerings, debt financings, receivables financings or corporate collaboration and licensing arrangements. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unsuccessful in raising additional required funds, we may be required to significantly delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts, or cease operating as a going concern. We also may be required to relinquish, license or otherwise dispose of rights to product candidates or products that we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available. If we raise additional funds by issuing equity securities, substantial dilution to existing stockholders would result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. If we are unable to maintain sufficient financial resources, including by raising additional funds when needed, our business, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment.

We are largely dependent on the commercial success of Sumavel DosePro and although we have generated revenue from sales of Sumavel DosePro, we may never become profitable. *

We anticipate that, for at least the next several years, our ability to generate revenues and become profitable will depend in large part on the commercial success of our only marketed product, Sumavel DosePro, which in turn, will depend on several factors, including our ability to:

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successfully maintain and increase market demand for, and sales of, Sumavel DosePro through our sales and marketing efforts and those of Astellas Pharma US, Inc., or Astellas, our co-promotion partner;

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obtain greater acceptance of Sumavel DosePro by physicians and patients;

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maintain adequate levels of coverage and reimbursement for Sumavel DosePro from commercial health plans and government health programs, which we refer to collectively as third-party payors, particularly in light of the availability of other branded and generic competitive products;

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maintain compliance with regulatory requirements;

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establish and maintain agreements with wholesalers and distributors on commercially reasonable terms;

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maintain commercial manufacturing arrangements with third-party manufacturers as necessary to meet commercial demand for Sumavel DosePro and continue to manufacture commercial quantities at acceptable cost levels; and

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successfully maintain intellectual property protection for Sumavel DosePro.

We cannot be certain that our continued marketing of Sumavel DosePro will result in increased demand for, and sales of, the product. For example, while we have generally experienced monthly growth in total prescriptions from the launch of Sumavel DosePro in January 2010 through June 30, 2011, we have at certain times experienced a reduction in total and new prescriptions month over month. If we fail to successfully increase sales of Sumavel DosePro, we may be unable to generate sufficient revenues to grow or sustain our business and we may never become profitable, and our business, financial condition and results of operations will be materially adversely affected.

We are at an early stage of commercialization and have a history of net losses and negative cash flow from operations. We cannot predict if or when we will become profitable and anticipate that our net losses and negative cash flow from operations will continue for at least the next several years. *

We were organized in 2006, have a limited operating history and there is little historical basis upon which to assess how we will respond to competitive, economic or technological challenges. Our business and prospects must be considered in light of the risks and uncertainties frequently encountered by pharmaceutical companies in the early stages of commercialization.

We have generated substantial net losses and negative cash flow from operations since our inception in 2006. For example, for 2009, 2010 and the six months ended June 30, 2011, we incurred net losses of $45.9 million, $73.6 million and $38.2 million, respectively, our net cash used in operating activities was $32.4 million, $72.0 million, and $40.5 million, respectively, and, at June 30, 2011, our accumulated deficit was $236.3 million. We expect our losses and negative cash flow to continue for at least the next several years as a result of the development expenses in connection with our ongoing clinical development for Zohydro, the initiation of clinical development for Relday and the cost of the sales and marketing expense associated with Sumavel DosePro. Our ability to generate revenues from Sumavel DosePro or any of our product candidates will depend on a number of factors, including, in the case

of Sumavel DosePro, the factors described in the following two risk factors and, in the case of our product candidates, our ability to successfully complete clinical trials, obtain necessary regulatory approvals and negotiate arrangements with third parties to help finance the development of, and market and distribute, any product candidates that receive regulatory approval. In addition, we will be subject to the risk that the marketplace will not accept our products.

Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable and it is possible we will never become profitable. Our failure to increase sales of Sumavel DosePro or to successfully commercialize any of our product candidates that may receive regulatory approval would likely have a material adverse effect on our business, results of operations, financial condition and prospects and could result in our inability to continue operations.

We may not be successful in executing our sales and marketing strategy for the commercialization of Sumavel DosePro and, as part of this strategy, we are dependent on our collaboration with Astellas to promote Sumavel DosePro primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists. If we are unable to successfully execute such strategy, we may not be able to generate significant revenue.

Prior to the launch of Sumavel DosePro in January 2010, we built a commercial sales and marketing organization including sales, marketing, communications, managed markets, trade and distribution functions, which is now focused exclusively on marketing and selling Sumavel DosePro primarily to physicians, nurses and other healthcare professionals in the United States. Our field sales force includes approximately 80 sales representatives who are promoting Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists in the United States. We have initiated activities to expand our sales force in the United States to approximately 95 sales representatives by the end of the third quarter of 2011. Although we believe we have adequately sized our sales force in order to reach this targeted audience, we may either increase or decrease the size of our sales force in the future based upon market conditions and actual sales performance. In addition, we could lose sales personnel or the performance of our sales personnel as measured by actual sales may be disappointing. Many of our competitors have significantly larger sales and marketing organizations, and significantly greater experience than we do in selling, marketing and distributing pharmaceuticals, and we may not be able to compete successfully with them with the commercial infrastructure we have developed.

To complement our sales force, we entered into an exclusive co-promotion agreement with Astellas in July 2009 under which Sumavel DosePro is also being promoted primarily to primary care physicians, OB/GYNs, emergency medicine physicians and urologists, or collectively the Astellas Segment, in the United States by approximately 400 Astellas sales representatives. Although the agreement stipulates annual minimum levels of sales effort, we have limited control over the amount and timing of resources that Astellas dedicates to the promotion of Sumavel DosePro, and we do not hire, train or manage such resources. For example, Astellas could reduce the number of its sales representatives promoting Sumavel DosePro while still complying with these minimum requirements. The ability to generate revenue from our arrangement with Astellas depends on Astellas’ efforts in promoting Sumavel DosePro and its ability to achieve broad market acceptance and prescribing of Sumavel DosePro in the Astellas Segment.

We are subject to a number of additional risks associated with our dependence on our co-promotion arrangement with Astellas, including:

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Astellas could fail to devote sufficient resources to the promotion of Sumavel DosePro, including by failing to develop, deploy or expand its sales force as necessary;

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Astellas could terminate the co-promotion agreement for any or no cause upon 180-days written notice at any time, which may negatively impact our ability to generate, or prevent us from generating, sufficient revenue;

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Astellas could fail to comply with applicable regulatory guidelines with respect to the promotion of Sumavel DosePro, which could result in administrative or judicially imposed sanctions, including warning letters, civil and criminal penalties, and injunctions; and

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disputes regarding the co-promotion agreement that negatively impact or terminate the commercialization efforts of Astellas may negatively impact or prevent the generation of sufficient revenue or result in significant litigation or arbitration.

For the three and six months ended June 30, 2011, the Astellas Segment represented approximately 40% of our net product revenue. Under the terms of the co-promotion agreement, Astellas could terminate the agreement for any or no reason upon 180-days written notice. The co-promotion agreement may also be terminated by Astellas or us for a number of other specified reasons, some of which are beyond our control. In the event Astellas terminates the agreement for specified reasons or a material uncured breach by us of our minimum sales effort obligations, we would be required to pay Astellas only the first of the two annual tail payments described above.

In addition, Astellas may terminate the co-promotion agreement in the event we undergo a change of control (as defined in the agreement), if a governmental authority takes action that prevents or makes it unlawful for Astellas to perform its obligations under the agreement, in the event of our inability to supply commercial product, under certain circumstances where a third party asserts that the making or selling of Sumavel DosePro infringes the intellectual property rights of a third party, if we materially breach our minimum sales effort obligations and do not cure that breach within a specified period, upon the occurrence of a large scale recall or market withdrawal of Sumavel DosePro, upon a material uncured breach by us or in the event of our insolvency or bankruptcy or other event which affects our ability to perform our obligations under the agreement. Accordingly, we cannot assure you that Astellas will not terminate the agreement under these circumstances. As an alternative to termination, we and Astellas could agree to amend or otherwise restructure the current co-promotion agreement. Such amendment or restructuring could change the financial terms of our agreement, change our respective minimum sales force requirements, or otherwise materially alter our co-promotion relationship. Such an amendment or restructuring could require us to expand our sales force or otherwise invest significant additional financial resources in order to adequately support the successful sales and marketing of Sumavel DosePro.

In addition, our co-promotion agreement with Astellas expires on June 30, 2013, subject to a one-year extension at the option of Astellas. We cannot assure you that Astellas will enter into any extension of the agreement or, if it does so, that it will not condition any such extension upon changes in the agreement that could have a material adverse effect on us. If Astellas were to terminate the agreement or elect not to extend the agreement upon its expiration, we would lose the efforts of their sales force, and we would need to make arrangements with another third party to replace Astellas’ sales force, or significantly expand our sales and marketing organization. We may not be able to enter into such arrangements with third parties in a timely manner, on acceptable terms or at all. To the extent that we enter into another co-promotion or other licensing arrangement, our portion of retained product revenues is likely to be lower than if we directly marketed and sold Sumavel DosePro solely on our own, and a portion of those revenues generated will depend upon the efforts of such third parties similar to our dependence on Astellas, and these efforts may not be successful. If our co-promotion agreement with Astellas is terminated and we are unable to find another partner for the promotion of Sumavel DosePro in the primary care segment in the United States, we may not be able to expand our own sales and marketing capabilities to cover this segment and any such expansion could, in any event, substantially increase our expenses and capital requirements that we might not be able to fund.

If we are unable to successfully implement our commercialization plans and drive adoption by patients and physicians of Sumavel DosePro through our sales, marketing and commercialization efforts and the efforts of Astellas, then we will not be able to generate significant revenue which will have a material adverse effect on our business, results of operations, financial condition and prospects.

If Sumavel DosePro, Zohydro, if approved, or any other product candidate for which we receive regulatory approval does not achieve broad market acceptance or coverage by third-party payors, the revenues that we generate will be limited.

The commercial success of Sumavel DosePro, Zohydro, if approved, and any product candidates for which we obtain marketing approval from the U.S. Food and Drug Administration, or FDA, or other regulatory authorities will depend upon the acceptance of these products by physicians, patients, healthcare payors and the medical community. Coverage and reimbursement of our approved product by third-party payors is also necessary for commercial success. The degree of market acceptance of Sumavel DosePro and any other product candidates for which we may receive regulatory approval will depend on a number of factors, including:

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our ability to provide acceptable evidence of safety and efficacy;

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acceptance by physicians and patients of the product as a safe and effective treatment;

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the relative convenience and ease of administration;

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the prevalence and severity of adverse side effects;

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limitations or warnings contained in a product’s FDA-approved labeling;

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the clinical indications for which the product is approved;

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in the case of product candidates that are controlled substances, the U.S. Drug Enforcement Agency, or DEA, scheduling classification;

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availability and perceived advantages of alternative treatments;

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any negative publicity related to our or our competitors’ products;

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the effectiveness of our or any current or future collaborators’ sales, marketing and distribution strategies;

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pricing and cost effectiveness;

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our ability to obtain sufficient third-party payor coverage or reimbursement; and

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the willingness of patients to pay out of pocket in the absence of third-party payor coverage.

For example, while we believe the needle-free nature of our DosePro technology will appeal to patients, some patients may not react favorably to the subcutaneous delivery of drug products by DosePro. Our experience indicates that some patients will experience pain upon injection with the DosePro technology and/or reactions at the site of injection. Any undesirable side effects have the potential to limit market acceptance of our product candidates.

In addition, products used to treat and manage pain, especially in the case of opioids, are from time to time subject to negative publicity, including illegal use, overdoses, abuse, diversion, serious injury and death. These events have led to heightened regulatory scrutiny. Controlled substances are classified by the DEA as Schedule I through V substances, with Schedule I substances being prohibited for sale in the United States, Schedule II substances considered to present the highest risk of abuse and Schedule V substances being considered to present the lowest relative risk of abuse. Zohydro contains hydrocodone , and we anticipate it will be regulated as a Schedule II controlled substance, and despite the strict regulations on the marketing, prescribing and dispensing of such substances, illicit use and abuse of hydrocodone is well-documented. Thus, the regulatory approval process and the marketing of Zohydro may generate public controversy that may adversely affect regulatory approval and market acceptance of Zohydro.

Our efforts to educate the medical community and third-party payors on the benefits of Sumavel DosePro, Zohydro, if approved, and any of our product candidates for which we obtain marketing approval from the FDA or other regulatory authorities and gain broad market acceptance may require significant resources and may never be successful. If our products do not achieve an adequate level of acceptance by physicians, third-party payors and patients, we may not generate sufficient revenue from these products to become or remain profitable.

Our business and operations would suffer in the event of system failures.*

Despite the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors and consultants are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. For example, we recently experienced failures in our information systems and computer servers, which may have been the result of a cyber-attack. These failures resulted in an interruption of our normal business operations and required substantial expenditure of financial and administrative resources to remedy. We cannot be sure that similar failures will not occur in the future. System failures, accidents or security breaches can cause interruptions in our operations, and can result in a material disruption of our commercialization activities, drug development programs and our business operations. The loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Similarly, we rely on a large number of third parties to supply components for and manufacture our product and product candidates, warehouse and distribute Sumavel DosePro and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the commercialization of Sumavel DosePro and development of Zohydro could be delayed.

Our short operating history makes it difficult to evaluate our business and prospects.

We commenced our operations on August 25, 2006. Our operations to date have been limited to organizing and staffing our company, scaling up manufacturing operations with our third-party contract manufacturers, building a sales and marketing organization, conducting product development activities for our product and product candidates, in-licensing rights to Zohydro and Relday, and commercializing Sumavel DosePro. Moreover, Sumavel DosePro is our only product that is approved for sale. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.

We depend on wholesale pharmaceutical distributors for retail distribution of Sumavel DosePro, and if we lose any of our significant wholesale pharmaceutical distributors, our business could be harmed.

The majority of our sales of Sumavel DosePro are to wholesale pharmaceutical distributors who, in turn, sell the products to pharmacies, hospitals and other customers. Three wholesale pharmaceutical distributors, Cardinal Health, Inc., McKesson Corporation

and AmerisourceBergen Corporation, individually comprised 46.2%, 34.8% and 11.1%, respectively of our total gross sales of Sumavel DosePro for the six months ended June 30, 2011, which may result in substantial fluctuations in our results of operations from period to period. The loss of any of these wholesale pharmaceutical distributors’ accounts or a material reduction in their purchases could have a material adverse effect on our business, results of operations, financial condition and prospects.

In addition, these wholesale customers comprise a significant part of the distribution network for pharmaceutical products in the United States. This distribution network has undergone, and may continue to undergo, significant consolidation marked by mergers and acquisitions. As a result, a small number of large wholesale distributors control a significant share of the market. Consolidation of drug wholesalers has increased, and may continue to increase, competitive and pricing pressures on pharmaceutical products. In addition, at times, wholesaler purchases may exceed customer demand, resulting in reduced wholesaler purchases in later quarters, which may result in substantial fluctuations in our results of operations from period to period. We cannot assure you that we can manage these pricing pressures or that wholesaler purchases will not decrease as a result of this potential excess buying.

Our sales can be greatly affected by the inventory levels our wholesalers carry. We monitor wholesaler inventory of Sumavel DosePro using a combination of methods. Pursuant to distribution service agreements with our three largest wholesale customers, we receive inventory level reports. For most other wholesalers where we do not receive inventory level reports, however, our estimates of wholesaler inventories may differ significantly from actual inventory levels. Significant differences between actual and estimated inventory levels may result in excessive production (requiring us to hold substantial quantities of unsold inventory), inadequate supplies of products in distribution channels, insufficient product available at the retail level, and unexpected increases or decreases in orders from our wholesalers.

We expect intense competition, including from generic products, and if our competitors market and/or develop treatments for migraine or pain that are marketed more effectively, approved more quickly than our product candidates or demonstrated to be safer or more effective than our products, our commercial opportunities will be reduced or eliminated

The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. We face competition from a number of sources, some of which may target the same indications as our product or product candidates, including large pharmaceutical companies, smaller pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions, many of which have greater financial resources, marketing capabilities, including well-established sales forces, manufacturing capabilities, experience in obtaining regulatory approvals for product candidates and other resources than us. Many large, well-capitalized companies offer products in the United States that compete with Sumavel DosePro. Sumavel DosePro currently competes with branded products in the triptan class such as Imitrex and Treximet marketed by GlaxoSmithKline, or GSK, as well as six other branded triptan therapies being sold by AstraZeneca PLC, Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, Merck & Co., Inc., and Pfizer Inc. Nautilus Neurosciences, Inc. also began selling Cambia, diclofenac potassium for oral solution, for the treatment of migraine in June 2010. In addition, we face competition from generic sumatriptan injection, now marketed in the United States as an authorized generic of the Imitrex STATdose System, or Imitrex STATdose, by Par Pharmaceutical Companies, Inc. and Sandoz Inc. (a Novartis AG company). In addition, in June 2010 the FDA approved Alsuma ( sumatriptan injection), a needle-based autoinjector which was developed and is manufactured by Meridian Medical Technologies (now owned by Pfizer Inc.), and is being distributed by US WorldMeds, LLC. Finally, generic injectable sumatriptan in the form of vials and prefilled syringes is available from a number of pharmaceutical companies, and most recently, the FDA granted approval for a needle-based generic sumatriptan auto-injector from Sun Pharmaceutical Industries Limited in June 2011. Although these products may not be directly substituted for Sumavel DosePro, generic versions of sumatriptan injection and alternative autoinjector forms of sumatriptan injection may reduce the future adoption of Sumavel DosePro by third-party payors and consumers, as financial pressure to use generic products may encourage the use of a generic product over Sumavel DosePro. Sumavel DosePro is currently more expensive on a per dose basis than most of the competing branded and all of the generic triptan products for migraine, which may also limit the coverage and reimbursement by third-party payors, which could adversely affect adoption by physicians and patients.

If approved for the treatment of moderate to severe chronic pain, we anticipate that Zohydro would compete against other marketed branded and generic pain therapeutics. Opioid therapeutics generally fall into two classes: codeines , which include oxycodones and hydrocodones, and morphines . Zohydro is a hydrocodone , the most commonly prescribed opioid in the United States, and we expect Zohydro will compete with therapeutics within both the codeine and morphine classes. These therapeutics include both Schedule II and Schedule III products being marketed by companies such as Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, Mallinckrodt Inc., Pfizer, Inc., Purdue Pharma L.P., Teva Pharmaceutical Industries Limited and Watson Pharmaceuticals, Inc.

In addition to already marketed therapeutics, we also face competition from product candidates that are or could be under development by many of the above-mentioned entities and others. For example, there are several products for the treatment of migraine under development by large pharmaceutical companies such as Merck & Co., Inc., and other smaller companies such as NuPathe, Inc. and MAP Pharmaceuticals, Inc. If approved, Zohydro may also compete with at least fifteen opioid product candidates under development, including abuse and diversion resistant formulations of currently available opioids, novel opioids and alternative

delivery forms of various opioids under development at other pharmaceutical companies, including extended-release hydrocodone product candidates being developed by Cephalon, Inc., Egalet A/S and Pfizer, Inc. Zohydro may also face competition from non-opioid product candidates including new chemical entities, as well as alternative delivery forms of non-steroidal anti-inflammatory drugs. These new opioid and non-opioid product candidates are being developed by companies such as Acura Pharmaceuticals, Inc., Altea Therapeutics Corporation, Elite Pharmaceuticals, Inc., Javelin Pharmaceuticals, Inc., Pfizer Inc. and QRxPharma Ltd.

If approved for the treatment of schizophrenia and/or bipolar I disorder, we anticipate that Relday will compete against other marketed, branded and generic, typical and atypical antipsychotics, including both long-acting injectable and oral products. Currently marketed long-acting injectable atypical antipsychotic products include Risperdal Consta, and Invega Sustenna marketed by Johnson & Johnson, and Zyprexa Relprevv marketed by Eli Lilly & Company. Currently approved and marketed oral atypical antipsychotics include Risperdal ( risperidone ) and Invega ( paliperidone ) marketed by Johnson & Johnson, generic risperidone , Zyprexa ( olanzapine ) marketed by Eli Lilly and Company, Seroquel ( quetiapine ) marketed by AstraZeneca PLC, Abilify ( aripiprazole ) marketed by BMS/Otsuka Pharmaceutical Co., Ltd., Geodon ( ziprasidone ) marketed by Pfizer, Fanapt (Iloperidone) marketed by Novartis AG, Saphris ( asenapine ) marketed by Schering-Plough, Latuda ( lurasidone ) marketed by Dainippon Sumitomo Pharma, and generic clozapine . Finally, in addition to these currently marketed products, we may also face competition from additional long-acting injectable product candidates that could be developed by the large companies listed above, as well and by other pharmaceutical companies such as Alkermes, Inc., NuPathe, Inc., and Vanda Pharmaceuticals, Inc, each of which has announced they are developing long-acting antipsychotic product candidates.

We expect Sumavel DosePro and, if approved, Zohydro and any of our other product candidates to compete on the basis of, among other things, product efficacy and safety, time to market, price, patient reimbursement by third-party payors, extent of adverse side effects and convenience of treatment procedures. One or more of our competitors may develop needle-free injectable products, products to address chronic pain or other products that compete with ours, obtain necessary approvals for such products from the FDA, or other agencies, if required, more rapidly than us or develop alternative products or therapies that are safer, more effective and/or more cost effective than any products developed by us. If any of our product candidates receive the requisite regulatory approval and classification and are marketed, the competition which we will encounter will have, and the competition we are currently encountering with our Sumavel DosePro product has had and will continue to have, an effect on our product prices, market share and results of operations. We may not be able to differentiate any products that we are able to market from those of our competitors, successfully develop or introduce new products that are less costly or offer better results than those of our competitors, or offer purchasers of our products payment and other commercial terms as favorable as those offered by our competitors.

In addition, competitors may seek to develop alternative formulations of our product candidates and/or alternative drug delivery technologies that address our targeted indications. The commercial opportunity for Sumavel DosePro and our product candidates could be significantly harmed if competitors are able to develop alternative formulations and/or drug delivery technologies outside the scope of our products. Compared to us, many of our potential competitors have substantially greater:

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capital resources;

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research and development resources and experience, including personnel and technology;

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drug development, clinical trial and regulatory resources and experience;

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sales and marketing resources and experience;

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manufacturing and distribution resources and experience;

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name recognition; and

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resources, experience and expertise in prosecution and enforcement of intellectual property rights.

As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that limit or block us from developing or commercializing our product candidates. Our competitors may also develop drugs that are more effective, more useful, better tolerated, subject to fewer or less severe side effects, more widely prescribed or accepted or less costly than ours and may also be more successful than us in manufacturing and marketing their products. If we are unable to compete effectively with the marketed therapeutics of our competitors or if such competitors are successful in developing products that compete with Sumavel DosePro or any of our product candidates that are approved, our business, results of operations, financial condition and prospects may be materially adversely affected.

We are dependent on numerous third parties in our supply chain, all of which are currently single source suppliers, for the commercial supply of Sumavel DosePro and a sole source supplier for clinical supply of Zohydro, and if we experience problems with any of these suppliers, the manufacturing of Sumavel DosePro and Zohydro could be delayed.

While we own most of the specialized equipment used to manufacture critical components of Sumavel DosePro, we do not own or operate manufacturing facilities and currently lack the in-house capability to manufacture Sumavel DosePro, Zohydro or any other

products or product candidates. Our DosePro device and Sumavel DosePro are manufactured by contract manufacturers, component fabricators and secondary service providers. Final aseptic fill, finish, assembly and packaging of Sumavel DosePro are performed at Patheon UK Limited, Swindon, United Kingdom, a specialist in the aseptic fill/finish of injectables and other sterile pharmaceutical products. In addition, Nypro Limited, located in Bray, Ireland, manufactures the actuator assemblies and injection molded components for our DosePro device and MGlas AG, located in Münnerstadt, Germany, manufactures the specialized glass capsule that houses the sumatriptan active pharmaceutical ingredient, or API, in our DosePro device. Each of these manufacturers and each other company that supplies, fabricates or manufactures any component used in our DosePro device is currently the only qualified source of their respective components. We currently rely on Dr. Reddy’s Laboratories as the only supplier of sumatriptan API for use in Sumavel DosePro. We also outsource all manufacturing and packaging of the clinical trial materials for Zohydro to third parties. Although we plan to qualify additional manufacturers and suppliers of some of the components used in Sumavel DosePro, there can be no assurance that we will be able to do so and the current manufacturers and suppliers of these components will likely be single source suppliers to us for a significant period of time. Similarly, under our license agreement, Elan Pharma International Ltd., or Elan, is the exclusive manufacturer of Zohydro. We may never be able to establish additional sources of supply for Zohydro.

Manufacturers and suppliers are subject to regulatory requirements covering, among other things, manufacturing, testing, quality control and record keeping relating to our product and product candidates, and are subject to ongoing inspections by regulatory agencies. Failure by any of our manufacturers or suppliers to comply with applicable regulations may result in long delays and interruptions to our manufacturing supply, and increase our costs, while we seek to secure another supplier who meets all regulatory requirements. Accordingly, the loss of any of our current third-party manufacturers or suppliers could have a material adverse effect on our business, results of operations, financial condition and prospects.

Reliance on third-party manufacturers and suppliers entails risks to which we would not be subject if we manufactured Sumavel DosePro or our product candidates ourselves, including:

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reliance on the third parties for regulatory compliance and quality assurance;

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the possible breach of the manufacturing agreements by the third parties because of factors beyond our control or the insolvency of any of these third parties or other financial difficulties, labor unrest, natural disasters or other factors adversely affecting their ability to conduct their business; and

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the possibility of termination or non-renewal of the agreements by the third parties, at a time that is costly or inconvenient for us, because of our breach of the manufacturing agreement or based on their own business priorities.

If our contract manufacturers or suppliers fail to deliver the required commercial quantities of Sumavel DosePro and its various components, the quantities of Zohydro or any of our other product candidates required for our clinical trials and, if approved, for commercial sale, on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement manufacturers or suppliers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality, and on a timely basis, we would likely be unable to meet demand for our products and would have to delay or terminate our pre-clinical or clinical trials, and we would lose potential revenue. It may also take a significant period of time to establish an alternative source of supply for our product, product candidates and components and to have any such new source approved by the FDA or any applicable foreign regulatory authorities. Furthermore, any of the above factors could cause the delay or suspension of initiation or completion of clinical trials, regulatory submissions or required approvals of our product candidates, cause us to incur higher costs and could prevent us from commercializing our product candidates successfully.

We may encounter delays in the manufacturing of Sumavel DosePro or fail to generate revenue if our supply of the components of our DosePro drug delivery system is interrupted.

Our DosePro drug delivery system is sourced, manufactured and assembled by multiple third parties across different geographic locations in Europe, including the United Kingdom, Germany and Ireland. All contract manufacturers and component suppliers have been selected for their specific competencies in the manufacturing processes and materials that make up the DosePro system. The components of DosePro include the actuator subassembly, capsule subassembly, and the setting mechanism. The actuator subassembly is comprised of nine individual components which are collectively supplied by six different third-party manufacturers. The capsule subassembly that houses the sterile drug formulation sumatriptan is comprised of five different components also supplied by four third-party manufacturers. Each of these third-party manufacturers is currently the single source of their respective components. If any of these manufacturers is unable to supply its respective component for any reason, including due to violations of the FDA’s Quality System Regulation, or QSR, requirements, our ability to manufacture the finished DosePro device will be adversely affected and our ability to meet the distribution requirements for any product sales of Sumavel DosePro and the resulting revenue therefrom will be negatively affected. Accordingly, there can be no assurance that any failure in any part of our supply chain will not have a material adverse effect on our ability to generate revenue from Sumavel DosePro, which in turn could have a material adverse effect on our business, results of operations, financial condition and prospects.

We rely on third parties to perform many necessary services for our commercial products, including services related to the distribution, invoicing, storage and transportation of our products.

We have retained third-party service providers to perform a variety of functions related to the sale and distribution of our products, key aspects of which are out of our direct control. For example, we rely on Cardinal Health 105, Inc. (a/k/a Specialty Pharmaceutical Services) to provide key services related to logistics, warehousing and inventory management, distribution, contract administration and chargeback processing, accounts receivable management and call center management, and, as a result, most of our inventory is stored at a single warehouse maintained by the service provider. We place substantial reliance on this provider as well as other third-party providers that perform services for us, including entrusting our inventories of products to their care and handling. If these third-party service providers fail to comply with applicable laws and regulations, fail to meet expected deadlines, or otherwise do not carry out their contractual duties to us, or encounter physical damage or natural disaster at their facilities, our ability to deliver product to meet commercial demand would be significantly impaired. In addition, we utilize third parties to perform various other services for us relating to sample accountability and regulatory monitoring, including adverse event reporting, safety database management and other product maintenance services. If the quality or accuracy of the data maintained by these service providers is insufficient, our ability to continue to market our products could be jeopardized or we could be subject to regulatory sanctions. We do not currently have the internal capacity to perform these important commercial functions, and we may not be able to maintain commercial arrangements for these services on reasonable terms.

The perception that our DosePro needle-free drug delivery system should be pain free may limit patient adoption.

We believe that there is a perception among some patients, physicians and other customers that a needle-free delivery system should be pain free. While our experience indicates that some patients will experience pain upon injection with the DosePro technology, this pain sensation is consistent with the pain sensation associated with injection with a fine gauge needle and can be generally characterized as transient mild discomfort. In addition, some patients will experience local injection site signs and reactions following injection with DosePro. The fact that the use of our DosePro system may be accompanied by a certain amount of pain upon injection and local injection site signs and reactions may limit its adoption by patients, physicians and other customers.

Zohydro is subject to extensive regulation, and we cannot give any assurance that it or any of our other product candidates will receive regulatory approval or be successfully commercialized.

We currently are developing Zohydro for the treatment of moderate to severe chronic pain. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of opioid drug products, among other things, are subject to extensive regulation by the FDA, the DEA and other regulatory authorities in the United States. We are not permitted to market Zohydro in the United States unless and until we receive regulatory approval from the FDA. We cannot provide any assurance that we will obtain regulatory approval for Zohydro or any of our other product candidates, or that any such product candidates will be successfully commercialized.

We have not yet completed all necessary studies, nor submitted a new drug application, or NDA, or received marketing approval, for Zohydro. Obtaining approval of an NDA is a lengthy, expensive and uncertain process. The FDA also has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example:

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the FDA may not deem a product candidate safe and effective;

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the FDA may not find the data from pre-clinical studies and clinical trials sufficient to support approval;

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the FDA may require additional pre-clinical studies or clinical trials;

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the FDA may not approve of our third-party manufacturers’ processes and facilities; or

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the FDA may change its approval policies or adopt new regulations.

Zohydro has undergone Phase 1 pharmacokinetics studies as well as Phase 2 clinical trials. However, these studies and trials were conducted by a third party and, accordingly, we did not directly participate in their design or execution. In addition, we will also need to successfully complete Phase 3 clinical trials to establish its safety and efficacy, additional Phase 1 studies, and additional pre-clinical studies prior to our submission of an NDA to the FDA for approval. We initiated the Phase 3 clinical development program for Zohydro in March 2010 and completed enrollment in our single pivotal Phase 3 efficacy trial, Study 801, in February 2011 and in our open-label Phase 3 trial, Study 802, in December 2010. Zohydro and any of our other product candidates may fail to achieve their specified endpoints in clinical trials. Furthermore, product candidates such as Zohydro may not be approved even if they achieve their specified endpoints in clinical trials. The FDA may disagree with our trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. The FDA may also approve a product candidate for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDA may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our product candidates.

If we are unable to obtain regulatory approval for Zohydro or any other product candidates on the timeline we anticipate, we will not be able to execute our business strategy effectively and our ability to generate additional revenues beyond Sumavel DosePro will be limited, which would have a material adverse impact on our business, results of operations, financial condition and prospects.

Our clinical trials may fail to demonstrate acceptable levels of safety and efficacy of Zohydro or any of our other product candidates, which could prevent or significantly delay their regulatory approval.

Our Zohydro product candidate and our other product candidates are prone to the risks of failure inherent in drug development. Before obtaining U.S. regulatory approval for the commercial sale of Zohydro or any other product candidate, we must gather substantial evidence from well-controlled clinical trials that demonstrate to the satisfaction of the FDA that the product candidate is safe and effective, and similar regulatory approvals would be necessary to commercialize the product candidate in other countries.

In light of widely publicized events concerning the safety risk of certain drug products, particularly opioid drug products, regulatory authorities, members of Congress, the Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of risk management programs that may, for instance, restrict distribution of drug products after approval. In addition, the Federal Food, Drug, and Cosmetic Act, or FFDCA, as amended by the Food and Drug Administration Amendments Act of 2007, grants significant expanded authority to the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, the FFDCA authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling to reflect new safety information and require a risk evaluation and mitigation strategy, or REMS, for certain drugs, including certain currently approved drugs. It also significantly expands the federal government’s clinical trial registry and results databank, which we expect will result in significantly increased government oversight of clinical trials. Under the FFDCA, companies that violate these and other provisions of the law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties.

The increased attention to drug safety issues may result in a more cautious approach by the FDA in its review of our clinical trials. Data from clinical trials may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate clinical trials before completion, or require longer or additional clinical trials that may result in a delay or failure in obtaining approval or approval for a more limited indication than originally sought.

With regard to Zohydro, data from a Phase 2 clinical trial in osteoarthritis patients has shown what we believe is a clinically acceptable safety profile and a pharmacodynamic profile which supports further product development for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy for an extended period of time. In the two Phase 2 clinical trials conducted to date, patients experienced mild to moderate adverse events, including nausea, vomiting, headache, dizziness, sweating, constipation and drowsiness, which are similar to the reported side effects of opioids currently prescribed for chronic pain. However, our licensor, Elan conducted these trials and we have not independently verified the data or completed any of our own Phase 2 or Phase 3 trials for this product candidate. In addition, these results may not be predictive of results obtained in our ongoing Phase 3 clinical trials or any other required future trials, and we may be unable to demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or approvals for commercially viable uses. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. If Zohydro is not shown to be safe and effective in clinical trials, this program could be delayed or terminated, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Delays in the commencement or completion of clinical testing for Zohydro or pre-clinical or clinical testing for any of our other product candidates could result in increased costs to us and delay or limit our ability to pursue regulatory approval or generate revenues. *

Clinical trials are very expensive, time consuming and difficult to design and implement. Delays in the commencement or completion of clinical testing for Zohydro or pre-clinical or clinical testing for Relday or any of our other product candidates could significantly affect our product development costs and business plan. In March 2010, we initiated a Phase 3 clinical development program for Zohydro, including a pivotal efficacy trial. Phase 3 clinical efficacy trials, in general, are significantly more complex and time-consuming and involve more patients than the Phase 1 and 2 clinical trials that have been completed to date. We do not know whether our Phase 3 clinical trials of Zohydro will be completed on schedule, if at all. We expect to initiate clinical testing for Relday in patients in schizophrenia in early 2012. In addition, we do not know whether any other pre-clinical or clinical trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

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obtaining regulatory authorization to commence a clinical trial;

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reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, clinical investigators and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs, clinical investigators and trial sites;

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manufacturing or obtaining sufficient quantities of a product candidate for use in clinical trials;

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obtaining institutional review board, or IRB, approval to initiate and conduct a clinical trial at a prospective site;

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identifying, recruiting and training suitable clinical investigators;

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identifying, recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for the treatment of pain, migraine or similar indications;

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retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy, personal issues, or for any other reason they choose, or who are lost to further follow-up;

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uncertainty regarding proper dosing; and

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scheduling conflicts with participating clinicians and clinical institutions.

We believe that we have planned and designed an adequate Phase 3 clinical trial program for Zohydro, and we presented the trial design for our Phase 3 trials to the FDA at our End of Phase 2 meeting in June 2008. Although we believe the FDA has generally agreed with the design of our Phase 3 clinical trial program, the FDA could still determine that it is not satisfied with our plan or the details of our pivotal clinical trial protocols and designs. While the FDA has provided us with a written record of our discussions and responses to our questions at our End of Phase 2 meeting, such records and responses do not guarantee that the FDA will deem our trial design to be sufficient for the purpose of obtaining marketing approval for Zohydro. We did not seek a Special Protocol Assessment from the FDA for our ongoing pivotal Phase 3 efficacy study for Zohydro (Study 801).

In addition, while we completed enrollment in Study 801 in February 2011 and in our open-label Phase 3 trial, Study 802, in December 2010, chronic pain patients have historically been difficult to keep enrolled in clinical trials. If a significant number of patients fail to stay enrolled in any of our current or future clinical trials of Zohydro and such failure is not adequately accounted for in our trial design and enrollment assumptions, our clinical development program could be delayed. Clinical trials may also be delayed or repeated as a result of ambiguous or negative interim results or unforeseen complications in testing. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:

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failure to design appropriate clinical trial protocols;

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failure by us, our employees, our CROs or their employees to conduct the clinical trial in accordance with all applicable FDA, DEA or other regulatory requirements or our clinical protocols;

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inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

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discovery of serious or unexpected toxicities or side effects experienced by study participants or other unforeseen safety issues;

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lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional trials and studies and increased expenses associated with the services of our CROs and other third parties;

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lack of effectiveness of any product candidate during clinical trials;

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slower than expected rates of subject recruitment and enrollment rates in clinical trials;

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failure of our CROs or other third-party contractors to comply with all contractual requirements or to perform their services in a timely or acceptable manner;

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inability or unwillingness of medical investigators to follow our clinical protocols;

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in the case of Zohydro, regulatory concerns with opioid products generally and the potential for abuse and diversion of the drugs; and

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unfavorable results from on-going clinical trials and pre-clinical studies.

Additionally, changes in applicable regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for Zohydro and our other product candidates may be harmed, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

Our competitors could receive FDA approval for an extended-release hydrocodone product before we receive FDA approval for Zohydro, and thus could be granted regulatory exclusivity that could significantly delay our ability to receive approval for and commercialize Zohydro and therefore dramatically reduce its market potential. Our competitors could also pursue regulatory and other strategies to combat competition from 505(b)(2) products, which also may negatively affect the approval and commercialization of Zohydro and any of our other product candidates.

The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the FFDCA, or Section 505(b)(2). Section 505(b)(2) permits the filing 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 example, we obtained FDA marketing approval of Sumavel DosePro under Section 505(b)(2), and we intend to submit the NDA for Zohydro under Section 505(b)(2), and as such the NDA will rely, in part, on the FDA’s previous findings of safety and effectiveness for hydrocodone .

Certain of our competitors may file a 505(b)(2) application for extended-release hydrocodone either before or shortly after we submit our own NDA for Zohydro. The first approved 505(b)(2) applicant for a particular condition of use, or change to a marketed product, such as a new extended-release formulation for a previously approved product, may be granted three-year Hatch-Waxman exclusivity if one or more clinical studies, other than bioavailability or bioequivalence studies, was essential to the approval of the application and was conducted/sponsored by the applicant. Three-year Hatch-Waxman exclusivity delays the FDA’s approval of other 505(b)(2) applicants for the same condition of use or change to the drug product that was granted exclusivity, regardless of the date of submission of each NDA. We believe that several competitors are developing extended-release hydrocodone products, and if the FDA approves a competitor’s 505(b)(2) application for its extended-release hydrocodone product before our application, and granted the competitor three-year exclusivity, the FDA would be precluded from making effective our NDA for Zohydro until after that three-year exclusivity period has run, and such delay would dramatically reduce our expected market potential for Zohydro. Additionally, even if our 505(b)(2) application for extended-release hydrocodone is approved first, we may still be subject to competition by other hydrocodone products, including approved products or other 505(b)(2) applications for different conditions of use that would not be restricted by the three-year exclusivity.

In addition, approval under Section 505(b)(2) generally requires the absence of any other patents covering the product candidate in question and competitors and others have the ability to take numerous steps to block or delay approval of product candidates under Section 505(b)(2), including:

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extending patent protection for existing products that would block Section 505(b)(2) approval of the product candidate by pursuing new patents for existing products that may be granted just before the expiration of one patent, which could extend patent protection for a number of years or otherwise delay the launch of generic, 505(b)(2) or other competing products;

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submitting Citizen Petitions to request the FDA to take adverse administrative action with respect to approval of a generic, 505(b)(2) or other competing product;

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filing patent infringement lawsuits, whether or not meritorious, to trigger up to a 30-month stay in the approval of a generic, 505(b)(2) or other competing product; and

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engaging in state-by-state initiatives to enact legislation or regulatory policies that restrict the substitution of some generic, 505(b)(2) or other competing drugs for brand-name drugs.

If any of these strategies are successful, our ability to obtain approval of and commercialize Zohydro and any of our other product candidates for which we rely on Section 505(b)(2) will be adversely affected.

We rely on third parties to conduct our pre-clinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have agreements with third-party CROs to conduct our ongoing Phase 3 trials for Zohydro, and anticipate that we may enter into other such agreements in the future regarding any of our other product candidates. We rely heavily on these parties for the execution of our clinical and pre-clinical studies, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol. We and our CROs are required to comply with current good clinical practices, or GCPs. The FDA enforces these GCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable GCP regulations, the data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA and similar foreign regulators will determine that any of our clinical trials comply or complied with GCP regulations. In addition, our clinical trials must be conducted with product produced under current good manufacturing practices, or cGMPs, regulations, and require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate additional revenues could be delayed.

Switching or adding additional CROs can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, results of operations, financial condition and prospects.

The development of a REMS for Zohydro could cause significant delays in the approval process for Zohydro and will add additional layers of regulatory requirements, including the requirement for a Medication Guide and educational requirements for prescribers and patients, which could significantly impact our ability to commercialize Zohydro and dramatically reduce its market potential. *

The Food and Drug Administration Amendments Act, or FDAAA, added Section 505-1 to the FFDCA. Section 505-1 permits FDA to require a REMS for a drug product to ensure the safe use of the drug. A REMS is a strategic safety program that the FDA requires to ensure that the benefits of a drug outweigh its risks. In determining whether a REMS is necessary, the FDA must consider the size of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential adverse events, and whether the drug is a new molecular entity. If the FDA determines a REMS is necessary, the drug sponsor must agree to the REMS plan at the time of approval. A REMS may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the drug’s risks, limitations on who may prescribe or dispense the drug, requirements that patients enroll in a registry or undergo certain health evaluations or other measures that the FDA deems necessary to assure the safe use of the drug. In addition, the REMS must include a timetable to assess the strategy at 18 months, three years and seven years after the strategy’s approval.

In February 2009, the FDA informed drug manufacturers that it will require a class-wide REMS for all long-acting and sustained-release opioid drug products. The FDA has since initiated efforts to develop a new standardized REMS for these opioid medications to ensure their safe use. In April 2011, FDA announced that it had finalized the elements of a class-wide REMS for these products. The central component of the opioid REMS program is an education program for prescribers and patients. Specifically, the REMS for these products must include a Medication Guide available for distribution to patients who are dispensed the drug, as well as a number of elements to assure safe use. These elements include training for prescribers who prescribe the drug; information provided to prescribers that prescribers can use to educate patients in the safe use, storage, and disposal of opioids; and information provided to prescribers of the existence of the REMS and the need to successfully complete the necessary training. Moreover, the REMS must include a timetable for submission of assessments that shall be no less frequent than 6 months, 12 months, and annually after the REMS is approved to assess the extent to which the elements to assure safe use are meeting the goals of the REMS and whether the goals or elements should be modified. The FDA expects that manufacturers of long-acting and extended-release opioids work together to provide educational materials as part of a class-wide single shared system to reduce the burden of the REMS on the healthcare system.

An extended-release formulation of hydrocodone , such as Zohydro, will be required to have a REMS that contains the elements of the recently-issued class-wide REMS for long-acting and sustained-release opioids. We intend to submit a REMS at the time of the NDA submission for Zohydro. The development of the REMS could cause significant delays in the approval process for Zohydro, and the educational requirements and requirements for a Medication Guide for patients could significantly impact our ability to commercialize Zohydro and dramatically reduce its market potential.

Our commercialization partner for Sumavel DosePro in the European Union and three other countries, Desitin, may not successfully develop, obtain approval for or commercialize Sumavel DosePro in those territories, which may adversely affect our ability to commercialize Sumavel DosePro both inside and outside the United States.

In March 2008, we entered into a licensing and distribution agreement with Desitin pursuant to which we granted Desitin the exclusive right under our intellectual property rights related to Sumavel DosePro to develop, use, distribute, sell, offer for sale, and import Sumavel DosePro and any potential modified versions of Sumavel DosePro in the European Union, Norway, Switzerland and Turkey. In that regard, Desitin is not obligated under the agreement to pursue regulatory approval or commercialization of Sumavel DosePro in any of these countries except for Germany. Since we will depend on Desitin to develop, obtain regulatory approval for

and, if regulatory approval is granted, commercialize Sumavel DosePro in these countries, we will have limited control over the success of Desitin’s development, regulatory approval and commercialization efforts. Desitin submitted a Marketing Authorization Application for Sumavel DosePro to the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte (BfArM)) in Germany, the reference member state, through the Decentralized Procedure in October 2009, following completion of a European pivotal bioequivalence trial comparing needle-free Sumavel DosePro to a traditional needle-based autoinjector, Imigran-Inject, the European brand of Imitrex STATdose. In November 2010, Denmark became the first member of the European Union to approve marketing of Sumavel DosePro in that country. Subsequently, Sumavel DosePro has received marketing approval in Germany, Sweden, Norway and the United Kingdom.

Any additional clinical studies Desitin may be required to conduct as part of the regulatory approval process may not corroborate the results of the clinical studies we have conducted or may have adverse results or effects on our ability to maintain regulatory approvals in the United States or obtain them in other countries. In addition, although we believe that the U.S. market represents the largest commercial opportunity for Sumavel DosePro, Desitin may not develop Sumavel DosePro as fast or generate as large of a market as we would like or as the market may expect and Desitin may not seek to develop, obtain approval for or commercialize Sumavel DosePro in countries for which it has exclusive rights, other than in Germany, where Desitin is required to develop, seek approval for and commercialize Sumavel DosePro. Any failure by Desitin to successfully commercialize Sumavel DosePro or to successfully obtain applicable foreign regulatory approval for Sumavel DosePro would limit our opportunity to receive revenue from the territories licensed to Desitin. Furthermore, negative developments occurring in those territories controlled by Desitin could have a negative impact on physician and patient impressions of our product in the United States and elsewhere.

Our failure to successfully establish new partnerships with pharmaceutical companies or contract sales organizations to co-promote any additional product candidates that may receive regulatory approval may impair our ability to effectively market and sell such product candidates.

Major pharmaceutical companies usually employ groups of sales representatives numbering in the thousands to call on the large number of primary care physicians. In connection with the launch of Sumavel DosePro in January 2010 we built and marketing organization to promote Sumavel DosePro in the United States, including a focused sales force of approximately 80 representatives primarily targeting neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists. We have initiated activities to expand our sales force in the United States to approximately 95 sales representatives by the end of the third quarter of 2011. In addition, in July 2009, we entered into an exclusive agreement with Astellas under which Sumavel DosePro is also being marketed by Astellas in the United States promoted primarily to primary care physicians, OB/GYNs, emergency medicine physicians, and urologists by approximately 400 Astellas sales representatives. In order to expand the market opportunity for any additional product candidates that receive regulatory approval into the broader primary care physician audiences, we will need to continue to expand our sales and marketing personnel and commercial infrastructure and/or establish partnerships with pharmaceutical companies or contract sales organizations to co-promote such product candidates. We currently, and on an ongoing basis will have to, compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. We also face competition in our search for collaborators and potential co-promoters. To the extent we rely on additional third parties to commercialize any product candidates that may receive regulatory approval, we are likely to receive less revenues than if we commercialized these products ourselves. Further, by entering into strategic partnerships or similar arrangements, we may rely in part on such third parties for financial and commercialization resources. Even if we are able to identify suitable partners to assist in the commercialization of our product candidates, they may fail to devote the resources necessary to realize the full commercial potential of our products. In addition, we may lack the financial and managerial resources to increase the size of our sales and marketing organization to adequately commercialize any product candidates that may be approved, and any increase in our sales force would result in an increase in our expenses, which could be significant before we generate revenues from any newly approved product candidate. If we are unable to expand our sales and marketing infrastructure or enter into a third-party arrangement, we would not be able to successfully commercialize any approved products. Even if we are able to expand our sales and marketing personnel or successfully establish partnership arrangements, such sales force and marketing teams may not be successful in commercializing our products, which would adversely affect our ability to generate revenue for such products, which will have a material adverse effect on our business, results of operations, financial condition and prospects.

Our failure to successfully acquire, develop and market additional product candidates or approved products would impair our ability to grow our business. In that regard, our DosePro delivery system cannot be used with drug formulation volumes greater than 0.5 mL, which will likely limit its use with drugs requiring larger formulation volumes. *

As part of our growth strategy we intend to seek to expand our product pipeline by exploring acquisition or in-licensing opportunities of proven drugs that can be paired with our DosePro needle-free drug delivery system. However, the current version of our DosePro drug delivery system cannot be used with drug formulation volumes greater than 0.5 mL. Many marketed and development-stage injectable products, including most biologics, have formulation volumes greater than 0.5 mL and would require reformulation, if possible, to accommodate the approved doses in smaller volumes that are compatible with DosePro. Any reformulation may increase the risk of failure during development, extend the development timelines, increase development costs and

add complexity to the regulatory approval process and in some cases reformulation may not be possible. If we are not able to identify additional drug compounds that can be delivered via the current version of our DosePro technology, or if we are unable to successfully develop higher dose versions of this technology, our ability to develop additional product candidates and grow our business would be adversely affected. We will also seek opportunities to out-license the DosePro technology to partners seeking to enhance, differentiate, or extend the life-cycle of their injectable products. If we are unable to secure partnerships with companies that have compounds that can be delivered via the current version of our DosePro technology, or if we are unable to successfully develop higher dose versions of this technology, we will not be able to generate revenues from out-licensing our DosePro technology.

We have initiated early stage design and development of a larger volume, second generation version of our DosePro technology to accommodate drug formulation volumes greater than 0.5 mL, which if successfully developed, would allow for a broader range of potential applications for our technology. However, the full development of such technology will require substantial investment and we may consider entering into a third-party collaboration in order to obtain third-party financing to help fully develop such technology. There is no guarantee that we or any potential future third-party collaborator will be able to successfully develop such a device technology, whether for financial or technical reasons or otherwise.

Furthermore, we intend to in-license, acquire, develop and/or market additional products and product candidates in the areas of pain and central nervous system, or CNS, disorders. For example, in July 2011, we entered into a development and license agreement with Durect Corporation for a proprietary, long-acting, injectable formulation of risperidone using Durect’s SABER controlled-release formulation technology in combination with our DosePro technology. Durect will be responsible for non-clinical, formulation and CMC development responsibilities. As a result, we will be dependent on Durect’s successful completion of its responsibilities for Relday. In addition, because our internal research and development capabilities are limited, we may be dependent upon other pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify and select promising pharmaceutical product candidates and products, negotiate licensing or acquisition agreements with their current owners and finance these arrangements.

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

Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including pre-clinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities. We expect to initiate clinical testing for Relday in patients in schizophrenia in early 2012. We may not be able to obtain necessary approvals to initiate such clinical testing in a timely manner or at all. In addition, all product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we develop or approved products that we acquire will be manufactured or sold profitably or achieve market acceptance.

If we are unable to license or acquire additional product candidates or approved products and successfully develop and commercialize them, or if we are otherwise unable to pair our DosePro delivery system with other drugs or out-license the DosePro technology to others, it would likely have a material adverse effect on our business, results of operations, financial condition and prospects.

We may need to continue to increase the size of our organization, and we may experience difficulties in managing and financing growth.

We increased our full-time employees from 48 as of October 31, 2009 to 146 as of June 30, 2011. In addition, we have initiated activities to expand our sales force in the United States from approximately 80 sales representatives to approximately 95 sales representatives by the end of the third quarter of 2011. We may need to continue to expand our managerial, operational and other resources in order to grow, manage and fund our existing business. Our management and personnel, systems and facilities currently in place may not be adequate to support this recent and any future growth, and we may be unable to fund the costs and expenses required to increase our necessary headcount and infrastructure. Our need to effectively manage our operations, any future growth and various projects requires that we:

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manage our internal and external commercialization efforts for Sumavel DosePro effectively while carrying out our contractual obligations to Astellas and other third parties and complying with all applicable laws, rules and regulations;

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manage our internal development efforts for Zohydro, Relday and our other product candidates effectively while carrying out our contractual obligations to licensors, collaborators and other third parties and complying with all applicable laws, rules and regulations;

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continue to improve our operational, financial and management controls, reporting systems and procedures; and

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attract and retain sufficient numbers of talented employees.

We may be unable to successfully implement or fund these tasks on a larger scale and, accordingly, may not achieve our commercialization and development goals. In addition, our management may have to divert a disproportionate amount of its attention away from day-to-day activities and towards managing these growth-related activities. Our future financial performance and our ability to execute on our business plan will depend, in part, on our ability to effectively manage any future growth and our failure to effectively manage any growth could have a material adverse effect on our business, results of operations, financial condition and prospects.

If we are unable to attract and retain key personnel, we may not be able to manage our business effectively or develop our product candidates or commercialize our product.

Our success depends on our continued ability to attract, retain and motivate highly qualified management and key clinical development, regulatory, sales and marketing and other personnel. We are highly dependent on the development, regulatory, commercial and financial expertise of our senior management team. We may not be able to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the areas in Southern and Northern California, where we currently operate. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development and commercialization objectives, our ability to raise additional capital and our ability to implement our business strategy. The loss of the services of any members of our senior management team, especially our Chief Executive Officer, Roger L. Hawley, and President and Chief Operating Officer, Stephen J. Farr, Ph.D., could negatively impact the commercialization of Sumavel DosePro and could delay or prevent the development and commercialization of any other product candidates, including Zohydro. In addition, under the terms of our amended and restated loan and security agreement with Oxford and SVB, if our Chief Executive Officer, Chief Financial Officer or President resigns, is terminated or is no longer actively involved in his or her current position and is not replaced by a person acceptable to our board of directors within 120 days, an event of default would be triggered under the agreement, and the lenders would be able to demand immediate repayment of all borrowings outstanding under the agreement. Further, if we lose any members of our senior management team, we may not be able to find suitable replacements, and our business may be harmed as a result. In addition to the competition for personnel, our locations in California in particular are characterized by a high cost of living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts.

Although we have employment agreements with each of our executive officers, these agreements are terminable by them at will at any time with or without notice and, therefore, do not provide any assurance that we will be able to retain their services. We do not maintain “key man” insurance policies on the lives of our senior management team or the lives of any of our other employees. In addition, we have clinical advisors who assist us in formulating our clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development of products that may compete with ours. If we are unable to attract and retain key personnel, our business, results of operations, financial condition and prospects will be adversely affected.

We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.

From time to time we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions may entail numerous operational and financial risks, including:

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exposure to unknown liabilities;

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disruption of our business and diversion of our management’s time and attention in order to develop acquired products, product candidates or technologies;

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incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions;

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higher than expected acquisition and integration costs;

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write-downs of assets or goodwill or impairment charges;

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increased amortization expenses;

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difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;

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impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and

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inability to retain key employees of any acquired businesses.

Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.

If we are unable to achieve and maintain adequate levels of coverage and reimbursement for Sumavel DosePro, Zohydro, if approved, or any of our other product candidates for which we may receive regulatory approval on reasonable pricing terms, their commercial success may be severely hindered.

Successful sales of our products depend on the availability of adequate coverage and reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

In addition, the market for our products will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.

Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor.

Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for Sumavel DosePro or any of our other product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.

The commercial use of our product and clinical use of our product and product candidates expose us to the risk of product liability claims. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA, such as the case with Sumavel DosePro, or an applicable foreign regulatory authority. Our product and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with Sumavel DosePro or our product candidates could result in injury to a patient or even death. For example, because our DosePro technology is designed to be self-administered by patients, it is possible that a patient could fail to follow instructions and as a result apply a dose in a manner that results in injury. In addition, Zohydro is an opioid pain reliever that contains hydrocodone , which is a regulated “controlled substance” under the Controlled Substances Act of 1970, or CSA, and could result in harm to patients relating to its potential for abuse. In addition, a liability claim may be brought against us even if our product or product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates, among others. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:

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the inability to commercialize our product or product candidates;

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decreased demand for our product or product candidates;

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impairment of our business reputation;

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product recall or withdrawal from the market;

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withdrawal of clinical trial participants;

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costs of related litigation;

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distraction of management’s attention from our primary business;

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substantial monetary awards to patients or other claimants; or

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loss of revenues.

We have obtained product liability insurance coverage for commercial product sales and clinical trials with a $10 million per occurrence and a $10 million annual aggregate coverage limit. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. If we determine that it is prudent to increase our product liability coverage based on sales of Sumavel DosePro, approval of Zohydro or otherwise, we may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects, including side effects that are less severe than those of Sumavel DosePro and our product candidates. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and have a material adverse affect our business, results of operations, financial condition and prospects.

We may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate headquarters and other facilities are located in San Diego and the San Francisco Bay Area, which in the past have both experienced severe earthquakes. We do not carry earthquake insurance. As a result, earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

Our enterprise financial systems are located in our San Diego, California headquarters. Our manufacturing resource planning and enterprise quality systems are located in our Emeryville, California facility. If a disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters or our Emeryville facility, that damaged critical infrastructure, such as enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations at either location, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product and product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending use and disposal. We cannot completely eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, injury to our employees and others, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste insurance coverage.

In connection with the reporting of our financial condition and results of operations, we are required to make estimates and judgments which involve uncertainties, and any significant differences between our estimates and actual results could have an adverse impact on our financial position, results of operations and cash flows.

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. In particular, as part of our revenue recognition policy, our estimates of product returns, rebates and chargebacks require our most subjective and complex judgment due to the need to make estimates about matters that are inherently uncertain. Any significant differences between our actual results and our estimates and assumptions could negatively impact our financial position, results of operations and cash flows.

Changes in accounting standards and their interpretations could adversely affect our operating results.

GAAP are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, or SEC, and various other bodies that promulgate and interpret appropriate accounting principles. These principles and related implementation guidelines and interpretations can be highly complex and involve subjective judgments. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

Fluctuations in the value of the Euro or U.K. pound sterling could negatively impact our results of operations and increase our costs.

Payments to our material suppliers and contract manufactures are denominated in the Euro and U.K. pounds sterling. Our reporting currency is the U.S. dollar and to date all of the revenues generated by sales of Sumavel DosePro have been in U.S. dollars. For the six months ended June 30, 2011, $5.3 million (based on exchange rates as of June 30, 2011) of our materials, contract manufacturing costs and other manufacturing-related costs were denominated in foreign currencies. As a result, we are exposed to foreign exchange risk, and our results of operations may be negatively impacted by fluctuations in the exchange rate between the U.S. dollar and the Euro or U.K. pound sterling. A significant appreciation in the Euro or U.K. pound sterling relative to the U.S. dollar will result in higher expenses and cause increases in our net losses. Likewise, to the extent that we generate any revenues denominated in foreign currencies, or become required to make payments in other foreign currencies, fluctuations in the exchange rate between the U.S. dollar and those foreign currencies could also negatively impact our results of operations. We currently have not entered into any foreign currency hedging contracts to reduce the effect of changes in foreign currency exchange rates, and foreign currency hedging is inherently risky and may result in unanticipated losses.

Our operating results are partially dependent on freight costs and our costs may increase significantly if we are unable to ship and transport finished products efficiently and economically across long distances and international borders.

Our Sumavel DosePro product is manufactured in Europe and we transport significant volumes of that product across long distances and international borders. As a result, our operating results can be affected by changes in transportation costs. We generally ship our product by air freight, and freight rates can vary significantly due to a large number of factors beyond our control, including changes in fuel prices or general economic conditions. If demand for air freight should increase substantially, it could make it difficult for us to procure transportation space at prices we consider acceptable.

Because our products must cross international borders, we are subject to risk of delay due to customs inspection, if our documentation does not comply with customs rules and regulations or for similar reasons. In addition, any increases in customs duties or tariffs, as a result of changes to existing trade agreements between countries or otherwise, could increase our costs or the final cost of our products to our customers or increase our expenses. The laws governing customs and tariffs in many countries are complex, subject to many interpretations and often includes substantial penalties for noncompliance.

Risks Related to Our Financial Position and Capital Requirements

We have never generated net income or positive cash flow from operations and are dependent upon external sources of financing to fund our business and development.*

We launched our only approved product, Sumavel DosePro, in January 2010. Without a long history of sales, we may not accurately predict future sales, and we may never be able to significantly increase these sales, especially in light of our reliance on our partnership with Astellas to co-promote Sumavel DosePro. We have financed our operations almost exclusively through the proceeds from the issuance of our common and preferred stock, including the proceeds from our initial public offering completed in November 2010, and debt, and have incurred losses and negative cash flow from operations in each year since our inception. Our net loss applicable to common stockholders was $45.9 million in 2009, $73.6 million in 2010, and $38.2 million for the six months ended June 30, 2011 and our cash used in operating activities was $32.4 million in 2009, $72.0 million in 2010 and $40.5 million for the six

months ended June 30, 2011. As of June 30, 2011, we had an accumulated deficit of $236.3 million. These losses and negative cash flow from operations have had a material adverse effect on our stockholders’ equity and working capital. Further, despite the revenues from Sumavel DosePro, we expect our losses to continue for at least the next several years as a result of the development expenses incurred in connection with our ongoing clinical development for Zohydro, the initiation of clinical development for Relday and the cost of the sales and marketing expense associated with Sumavel DosePro. In addition, if we obtain regulatory approval for Zohydro or any of our other product candidates, we expect to incur significant sales, marketing and manufacturing expenses as well as continued development expenses. As a result, we are and will remain dependent upon external sources of financing to finance our business and the development and commercialization of our approved product and product candidates. We cannot assure you that debt or equity financing will be available to us in amounts, at times or on terms that will be acceptable to us, or at all. Any shortfall in our cash resources could require that we delay or abandon certain development and commercialization activities and could otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

Our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern.

In its report accompanying our audited consolidated financial statements for the year ended December 31, 2010, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and lack of sufficient working capital raise substantial doubt as to our ability to continue as a going concern. A “going concern” opinion could impair our ability to finance our operations through the sale of debt or equity securities or commercial bank loans. Our ability to continue as a going concern will depend, in large part, on our ability to generate positive cash flow from operations and obtain additional financing, neither of which is certain. If we are unable to achieve these goals, our business would be jeopardized and we may not be able to continue operations and may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment. In addition, our amended loan and security agreement with Oxford and SVB includes a covenant that the audit reports accompanying our annual consolidated financial statements for fiscal year 2010 and thereafter not include a going concern qualification and any breach of that covenant would permit the lenders to demand immediate repayment of all loans outstanding under the agreement and to seize and sell the collateral. In March 2011, we obtained a waiver from Oxford and SVB for the breach caused by the receipt of the 2010 audit report from our independent registered public accounting firm which includes a modification of standard report for going concern uncertainty.

Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations.

As of June 30, 2011, the principal amount of our total indebtedness was approximately $26.7 million. In July 2011, we completed the royalty financing transaction with Cowen Royalty, which increased our total indebtedness by an additional $30.0 million. We have and expect to continue to make borrowings under our $10.0 million revolving credit facility to fund working capital and other cash needs and we may incur substantial additional indebtedness in the future, both under our $10.0 million revolving credit facility and any other debt facilities we may enter into in the future. Our outstanding debt and related debt service obligations could have important adverse consequences to us, including:

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heightening our vulnerability to downturns in our business or our industry or the general economy and restricting us from making improvements or acquisitions, or exploring business opportunities;

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requiring a significant portion of our available cash to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our available cash to fund our operations, capital expenditures and future business opportunities;

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limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

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limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have greater capital resources; and

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subjecting us to financial and other restrictive covenants in our debt instruments, the failure with which to comply could result in an event of default under the applicable debt instrument that allows the lender to demand immediate repayment of the related debt.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay product development, sales and marketing, capital and other expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. This risk is increased by the fact that borrowings under certain of our credit facilities bear interest at a variable rates, exposing us to the risk that the amount of cash required to pay interest will increase to the extent that market interest rates increase.

Our debt instruments contain a number of financial covenants and other provisions, including a requirement that we attain specified future levels of revenues, which, if violated, could result in the immediate acceleration of our outstanding indebtedness. *

Our $35.0 million amended and restated loan and security agreement with Oxford and SVB includes covenants requiring, among other things, that (1) we achieve, as of the last day of each month, measured on a trailing three-month basis, actual revenues of at least a specified percentage of our projected revenue as provided to Oxford and SVB in the event we fail to maintain a liquidity ratio (defined, in general, as the ratio of (a) cash and cash equivalents deposited with SVB plus unused borrowing capacity under that agreement to (b) all debt, capital lease obligations and contingent obligations owed to the lenders) of 1.25 to 1.00, and (2) the audit report accompanying our year-end consolidated financial statements for fiscal year 2010 and thereafter not include a going concern qualification. As discussed above, the audit report from our independent registered public accounting firm accompanying our 2010 consolidated financial statements includes a modification of the standard report for the going concern uncertainty, as a result, our results of operations and financial condition will have to improve to a point where our auditors can deliver their audit report without this qualification in order to avoid a breach of this covenant. In addition, the amended loan agreement prohibits us from (1) incurring any debt other than, among other things, debt under the amended loan agreement, (2) entering into sale and leaseback transactions (3) a change in our management such that our Chief Executive Officer, Chief Financial Officer or President resigns, is terminated or is no longer actively involved in our management in his or her current position and is not replaced with a person acceptable to our board of directors within 120 days and (4) entering into mergers with, or acquisitions of all or substantially all the assets of, another entity with a value in excess of $100,000, and also prohibits the occurrence of a change in control of our company. Under the amended loan agreement, a “change in control” will be deemed to occur if, among other things, our stockholders as of the effective date of the amended loan agreement cease to hold (a) at least 60% of our capital stock or (b) capital stock having a majority of the ordinary voting power in the election of our directors. The agreement provides that an event of default will occur if, among other customary events of default, (1) there is a material adverse change in our business, operations or condition (financial or otherwise) or material impairment in the prospects of us repaying any portion of our obligations under the agreement, (2) there is a material impairment in the value of the collateral pledged to secure our obligations under the agreement, (3) we default in the payment of any amount payable under the agreement when due, or (4) we breach any covenant in the agreement (subject to a grace period in some cases). In connection with the Cowen Royalty transaction, we paid off all outstanding amounts under our loan and security agreement with GE Capital. In 2009, 2010 and 2011, we were required to obtain amendments or waivers under our credit facilities, and we may in the future need to obtain waivers or amendments under our credit facilities or other debt instruments, in order to avoid a breach or default, particularly if our business deteriorates or does not perform in accordance with our expectations.

Our $30.0 million royalty financing agreement with Cowen Royalty obligates us to make payments to Cowen Royalty of $10.0 million on each of January 31, 2015, 2016 and 2017, as well as fixed percentages of amounts received or recorded from our products sales. Our $35.0 million amended and restated loan and security agreement with Oxford and is secured by all our assets (including, among other things, intellectual property, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and cash). Our obligations under the Cowen Royalty financing agreement are secured under a security agreement by a second priority security interest (junior to the security interest of Oxford and SVB under the amended and restated loan and security agreement) in all of our assets, including intellectual property and other rights to the extent necessary or used to commercialize our products. The security interest will be extinguished once the aggregate payments made by us to Cowen Royalty equals $75.0 million. Each agreement contains provisions which allow the lenders to demand immediate repayment of the debt and to seize and sell the collateral to pay that debt upon the occurrence of an event of default under the agreement. If we are unable to pay the indebtedness secured by collateral when due, whether at maturity or if declared due and payable by the lender following a default, the lender generally has the right to seize and sell the collateral securing that indebtedness.

In addition, Cowen Royalty has the option to terminate the royalty financing agreement at its election in connection with our change of control (which includes the sale, transfer, assignment or licensing of our rights in the United States to either Sumavel DosePro or Zohydro), a bankruptcy event with respect to us or an event of default under the royalty financing agreement. Upon such a termination by Cowen Royalty, we are obligated to make a payment of a base amount of $45.0 million, or, if higher, an amount that generates a 17% internal rate of return on the borrowed amount as of the date of prepayment, in each case reduced by the payments received by Cowen Royalty up to the date of prepayment. If we were required to accelerate the payment of these amounts upon a default, we would be required to find an alternate source of capital from which to draw funds and there can be no assurances that we would be able to do so on terms acceptable to us, or at all.

There can be no assurance that we will not breach the covenants or other terms of, or that an event of default will not occur under, our credit facilities or any other debt instruments and, if a breach or event of default occurs, there can be no assurance that we will be able to obtain necessary waivers or amendments from the lenders or refinance the related indebtedness on terms we find acceptable, or at all.

As a result, any failure to pay our debt service obligations when due, any breach or default of our covenants or other obligations under debt instruments, or any other event that allows any lender to demand immediate repayment of borrowings, could have a material adverse effect on our business, results of operations, financial condition and prospects. Furthermore, the arrangement under

the royalty financing agreement with Cowen Royalty may make us less attractive to potential acquirers, and in the event that we exercised our change of control pay-off option in order to carry out a change of control, the payment of such funds out of our available cash or acquisition proceeds would reduce acquisition proceeds for our stockholders.

Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.

Our results of operations and liquidity could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, our results of operations and liquidity could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may decline. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are not federally insured. If economic instability continues, we cannot provide assurance that we will not experience losses on these investments.

Raising additional funds by issuing securities may cause dilution to existing stockholders and raising funds through lending and licensing arrangements may restrict our operations or require us to relinquish proprietary rights.

We may raise additional funds through public or private equity offerings, debt financings, receivables or royalty financings or corporate collaboration and licensing arrangements. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership interest in us will be diluted. Debt financing typically contains covenants that restrict operating activities. Our amended and restated loan and security agreement with Oxford and SVB is secured by all our assets, including, among other things, intellectual property, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general and tangibles and cash. Our obligations under the Cowen Royalty financing agreement are secured under a security agreement by a second priority security interest (junior to the security interest of Oxford and SVB under the amended and restated loan and security agreement) in all assets of our, including intellectual property and other rights to the extent necessary or used to commercialize our products. The security interest will be extinguished once the aggregate payments made by us to Cowen Royalty equals $75.0 million.

Each such agreement contains provisions which allow such lenders to accelerate the debt and seize and sell the collateral if, among other things, we fail to pay principal or interest when due or breach our obligations under the agreements or if a material adverse change in our business or any other event of default occurs. Any future debt financing we enter into may involve more onerous covenants that restrict our operations and will likely allow the lenders to accelerate the debt and seize and sell any collateral following a default. Our obligations under our outstanding debt agreements or any future debt financing will need to be repaid, which creates additional financial risk for our company, particularly if our business or prevailing financial market conditions are not conducive to paying-off or refinancing our outstanding debt obligations.

If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our current product or product candidates or proprietary technologies, or grant licenses on terms that are not favorable to us. If adequate funds are not available, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and we may be required to delay, significantly curtail or eliminate the commercialization and development of our product or product candidates.

Our ability to utilize our net operating loss and research and development income tax credit carryforwards may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended, or the IRC, substantial changes in our ownership may limit the amount of net operating loss and research and development income tax credit carryforwards that could be utilized annually in the future to offset taxable income, if any. Specifically, this limitation may arise in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of the net operating loss carryforwards before they expire. We performed a Section 382 and 383 analysis and determined that we had one ownership change, as defined by IRC Sections 382 and 383, which occurred in August 2006 upon the issuance of Series A-1 preferred shares. As a result of this ownership change, we reduced our net operating loss carryforwards by $1.9 million and research and development income tax credit by $8,000. Any future equity financing transactions, together with our initial public offering, private placements and other transactions that have occurred since our inception, may trigger an ownership change pursuant to Sections 382 and 383, which could further limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income, if any. Any such limitation, whether as the result of prior private placements, sales of common stock by our existing stockholders or additional sales of common stock by us, could have an adverse effect on our results of operations.

Risks Related to Regulation of our Product and Product Candidates

Our currently marketed product, Sumavel DosePro, is and any of our other product candidates that receive regulatory approval will be subject to ongoing and continued regulatory review, which may result in significant expense and limit our ability to commercialize such products.

Even after we achieve U.S. regulatory approval for a product, the FDA may still impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. For example, a product’s approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials, to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review with respect to the manufacturing, processing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and with GCPs and good laboratory practices, which are regulations and guidelines enforced by the FDA for all of our products in clinical and pre-clinical development, and for any clinical trials that we conduct post-approval. To the extent that a product is approved for sale in other countries, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.

In the case of Zohydro and any other product candidates or products containing controlled substances, we and our contract manufacturers will also be subject to ongoing DEA regulatory obligations, including, among other things, annual registration renewal, security, recordkeeping, theft and loss reporting, periodic inspection and annual quota allotments for the raw material for commercial production of our products. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations, QSR requirements for medical device components or similar requirements, if applicable. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where, or processes by which, the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturer or us, including requiring product recall, notice to physicians, withdrawal of the product from the market or suspension of manufacturing. In that regard, because all of our contract manufacturers for Sumavel DosePro are located outside the United States, they may be subject to foreign laws and regulations governing the manufacture of drugs and devices, and any failure by them to comply with those laws and regulations may delay or interrupt supplies of our product.

If we, our product or product candidates or the manufacturing facilities for our product or product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

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impose restrictions on the marketing or manufacturing of the product, suspend or withdraw product approvals or revoke necessary licenses;

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issue warning letters, show cause notices or untitled letters describing alleged violations, which may be publicly available;

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commence criminal investigations and prosecutions;

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impose injunctions, suspensions or revocations of necessary approvals or other licenses;

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impose fines or other civil or criminal penalties;

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suspend any ongoing clinical trials;

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deny or reduce quota allotments for the raw material for commercial production of our controlled substance products;

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delay or refuse to approve pending applications or supplements to approved applications filed by us;

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refuse to permit drugs or precursor chemicals to be imported or exported to or from the United States;

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suspend or impose restrictions on operations, including costly new manufacturing requirements; or

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seize or detain products or require us to initiate a product recall.

In addition, our product labeling, advertising and promotion are subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription drug products. In particular, a drug may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling, although the FDA does not regulate the prescribing practices of physicians. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution.

The FDA’s regulations, policies or guidance may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may

not be permitted to market our drugs, which would adversely affect our ability to generate revenue and achieve or maintain profitability.

Sumavel DosePro, Zohydro and our other product candidates may cause undesirable side effects or have other unexpected properties that could result in post-approval regulatory action.

If we or others identify undesirable side effects, or other previously unknown problems, caused by our products, other products or our product candidates with the same or related active ingredients, after obtaining U.S. regulatory approval, a number of potentially significant negative consequences could result, including:

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regulatory authorities may withdraw their approval of the product;

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regulatory authorities may require us to recall product;

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regulatory authorities may require the addition of warnings in the product label or narrowing of the indication in the product label;

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we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients;

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we may be required to change the way the product is administered or modify the product in some other way;

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the FDA may require us to conduct additional clinical trials or costly post-marketing testing and surveillance to monitor the safety or efficacy of the product;

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we could be sued and held liable for harm caused to patients; and

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our reputation may suffer.

The most common treatment-emergent adverse reactions (reported by at least 5% of patients) for sumatriptan injection as described in the Sumavel DosePro Prescribing Information summarizing two large placebo-controlled clinical trials were injection site reaction (59%), atypical sensations (42%), dizziness (12%), flushing (7%), chest discomfort (5%), weakness (5%), and neck pain/stiffness (5%).

While the adverse reaction profile for Zohydro has not yet been fully characterized in Phase 3 clinical trials, in two completed Phase 2 studies of Zohydro patients experienced mild to moderate adverse events, such as nausea, vomiting, headache, dizziness, sweating, constipation and drowsiness, which are similar to the reported effects of opioids currently prescribed for chronic pain.

Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates.

Our development and commercialization strategy for Zohydro depends upon the FDA’s prior findings of safety and effectiveness of Zohydro based on data not developed by us, but which the FDA may rely upon in reviewing our NDA.

The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the FFDCA. Section 505(b)(2) permits the filing 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. Under this statutory provision, the FDA may rely, for purposes of approving an NDA, on findings of safety and effectiveness based on data not developed by the filer of the NDA. Similar to Sumavel DosePro, we intend to submit the NDA for Zohydro under Section 505(b)(2), and as such the NDA will rely, in part, on the FDA’s previous findings of safety and effectiveness for hydrocodone . Even though we may be able to take advantage of Section 505(b)(2) to support potential U.S. approval for Zohydro, the FDA may require us, and did require us with respect to Sumavel DosePro, to perform additional studies or measurements to support approval. In addition, the FDA’s interpretation and use of Section 505(b)(2) has been controversial and has previously been challenged in court, but without a definitive ruling on the propriety of the FDA’s approach. Future challenges, including a direct challenge to the approval of our products, may be possible and, if successful, could limit or eliminate our ability to rely on the Section 505(b)(2) pathway for the approval of our products. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of our products.

Zohydro will be subject to DEA regulations and, failure to comply with these regulations, or the cost of compliance with these regulations, may adversely affect our business.

Zohydro contains hydrocodone , a regulated “controlled substance” under the CSA, which establishes, among other things, certain registration, production quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use and may not be marketed or sold in the United States. A pharmaceutical product may be listed as

Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Zohydro, because it is a single-entity hydrocodone product, is expected to be regulated by the DEA as a Schedule II controlled substance under the CSA. All Schedule II substance prescriptions, such as prescriptions for Zohydro, must be in writing and signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

The manufacture, shipment, storage, sale and use, among other things, of controlled substances that are pharmaceutical products are subject to a high degree of regulation, including security, record-keeping and reporting obligations enforced by the DEA. Our failure to comply with these requirements could result in the loss of our DEA registration, significant restrictions on Zohydro, civil penalties or criminal prosecution.

The DEA, and some states, also conduct periodic inspections of registered establishments that handle controlled substances. Facilities that conduct research, manufacture, store, distribute, import or export controlled substances must be registered to perform these activities and have the security, control and inventory mechanisms required by the DEA to prevent drug loss and diversion. Failure to maintain compliance, particularly non-compliance resulting in loss or diversion, can result in regulatory action that could have a material adverse effect on our business, results of operations, financial condition and prospects. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.

Individual states also have controlled substances laws. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule drugs, as well. While some states automatically schedule a drug when the DEA does so, in other states there has to be rulemaking or a legislative action. State scheduling may delay commercial sale of any controlled substance drug product for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such product. We or our partners must also obtain separate state registrations in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise arising under federal law.

The FDA, in consultation with the DEA, will require us to develop a comprehensive risk management program to reduce the inappropriate use of our product candidate, including restrictions on the manner in which it is marketed and sold, so as to reduce the risk of improper patient selection and diversion or abuse of the product. Developing such a program in consultation with the FDA may be a time-consuming process and could delay approval of our product candidate. Such a program or delays of any approval from the FDA could limit market acceptance of the product.

Under the terms of our license agreement with Elan, Elan has the exclusive right to manufacture and supply both clinical and commercial supplies of Zohydro. While Elan is required to comply with applicable laws and regulations regarding controlled substances, we do not have any direct control over Elan’s compliance in these regards, and any failure by Elan to comply with those laws and regulations could result in a reduction or cessation of production of Zohydro.

Annual DEA quotas on the amount of hydrocodone allowed to be produced in the United States and our specific allocation of hydrocodone by the DEA could significantly limit the clinical development of Zohydro as well as the production or sale of Zohydro even if we obtain FDA approval.

The DEA limits the availability and production of all Schedule II substances through a quota system which includes a national aggregate quota and individual quotas. Because hydrocodone is subject to the DEA’s production and procurement quota scheme, the DEA establishes annually an aggregate quota for how much hydrocodone may be produced in total in the United States based on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount of hydrocodone that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. The DEA requires substantial evidence and documentation of expected legitimate medical and scientific needs before assigning quotas to manufacturers. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. Elan, which has licensed us the right to sell Zohydro in the United States, if approved, was allocated a sufficient quantity of hydrocodone to meet our planned clinical and pre-clinical needs during 2010. However, in future years, we may need greater amounts of hydrocodone to sustain and complete our Phase 3 development program for Zohydro which we commenced in March 2010, and we will need significantly greater amounts of hydrocodone to implement our commercialization plans if the FDA approves Zohydro.

Moreover, we do not know what amounts of hydrocodone other companies developing product candidates containing hydrocodone may request for future years. The DEA, in assessing factors such as medical need, abuse and diversion potential and other policy considerations, may choose to set the aggregate hydrocodone quota lower than the total amount requested by the

companies. Elan is permitted to petition the DEA to increase the annual aggregate quota after it is initially established, but there is no guarantee that the DEA would act favorably upon such a petition. Our procurement quota of hydrocodone may not be sufficient to meet our future clinical development needs or commercial demand if we receive regulatory approval for Zohydro. Any delay or refusal by the DEA in establishing the procurement quota or a reduction in our quota for hydrocodone or a failure to increase it over time as we anticipate could delay or stop the clinical development of Zohydro or if approved, the product launch or commercial sale of Zohydro or cause us to fail to achieve our expected operating results, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

We will need to obtain FDA approval of our proposed product trade names and any failure or delay associated with such approval may adversely impact our business.

Any trade name we intend to use for our products will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office, or PTO. The FDA typically conducts a rigorous review of proposed trade names, including an evaluation of potential for confusion with other trade names. The FDA may also object to a trade name if it believes the name inappropriately implies medical claims. If the FDA objects to our proposed trade names, we may be required to adopt an alternative name for our product candidate. If we adopt an alternative name, we would lose the benefit of our existing trademark applications and may be required to expend significant additional resources in an effort to identify a suitable trade name that would qualify under applicable trademark laws, and not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to generate revenues from our products.

Even though Sumavel DosePro has received regulatory approval in the United States, we, Desitin, or any other potential partners may never receive approval or commercialize our products outside of the United States.

We have established an exclusive commercial partnership for Sumavel DosePro with Desitin in the European Union and three other countries in order to seek to accelerate the development and regulatory approvals in those territories. We may also seek to establish commercial partnerships for Sumavel DosePro in other foreign countries. In order to market Sumavel DosePro or any other products outside of the United States, we, Desitin, or any potential partner must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our products. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed in these “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q regarding FDA approval in the United States, as well as other risks. For example, legislation analogous to Section 505(b)(2) of the FFDCA in the United States does not exist in other countries. In territories where data is not freely available, we or our partners may not have the ability to commercialize our products without negotiating rights from third parties to refer to their clinical data in our regulatory applications, which could require the expenditure of significant additional funds. We, Desitin, or any potential partner may be unable to obtain rights to the necessary clinical data and may be required to develop our own proprietary safety effectiveness dossiers. Desitin submitted a Marketing Authorization Application for Sumavel DosePro to the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte (BfArM)) in Germany, the reference member state, through the Decentralized Procedure in October 2009, following completion of a European pivotal bioequivalence trial comparing needle-free Sumavel DosePro to a traditional needle-based autoinjector, Imigran-Inject, the European brand of Imitrex STATdose. However, regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others.

Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed in these “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q regarding FDA approval in the United States. As described above, such effects include the risks that our product candidates may not be approved at all or for all requested indications, which could limit the uses of our product candidates and have an adverse effect on their commercial potential or require costly, post-marketing studies. In addition, we, Desitin, or any potential partner may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution if we fail to comply with applicable foreign regulatory requirements.

Health care reform measures and changes in policies, funding, staffing and leadership at the FDA and other agencies could hinder or prevent the commercial success of Sumavel DosePro and any of our product candidates that may be approved by the FDA.

In the United States, there have been a number of legislative and regulatory changes to the healthcare system in ways that could affect our future results of operations and the future results of operations of our potential customers. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established a new Part D prescription drug benefit, which became effective January 1, 2006. Under the prescription drug benefit, Medicare beneficiaries can obtain prescription drug coverage from

private sector plans that are permitted to limit the number of prescription drugs that are covered in each therapeutic category and class on their formularies. If Sumavel DosePro or any of our product candidates that are approved by the FDA are not widely included on the formularies of these plans, our ability to market our products to the Medicare population could suffer.

Furthermore, there have been and continue to be a number of initiatives at the federal and state levels that seek to reduce healthcare costs. Most recently, in March 2010, President Obama signed into law the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA, which includes measures to significantly change the way health care is financed by both governmental and private insurers. Among the provisions of the PPACA of greatest importance to the pharmaceutical industry are the following:

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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, beginning in 2011;

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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23% and 13% of the average manufacturer price for most branded and generic drugs, respectively;

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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D, beginning in 2011;

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extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, effective March 23, 2010;

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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals beginning in April 2010 and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially increasing both the volume of sales and manufacturers’ Medicaid rebate liability;

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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program, effective in January 2010;

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new requirements to report certain financial arrangements with physicians and others, including reporting any “transfer of value” made or distributed to prescribers and other healthcare providers and reporting any investment interests held by physicians and their immediate family members during each calendar year beginning in 2012, with reporting starting in 2013;

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a new requirement to annually report drug samples that manufacturers and distributors provide to physicians, effective April 1, 2012;

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a licensure framework for follow-on biologic products;

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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

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creation of the Independent Payment Advisory Board which, beginning in 2014, will have authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs and those recommendations could have the effect of law even if Congress does not act on the recommendations; and

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establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending beginning by January 1, 2011.

Many of the details regarding the implementation of the PPACA are yet to be determined, and at this time, it remains unclear the full effect that the PPACA would have on our business.

Additionally, individual states have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and designed to encourage importation from other countries and bulk purchasing. Legally-mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects.

In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This can reduce demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.

In certain foreign markets, the pricing of prescription drugs is subject to government control and reimbursement and may, in some cases, be unavailable. In the United States, the commercial success of Sumavel DosePro and our product candidates, if and when commercialized, will depend, in part, upon the availability of coverage and reimbursement from third-party payors at the federal, state and private levels. Third-party payors include governmental programs such as Medicare or Medicaid, private insurance plans and managed care plans. These third-party payors may deny coverage or reimbursement for a product or therapy in whole or in part if they determine that the product or therapy was not medically appropriate or necessary. Also, third-party payors have attempted to control costs by limiting coverage through the use of formularies and other cost-containment mechanisms and the amount of reimbursement for particular procedures or drug treatments.

Additionally, given recent federal and state government initiatives directed at lowering the total cost of healthcare, Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription drugs and the reform of the Medicare and Medicaid programs. While we cannot predict the full outcome of any such legislation, it may result in decreased reimbursement for prescription drugs, which may further exacerbate industry-wide pressure to reduce prescription drug prices. This could harm our ability to market our products and generate revenues. In addition, legislation has been introduced in Congress that, if enacted, would permit more widespread importation or re-importation of pharmaceutical products from foreign countries into the United States, including from countries where the products are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could lead to a decision to decrease our prices to better compete, which, in turn, could adversely affect our business, results of operations, financial condition and prospects. Alternatively, in response to legislation such as this, we might elect not to seek approval for or market our products in foreign jurisdictions in order to minimize the risk of re-importation, which could also reduce the revenue we generate from our product sales. It is also possible that other legislative proposals having similar effects will be adopted.

Furthermore, regulatory authorities’ assessment of the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information, including on other products, changing policies and agency funding, staffing and leadership. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects. For example, average review times at the FDA for marketing approval applications have fluctuated over the last ten years, and we cannot predict the review time for any of our submissions with any regulatory authorities. In addition, review times can be affected by a variety of factors, including budget and funding levels and statutory, regulatory and policy changes.

We may incur liability if our continuing medical or health education programs and/or product promotions are determined, or are perceived, to be inconsistent with regulatory guidelines.

The FDA provides guidelines with respect to appropriate promotion and continuing medical and health education activities. Although we endeavor to follow these guidelines, the FDA or the Office of the Inspector General: U.S. Department of Health and Human Services may disagree, and 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 and our reputation could be damaged.

If we fail to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

As a pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

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the federal Anti-Kickback Law, which constrains our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, by prohibiting, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us which provide coding and billing advice to customers;

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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its implementing regulations, and the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, which prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare

matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;

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federal physician self-referral laws, such as the Stark law, which prohibit a physician from making a referral to a provider of certain health services with which the physician or the physician’s family member has a financial interest, and prohibit submission of a claim for reimbursement pursuant to a prohibited referral; and

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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible that some of our business activities could be subject to challenge under one or more of such laws. To the extent that any product we make is sold in a foreign country, we may be subject to similar foreign laws and regulations. If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

Import/export regulations and tariffs may change and increase our costs.

We are subject to risks associated with the regulations relating to the import and export of products and materials. We cannot predict whether the import and/or export of our products will be adversely affected by changes in, or enactment of, new quotas, duties, taxes or other charges or restrictions imposed by India (where our supplier of the sumatriptan used in Sumavel DosePro is located), the United Kingdom (where the assembly of Sumavel DosePro takes place) or any other country in the future. Any of these factors could adversely affect our business, results of operations, financial condition and prospects.

Risks Related to Intellectual Property

Our success depends in part on our ability to protect our intellectual property. It is difficult and costly to protect our proprietary rights and technology, and we may not be able to ensure their protection. *

Our commercial success will depend in large part on obtaining and maintaining patent, trademark and trade secret protection of our product, Sumavel DosePro, and our product candidate, Zohydro, their respective components, formulations, methods used to manufacture them and methods of treatment, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing Sumavel DosePro or our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.

We in-license certain intellectual property for Zohydro from Elan, and certain intellectual property for Relday from Durect. We rely on these licensors to file and prosecute patent applications and maintain patents and otherwise protect the licensed intellectual property. We have not had and do not have primary control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, with respect to our license agreement with Elan, we cannot be certain that such activities by Elan have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. Elan has retained the first right, but not the obligation, to initiate an infringement proceeding against a third-party infringer of the intellectual property rights that Elan has licensed to us, and enforcement of our licensed patents or defense of any claims asserting the invalidity or unenforceability of these patents would also be subject to the control or cooperation of Elan. We are not entitled to control the manner in which Elan may defend the intellectual property that is licensed to us and it is possible that their defense activities may be less vigorous than had we conducted the defense ourselves.

Most of our patents related to DosePro were acquired from Aradigm, who acquired those patents from a predecessor owner. Our patents related to Zohydro are licensed from Elan. Thus, most of our patents, as well as many of our pending patent applications, were not written by us or our attorneys, and we did not have control over the drafting and prosecution of these patents. Further, the former patent owners and our licensor might not have given the same attention to the drafting and prosecution of these patents and applications as we would have if we had been the owners of the patents and applications and had control over the drafting and prosecution. In addition, the former patent owners and Elan may not have been completely familiar with U.S. patent law, possibly resulting in inadequate disclosure and/or claims. This could possibly result in findings of invalidity or unenforceability of the patents we own and in-license, patents issuing with reduced claim scope, or in pending applications not issuing as patents.

In addition, as part of the agreement where we acquired patents related to DosePro from Aradigm, Aradigm retained, and we granted to Aradigm, a non-exclusive, worldwide, royalty free license to the acquired patents solely for purposes of the delivery of one or more aerosolized APIs directly into the bronchia or lungs. The agreement with Aradigm also includes a covenant not to compete with us regarding technologies or products for the delivery of one or more APIs via needle free injection. That covenant expired on August 26, 2010, giving Aradigm or its licensees the right to develop and sell other needle-free injection technologies and products.

The patent positions of pharmaceutical, biopharmaceutical and medical device companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in patents in these fields has emerged to date in the United States. There have been recent changes regarding how patent laws are interpreted, and both the PTO and Congress have recently proposed radical changes to the patent system. We cannot accurately predict future changes in the interpretation of patent laws or changes to patent laws which might be enacted into law. Those changes may materially affect our patents, our ability to obtain patents and/or the patents and applications of our collaborators and licensors. The patent situation in these fields outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in the patents we own or to which we have a license or third-party patents.

The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

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others may be able to make or use compounds that are similar to the pharmaceutical compounds used in Sumavel DosePro and our product candidates but that are not covered by the claims of our patents;

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the APIs in Sumavel DosePro and our current product candidates are, or will soon become, commercially available in generic drug products, and no patent protection will be available without regard to formulation or method of use;

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we or our licensor, as the case may be, may not be able to detect infringement against our in-licensed patents, which may be especially difficult for manufacturing processes or formulation patents;

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we or our licensor, as the case may be, might not have been the first to make the inventions covered by our owned or in-licensed issued patents or pending patent applications;

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we or our licensor, as the case may be, might not have been the first to file patent applications for these inventions;

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others may independently develop similar or alternative technologies or duplicate any of our technologies;

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it is possible that our pending patent applications will not result in issued patents;

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it is possible that there are dominating patents to Sumavel DosePro or our product candidates of which we are not aware;

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it is possible that there are prior public disclosures that could invalidate our inventions, or our licensor’s as the case may be, or parts of our inventions of which we or they are not aware;

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it is possible that others may circumvent our owned or in-licensed patents;

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it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our products or technology similar to ours;

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the laws of foreign countries may not protect our or our licensor’s, as the case may be, proprietary rights to the same extent as the laws of the United States;

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the claims of our owned or in-licensed issued patents or patent applications when issued may not cover our device or product candidates;

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our owned or in-licensed issued patents may not provide us with any competitive advantages, or may be narrowed in scope, be held invalid or unenforceable as a result of legal challenges by third parties;

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we may not develop additional proprietary technologies for which we can obtain patent protection; or

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the patents of others may have an adverse effect on our business.

We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect, and we have limited control over the protection of trade secrets used by our licensors, collaborators and suppliers. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. If our confidential or

proprietary information is divulged to or acquired by third parties, including our competitors, our competitive position in the marketplace will be harmed and our ability to successfully penetrate our target markets could be severely compromised.

If any of our owned or in-licensed patents are found to be invalid or unenforceable, or if we are otherwise unable to adequately protect our rights, it could have a material adverse impact on our business and our ability to commercialize or license our technology and products. Likewise, our patents covering certain technology used in our DosePro device are expected to expire on various dates from 2014 through 2026 and the patents licensed to us by Elan are expected to expire in 2019. Five of our patents, U.S. Patent Nos. 5,891,086, 5,957,886 6,135,979, 7,776,007 and 7,901,385 are expected to expire in 2014, 2016 2017, 2026 and 2026, respectively. U.S. Patent No. 5,891,086 covers a particular actuator mechanism forming a part of the needleless injector device; U.S. Patent No. 5,957,886 claims a needleless injector system using a viscous damping medium; U.S. Patent No. 6,137,979 covers the needleless injector with particular safety mechanisms; and US Patent Numbers 7,776,007 and 7,901,385 cover various elements of the setting mechanism that enables a user to prepare the product for administration in a few simple steps. Upon the expiration of these patents, we will lose the right to exclude others from practicing these inventions. Additionally, since these five patents are the only patents currently listed in the FDA Orange Book for Sumavel DosePro, their expiration will mean that we lose certain advantages that come with Orange Book listing of patents. The expiration of these patents could also have a similar material adverse effect on our business, results of operations, financial condition and prospects. Moreover, if Elan decides not to commence or continue any action relating to the defense of the patents they have licensed to us, they are required to notify us and we have the right to initiate proceedings after receiving their notice. Such proceedings will require the assistance of Elan, and we have limited control over the amount or timing of resources Elan devotes on our behalf or the priority they place on enforcing these patent rights.

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We are a party to a license agreement with Elan, pursuant to which we license key intellectual property for Zohydro. We also recently entered into a license agreement with Durect, pursuant to which we license key intellectual property for Relday. These existing licenses imposes various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, our licensors may have the right to terminate the license, in which event we would not be able to develop or market the affected products. If we lose such license rights, our business, results of operations, financial condition and prospects may be materially adversely affected. We may enter into additional licenses in the future and if we fail to comply with obligations under those agreements, we could suffer similar consequences.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, and we may be unable to protect our rights to our products and technology.

If we or our collaborators or licensors choose to go to court to stop a third party from using the inventions claimed in our owned or in-licensed patents, that third party may ask the court to rule that the patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if we or they, as the case may be, were successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid and that we or they, as the case may be, do not have the right to stop others from using the inventions.

There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the third party on the ground that such third-party’s activities do not infringe our owned or in-licensed patents. In addition, the U.S. Supreme Court has recently changed some tests regarding granting patents and assessing the validity of patents. As a consequence, issued patents may be found to contain invalid claims according to the newly revised standards. Some of our own or in-licensed patents may be subject to challenge and subsequent invalidation or significant narrowing of claim scope in a reexamination proceeding before the PTO, or during litigation, under the revised criteria which make it more difficult to obtain patents.

We may also not be able to detect infringement of our own or in-licensed patents, which may be especially difficult for methods of manufacturing or formulation products. While we intend to take actions reasonably necessary to enforce our patent rights, we depend, in part, on our licensors and collaborators to protect a substantial portion of our proprietary rights. For example, Elan, our licensor, is primarily responsible for the enforcement of the intellectual property rights related to Zohydro. Under the agreement, Elan has the first right, but not the obligation, to initiate an infringement proceeding against a third-party infringer. If Elan decides not to commence or continue any action, they are required to notify us and grant us step in rights to enforce the in-licensed intellectual property. Such enforcement will require the cooperation of Elan, and we will be responsible for Elan’s reasonable expenses and attorney’s fees incurred as a result of that cooperation. We have limited control over the amount or timing of resources Elan devotes on our behalf or the priority they place on enforcing these patent rights to our advantage.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our device and product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields relating to Sumavel DosePro and our product candidates. As the medical device, biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert our product or product candidates infringe the patent rights of others. Moreover, it is not always clear to industry participants, including us, which patents cover various types of medical devices, drugs, products or their methods of use. Thus, because of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our product, product candidates, technology or methods.

In addition, there may be issued patents of third parties of which we are currently unaware, that are infringed or are alleged to be infringed by our product, product candidates or proprietary technologies. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our owned and in-licensed issued patents or our pending applications, or that we or, if applicable, a licensor were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering our products or technology similar to ours. Any such patent application may have priority over our owned and in-licensed patent applications or patents, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to us, we or, in the case of in-licensed technology, the licensor may have to participate in an interference proceeding declared by the PTO to determine priority of invention in the United States. If another party has reason to assert a substantial new question of patentability against any of our claims in our owned and in-licensed U.S. patents, the third party can request that the PTO reexamine the patent claims, which may result in a loss of scope of some claims or a loss of the entire patent. In addition to potential infringement claims, interference and reexamination proceedings, we may become a party to patent opposition proceedings in the European Patent Office where either our patents are challenged, or we are challenging the patents of others. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if the other party had independently arrived at the same or similar invention prior to our own or, if applicable, our licensor’s invention, resulting in a loss of our U.S. patent position with respect to such inventions. We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our device and/or product candidates and/or proprietary technologies infringe their intellectual property rights. These lawsuits are costly and could adversely affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we or our commercialization partners are infringing the third party’s patents and would order us or our partners to stop the activities covered by the patents. In addition, there is a risk that a court will order us or our partners to pay the other party damages for having violated the other party’s patents.

If a third-party’s patents was found to cover our device and/or product candidates, proprietary technologies or their uses, we or our collaborators could be enjoined by a court and required to pay damages and could be unable to commercialize Sumavel DosePro or our product candidates or use our proprietary technologies unless we or they obtained a license to the patent. A license may not be available to us or our collaborators on acceptable terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us from making, using or selling our products, technologies or methods pending a trial on the merits, which could be years away.

There is a substantial amount of litigation involving patent and other intellectual property rights in the device, biotechnology and pharmaceutical industries generally. If a third party claims that we or our collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:

•

infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business;

•

substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner’s attorneys’ fees;

•

a court prohibiting us from selling or licensing the product unless the third party licenses its product rights to us, which it is not required to do;

•

if a license is available from a third party, we may have to pay substantial royalties, upfront fees and/or grant cross-licenses to intellectual property rights for our products; and

•

redesigning our products or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

Although we own worldwide rights to Sumavel DosePro, we do not have patent protection for the product in a significant number of countries, and we will be unable to prevent infringement in those countries.

Our patent portfolio related to DosePro includes patents in the United States, Canada, Germany, Spain, France, the United Kingdom, Italy, and Japan. The covered technology and the scope of coverage varies from country to country. For those countries where we do not have granted patents, we have no ability to prevent the unauthorized use of our intellectual property, and third parties in those countries may be able to make, use, or sell products identical to, or substantially similar to DosePro.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on our owned and in-licensed patents are due to be paid to the PTO in several stages over the lifetime of the patents. Future maintenance fees will also need to be paid on other patents which may be issued to us. We have systems in place to remind us to pay these fees, and we employ outside firms to remind us or our in-licensor to pay annuity fees due to foreign patent agencies on our pending foreign patent applications. The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

For the patents and patent applications related to Zohydro, Elan is obligated to maintain our in-licensed patents in the United States under our license agreement. Should Elan fail to pursue maintenance of our licensed patents and patent applications, Elan is obligated to notify us and, at that time, we will be granted an opportunity to maintain the prosecution and avoid withdrawal, cancellation, expiration or abandonment of the licensed U.S. patents and applications.

We also may rely on trade secrets and confidentiality agreements to protect our technology and know-how, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect, and we have limited control over the protection of trade secrets used by our licensors, collaborators and suppliers. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. If our confidential or proprietary information is divulged to or acquired by third parties, including our competitors, our competitive position in the marketplace will be harmed and our ability to successfully generate revenues from Sumavel DosePro and, if approved by the FDA or other regulatory authorities, our product candidates could be adversely affected.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the device, biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other device, biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management, which would adversely affect our financial condition.

Risks Relating to the Securities Markets and an Investment in Our Stock

The market price of our common stock has fluctuated and is likely to continue to fluctuate.

The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Since the commencement of trading in connection with our initial public offering in November 2010, the publicly traded shares of our common stock have themselves experienced significant price and volume fluctuations. During this quarter ended June 30, 2011, the price per share for our common stock on the Nasdaq Global Market has ranged from a low sale price

of $3.59 to a high sale price of $5.12. This market volatility is likely to continue and could reduce the market price of our common stock, regardless of our operating performance. In addition, the trading price of our common stock could change significantly over short periods of time due to many factors, including those described elsewhere in this “Risk Factors” section and the following:

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announcements concerning our and Astellas’ commercial progress in promoting and selling Sumavel DosePro, including sales and revenue trends;

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the development status of Zohydro or any of our other product candidates, including the results from our clinical trials;

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FDA or international regulatory actions, including whether and when we receive regulatory approval, for any of our product candidates;

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other regulatory developments, including the FDA’s potential grant of regulatory exclusivity to a competitor who receives FDA approval before us for an extended-release hydrocodone product, which could significantly delay our ability to receive approval for Zohydro;

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announcements of the introduction of new products by us or our competitors;

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announcements concerning product development results or intellectual property rights of others;

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announcements relating to litigation, intellectual property or our business, and the public’s response to press releases or other public announcements by us or third parties;

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variations in the level of expenses related to Zohydro or any of our other product candidates or clinical development programs, including relating to the timing of invoices from, and other billing practices of, our CROs and clinical trial sites;

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market conditions or trends in the pharmaceutical sector or the economy as a whole;

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changes in operating performance and stock market valuations of other pharmaceutical companies and price and volume fluctuations in the overall stock market;

•

litigation or public concern about the safety of Sumavel DosePro or our product candidates;

•

actual and anticipated fluctuations in our quarterly operating results;

•

the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

•

deviations from securities analysts’ estimates or the impact of other analyst comments;

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ratings downgrades by any securities analysts who follow our common stock;

•

additions or departures of key personnel;

•

third-party payor coverage and reimbursement policies;

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developments concerning current or future strategic collaborations, and the timing of payments we may make or receive under these arrangements;

•

developments affecting our contract manufacturers, component fabricators and service providers;

•

the development and sustainability of an active trading market for our common stock;

•

future sales of our common stock by our officers, directors and significant stockholders;

•

other events or factors, including those resulting from war, incidents of terrorism, natural disasters, security breaches or responses to these events;

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changes in accounting principles; and

•

discussion of us or our stock price by the financial and scientific press and in online investor communities.

In addition, the stock markets, and in particular the Nasdaq Global Market, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many pharmaceutical companies. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. The realization of any of the above risks or any of a broad range of other risks, including those or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.

There may not be a viable public market for our common stock.

Our common stock had not been publicly traded prior to our initial public offering in November 2010, and an active trading market may not be developed or sustained. We cannot predict the extent to which investor interest in our company will lead to the

development of an active trading market on the Nasdaq Global Market or otherwise or how liquid that market might become. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products, product candidates or technologies by using our shares of common stock as consideration.

We may invest or spend our cash in ways with which you may not agree or in ways which may not yield a significant return.

Our management has considerable discretion in the use of our cash. Our cash may be used for purposes that do not increase our operating results or market value. Until the cash is used, it may be placed in investments that do not produce significant income or that may lose value. The failure of our management to invest or spend our cash effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.

Our quarterly operating results may fluctuate significantly.

Our quarterly operating results are difficult to predict and may fluctuate significantly from period to period, particularly because the commercial success of, and demand for, Sumavel DosePro, as well as the success and costs of our Zohydro and other product candidate development programs are uncertain and therefore our future prospects are uncertain. Our net loss and other operating results will be affected by numerous factors, including:

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fluctuations in the quarterly revenues of Sumavel DosePro, including our distributors’ inventory management practices and buying patterns and the performance by Astellas;

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the level of underlying demand for Sumavel DosePro or any of our other product candidates that may receive regulatory approval;

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ability to control production spending and underutilization of production capacity;

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variations in the level of development expenses related to Zohydro or other development programs;

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results of clinical trials for Zohydro;

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any intellectual property infringement lawsuit in which we may become involved;

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regulatory developments and legislative changes, including healthcare reform, affecting our product and product candidates or those of our competitors; and

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our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

We may become involved in securities class action litigation that could divert management’s attention and adversely affect our business and could subject us to significant liabilities.

The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical companies. These broad market fluctuations as well a broad range of other factors, including the realization of any of the risks described in these “Risk Factors,” may cause the market price of our common stock to decline. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies generally experience significant stock price volatility. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock, publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts

ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

Our executive officers and directors and their affiliates will exercise significant control over stockholder voting matters in a manner that may not be in the best interests of all of our stockholders.*

Our executive officers and directors and their affiliates together control approximately 76% of our outstanding common stock, assuming no exercise of outstanding options or warrants. Four of our non-employee directors are, or are representatives designated by, significant stockholders and two of our directors are executive officers. As a result, these stockholders will collectively be able to significantly influence and may be able to control all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions such as mergers, consolidations or the sale of all or substantially all of our assets. The concentration of ownership may delay, prevent or deter a change in control of our company even when such a change may be in the best interests of some stockholders, impede a merger, consolidation, takeover or other business combination involving us, or could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might adversely affect the prevailing market price of our common stock.

In addition, sales of shares beneficially owned by executive officers and directors and their affiliates could be viewed negatively by third parties and have a negative impact on our stock price. Moreover, we cannot assure you as to how these shares will may be distributed and subsequently voted.

Future sales of our common stock or securities convertible or exchangeable for our common stock may depress our stock price.*

Persons who were our stockholders prior to the sale of shares in our initial public offering continue to hold a substantial number of shares of our common stock that they will be able to sell in the public market in the near future. Significant portions of these shares are held by a small number of stockholders. If these stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale resulting from our recent initial public offering lapse, the trading price of our common stock could decline. The perception in the market that these sales may occur could also cause the trading price of our common stock to decline. As of June 30, 2011, we had 34,021,708 shares of common stock outstanding. Of these shares, approximately 14,436,493 are freely tradable, without restriction, in the public market.

In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act and, in any event, we have filed a registration statement permitting shares of common stock issued on exercise of options to be freely sold in the public market. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Certain holders of shares of our common stock, warrants to purchase our capital stock and the shares of common stock issuable upon exercise of those warrants are entitled to rights with respect to the registration of their shares under the Securities Act, subject to the lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. In addition, after the lock-up agreements described above expire, our directors may and we expect that our executive officers will establish programmed selling plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for the purpose of effecting sales of our common stock. Any sales of securities by these stockholders, or the perception that those sales may occur, including the entry into such programmed selling plans, could have a material adverse effect on the trading price of our common stock.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

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a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;

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a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;

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a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, the president or by a majority of the total number of authorized directors;

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advance notice requirements for stockholder proposals and nominations for election to our board of directors;

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a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than 66 ² / ₃ % of all outstanding shares of our voting stock then entitled to vote in the election of directors;

•

a requirement of approval of not less than 66 ² / ₃ % of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of our certificate of incorporation; and

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the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

The continued operation and expansion of our business will require substantial funding. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. We have paid no cash dividends on any of our classes of capital stock to date and we currently intend to retain our available cash to fund the development and growth of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. In addition, our ability to pay cash dividends is currently prohibited by the terms of our loan and security agreements. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock, which may never occur.

We incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to meet compliance obligations .*

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Stock Market, or Nasdaq, that impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. In addition, on July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. The requirements of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. In addition, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. Ensuring that we have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently. In particular, commencing in fiscal 2011, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. We expect to incur significant expense and devote substantial management effort toward ensuring compliance with Section 404. We currently do not have an internal audit function, and we may need to hire additional accounting and financial staff with appropriate public company

experience and technical accounting knowledge. Implementing any appropriate changes to our internal controls may require specific compliance training for our directors, officers and employees, entail substantial costs to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate consolidated financial statements or other reports on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

Not Applicable.

Use of Proceeds

Our initial public offering of common stock was effected through a Registration Statement on Form S-1 (File No. 333-169210) that was declared effective by the Securities and Exchange Commission on November 22, 2010, which registered an aggregate of 16,100,000 shares of our common stock. On November 29, 2010, 14,000,000 shares of common stock were sold on our behalf at an initial public offering price of $4.00 per share, for aggregate gross proceeds of $56.0 million, managed by Wells Fargo Securities, Leerink Swann, Oppenheimer & Co. and Stifel Nicolaus Weisel. On December 27, 2010, in connection with the exercise of the underwriters’ over-allotment option, 436,493 additional shares of common stock were sold on our behalf at the initial public offering price of $4.00 per share, for aggregate gross proceeds of $1.7 million. Following the sale of the 14,436,493 shares of common stock, the offering terminated.

We paid to the underwriters underwriting discounts and commissions totaling approximately $2.7 million in connection with the offering. In addition, we incurred expenses of approximately $3.3 million in connection with the offering, which when added to the underwriting discounts and commissions paid by us, amounts to total expenses of approximately $6.0 million. Thus, the net offering proceeds to us, after deducting underwriting discounts and commissions and offering expenses, were approximately $51.7 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.

As of June 30, 2011, we had used $44.9 million of the $51.7 million net proceeds from our initial public offering. We used $11.6 million of these proceeds to fund Phase 3 clinical trials and related development activities for Zohydro, and $33.3 million to fund ongoing commercialization of Sumavel DosePro, and for working capital and other general corporate purposes. We invested the remainder of the proceeds in short and intermediate-term, interest-bearing obligations, investment-grade instruments or direct or guaranteed obligations of the U.S. government.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Removed and Reserved

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		ZOGENIX, INC.

Date:	August 11, 2011	By:	/s/ Roger L. Hawley
			Chief Executive Officer

Date:	August 11, 2011	By:	/s/ Ann D. Rhoads
			Executive Vice President, Chief Financial Officer, Treasurer and Secretary

EXHIBIT INDEX


Exhibit Number		Description

3.1(2)		Fifth Amended and Restated Certificate of Incorporation of the Registrant

3.2(2)		Amended and Restated Bylaws of the Registrant

4.1(3)		Form of the Registrant’s Common Stock Certificate

4.2(1)		Third Amended and Restated Investors’ Rights Agreement dated December 2, 2009

4.3(1)		Amendment to Third Amended and Restated Investors’ Rights Agreement dated as of July 1, 2010

4.4(1)		Warrant dated March 5, 2007 issued by the Registrant to General Electric Capital Corporation

4.5(1)		Warrant dated June 30, 2008 issued by the Registrant to Oxford Finance Corporation

4.6(1)		Warrant dated June 30, 2008 issued by the Registrant to CIT Healthcare LLC (subsequently transferred to The CIT Group/Equity Investments, Inc.)

4.7(1)		Transfer of Warrant dated March 24, 2009 from CIT Healthcare LLC to The CIT Group/Equity Investments, Inc.

4.8(1)		Warrant dated July 1, 2010 issued by the Registrant to Oxford Finance Corporation

4.9(1)		Warrant dated July 1, 2010 issued by the Registrant to Silicon Valley Bank

4.10		Warrant dated June 30, 2011 issued by the Registrant to Oxford Finance LLC

4.11		Warrant dated June 30, 2011 issued by the Registrant to Silicon Valley Bank

4.12		Warrant dated July 18, 2011 issued by the Registrant to Cowen Healthcare Royalty Partners II, L.P.

4.13		Second Amendment to Third Amended and Restated Investors’ Rights Agreement dated as of June 30, 2011

10.1†		First Amendment to Second Amended and Restated Loan and Security Agreement dated as of June 30, 2011 among the Registrant and Oxford Finance LLC

10.2†		Financing Agreement dated as of June 30, 2011 between the Registrant and Cowen Royalty Healthcare Partners II, L.P.

10.3		Stock and Warrant Purchase Agreement dated as of June 30, 2011 between the Registrant and Cowen Royalty Healthcare Partners II, L.P.

10.4†		Development and License Agreement dated as of July 11, 2011 between the Registrant and Durect Corporation

10.5#		Annual Incentive Plan

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)

101		The following financial statements from Zogenix, Inc.’s Quarterly Report on form 10-Q for the quarter ended June 30, 2011, filed on August 11, 2011, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of


Exhibit Number		Description
		Operations, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text.

(1)	Filed with the Registrant’s Registration Statement on Form S-1 on September 3, 2010.

(2)	Filed with Amendment No. 2 to Registrant’s Registration Statement on Form S-1 on October 27, 2010.

(3)	Filed with Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 on November 4, 2010.

†	Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.

#	Indicates management contract or compensatory plan.

Exhibit 4.10

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

WARRANT TO PURCHASE STOCK


Company:		Zogenix, Inc., a Delaware corporation
Number of Shares:		16,746, subject to adjustment
Class of Stock:		Common Stock, $0.01 par value per share
Warrant Price:		$3.78
Issue Date:		June 30, 2011
Expiration Date:		The seventh (7 ^th ) anniversary of the Issue Date hereof (the “Expiration Date”)
Credit Facility:		This Warrant is issued in connection with that certain First Amendment to Second Amended and Restated Loan and Security Agreement dated as of June 30, 2010 (as amended from time to time) among Oxford Finance LLC, successor in interest to Oxford Finance Corporation (“Oxford”), as Lender and Administrative Agent, the Lenders party thereto, and the Company.

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, OXFORD FINANCE LLC (together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, “Holder”) is entitled to purchase the number of fully paid and nonassessable shares (as described above, the “Shares”) of the above-stated Class of Stock (the “Class”) of the above- named company (the “Company”) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

ARTICLE 1: EXERCISE.

1.1 Method of Exercise . Holder may exercise this Warrant by delivering the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

1.2 Conversion Right . In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3.

1.3 Fair Market Value . The fair market value of a Share shall be the average of the closing prices for a share of common stock reported for the ten (10) business days immediately before Holder delivers this Warrant together with its Notice of Exercise to the Company.

1.4 Delivery of Certificate and New Warrant . Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.

1.5 Replacement of Warrants . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

1.6 Treatment of Warrant Upon Acquisition of Company .

1.6.1 “Acquisition” . For the purpose of this Warrant, “Acquisition” means any sale, exclusive license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, merger or sale of outstanding capital stock of the Company where the holders of the Company’s securities before the transaction beneficially own less than a majority of the outstanding voting securities of the surviving entity after the transaction.

1.6.2 Treatment of Warrant at Acquisition .

A) Upon the written request of the Company, Holder agrees that, in the event of an Acquisition in which the sole consideration is cash, either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition. The Company shall provide the Holder with written notice of its request relating to the foregoing (together with such reasonable information as the Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

B) Upon the closing of any Acquisition other than as particularly described in subsection (A) above, the surviving or successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly.

C) Notwithstanding the foregoing provisions of Section 1.6.2(B), in the event of an Acquisition in which all of the following requirements are met, this Warrant, to the extent not exercised or converted on or prior to the closing of such Acquisition, shall terminate and be of no further force or effect as of immediately following such closing: (i) the acquiror is subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, (ii) the class and series of shares or other security of the acquiror that would be received by Holder in connection with such Acquisition were Holder to exercise or convert this Warrant on or prior to the closing thereof is listed for trading on a national securities exchange or approved for quotation on an automated inter-dealer quotation system, and (iii) Holder would not be contractually restricted from publicly re-selling within three (3) months following the closing of such Acquisition, nor restricted under applicable securities laws from publicly re-selling within six (6) months following the closing of such Acquisition (assuming for such determination that Holder would convert this Warrant pursuant to Article 1.2 above), all of the acquiror shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise or convert this Warrant in full on or prior to the closing thereof.

ARTICLE 2: ADJUSTMENTS TO THE SHARES.

2.1 Stock Dividends, Splits, Etc . If the Company declares or pays a dividend on the outstanding shares of the Class payable in common stock or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend occurred. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

2.2 Reclassification, Exchange, Combinations or Substitution . Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include, without limitation, any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company’s Certificate of Incorporation upon the closing of the IPO. The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable

upon exercise or conversion of this Warrant. The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

2.3 Intentionally Omitted .

2.4 No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Article against impairment; provided , however , that notwithstanding the foregoing, nothing in this Section 2.4 shall restrict or impair the Company’s right to effect changes to the rights, preferences, and privileges associated with the Shares with the requisite consent of the stockholders as may be required to amend the Certificate of Incorporation from time to time so long as such amendment affects the rights, preferences, and privileges granted to Holder associated with the Shares in the same manner as the other holders of outstanding shares of the same series and class as the Shares.

2.5 Fractional Shares . No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.

2.6 Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price, Class and number of Shares in effect upon the date thereof and the series of adjustments leading to such Warrant Price, Class and number of Shares.

ARTICLE 3: REPRESENTATIONS AND COVENANTS OF THE COMPANY.

3.1 Representations and Warranties . The Company represents and warrants to, and agrees with, the Holder as follows: all Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

3.2 Notice of Certain Events . If the Company proposes at any time (a) to declare any dividend or distribution upon the outstanding shares of the same class and series as the Shares, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription or sale pro rata to the holders of all of the outstanding shares of the same class and series as the Shares any additional shares of any class or series of the Company’s stock (other than pursuant to contractual pre-emptive rights); (c) to effect any reclassification, reorganization or recapitalization of the outstanding shares of the Class; or (d) to effect an Acquisition or to liquidate, dissolve or wind up; then, in connection with each such event, the Company shall give Holder written notice thereof at the same time and in the same manner as the Company gives written notice thereof to holders of the outstanding shares of the Class.

3.3 Registration Under Securities Act of 1933, as amended . The Company agrees that the Shares shall have certain incidental, or “Piggyback,” and S-3 registration rights pursuant to and as set forth in the Company’s Amended and Restated Investors’ Rights Agreement dated December 13, 2007, as amended and in effect from time to time (the “IRA”). For the avoidance of doubt, such registration rights shall not include demand registration rights (except to the extent that S-3 rights may be deemed demand rights). The provisions set forth in the IRA relating to the above in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification, or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to the Holder.

3.4 No Shareholder Rights . Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

ARTICLE 4: REPRESENTATIONS, WARRANTIES OF THE HOLDER . THE HOLDER REPRESENTS AND WARRANTS TO THE COMPANY AS FOLLOWS:

4.1 Purchase for Own Account . This Warrant and the securities to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.

4.2 Disclosure of Information . Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.

4.3 Investment Experience . Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.

4.4 Accredited Investor Status . Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

4.5 The Act . Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder’s investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.

4.6 QIB . Holder is a “qualified institutional buyer” as defined in Rule 144A promulgated under the Act.

ARTICLE 5: MISCELLANEOUS.

5.1 Term : This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

5.2 Legends . This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO OXFORD FINANCE LLC, DATED AS OF JUNE 30, 2011, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to any “affiliate” (as such term is defined in Regulation D promulgated under the Act) of Holder, provided that any such transferee is an “accredited investor” as defined in Regulation D promulgated under the Act. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of an exemption to registration under Rule 144, including without limitation, the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder’s notice of proposed sale.

5.4 Transfer Procedure . After receipt by Holder of the executed Warrant, Oxford may transfer all or part of this Warrant to one or more of Oxford’s affiliates (each, an “Oxford Affiliate”), by execution of an Assignment substantially in the form of Appendix 2. Subject to the provisions of Article 5.3 and upon providing the Company with written notice, Oxford, any such Oxford Affiliate and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, the Oxford Affiliate(s) or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable).

5.5 Notices . All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or Holder, as the case may (or on the first business day after transmission by facsimile) be, in writing by the Company or such holder from time to time. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

Oxford Finance LLC

Attn: Timothy A. Lex, Chief Operating Officer

133 North Fairfax Street

Alexandria, VA 22314

Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

Zogenix, Inc.

Attn: Chief Financial Officer

11682 El Camino Real, Suite 320

San Diego, CA 92130

5.6 Waiver . This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7 Attorney’s Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

5.8 Automatic Conversion upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to Holder.

5.9 Counterparts . This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

5.10 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

5.11 Waiver of Jury Trial . TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AND HOLDER EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS WARRANT, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS WARRANT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

[Remainder of page left blank intentionally]

[Signature page follows]


“COMPANY”

ZOGENIX, INC.

By:		/s/ Ann Rhoads
Name:		Ann Rhoads
		(Print)
Title:		Chief Financial Officer

“HOLDER”

OXFORD FINANCE LLC

By:		/s/ John G. Henderson
Name:		John G. Henderson
		(Print)
Title:		Vice President & General Counsel

[Signature Page to Warrant to Purchase Stock]

APPENDIX 1

NOTICE OF EXERCISE

1. Holder elects to purchase shares of the Common/Series Preferred [strike one] Stock of pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.

1. Holder elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised for of the Shares covered by the Warrant.

[Strike paragraph that does not apply.]

2. Please issue a certificate or certificates representing the shares in the name specified below:



		Holders Name




		(Address)

3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.


HOLDER:



By:

Name:

Title:

(Date):

APPENDIX 2

ASSIGNMENT

For value received, Oxford Finance LLC hereby sells, assigns and transfers unto

Name:

Address:

Tax ID:

that certain Warrant to Purchase Stock issued by ZOGENIX, INC. (the “Company”), on June 30, 2011 (the “Warrant”) together with all rights, title and interest therein.


OXFORD FINANCE LLC

By:

Name:

Title:


Date:

By its execution below, and for the benefit of the Company, makes each of the representations and warranties set forth in Article 4 of the Warrant and agrees to all other provisions of the Warrant as of the date hereof.




By:

Name:

Title:

Exhibit 4.11

WARRANT TO PURCHASE STOCK


Company:		Zogenix, Inc., a Delaware corporation
Number of Shares:		9,709, subject to adjustment
Class of Stock:		Common Stock, $0.01 par value per share
Warrant Price:		$3.78
Issue Date:		June 30, 2011
Expiration Date:		The seventh (7 ^th ) anniversary of the Issue Date hereof (the “Expiration Date”)
Credit Facility:		This Warrant is issued in connection with that certain First Amendment to Second Amended and Restated Loan and Security Agreement dated as of June 30, 2010 (as amended from time to time) among Oxford Finance LLC, successor in interest to Oxford Finance Corporation, as Lender and Administrative Agent, Silicon Valley Bank, as a Lender, and the Company.

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (Silicon Valley Bank, together with any registered holder from time to time of this Warrant or any holder of the shares issuable or issued upon exercise of this Warrant, “Holder”) is entitled to purchase the number of fully paid and nonassessable shares (as described above, the “Shares”) of the above-stated Class of Stock (the “Class”) of the above-named company (the “Company”) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

ARTICLE 1: EXERCISE.

1.6 Treatment of Warrant Upon Acquisition of Company .

1.6.2 Treatment of Warrant at Acquisition .

ARTICLE 2: ADJUSTMENTS TO THE SHARES.

other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant. The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

2.3 Intentionally Omitted .

ARTICLE 3: REPRESENTATIONS AND COVENANTS OF THE COMPANY.

3.4 No Shareholder Rights . Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

ARTICLE 4: REPRESENTATIONS, WARRANTIES OF THE HOLDER . THE HOLDER REPRESENTS AND WARRANTS TO THE COMPANY AS FOLLOWS:

4.4 Accredited Investor Status . Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

4.6 QIB . Holder is a “qualified institutional buyer” as defined in Rule 144A promulgated under the Act.

ARTICLE 5: MISCELLANEOUS.

5.1 Term : This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 OF THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE COMPANY TO SILICON VALLEY BANK DATED AS OF JUNE 30, 2011, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Silicon Valley Bank (the “Bank”) to provide an opinion of counsel if the transfer is to any “affiliate” (as such term is defined in Regulation D promulgated under the Act; including but not limited to SVB Financial Group (formerly Silicon Valley Bancshares)), or any other affiliate of Bank. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of an exemption to registration under Rule 144, including without limitation, the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder’s notice of proposed sale.

5.4 Transfer Procedure . After receipt by Holder of the executed Warrant, Bank will transfer all of this Warrant to Holder’s parent company, SVB Financial Group, by execution of an Assignment substantially in the form of Appendix 2. Subject to the provisions of Article 5.3 and upon providing Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable) and transferee agrees to be bound by the terms of this Warrant. The Company may refuse to transfer this Warrant or the Shares to any person or entity who directly competes with the Company, as reasonably determined by the Company in its good faith business judgment, unless, in either case, the stock of the Company is publicly traded. Any transferee shall take this Warrant subject to all provisions and restrictions contained herein.

SVB Financial Group

Attn: Treasury Department

3003 Tasman Drive, HA 200

Santa Clara, CA 95054

Telephone: 408-654-7400

Facsimile: 408-496-2405

Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

Zogenix, Inc.

Attn: Chief Financial Officer

11682 El Camino Real, Suite 320

San Diego, CA 92130

5.9 Counterparts . This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

5.10 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

[Remainder of page left blank intentionally]

[Signature page follows]


“COMPANY”

ZOGENIX, INC.

By:		/s/ Ann Rhoads
Name:		Ann Rhoads
Title:		Chief Financial Officer

“HOLDER”

SILICON VALLEY BANK

By:		/s/ Derek Brunelle
Name:		Derek Brunelle
Title:		Deal Team Leader

APPENDIX 1

NOTICE OF EXERCISE

1. Holder elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised for of the Shares covered by the Warrant.

[Strike paragraph that does not apply.]

2. Please issue a certificate or certificates representing the shares in the name specified below:



		Holders Name




		(Address)

3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.


HOLDER:



By:



Name:



Title:



(Date):

APPENDIX 2

ASSIGNMENT

For value received, Silicon Valley Bank hereby sells, assigns and transfers unto


Name:		SVB Financial Group
Address:		3003 Tasman Drive (HA-200)
		Santa Clara, CA 95054

Tax ID:		91-1962278

that certain Warrant to Purchase Stock issued by ZOGENIX, INC. (the “Company”), on June 30, 2011 (the “Warrant”) together with all rights, title and interest therein.


SILICON VALLEY BANK



By:



Name:



Title:


Date:

By its execution below, and for the benefit of the Company, SVB Financial Group makes each of the representations and warranties set forth in Article 4 of the Warrant and agrees to all other provisions of the Warrant as of the date hereof.


SVB FINANCIAL GROUP



By:



Name:



Title:

Exhibit 4.12

WARRANT

ZOGENIX, INC.

WARRANTS FOR THE PURCHASE OF SHARES OF COMMON STOCK


No. W-2011-1		225,000 Shares

THIS CERTIFIES that, for value received, Zogenix, Inc., a Delaware corporation (the “ Company ”), upon the surrender of this Warrant to the Company at the address specified herein, at any time during the Exercise Period (as defined below) will upon receipt of the Exercise Price (as defined below), sell and deliver to Cowen Healthcare Royalty Partners II, L.P. (the “ Holder ”) up to the number of duly authorized, validly issued and fully paid and nonassessable shares of common stock of the Company, par value $0.001 per share, set forth above. The term “Common Stock” shall mean the aforementioned common stock of the Company. The “Exercise Period” shall begin on July 18, 2011 (the “ Issue Date ”) and shall end on July 18, 2021, unless earlier terminated or exercised pursuant to the terms hereof. During the Exercise Period, the Holder may purchase such number of shares of Common Stock at a purchase price per share equal to $9.00 as appropriately adjusted pursuant to Section G hereof (the “ Exercise Price ”).

The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock are subject to adjustment from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, as adjusted from time to time, are hereinafter sometimes referred to as “ Warrant Shares .”

Section A. Exercise of Warrant

1. Method of Exercise . This Warrant may be exercised in whole or in part, at any time or from time to time, during the Exercise Period by presentation and surrender hereof to the Company at 12671 High Bluff Drive, Suite 200, San Diego, California 92130 (or at such other address as the Company or its agent may hereafter designate in writing to the Holder), with the Notice of Exercise Form contained herein duly executed and accompanied by a wire transfer of immediately available funds, cash or a certified or official bank check drawn to the order of “Zogenix, Inc.” in the amount of the Exercise Price multiplied by the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, promptly execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company during the Exercise Period of this Warrant and such Notice of Exercise Form, in proper form for exercise, together with proper payment of the Exercise Price, at such office, the Holder shall be deemed to be the holder of record of the number of Warrant Shares specified in such form; provided , however , that if the date of such receipt by the Company or its agent is a date on which the stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding business day on which the stock transfer books of the Company are open. The Company shall pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of such Warrant Shares. Any new or substitute Warrant issued under this Section A or any other provision of this Warrant shall be dated the date of this Warrant. Upon exercise of this Warrant, the Company or its warrant agent shall, within three (3) business days, cause to be issued and shall promptly deliver upon written order of the Holder of this Warrant, and in such name or names as such Holder may designate, a certificate or certificates for the Warrant Shares, which Warrant Shares shall be issued unlegended and free of

any resale restrictions, except as otherwise provided herein or in the Stock and Warrant Purchase Agreement dated July 18, 2011, as amended from time to time (the “ Purchase Agreement ”). If in any case the Company shall fail to issue and deliver the shares of Common Stock to Holder upon Holder’s exercise of this Warrant within three (3) business days after exercise, in addition to any other liabilities the Company may have hereunder and under applicable law, the Company shall pay or reimburse Holder on demand for all out-of-pocket expenses, including, without limitation, reasonable fees and expenses of legal counsel, incurred by Holder as a result of such failure.

2. Cashless Exercise . In lieu of exercising this Warrant as specified in Section A.1., the Holder may from time to time convert this Warrant, in whole or in part, by surrender of this Warrant (with a duly executed Notice of Exercise in the form attached hereto) at the principal office of Company, in which event Company shall issue to Holder the number of Warrant Shares computed using the following formula:

X = Y (A-B)

Where:

X = the number of Warrant Shares to be issued to Holder.

Y = the number of Warrant Shares purchasable under this Warrant (at the date of such calculation).

A = the fair market value of one share of Common Stock.

B = Exercise Price (as adjusted to the date of such calculation).

The fair market value of the Warrant Shares shall be determined pursuant to Section A.3.

3. Fair Market Value . If the Company’s Common Stock is traded in a public market, the fair market value of a Warrant Share shall be the average of the closing prices for a share of Common Stock reported for the ten (10) business days immediately before Holder delivers this Warrant together with its Notice of Exercise Form to the Company. If the Company’s Common Stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.

4. Treatment of Warrant Upon Acquisition of Company .

4.1 “ Acquisition ”. For the purpose of this Warrant, “ Acquisition ” means any sale, exclusive license, or any other transfer or disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, merger or sale of outstanding capital stock of the Company where the holders of the Company’s securities before the transaction beneficially own less than a majority of the outstanding voting securities of the surviving entity after the transaction.

4.2 Treatment of Warrant at Acquisition .

(A) The Company shall provide Holder with at least ten (10) days’ prior written notice of an Acquisition in which the sole consideration is cash, and either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to

exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition. The Company shall provide, at the time of delivery of notice of such Acquisition, such reasonable information as the Holder may request in connection with such contemplated Acquisition giving rise to such notice.

(B) Upon the closing of any Acquisition other than as particularly described in subsection (A) above, as a condition to the closing of such Acquisition, the surviving or successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Warrant Shares issuable upon exercise of the unexercised portion of this Warrant as if such Warrant Shares were outstanding on the record date for the Acquisition and subsequent closing. The Exercise Price and/or number of Warrant Shares shall be adjusted accordingly.

(C) Notwithstanding the foregoing provisions of Section A.4.2(B), in the event of an Acquisition in which all of the following requirements are met, this Warrant, to the extent not exercised or converted on or prior to the closing of such Acquisition, shall terminate and be of no further force or effect as of immediately following such closing: (i) the acquirer is subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), (ii) the class and series of shares or other security of the acquirer that would be received by Holder in connection with such Acquisition were Holder to exercise or convert this Warrant on or prior to the closing thereof is listed for trading on a national securities exchange or approved for quotation on an automated inter-dealer quotation system, and (iii) Holder would not be contractually restricted from publicly re-selling within three (3) months following the closing of such Acquisition, nor restricted under applicable securities laws from publicly re-selling within six (6) months following the closing of such Acquisition (assuming for such determination that Holder would convert this Warrant pursuant to Section A.2 above), all of the acquirer shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise or convert this Warrant in full on or prior to the closing thereof. Notwithstanding anything herein to the contrary, the Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section A or otherwise, to the extent that after giving effect to such issuance after exercise, the Holder (together with the Holder’s affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance. The Holder may void the 9.99% limitation upon seventy five (75) days prior notice to the Company. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this provision, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. To the extent that the limitation contained in this provision applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no

obligation to verify or confirm the accuracy of such determination. For purposes of this provision, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.

Section B. Warrant Register . This Warrant will be registered in a register (the “ Warrant Register ”) to be maintained by the Company or its agent at its principal office in the name of the record holder to whom it has been distributed. The Company may deem and treat the registered holder of this Warrant as the absolute owner thereof (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise thereof or any distribution to the holder thereof and for all other purposes, and the Company shall not be affected by any notice to the contrary.

Section C. Reservation of Shares . The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of capital stock of the Company from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights.

Section D. Transfer of Warrant . Subject to compliance with applicable federal and state securities laws and the applicable restrictions on transfer and/or assignment of the Purchase Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed.

Section E. Lost, Mutilated or Missing Warrant . Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company, at its expense, shall execute and deliver a new Warrant of like tenor and date.

Section F. Rights of the Holder . Subject to applicable law, the Holder shall not, by virtue hereof, be entitled to any rights or subject to any obligation or liability of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant.

Section G. Adjustments . The Exercise Price and the number of shares purchasable hereunder are subject to adjustment from time to time as follows:

1. Stock Dividend, Split or Subdivision of Shares . If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable to all holders of Common Stock in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, following the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend, subdivision or split-up, the Exercise Price shall be appropriately decreased and the number of shares of Common Stock issuable on exercise of each Warrant shall be increased in proportion to such increase in outstanding shares.

2. Combination of Shares . If, at any time after the date hereof, the number of shares of Common Stock outstanding is decreased by a combination or consolidation of the outstanding shares of Common Stock, by reclassification, reverse stock split or otherwise, then, following the record date for such combination, the Exercise Price shall be appropriately increased and the number of shares of Common Stock issuable on exercise of each Warrant shall be decreased in proportion to such decrease in outstanding shares.

3. Calculations . All calculations under this Section G shall be made to the nearest one-tenth of a cent ($.001), or to the nearest one-tenth of a share, as the case may be.

4. Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Exercise Price and/or Warrant Shares, the Company, at its own expense, shall promptly notify Holder and compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request, at any time, of any such Holder, furnish or cause to be furnished to such Holder a like certificate setting forth: (a) such adjustments and readjustments; (b) the Exercise Price at the time in effect; and (c) the number of shares and the amount, if any of other property that at the time would be received upon the exercise of the Warrant.

Section H. Fractional Shares . No fractional shares of the Company’s Common Stock will be issued in connection with any exercise hereunder but in lieu of such fractional shares the Company shall make a cash refund therefor equal in amount to the product of the applicable fraction multiplied by the Exercise Price paid by the Holder for one Warrant Share upon such exercise.

Section I. Notices of Certain Events . In addition to any other notices required to be given by the Company hereby, i n the event:

1. the Company authorizes the issuance to all holders of its Common Stock of rights or warrants to subscribe for or purchase shares of its Common Stock or of any other subscription rights or warrants; or

2. the Company authorizes the distribution to all holders of its Common Stock of evidences of its indebtedness or assets (other than cash dividends or distributions except extraordinary cash dividends or distributions); or

3. of any capital reorganization or reclassification or recapitalization of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in par value of the Common Stock) or of any consolidation or merger to which the Company is a party or of the conveyance or transfer of all or substantially all of the properties and assets of the Company, or any other Acquisition; or

4. of the voluntary or involuntary dissolution, liquidation or winding-up of the Company; or

5. any other actions would require an adjustment or early termination under Sections A or G hereof;

then the Company will cause to be mailed to the Holder, at least ten (10) days before the applicable record or effective date hereinafter specified (unless some other period of notice is expressly set forth herein), a notice stating (A) the date as of which the holders of Common Stock of record entitled to receive any such rights, warrants or distributions are to be determined, or (B) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up or other event is expected to become effective.

Section J. Listing on Securities Exchanges . The Company will list on the Nasdaq Capital Market and each national securities exchange on which any Common Stock may at any time be listed all shares of Common Stock from time to time issuable upon the exercise of this Warrant, subject to official notice of issuance upon the exercise of this Warrant, and will maintain such listing so long as any other shares of its Common Stock are so listed. Any such listing will be at the Company’s expense.

Section K. Successors . All the provisions of this Warrant by or for the benefit of the Company shall bind and inure to the benefit of its respective successors and assigns.

Section L. Headings . The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

Section M. Amendments . The terms and provisions of this Warrant may not be modified or amended, or any provisions hereof waived, temporarily or permanently, except by written consent of the Company and the Holder hereof.

Section N. Notices . Unless otherwise provided in this Warrant, all notices, requests, consents and other communications hereunder shall be in writing, shall be sent by a nationally recognized overnight express courier postage prepaid, and shall be deemed given one day after being so sent, or if delivered by hand shall be deemed given on the date of such delivery to such party, or if sent to such party (in the case of a Holder) at its address in the Warrant Register that will be maintained by the Company or its agent in accordance with Section B hereof or (in the case of the Company) at its address set forth above, Attention: General Counsel, or to such other address as is designated by written notice, similarly given to each other party hereto.

Section O. 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 its principles regarding conflicts of law.

Section P. No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions hereof and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Warrant against impairment; provided , however , that notwithstanding the foregoing, nothing in this Section P shall restrict or impair the Company’s right to effect changes to the rights and privileges associated with the Warrant Shares with the requisite consent of the stockholders as may be required to amend the Certificate of Incorporation from time to time so long as such amendment affects the rights and privileges granted to Holder associated with the Warrant Shares in the same manner as the other holders of outstanding shares of the same series and class as the Warrant Shares.

Section Q. Registration Under Securities Act of 1933, As Amended . The Company agrees that the Warrant Shares shall have certain incidental, or “Piggyback,” and S-3 registration rights pursuant to and as set forth in the Third Amended and Restated Investors’ Rights Agreement dated December 2, 2009 (as amended and in effect from time to time, the “IRA”). For the avoidance of doubt, such registration rights shall not include demand registration rights (except to the extent that S-3 rights may be deemed demand rights or the Holder may have been granted demand registration rights under a separate agreement). The provisions set forth in the IRA relating to the above in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Warrant Shares in the same manner as such amendment, modification, or waiver affects the rights associated with all other shares of the same series and class as the Warrant Shares granted to the Holder.

Section R. Automatic Conversion Upon Expiration . In the event that, on July 18, 2021, the fair market value of one Warrant Share as determined in accordance with Section A.3 above is greater than the Exercise Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section A.2 above as to all Warrant Shares for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Warrant Shares issued upon such conversion to Holder.

Section S . Waiver of Jury Trial . TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AND HOLDER EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASE UPON THIS WARRANT, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS WARRANT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

Section T . Counterparts . This Warrant may be executed in counterparts, all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed and attested by its duly authorized officer and to be dated as of July 18, 2011.


ZOGENIX, INC.

By:		/s/ Ann D. Rhoads
Name:		Ann D. Rhoads
Title:		Chief Financial Officer

COWEN HEALTHCARE ROYALTY PARTNERS II, L.P.

By Cowen Healthcare Royalty GP, LLC, its General Partner

By:		/s/ Todd C. Davis
Name:		Todd C. Davis
Title:		Managing Director

NOTICE OF EXERCISE

Date: , 20

The undersigned hereby elects to exercise this Warrant to purchase shares of Common Stock and hereby makes payment of $ in payment of the exercise price thereof.

The undersigned hereby elects to convert the attached Warrant into Share in the manner specified in the Warrant. This conversion is exercised for shares of Common Stock covered by the Warrant.

[Strike paragraph that does not apply.]

Certificate(s) representing the Warrant Shares shall be delivered to the following address:



[Holder’s Name]
By:
Name:
Title:

Exhibit 4.13

Z OGENIX , I NC .

S ECOND A MENDMENT T O

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

This Second Amendment (this “ Amendment ”) to that certain Third Amended and Restated Investors’ Rights Agreement, dated as of December 2, 2009, as amended pursuant to that certain Amendment to Third Amended and Restated Investors’ Rights Agreement dated July 1, 2010 (as amended through the date hereof, the “ Rights Agreement ”), by and among Zogenix, Inc., a Delaware corporation (the “ Company ”), and the persons and entities (each an “ Investor ” and collectively, the “ Investors ”) listed on Exhibit A thereto, is entered into by and among the Company, the Investors (including Cowen Healthcare Royalty Partners II, L.P. ( “CHRP” ), effective as of the closing of the transactions contemplated by that certain Financing Agreement (defined below).

RECITALS

WHEREAS: In connection with that certain Financing Agreement by and between the Company and CHRP, dated June 30, 2011 (the “ Financing Agreement ”), that certain warrant to purchase 225,000 shares of the Company’s Common Stock issued to CHRP in connection with the closing of the transactions contemplated by the Financing Agreement (the “ CHRP Warrant ”), and certain shares to be purchased by CHRP as contemplated under the Financing Agreement, CHRP desires to become, and the Company and the Investors desire CHRP to become, a party to the Rights Agreement in order to obtain certain “piggyback” and Form S-3 registration rights granted to the Investors in the Rights Agreement.

WHEREAS: Under Section 5.1 of the Rights Agreement, the Holders of at least 67% of the outstanding shares of the Registrable Securities may amend, on behalf of all other Holders of Registrable Securities, the Rights Agreement.

WHEREAS: The undersigned Holders of at least 67% of the outstanding shares of Registrable Securities and the Company desire to amend the Rights Agreement to effect the intent of the foregoing recitals.

NOW, THEREFORE: In consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto hereby agree as follows:

1.	Definitions.

Unless otherwise defined herein, the capitalized terms used herein shall have the same meaning ascribed to such terms in the Rights Agreement.

2.	Amendments to the Rights Agreement.

a. The following definitions are hereby added to Section 1.1:

“ CHRP ” shall mean Cowen Healthcare Royalty Partners II, L.P.”

“ CHRP Warrant ” shall mean that certain warrant issued to CHRP on the Closing Date as defined in the Financing Agreement.”

b. The definition of “Holder” is hereby amended and restated as set forth below:

“ Holder ” shall mean (i) any Investor holding Registrable Securities, (ii) solely for purposes of Sections 2.1(e), 2.2, 2.3(d), 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12 and 5 of this Agreement, GECC to the extent that it holds Registrable Securities (iii) solely for purposes of Sections 2.1(e), 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12 and 5 of this Agreement, each of CIT and SVB to the extent it holds Registrable Securities, (iv) solely for purposes of Sections 2.1(e), 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14 and 5 of this Agreement, CHRP to the extent it holds Registrable Securities, and (v) any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been duly and validly transferred in accordance with Section 2.12 of this Agreement.”

c. The definitions of Oxford Warrants and SVB Warrants are hereby amended and restated as set forth below:

“Oxford Warrants” shall mean those certain warrants dated June 30, 2008, July 1, 2010 and June 30, 2011, issued to Oxford.”

“SVB Warrants” shall mean those certain warrants dated July 1, 2010 and June 30, 2011, used to SVB.”

d. The definition of “Registrable Securities” is hereby amended and restated as set forth below:

“ Registrable Securities ” shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares or the Investor Notes or exercise of the Investor Warrants or the Oxford Warrants, and solely for purposes of Sections 2.1(e), 2.2, 2.3(d), 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12 and 5 of this Agreement, shares of Common Stock issuable pursuant to the conversion of the GE Shares or exercise of the GECC Warrant, and solely for purposes of Sections 2.1(e), 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12 and 5 of this Agreement, shares of Common Stock issuable pursuant to the conversion of the CIT Shares, SVB Shares or exercise of the CIT Warrant or SVB Warrant; and solely for purposes of Sections 2.1(e), 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14 and 5 of this Agreement, shares of Common Stock (a) issued to CHRP pursuant to the Stock and Warrant Purchase Agreement dated June 30, 2011, between the Company and CHRP (such shares, the “ CHRP Closing Shares ”) and (b) issuable pursuant to the exercise of the CHRP Warrant, and (ii) any Common Stock of the Company issued as a dividend or other distribution with respect to or in exchange for or in replacement of the Shares referenced in clause (i) above (or the shares of Common Stock referenced in clause (i) above); provided , however , that Registrable Securities shall not include any shares of Common Stock described in clause (i) or (ii) above which have previously been registered or which have been sold to the public either pursuant to a registration statement or

Rule 144, or which have been sold in a private transaction in which the transferor’s rights under this Agreement are not validly assigned in accordance with this Agreement; provided further , that for the avoidance of doubt the shares of Common Stock issuable pursuant to the conversion of the GE Shares, CIT Shares, Oxford Shares or SVB Shares, or exercise of the GECC Warrant, CIT Warrant, Oxford Warrants, SVB Warrants or CHRP Warrant, and the CHRP Closing Shares, shall not be Registrable Securities for purposes of Section 2.8 of this Agreement.”

e. The second paragraph of Section 2.1(e) is hereby amended and restated as set forth below:

Notwithstanding any other provision of this Section 2.1 , if the underwriters advise the Initiating Holders in writing that market factors require a limitation on the number of shares to be underwritten, the number of Registrable Securities and Other Shares that may be so included shall be allocated as follows: (i) first, among all the Holders (excluding GECC, CIT, SVB and CHRP) requesting to include Registrable Securities held by such Holders, assuming conversion; (ii) second, to GECC, CIT and SVB; (iii) third, to CHRP; (iv) fourth, to the Other Selling Shareholders; and (v) fifth, to the Company, which the Company may allocate, at its discretion, for its own account, or for the account of other holders or employees of the Company.

f. The following Investor is hereby added to Exhibit A of the Rights Agreement:

Solely for purposes of Sections 2.1(e), 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14 and 5 of the Agreement, CHRP.

3.	Limitation of Rights of CHRP.

It is expressly understood by the parties to this Amendment that CHRP shall be a party to the Rights Agreement with respect to the CHRP Closing Shares and the Registrable Securities issuable upon exercise of the CHRP Warrant only for the purpose of those certain rights and obligations set forth in Sections 2.1(e), 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14 and 5 of the Rights Agreement. For clarification and to avoid confusion, CHRP shall have no rights, and the Company and the Investors shall have no obligations to CHRP, with respect to the sections of the Rights Agreement entitled (i) “Request for Registration,” as set forth in Section 2.1(a) to the Rights Agreement (except as provided in Section 2.1(e) thereof), (ii) “Covenants of the Company,” as set forth in Section 3 to the Rights Agreement, and (iii) “Right of First Refusal,” as set forth in Section 4 to the Rights Agreement.

4 .	Addition of CHRP to the Rights Agreement.

Concurrently with the execution and delivery of this Amendment, CHRP shall execute and deliver a counterpart signature page to the Rights Agreement and CHRP will, upon delivery to the Company of such counterpart signature page, become a party to, and will be bound by, the Rights Agreement as a Holder of Registrable Securities to the extent set forth in this Amendment and the Rights Agreement, as amended by this Amendment.

5.	Full Force and Effect.

Except as amended above, the Rights Agreement shall remain in full force and effect.

6.	Governing Law.

This Amendment shall be governed in all respects by the internal laws of the State of California as applied to agreements entered into among California residents to be performed entirely within California, without regard to principles of conflicts of law.

7.	Titles and Subtitles.

The titles and subtitles used in this Amendment are used for convenience only and are not to be considered in construing or interpreting this Amendment.

8.	Counterparts.

This Amendment may be executed in any number of counterparts, each of which shall be enforceable against the parties that execute such counterparts, and all of which together shall constitute one instrument.

9.	Telecopy Execution and Delivery.

A facsimile, telecopy or other reproduction of this Amendment may be executed by one or more parties hereto and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen. Such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute and deliver an original of this Amendment as well as any facsimile, telecopy or other reproduction thereof.

(Remainder of Page Intentionally Left Blank)

IN WITNESS WHEREOF, this Amendment is executed as of the date first written above.


COMPANY: ZOGENIX, INC.

By:		/s/ Ann D. Rhoads
		Name: Ann D. Rhoads
		Title: Chief Financial Officer

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

INVESTORS:

OXFORD FINANCE LLC

(successor in interest to Oxford Finance

Corporation)


By:		/s/ T.A. Lex


Print Name:		T.A. Lex


Title:		COD

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

Solely for the purposes of Sections 2.1(e), 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.10, 2.11, 2.12 and 5 of the Rights Agreement:

INVESTORS:

SVB FINANCIAL GROUP

By:

/s/ Michael Kruse


Print Name:		Michael Kruse


Title:		Treasurer

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

Solely for the purposes of Sections 2.1(e), 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14 and 5 of the Rights Agreement:

INVESTORS:

COWEN HEALTHCARE ROYALTY PARTNERS II, L.P.

By: Cowen Healthcare Royalty GP, LLC

Its General Partner

By:

/s/ Todd C. Davis


Print Name:		Todd C. Davis


Title:		Managing Director

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

INVESTORS:

CLARUS LIFESCIENCES I, L.P.

By: Clarus Ventures I Management, L.P.

its general partner

By: Clarus Ventures I, LLC

its general partner

By:

/s/ Kurt C. Wheeler


Print Name:		Kurt C. Wheeler


Title:		Managing Director

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

INVESTORS:

DOMAIN PARTNERS VI, L.P.

By: One Palmer Square Associate VI, L.L.C.

its General Partner

By:

/s/ Lisa A. Kraeutler


Print Name:		Lisa A. Kraeutler


Title:		Attorney-in-Fact

DP VI ASSOCIATES, L.P.

By: One Palmer Square Associates VI, L.L.C.,

its General Partner

By:

/s/ Lisa A. Kraeutler


Print Name:		Lisa A. Kraeutler


Title:		Attorney-in-Fact

DOMAIN PARTNERS VII, L.P.

By: One Palmer Square Associate VII, L.L.C.

its General Partner

By:

/s/ Lisa A. Kraeutler


Print Name:		Lisa A. Kraeutler


Title:		Attorney-in-Fact

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

INVESTORS

DP VII ASSOCIATES, L.P.

By: One Palmer Square Associates VII, L.L.C.,

its General Partner

By:

/s/ Lisa A. Kraeutler


Print Name:		Lisa A. Kraeutler


Title:		Attorney-in-Fact

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

INVESTORS:

SCALE VENTURE PARTNERS II, LP

By: Scale Venture Management II, LLC

its General Partner

By:

/s/ Louis C. Bock


Print Name:		Louis C. Bock


Title:		Managing Director

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

INVESTORS:

THOMAS, MCNERNEY & PARTNERS, L.P.

By:

/s/ Alex Zisson


Print Name:		Alex Zisson


Title:		Manager

TMP NOMINEE, LLC

By:

/s/ James E. Thomas


Print Name:		James E. Thomas


Title:		Manager

TMP ASSOCIATES, L.P.

By:

/s/ Alex Zisson


Print Name:		Alex Zisson


Title:		Manager

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

INVESTORS:

THOMAS, MCNERNEY & PARTNERS II, L.P.

By:

/s/ Alex Zisson


Print Name:		Alex Zisson


Title:		Manager

TMP NOMINEE II, LLC

By:

/s/ James E. Thomas


Print Name:		James E. Thomas


Title:		Manager

TMP ASSOCIATES II, L.P.

By:

/s/ Alex Zisson


Print Name:		Alex Zisson


Title:		Manager

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

INVESTORS:

ABINGWORTH BIOVENTURES IV

EXECUTIVES LP

acting by:

Its manager Abingworth Management Ltd

By:

/s/ James Abell


Print Name:		James Abell


Title:		Director

ABINGWORTH BIOVENTURES IV LP

acting by:

Its manager Abingworth Management Ltd

By:

/s/ James Abell


Print Name:		James Abell


Title:		Director

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

INVESTORS:

CHICAGO GROWTH PARTNERS II, L.P.

By: Chicago Growth Management II, LP

Its: General Partner

By: Chicago Growth Management II, LLC

Its: General Partner

By:

/s/ A. M. Minocherhomjee


Print Name:		A. M. Minocherhomjee


Title:		Managing Partner

S IGNATURE P AGE TO S ECOND A MENDMENT TO

T HIRD A MENDED AND R ESTATED I NVESTORS ’ R IGHTS A GREEMENT

Exhibit 10.1

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

FIRST AMENDMENT

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS FIRST AMENDMENT to Second Amended and Restated Loan and Security Agreement (this “Amendment”) is entered into as of June 30, 2011, by and between OXFORD FINANCE LLC ( successor in interest to Oxford Finance Corporation; in its individual capacity, “Oxford”; in its capacity as Administrative Agent, “Administrative Agent”; collectively with the other Lenders from time to time a party to the Loan Agreement (as defined below), the “Lenders,” and Oxford and each such lender individually, a “Lender”) and ZOGENIX, INC. , a Delaware corporation (“Borrower”), with its principal place of business at 12671 High Bluff Drive, Suite 200, San Diego, California 92130.

R ECITALS

A. Administrative Agent, Borrower and the Lenders have entered into that certain Second Amended and Restated Loan and Security Agreement dated as of October 8, 2010 (as the same may from time to time be amended, modified, supplemented or restated, the “Loan Agreement”).

B. The Lenders extended credit to Borrower for the purposes permitted in the Loan Agreement.

C. Borrower has requested that Administrative Agent and the Lenders amend the Loan Agreement to (i) consent to the entry by Borrower into the Cowen Financing Documents (as defined below); (ii) extend the interest-only period relating to the Growth Capital Advance; (iii) amend the description of Collateral; and (iv) make certain other revisions to the Loan Agreement as more fully set forth herein.

D. Administrative Agent and the Lenders have agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

A GREEMENT

N OW , T HEREFORE , in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2. Amendments to Loan Agreement.

2.1 Section 2.1.1 (b) (Growth Capital Loan Facility; Repayment) . The second sentence of Section 2.1.1(b) of the Loan Agreement hereby is amended and restated in its entirety to read as follows:

“Commencing on the Growth Capital Amortization Date and continuing thereafter during the Growth Capital Repayment Period on the first day of each successive calendar month (each a “ Growth Capital Scheduled Payment Date ”), Borrower shall make twenty-four (24) equal monthly payments of principal and interest, in arrears, which would fully amortize the outstanding amount of the Growth Capital Advance as of the Growth Capital Amortization Date over the Growth Capital Repayment Period (individually, the “ Growth Capital Scheduled Payment ”, and collectively, “ Growth Capital Scheduled Payments ”).”

2.2 Section 5.3 (Intellectual Property) . Section 5.3 of the Loan Agreement hereby is amended and restated in its entirety to read as follows:

“ 5.3 Intellectual Property . Borrower owns, is licensed to use or otherwise has the right to use its Intellectual Property, except for non-exclusive licenses granted to its customers in the ordinary course of business. (i) Each patent owned by Borrower and material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and (ii) to the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim could not reasonably be expected to have a material adverse effect on Borrower’s business. Except as set forth in the Cowen Financing Documents, Borrower has not entered into, nor will it enter into any other agreement or financing arrangement in which a pledge or negative pledge in Borrower’s Intellectual Property is granted to any other party. Borrower owns or has rights to use all Intellectual Property material to the conduct of its business as now or heretofore conducted by it. Except as noted on the Perfection Certificate, Borrower is not a party to, nor is bound by, any material license or other agreement with respect to which Borrower is the licensee that (i) prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (ii) for which a default under or termination of could interfere with Administrative Agent’s right to sell any Collateral. Borrower shall provide written notice to Administrative Agent within ten (10) days of entering into or becoming bound by any license or agreement (other than over-the-counter software that is commercially available to the public) that restricts Borrower’s rights to grant security under such license or agreement to Administrative Agent. Borrower shall take such commercially reasonable steps as Administrative Agent requests to obtain the consent of, or waiver by, any Person whose consent or waiver is necessary for (i) all licenses or agreements to be deemed “Collateral” and for Administrative Agent to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such license or agreement, whether now existing or entered into in the future, and (ii) Administrative Agent to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Administrative Agent’s rights and remedies under this Agreement and the other Loan Documents.”

2.3 Section 6.2 (Financial Statements, Reports, Certificates) . New Section 6.2(g) hereby is added to the Loan Agreement to read as follows:

“(g) prompt notice of (A) any material change in the composition of the Intellectual Property, (B) notice of the registration of any copyright, including any subsequent ownership right of Borrower in or to any copyright, patent or trademark, and (C) prompt notice of Borrower’s knowledge of any event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property.”

2.4 Section 6.7 (Protection of Intellectual Property Rights) . Section 6.7 of the Loan Agreement hereby is amended and restated in its entirety to read as follows:

“6.7 Protection of Intellectual Property Rights. To the extent Borrower has the right to do so, Borrower shall: (a) protect, defend and maintain the validity and enforceability of its Intellectual Property that is consistent with its sound business judgment and that is material to Borrower’s business; (b) promptly advise Administrative Agent in writing of material infringement by a third party of its Intellectual Property; and (c) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Administrative Agent’s written consent. If Borrower (i) obtains any patent, registered trademark or servicemark, registered copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any patent or the registration of any trademark or servicemark, then Borrower shall provide written notice thereof to Administrative Agent and each Lender and shall execute such intellectual property security agreements and other documents and take such other actions as Administrative Agent shall reasonably request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Administrative Agent in such property. If Borrower decides to register any copyrights or mask works in the United States Copyright Office, Borrower shall:

(x) provide Administrative Agent and each Lender with at least ten (10) days’ prior written notice of Borrower’s intent to register such copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (y) execute an intellectual property security agreement and such other documents and take such other actions as Administrative Agent may reasonably request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Administrative Agent in the copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the copyright or mask work application(s) with the United States Copyright Office. Borrower shall promptly provide to Administrative Agent with evidence of the recording of the intellectual property security agreement necessary for Administrative Agent to perfect and maintain a first priority perfected security interest in such property.”

2.5 Section 13 (Definitions). The following terms and their definitions set forth in Section 13.1 hereby are added or amended in their entirety and replaced with the following:

“ Cowen ” means Cowen Healthcare Royalty Partners II, L.P., a Delaware limited partnership.

“ Cowen Financing ” means the transactions effectuated by the Cowen Financing Documents.

“ Cowen Financing Agreement ” means that certain Financing Agreement dated as of the First Amendment Date by and between Borrower and Cowen.

“ Cowen Financing Documents ” means, collectively, the Cowen Financing Agreement, that certain Security Agreement dated as of the First Amendment Date by and between Borrower and Cowen, that certain Assignment dated as of the First Amendment Date by and between Borrower and Cowen, that certain Stock and Warrant Purchase Agreement dated as of the First Amendment Date by and between Borrower and Cowen, and any other documents, instruments, certificates and/or agreements necessary to, and executed in connection with, the Cowen Financing Agreement, together with all schedules and exhibits thereto; all in form and substance reasonably acceptable to Administrative Agent and attached hereto as Annex X.

“ Cowen Indebtedness ” means the Indebtedness owing by Borrower to Cowen under the Cowen Financing Documents.

“ Cowen Lien ” means the Lien granted by Borrower to secure repayment of the Cowen Indebtedness.

“ Cowen Subordination Agreement ” means that certain Subordination and Intercreditor Agreement among Cowen, Administrative Agent, Lenders and Borrower, dated as of the First Amendment Date, in form and content acceptable to Administrative Agent and Lenders.

“ First Amendment ” means that certain First Amendment to Second Amended and Restated Loan and Security Agreement, dated as of the First Amendment Date, by and among Borrower and Administrative Agent.

“ First Amendment Date ” means June 30, 2011.

“ Growth Capital Amortization Date ” means February 1, 2012.

“ Growth Capital Repayment Period ” is a period of time equal to twenty-four (24) consecutive months commencing on the Growth Capital Amortization Date.

“ Intellectual Property ” includes all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, trade names, service marks, mask works, rights of use of any name, domain names, or any other similar rights, any applications therefor, whether registered or not, and the goodwill of the business of any Person connected with and symbolized thereby, know-how, operating manuals, trade secret rights, clinical and non-clinical data, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing, in each case that it is owned or controlled or licensed by Borrower or its subsidiaries during the term of this Agreement.

“ IP Agreement ” means that certain Intellectual Property Security Agreement dated as of the First Amendment Date by and between Borrower and Administrative Agent.

“ Loan Documents ” are, collectively, this Agreement, the IP Agreement, the Warrants, the Perfection Certificate, the Disbursement Letter, the Side Letter, the Cowen Subordination Agreement, any Note or Notes, and any other present or future agreement between Borrower any Guarantor and/or for the benefit of any Lender in connection with this Agreement, all as amended, restated, or otherwise modified.

“ Warrants ” are that certain Warrant to Purchase Stock executed by Borrower in favor of Bank and delivered to Bank in connection with the Original Agreement, those certain Warrants to Purchase Stock executed by Borrower in favor of Oxford and delivered to Oxford in connection with the Original Agreement, and those certain Warrants to Purchase Stock executed by Borrower in favor of Oxford and Bank and delivered to Oxford and Bank in connection with the First Amendment.

(a) Clause (g) of the defined term “Permitted Indebtedness” hereby is amended and restated in its entirety to read as follows

“(g) the Cowen Indebtedness, provided the Cowen Indebtedness is subject to the terms and conditions of the Cowen Subordination Agreement; and”

(b) Clause (k) of the defined term “Permitted Liens” hereby is amended and restated in its entirety to read as follows:

“(k) the Cowen Lien, provided the Cowen Lien is subject to the terms and conditions of the Cowen Subordination Agreement.”

2.6 Borrower’s Annual Projections for 2011 are the projections approved by Borrower’s Board of Director’s on June 30, 2011, and delivered to Administrative Agent and the Lenders on June 29, 2011.

2.7 Exhibit A attached to the Loan Agreement hereby is replaced in its entirety with Exhibit A attached hereto.

2.8 Subject to Administrative Agent’s receipt of the Cowen Subordination Agreement, Administrative Agent and the Lenders hereby consent to the Cowen Financing and the execution, delivery and performance by Borrower of the Cowen Financing Documents.

2.9 Administrative Agent and the Lenders hereby consent to the repayment by Borrower of Indebtedness owed to General Electric Capital Corporation pursuant to the GE Document in an amount not to exceed Two Hundred Thousand Dollars ($200,000); provided that, Borrower shall provide to Administrative Agent, within thirty (30) days of the First Amendment Date, evidence in form and content reasonably acceptable to Administrative Agent, of the termination of all liens and security interests of General Electric Capital Corporation in any assets of Borrower.

3. Limitation of Amendments.

3.1 The amendments set forth in Section 2 , above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Administrative Agent may now have or may have in the future under or in connection with any Loan Document.

3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4. Representations and Warranties. To induce Administrative Agent and the Lenders to enter into this Amendment, Borrower hereby represents and warrants to Administrative Agent as follows:

4.1 Immediately after giving effect to this Amendment and the Cowen Financing, (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

4.3 The organizational documents of Borrower delivered to Administrative Agent in connection with the execution of the Loan Agreement remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

5. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

6. Effectiveness This Amendment shall be deemed effective upon (a) the due execution and delivery to Administrative Agent of this Amendment by each party hereto; (b) the due execution and delivery to Administrative Agent of the IP Agreement; (c) the filing of a UCC Financing Statement Amendment, amending the Collateral description; (d) the due execution and delivery to Administrative Agent of updated Borrowing Resolutions for Borrower in the form attached hereto; (e) payment by Borrower of a consent fee in the amount of (x) [***]; which amounts may be debited (or ACH’d) from Borrower’s account designated by Borrower to Lenders prior to the First Amendment Date; (f) payment by Borrower of all unpaid Lender Expenses incurred to date, which may be debited from any of Borrower’s accounts; (g) due execution and delivery to Administrative Agent of (1) copies of the Cowen Financing Documents, and (2) originals of the Cowen Subordination Agreement; (h) a Payoff Letter from General Electric Capital Corporation with respect to the GE Document; and (i) due execution and delivery of the Warrants entered into in connection with this Amendment. Borrower shall provide to the Administrative Agent a new (and/or updated) Perfection Certificate(s) prepared with respect to, and duly executed by, Borrower no later than [***] after the effective date of this Amendment.

[Signature page follows.]

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

I N W ITNESS W HEREOF , the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.


ADMINISTRATIVE AGENT and LENDER:		BORROWER:

OXFORD FINANCE LLC		ZOGENIX, INC.

By:	/s/ John G. Henderson	By:	/s/ Ann Rhoads
Name:	John G. Henderson	Name:	Ann Rhoads
Title:	Vice President and General Counsel	Title:	Chief Financial Officer

LENDER:

SILICON VALLEY BANK

By:	/s/ Derek Brunelle
Name:	Derek Brunelle
Title:	Deal Team Leader

[ Signature Page to First Amendment to Second Amended and Restated Loan and Security Agreement ]

EXHIBIT A

Collateral

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (including all Intellectual Property), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, all certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

All Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include more than 65% of the total combined voting power of all classes of stock entitled to vote the shares of capital stock (the “Shares”) of any Subsidiary of Borrower not incorporated or organized under the laws of one of the States or jurisdictions of the United States (in the event that Borrower demonstrates to Collateral Agent’s reasonable satisfaction that a pledge of more than sixty five percent (65%) of the Shares creates a present and existing adverse tax consequence to Borrower under the U.S. Internal Revenue Code).

ANNEX X

( Cowen Financing Documents )

See Exhibits 10.2 and 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 11, 2011

BORROWING RESOLUTIONS

LOGO

CORPORATE BORROWING CERTIFICATE


B ORROWER :	ZOGENIX, INC.	D ATE : June 30, 2011
A DMINISTRATIVE A GENT :	OXFORD FINANCE LLC

I hereby certify as follows, as of the date set forth above:

1. I am the Secretary, Assistant Secretary or other officer of the Borrower. My title is as set forth below.

2. Borrower’s exact legal name is set forth above. Borrower is a corporation existing under the laws of the State of Delaware.

3. Attached hereto are true, correct and complete copies of Borrower’s Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above. Such Certificate of Incorporation has not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

4. The following resolutions were duly and validly adopted by Borrower’s Board of Directors at a duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized corporate action). Such resolutions are in full force and effect as of the date hereof and have not been in any way modified, repealed, rescinded, amended or revoked, and Administrative Agent may rely on them until Administrative Agent receives written notice of revocation from Borrower.

R ESOLVED , that any one of the following officers or employees of Borrower, whose names, titles and signatures are below, may act on behalf of Borrower:

Name

Title

Signature

Authorized to
Add or Remove
Signatories

R ESOLVED F URTHER , that any one of the persons designated above with a checked box beside his or her name may, from time to time, add or remove any individuals to and from the above list of persons authorized to act on behalf of Borrower.

R ESOLVED F URTHER , that such individuals may, on behalf of Borrower:

Borrow Money . Borrow money from the Lenders.

Execute Loan Documents . Execute any loan documents Administrative Agent requires.

Grant Security . Grant Administrative Agent a security interest in any of Borrower’s assets.

Negotiate Items . Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds.

Letters of Credit . Apply for letters of credit from financial institutions.

Foreign Exchange Contracts . Execute spot or forward foreign exchange contracts.

Issue Warrants . Issue warrants for Borrower’s capital stock.

Further Acts . Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement that waive Borrowers right to a jury trial) they believe to be necessary to effectuate such resolutions.

R ESOLVED F URTHER , that all acts authorized by the above resolutions and any prior acts relating thereto are ratified.

5. The persons listed above are Borrower’s officers or employees with their titles and signatures shown next to their names.


ZOGENIX, INC.



By:


Name:


Title:

***	If the Secretary, Assistant Secretary or other certifying officer executing above is designated by the resolutions set forth in paragraph 5 as one of the authorized signing officers, this Certificate must also be signed by a second authorized officer or director of Borrower.

I, the of Borrower, hereby certify as to paragraphs 1 through 5 above, as of the date set forth above.

[print title]


By:


Name:


Title:

Exhibit 10.2

FINANCING AGREEMENT

Dated as of June 30, 2011

between

ZOGENIX, INC.

and

COWEN HEALTHCARE ROYALTY PARTNERS II, L.P.

TABLE OF CONTENTS


		Page
ARTICLE I DEFINITIONS			1

Section 1.01	Definitions		1

ARTICLE II ASSIGNMENT			11

Section 2.01	Assignments		11

Section 2.02	Payments to CHRP		12

Section 2.03	Advances to Zogenix		13

Section 2.04	Multiple Stepdown Date		13

Section 2.05	No Assumed Obligations		13

Section 2.06	Excluded Assets		14

ARTICLE III REPRESENTATIONS AND WARRANTIES OF ZOGENIX			14

Section 3.01	Organization		14

Section 3.02	Corporate Authorization		14

Section 3.03	Governmental Authorization		14

Section 3.04	Ownership		15

Section 3.05	Financial Statements; Net Sales		15

Section 3.06	No Undisclosed Liabilities		16

Section 3.07	Solvency		16

Section 3.08	Litigation		16

Section 3.09	Compliance with Laws		16

Section 3.10	Conflicts		17

Section 3.11	Subordination		17

Section 3.12	Intellectual Property		17

Section 3.13	Regulatory Approval		20

Section 3.14	Material Contracts		20

Section 3.15	Place of Business		21

Section 3.16	Broker’s Fees		21

Section 3.17	Information		21

Section 3.18	Security Agreement		22

Section 3.19	Bankruptcy Event		22

Section 3.20	Material Adverse Effect		22

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Section 3.21	Reporting Company Status	22

Section 3.22	SEC Filings	22

Section 3.23	Foreign Corrupt Practices Act	23

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CHRP		23

Section 4.01	Organization	23

Section 4.02	Authorization	23

Section 4.03	Broker’s Fees	23

Section 4.04	Conflicts	23

Section 4.05	Financial Capacity	24

ARTICLE V COVENANTS		24

Section 5.01	Consents and Waivers; Exploitation	24

Section 5.02	Access; Information	24

Section 5.03	Material Contracts; License Agreements and Co-Promotion Agreements	25

Section 5.04	Confidentiality; Public Announcement	26

Section 5.05	Security Agreement	27

Section 5.06	Further Assurance	28

Section 5.07	Remittance to CHRP Deposit Account	29

Section 5.08	Intellectual Property	29

Section 5.09	Negative Covenants	29

Section 5.10	Notice	30

ARTICLE VI THE CLOSING; CONDITIONS TO CLOSING		31

Section 6.01	Closing	31

Section 6.02	Conditions Applicable to CHRP to Effect the Closing	31

Section 6.03	Conditions Applicable to Zogenix	33

ARTICLE VII TERMINATION		33

Section 7.01	Term	33

Section 7.02	Termination	34

Section 7.03	Effects of Expiration or Termination	35

ARTICLE VIII MISCELLANEOUS		36

Section 8.01	Survival	36

Section 8.02	Specific Performance	36

Section 8.03	Notices	36

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Section 8.04	Successors and Assigns	38

Section 8.05	Indemnification	38

Section 8.06	Independent Nature of Relationship	39

Section 8.07	Tax	40

Section 8.08	Entire Agreement	40

Section 8.09	Amendments; No Waivers	40

Section 8.10	Interpretation	41

Section 8.11	Headings and Captions	41

Section 8.12	Counterparts; Effectiveness	41

Section 8.13	Severability	41

Section 8.14	Expenses	41

Section 8.15	Governing Law; Jurisdiction	41

Section 8.16	Waiver of Jury Trial	42

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EXHIBITS


Exhibit A	–	Form of Assignment Agreement
Exhibit B	–	Form of Intercreditor Agreement
Exhibit C	–	Form of Security Agreement
Exhibit D	–	Legal Opinion of Latham & Watkins LLP (Transaction Opinion – U.S.)
Exhibit E	–	Legal Opinion of Bozicevic, Field & Francis LLP (IP Opinion)
Exhibit F	–	Form of Officer’s Certificate (Zogenix)
Exhibit G	–	Purchase Agreement
Exhibit H	–	Warrant
Exhibit I	–	Form of Officer’s Certificate (CHRP)
Exhibit J	–	Joint Press Release
Exhibit K	–	Pledge Agreement

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This FINANCING AGREEMENT (as amended, supplemented or otherwise modified from time to time in accordance herewith, this “ Agreement ”) is made and entered into as of June 30, 2011 between Zogenix, Inc., a corporation organized under the laws of the State of Delaware (“ Zogenix ”), and Cowen Healthcare Royalty Partners II, L.P., a limited partnership organized under the laws of the State of Delaware (“ CHRP ”).

WHEREAS , Zogenix is engaged in the business of researching, developing, manufacturing, selling, and out-licensing pharmaceutical products in the United States and throughout the world;

WHEREAS , Zogenix has commenced the sale of the promotional product known as Sumavel DosePro in the United States;

WHEREAS , Zogenix intends to develop and sell additional pharmaceutical products in the United States and may out-license Sumavel DosePro and such additional products outside the United States;

WHEREAS , Zogenix wishes to borrow the Revenue Investment Advance from CHRP and CHRP is willing to lend the Revenue Investment Advance to Zogenix; and

WHEREAS , Zogenix is willing to assign, convey and transfer to CHRP, and CHRP wishes to accept the assignment, conveyance, and transfer from Zogenix of the Assigned Rights (as hereinafter defined), upon and subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE , in consideration of the mutual covenants, agreements representations and warranties set forth herein, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Definitions .

The following terms, as used herein, shall have the following meanings:

“ Affiliate ” shall mean, with respect to a particular Party, any corporation or non-corporate business entity that, directly or indirectly, controls, is controlled by, or is under common control with such Party. For purposes of this definition, an entity will be regarded as in control of another entity (with correlative meanings for “controlled by” and “under common control with”) if: (a) such entity owns, directly or indirectly, at least fifty percent (50%) of the securities or capital stock with the ability to vote to elect directors (or similar controlling management) of such entity, or has other comparable ownership and voting interest with respect to any entity other than a corporation; or (b) it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or non-corporate business entity, as applicable, whether through the ownership or control of voting securities, by contract or otherwise.

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“ Agreement ” shall have the meaning set forth in the first paragraph hereof.

“ Aradigm ” shall mean Aradigm Corporation, a California corporation.

“ Aradigm Agreement ” shall mean that certain Asset Purchase Agreement dated August 25, 2006, by and between Aradigm and Zogenix.

“ Assigned Rights ” shall mean all rights of Zogenix and its Subsidiaries in and to the Revenue Interest.

“ Assignment Agreement ” shall mean that agreement substantially in the form of Exhibit A pursuant to which Zogenix shall, assign, convey and transfer to CHRP the Assigned Rights, all on the terms and conditions as set forth therein.

“ Astellas ” shall mean Astellas Pharma US, Inc. and its permitted successors and assigns under the Astellas Co-Promotion Agreement.

“ Astellas Co-Promotion Agreement” shall mean that certain Co-Promotion Agreement, dated July 31, 2009, between Astellas and Zogenix for the promotion and marketing of Sumavel DosePro.

“ Bankruptcy Event ” shall mean with respect to a Person, the occurrence of any of the following:

(a) commencement by such Person of any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, relief of debtors or the like, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its respective debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any portion of its assets, or such Person shall make a general assignment for the benefit of its creditors; or

(b) there shall be commenced against such Person any case, proceeding or other action of a nature referred to in subsection (a) above which remains undismissed, undischarged or unbonded for a period of sixty (60) days; or

(c) there shall be commenced against such Person any case, proceeding or other action seeking issuance of a warrant of attachment, execution or distraint or similar process against (A) all or any substantial portion of its assets and/or (B) the Included Products or any substantial portion of the Intellectual Property, which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within sixty (60) days from the entry thereof; or

(d) such Person shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any case, proceeding or other action set forth in subsection (a), (b) or (c) above; or

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(e) such Person shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, shall be insolvent under any applicable law; or

(f) such Person does not have readily saleable assets whose fair value is equal to or greater than such Person’s liabilities due and payable during [***] after giving effect to the transactions contemplated by this Agreement.

“ Business Day ” shall mean any day other than a Saturday and Sunday, any day which is a legal holiday under the laws of the State of New York, or any day on which banking institutions located in the State of New York are required by law or other governmental action to close or are not otherwise open for banking business.

“ CHRP ” shall have the meaning set forth in the first paragraph hereof.

“ CHRP Deposit Account ” shall mean an account established by and for the benefit of CHRP into which payment of the Revenue Interest and all other amounts payable by Zogenix to CHRP pursuant to this Agreement is to be made.

“ CHRP Indemnified Party ” shall have the meaning set forth in Section 8.05(a) .

“ Closing ” shall have the meaning set forth in Section 6.01 .

“ Closing Date ” shall mean the date on which the Revenue Investment Advance is received in the account designated by Zogenix in accordance with Section 2.03(b) .

“ Collateral ” shall have the meaning set forth in the Security Agreement.

“ Confidential Information ” shall mean, with respect to a Party, all secret, confidential or proprietary information or data, whether provided in writing, orally, graphically, electronically or other form, provided by such Party (the “ Disclosing Party ”) to the other Party (the “ Receiving Party ”), which may include information relating to the Disclosing Party’s existing or proposed research, development efforts, patent applications, business or products and any other materials that have not been made available by the Disclosing Party to the general public. Notwithstanding the foregoing, the term “Confidential Information” shall not include any information or materials that the Receiving Party can demonstrate by documentary evidence:

(a) were already known to the Receiving Party (other than under an obligation of confidentiality), at the time of disclosure by the Disclosing Party;

(b) were generally available to the public or otherwise part of the public domain at the time of their disclosure to the Receiving Party;

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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(c) became generally available to the public or otherwise part of the public domain after their disclosure, other than through any act or omission of the Receiving Party in breach of its confidentiality obligations under this Agreement;

(d) were subsequently lawfully disclosed to the Receiving Party by a Third Party who had no obligation to the Disclosing Party not to disclose such information to others;

(e) were independently discovered or developed by or on behalf of the Receiving Party by individuals who had no access to and without the use of the Confidential Information belonging to the Disclosing Party; or

(f) is approved for general release by the Disclosing Party in writing.

“ Co-Promotion Agreement ” shall mean any agreement hereafter entered into by Zogenix and/or its Subsidiaries with a Third Party for the marketing or promotion by Zogenix and/or its Subsidiaries of a pharmaceutical product owned or controlled by such Third Party pursuant to a co-promotion or similar arrangement. For clarity, the Astellas Co-Promotion Agreement is not a Co-Promotion Agreement.

“ Co-Promotion Revenues ” shall mean revenue actually received by Zogenix and/or its Subsidiaries under a Co-Promotion Agreement.

“ Direct Product Sales ” shall mean end user Net Sales of Included Products in the United States and other countries where Zogenix and/or its Subsidiaries record such Net Sales as revenue. Notwithstanding the foregoing, for purposes hereof, Direct Product Sales shall at all times include end user Net Sales in the United States of Sumavel DosePro and ZX002, regardless of whether such products are marketed directly or controlled by Zogenix and/or its Subsidiaries, are marketed but not controlled by Zogenix and/or its Subsidiaries, are outlicensed to Third Parties, or the rights to such products are sold or transferred to a Third Party. In determining how revenue should be recorded, Zogenix shall record such revenue in accordance with GAAP. For clarity, amounts actually paid or payable by Astellas to Zogenix pursuant to Sections 6.5(c), 7.6, 7.7(d) or 8.4(a) of the Astellas Co-Promotion Agreement shall not be included in Direct Product Sales.

“ Dispute ” shall have the meaning set forth in Section 3.12(j) .

“ Dollars ” or “ $ ” shall mean U.S. Dollars.

“ Elan ” shall mean Elan Pharma International Limited, and its permitted successors and assigns under the Elan Agreement.

“ Elan Agreement ” shall mean that certain License Agreement, dated November 27, 2007, between Zogenix and Elan related to the license to Zogenix of intellectual property rights to ZX002 in the United States, as amended pursuant to that certain First Amendment to License Agreement, dated September 28, 2009.

“ Enforcement Action ” shall mean action brought by Zogenix (whether as plaintiff or by means of counterclaim) against Third Parties for infringement of the Patents.

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“ Excluded Liabilities and Obligations ” shall have the meaning set forth in Section 2.05 .

“ Excluded Revenue Interests ” shall mean all amounts (i) [***] or (ii) [***].

“ Exploit ” shall mean, with respect to a product, the manufacture, sale, offer for sale (including marketing and promotion), importation, distribution or other commercialization or exploitation of such product; and “ Exploitation ” shall have the correlative meaning.

“ FDA ” shall mean the United States Food and Drug Administration or any successor federal agency thereto.

“ Financial Statements ” shall mean the audited balance sheets of Zogenix as of December 31, 2010, and the related audited statements of operations, stockholders’ equity, and cash flows of Zogenix for the year ended December 31, 2010 and the accompanying footnotes thereto.

“ Fixed Payment ” shall have the meaning set forth in Section 2.02(b) .

“ Fixed Payment Date ” shall have the meaning set forth in Section 2.02(b) .

“ GAAP ” shall mean United States generally accepted accounting principles as interpreted and accepted by the Financial Accounting Standards Board, consistently applied through the applicable entity’s organization.

“ Governmental Authority ” shall mean any government, court, regulatory or administrative agency or commission, or other governmental authority, agency or instrumentality, whether foreign, federal, state or local (domestic or foreign), including any Patent Office, the FDA, the United States National Institutes of Health, or any other government authority in any country.

“ Included Products ” shall mean (i) Sumavel DosePro, (ii) ZX002 and (iii) each future product (a) marketed by Zogenix or its Subsidiaries which is owned or controlled by Zogenix or its Subsidiaries during the Term or (b) out-licensed by Zogenix or its Subsidiaries during the Term.

“ Included Product Payments ” shall mean (i) Direct Product Sales, (ii) Co-Promotion Revenues and (iii) Out-License Revenues. For clarity, amounts paid or received by Zogenix shall only be included in clause (i), (ii) or (iii) hereunder and shall not be included in more than one clause.

“ Intellectual Property ” shall mean all proprietary information; trade secrets; Know-How; utility models; confidential information; inventions (whether patentable or unpatentable and whether or not reduced to practice or claimed in a pending patent application) and improvements thereto; Patents; registered or unregistered trademarks, trade names and service marks, including all goodwill associated therewith; registered and unregistered copyrights and all applications

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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thereof; in each case that (i) are owned or controlled or licensed by Zogenix or its Subsidiaries during the Term, including any intellectual property subject to the agreements listed on Schedule 3.12(b) to the Disclosure Schedule and (ii) relating to, embodied by, covering or involving the (a) manufacture of the Included Products for Exploitation in the Territory or (b) Exploitation of the Included Products in the Territory.

“ Intercreditor Agreement ” shall mean an agreement substantially in the form of Exhibit B hereto, setting forth the priority of security interests and related creditor rights between CHRP and the Lenders party to the Oxford Credit Facility.

“ Know-How ” shall mean all non-public information, results and data of any type whatsoever, in any tangible or intangible form (and whether or not patentable), including databases, practices, methods, techniques, specifications, formulations, formulae, knowledge, skill, experience, data and results (including pharmacological, medicinal chemistry, biological, chemical, biochemical, toxicological and clinical study data and results), analytical and quality control data, stability data, studies and procedures, and manufacturing process and development information, results and data.

“ Knowledge ” shall mean [***].

“ License Agreement ” shall mean any agreement hereafter entered into by Zogenix and/or its Subsidiaries for the license of rights to a Third Party to commercialize or otherwise Exploit the Included Products, the Patents and the Intellectual Property, and any and all amendments to or restatements thereof.

“ Licensee(s) ” shall mean any Third Party licensee under a License Agreement.

“ Lien ” shall mean any lien, hypothecation, charge, security agreement, security interest, mortgage, pledge, or any encumbrance, right or claim of any other Person of any kind whatsoever whether choate or inchoate, filed or unfiled, noticed or unnoticed, recorded or unrecorded, contingent or non-contingent, material or non-material, known or unknown.

“ Losses ” shall mean, collectively, any and all claims, damages, losses, judgments, liabilities, costs and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses in connection with any action, suit or proceeding).

“ Material Adverse Effect ” shall mean (i) a Bankruptcy Event with respect to Zogenix; (ii) an adverse effect on the validity or enforceability of any material provision of the Transaction Documents; (iii) an adverse effect on the ability of Zogenix to perform any of its material obligations under any of the Transaction Documents; (iv) an adverse effect on the material rights or remedies of CHRP under any of the Transaction Documents; (v) a material adverse effect on the right of CHRP to receive the Revenue Interest Payments or any other payment due to CHRP hereunder; (vi) a material adverse effect on the ability of Zogenix, directly or indirectly, to

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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Exploit Sumavel DosePro in the United States; (vii) a right to terminate or receive damages inuring to the benefit of a Third Party arising from the material, uncured breach by Zogenix under any Material Contract; or (viii) a material, uncured breach by Zogenix under the Senior Loan Documents or, unless cured or waived, the occurrence of any event giving the Senior Lender the right to accelerate payment under the Senior Loan Documents ; provided, however , that “Material Adverse Effect” shall exclude [***]; provided further , [***].

“ Material Contract ” shall mean all contracts, agreements or other arrangements to which either Zogenix or any of its Subsidiaries is a party or any of Zogenix’s or its Subsidiaries respective assets or properties are bound or committed (other than the Transaction Documents or Senior Loan Documents) (i) related to the Exploitation of an Included Product or the Intellectual Property in the Territory, (ii) which is a Co-Promotion Agreement, or (iii) which is a License Agreement and for which, in each of (i), (ii) or (iii), a breach or violation by Zogenix would reasonably be expected to result in a Material Adverse Effect.

“ Maturity Date ” shall mean March 31, 2018.

“ Multiple Stepdown Date ” shall mean the date, if any, on which CHRP has received aggregate Revenue Interest Payments and Fixed Payments totaling Seventy-Five Million Dollars ($75,000,000).

“ Net Sales ” means, with respect to Direct Product Sales, for any period of determination, the net product sales in the Territory for such period of determination as prepared by Zogenix in accordance with GAAP and pharmaceutical industry standards customary for products at a similar stage of commercialization and as reported in Zogenix’s financial statements contained in Zogenix’s quarterly or annual reports for such period of determination. In calculating Net Sales, any transfer from Zogenix to an Affiliate shall be disregarded and the calculation shall instead be based on the first transfer to a Third Party.

[***].

“ Out-License Revenues ” shall mean all revenue actually received by Zogenix and/or its Subsidiaries under a License Agreement. To the extent such revenue is creditable or refundable by Zogenix, any amounts actually credited or refunded by Zogenix shall be credited against future Out-License Revenues in the period in which the credit or refund occurs.

“ Oxford Loan Facility ” means the loan facilities created under the Second Amended and Restated Loan and Security Agreement, dated as of October 8, 2010 among Oxford Finance LLC (as successor to Oxford Finance Corporation), the Lenders named therein and Zogenix, as amended as permitted herein and in the Intercreditor Agreement.

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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“ Party ” shall mean Zogenix or CHRP; and “ Parties ” shall mean Zogenix and CHRP.

“ Patent Office ” shall mean, with respect to the particular country or jurisdiction, the respective patent office responsible for reviewing and issuing Patents for such country or jurisdiction.

“ Patents ” shall mean any and all issued patents and pending patent applications, including all provisional applications, substitutions, continuations, continuations-in-part, divisions, and renewals, all letters patent granted thereon, and all patents-of-addition, reissues, reexaminations and extensions or restorations by existing or future extension or restoration mechanisms (including regulatory extensions), and all supplementary protection certificates, together with any foreign counterparts thereof anywhere in the Territory, composition of matter, formulation, or methods of manufacture or use thereof that are issued or filed on or after the date hereof, including those identified in Schedule 3.12(a)(1) to the Disclosure Schedule, in each case, which are owned, controlled by, issued to, licensed to or licensed by Zogenix or any of its Affiliates.

“ Permitted Liens ” shall mean (a) Liens for taxes not yet delinquent or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves have been established; (b) Liens in respect of property or assets imposed by law which were incurred in the ordinary course of business, such as carriers’, warehousemen’s, distributors’, wholesalers’, materialmen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty, are subject to a right of set-off or which are being contested in good faith and by appropriate proceedings; (c) Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, and other Liens to secure the performance of tenders, statutory obligations, contract bids, government contracts, performance and return of money bonds and other similar obligations, incurred in the ordinary course of business, whether pursuant to statutory requirements, common law or consensual arrangements; (d) Liens in favor of CHRP; (e) the License Agreements; (f) Liens upon any equipment acquired or held by Zogenix or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, so long as such Lien extends only to the equipment financed, and any accessions, replacements, substitutions and proceeds (including insurance proceeds) thereof or thereto, including Liens in favor of the Senior Lenders; (g) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of customs duties in connection with the importation of goods, (h) Liens of depository banks which constitute rights of setoff of a customary nature, whether arising by law or contract, with respect to funds deposited in deposit accounts maintained with such depository banks; and (i) Liens secured under the Senior Loan Documents in favor of the Senior Lenders. For avoidance of doubt, a Permitted Lien may not affect the rights of CHRP to any Included Product Payments. Notwithstanding the foregoing, commencing five (5) Business days following the making of the Revenue Investment Advance, Permitted Liens shall not include Liens in favor General Electric Capital Corporation under the Senior Loan Documents.

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“ Person ” shall mean an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, but not including a government or political subdivision or any agency or instrumentality of such government or political subdivision.

“ Pledge Agreement ” shall mean that Pledge and Security Agreement by and between Zogenix and CHRP, providing for the grant by Zogenix to CHRP of a Lien on and security interest in all of the issued and outstanding equity interests of Zogenix Europe Limited, a wholly-owned Subsidiary of Zogenix, in the form attached hereto as Exhibit K.

“ Prior CDA ” shall have the meaning set forth in Section 5.04(d) .

“ Purchase Agreement ” shall have the meaning set forth in Section 6.02(a)(x) .

“ Replacement Working Capital Lines ” means any replacement, extension or expansions of an existing revolving credit facility to provide working capital to Zogenix provided the obligations under such facility is secured only by inventory, accounts receivable and the proceeds thereof.

“ Regulatory Agency ” shall mean a Governmental Authority with responsibility for the approval of the marketing and sale of pharmaceuticals or other regulation of pharmaceuticals.

“ Regulatory Approval ” shall mean all approvals (including where applicable, pricing and reimbursement approval and schedule classifications), product and/or establishment licenses, registrations or authorizations of any Regulatory Agency necessary for the manufacture, use, storage, import, export, transport, offer for sale, or sale of the Included Products in the Territory.

“ Reports ” shall mean, with respect to the relevant period, (i) quarterly and year-end statements of Revenue Interest paid and payable to CHRP prepared by Zogenix for each calendar quarter and calendar year of the Term and, with respect to each quarterly report, for the twelve (12) consecutive months ending with the last month of such quarterly report, (ii) (A) quarterly and year-end statements of Net Sales of all Direct Product Sales; and (B) Co-Promotion Revenues and Out-License Revenues received by Zogenix, in each case including the basis for computation of such revenues, (iii) a reconciliation of such reports referred to in clause (i) above to all information and data deliverable to Zogenix, CHRP or their Affiliates by a Licensee, including the reports delivered pursuant to clause (ii) above, together with relevant supporting documentation, and (iv) such additional information as CHRP may reasonably request.

“ Revenue Interest ” shall mean any and all of the rights of Zogenix and/or any of its Subsidiaries, subject to the percentages set forth in Section 2.02(a) , to (i) Included Product Payments reported by Zogenix on a consolidated basis from [***] through and including the Maturity Date; and (ii) as received by Zogenix, any other payments for or derived from the Exploitation of Included Products in the Territory (which for purposes of determining the Revenue Interest Payments under Sections 2.02(a) and 2.04 shall be deemed part of “Included

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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Product Payments”). For clarity, (a) damage awards and settlement proceeds received by Zogenix and/or any of its Subsidiaries arising out of infringement actions and other litigation that are allocable as compensation for lost sales or profits of an Included Product or awarded as punitive damages shall be included in the Revenue Interest and (b) Excluded Revenue Interests shall not be included in the Revenue Interest.

“ Revenue Interest Payments ” shall have the meaning set forth in Section 2.02(a) .

“ Revenue Investment Advance ” shall have the meaning set forth in Section 2.03(a) .

“ Security Agreement ” shall mean the security agreement, by and between Zogenix, Zogenix Europe Limited and CHRP, providing for, among other things; the grant by Zogenix and Zogenix Europe Limited in favor of CHRP of a valid continuing, perfected lien on and security interest in, the Revenue Interest and the Collateral described therein, which Security Agreement shall be substantially in the form of Exhibit C .

“ Security Documents ” shall mean, collectively, the Assignment Agreement and the Security Agreement.

“ Senior Lenders ” shall mean Oxford Finance Corporation, Silicon Valley Bank, General Electric Capital Corporation, and any other lenders under the Senior Loan Documents. Notwithstanding the foregoing, commencing five (5) Business days following the making of the Revenue Investment Advance, the term “Senior Lenders” shall not include General Electric Capital Corporation.

“ Senior Loan Documents ” shall mean that certain (i) Second Amended and Restated Loan and Security Agreement, dated as of October 8, 2010 among Oxford Finance Corporation, the Lenders named therein and Zogenix, as amended, together with all documents and instruments executed therewith, and any Replacement Working Capital Lines created thereunder; and (ii) that certain Master Loan and Security Agreement, dated March 2, 2007, between Zogenix and General Electric Capital Corporation, as amended, together with all documents and instruments executed therewith.

“ Serious Adverse Drug Experience ” means any “serious adverse drug experience,” or an “unexpected adverse drug experience,” as those terms are defined at either 21 C.F.R. § 312.32 or 21 C.F.R. § 314.80.

“ Subsidiary ” or “ Subsidiaries ” shall mean with respect to any Person (i) any corporation having at least a majority of the capital stock entitled to vote in the election of directors under ordinary circumstances owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person.

“ Sumavel DosePro ” shall mean the pharmaceutical product currently marketed under the product name “Sumavel ^® DosePro ^® ” and any other trade or product name it is subsequently marketed under and any improvements thereto.

“ Term ” shall mean the term of this Agreement, as provided in Section 7.01 hereof.

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“ Territory ” shall mean: (i) with respect to Sumavel DosePro, the entire world; (ii) with respect to ZX002, the United States and any other jurisdiction, if any, Zogenix or its Subsidiaries hereafter acquires rights to Exploit ZX002; and (iii) with respect to any other Included Product, the jurisdictions in which Zogenix or its Subsidiaries now owns or controls or hereafter acquires rights to Exploit such Included Product.

“ Third Party ” shall mean any Person other than Zogenix or CHRP or their respective Affiliates.

“ Transaction Documents ” shall mean, collectively, this Agreement, the Assignment Agreement, the Security Agreement, the Pledge Agreement, the Intercreditor Agreement, the Purchase Agreement, the Warrants, and all other documents delivered in connection therewith.

“ UCC ” shall mean the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.

“ United States ” shall mean the United States of America.

“ Warrants ” shall have the meaning set forth in Section 6.02(a)(x) .

“ Zogenix ” shall have the meaning set forth in the first paragraph hereof.

“ Zogenix Indemnified Party ” shall have the meaning set forth in Section 8.05(b) .

“ ZX002 ” shall mean the pharmaceutical product currently under development by Zogenix and its Subsidiaries under the name “ZX002” and any trade or product name subsequently adopted for the sale and marketing of such product and any improvements thereto.

ARTICLE II

ASSIGNMENT

Section 2.01 Assignments .

(a) Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Zogenix agrees to assign, transfer and convey to CHRP, and CHRP agrees to accept the assignment, transfer and conveyance from Zogenix, free and clear of all Liens (except the Permitted Liens and those Liens created in favor of CHRP pursuant to the Security Documents) and subject to the conditions set forth in ARTICLE VI , the Assigned Rights pursuant to that certain Assignment Agreement in the form attached hereto as Exhibit A . CHRP’s ownership interest in the Assigned Rights so assigned and the Lien granted under the Security Documents shall vest simultaneously with and only upon Zogenix’s receipt of the full, irrevocable, non-refundable and non-deductible Revenue Investment Advance pursuant to Section 2.03(a) for such Assigned Rights.

(b) Upon the earlier of (i) the Maturity Date and full payment by Zogenix of its obligations hereunder or (ii) Zogenix’s exercise and payment of its buy-out right under Section 7.02(b)(i) , CHRP agrees to assign, transfer and convey to Zogenix, and Zogenix agrees to accept the assignment, transfer and conveyance from CHRP of, any and all rights in and to the Assigned Rights, free and clear of all Liens created by CHRP.

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Section 2.02 Payments to CHRP .

(a) Subject to CHRP paying to Zogenix the Revenue Investment Advance pursuant to Section 2.03(a) , CHRP shall be entitled to receive the following amounts (collectively, the “ Revenue Interest Payments ”) in respect of Included Product Payments generated from the period commencing April 1, 2011 through the Maturity Date:

(i)

5.0% of the first Seventy Five Million Dollars ($75,000,000) of annual Included Product Payments; plus

(ii)

2.5% of annual Included Product Payments in excess of Seventy Five Million Dollars ($75,000,000) up to and including One Hundred Fifty Million Dollars ($150,000,000); plus

(iii)

0.5% of annual Included Product Payments in excess of One Hundred Fifty Million Dollars ($150,000,000);

provided, however, that in the event the Astellas Co-Promotion Agreement is terminated prior to June 30, 2013 (an “ Astellas Termination ”), the royalty rate specified in clause (i) above shall be increased to 5.75%. If end-user Net Sales of Sumavel DosePro in the United States for the four (4) calendar quarters immediately following the effective date of an Astellas Termination are equal to or greater than [***] of the [***] for such period, or if ZX002 is launched or being commercialized in the United States prior to or during the four (4) calendar quarters immediately following the Astellas Termination, then the royalty rate specified in clause (i) will revert to 5.0% for the remainder of the Term.

Notwithstanding the foregoing, revenue received by Zogenix from the Exploitation of Sumavel DosePro outside the United States shall be included in the definition of Included Product Payments only to the extent annual end-user net sales of Sumavel DosePro outside of the United States exceed Ten Million Dollars ($10,000,000).

(b) In addition to the payments made pursuant to Section 2.02(a) above, and subject to CHRP paying to Zogenix the Revenue Investment Advance pursuant to Section 2.03(a) , Zogenix will make the following fixed payments (each a “ Fixed Payment ”) to CHRP on the dates (each, a “ Fixed Payment Date ”):

(i)

Ten Million Dollars ($10,000,000) on January 31, 2015;

(ii)

Ten Million Dollars ($10,000,000) on January 31, 2016;

(iii)

Ten Million Dollars ($10,000,000) on January 31, 2017.

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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Zogenix shall be permitted to pay Fixed Payments prior to the Fixed Payment Dates; provided, however, the payment or early payment of a Fixed Payment hereunder shall not reduce, extinguish or adversely affect the rights of CHRP to Revenue Interest Payments prior to the Maturity Date, except as otherwise provided in this Section 2.02 above or pursuant to Sections 2.04 or 7.02(b) .

Section 2.03 Advances to Zogenix .

(a) Revenue Investment Advance . Subject to the terms and conditions set forth herein, including Section 6.02 , CHRP shall advance to Zogenix the sum of Thirty Million Dollars ($30,000,000) (the “ Revenue Investment Advance ”) no later than twelve (12) Business Days following the date of this Agreement.

(b) Advance Procedure . The Revenue Investment Advance to be made by CHRP to Zogenix under Section 2.03(a) shall be paid by wire transfer of immediately available funds to the account(s) designated by Zogenix. If the conditions set forth in Section 6.02 for advancement of the Revenue Investment Advance are not satisfied within twelve (12 ) Business Days following the date of this Agreement, then the provisions of Section 7.02(a) shall govern.

Section 2.04 Multiple Stepdown Date .

(a) Multiple Stepdown Date . From and after the Multiple Stepdown Date, if any, the Revenue Interest Payments shall be reduced to, and Investor will receive 0.5% of Included Product Payments solely related to Sumavel DosePro and ZX002, until the Maturity Date.

(b) Material Adverse Effect . From and after the Multiple Stepdown Date, for purposes of Article VII hereof, “Material Adverse Effect” as used in the definition of “Event of Default” shall mean (i) a Bankruptcy Event with respect to Zogenix or (ii) a material adverse effect on the right of CHRP to receive the Revenue Interest Payments or any other payment due to CHRP hereunder.

(c) Release of Liens . As set forth in the Security Agreement, the Liens granted under the Security Agreement shall be released from and after the Multiple Stepdown Date.

Section 2.05 No Assumed Obligations .

Notwithstanding any provision in this Agreement or any other Transaction Document or writing to the contrary, CHRP is accepting the assignment of only the Assigned Rights and is not assuming any liability or obligation of Zogenix or any of its Affiliates of whatever nature, whether presently in existence or arising or asserted hereafter, whether known or unknown, and whether under the Aradigm Agreement, Astellas Co-Promotion Agreement, the Elan Agreement, any License Agreement, any Co-Promotion Agreement or any Transaction Document or otherwise. All such liabilities and obligations shall be retained by and remain obligations and liabilities solely of Zogenix or its Affiliates (the “ Excluded Liabilities and Obligations ”).

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Section 2.06 Excluded Assets .

CHRP does not, by assignment of the rights granted hereunder or otherwise pursuant to any of the Transaction Documents, acquire any assets of Zogenix or any of its Affiliates, other than to the Revenue Interest and the Assigned Rights.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF ZOGENIX

Except with respect to any section of this ARTICLE III as set forth in the correspondingly identified section of the disclosure schedule delivered by Zogenix to CHRP concurrently herewith (the “ Disclosure Schedule ”), Zogenix hereby represents and warrants to CHRP, as of the date of this Agreement, the following:

Section 3.01 Organization .

Zogenix is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all licenses, authorizations, consents and approvals required to carry on its business as now conducted and in connection with the transactions contemplated by the Transaction Documents. Zogenix is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which it is required to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. Schedule 3.01 to the Disclosure Schedule hereto contains a list of all Subsidiaries of Zogenix as of the date hereof. Each Subsidiary is duly organized, validly existing and in good standing under the laws of the state in which it was organized, and has all powers and all licenses, authorizations, consents and approvals required to carry on its business as now conducted and in connection with the transactions contemplated by the Transaction Documents. Each Subsidiary is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which it is required to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect.

Section 3.02 Corporate Authorization .

Zogenix has all necessary power and authority to enter into, execute and deliver the Transaction Documents and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder. The Transaction Documents have been duly authorized, executed and delivered by Zogenix and each Transaction Document constitutes the valid and binding obligation of Zogenix, enforceable against it in accordance with such Transaction Document’s respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles (regardless of whether enforcement is sought in equity or at law).

Section 3.03 Governmental Authorization .

The execution and delivery by Zogenix of the Transaction Documents, and the performance by Zogenix of its obligations hereunder and thereunder, does not require any notice to, action or consent by, or in respect of, or filing with, any Governmental Authority, except with respect to the Security Documents for the filing and registration of financing statements under the UCC, filings with any Patent Office, and such other notice, action, consent or filing as may be required to perfect the security interest granted in the Collateral.

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Section 3.04 Ownership .

(a) Except for certain non-exclusive licenses granted to Elan under the Elan Agreement and Aradigm under the Aradigm Agreement, other than the Permitted Liens, (i) Zogenix owns, or holds a valid license under all of the Intellectual Property and the Regulatory Approvals, with respect to Sumavel DosePro and ZX002 free and clear of all Liens, and (ii) no license or covenant not to sue under any Intellectual Property or Regulatory Approvals has been granted to any Third Party in the Territory.

(b) Subject only to the Permitted Liens and the rights of Senior Lenders under the Senior Loan Documents, (i) Zogenix, immediately prior to the assignment of the Assigned Rights, owns, and is the sole holder of, all rights to receive the Revenue Interest, free and clear of all Liens; (ii) Zogenix has not transferred, sold, conveyed, assigned, pledged or otherwise disposed of, or agreed to transfer, sell, convey, assign, pledge or otherwise dispose of any portion of the Revenue Interest or the Collateral other than as contemplated by this Agreement; (iii) other than CHRP’s rights with respect to the Revenue Interest in respect of Included Product Payments generated from and after [***], Zogenix is the only party entitled to receive the payments from sales of Sumavel DosePro to Third Parties in the United States; (iv) Zogenix has the full right to transfer, convey and assign to CHRP the rights and interests in and to the Revenue Interest being transferred, conveyed and assigned to CHRP and to grant a security interest in the Collateral pursuant to this Agreement and the other Transaction Documents without any requirement to obtain the consent of any Person; (v) subject to the payment of the Revenue Investment Advance by CHRP to Zogenix pursuant to Section 2.03 , by the delivery to CHRP of the executed Assignment Agreement, Zogenix shall transfer, convey and assign to CHRP the rights and interests in and to the Revenue Interest being transferred, conveyed and assigned to CHRP pursuant to this Agreement and the Assignment Agreement, free and clear of any Liens; and (vi) subject to the payment of the Revenue Investment Advance by CHRP to Zogenix pursuant to Section 2.03 , at the Closing, and upon the delivery of the Assignment Agreement to CHRP by Zogenix, CHRP shall have acquired good and valid rights and interests of Zogenix in and to the Revenue Interest being transferred, conveyed and assigned to CHRP pursuant to this Agreement and the Assignment Agreement, free and clear of any and all Liens.

Section 3.05 Financial Statements; Net Sales .

(a) The Financial Statements are complete and accurate in all material respects, were prepared in accordance with GAAP and present fairly in all material respects the financial position and the financial results of Zogenix as of the dates and for the periods covered thereby.

(b) Prior to the date hereof, Zogenix has provided to CHRP a true and complete list of all Net Sales of Sumavel DosePro in the Territory, on a country-by-country basis, and royalties on Net Sales paid by Licensees through March 31, 2011, which list is attached to that certain letter dated June 30, 2011 from Zogenix to CHRP.

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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Section 3.06 No Undisclosed Liabilities .

Except for those liabilities (i) specifically identified on the face of the Financial Statements or (ii) incurred by Zogenix in the ordinary course of business since December 31, 2010, there are no material liabilities of Zogenix taken as a whole, of any kind whatsoever, whether accrued, contingent, absolute, determined or determinable.

Section 3.07 Solvency .

No event has occurred which, with the passage of time or the giving of notice, would constitute a Bankruptcy Event with respect to Zogenix. Assuming consummation of the transactions contemplated by the Transaction Documents, the present fair saleable value of Zogenix’s assets is greater than the amount required to pay its debts as they become due. After giving effect to the transactions contemplated by the Transaction Documents, Zogenix does not have unreasonably small capital with which to engage in its business.

Section 3.08 Litigation .

There is no (i) action, suit, arbitration proceeding, claim, investigation or other proceeding pending or, to the Knowledge of Zogenix, threatened against Zogenix, or its Subsidiaries or (ii) governmental inquiry pending or, to the Knowledge of Zogenix, threatened against Zogenix or its Subsidiaries, in each case with respect to clauses (i) and (ii) above, which, if adversely determined, would question the validity of, or would reasonably be expected to adversely affect the transactions contemplated by any of the Transaction Documents or would reasonably be expected to have a Material Adverse Effect. To the Knowledge of Zogenix, there is no action, suit, claim, proceeding or investigation pending or threatened against any other Person relating to the Revenue Interest, which, if adversely determined, would question the validity of, or would affect the transactions contemplated by any of the Transaction Documents or would reasonably be expected to have a Material Adverse Effect. To the Knowledge of Zogenix, there are no judgments, orders, writs or decrees of any Governmental Authority applicable to the conduct of Zogenix’s business as currently conducted.

Section 3.09 Compliance with Laws .

None of Zogenix or any of its Subsidiaries (i) is in violation of, has violated, or to the Knowledge of Zogenix, is under investigation with respect to, or (ii) to the Knowledge of Zogenix, has been threatened to be charged with or given notice of any violation of any law, rule, ordinance or regulation of, or any judgment, order, writ, decree, permit or license entered by, any Governmental Authority applicable to Zogenix or the Revenue Interest, which would reasonably be expected to have a Material Adverse Effect.

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Section 3.10 Conflicts .

(a) Upon delivery by the Senior Lenders of the Intercreditor Agreement, neither the execution and delivery of any of the Transaction Documents nor the performance or consummation of the transactions contemplated hereby and thereby will: (i) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, in any material respects any provisions of: (A) any law, rule, ordinance or regulation of any Governmental Authority, or any judgment, order, writ, decree, permit or license of any Governmental Authority, to which Zogenix or any of its Subsidiaries or any of their respective assets or properties related to the Exploitation of Sumavel DosePro or ZX002 in the Territory may be subject or bound; or (B) any contract, agreement, commitment or instrument to which Zogenix or its Subsidiaries is a party or by which Zogenix or any of its Subsidiaries or any of their respective assets or properties related to the Exploitation of Sumavel DosePro or ZX002 in the Territory is bound or committed; (ii) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, any provisions of the certificate of incorporation or by-laws (or other organizational or constitutional documents) of Zogenix; (iii) except for the filing of the UCC-1 financing statements required hereunder, filings with the United States Patent and Trademark Office or any foreign equivalents thereof in the Territory, the Third Party Consents, and such other notifications, filings and consents as may be required to perfect the security interest in the Collateral, require any notification to, filing with, or consent of, any Person or Governmental Authority; (iv) give rise to any right of termination, cancellation or acceleration of any right or obligation of Zogenix or any other Person or to a loss of any benefit, in each case relating to the Revenue Interest; or (v) result in the creation or imposition of any Lien on (y) the assets or properties of Zogenix related to the Exploitation of Sumavel DosePro or ZX002 in the Territory, or (z) the Revenue Interest or any Collateral, other than Liens on behalf of CHRP.

(b) Neither Zogenix nor its Subsidiaries have granted, nor does there exist, any Lien on the Revenue Interest or any Collateral other than pursuant to the Security Documents or the Permitted Liens.

Section 3.11 Subordination .

Except for the Liens of the Senior Lenders, the claims and rights of CHRP created by any Transaction Document in and to the Revenue Interest and other Assigned Rights and any other Collateral are not subordinated to any creditor of Zogenix or any other Person.

Section 3.12 Intellectual Property .

(a) Schedule 3.12(a) to the Disclosure Schedule sets forth an accurate, true and complete list of (1) Patents (including pending Patent applications) and utility models, (2) trade names, common law trademarks, common law service marks, registered trademarks, registered service marks, and applications for trademark registration or service mark registration, and (3) domain name registrations controlled and websites owned by Zogenix, in each case with respect to clauses (1), (2) and (3) above in this subsection (a) that are owned by, or licensed to, Zogenix. For each item of Intellectual Property listed on Schedule 3.12(a) to the Disclosure Schedule, Zogenix has identified, as applicable, [***]. Except as disclosed therein, (x) each item of

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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Intellectual Property listed on Schedule 3.12(a)(1) to the Disclosure Schedule and owned by Zogenix, to the Knowledge of Zogenix, is valid and subsisting and no such listed Intellectual Property has lapsed, expired, been cancelled or become abandoned and (y) to the Knowledge of Zogenix, each item of Intellectual Property listed on Schedule 3.12(a)(1) to the Disclosure Schedule which is licensed by Zogenix from a Third Party is, to the Knowledge of Zogenix, valid and subsisting and no such listed Intellectual Property has lapsed, expired, been cancelled or become abandoned. Except for references identified to the applicable Patent Office as of [***], during prosecution of the Patent applications, to the Knowledge of Zogenix, there are no published patents, patent applications, articles or prior art references that would reasonably be expected to materially adversely affect the validity or enforceability of any of the Patents listed in Schedule 3.12(a)(1) to the Disclosure Schedule and would reasonably be expected to have a Material Adverse Effect. To the Knowledge of Zogenix, each Person who has or has had any rights in or to the Intellectual Property listed on Schedule 3.12(a)(1) to the Disclosure Schedule that are owned by, or licensed to, Zogenix or any of its Subsidiaries, including, each inventor named on the Patents and Patent applications listed in Schedule 3.12(a)(1) to the Disclosure Schedule and filed by Zogenix and/or its Subsidiaries, has executed an agreement assigning his, her or its entire right, title and interest in and to such Intellectual Property, and the inventions embodied, described and/or claimed therein, to the owner thereof and no such Person has any contractual or other obligation that would preclude or conflict with Exploitation of the Included Products in the Territory.

(b) Schedule 3.12(b) to the Disclosure Schedule sets forth an accurate, true and complete list of all written agreements pursuant to which Zogenix has the legal right to exploit intellectual property that is owned by a Third Party with respect to the Exploitation of the Included Products in the Territory or the manufacture or supply of Included Products for sale in the Territory. There are no unpaid fees or royalties under any agreement listed on Schedule 3.12(b) to the Disclosure Schedule that have become due, or are expected to become overdue, as of the Closing Date.

(c) To the Knowledge of Zogenix, each agreement listed in Schedule 3.12(b) to the Disclosure Schedule is legal, valid, binding, enforceable, and in full force and effect. Each of Zogenix or its Subsidiaries is not in breach of such listed agreements and, to the Knowledge of Zogenix, no circumstances or grounds exist that would give rise to a claim of breach or right of rescission, termination, revision, or amendment of any of the agreements specified in Schedule 3.12(b) to the Disclosure Schedule, including the execution, delivery and performance of this Agreement and the other Transaction Documents.

(d) Except for Intellectual Property licensed to Zogenix pursuant to any agreement listed on Schedule 3.12(b) to the Disclosure Schedule and the Patents listed on Schedule 3.12(a) and other non-patentable Intellectual Property owned by Zogenix, no other Intellectual Property is necessary to make or have made the Sumavel DosePro in the United States or for sale in the United States and to Exploit Sumavel DosePro in the United States. Zogenix has not received any notice from a Third Party alleging that the manufacture, use or sale of Sumavel DosePro

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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infringes on any rights of such Third Party, and, to the knowledge of Zogenix, the manufacture, use or sale of Sumavel DosePro in the United States does not infringe upon any Patent rights of any Third Party. To the Knowledge of Zogenix, no other Intellectual Property is necessary to make, sell or exploit the ZX002 product in the United States, and that the manufacture, use or sale of ZX002 product in the United States does not infringe upon any Patent rights of any Third Party.

(e) Except for the Permitted Liens: (i) Zogenix possesses sole, exclusive, valid, marketable and unencumbered title to the Intellectual Property for which it is listed as the owner on Schedule 3.12(a) to the Disclosure Schedule; and (ii) there are no Liens on or to any Intellectual Property listed on Schedule 3.12(a) to the Disclosure Schedule that it owns.

(f) Zogenix has the full right, power and authority to grant all of the rights and interests granted to CHRP in this Agreement and to Astellas under the Astellas Co-Promotion Agreement.

(g) To the Knowledge of Zogenix, there are no maintenance, annuity or renewal fees that are currently overdue beyond their allotted grace period for any of the Intellectual Property listed on Schedule 3.12(a) to the Disclosure Schedule, nor have any applications or registrations therefor lapsed or become abandoned, been cancelled or expired except as set forth in Schedule 3.12(a) to the Disclosure Schedule.

(h) No payments by Zogenix are due to any other Person in respect of the Included Products or the Intellectual Property, other than pursuant to those agreements listed on Schedule 3.12(b) to the Disclosure Schedule and those fees payable to Patent Offices in connection with the prosecution and maintenance of such Intellectual Property and associated attorney fees, it being acknowledged by Zogenix that CHRP shall have no obligation to make such payments.

(i) None of Zogenix, or, to the Knowledge of Zogenix, any other Person, has undertaken or omitted to undertake any acts, and no circumstance or grounds exist, that would invalidate, reduce or eliminate, in whole or in part, the enforceability or scope of (i) any Intellectual Property or, in the case of Intellectual Property owned or licensed by Zogenix, Zogenix’s entitlement to exclusively exploit such Intellectual Property, except during routine prosecution before relevant government agencies or (ii) Zogenix’s right to enjoy any Revenue Interest, in each of (i) and (ii) that would reasonably be expected to have a Material Adverse Effect.

(j) There is no pending, decided or settled opposition, interference proceeding, reexamination proceeding, cancellation proceeding, injunction, lawsuit, hearing, investigation, complaint, arbitration, mediation, demand, International Trade Commission investigation, decree, or any other dispute, disagreement, or claim, in each case alleged in writing to Zogenix (collectively referred to hereinafter as “ Disputes ”), nor has any such Dispute to the Knowledge of Zogenix been threatened, in each case challenging the legality, validity, enforceability or ownership of any Intellectual Property or the Included Products or which would give rise to a credit or right of set off against any Revenue Interest.

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(k) Zogenix has previously made available to CHRP all documents related to the Intellectual Property requested by CHRP or its counsel and that would reasonably be considered to be material to CHRP’s decision to make the Revenue Investment Advance.

Section 3.13 Regulatory Approval .

(a) Schedule 3.13 to the Disclosure Schedule attached hereto contains a list of all Regulatory Approvals of Included Products in the Territory. Zogenix has previously made available to CHRP such Regulatory Approvals, all material correspondence with Regulatory Agencies (including the EMEA and the FDA) with respect to such Regulatory Approvals, and all adverse event reports with respect to the Included Products and all requested documents related to the Included Products in each case in the possession and control of Zogenix. Zogenix has not withheld any document or information with respect to the Included Products that would reasonably be considered to be material to CHRP’s decision to make the Revenue Investment Advance.

(b) Zogenix and its Subsidiaries, and, to the Knowledge of Zogenix, Zogenix’s Licensees, are in compliance with, and have materially complied with, all applicable federal, state, local and foreign laws, rules, regulations, standards, orders and decrees governing its business, including all regulations promulgated by each Regulatory Agency in the Territory, the failure of compliance with which would reasonably be expected to result in a Material Adverse Effect; Zogenix has not received any notice citing action or inaction by any of them that would constitute any non-compliance with any applicable federal, state, local and foreign laws, rules, regulations, or standards, which would reasonably be expected to result in a Material Adverse Effect.

(c) To the Knowledge of Zogenix, the studies, tests and preclinical and clinical trials conducted relating to the Included Products in the Territory were conducted in all material respects in accordance with experimental protocols, procedures and controls pursuant to, where applicable, accepted professional and scientific standards at the time when conducted; the descriptions of the results of such studies, tests and trials provided to CHRP are accurate in all material respects; and Zogenix has not received any notices or correspondence from any Regulatory Agency in the Territory or comparable authority requiring the termination, suspension, material modification or clinical hold of any such studies, tests or preclinical or clinical trials conducted by or on behalf of Zogenix, which termination, suspension, material modification or clinical hold would reasonably be expected to result in a Material Adverse Effect.

Section 3.14 Material Contracts .

(a) Neither Zogenix nor any of its Subsidiaries is in breach of or in default under any Material Contract, which breach or default, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. To the Knowledge of Zogenix, nothing has occurred and no condition exists that would permit any other party thereto to terminate any Material Contract. Zogenix has not received any notice or, to the Knowledge of Zogenix, any threat of termination of any Material Contract. To the Knowledge of Zogenix, no other party to a Material Contract is in material breach of or in material default under such Material Contract. All Material Contracts are valid and binding on Zogenix and, to the Knowledge of Zogenix, on each other party thereto, and are in full force and effect. Schedule 3.14 to the Disclosure Schedule is a complete list of all Material Contracts.

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(b) No event of default has occurred, and no event has occurred which with the passage of time and the giving of notice would constitute an event of default under, or otherwise violate any covenant and representation under, or entitle any Senior Lender to accelerate payment of any obligation under, or permit a Senior Lender to foreclose on any collateral under and Senior Loan Document, except as set forth on Schedule 3.14 to the Disclosure Schedule and waived in writing prior to the date hereof.

i. Zogenix has provided to CHRP a true, complete and correct copy of the Astellas Co-Promotion Agreement, as amended, supplemented or otherwise modified from time to time through the date hereof, which is annexed to that certain letter dated June 30, 2011 from Zogenix to CHRP. Neither Zogenix nor, to the Knowledge of Zogenix, Astellas, has impaired, waived, altered or modified in any respect, whether by way of any consent or otherwise, the Astellas Co-Promotion Agreement or any provisions thereof.

ii. Zogenix has not released Astellas, in whole or in part, from any of its material obligations under the Astellas Co-Promotion Agreement.

iii. Zogenix has not received any notice from Astellas requesting any termination of the Astellas Co-Promotion Agreement, nor has Astellas communicated in writing any desire or intent to do so.

iv. There has been no correspondence or other written communication sent by or on behalf of Zogenix to, or received by or on behalf of Zogenix from, Astellas, the subject matter of which would reasonably be expected to result in a Material Adverse Effect.

Section 3.15 Place of Business .

Zogenix’s principal place of business is set forth on Schedule 3.15 to the Schedule.

Section 3.16 Broker’s Fees .

Neither Zogenix nor any of its Affiliates have taken any action that would entitle any Person to any commission or broker’s fee in connection with the transactions contemplated by the Transaction Documents.

Section 3.17 Information .

No written statement, information, report or materials prepared by or on behalf of Zogenix and its Subsidiaries and furnished to CHRP by or on behalf of Zogenix in connection with any Transaction Document or any transaction contemplated hereby or thereby, no written representation, warranty or statement made by Zogenix in any Transaction Document, and no

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Schedule or Exhibit hereto, in each case taken in the aggregate, contains any untrue statement of a material fact or omits any statement of material fact necessary in order to make the statements made therein in light of the circumstances under which they were made not materially misleading.

Section 3.18 Security Agreement .

The Security Agreement, when executed and delivered by Zogenix and CHRP, creates in favor of CHRP a legal, valid and enforceable (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (regardless of whether enforcement is sought in equity or at law)) security interest in the Collateral and proceeds thereof. In the case of the Collateral described in the Security Agreement, when financing statements and other filings specified on Schedule 3.18 to the Disclosure Schedule in appropriate form are or have been filed in the offices specified on Schedule 3.18 to the Disclosure Schedule, the Security Agreement shall constitute a fully perfected Lien on, and security interest, junior only to the Liens established under the Senior Loan Documents, in, all right, title and interest of Zogenix in the Collateral and the proceeds thereof to the extent a security interest therein can be perfected by such filings as security for the Obligations (as defined in the Security Agreement).

Section 3.19 Bankruptcy Event .

No Bankruptcy Event has occurred with respect to Zogenix or, to the Knowledge of Zogenix, with respect to Astellas.

Section 3.20 Material Adverse Effect .

Since the filing of Zogenix’s Annual Report on Form 10-K for the year ended December 31, 2010, to the Knowledge of Zogenix, no event has occurred which, with the passage of time and/or the giving of notice, would constitute a Material Adverse Effect and no Material Adverse Effect has occurred with respect to Zogenix or, to the Knowledge of Zogenix, with respect to Astellas.

Section 3.21 Reporting Company Status .

Zogenix is registered as a reporting company under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). Zogenix has duly filed all materials and documents required to be filed pursuant to all reporting obligations under either Section 13(a) or 15(d) of the Exchange Act, if any, prior to the offer and sale of the Securities. The common stock of Zogenix (the “ Common Stock ”) is listed and traded on NASDAQ, and to the Knowledge of Zogenix, there is no pending or contemplated action or proceeding of any kind to suspend the trading of the Common Stock.

Section 3.22 SEC Filings .

None of the reports or documents filed by Zogenix (the “ SEC Documents ”) with the Securities and Exchange Commission (the “ Commission ”), contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein, or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading.

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Section 3.23 Foreign Corrupt Practices Act .

Neither Zogenix, nor any of its Subsidiaries, nor, to the Knowledge of Zogenix, any of its and their respective directors, officers or other employees has (i) used any Zogenix funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to any political activity; (ii) made any direct or indirect unlawful payment of Zogenix funds to any foreign or domestic government official; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other similar payment to any person.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF CHRP

CHRP represents and warrants to Zogenix the following:

Section 4.01 Organization .

CHRP is a limited partnership duly formed and validly existing under the laws of the State of Delaware.

Section 4.02 Authorization .

CHRP has all necessary power and authority to enter into, execute and deliver the Transaction Documents and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder and thereunder. The Transaction Documents have been duly authorized, executed and delivered by CHRP and each Transaction Document constitutes the valid and binding obligation of CHRP, enforceable against CHRP in accordance with their respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles (regardless of whether enforcement is sought in equity or at law).

Section 4.03 Broker’s Fees .

CHRP has not taken any action that would entitle any Person to any commission or broker’s fee in connection with the transactions contemplated by the Transaction Documents.

Section 4.04 Conflicts .

Neither the execution and delivery of this Agreement or any other Transaction Document nor the performance or consummation of the transactions contemplated hereby or thereby will: (i) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, in any material respects any provisions of: (A) any law,

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rule or regulation of any Governmental Authority, or any judgment, order, writ, decree, permit or license of any Governmental Authority, to which CHRP or any of its assets or properties may be subject or bound; or (B) any contract, agreement, commitment or instrument to which CHRP is a party or by which CHRP or any of its assets or properties is bound or committed; (ii) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, any provisions of the organizational or constitutional documents of CHRP; or (iii) require any notification to, filing with, or consent of, any Person or Governmental Authority.

Section 4.05 Financial Capacity .

CHRP has and will have at the Closing sufficient funds, from cash and cash equivalents on hand and/or from proceeds of credit facilities available to it, for CHRP to make the Revenue Investment Advance.

ARTICLE V

COVENANTS

During the Term, the following covenants shall apply:

Section 5.01 Consents and Waivers; Exploitation .

(a) Zogenix shall use its commercially reasonable efforts to obtain and maintain any required consents, acknowledgements, certificates or waivers so that the transactions contemplated by this Agreement or any other Transaction Document may be consummated and shall not result in any default or breach or termination of any of the Material Contracts.

(b) Zogenix shall use commercially reasonable efforts (including by entering into a License Agreement) to develop, seek Regulatory Approval of and thereafter to Exploit the Included Products, including Sumavel DosePro and ZX002, in the Territory.

Section 5.02 Access; Information .

(a) Subject to Zogenix’s obligations under any Material Contract, promptly after receipt by Zogenix or any of its Subsidiaries of notice of any action, claim, investigation, proceeding (commenced or threatened in writing), certificate, offer, proposal, material correspondence or other material written communication relating to the transactions contemplated by this Agreement, any other Transaction Document, the Revenue Interest, the Astellas Co-Promotion Agreement, any License Agreement relating to the Exploitation of the Included Products in the Territory, or any Co-Promotion Agreement, Zogenix shall inform CHRP of the receipt of such notice and the substance of such action, claim, investigation, proceeding, certificate, offer, proposal, correspondence or other written communication and shall furnish CHRP with a copy of such notice and any related materials with respect to such action, claim, investigation, proceeding, certificate, offer, proposal, correspondence or other written communication.

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(b) Zogenix shall keep and maintain, and use commercially reasonable efforts (as if it were the sole owner of the Revenue Interest) to cause all Licensees and distributors to keep and maintain, at all times full and accurate books of account and records adequate to reflect correctly all payments paid and/or payable with respect to the Revenue Interest as required by the applicable License Agreement.

(c) Subject to Section 11(e) of the Security Agreement with respect to inspections of Collateral after an Event of Default thereunder, CHRP and any of CHRP’s representatives shall have the right, from time to time (but no more frequently than once per year without cause, as determined by CHRP in its reasonable discretion, and no more than one time with respect to each period audited) upon prior written notice given in accordance with this Section 5.02(c) , to visit Zogenix’s and its Subsidiaries’ offices and properties where Zogenix and its Subsidiaries keep and maintain books and records relating or pertaining to the Revenue Interest and the Collateral for purposes of conducting an audit of such books and records with respect thereto, and to inspect, copy and audit such books and records, during normal business hours. Upon [***] given by CHRP to Zogenix, Zogenix will provide CHRP and any of CHRP’s representatives reasonable access to such books and records. Any underpayment in the amount due and payable to CHRP shall be paid to Zogenix within [***]. Any overpayment in the amount paid to CHRP for the period audited shall be credited against future amounts payable to CHRP hereunder. In the event an audit reveals the existence of an underpayment by Zogenix of [***] of amounts due for the period audited, the cost of such audit shall be borne by Zogenix.

(d) Zogenix shall cause its responsible officers and employees, and permit its independent certified accountants, to participate in quarterly calls with CHRP and in ad hoc meetings or calls reasonably requested by CHRP to discuss the business, operations, properties and financial and other condition of Zogenix with respect to matters relating to the Revenue Interest and the Collateral and provide CHRP with such information regarding Zogenix as reasonably requested by CHRP.

(e) Zogenix shall maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in accordance with GAAP.

Section 5.03 Material Contracts; License Agreements and Co-Promotion Agreements .

(a) Zogenix shall use commercially reasonable efforts (as if it was the sole owner of the Revenue Interest) to comply with all terms and conditions of and fulfill all of its obligations under all Material Contracts and the Senior Loan Documents. Zogenix shall not amend any Material Contract or issue any consents or other approvals under any such Material Contract in a manner which would materially adversely affect CHRP’s rights hereunder (including the right to receive the Revenue Interest Payments) without the prior written consent of CHRP, which consent shall not be unreasonably withheld, conditioned or delayed. Zogenix shall use commercially reasonable efforts (as if it was the sole owner of the Revenue Interest) to take all

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actions necessary to enforce its rights and the rights of CHRP under any such Material Contract (subject to consultation with and reasonable direction and approval of CHRP, which approval shall not be unreasonably withheld, conditioned or delayed) and perform all of its obligations under any such Material Contract.

(b) Zogenix shall have the right to [***] with respect to [***], in each case [***] .

(d) Zogenix shall have the right to terminate the Astellas Co-Promotion Agreement [***].

(e) Zogenix shall retain sole decision-making authority with respect to all commercial decisions related to the Exploitation of the Included Products and CHRP shall have no consent right, except as otherwise set forth in Section 5.09 .

Section 5.04 Confidentiality; Public Announcement .

(a) All Confidential Information furnished by the Disclosing Party, in connection with this Agreement and any other Transaction Document and the transactions contemplated hereby and thereby shall be kept confidential by the Receiving Party, and shall be used by the Receiving Party only in connection with this Agreement and any other Transaction Document and the transactions contemplated hereby and thereby. Notwithstanding the foregoing, the Receiving Party may disclose such Confidential Information to its existing or potential acquirers, partners, directors, employees, managers, officers, investors, bankers, lenders or other sources of financing, advisors (including financial advisors, attorneys and accountants), trustees, representatives, and other Persons on a need to know basis provided that such Persons shall be informed of the confidential nature of such information and shall be obligated to keep such information confidential pursuant to the terms of this Section 5.04(a) and the Receiving Party shall be responsible for such Person’s failure to comply with such obligations.

(b) Each Party agrees not to disclose to any Third Party the terms and conditions of this Agreement or any other Transaction Document or issue any press release with respect to this Agreement or any other Transaction Document without the prior approval of the other Party, except a Party may disclose the terms and conditions hereof (i) to its existing or potential acquirers, partners, directors, employees, managers, officers, investors, bankers, lenders or other

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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sources of financing, advisors (including financial advisors, attorneys and accountants), trustees, representatives, and other Persons on a need to know basis, provided that such Persons shall be informed of the confidential nature of such information and shall be obligated to keep such information confidential pursuant to the terms of this Section 5.04(b) and the Party disclosing such terms and conditions shall be responsible for such Person’s failure to comply with such obligations. Notwithstanding the foregoing, the Parties agree upon a joint press release to announce the execution of this Agreement, which is attached hereto as Exhibit J ; thereafter, either Party may each disclose to Third Parties the information contained in such press release without the need for further approval by the other Party.

(c) In addition, a Party may disclose the Confidential Information of the other Party and the terms and conditions of this Agreement or the other Transaction Documents (i) as necessary to enforce the terms of this Agreement or the other Transaction Documents and (ii) comply with applicable law or the rules of a recognized stock exchange or order of any court, administrative agency or other tribunal of competent jurisdiction, provided, however, that if a Party is required by applicable law, stock exchange or order to make any such disclosure it will give reasonable advance notice to the other Party of such disclosure requirement and use its reasonable efforts to secure confidential treatment thereof and shall only disclose that portion thereof that, in the opinion of its legal counsel, is required to be disclosed. Further, with respect to any such disclosures made pursuant to applicable securities laws or made to investment or other analysts each Party shall consult with the other Party regarding the form, content and timing of such disclosures, provided that nothing in any Transaction Document shall prevent a Party from fully complying with applicable law or regulation.

(d) This Agreement supersedes the Confidentiality Agreement between the Parties dated October 23, 2008 and the Mutual Confidentiality Agreement between the Parties dated June 2, 2011 (collectively, the “ Prior CDA ”) with respect to information disclosed thereunder. All information exchanged between the Parties under the Prior CDA shall be deemed Confidential Information of the Disclosing Party and shall be subject to the terms of this Section 5.04 .

(e) Except with respect to CHRP’s internal communications or private communications with its representatives, CHRP shall not, and shall cause its representatives, its Affiliates and its Affiliates’ representatives not to, make use of the name, nickname, trademark, logo, service mark, trade dress or other name, term, mark or symbol identifying or associated with Zogenix without Zogenix’s prior written consent to the specific use in question, provided that the consent of Zogenix shall not be required with respect to publication of Zogenix’s name and logos in CHRP’s promotional materials, including the websites for CHRP and its Affiliates consistent with its use of other similarly situated Third Parties’ names and logos.

Section 5.05 Security Agreement .

Zogenix hereby grants, and shall maintain, until the Multiple Stepdown Date, in favor of CHRP a valid, continuing, priority perfected lien, junior only to the Permitted Liens, on and security interest in the Revenue Interest, the Intellectual Property and other Collateral described in the Security Agreement in accordance therewith, and Zogenix shall perform all of its obligations under the Security Agreement. Furthermore, subject to any limitations set forth in

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the Security Agreement, (i) Zogenix agrees to perform such actions and execute, file, register, and deliver such documents as reasonably requested by CHRP to perfect the security interest of CHRP in the Revenue Interest, the Intellectual Property and other Collateral described in the Security Agreement; (ii) no later than five (5) Business Days following the making of the Revenue Investment Advance, Zogenix shall pay all outstanding indebtedness under the Senior Loan Documents with General Electric Capital Corporation and shall diligently thereafter secure the filing of all termination statements and other documents and instruments required under applicable law to document the release of all liens on Collateral created under such Senior loan Documents, and (iii) from and after the Multiple Stepdown Date, CHRP agrees to perform such actions and execute, file, register, and deliver such documents as reasonably requested by Zogenix to release the security interest of CHRP in the Revenue Interest, the Intellectual Property and other Collateral described in the Security Agreement.

Section 5.06 Further Assurance .

(a) Subject to the terms and conditions of this Agreement, each of CHRP and Zogenix shall use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws and regulations to consummate the transactions contemplated by this Agreement and any other Transaction Document. CHRP and Zogenix agree to execute and deliver such other documents, certificates, agreements and other writings (including any financing statement filings requested by CHRP) and to take such other actions as may be reasonably necessary in order to consummate or implement expeditiously the transactions contemplated by this Agreement and any other Transaction Document and to vest in CHRP good, valid and marketable rights and interests in and to the Revenue Interest free and clear of all Liens, except the Permitted Liens and those Liens created in favor of CHRP pursuant to the Security Documents and any other Transaction Document and Zogenix retained interest therein, and to perform the covenants and obligations contained herein.

(b) CHRP and Zogenix shall execute and deliver such additional documents, certificates and instruments, and to perform such additional acts, as may be reasonably requested and necessary or appropriate to carry out and effectuate all of the provisions of this Agreement and any other Transaction Document and to consummate all of the transactions contemplated by this Agreement and any other Transaction Document.

(c) Except for disputes between the Parties, CHRP and Zogenix shall cooperate and provide assistance as reasonably requested by the other respective Party in connection with any litigation, arbitration or other proceeding (whether threatened, existing, initiated, or contemplated prior to, on or after the date hereof) to which either Party or any of its officers, directors, shareholders, agents or employees is or may become a Party or is or may become otherwise directly or indirectly affected or as to which any such Persons have a direct or indirect interests, in each case relating to this Agreement, any other Transaction Document, the Revenue Interest or any Collateral, or the transactions described herein or therein.

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Section 5.07 Remittance to CHRP Deposit Account .

Within the earlier of (A)(i) [***] of the end of the first three calendar quarters or (ii) [***] after the filing by Zogenix of its quarterly report with the Securities and Exchange Commission (“ SEC ”) and the earlier of (B)(i) [***] of the end of the fourth calendar quarter or (ii) [***] after the filing by Zogenix of its annual report with the SEC, Zogenix shall deliver to CHRP the Report of the statement of Revenue Interest for such quarter with all supporting information as required hereunder, and shall pay to CHRP the Revenue Interest Payment with respect to Revenue Interests accruing for such calendar quarter by depositing such amount in immediately available funds into the CHRP Deposit Account. On the Fixed Payment Dates, Zogenix shall pay the Fixed Payments payable on such dates to CHRP by depositing an amount equal to the Fixed Payment in immediately available funds into the CHRP Deposit Account. All amounts deposited into the CHRP Deposit Account shall be held solely for the benefit of CHRP. CHRP shall have immediate and full access to and control of any funds held in the CHRP Deposit Account and such funds shall not be subject to any conditions or restrictions whatsoever.

Section 5.08 Intellectual Property .

To the extent Zogenix has the right to do so, Zogenix shall: (1) use commercially reasonable efforts (as if it were the sole owner of the Revenue Interest), at its sole expense (but subject to any rights of Zogenix against Third Parties), either directly or, with respect to any Licensee or licensor under the terms of Zogenix’s agreement with the respective Licensee or licensor, as applicable, to take any and all actions (including taking legal action to specifically enforce the applicable terms of any License Agreement) and prepare, execute, deliver and file agreements, documents or instruments which are necessary or desirable to (A) prosecute and maintain the applicable Intellectual Property (including Patents therein) and (B) diligently defend or assert such Intellectual Property and such Patents against commercially significant infringement or interference by any other Persons, and against any claims of invalidity or unenforceability (including by bringing any legal action for infringement or defending any counterclaim of invalidity or action of a Third Party for declaratory judgment of non-infringement or non-interference) in the Territory, in each case of (A) and (B), only when not taking such action would reasonably be expected to have a Material Adverse Effect; (2) to the extent Zogenix has the right to do so, keep CHRP informed of all of such actions and provide CHRP with the opportunity to meaningfully consult with Zogenix with respect to the direction thereof and Zogenix shall consider all of CHRP’s comments in good faith; and (3) to the extent Zogenix has the applicable rights, shall not, and shall use its commercially reasonable efforts (as if it were the sole owner of the Revenue Interest) to cause any Licensee or licensor, as applicable, not to, disclaim or abandon, or fail to take any action necessary or desirable to prevent the disclaimer or abandonment of Intellectual Property, in each of (1), (2) and (3) that would have a Material Adverse Effect.

Section 5.09 Negative Covenants .

Except as permitted under this Article V, Zogenix and its Subsidiaries shall not, without the prior written consent of CHRP:

(a) forgive, release, delay, postpone or compromise payment of any Revenue Interest;

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(b) (i) waive, amend, cancel or terminate, exercise or fail to exercise, any material rights constituting or relating to any Material Contract or the Revenue Interest or (ii) default under, or take any action or fail to take any action which with the passage of time or the giving of notice or both would constitute a default or event of default under, any Material Contract or Senior Loan Document, in each case which could have a material adverse effect on the rights of CHRP or otherwise would reasonably be expected to have a Material Adverse Effect; or

(c) create, incur, assume or suffer to exist any Lien, or exercise any right of rescission, offset, counterclaim or defense, upon or with respect to the Revenue Interest or Collateral, or agree to do or suffer to exist any of the foregoing, except for any Permitted Lien.

(d) notwithstanding any provision contained in the Intercreditor Agreement, modify, amend or replace any Senior Loan Document or Senior Indebtedness if any such modification, amendment or refinancing would (i) increase the principal amount of or stated interest rate under the existing term loan under the Oxford Loan Facility or refinance such term loan, or (ii) provide for an extension or replacement of the revolving credit facility under the Oxford Loan Facility which is secured by a first lien on any collateral other than inventory, accounts receivable and the proceeds thereof.

Section 5.10 Notice .

Zogenix shall provide CHRP with written notice [***] any of the following:

(a) any material breach or default by Zogenix of any covenant, agreement or other provision of this Agreement or any other Transaction Document, any License Agreement, any Senior Loan Document, any Material Contract or any Co-Promotion Agreement;

(b) any express representation or warranty made by Zogenix in any of the Transaction Documents or in any certificate delivered to CHRP pursuant hereto shall prove to be untrue, inaccurate or incomplete in any material respect;

(d) the occurrence of a Bankruptcy Event with respect to Zogenix;

(e) any material breach or default by Astellas under the Co-Promotion Agreement or by a Licensee under any License Agreement, or the termination of the Astellas Co-Promotion Agreement or any License Agreement;

(f) the commencement of any action or proceeding against Zogenix which, if adversely determined, would reasonably be expected to result in a Material Adverse Effect, or which challenges the validity of any claim in any Patent utilized in connection with any Included Product that would be reasonably be expected to materially and adversely affect the Exploitation of such Included Product by Zogenix;

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(g) Zogenix’s [***]; and

(h) the occurrence of any event (including the occurrence of a Serious Adverse Drug Experience or manufacturing disruption with respect to any Included Product, or component of such Included Product) which would reasonably be expected to have a Material Adverse Effect; provided, however, that any required notice of a Serious Adverse Drug Experience hereunder shall only take place following any required notice to the relevant Regulatory Agency.

ARTICLE VI

THE CLOSING; CONDITIONS TO CLOSING

Section 6.01 Closing .

Subject to the closing conditions set forth in Sections 6.02 and 6.03 , the payment of the Revenue Investment Advance and the assignment of the Assigned Rights (the “ Closing ”) shall take place at the offices of Cohen Tauber Spievack & Wagner P.C., 420 Lexington Avenue, Suite 2400, New York, NY 10170 on the Closing Date.

Section 6.02 Conditions Applicable to CHRP to Effect the Closing .

(a) The obligations of CHRP to effect the Closing shall be subject to the satisfaction of the following conditions, as of the Closing Date, any of which may be waived in writing by CHRP in its sole discretion:

(i) Accuracy of Representations and Warranties . The representations and warranties set forth in the Transaction Documents shall be true and correct in all material respects.

(ii) No Adverse Circumstances . There shall not have occurred any event or circumstance (including any development with respect to the efficacy or commercialization of Sumavel DosePro, the development of ZX002 or the validity or enforceability of the Intellectual Property) that would reasonably be expected to have a Material Adverse Effect.

(iii) Third Party Consents; Intercreditor Agreement . All notices to, consents, approvals, authorizations and waivers from Third Parties and Governmental Authorities that are required for the consummation of the transactions contemplated by this Agreement or any of the Transaction Documents shall have been obtained or provided for and shall remain in effect. CHRP shall have received the Intercreditor Agreement(s), executed by the Senior Lenders and acknowledged by Zogenix, in the form of Exhibit B hereto.

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(iv) Officer’s Certificate . CHRP shall have received a certificate of an executive officer of Zogenix pursuant to which such officer certifies to such officer’s Knowledge that the conditions set forth in this Section 6.02(a) have been satisfied in all respects.

(v) Assignment Agreement . The Assignment Agreement shall have been executed and delivered by Zogenix to CHRP, and CHRP shall have received the same.

(vi) Security Agreement . The Security Agreement and the Pledge Agreement shall have been duly executed and delivered by the Parties, together with proper financing statements or other documents for filing under the UCC and/or any other applicable law, rule, statute or regulation relating to the perfection of a security interest in filing offices in the jurisdictions listed on Schedule 3.18 to the Disclosure Schedule. The Security Agreement shall be in full force and effect. The UCC-1 Financing Statement shall have been duly filed and a security interest, junior only to the Liens in favor of Senior Lenders, in the collateral under the Security Agreement shall have been created and all requisite fees in connection with such filing shall have been paid.

(vii) Legal Opinions .

(1) CHRP shall have received an opinion of Latham & Watkins LLP, transaction counsel to Zogenix, in form and substance set forth in Exhibit D .

(2) CHRP shall have received an opinion of Bozicevic, Field & Francis LLP, intellectual property counsel to Zogenix, in form and substance set forth in Exhibit E .

(viii) Corporate Documents of Zogenix . CHRP shall have received a certificate of an executive officer of Zogenix to the effect set forth in Exhibit F (the statements made in which shall be true and correct on and as of the Closing Date) together with a copy of the certificate of incorporation of Zogenix certified by the Secretary of State of the State of Delaware, with all amendments and restatements thereof, and a certificate of good standing of Zogenix issued by the Secretary of State of the State of Delaware, in each case dated not more than twenty (20) days prior to the Closing Date.

(ix) Covenants . Zogenix shall have complied in all material respects with its covenants set forth in the Transaction Documents.

(x) Purchase Agreement . Zogenix shall have executed and delivered the stock and warrant purchase agreement in the form of Exhibit G hereto (the “ Purchase Agreement ”), together with the Second Amendment to IRA referred to therein, and issued to CHRP, in accordance with the Purchase Agreement (A) that number of shares of common stock of Zogenix equal to the quotient obtained by dividing (i) One Million Five Hundred Thousand Dollars (US$1,500,000) by (ii) the Purchase Price as defined in the Purchase Agreement; and (B) warrants, in the form of Exhibit H hereto (the “ Warrants ”), exercisable for a period of ten (10) years from the Closing Date, for purchase of 225,000 shares of the common stock of Zogenix at an exercise price of $9.00 per share.

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(b) In the event the conditions set forth above in subsection (a) have not been satisfied within [***] following the date of this Agreement, then the making of the Revenue Investment Advance shall be deferred until such time as all of such conditions have been satisfied (or waived in writing by CHRP) unless this Agreement is terminated in accordance with Section 7.02(a) .

Section 6.03 Conditions Applicable to Zogenix .

The obligations of Zogenix to effect the Closing shall be subject to the satisfaction of the following conditions, as of the Closing Date, any of which may be waived in writing by Zogenix in its sole discretion:

(a) Accuracy of Representations and Warranties . The representations and warranties of CHRP set forth in the Transaction Documents shall be true, correct and complete in all material respects.

(b) Covenants . CHRP shall have complied in all material respects with its covenants set forth in the Transaction Documents.

(c) Subscription for Shares . CHRP shall have executed and delivered the Purchase Agreement and Zogenix shall have received the Purchase Price defined therein.

(d) Corporate Documents of CHRP . Zogenix shall have received a certificate of an executive officer of CHRP to the effect set forth in Exhibit I (the statements made in which shall be true and correct on and as of the Closing Date).

ARTICLE VII

TERMINATION

Section 7.01 Term .

Unless sooner terminated as provided in Section 7.02 , the term of this Agreement shall commence on the date hereof and continue in effect until the Maturity Date (the “ Term ”).

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Section 7.02 Termination .

(a) Non-occurrence of the Closing Date . In the event that the Closing does not occur:

(i) on or before [***] after the date of this Agreement and such failure is not a result of a breach of CHRP’s obligations under this Agreement or any of the other Transaction Documents, then CHRP shall have the right to terminate this Agreement upon written notice to Zogenix referencing this Section 7.02(a) , provided that the conditions set forth in Section 6.02 and Section 6.03 have not been fulfilled or waived in accordance therewith prior to the date of such notice;

(ii) on or before [***] after the date of this Agreement and such failure is not a result of a breach of Zogenix’s obligations under this Agreement or any of the other Transaction Documents, then Zogenix shall have the right to terminate this Agreement upon written notice to CHRP referencing this Section 7.02(a) , provided that the conditions set forth in Section 6.02 and Section 6.03 have not been fulfilled or waived in accordance therewith prior to the date of such notice.

(b) Buy-Out Rights; Events of Default .

(i) In the event of the occurrence of a “Change of Control” (as defined in clause (iii) below), Zogenix shall have the right, to be exercised by written notice delivered within ninety (90) days of the occurrence of the Change of Control, to pay an amount in cash equal to an amount that, when taken together with the cumulative amount of cash payments made by Zogenix to CHRP pursuant to the Revenue Interest together with all Fixed Payments immediately prior to such prepayment, shall equal the greater of (A) [***]% of the Revenue Investment Advance and (B) an amount that would generate an internal rate of return to Investor of 19.0% in respect of the Revenue Investment Advance. Upon indefeasible receipt of such payment by CHRP, this Agreement shall terminate.

(ii) In the event of the occurrence of: (A) a Change of Control; (B) Bankruptcy Event with respect to Zogenix; (C) the sale of all or substantially all of the assets of Zogenix (it being acknowledged and understood that a sale, transfer, assignment or licensing of Zogenix’s rights in the United States to either Sumavel DosePro or ZX002 shall constitute a sale of substantially all of Zogenix’s assets for purposes of this Section); or (D) an Event of Default, CHRP shall have the right, but not the obligation, to require Zogenix to pay an amount in cash equal to an amount that, when taken together with the cumulative amount of cash payments made by Zogenix to CHRP pursuant to the Revenue Interest together with all Fixed Payments immediately prior to such prepayment, shall equal the greater of (I) [***]% of the Revenue Investment Advance and (II) an amount that would generate an internal rate of return to Investor of 17.0% in respect of the Revenue Investment Advance. Such right may only be exercised by CHRP providing written notice within [***] of the occurrence of an event set forth in clauses (A) through (D) above. Upon indefeasible receipt of such payment by CHRP, this Agreement shall terminate.

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(iii) For purposes of the foregoing:

(1) “ Change of Control ” shall mean, with respect to Zogenix, any transaction or series of related transactions that would result in: (A) any consolidation, merger, share exchange, conversion or other form of corporate reorganization or business combination involving Zogenix, other than any such consolidation merger, share exchange, conversion or other form of corporate reorganization or business combination which would result in the record and beneficial owners of the voting securities of Zogenix outstanding immediately prior to such event continuing to own, in substantially the same proportions, voting securities representing (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) a majority of the voting power of the voting securities of the surviving or resulting person, (B) a sale, lease, or other transfer of all or substantially all of the assets of Zogenix to a person or group; (C) any sale, transfer, tender offer or exchange offer for fifty percent (50%) or more of the outstanding voting securities of Zogenix; or (D) any person or group acting in concert to control Zogenix having acquired beneficial ownership or the right to acquire beneficial ownership of fifty percent (50%) or more of the outstanding voting securities of Zogenix. For purposes of the foregoing, a person or group shall not be deemed to have “beneficial ownership” of any shares that any such person or group has the right to acquire, if such right has not been exercised and any required consideration therefore has not been paid and “person” and “group” shall have the meanings given to such terms when used in Sections 13(d) and 14(d) of the United States Securities Exchange Act of 1934.

(2) “ Event of Default ” shall mean any of: (A) a material misrepresentation by or breach by Zogenix of any covenant or warranty contained herein or in any of the Transaction Documents that would have a Material Adverse Effect, which misrepresentation or breach, if curable, is not remedied within [***] of Zogenix’s receipt of notice from CHRP specifying such misrepresentation or breach and referencing this Section 7.02(b) ; or (B) the occurrence of a Bankruptcy Event or other Material Adverse Effect with respect to Zogenix.

Section 7.03 Effects of Expiration or Termination .

(a) Accrued Obligations . Expiration or termination of this Agreement for any reason shall not release either Party from any obligation or liability which, at the time of such expiration or termination, has already accrued to the other Party or which is attributable to a period prior to such expiration or termination. Accordingly, if any payments are required to be made by a Party to the other Party hereunder after the expiration of the Term, this Agreement shall remain in full force and effect until any and all such payments have been made in full, and solely for that purpose.

(b) Non-exclusive Remedy . Notwithstanding anything herein to the contrary, termination of this Agreement by a Party shall be without prejudice to other remedies such Party may have at law or equity (including any enforcement of its rights under any of the Transaction Documents).

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(c) General Survival . ARTICLE 1 and Sections 2.01 (b) , 2.05 , 5.04 , 5.06(c) , 5.07 (last two sentences), 7.03 , 8.01 , 8.03 , 8.04 , 8.05 (with respect to activities during the Term), 8.06 , 8.07 , 8.08 , 8.09 . 8.10 , 8.11 , 8.12 , 8.13 , 8.14 , 8.15 and 8.16 shall survive expiration or termination of this Agreement for any reason. Except as otherwise provided in this Section 7.03 , all rights and obligations of the Parties under this Agreement shall terminate upon expiration or termination of this Agreement for any reason.

ARTICLE VIII

MISCELLANEOUS

Section 8.01 Survival .

(a) All representations and warranties made herein and in any other Transaction Document, in any certificates or in any other writing delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Closing until the expiration or termination of this Agreement for any reason.

(b) Any investigation or other examination that may have been made or may be made at any time by or on behalf of the Party to whom representations and warranties are made shall not limit, diminish or in any way affect the representations and warranties in the Transaction Documents, and the Parties may rely on the representations and warranties in the Transaction Documents irrespective of any information obtained by them by any investigation, examination or otherwise.

Section 8.02 Specific Performance .

Each of the Parties hereto acknowledges that the other Party will have no adequate remedy at law if it fails to perform any of its obligations under any of the Transaction Documents. In such event, each Party agrees that the other Party shall have the right, in addition to any other rights it may have (whether at law or in equity), to specific performance of this Agreement.

Section 8.03 Notices .

All notices, consents, waivers and communications hereunder given by any Party to the other shall be in writing (including facsimile transmission and electronic mail) and delivered personally, by facsimile (receipt confirmed), by electronic mail (read receipt confirmed), by a recognized overnight courier, or by dispatching the same by certified or registered mail, return receipt requested, with postage prepaid, in each case addressed:

If to CHRP to:

Cowen Healthcare Royalty Partners II, L.P.

177 Broad Street, Suite 1101

Stamford, CT 06901

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Attention: [***]

Facsimile [***]

Email: [***]

with a copy to:

Cohen Tauber Spievack & Wagner P.C.

420 Lexington Avenue, Suite 2400

New York, NY 10170

Attention: [***].

Facsimile No.: [***]

Email: [***]

If to Zogenix or its Subsidiaries, to:

Zogenix, Inc.

12671 High Bluff Drive, Suite 200

San Diego, CA 92130

Attention: Ann D. Rhoads

Facsimile (858) 259-1166

Email: arhoads@zogenix.com

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

Latham & Watkins LLP

12636 High Bluff Drive, Suite 400

San Diego, CA 92130

Attention: Faye H. Russell, Esq.

Facsimile: (858) 523-5450

Email: faye.russell@lw.com

or to such other address or addresses as CHRP or Zogenix may from time to time designate by notice as provided herein, except that notices of changes of address shall be effective only upon receipt. All such notices, consents, waivers and communications shall: (a) when posted by certified or registered mail, postage prepaid, return receipt requested, be effective three (3) Business Days after dispatch, (b) when facsimiled or sent by electronic mail, be effective upon confirmation of receipt, or (c) when delivered by a recognized overnight courier or in person, be effective upon receipt when hand delivered.

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Section 8.04 Successors and Assigns .

The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns. Zogenix shall not be entitled to assign any of its obligations and rights under the Transaction Documents without the prior written consent of CHRP, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however that Zogenix may, without the consent of CHRP, assign any of its obligations and rights under the Transaction Documents to any other Person with which it may merge or consolidate or to which it may sell all or substantially all of its assets; provided , further , however that no assignment by Zogenix shall relieve Zogenix of its obligations hereunder or under any Transaction Document even if such assignment has been consented to by CHRP and such assignee shall be jointly and severally liable with Zogenix to CHRP. CHRP may assign without consent of Zogenix any of its rights and obligations under the Transaction Documents without restriction.

Section 8.05 Indemnification .

(a) Zogenix hereby indemnifies and holds CHRP and its Affiliates and any of their respective partners, directors, managers, members, officers, employees and agents (each a “ CHRP Indemnified Party ”) harmless from and against any and all Losses (including all Losses in connection with any product liability claims or claims of infringement or misappropriation of any intellectual property rights of any Third Parties to the extent that such Losses are directly or indirectly incurred by a CHRP Indemnified Party) incurred or suffered by any CHRP Indemnified Party as a result of a claim by a Third Party arising out of the transactions contemplated hereby, including any actual or proposed use of the amounts paid to Zogenix by CHRP pursuant to any of the Transaction Documents, and any breach of any representation, warranty or certification made by Zogenix in any of the Transaction Documents or certificates given by Zogenix in writing pursuant hereto or thereto, or any breach of or default under any covenant or agreement by Zogenix pursuant to any Transaction Document, including any failure by Zogenix to satisfy any of the Excluded Liabilities and Obligations, to the extent that any of the foregoing Losses are not caused by a CHRP Indemnified Party or otherwise subject to indemnification by CHRP pursuant to Section 8.05(b) .

(b) CHRP hereby indemnifies and holds Zogenix, its Affiliates and any of their respective, directors, managers, officers, employees and agents (each a “ Zogenix Indemnified Party ”) harmless from and against any and all Losses incurred or suffered by any Zogenix Indemnified Party as a result of a claim by a Third Party arising out of any breach of any representation, warranty or certification made by CHRP in any of the Transaction Documents or certificates given by CHRP in writing pursuant hereto or thereto or any breach of or default under any covenant or agreement by CHRP pursuant to any Transaction Document to the extent that any of the foregoing Losses are not caused by a Zogenix Indemnified Party or otherwise subject to indemnification by Zogenix pursuant to Section 8.05(a) .

(c) If any claim, demand, action or proceeding (including any investigation by any Governmental Authority) shall be brought or alleged against an indemnified party in respect of which indemnity is to be sought against an indemnifying party pursuant to the preceding paragraphs, the indemnified party shall, promptly after receipt of notice of the commencement of any such claim, demand, action or proceeding, notify the indemnifying party in writing of the commencement of such claim, demand, action or proceeding, enclosing a copy of all papers served, if any; provided , that the omission to so notify such indemnifying party will not relieve the indemnifying party from any liability that it may have to any indemnified party under the

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foregoing provisions of this Section 8.05 unless, and only to the extent that, such omission results in the forfeiture of, or has a material adverse effect on the exercise or prosecution of, substantive rights or defenses by the indemnifying party. In case any such action is brought against an indemnified party and such indemnified party notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8.05 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In any such proceeding, an indemnified party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the indemnifying party has assumed the defense of such proceeding and has failed within a reasonable time to retain counsel reasonably satisfactory to such indemnified party or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interests between them based on the advice of such counsel. It is agreed that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate law firm (in addition to local counsel where necessary) for all such indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.

Section 8.06 Independent Nature of Relationship .

(a) The relationship between Zogenix and its Subsidiaries, on the one hand, and CHRP, on the other hand, is solely that of lender and a borrower and an assignor and assignee, and neither CHRP, on the one hand, nor Zogenix or its Subsidiaries, on the other hand, has any fiduciary or other special relationship with the other or any of their respective Affiliates.

(b) No officer or employee of CHRP will be located at the premises of Zogenix or any of its Affiliates, except in connection with an audit performed pursuant to Section 5.02 . No officer, manager or employee of CHRP shall engage in any commercial activity with Zogenix or any of its Affiliates other than as contemplated herein and in the other Transaction Documents.

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Section 8.07 Tax .

(a) For United States federal, state and local tax purposes, Zogenix and CHRP [***]. Each Party hereto agrees [***] unless (i) the other Party to this Agreement has consented to such actions, or (ii) as a result of a material change in applicable law following the date hereof, counsel for such Party has advised it in writing that it is more likely than not (x) [***], as amended.

(b) Except for any withholding triggered by any change of domicile of CHRP, all payments to CHRP under this Agreement shall be made without any deduction or withholding for or on account of any tax.

(c) This Agreement is not intended to create a deemed partnership, association or joint venture between CHRP and Zogenix. Each Party agrees not to refer to the other as a “partner” or the relationship as a “partnership” or “joint venture”.

Section 8.08 Entire Agreement .

This Agreement, together with the Disclosure Schedule, that certain letter from Zogenix to CHRP, dated June 30, 2011, and the Exhibits and Schedules hereto and thereto (each of which is incorporated herein by reference), and the other Transaction Documents constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements (including [***]), understandings and negotiations, both written and oral, between the Parties with respect to the subject matter of this Agreement, including the Prior CDA. No representation, inducement, promise, understanding, condition or warranty not set forth herein (or in the Exhibits, Schedules or other Transaction Documents) has been made or relied upon by either Party hereto. Neither this Agreement, nor any provision hereof, is intended to confer upon any Person other than the Parties hereto any rights or remedies hereunder.

Section 8.09 Amendments; No Waivers .

(a) This Agreement or any term or provision hereof may not be amended, changed or modified except with the written consent of the Parties hereto. No waiver of any right hereunder shall be effective unless such waiver is signed in writing by the Party against whom such waiver is sought to be enforced.

(b) No failure or delay by either Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

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Section 8.10 Interpretation .

When a reference is made in this Agreement to Articles, Sections, Schedules or Exhibits, such reference shall be to an Article, Section, Schedule or Exhibit to this Agreement unless otherwise indicated. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”. Neither Party hereto shall be or be deemed to be the drafter of this Agreement for the purposes of construing this Agreement against one Party or the other.

Section 8.11 Headings and Captions .

The headings and captions in this Agreement are for convenience and reference purposes only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

Section 8.12 Counterparts; Effectiveness .

This Agreement may be executed in two (2) or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by the other Party hereto. Any counterpart may be executed by facsimile or pdf signature and such facsimile or pdf signature shall be deemed an original.

Section 8.13 Severability .

If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nevertheless be given full force and effect.

Section 8.14 Expenses .

Zogenix shall be responsible for its own costs and expenses in connection with entering into and consummating the transactions contemplated by this Agreement. Zogenix also agrees, whether or not the Closing occurs, to pay and reimburse CHRP for CHRP’s actual, and documented out-of-pocket fees and expenses (including reasonable legal fees and expenses incurred by CHRP in connection with CHRP’s due diligence investigation) arising out of or relating to the transactions contemplated hereby, to the extent such expenses do not exceed [***].

Section 8.15 Governing Law; Jurisdiction .

(a) This Agreement shall be governed and construed in accordance with the laws of the State of New York, USA, without giving effect to any choice of law provisions thereof. Each Party hereby submits itself for the purpose of this Agreement and any controversy arising hereunder to the exclusive jurisdiction of the state and federal courts located in the County of New York, State of New York, USA, and any courts of appeal therefrom, and waives any

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objection on the grounds of lack of jurisdiction (including venue) to the exercise of such jurisdiction over it by any such courts. Prior to bringing a legal action against the other Party (other than an action for injunctive relief, which may be brought at any time), and provided further that payments to CHRP have not been suspended or CHRP has not been prevented from bringing an “Enforcement Action” (as that term is defined in the Intercreditor Agreement) by a Senior Lender, and a delay of such legal action by a Party would not otherwise materially prejudice the rights of such Party in the reasonable judgment of counsel, [***], either Party shall be entitled to bring an action in accordance with Section 8.15(a) and (b) .

(b) Each Party hereto hereby irrevocably consents to the service of process out of any of the courts referred to in subsection (a) above of this Section 8.15 in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address set forth in this Agreement. Each Party hereto hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any suit, action or proceeding commenced hereunder or under any other Transaction Document that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of a Party to serve process on the other Party in any other manner permitted by law. In the event of any litigation under this Section 8.15 , the [***].

Section 8.16 Waiver of Jury Trial .

Each Party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any action, proceeding, claim or counterclaim arising out of or relating to any Transaction Document or the transactions contemplated under any Transaction Document. This waiver shall apply to any subsequent amendments, renewals, supplements or modifications to any Transaction Document.

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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IN WITNESS WHEREOF , the Parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.


ZOGENIX:	ZOGENIX, INC.

	By:	/s/ Ann Rhoads
	Name:	Ann Rhoads
	Title:	Chief Financial Officer

CHRP:	COWEN HEALTHCARE ROYALTY
	PARTNERS II, L.P.

	By Cowen Healthcare Royalty GP, LLC
		Its General Partner

	By:	/s/ Todd C. Davis
	Name:	Todd C. Davis
	Title:	Managing Director

[SIGNATURE PAGE – FINANCING AGREEMENT]

E XHIBIT A

F ORM OF A SSIGNMENT A GREEMENT

ASSIGNMENT

This ASSIGNMENT (this “ Assignment ”), dated as of June 30, 2011, is made and entered into by and between Zogenix, Inc., a Delaware corporation (the “ Assignor ”), and Cowen Healthcare Royalty Partners II, L.P., a Delaware limited partnership (together with its Affiliates, the “ Assignee ”). All capitalized terms used and not defined herein shall have the meanings ascribed to them in the Financing Agreement referred to below.

WHEREAS, the Assignor and the Assignee are parties to that certain Financing Agreement, dated even date herewith (the “ Financing Agreement ”), pursuant to which, among other things, the Assignor agrees to assign, transfer and convey to the Assignee, and the Assignee agrees to accept from the Assignor, all of the Assignor’s right, title and interest in and to the Assigned Rights, as that term is defined in the Financing Agreement, for consideration in the amount and on the terms and conditions provided therein;

WHEREAS, the parties now desire to carry out the purposes of the Financing Agreement by the execution and delivery of this instrument evidencing the Assignor’s assignment, transfer and conveyance, and Assignee’s purchase and acceptance, of the Assigned Rights; and

WHEREAS , capitalized terms used and not defined herein have the meanings given to them in the Financing Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and of other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Assignment and Assumption of Assigned Rights . Subject to Section 2.01 of the Financing Agreement, the Assignor hereby assigns, transfers and conveys to the Assignee free and clear of all Liens (other than Permitted Liens and those Liens created in favor of Assignee pursuant to the Security Agreement), and the Assignee hereby accepts, all of the Assignor’s right, title and interest in and to all of the Assigned Rights, subject to Section 2 below. The Assignor hereby represents and warrants to the Assignee that the assignment of the Assigned Rights effected hereby is sufficient to vest in the Assignee a valid ownership interest in all of the Assigned Rights, including, without limitation the Assigned Rights that are “payment intangibles” as defined in the UCC.

2. No Assumption of Obligations . The parties acknowledge that the Assignee is not assuming any debt, liability or obligation of the Assignor, known or unknown, fixed or contingent, in connection with the Assigned Rights, including, without limitation, the Excluded Liabilities and Obligations.

3. Further Assurances . Each party hereto shall execute, acknowledge and deliver to the other party any and all documents or instruments, and shall take any and all actions, reasonably required by such other party from time to time, to confirm or effect the matters set forth herein, or otherwise to carry out the purposes of the Financing Agreement and this Assignment and the transactions contemplated thereby and hereby.

4. Financing Agreement . This Assignment is entered into pursuant to and is subject in all respects to all of the terms, provisions and conditions of the Financing Agreement, and nothing herein shall be deemed to modify any of the representations, warranties, covenants and obligations of the parties thereunder.

5. Interpretation . In the event of any conflict or inconsistency between the terms, provisions and conditions of this Assignment and the Financing Agreement, the terms, provisions and conditions of the Financing Agreement shall govern.

6. Counterparts; Effectiveness . This Assignment may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. This Assignment shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. Any counterpart may be executed by facsimile or pdf signature and such facsimile or pdf signature shall be deemed an original.

7. Governing Law; Jurisdiction; Service of Process; Waiver of Jury Trial .

(a) This Assignment shall be governed and construed in accordance with the laws of the State of New York, USA, without giving effect to any choice of law provisions thereof. Subject to Section 8.15(a) of the Financing Agreement, each party hereto hereby submits itself for the purpose of this Assignment and any controversy arising hereunder to the exclusive jurisdiction of the state and federal courts located in the County of New York, State of New York, USA, and any courts of appeal therein, and waives any objection on the grounds of lack of jurisdiction (including, without limitation, venue) to the exercise of such jurisdiction over it by any such courts.

(b) Each party hereto hereby irrevocably consents to the service of process out of any of the courts referred to in subsection (a) above of this Section 7 in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address set forth in Section 8.03 of the Financing Agreement. Each party hereto hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any suit, action or proceeding commenced hereunder or under any other Transaction Document that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of a party to serve process on the other party in any other manner permitted by law. In the event of any litigation under this Section 7 , the prevailing party shall be entitled to reimbursement of any reasonable and documented out-of-pocket expenses (including reasonable fees and expenses of legal counsel) incurred by the prevailing party in connection with asserting or enforcing such action hereunder, including, without limitation, in the case CHRP is the prevailing party in connection with any Bankruptcy Event with respect to Assignor, and the non-prevailing party agrees to reimburse and indemnify the prevailing party for such expenses.

(c) Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any action, proceeding, claim or counterclaim arising out of or relating to any Transaction Document or the transactions contemplated under any Transaction Document. This waiver shall apply to any subsequent amendments, renewals, supplements or modifications to any Transaction Document.

IN WITNESS WHEREOF , the Assignor and the Assignee have caused this Assignment to be duly executed by their respective authorized officers as of the date first above written.


ASSIGNOR :

ZOGENIX, INC.

By:

Name:
Title:

ASSIGNEE :

COWEN HEALTHCARE ROYALTY

PARTNERS II, L.P.

		By Cowen Healthcare Royalty GP, LLC
		Its General Partner

By:
Name:		Todd C. Davis
Title:		Managing Director

[SIGNATURE PAGE – ASSIGNMENT]

Exhibit B

F ORM OF I NTERCREDITOR A GREEMENT

SUBORDINATION AND INTERCREDITOR AGREEMENT

This SUBORDINATION AND INTERCREDITOR AGREEMENT (this “ Agreement ”), dated as of June 30, 2011, is between COWEN HEALTHCARE ROYALTY PARTNERS II, L.P. , a Delaware limited partnership (together with its Affiliates, “ Subordinated Creditor ”) with an office at 177 Broad Street, Suite 1101, Stamford, CT 06901, OXFORD FINANCE LLC (successor in interest to Oxford Finance Corporation), a Delaware limited liability company (together with its Affiliates, “ Senior Creditor ”) with an office located at 133 North Fairfax Street, Alexandria, VA 22314, for itself and in its capacity as Administrative Agent (as hereinafter defined) for the Lenders (as hereinafter defined), and SILICON VALLEY BANK , a California banking corporation with an office located at 4370 La Jolla Village Drive, Suite 860, San Diego, CA 92122, a Lender.

R E C I T A L S

A. Zogenix, Inc. (“ Borrower ”), the Lenders and Senior Creditor have entered into that certain Second Amended and Restated Loan and Security Agreement dated as of October 8, 2010 (as modified, amended and or restated from time to time, the “ Oxford Loan Agreement ”), pursuant to which, among other things, the Lenders have made, subject to the terms and conditions set forth in the Oxford Loan Agreement, certain loans and financial accommodations to Borrower, and pursuant to which Borrower has granted to Senior Creditor a first priority continuing lien on, and security interest in, the Collateral set forth on Exhibit A annexed hereto (the “ Collateral ”).

B. Subordinated Creditor has agreed, pursuant to that certain CHRP Financing Agreement of even date herewith (the “ CHRP Financing Agreement ”) between Borrower and Subordinated Creditor, to make an advance to Borrower in the amount of Thirty Million Dollars ($30,000,000).

C. Pursuant to the Security Agreement of even date herewith (the “ CHRP Security Agreement ”) between Borrower and Subordinated Creditor, Borrower has granted to Subordinated Creditor a continuing lien on, and security interest in, the Collateral, junior in priority to the rights of Senior Lender.

D. Subordinated Creditor and Senior Creditor desire to confirm and agree upon their respective rights in and to the Collateral, and their rights to receive payments under the CHRP Financing Agreement and the Oxford Loan Agreement, respectively, which agreements and understandings are set forth below.

NOW, THEREFORE, in order to induce Subordinated Creditor to consummate the transactions contemplated by the CHRP Financing Agreement, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby agree as follows:

1. Definitions . The following terms shall have the following meanings in this Agreement:

Administrative Agent means the “Administrative Agent” as such term is defined in the Oxford Loan Agreement, as in effect on the date hereof.

Affiliate means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, partners and, with respect to any Person that is a limited liability company, such Person’s managers and members.

Agreement is defined in the introductory paragraph.

Bankruptcy Code means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as amended and in effect from time to time and the regulations issued from time to time thereunder.

Borrower is defined in Recital A.

Business Day is any day other than a Saturday, Sunday and other day on which banking institutions in the States of California or New York are authorized or required by law or other governmental action to close.

CHRP Financing Agreement is defined in Recital B.

CHRP Financing Documents means the “Transaction Documents” as such term is defined in the CHRP Financing Agreement, as in effect on the date hereof.

CHRP Security Agreement is defined in Recital C.

Collateral is defined in Recital A.

Debt of a Person means, at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising and paid on a timely basis and in the ordinary course of business, (iv) all capital leases of such Person, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, banker’s acceptance or similar instrument, (vi) all obligations secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an obligation of such Person, (vii) “earnouts” and similar payment obligations of such Person, (viii) all letters of credit and (ix) all Debt of others guaranteed by such Person. Without duplication of any of the foregoing, Debt of the Borrower shall include any and all Senior Indebtedness under the Senior Indebtedness Documents and any and all Subordinated Indebtedness under the Subordinated Indebtedness Documents.

Enforcement Action means, with respect to Subordinated Creditor, Senior Creditor or any Lender and with respect to any Subordinated Indebtedness or Senior Indebtedness, respectively, or any item of Collateral in which such Subordinated Creditor or Senior Creditor or Lender has or claims a security interest, lien or right of offset, any action, whether judicial or nonjudicial, to repossess, collect, accelerate, offset, recoup, give notification to third parties with respect to, sell, dispose of, foreclose upon, give notice of sale, disposition, or foreclosure with respect to, or obtain equitable or injunctive relief with respect to, such Subordinated Indebtedness or Senior Indebtedness or Collateral. Without limiting the foregoing, the filing by Subordinated Creditor, Senior Creditor or any Lender of, or the joining in the filing by any of them of, an involuntary bankruptcy or insolvency proceeding against Borrower also is an Enforcement Action.

Fixed Payment means each of the following payments, due on each of the following respective dates (the “ Fixed Payment Dates ”):

(a) Ten Million Dollars ($10,000,000) on January 31, 2015;

(b) Ten Million Dollars ($10,000,000) on January 31, 2016; and

provided that, the definition of Fixed Payment, as set forth in the CHRP Financing Agreement, and the amounts thereof, as set forth above, may not be modified or amended to accelerate the dates of payment, or the amounts thereof, without Senior Creditor’s prior written consent, which may be granted or withheld in Senior Creditor’s sole discretion.

Lenders means the “Lenders” as such term is defined in the Oxford Loan Agreement, as in effect on the date hereof.

Lien means any lien, hypothecation, charge, security agreement, security interest, mortgage, pledge, or any encumbrance, right or claim of any other Person of any kind whatsoever whether choate or inchoate, filed or unfiled, noticed or unnoticed, recorded or unrecorded, contingent or non-contingent, material or non-material, known or unknown.

Option Period is defined in Section 5 .

Oxford Loan Agreement is defined in Recital A.

Oxford Loan Documents means the “Loan Documents” as such term is defined in the Oxford Loan Agreement, as in effect on the date hereof.

Oxford/Zogenix Term Loan means the “Growth Capital Loan Commitment” as defined in the Oxford Loan Agreement in effect on the date hereof.

Oxford/Zogenix Working Capital Line means the “Revolving Line” as defined in the Oxford Loan Agreement in effect on the date hereof.

Paid in Full or Payment in Full means the indefeasible payment in full in cash of all Senior Indebtedness and termination of all commitments to lend under the Oxford Loan Documents and Permitted Senior Refinancing Documents.

Permitted Refinancing means any refinancing of the Senior Indebtedness under the Oxford Loan Documents, or of the Subordinated Indebtedness under the CHRP Financing Documents, as applicable, provided, that the financing documents entered into by Borrower in connection with any such refinancing constitute Permitted Senior Refinancing Documents or Permitted Subordinated Refinancing Documents, as applicable.

Permitted Senior Refinancing Documents means any financing documentation which amends, restates or replaces the Oxford Loan Documents and pursuant to which the Senior Indebtedness under the Oxford Loan Documents is refinanced, as such financing documentation may be amended, supplemented, restated or otherwise modified and in effect from time to time as permitted hereunder, but specifically excluding any such financing documentation to the extent that such documentation contains, either initially or by amendment or other modification, any terms, conditions, covenants or defaults which are prohibited by the terms of this Agreement.

Permitted Subordinated Indebtedness Payments means:

(a) the Revenue Interest Payments;

(b) the Fixed Payments on the Fixed Payment Dates; and

(d) reimbursement of Subordinated Creditor for reasonable out-of-pocket costs and expenses, including attorneys’ fees and expenses, actually incurred by such Person on matters directly relating to the Subordinated Indebtedness, together with reasonable and customary fees associated with and assessed in connection with amendments of the Subordinated Indebtedness Documents permitted hereunder;

in each instance, to the extent then due and payable, in cash , in accordance with the terms of the Subordinated Indebtedness Documents.

Permitted Subordinated Refinancing Documents means any financing documentation which amends, restates or replaces the CHRP Financing Documents and pursuant to which the Subordinated Indebtedness under the CHRP Financing Documents is refinanced, as such financing documentation may be amended, supplemented, restated or otherwise modified and in effect from time to time as permitted hereunder, but specifically excluding any such financing documentation to the extent that such documentation contains, either initially or by amendment or other modification, any terms, conditions, covenants or defaults which are prohibited or not permitted by the terms of this Agreement.

Person means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or governmental authority.

Proceeding is defined in Section 2.4 .

Property means, with respect to any Person, all property and interests in property of such Person, whether real, personal or mixed, whether now owned or existing or hereafter acquired or arising and wheresoever located.

Purchase Event means the occurrence of any of the following events:

(a) an acceleration of the Senior Indebtedness in accordance with the terms of the Senior Indebtedness Documents;

(b) a Senior Payment Default that has not been cured or waived by Senior Creditor within thirty (30) days of the occurrence thereof; or

Purchase Period is defined in Section 5 .

Reorganization Subordinated Securities means any notes or other securities issued in substitution of all or any portion of the Subordinated Indebtedness with terms no less advantageous to Borrower than the terms contained in the Subordinated Indebtedness Documents, any security for which is subordinated in priority to the Senior Creditor Liens (or to valid and perfected Liens granted to secure any notes or other securities issued in substitution of all or any portion of the Senior Indebtedness) at least to the same extent and on substantially the same terms that the Subordinated Liens are subordinated to the Senior Liens pursuant to the terms of this Agreement.

Revenue Interest Payments has the meaning set forth in the CHRP Financing Agreement; provided that, the definition of Revenue Interest Payments, as set forth in the CHRP Financing Agreement, may not be modified or amended without Senior Creditor’s prior written consent, which may be granted or withheld in Senior Creditor’s sole discretion.

Senior Covenant Default means any “Default” or “Event of Default” under the Oxford Loan Documents or Permitted Senior Refinancing Documents, other than a Senior Payment Default.

Senior Creditor has the meaning ascribed to such term in the preamble of this Agreement and shall include, for all purposes hereof, any other holder of the Senior Indebtedness from time to time (whether or not such subsequent holder executes a joinder hereto).

Senior Creditor Lien has the meaning set forth Section 2.1 .

Senior Default means a Senior Covenant Default or a Senior Payment Default, as applicable.

Senior Default Notice means a written notice from Senior Creditor to Subordinated Creditor pursuant to which Subordinated Creditor is notified of the existence of a Senior Covenant Default or a Senior Payment Default, which notice (i) states that it is a “Senior Default Notice” for purposes of this Agreement and (ii) sets forth the specific sections of the Senior Indebtedness Documents giving rise to such Senior Covenant Default or Senior Payment Default.

Senior Indebtedness means all Debt, liabilities and other obligations of any and every kind and nature now existing or hereafter arising, contingent or otherwise, of Borrower under, in connection with, or evidenced by the Senior Indebtedness Documents to the extent secured by the Senior Creditor Liens, including, without limitation, all such obligations to pay (i) principal, (ii) interest or premium (including interest accruing after the commencement of any Proceeding, whether or not constituting an allowed claim in such Proceeding), (iii) fees, (iv) costs, expenses and other amounts related to any indemnity against loss, damage or liability, and (v) any other monetary obligation, and all such Debt, obligations and liabilities incurred with respect to Permitted Refinancings of the Senior Indebtedness existing on the date hereof, together with any amendments, restatements, modifications, renewals or extensions of any thereof permitted hereunder; provided, however , that “Senior Indebtedness” excludes any refinancings of the Debt evidenced by the Oxford Loan Documents, or amendments to the Oxford Loan Documents, to the extent that such refinancings or amendments are not permitted under Section 3(b) , and provided, further , that in no event shall the principal amount of the Oxford/Zogenix Term Loan exceed the sum of Thirty Million Dollars ($30,000,000) plus costs and expenses incurred following the occurrence of a Senior Payment Default or Senior Covenant Default, as the case may be, by or for the account of Senior Creditor (or any representatives thereof), and provided, further , that in no event shall the Senior Creditor be prohibited from increasing the principal amount of the Oxford/Zogenix Working Capital Line.

Senior Indebtedness Documents means the Oxford Loan Documents, the Permitted Senior Refinancing Documents and all other agreements, documents and instruments evidencing, securing or pertaining to obligations of Borrower to Senior Creditor, as amended, supplemented, restated or otherwise modified and in effect from time to time as permitted hereunder.

Senior Payment Default means a Default or Event of Default described in Section 8.1 of the Oxford Loan Agreement or any similar provision in the Permitted Senior Refinancing Documents, or any other Default or Event of Default resulting from the failure of Borrower to pay, when due, any principal interest, premium, fees or other monetary obligations under any Oxford Loan Document or Permitted Refinancing Credit Document, including, without limitation, in each case, any default in payment of Senior Indebtedness after acceleration thereof.

Subordinated Creditor has the meaning ascribed to such term in the preamble of this Agreement and shall include, for all purposes hereof, any other holder of the Subordinated Indebtedness from time to time (whether or not such subsequent holder executes a joinder hereto).

Subordinated Creditor Lien has the meaning set forth in Section 2.1 .

Subordinated Default means a default in the payment of the Subordinated Indebtedness, or performance of any term, covenant or condition contained in the Subordinated Indebtedness Documents or the occurrence of any other event or condition constituting a default or event of default under the Subordinated Indebtedness Documents.

Subordinated Default Notice means a written notice to Senior Creditor from Subordinated Creditor pursuant to which Senior Creditor is notified of the existence of a Subordinated Default, which notice (i) states that it is a “Subordinated Default Notice” for purposes of this Agreement and (ii) sets forth the specific sections of the Subordinated Indebtedness Documents giving rise to such Subordinated Default.

Subordinated Indebtedness means all Debt, liabilities and other obligations of any and every kind and nature now existing or hereafter arising, contingent or otherwise, of Borrower or any other Person under, in connection with, or evidenced or secured by any of the Subordinated Indebtedness Documents, in each case including, without limitation, obligations to pay (i) principal, (ii) interest or premium (including interest accruing after the commencement of any Proceeding, whether or not constituting an allowed claim in such Proceeding), (iii) fees, (iv) costs, expenses and other amounts related to any indemnity against loss, damage or liability, and (v) any other monetary obligation arising under the Subordinated Indebtedness Documents; provided, that “Subordinated Indebtedness” excludes any refinancings of the Debt evidenced by the CHRP Financing Documents, or amendments to the CHRP Financing Documents, to the extent that such refinancings or amendments are not permitted under Section 3(c) .

Subordinated Indebtedness Documents means the CHRP Financing Agreement, the other CHRP Financing Documents, the Permitted Subordinated Refinancing Documents and all other agreements, documents and instruments evidencing, securing or pertaining to obligations of Borrower to Subordinated Creditor, as amended, supplemented, restated or otherwise modified and in effect from time to time as permitted hereunder.

Subsidiary means, with respect to a Person, any Person of which more than 50% of the voting stock or other equity interests (in the case of Persons other than corporations) is owned or controlled directly or indirectly by such Person or one or more Affiliates of such Person.

2. Subordination of Liens Securing Subordinated Indebtedness to Liens Securing Senior Indebtedness; Repayment of Indebtedness .

2.1 Subordination . Subordinated Creditor hereby subordinates all Liens that have been, or may be, granted by Borrower to such Subordinated Creditor in respect of the Subordinated Indebtedness (each, a “ Subordinated Creditor Lien ”), to the Liens that have been, or may be, granted by the Borrower to Senior Creditor in respect of the Senior Indebtedness (each, a “ Senior Creditor Lien ”).

2.2 Permitted Payments . Subject to the terms hereof, for so long as the Subordinated Indebtedness remains outstanding, Borrower may make to Subordinated Creditor, and Subordinated Creditor may accept and retain, Permitted Subordinated Indebtedness Payments.

2.3 Restrictions on Payments . Notwithstanding the foregoing, Borrower may not make, and Subordinated Creditor may not accept or retain, any Permitted Subordinated Indebtedness Payment or any other amount with respect to the Subordinated Indebtedness if, at the time of such payment, Subordinated Creditor shall have received a Senior Default Notice from Senior Creditor stating that a Senior Default exists, for each period (each, a “Payment Blockage Period”) commencing on the date of the Senior Default Notice and continuing until:

(a) with respect to each Senior Default Notice identifying any Senior Payment Defaults: the date on which each of the Senior Payment Defaults identified in such Senior Default Notice shall have been cured or waived (as evidenced by a written notice of cure or waiver from Senior Creditor to the Borrower, which written notice shall be sent promptly upon such cure or waiver). So long as any Senior Payment Default shall be continuing, any number of Senior Default Notices identifying Senior Payment Defaults may be given and any number of Payment Blockage Periods may be commenced by Senior Creditor pursuant to this paragraph (a); and

(b) (i) with respect to each Senior Default Notice identifying any Senior Covenant Defaults resulting in the commencement of an Enforcement Action by Senior Creditor, the date on which each of the Senior Covenant Defaults identified in such Senior Default Notice shall have been cured or waived (as evidenced by a written notice of cure or waiver from Senior Creditor to the Borrower, which written notice shall be sent promptly upon such cure or waiver) or such Enforcement Action shall have been terminated, dismissed or withdrawn and (ii) with respect to each Senior Default Notice identifying any Senior Covenant Defaults not resulting in the commencement of an Enforcement Action by Senior Creditor, the earlier to occur of the following: (x) the date fifteen (15) days after the commencement of such Payment Blockage Period; or (y) the date on which each of the Senior Covenant Defaults identified in such Senior Default Notice shall have been cured or waived (as evidenced by a written notice of cure or waiver from Senior Creditor to the Borrower). Senior Creditor shall not be permitted to send more than two (2) Senior Default Notices identifying Senior Covenant Defaults (not resulting in an Enforcement Action) during any period of 365 consecutive days; provided that, no such limitation shall apply if Senior Creditor has then (A) issued a Senior Default Notice identifying a Senior Payment Default (which has not been waived or cured) or (B) initiated an Enforcement Action (which has not been terminated, dismissed or withdrawn);

provided , however , that, so long as Senior Creditor has not then commenced an Enforcement Action , Borrower may resume Permitted Subordinated Indebtedness Payments to Subordinated Creditor (and may make any Permitted Subordinated Indebtedness Payments missed due to the application of the preceding paragraphs (a) and (b)), and Subordinated Creditor may accept and retain such Permitted Subordinated Indebtedness Payments, but only to the extent then actually due and payable in cash

under the Subordinated Indebtedness Documents and without regard to any acceleration of any amounts (which amounts may be accrued) due under the Subordinated Indebtedness Documents .

Notwithstanding anything herein to the contrary, Borrower shall not be prohibited from making, and Subordinated Creditor shall not be prohibited from receiving, Permitted Subordinated Indebtedness Payments to the extent made on a paid-in-kind or accretion basis (and not made in cash), including default or other interest on Subordinated Indebtedness evidenced by the Subordinated Indebtedness Documents.

Subordinated Creditor shall promptly deliver to Senior Creditor, in the form received (except for endorsement or assignment by Senior Creditor where required by Senior Creditor) for application to the Senior Indebtedness any payment, distribution, security or proceeds received by Subordinated Creditor with respect to the Subordinated Indebtedness other than in accordance with this Agreement.

The parties acknowledge and agree that the provisions of this Section 2.3 shall not apply to any payment with respect to which Section 2.4 would be applicable.

2.4 Proceedings . In the event of any insolvency, bankruptcy, receivership, custodianship, liquidation, reorganization, assignment for the benefit of creditors or other proceeding for the liquidation, dissolution or other winding up of Borrower or any of their respective Property (each of the foregoing, a “ Proceeding ”): (a) all Senior Indebtedness first shall be Paid in Full before any payment (whether made in cash, securities or other Property) of or with respect to the Subordinated Indebtedness shall be made in such Proceeding (other than a distribution of Reorganization Subordinated Securities); (b) any payment which, but for the terms hereof, otherwise would be payable or deliverable in such Proceeding in respect of the Subordinated Indebtedness (other than a distribution of Reorganization Subordinated Securities), shall be paid or delivered directly to Senior Creditor (to be held and/or applied by Senior Creditor in accordance with the terms of the Senior Indebtedness Documents) until all Senior Indebtedness is Paid in Full, and Subordinated Creditor irrevocably authorizes, empowers and directs all receivers, trustees, liquidators, custodians, conservators and others having authority in the premises to effect all such payments and deliveries, and Subordinated Creditor also irrevocably authorizes, empowers and directs Senior Creditor to demand, sue for, collect and receive every such payment or distribution; (c) Subordinated Creditor agrees to execute and deliver to Senior Creditor or its representative all such further instruments confirming the authorization referred to in the foregoing clause (b) as Senior Creditor may reasonably request; and (d) Subordinated Creditor hereby irrevocably authorizes, empowers and appoints Senior Creditor its agent and attorney-in-fact to (i) execute, verify, deliver, file and vote any proofs of claim in respect of the Subordinated Indebtedness in connection with any such Proceeding upon the failure of such Person to do so thirty (30) days before the expiration of the time to file any such proof of claim, and (ii) vote such claim in any such Proceeding upon the failure of Subordinated Creditor to do so prior to fifteen (15) days before the expiration of the time to vote any such claim; provided , that Senior Creditor shall have no obligation to execute, verify, deliver, file and/or vote any such proof of claim. In the event that Senior Creditor votes any claim in accordance with the authority granted hereby, Subordinated Creditor shall not be entitled

to change or withdraw such vote. This Agreement shall be reinstated if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by any holder of the Senior Indebtedness or any representative of such holder and the Senior Indebtedness, or portion thereof, intended to have been satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred.

2.5 Incorrect Payments . If any payment (whether made in cash, securities or other Property) not permitted to be accepted by Subordinated Creditor under this Agreement is received by Subordinated Creditor on account of any Subordinated Indebtedness before all Senior Indebtedness is Paid in Full, such payment shall not be commingled with any asset of such Person, shall be held in trust by such Person for the benefit of Senior Creditor and shall be paid over to Senior Creditor, or its designated representative, for application (in accordance with the Oxford Loan Agreement or the Permitted Senior Refinancing Documents, as the case may be) to the payment of the Senior Indebtedness then remaining unpaid, until all of the Senior Indebtedness is Paid in Full.

2.6 Other Covenants of Creditors .

(a) Each of Subordinated Creditor and Senior Creditor shall deliver to the other copies of all demands for payment, notices of default, Events of Default (and any notices of waiver or cure with respect thereto), satisfaction and acceleration under the Subordinated Indebtedness Documents and the Senior Indebtedness Documents, respectively, substantially contemporaneously with delivery of such notices to Borrower; provided that neither Subordinated Creditor nor Senior Creditor shall have any liability to the other for failure to abide by the terms of this Section 2.6(a).

(b) Until the Senior Indebtedness is Paid in Full, Subordinated Creditor shall not, without the prior written consent of Senior Creditor, take any Enforcement Action with respect to any of the Collateral, except as provided in the following sentence. Upon the earliest to occur of:

(i)

(A) the passage of one hundred fifty (150) days from the date of Senior Creditor’s receipt of a Subordinated Default Notice that includes a statement that Subordinated Creditor is commencing the one hundred fifty (150) day standstill period provided for herein, if the Subordinated Default described therein shall not have been cured or waived by Subordinated Creditor and (B) Senior Creditor has not initiated any Enforcement Action with respect to the Collateral within such period; or

(ii)

Payment in Full of the Senior Indebtedness;

Subordinated Creditor may, upon (1) five (5) Business Days’ prior written notice to Senior Creditor and (2) such prior written notice to Borrower as is required by the terms of the Subordinated Indebtedness Documents, take Enforcement Actions with respect to the Collateral; provided , that no such notice shall be required with respect to Enforcement Actions permitted under clause (ii) of this subsection 2.6(b) , and any such notice given

with respect to Enforcement Actions permitted to be taken under clause (i) of this subsection 2.6(b) , may be given at any time following, but no earlier than five (5) Business Days prior to, the end of any applicable one hundred fifty (150) day period.

(c) Subordinated Creditor acknowledges that so long as the Senior Indebtedness remains not Paid in Full, Senior Creditor shall have the first right to exercise an Enforcement Action with respect to the Collateral, provided , however , that absent exigent circumstances (as reasonably determined by Senior Creditor) (i) Senior Creditor shall use commercially reasonable efforts to provide Subordinated Creditor with five (5) Business Days’ prior written notice of the initiation of any such Enforcement Action and, (ii) prior to initiating any Enforcement Action, Senior Creditor shall discuss with Subordinated Creditor how best to maximize the value of the Collateral, and shall give reasonable consideration to the suggestions of Subordinated Creditor in undertaking any Enforcement Action. The parties agree that any such discussions shall take place within fifteen (15) days of Subordinated Creditor’s receipt of notice of Senior Creditor’s intent to initiate an Enforcement Action. Senior Creditor shall exercise and enforce all of its privileges and rights with respect to the Collateral according to its commercially reasonable discretion and exercise of its business judgment.

2.7 Rights as Unsecured Creditors . Subject to the terms and provisions of this Agreement, including, without limitation, Section 2.6 hereof, Subordinated Creditor may exercise at any time against Borrower or its Property the respective rights and remedies of such Person as an unsecured Creditor of Borrower under the Subordinated Indebtedness Documents and applicable law. In furtherance and not in limitation of the foregoing, (a) Subordinated Creditor shall have and hereby expressly retains and reserves any claim, motion, objection or argument that otherwise could be asserted by an unsecured Creditor of Borrower, including any objections or claims that any transfer (including any strict foreclosure) constitutes a fraudulent conveyance or transfer under Section 548 of the Bankruptcy Code or any applicable state law or a violation by Borrower of any applicable law (including any breach of fiduciary duty) and, (b) Subordinated Creditor shall be entitled to initiate or participate in any involuntary bankruptcy proceedings as an unsecured Creditor of Borrower, and file any pleadings, claims, objections, motions or arguments that assert rights or interests available to unsecured Creditors of Borrower arising under the Bankruptcy Code or other applicable law.

2.8 Possession of Collateral . If Senior Creditor or Subordinated Creditor shall obtain possession of any Collateral, it shall hold such Collateral for itself and as agent and bailee for the other for purposes of perfecting Senior Creditor’s or Subordinated Creditor’s security interest therein.

3. Continued Effectiveness of this Agreement; Modifications to Indebtedness .

(a) The terms of this Agreement, the priority of Liens effected hereby, and the rights and the obligations of Subordinated Creditor and Senior Creditor arising hereunder, shall not be affected, modified or impaired in any manner or to any extent by: (i) any amendment, restatement, modification or supplement to the Senior Indebtedness Documents or Subordinated Indebtedness Documents (to the extent such amendment,

modification or supplement is not prohibited under the terms of this Agreement); (ii) the validity or enforceability of any of such documents; or (iii) any exercise or non-exercise of any right, power or remedy under or in respect of the Senior Indebtedness or the Subordinated Indebtedness or any of the instruments or documents referred to in clause (i) above.

(b) Senior Creditor may at any time and from time to time without the consent of or notice to Subordinated Creditor, without incurring liability to Subordinated Creditor and without impairing or releasing the obligations of Subordinated Creditor under this Agreement, change the manner or place of payment or extend the time of payment of or renew or alter any Senior Indebtedness, or amend, supplement, restate or otherwise modify in any manner any Oxford Loan Document or Permitted Senior Refinancing Document; provided , that , notwithstanding anything herein to the contrary, Senior Creditor shall not amend or otherwise modify the terms of the Senior Indebtedness, or refinance the Senior Indebtedness, without the consent of Subordinated Creditor if the effect of such amendment, modification or refinancing is to (i) increase the principal amount of the Oxford/Zogenix Term Loan or the Oxford/Zogenix Working Capital Line to amounts in excess of the maximum amounts therefor as set forth in the proviso to the definition of Senior Indebtedness herein, (ii) increase the rate of interest on any of the Senior Indebtedness to a rate more than five percent (5.00%) in excess of the default rate with respect to the Oxford/Zogenix Term Loan, (iii) extend the final maturity of the Oxford/Zogenix Term Loan (as set forth in the Oxford Loan Agreement) by more than six months, (iv) otherwise change the terms of the Senior Indebtedness in a manner materially adverse to the Borrower or add any event of default with respect to the Senior Indebtedness, or (v) take any additional Liens on any Property of Borrower, any Subsidiary of Borrower or any other Person other than the Senior Creditor Liens existing on the date hereof.

(c) Subordinated Creditor may at any time and from time to time without the consent of or notice to Senior Creditor, without incurring liability to Senior Creditor and without impairing or releasing the obligations of Senior Creditor under this Agreement, change the manner or place of payment or extend the time of payment of or renew or alter any Subordinated Indebtedness, or amend, supplement, restate or otherwise modify in any manner any Subordinated Loan Document or Permitted Subordinated Refinancing Document; provided , that , notwithstanding anything herein to the contrary, Subordinated Creditor shall not amend or otherwise modify the terms of the Subordinated Indebtedness, or refinance the Subordinated Indebtedness, without the consent of the Senior Creditor if the effect of such amendment, modification or refinancing is to (i) increase the principal amount of the Subordinated Indebtedness, (ii) increase the rate of interest on any of the Subordinated Indebtedness, (iii) modify or amend any Fixed Payment Date to accelerate the date of payment of any Fixed Payment, (iv) modify or amend any Fixed Payment amount, (iv) modify or amend the definition of Revenue Interest Payments to increase the percentage, amounts or frequency thereof, (vii) modify or amend the definition of Included Products Payments (as defined in the CHRP Financing Agreement), to expand or increase the scope products or payments included therein, (viii) otherwise change the terms of the Subordinated Indebtedness in a manner materially adverse to the Borrower, or (ix) take any additional Liens on any Property of

Borrower, any Subsidiary of Borrower or any other Person other than the Subordinated Creditor Liens existing on the date hereof.

4. Representations and Warranties . Subordinated Creditor hereby represents and warrants to Senior Creditor, and Senior Creditor hereby represents and warrants to Subordinated Creditor, in each case, as follows:

4.1 Existence and Power . Such Person is duly organized, validly existing and in good standing under the laws of the state of its organization.

4.2 Authority . Such Person has full power and authority to enter into, execute, deliver and carry out the terms of this Agreement and to incur the obligations provided for herein, all of which have been duly authorized by all proper and necessary action and are not prohibited by the organizational documents of such Person.

4.3 Binding Agreements . This Agreement, when executed and delivered, will constitute the valid and legally binding obligation of such Person enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by equitable principles.

4.4 Conflicting Agreements; Litigation . No provisions of any mortgage, indenture, contract, agreement, statute, rule, regulation, judgment, decree or order binding on such Person or affecting the Property of such Person conflicts with, or requires any consent which has not already been obtained under, or would in any way prevent the execution, delivery or performance of the terms of this Agreement. The execution, delivery and carrying out of the terms of this Agreement will not constitute a default under, or result in the creation or imposition of, or obligation to create, any Lien upon the Property of such Person pursuant to the terms of any such mortgage, indenture, contract or agreement. No pending or, to the best of such Person’s knowledge, threatened, litigation, arbitration or other proceedings if adversely determined would in any way prevent the performance of the terms of this Agreement.

4.5 Default under Subordinated Indebtedness Documents and Senior Indebtedness Documents .

(a) Solely in the case of Subordinated Creditor, on the date hereof, to the knowledge of Subordinated Creditor, no default exists under or with respect to any of the Subordinated Indebtedness Documents.

(b) Solely in the case of Senior Creditor, on the date hereof, to the knowledge of Senior Creditor, no default exists under or with respect to the Oxford Loan Agreement or any of the other Oxford Loan Documents.

5. Purchase Right . Senior Creditor hereby grants to Subordinated Creditor the option to purchase the entire aggregate amount of outstanding Senior Indebtedness plus, to the extent not included in the definition of “Senior Indebtedness,” accrued interest, fees and expenses thereon, and all other amounts due under the Oxford Loan Documents (including any

prepayment penalty or premium), exercisable within fifteen (15) Business Days following Subordinated Creditor’s receipt of notice of a Purchase Event (the “ Option Period ”). If Subordinated Creditor chooses to exercise such right, the parties shall endeavor to close promptly thereafter, but in any event within ten (10) Business Days following notice of the exercise of Subordinated Creditor’s purchase right (the “ Purchase Period ”). If Subordinated Creditor chooses to exercise its purchase right, such purchase shall be effected pursuant to documentation mutually acceptable to each of Senior Creditor and Subordinated Creditor; provided that any such transfer shall be without warranties or representations of Senior Creditor with respect to the Senior Indebtedness and or the Senior Indebtedness Documents, which shall be transferred, if at all, “as is, where is,” without warranties or representations of any kind other than that the same have not theretofore been transferred by Senior Creditor. If Subordinated Creditor elects not to exercise its purchase right under this Section 5 (or does not so irrevocably provide notice of such exercise within the required timeframe or close the purchase within the Purchase Period, unless such failure is to due solely to breach by Senior Creditor of this Agreement), Senior Creditor shall have no further obligations pursuant to this Section 5 . Notwithstanding anything herein to the contrary, Senior Creditor shall not commence any Enforcement Action during the Option Period and, if Subordinated Creditor elects to exercise its purchase right hereunder, the Purchase Period; provided, if, upon expiration of the Purchase Period, the parties have not closed the transaction, Senior Creditor may commence any Enforcement Action in its sole discretion in accordance with the Senior Indebtedness Documents.

6. Cumulative Rights, No Waivers . Each and every right, remedy and power granted to Senior Creditor or Subordinated Creditor hereunder, as applicable, shall be cumulative and in addition to any other right, remedy or power specifically granted herein, in the Senior Indebtedness Document or the Subordinated Indebtedness Documents, as applicable or now or hereafter existing in equity, at law, by virtue of statute or otherwise, and may be exercised by Senior Creditor or Subordinated Creditor, as applicable, from time to time, concurrently or independently and as often and in such order as Senior Creditor or Subordinated Creditor, as applicable, may deem expedient; subject at all times to the terms and conditions of this Agreement. Any failure or delay on the part of Senior Creditor or Subordinated Creditor, as applicable, in exercising any such right, remedy or power, or abandonment or discontinuance of steps to enforce the same, shall not operate as a waiver thereof or affect such Person’s right thereafter to exercise the same, and any single or partial exercise of any such right, remedy or power shall not preclude any other or further exercise thereof or the exercise of any other right, remedy or power, and no such failure, delay, abandonment or single or partial exercise of such Person’s rights hereunder shall be deemed to establish a custom or course of dealing or performance among the parties hereto.

7. Modification . Any modification or waiver of any provision of this Agreement, or any consent to any departure by Senior Creditor or Subordinated Creditor therefrom, shall not be effective in any event unless the same is in writing and signed by both Senior Creditor and Subordinated Creditor, and then such modification, waiver or consent shall be effective only in the specific instance and for the specific instance and for the specific purpose given. Any modification of any provision of this Agreement which adversely affects the Borrower’s rights, duties or obligations hereunder (as determined in the reasonable discretion of Senior Creditor), shall not be effective unless the same is in writing and signed by Borrower. Any notice to or demand on either party hereto in any event not specifically required of the other party hereto

shall not entitle the receiving party to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder.

8. Additional Documents and Actions . Each Subordinated Creditor at any time, and from time to time, after the execution and delivery of this Agreement, upon the request of Senior Creditor and at the expense of the Borrower, promptly will execute and deliver such further documents and do such further acts and things as Senior Creditor may reasonably request in order to effect fully the purposes of this Agreement.

9. Notices . All notices and communications under this Agreement shall be in writing and shall be (a) delivered in person, (b) delivered by overnight express courier, or (c) sent by telecopy (with such telecopy to be confirmed promptly in writing sent in accordance with (a) or (b) above), addressed in each case as follows:

Senior Creditor:

Oxford Finance Corporation

133 N. Fairfax Street

Alexandria, VA 22314

Attn: Timothy A. Lex, Chief Operating Officer

Tel.: (703) 519-4900

Fax: (703) 519-5225

with a copy to:

Silicon Valley Bank

4370 La Jolla Village Drive, Suite 860

San Diego, CA 92122

Attn: Mike White

Tel.: (858) 784-3310

Fax: (858) 622-1424

Email: mwhite@svb.com\

and with a copy to:

DLA Piper LLP (US)

4365 Executive Drive, Suite 1100

San Diego, California 92121

Attn: Troy Zander

Fax: (858) 638-5086

Subordinated Creditor:

Cowen Healthcare Royalty Partners II, L.P.

177 Broad Street, Suite 1101

Stamford, CT 06901

Attention: Gregory B. Brown, M.D.

Facsimile No.: (646) 562-1293

with a copy to:

Cohen Tauber Spievack & Wagner P.C.

420 Lexington Avenue, Suite 2400

New York, NY 10170

Attention: Y. Jerry Cohen, Esq.

Facsimile No.: (212) 586-5095

Borrower:

Zogenix, Inc.

12671 High Bluff Drive, Suite 200

San Diego, California 92130

Attn: Chief Financial Officer

Tel.: (858) 436-9208

Fax: (858) 259-1166

with a copy to:

Latham & Watkins LLP

12636 High Bluff Drive, Suite 400

San Diego, California 92130

Attn: Faye H. Russell

Tel: (858) 523-5483

Fax: (858) 523-5450

or to any other address, as to any of the parties hereto (including any Person that becomes a holder of Subordinated Indebtedness after the date hereof), as such party shall designate in a written notice to the other parties hereto. All notices sent pursuant to the terms of this Section 9 shall be deemed received (i) if personally delivered, then on the Business Day of delivery, (ii) if sent by overnight, express carrier, on the next Business Day immediately following the day sent, or (iii) if delivered by telecopy, on the date of transmission if transmitted on a Business Day before 4:00 p.m. (Chicago time), otherwise on the next Business Day.

10. Severability . In the event that any provision of this Agreement is deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, this Agreement shall be construed as not containing such provision and the invalidity of such provision shall not affect the validity of any other provisions hereof, and any and all other provisions hereof which otherwise are lawful and valid shall remain in full force and effect.

11. Successors and Assigns . This Agreement shall inure to the benefit of the successors and assigns of Senior Creditor and Subordinated Creditor, and shall be binding upon the successors and assigns of Senior Creditor, Subordinated Creditor and Borrower.

12. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall be one and the same instrument. Any such counterpart delivered to Senior Creditor and Subordinated Creditor by facsimile, email or similar electronic transmission shall be deemed the equivalent of an originally signed counterpart and shall be fully admissible in any enforcement proceedings regarding this Agreement.

13. Defining Rights of Creditors; Subrogation .

(a) The provisions of this Agreement are solely for the purpose of defining the relative rights of Subordinated Creditor, on the one hand, and Senior Creditor, on the other hand, and shall not be deemed to create any rights or priorities in favor of any other Person, including, without limitation, Borrower. The failure of Borrower to make any payment to Subordinated Creditor due solely to the operation of this Agreement shall not be construed as prohibiting the occurrence of a Subordinated Default.

(b) Subject to the Payment in Full of the Senior Indebtedness, in the event and to the extent cash, Property or securities otherwise payable or deliverable to the holder of the Subordinated Indebtedness shall have been applied pursuant to this Agreement to the payment of Senior Indebtedness, then and in each such event, the holder of the Subordinated Indebtedness shall be subrogated to the rights of the holder of Senior Indebtedness to receive any further payment or distribution in respect of or applicable to the Senior Indebtedness; and, for the purposes of such subrogation, no payment or distribution to the holder of Senior Indebtedness of any cash, Property or securities to which the holder of Subordinated Indebtedness would be entitled except for the provisions of this Agreement shall, and no payment over pursuant to the provisions of this Agreement to the holder of Senior Indebtedness by the holder of the Subordinated Indebtedness shall, as between Borrower and its creditors other than the holder of Senior Indebtedness and the holder of Subordinated Indebtedness, be deemed to be a payment by such Borrower to or on account of Senior Indebtedness.

14. Conflict . The terms, covenants and conditions of this Agreement shall govern in the event of any conflict between any term, covenant or condition of this Agreement and, on the one hand, any term, covenant or condition of any of the Subordinated Indebtedness Documents or, on the other hand, any term, covenant or provision of the Senior Indebtedness Documents.

15. Statement of Indebtedness to Subordinated Creditor . Borrower shall furnish to Senior Creditor, upon demand, a statement of the indebtedness owing from Borrower to Subordinated Creditor. Borrower shall furnish to Subordinated Creditor, upon demand, a statement of the indebtedness owing from Borrower to Senior Creditor.

16. Headings . The paragraph headings used in this Agreement are for convenience only and shall not affect the interpretation of any of the provisions hereof.

17. Termination . This Agreement shall terminate upon the Payment in Full of the Senior Indebtedness .

18. Intentionally Omitted .

19. Actions Upon Breach .

(a) If Senior Creditor or Subordinated Creditor, contrary to the terms of this Agreement, commences or participates in any action or Proceeding against Borrower or the Collateral, Borrower, with the prior written consent of the non-breaching creditor, may interpose as a defense or dilatory plea the making of this Agreement, and such non-breaching creditor may intervene and interpose such defense or plea in its or their name or in the name of the Borrower.

(b) Should Senior Creditor or Subordinated Creditor, contrary to the terms of this Agreement, in any way take, attempt to or threaten to take any action with respect to the Collateral (including, without limitation, any attempt to realize upon or enforce any remedy with respect to this Agreement), or fail to take any action required by this Agreement, the non-breaching creditor (in its own name or in the name of Borrower), as applicable, or Borrower, may obtain relief against such breaching creditor by injunction, specific performance and/or other appropriate equitable relief, it being understood and agreed by each of the parties hereto that (i) the non-breaching creditor’s damages from the actions of the breaching creditor may at that time be difficult to ascertain and may be irreparable, and (ii) each of Senior Creditor and Subordinated Creditor waives any defense that Borrower and/or the non-breaching creditor, as applicable, cannot demonstrate damage and/or be made whole by the awarding of damages.

20. APPLICABLE LAW . THIS AGREEMENT, AND ALL MATTERS RELATING HERETO OR THERETO OR ARISING THEREFROM (WHETHER ARISING UNDER CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFONIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

21. JURISDICTION AND VENUE . EACH OF SUBORDINATED CREDITOR, SENIOR CREDITOR AND BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EACH OF SUBORDINATED CREDITOR, SENIOR CREDITOR AND BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH OF SUBORDINATED CREDITOR, SENIOR CREDITOR AND BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH PERSON BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT

REQUESTED, ADDRESSED TO SUCH PERSON AT THE ADDRESS SET FORTH IN SECTION 9 OF THIS AGREEMENT.

22. WAIVER OF RIGHT TO JURY TRIAL . EACH OF SUBORDINATED CREDITOR, SENIOR CREDITOR AND BORROWER (INCLUDING, WITHOUT LIMITATION, ANY PERSON THAT BECOMES A HOLDER OF SUBORDINATED INDEBTEDNESS OR A HOLDER OF SENIOR INDEBTEDNESS AFTER THE DATE HEREOF) HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH OF SUBORDINATED CREDITOR, SENIOR CREDITOR AND BORROWER (INCLUDING, WITHOUT LIMITATION, ANY PERSON THAT BECOMES A HOLDER OF SUBORDINATED INDEBTEDNESS OR A HOLDER OF SENIOR INDEBTEDNESS AFTER THE DATE HEREOF) ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT SUCH PERSON HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT SUCH PERSON WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF SUBORDINATED CREDITOR, SENIOR CREDITOR AND BORROWER (INCLUDING, WITHOUT LIMITATION, ANY PERSON THAT BECOMES A HOLDER OF SUBORDINATED INDEBTEDNESS OR A HOLDER OF SENIOR INDEBTEDNESS AFTER THE DATE HEREOF) WARRANTS AND REPRESENTS THAT SUCH PERSON HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

23. WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which

shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

— Remainder of Page Intentionally Left Blank; Signature Pages Follow —




		By Cowen Healthcare Royalty GP, LLC
		Its General Partner




By:
Name:
Title:

SENIOR CREDITOR:

OXFORD FINANCE LLC, AS ADMINISTRATIVE
AGENT AND LENDER




By:
Name:
Title:


LENDER: SILICON VALLEY BANK

By:
Name:
Title:

ACKNOWLEDGED AND AGREED

TO BY BORROWER:


ZOGENIX, INC.

By:
Name:
Title:

SIGNATURE PAGE TO SUBORDINATION AND INTERCREDITOR AGREEMENT

EXHIBIT A

Collateral

The “Collateral” consists of all of Borrower’s right, title and interest in and to the following personal property:

(a) All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles, commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, all certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

(b) All Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

Capitalized terms used and not defined in this Exhibit A have the meanings given to them in the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California (the “ Code ”); provided, that, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect any security interest on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

E XHIBIT A T O S UBORDINATION A ND I NTERCREDITOR A GREEMENT

EXHIBIT C

F ORM OF S ECURITY A GREEMENT

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “ Agreement ”) is made and entered into as of June 30, 2011, by and among Zogenix, Inc., a Delaware corporation (“ Zogenix ”), Zogenix Europe Limited, a company formed under the laws of the United Kingdom and a wholly-owned subsidiary of Zogenix, and Cowen Healthcare Royalty Partners II, L.P., a Delaware limited partnership (together with its Affiliates, “ CHRP ”).

RECITALS:

A. Zogenix and CHRP are parties to that certain Financing Agreement between CHRP and Zogenix of even date herewith (the “ Financing Agreement ”).

B. Zogenix has agreed pursuant to the terms of the Financing Agreement to enter into this Agreement, under which Zogenix grants to CHRP a continuing lien and security interest in and to the Collateral as security for the due performance and payment of all of Zogenix’s obligations to CHRP under the Financing Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Zogenix covenants, acknowledges, represents and warrants to and in favor of CHRP as follows:

SECTION 1. Definitions .

For purposes of this Agreement, capitalized terms used herein shall have the meanings set forth in Schedule 1 attached hereto.

SECTION 2. Grant of Security .

(a) Zogenix hereby grants to CHRP a continuing lien on and security interest in all property and assets now owned or hereafter arising or acquired by Zogenix, wheresoever located, and all right, title and interest of Zogenix therein (collectively, the “ Collateral ”), including, without limitation, the following:

(i) All Accounts, Chattel Paper (including Tangible Chattel Paper and Electronic Chattel Paper), Documents, Instruments, Promissory Notes, Commercial Tort Claims and contracts (including, without limitation, all claims for damages arising out of any breach of or default thereunder);

(ii) All Inventory;

(iii) All Equipment and all Fixtures (other than Excluded European Property, as defined in the Oxford Loan Documents);

(iv) All General Intangibles (including, without limitation, Payment Intangibles and domain names) and Software;

(v) All Trademarks, Patents, copyrights and trade secrets;

(vi) All cash, Deposit Accounts, Letter of Credit Rights, Supporting Obligations, Securities (whether certificated or uncertificated) and Investment Property;

(vii) All other Goods and personal property of Zogenix, whether tangible or intangible, now owned or hereafter acquired by Zogenix, wheresoever located;

(viii) all present and future books, Documents, invoices, records, data, databases, information, statements, correspondence, clinical data, test results, study results and regulatory filings and approvals, in each case, in any form whatsoever; and

(ix) all replacements, additions, accessions, substitutions, repairs, guaranties and securities for the foregoing, if any, and all Proceeds, products, rents and profits of or from any and all of the foregoing, all proceeds that constitute property, and, to the extent not otherwise included, all payments under insurance (whether or not CHRP is the loss payee or beneficiary thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing, in each case, in any form whatsoever.

(b) Without limiting the foregoing, the Collateral includes all of the right, title and interest of Zogenix in and to:

(i) the Revenue Interest, Revenue Interest Payments and the other Assigned Rights;

(ii) all License Agreements, including, without limitation, (1) all rights to receive moneys due or to become due under or pursuant to the License Agreements, (2) all rights to receive proceeds of any insurance, indemnity, warranty or guaranty claim with respect to the License Agreements, (3) all claims for damages arising out of any breach of or default under the License Agreements, and (4) all rights to terminate, amend, supplement, modify or exercise rights or options under the License Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder; and

(iii) the Included Products, Regulatory Approvals, and all Intellectual Property, including, without limitation, Patents, Trademarks, contracts, rights and licenses necessary or useful to manufacture, have manufactured, sell, have sold, market or have marketed the Included Products, including, without limitation, the Astellas Co-Promotion Agreement.

(c) Each item of Collateral listed in this Section 2 that is defined in Article 8 or Article 9 of the UCC shall have the meaning set forth in the UCC, it being the intention of Zogenix that the description of the Collateral set forth above be construed to include the broadest possible range of assets described herein.

Notwithstanding the foregoing, the Collateral shall not be deemed to include any property, if the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral; provided that in no case shall the definition of Collateral exclude any Accounts, Proceeds of the disposition of any property, or General Intangibles consisting of rights to payment.

SECTION 3. Security for Obligations .

This Agreement secures, and the Collateral is collateral security for, the due and punctual payment or performance in full (including without limitation the payment of amounts that would become due but for the operation of the automatic stay under Subsection 362(a) of the Bankruptcy Code) of all Secured Obligations.

SECTION 4. Zogenix to Remain Liable .

Until the sale or transfer of the contracts included in the Collateral pursuant to foreclosure or the assumption by CHRP of the obligations of Zogenix under such contracts, (a) Zogenix shall remain liable under any contracts and agreements included in the Collateral to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by CHRP of any of its rights hereunder shall not release Zogenix from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) CHRP shall not have any obligation or liability under any contracts, licenses, and agreements included in the Collateral by reason of this Agreement, nor shall CHRP be obligated (i) to perform any of the obligations or duties of Zogenix thereunder, (ii) to take any action to collect or enforce any claim for payment assigned hereunder, or (iii) to make any inquiry as to the nature or sufficiency of any payment Zogenix may be entitled to receive thereunder.

SECTION 5. Representations and Warranties .

Zogenix represents and warrants as follows:

(a) Ownership of Collateral . Except for the Permitted Liens, and except as set forth in Schedule 5(a) hereto, Zogenix owns or has exclusive rights to the Collateral free and clear of any Liens, and has the power to transfer and grant the Liens and security interests granted hereunder. Except for instruments evidencing Liens established under the Senior Loan Documents, and except as may have been filed in favor of CHRP relating to this Agreement, no security agreement, financing statement, assignment, equivalent security, lien or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office.

(b) Validity . This Agreement creates a valid continuing lien on and security interest in and to the Collateral securing the payment and performance in full of the Secured Obligations. Upon the filing of appropriate UCC financing statements in the filing offices listed on Schedule 5(b) and any required filings with the United States Patent and Trademark Office and equivalent offices in other jurisdictions, all filings, registrations, recordings and other actions necessary or appropriate to create, preserve, protect and perfect the security interest priority of such security interest, in each case, in the United States, will have been accomplished and will create a perfected security interest therein prior to the rights of all other Persons therein, other than the rights of Oxford and SVB with respect to the Oxford Lien, if any, and free and clear of any and all Liens, other than the Permitted Liens.

(c) Authorization, Approval . Other than any authorization, approval or other action already received, no authorization, approval, or other action by, and no notice to or filing with, any government or agency of any government or other Person is required either (i) for the grant by Zogenix of the security interest granted hereby or for the execution, delivery and performance of this Agreement by Zogenix; or (ii) for the perfection of, and the priority (as set forth herein) of, the grant of the security interest created hereby or the exercise by CHRP of its rights and remedies hereunder, other than the filing of financing statements in the offices listed on Schedule 5(b) and any required filings with the United States Patent and Trademark Office and in any equivalent offices in other jurisdictions.

(d) Enforceability . This Agreement is the legally valid and binding obligation of Zogenix, enforceable against Zogenix in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles.

(e) Office Locations; Type and Jurisdiction of Organization; Good Standing . The chief place of business, the chief executive office, other locations of Zogenix and each office or location where Zogenix keeps the Collateral and records relating thereto are, as of the date hereof, located at the addresses set forth on Schedule 5(e) ; its type of organization (e.g., corporation), jurisdiction of organization and organization number provided by the applicable government authority of its jurisdiction of organization are listed on Schedule 5(e) .

(f) Names . Zogenix (or any predecessor by merger or otherwise) has not, within the four (4) month period preceding the date hereof, had a different name from the name listed on the signature pages hereof.

(g) Event of Default . No Event of Default has occurred and is continuing and no event has occurred and is continuing and no condition exists that would, with notice or the lapse of time, or both, constitute an Event of Default.

(h) Financing Agreement Representations and Warranties . The representations and warranties of Zogenix set forth in Article III of the Financing Agreement are incorporated in this Section 5 by reference.

SECTION 6. Further Assurances .

From time to time, at its sole expense, Zogenix will promptly execute and deliver and will cause to be executed and delivered all further instruments and documents, and will take all further action, that may be reasonably necessary or desirable, or that CHRP may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable CHRP to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, subject to the rights of Oxford and SVB under the Intercreditor Agreement, if any, Zogenix will: (i) (A) execute and file, record or register such financing or continuation statements, or amendments thereto, (B) execute and deliver, and cause to be executed and delivered, agreements establishing that CHRP has “control” within the meaning of Article 9 of the UCC of specified items of Collateral, (C) execute and deliver such Intellectual Property Security

Agreements as are requested by CHRP within five (5) Business Days of any such request, (D) promptly, upon Zogenix’s knowledge thereof, deliver to CHRP notice of any Commercial Tort Claims it may bring against any person or entity, including the name and address of such person or entity, a detailed description of the facts, an estimate of Zogenix’s damages thereunder, copies of any complaint or demand letter submitted by Zogenix, and such other information as CHRP may request, and, upon request by CHRP, deliver any and all documentation required by CHRP to perfect its security interest in all rights of Zogenix in, to and under such Commercial Tort Claim and (E) deliver such other instruments or notices, in each case, as may be necessary or desirable, or as CHRP may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby, (ii) furnish to CHRP from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as CHRP may reasonably request, all in reasonable detail, including, without limitation, amendments to Schedules 3.12(a) to the Financing Agreement upon any material changes or additions thereto, (iii) at CHRP’s request, appear in and defend any action or proceeding that may affect the title of Zogenix to or CHRP’s security interest in all or any material part of the Collateral, and (iv) use commercially reasonable efforts to obtain any necessary consents of third parties to the perfection of a security interest to CHRP with respect to any Collateral or the exercise of any right hereunder or under the Financing Agreement or any Transaction Document. Zogenix hereby authorizes CHRP to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the further consent of Zogenix. In addition to and notwithstanding the foregoing, Zogenix hereby irrevocably constitutes and appoints CHRP, with full power of substitution, as its true and lawful attorney-in-fact, with full irrevocable power and authority in its place and stead and in its name or otherwise, from time to time in CHRP’s sole discretion, at Zogenix’s sole cost and expense, to take any and all appropriate action and to execute and deliver any and all documents and instruments which CHRP may deem reasonably necessary or advisable to accomplish the purposes of creating, perfecting, continuing and preserving an indefeasible continuing security interest in any and all of the Collateral in favor of CHRP, junior in priority only to the Oxford Lien.

(b) Zogenix agrees that a photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. Zogenix agrees to furnish CHRP promptly upon request by CHRP, with any information that is requested by CHRP in order to complete such financing statements, continuation statements, or amendments thereto.

(c) Within five (5) Business Days of payment by CHRP of the Revenue Investment Advance, Zogenix will pay in full all of its obligations to General Electric Capital Corporation (“ GE ”), including, without limitation, all of the obligations of Zogenix to GE under that certain Master Loan and Security Agreement, dated as of March 5, 2007 (as amended from time to time, the “ GE Loan Agreement ”) between GE and Zogenix.

(d) In furtherance and not in limitation of the foregoing, Zogenix, at Zogenix’s expense, will (i) within ninety (90) days of payment by CHRP of the Revenue Investment Advance provide evidence in form and substance reasonably satisfactory to CHRP of the release by GE of all Liens securing the obligations of Zogenix to GE under the GE Loan Agreement, (ii) within one hundred eighty (180) days of payment by CHRP of the Revenue Investment Advance cause each

third party bailee of the Equipment included in the Collateral, wherever located and set forth on Schedule 6(d) hereof (which third party bailees are the only third party bailees that have delivered waivers regarding Equipment of Zogenix to Oxford or GE), to execute and deliver to CHRP a bailee agreement, in form and substance substantially as executed and delivered to Oxford and GE and provided to CHRP, (iii) within ninety (90) days of payment by CHRP of the Revenue Investment Advance execute and deliver, and cause to be executed and delivered, such instruments, documents or agreements, in form and substance reasonably satisfactory to CHRP (and substantially as executed and delivered to Oxford and GE with respect to the Equipment securing the obligations of Zogenix under their respective loan documents), reasonably required by CHRP for the creation, perfection or protection of any now-existing Equipment of Zogenix located outside the United States, provided that no additional third party waivers will be required with respect to such now-existing Equipment other than (A) any such waivers delivered to other lenders to Zogenix after the date hereof and (B) the agreements described in the foregoing clause (ii), and (iv) within ninety (90) days of payment by CHRP of the Revenue Investment Advance execute and deliver, and cause to be executed and delivered, all further instruments and documents, and will take all further action, that may be reasonably required by CHRP in order to create, perfect and protect any security interest granted or purported to be granted hereby with respect to all non-Equipment Collateral located outside of the United States, including, without limitation, Intellectual Property and pledges of stock in connection with any foreign Subsidiary of Zogenix.

Zogenix represents and warrants that all Equipment that is material to the Business (as defined in the Oxford Loan Documents) of Zogenix, together with all such Equipment that is in the possession of a third party bailee, is set forth on Schedule 6(d) , and such schedule sets forth the location of the listed Equipment. Zogenix, at Zogenix’s expense, shall execute and deliver to CHRP, and authorize CHRP to file, such instruments, documents or agreements reasonably requested by CHRP, in form and substance reasonably acceptable to CHRP, to create or perfect a perfected Lien in the United Kingdom or any other country in the European Union in Equipment acquired by Zogenix after the date hereof with respect to which a security interest may be created and perfected in either such jurisdiction, upon each incremental acquisition by Zogenix, in one or more transactions, of Equipment in such jurisdiction having an aggregate value which exceeds $250,000 in any 12-month period beginning on the date hereof and any anniversary thereof. Zogenix shall amend Schedule 6(d) to reflect the acquisition of any Equipment material to the Business of Zogenix from time to time.

SECTION 7. Certain Covenants of Zogenix .

Zogenix shall:

(a) not use or permit any Collateral to be used unlawfully or in violation of any provision of the Transaction Documents or any applicable material statute, regulation or ordinance or any policy of insurance covering the Collateral;

(b) give CHRP twenty (20) Business Days’ prior written notice of any amendment to its certificate of incorporation or change in Zogenix’s name, identity or corporate structure or reincorporation, reorganization, or taking of any other action that results in a change of the jurisdiction of organization of Zogenix, and promptly inform CHRP of the creation of any new Subsidiary;

(c) give CHRP twenty (20) Business Days’ prior written notice of any change in its chief place of business, chief executive office or the offices where Zogenix keeps its records regarding the Collateral;

(d) pay promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims against, the Collateral, except to the extent the validity thereof is being contested in good faith and Zogenix maintains reserves appropriate therefor under GAAP; provided that Zogenix shall in any event pay such taxes, assessments, charges, levies or claims not later than three (3) Business Days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against Zogenix or any of the Collateral as a result of the failure to make such payment; and

(e) at Zogenix’s expense, (i) maintain, preserve and protect all of its property necessary in the operation of its Business (as defined in the Oxford Loan Documents) in good working order and condition, ordinary wear and tear and Involuntary Dispositions (as defined in the Oxford Loan Documents) excepted, (ii) make all necessary repairs thereto and renewals and replacements thereof, (iii) use the standard of care typical in the industry in the operation and maintenance of its Facilities (as defined in the Oxford Loan Documents), and (iv) give CHRP ten (10) Business Days’ prior written notice of any change in location of Equipment included in the Collateral and material to the operation of Zogenix’s Business (as defined in the Oxford Loan Documents).

SECTION 8. Special Covenants With Respect to the Collateral .

(a) Zogenix shall:

(i) diligently keep records respecting the Collateral and at all times keep at least one (1) complete set of its records concerning such Collateral at its chief executive office or principal place of business;

(ii) not create, incur, assume, allow or cause to exist any Lien on any Collateral except for the Permitted Liens;

(iii) not Transfer, modify or abandon, or agree to Transfer, modify or abandon, any Collateral except as otherwise permitted under the Oxford Loan Documents or the Financing Agreement; and

(iv) not terminate any License Agreement except as otherwise permitted under the Financing Agreement.

(b) Zogenix shall faithfully perform all of its obligations with respect to its Intellectual Property as set forth in Section 5.08 of the Financing Agreement.

(c) Zogenix shall, concurrently with the execution and delivery of this Agreement, execute and deliver to CHRP five (5) originals of a Special Power of Attorney in the form of Exhibit I annexed hereto for execution of an assignment of the Collateral to CHRP, or the implementation of the sale or other disposition of the Collateral pursuant to CHRP’s good faith exercise of the rights and remedies granted hereunder; provided , however , CHRP agrees that it will not exercise its rights under such Special Power of Attorney unless an Event of Default has occurred and is continuing.

(d) Zogenix further agrees that a breach of any of the covenants contained in Sections 8(a)(ii) , 8(a)(iii) and 8(b) above will cause irreparable injury to CHRP, that CHRP has no adequate remedy at law in respect of such breach and, as a consequence, that the covenants contained in Sections 8(a)(ii) , 8(a)(iii) and 8(b) above shall be specifically enforceable against Zogenix, and Zogenix hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants.

SECTION 9. Protection of Intellectual Property .

The covenants of Zogenix set forth in Section 5.08 of the Financing Agreement are incorporated in this Section 9 by reference. In the event an Event of Default exists, without limiting any of the rights and remedies of CHRP hereunder and under the Financing Agreement, CHRP may, and shall have the right (but not the obligation), to take such steps and institute such suits or proceedings as CHRP may deem advisable or necessary to prevent such acts and conduct and to secure damages and other relief by reason thereof, and to generally take such steps as may be advisable or necessary or proper for the full protection of the rights of the parties. In such event, CHRP may take such steps or institute such suits or proceedings in its own name or in the name of Zogenix or in the names of the parties jointly. CHRP shall give Zogenix notice of any steps taken, or any suits or proceedings instituted by it pursuant to this Section 9 .

SECTION 10. Standard of Care .

The powers conferred on CHRP hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of good faith and of reasonable care in the accounting for moneys actually received by CHRP hereunder, CHRP shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. CHRP shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which CHRP accords its own property.

SECTION 11. Remedies Upon Event of Default .

(a) Subject to the rights of Oxford and SVB under the Intercreditor Agreement, if any, in the event of an Event of Default that is not cured or waived by CHRP, CHRP may exercise in respect of the Collateral (I) all rights and remedies provided for herein, under the Financing Agreement or otherwise available to it, (II) all the rights and remedies of a secured party on default under the UCC, in all relevant jurisdictions, and (III) the right to:

(i) demand and receive immediate payment in cash equal to an amount that, when taken together with the cumulative amount of cash payments made by Zogenix to CHRP pursuant to the Revenue Interest together with all Fixed Payments immediately prior to such Event of Default, shall equal the greater of (I) 150% of the Revenue Investment Advance and (II) an amount that would generate an internal rate of return to CHRP of 17.0% in respect of the Revenue Investment Advance;

(ii) require Zogenix to, and Zogenix hereby agrees that it will at its expense and upon request of CHRP forthwith, assemble all or part of the Collateral as directed by CHRP and make it available to CHRP at a place and time to be designated by CHRP;

(iii) personally or by agents or attorneys, with or without judicial process or the aid or assistance of others, to the extent permitted by law, enter upon any premises on or in which any of the Collateral may be located and immediately take possession of the Collateral or any part thereof, from Zogenix or any other person who has possession of any part thereof, and complete or have completed any activities with respect to all or any portion of the Collateral;

(iv) collect, foreclose, receive, appropriate, setoff or otherwise enforce or realize upon any and all Collateral, and exercise any and all rights of Zogenix under any of the Collateral, including, without limitation, any License Agreement or Material Contract;

(v) extend the time of payment of, compromise or settle for cash, credit and return, upon any terms or conditions, any and all Collateral which includes a monetary obligation and discharge or release the account Zogenix or other obligor, without affecting any of the Secured Obligations; and

(vi) sell, lease, license, transfer, assign, deliver or otherwise dispose of any and all Collateral at such prices or terms as CHRP may deem reasonable, for cash or credit or any other means of payment, with CHRP having the right to purchase the whole or any part of the Collateral at any public sale, all of the foregoing being free from any right or equity of redemption, appraisement, valuation, stay, extension, or moratorium of Zogenix, which right or equity of redemption and rights of appraisement, valuation, stay, extension or moratorium are hereby expressly waived and released by Zogenix. If any of the Collateral is sold or otherwise disposed of by CHRP upon credit terms or for future payment, the Secured Obligations shall not be reduced as a result thereof until payment therefore is finally collected by CHRP. If notice of disposition of Collateral is required by law, ten (10) days’ prior notice by CHRP to Zogenix designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Zogenix waives any other notice. In the event CHRP institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Zogenix waives the posting of any bond which might otherwise be required; and

(vii) apply the proceeds of the Collateral actually received by CHRP from any sale, lease, license, foreclosure or other disposition of the Collateral to payment of any of the Secured Obligations, in whole or in part (including attorneys’ fees and legal expenses incurred by CHRP with respect thereto or otherwise chargeable to Zogenix) and in such order as CHRP may elect, whether or not then due. Zogenix shall remain liable to CHRP for the payment on demand of any deficiency together with interest at a default rate that is the lower of (1) five hundred (500) basis points greater than the then-applicable annual rate under the Oxford Loan Documents or (2) the maximum rate permitted by law, and all costs and expenses of collection or enforcement, including reasonable attorneys’ fees and legal expenses.

(b) Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of an Event of Default, CHRP shall have the right (but not the obligation) to bring suit, in the name of Zogenix, CHRP or otherwise, to enforce rights in and to any Collateral, in which event Zogenix shall, at the request of CHRP, do any and all lawful acts and execute any and all documents required by CHRP in aid of such enforcement and Zogenix shall promptly, upon demand, reimburse and indemnify CHRP as provided in Section 13 hereof in connection with the exercise of its rights under this Section 11 .

(c) Zogenix hereby grants to CHRP an irrevocable, non-exclusive license, subject to the then-existing or future rights of Licensees, if any, and the rights of Oxford and SVB with respect to the Oxford Lien, if any, exercisable upon an occurrence and during the continuation of an Event of Default without payment of royalty or other compensation to Zogenix, to use, transfer, license or sublicense any Intellectual Property now owned, licensed to, or hereafter acquired by Zogenix, to the extent necessary or useful to CHRP (in CHRP’s sole discretion) to exercise its rights with respect to the Collateral, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer and automatic machinery software and programs used for the compilation or printout thereof, and represents, promises and agrees that any such license or sublicense is not and will not be in conflict with the contractual or commercial rights of any third Person; provided, however that such license will terminate upon the payment in full of all Secured Obligations.

(d) CHRP shall be under no obligation whatsoever to marshal any Collateral, or to proceed first against any of the Collateral or other property which is security for the Secured Obligations before proceeding against any other of the Collateral. It is expressly understood and agreed that all of the Collateral or other property which is security for the Secured Obligations stands as equal security for all Secured Obligations, and that CHRP shall have the right to proceed against, sell or dispose of any or all of the Collateral or other property which is security for the Secured Obligations in any order, or simultaneously, as in its sole and absolute discretion it shall determine. To the extent permitted by applicable law, Zogenix irrevocably waives, and agrees that it will not invoke or assert, any law requiring or relating to the marshaling of collateral or any other law which might cause a delay in or impede the enforcement of CHRP’s rights under this Agreement or any other agreement.

(e) From time to time as requested by CHRP, at the sole expense of Zogenix, CHRP or its designee shall have access, prior to an Event of Default, during reasonable business hours and no more frequently than once per year without cause, as determined by CHRP in its reasonable discretion, and on or after an Event of Default, at any time and without limit during the continuance of an Event of Default, to all of the premises where Collateral is located for the purposes of inspecting (and upon the occurrence and during the continuation of an Event of Default, disposing and realizing upon) the Collateral, and all Zogenix’s books and records, and Zogenix shall permit CHRP or its designee to make such copies of such books and records or extracts therefrom as CHRP may reasonably request. Without expense to CHRP, CHRP may use such of Zogenix’s personnel, equipment, including computer equipment, programs, printed output and computer readable media, supplies and premises for the inspection of and, as applicable, realization on Collateral as CHRP, in its sole discretion, deems reasonably appropriate.

SECTION 12. Release of CHRP .

Zogenix hereby releases and exculpates CHRP, its officers, partners, directors, employees, agents, representatives and designees, from any liability arising from any acts under this Agreement or in furtherance thereof, whether as attorney-in-fact or otherwise, whether of omission or commission, and whether based upon any error of judgment or mistake of law or fact, except for gross negligence or willful misconduct as determined by a final and non-appealable order from a court of competent jurisdiction. In no event will CHRP have any liability to Zogenix for lost profits or other special, indirect or consequential damages or lost business opportunities, even if advised of the possibility of any or all of the foregoing. This Section 12 shall survive the termination of this Agreement and the discharge of Zogenix’s other obligations under this Agreement and the Financing Agreement.

SECTION 13. Expenses .

(a) Zogenix agrees to pay to CHRP upon demand the amount of any and all reasonable costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that CHRP may incur in connection with (i) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (ii) the exercise or enforcement of any of the rights of CHRP hereunder, or (iii) the failure by Zogenix to perform or observe any of the provisions hereof. Upon an Event of Default that continues, if Zogenix defaults in the performance of any of the provisions of this Agreement, any other Transaction Document, any License Agreement or Material Contract, CHRP may (but without any obligation to do so) perform same for Zogenix’s account. Any costs and expenses expended by CHRP under this Section 13 , if not timely paid by Zogenix, shall be added to the Secured Obligations and chargeable with interest (at the highest rate provided herein) to Zogenix.

(b) The obligations of Zogenix in this Section 13 shall survive the termination of this Agreement and the discharge of Zogenix’ other obligations under this Agreement and the Financing Agreement.

SECTION 14. Continuing Security Interest; Termination and Release .

(a) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the indefeasible payment and performance in full of the Secured Obligations (other than inchoate obligations that by their terms survive the termination of any Transaction Document), (ii) be binding upon Zogenix and its respective successors and permitted assigns, and (iii) inure, together with the rights and remedies of CHRP hereunder, to the benefit of CHRP and its successors, transferees and assigns. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Zogenix for liquidation or reorganization, should Zogenix become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any

significant part of Zogenix’s, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by CHRP, whether as a “voidable preference,” “fraudulent conveyance” or otherwise, all as though such payment or performance had not been made. In the event that any payment or any part thereof is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

(b) Upon the occurrence of payment and performance in full of all Secured Obligations (other than inchoate obligations that by their terms survive the termination of any Transaction Document), the security interest granted hereby shall terminate and all rights to the Collateral shall be returned to Zogenix, provided , however , that CHRP acknowledges that the Liens granted hereunder shall be released on the Multiple Stepdown Date. Upon any such termination or event of release, Zogenix is hereby authorized to, and CHRP will, at Zogenix’s expense, execute and deliver, file or record such documents as Zogenix shall reasonably request or deem appropriate to evidence such termination or release.

SECTION 15. Amendments .

No amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by Zogenix therefrom, shall in any event be effective unless the same shall be in writing and signed by CHRP and, in the case of any such amendment or modification, by Zogenix. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.

SECTION 16. Notices .

All notices, consents, waivers and other communications hereunder shall be in writing and shall be delivered in accordance with Section 8.03 of the Financing Agreement.

SECTION 17. Failure or Indulgence Not Waiver; Remedies Cumulative .

No failure or delay on the part of CHRP in the exercise of any power, right remedy or privilege hereunder shall impair, prejudice or constitute a waiver of any such power, right, remedy or privilege or be construed as a waiver of any Event of Default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

SECTION 18. Severability .

If a court deems any part of this Agreement unenforceable, the parties agree that only the offending part shall be stricken and that the remaining parts shall be unaffected, and that any such stricken part of this Agreement shall be replaced by a valid provision which shall implement the commercial purpose of such stricken part.

SECTION 19. Headings and Captions .

SECTION 20. Governing Law; Jurisdiction .

(a) This Agreement shall be governed and construed in accordance with the laws of the State of New York, USA, without giving effect to any choice of law provisions thereof. Subject to Section 8.15 of the Financing Agreement, each party hereto hereby submits itself for the purpose of this Agreement and any controversy arising hereunder to the exclusive jurisdiction of the state and federal courts located in the County of New York, State of New York, USA, and any courts of appeal therefrom, and waives any objection on the grounds of lack of jurisdiction (including venue) to the exercise of such jurisdiction over it by any such courts.

(b) Each party hereto hereby irrevocably consents to the service of process out of any of the courts referred to in subsection (a) above of this Section 20 in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address set forth in the Financing Agreement. Each party hereto hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any suit, action or proceeding commenced hereunder or under any other Transaction Document that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of a party to serve process on the other party in any other manner permitted by law. In the event of any litigation under this Section 20 , the prevailing party shall be entitled to reimbursement of any reasonable and documented out-of-pocket expenses (including reasonable fees and expenses of legal counsel) incurred by the prevailing party in connection with asserting or enforcing such action hereunder, including in the case CHRP is the prevailing party in connection with any Bankruptcy Event with respect to Zogenix and the non-prevailing party agrees to reimburse and indemnify the prevailing party for such expenses.

SECTION 21. Waiver of Jury Trial .

Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any action, proceeding, claim or counterclaim arising out of or relating to this Agreement or the transactions contemplated hereunder. This waiver shall apply to any subsequent amendments, renewals, supplements or modifications to this Agreement.

SECTION 22. Counterparts; Effectiveness .

This Agreement may be executed in two (2) or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. Any counterpart may be executed by facsimile or pdf signature and such facsimile or pdf signature shall be deemed an original.

SECTION 23. Successors and Assigns .

The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Zogenix shall not be entitled to assign any of its obligations and rights under this Agreement without the prior written consent of CHRP. CHRP may assign without consent of Zogenix any of its rights under this Agreement without restriction.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.


ZOGENIX, INC.

By:
Name:
Title:

ZOGENIX EUROPE LIMITED

By:
Name:
Title:


COWEN HEALTHCARE ROYALTY
PARTNERS II, L.P.

		By Cowen Healthcare Royalty GP, LLC
		Its General Partner



By:
		Name: Todd C. Davis
		Title: Managing Director

[SIGNATURE PAGE – SECURITY AGREEMENT]

SCHEDULE 1 TO

SECURITY AGREEMENT

DEFINITIONS

Capitalized terms used in this Agreement and not defined in this Schedule 1 shall have the meanings attributed thereto in the UCC.

“Affiliate” has the meaning set forth in the Financing Agreement.

“Agreement” has the meaning set forth in the opening recital of this Agreement.

“Assigned Rights” has the meaning set forth in the Financing Agreement.

“Astellas” has the meaning set forth in the Financing Agreement.

“Astellas Co-Promotion Agreement” has the meaning set forth in the Financing Agreement.

“Bankruptcy Event ” has the meaning as set forth in the Financing Agreement.

“Business Day” has the meaning set forth in the Financing Agreement.

“CHRP” has the meaning set forth in the opening recital of this Agreement.

“Closing Date” has the meaning set forth in the Financing Agreement.

“Collateral” has the meaning set forth in Section 2 of this Agreement.

(i) “ Event of Default ” means:

(a) if Zogenix, without the prior written consent of CHRP:

(i) Transfers any of the Collateral other than as permitted under the Oxford Loan Documents and the Financing Agreement;

(ii) creates or permits to exist any Lien (other than the Permitted Liens) on any Collateral; or

(iii) materially fails to perform and fulfill its obligations under any License Agreement or Material Contract in accordance with the respective terms thereof.

(b) If an “Event of Default” under the Financing Agreement occurs.

CHRP agrees that the exercise by CHRP of its rights under this Agreement are subject in all respects to the rights of Oxford and SVB under the Intercreditor Agreement.

“Financing Agreement” has the meaning set forth in the recitals of this Agreement.

“Fixed Payment” has the meaning set forth in the Financing Agreement.

“Included Products ” has the meaning set forth in the Financing Agreement.

“Intellectual Property” has the meaning set forth in the Financing Agreement.

“Intellectual Property Security Agreements” means any short-form security agreement or collateral assignment that CHRP requests be executed and delivered by Zogenix for filing in any jurisdiction in which Zogenix owns any Intellectual Property and/or Patents or Trademarks or domain names in order to perfect CHRP’s security interest in the Collateral in such jurisdiction, including without limitation, any collateral assignment of Patents, Trademarks or domain names, any License Agreement or memorandum of license agreement.

“Intercreditor Agreement” means that certain Subordination and Intercreditor Agreement dated the date hereof, among CHRP, Oxford and SVB (and acknowledged by Zogenix), as the same may be amended, restated or modified from time to time.

“License Agreement” has the meaning set forth in the Financing Agreement.

“Licensees” has the meaning set forth in the Financing Agreement.

“Lien” has the meaning set forth in the Financing Agreement.

“Material Adverse Effect ” has the meaning set forth in the Financing Agreement.

“Material Contract” has the meaning set forth in the Financing Agreement.

“Multiple Stepdown Date” has the meaning set forth in the Financing Agreement.

“Oxford” means Oxford Finance LLC (as successor to Oxford Finance Corporation).

“Oxford Lien” means the valid and perfected Lien of Oxford and certain other lenders in, to and upon certain assets of Zogenix, securing the obligations of Zogenix to Oxford and such other lenders under the Oxford Loan Documents.

“ Oxford Loan Agreement ” means the Second Amended and Restated Loan and Security Agreement dated October 8, 2010, among Oxford, the lenders party thereto and Zogenix, as amended, restated, supplemented or modified from time to time.

“Oxford Loan Documents ” means the Oxford Loan Agreement and the documents made in connection therewith, as each of the foregoing may be amended, restated, supplemented or modified from time to time.

“Patents” has the meaning set forth in the Financing Agreement.

“Permitted Liens” has the meaning set forth in the Financing Agreement.

“Person” has the meaning set forth in the Financing Agreement.

“Purchase Agreement” has the meaning set forth in the Financing Agreement.

“Regulatory Approval” has the meaning set forth in the Financing Agreement.

“Revenue Interest” has the meaning set forth in the Financing Agreement.

“Revenue Interest Payments” has the meaning set forth in the Financing Agreement.

“Secured Obligations” means, other than with respect to the obligations of Zogenix under the Warrants and the Purchase Agreement, all obligations, indebtedness and liabilities of every nature of Zogenix now or hereafter existing under or arising out of or in connection with the Financing Agreement, whether for fees, charges, damages, principal, interest (including without limitation interest that, but for the filing of a petition in bankruptcy with respect to Zogenix, would accrue on such obligations, whether or not a claim is allowed against Zogenix for such interest in the related bankruptcy proceeding), reimbursement of fees, expenses, indemnities or otherwise, whether voluntary or involuntary, due or not due, primary or secondary, secured or unsecured, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from CHRP as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Zogenix now or hereafter existing under this Agreement.

“Subsidiaries” has the meaning set forth in the Financing Agreement.

“SVB” means Silicon Valley Bank.

“Territory” has the meaning set forth in the Financing Agreement.

“Trademarks” means (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers of Zogenix adopted or claimed for its use anywhere in the world or hereinafter adopted, claimed or acquired, whether currently in use or not, and the goodwill associated therewith, all registrations and recordings thereof, and all applications in connection therewith, including those identified in Schedule 3.12(a)(2) to the Financing Agreement as it may be amended, supplemented or otherwise modified from time to time, and (b) all renewals thereof by Zogenix.

“Transaction Document” has the meaning as set forth in the Financing Agreement.

“Transfer” means any conveyance, sale, lease, transfer or other disposition.

“UCC” means the Uniform Commercial Code, as in effect on the date of this Agreement, in the State of New York.

“Warrants” has the meaning set forth in the Financing Agreement.

“Zogenix” has the meaning set forth in the opening recital of this Agreement and shall include any and all Subsidiaries of Zogenix, Inc., jointly and severally, unless the context otherwise requires.

SCHEDULE 5(a)

SECURITY AGREEMENT

EXCEPTIONS TO COLLATERAL OWNERSHIP/EXCLUSIVITY

Non-exclusive license to certain manufacturing-related Intellectual Property under the Elan

Agreement (as defined in the Financing Agreement)

SCHEDULE 5(b)

SECURITY AGREEMENT

FILING OFFICES

Delaware Secretary of State

SCHEDULE 5(e)

SECURITY AGREEMENT

CORPORATE INFORMATION

Place(s) of Business and Chief Executive Office of Zogenix :

12671 High Bluff Drive, Suite 200, San Diego, CA 92130

5858 Horton Street, Suite 455, Emeryville, CA 94608

83 Victoria Street, Suite 407, London, UK SW1H OHW

Addresses of the Properties at which Zogenix Maintains Collateral :

See attached Annex A

Addresses of the Properties at which Zogenix Maintains Records Relating to the Collateral :

12671 High Bluff Drive, Suite 200, San Diego, CA 92130

5858 Horton Street, Suite 455, Emeryville, CA 94608

83 Victoria Street, Suite 407, London, UK SW1H OHW \

ZOGENIX, INC.

Jurisdiction of Organization : State of Delaware

Type of Organization : Corporation

Organizational Number : 4157281

ZOGENIX EUROPE LIMITED

Jurisdiction of Organization : United Kingdom

Type of Organization : Company

Organizational Number : 07275920

SCHEDULE 6(d)

SECURITY AGREEMENT

EQUIPMENT LOCATED WITH THIRD PARTY BAILEES

Third Party Bailees Signatory to Third Party Bailee Waivers to Oxford and GE:

Dalau , Ford Road, Clacton-on-Sea, Essex, CO15 3D2 England

Dawson Shanahan , Unit 24, Cranborne Road, Potters Bar, Hertfordshire EN6 3JN, England

MGlas AG , Otto-Liebmann-Strasse 2, 97702 Munnerstadt, Germany

Nypro , Corke Abbey, Bray, CO, Dublin, Ireland

Patheon UK Limited , Kingfisher Drive, Covingham, Swindon, Wiltshire SN3 5BZ

Cardinal Health 105, Inc. , 15 Ingram Boulevard, Suite 100, LaVergne, Tennessee 37086

EXHIBIT I TO

SECURITY AGREEMENT

SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that ZOGENIX, INC. (“ Zogenix ”), hereby appoints and constitutes COWEN HEALTHCARE ROYALTY PARTNERS II, L.P. (“ CHRP ”) and each of its affiliates, its true and lawful attorney, with full power of substitution and with full power and authority to perform the following acts on behalf of Zogenix:

(a) upon the occurrence and during the continuance of an Event of Default, to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral;

(b) upon the occurrence and during the continuance of an Event of Default, to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (a) above;

(c) upon the occurrence and during the continuance of an Event of Default, to file any claims or take any action or institute any proceedings that CHRP may in its good faith sole discretion deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of CHRP with respect to any of the Collateral;

(d) to pay or discharge taxes or liens levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by CHRP in its reasonable commercial judgment, any such payments made by CHRP to become obligations of Zogenix to CHRP, due and payable immediately without demand;

(e) upon the occurrence and during the continuance of an Event of Default, to sign and endorse any invoices, drafts against Zogenix, assignments, verifications, notices and other documents relating to the Collateral; and

(f) upon the occurrence and during the continuance of an Event of Default, to prepare, file and sign Zogenix’ name on an assignment document in form acceptable to CHRP in its sole discretion necessary or desirable to transfer ownership of the Collateral to CHRP or an assignee or transferee of CHRP.

This Power of Attorney is made pursuant to a Security Agreement, dated as of June 30, 2011 between Zogenix and CHRP (the “ Security Agreement ”) and is subject to the terms and provisions thereof. Capitalized terms used and not defined herein have the meanings given to them in the Security Agreement. This Power of Attorney, being coupled with an interest, is irrevocable until all Secured Obligations are indefeasibly paid in full.

Date: June 30, 2011


ZOGENIX, INC.

By:
		Name:
		Title:

CERTIFICATE OF ACKNOWLEDGMENT OF NOTARY PUBLIC

STATE OF CALIFORNIA COUNTY OF

On , before me, the undersigned notary public, personally appeared , personally know to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

[Notary Seal, if any]:

(Signature of Notarial Officer)

Notary Public for the State of California

My commission expires:

ACKNOWLEDGMENT OF AGENT

BY ACCEPTING OR ACTING UNDER THE APPOINTMENT, THE AGENT ASSUMES THE FIDUCIARY AND OTHER LEGAL RESPONSIBILITIES OF AN AGENT.


[Typed or Printed Name of Agent]


[Signature of Agent]

E XHIBIT D

L EGAL O PINION OF L ATHAM & W ATKINS LLP (T RANSACTION O PINION – U.S.)

1. The Borrower is a corporation under the DGCL with corporate power and authority to enter into the Transaction Documents and perform its obligations thereunder. With your consent, based solely on certificates from public officials, we confirm that the Borrower is validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in the Arizona, California, Colorado, Georgia, Indiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, Tennessee, Texas and Washington.

2. The execution, delivery and performance of the Transaction Documents by the Borrower have been duly authorized by all necessary corporate action of the Borrower and the Transaction Documents have been duly executed and delivered by the Borrower.

3. Each of the Transaction Documents constitutes a legally valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms.

4. The Security Agreement creates a valid security interest in favor of the Lender in that portion of the collateral described in Sections 2(a) and 2(b) of the Security Agreement in which the Borrower has rights and a valid security interest may be created under Article 9 of the NY UCC (the “UCC Collateral”), which security interest secures the Secured Obligations (as defined in the Security Agreement).

5. The Financing Statement is in appropriate form for filing in the Delaware Filing Office. Upon the proper filing of the Financing Statement in the Delaware Filing Office, the security interest in favor of the Lender in the Borrower’s rights in the UCC Collateral described in the Financing Statement will be perfected to the extent a security interest in such UCC Collateral can be perfected under the Delaware UCC by the filing of a financing statement in that office.

6. The execution and delivery of the Transaction Documents by the Borrower, and the the borrowing of the loan, granting of the security interest and issuance of the warrant thereunder, do not on the date hereof:

(i) violate the provisions of the Governing Documents;

(ii) violate any federal or New York statute, rule, or regulation applicable to the Borrower or the DGCL; or

(iii) require any consents, approvals, or authorizations to be obtained by the Borrower from, or any registrations, declarations or filings to be made by the Borrower with, any governmental authority under any federal or New York or California statute, rule or regulation applicable to the Borrower or the DGCL except (a) filings and recordings required in order to perfect or otherwise protect the security interests under the Loan Documents, and (b) any consents or approvals required in connection with a disposition of collateral including compliance with federal and state securities laws in connection with any sale of any portion of the collateral consisting of securities under such securities laws.

E XHIBIT E

L EGAL O PINION OF B OZICEVIC , F IELD & F RANCIS LLP (IP OPINION )

IP OPINION

1. To our knowledge, there are no legal or governmental proceedings which are expected to have a material adverse effect on the Company, pending with respect to the Patent Rights, and to our knowledge, no such proceedings are threatened or contemplated by governmental authorities or others; provided that we express no opinion as to any ex parte proceedings before the United States Patent and Trademark Office and foreign counterparts thereof (collectively, the “Patent Offices”).

2. To our knowledge, the Company is not infringing or otherwise violating any patent rights of others, and, we are unaware of any facts that would form a reasonable basis for a claim of such infringement or violation of any patent rights of others, and to our knowledge, there are no infringements by others of the Patent Rights or any basis to challenge the validity, enforceability or scope of the Patent Rights.

3. To our knowledge, there are no actions, suits, claims or proceedings of third parties to any ownership or inventorship interest with respect to the Patent Rights, and we are unaware of any facts that would form a reasonable basis for a claim of such infringement or challenges. To our knowledge the Company has not received any notice of infringement or conflict with the patent rights of others.

4. Based on an inspection of public records at the Patent Offices, the Company currently owns, and is the sole assignee of, the Patent Rights set forth on Schedule 3.12(a)(1) to the Disclosure Schedule and noted as owned by it and such Patent Rights are currently pending.

5. To our knowledge, all annuity, maintenance, renewal and other necessary fees related to the Patent Rights set forth on Schedule 3.12(a)(1) to the Disclosure Schedule have been timely paid;

E XHIBIT F

F ORM OF O FFICER ’ S C ERTIFICATE (Z OGENIX )

Dated as of June __, 2011

OFFICER’S CERTIFICATE

This Officer’s Certificate is delivered pursuant to Section 6.02(a) of the Financing Agreement, dated as of June __, 2011, (as amended, restated, supplemented or otherwise modified from time to time, the “ Financing Agreement ”), between Zogenix, Inc., a Delaware corporation (“ Zogenix ”), and Cowen Healthcare Royalty Partners, L.P., a limited partnership organized under the laws of the State of Delaware (“ CHRP ”). Capitalized terms used but not defined herein have the meanings given to them in the Financing Agreement.

The undersigned, , a duly authorized officer of Zogenix, hereby certifies to CHRP as follows:

(a) Attached hereto as Annex 1 is a true and complete copy of resolutions duly adopted by the Board of Directors of Zogenix on June __, 2011, authorizing the execution, delivery and performance of the Transaction Documents. Such resolutions have not in any way been amended, modified, revoked or rescinded, have been in full force and effect since their adoption through and including the date hereof, are now in full force and effect, and are the only corporate proceedings of Zogenix now in force relating to or affecting the matters referred to therein.

(b) Attached hereto as Annex 2 is a true and complete copy of the Certificate of Incorporation, certified by the Delaware Secretary of State, and By-Laws of Zogenix, together with all amendments, modifications and restatements thereof. Such Certificate of Incorporation and By-Laws are in full force and effect as of the date hereof, have not been repealed or supplemented except as may be specifically set forth in Annex 2 , and are not subject to pending proceedings to amend, repeal, supplement, surrender or cancel same, or to any agreement(s) among directors or officers of Zogenix, except as may be specifically disclosed in Annex 2 .

(c) To the Knowledge of the undersigned, the conditions set forth in Section 6.02(a) of the Financing Agreement have been satisfied in all respects.

[CONTINUED ON NEXT PAGE]

(d) Each of the following persons is a duly elected or appointed, qualified and acting officer of Zogenix who holds the office or position set forth opposite such individual’s name, and is duly appointed by the resolutions attached hereto to execute and deliver documents on behalf of Zogenix. The specimen signature written opposite each such officer’s name is such officer’s genuine signature:


Name	Title	Signature

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date first set forth above.




Name:

Title:

ANNEX 1

RESOLUTIONS OF

THE BOARD OF DIRECTORS OF

ZOGENIX, INC.

WHEREAS, the Board of Directors (the “Board” ) of Zogenix, Inc. (the “Company” ) has determined to, among other things, borrow the Revenue Investment Advance from Cowen Healthcare Royalty Partners, L.P. ( “CHRP” ) and assign, convey and transfer to CHRP the Assigned Rights, upon and subject to the terms and conditions of the Financing Agreement dated on or about June __, 2011 (the “Financing Agreement” ), between the Company and CHRP, and to enter into the transactions contemplated therein and in the Transaction Documents delivered in connection

WHEREAS, the Board believes that it is in the best interests of the Company and its stockholders to enter into the Transaction Documents, to consummate the transactions contemplated therein, including, without limitation, assigning the Assigned Rights, making certain payments to be made to CHRP and evidencing and granting security for the due and prompt payment and performance of the obligations of the Company to CHRP under the Financing Agreement; and

WHEREAS , the Board has determined to amend that certain Second Amended Loan and Security Agreement dated as of October 8, 2010 among Oxford Finance LLC (successor in interest to Oxford Finance Corporation) and the other lenders party thereto (the “Loan Amendment” ) in connection with the Financing Agreement and to enter into the transactions contemplated therein and in the related documents thereto, including but not limited to the Borrowing Resolutions (the “Borrowing Resolutions” ); and

WHEREAS , the Board believes that it is in the best interests of the Company and its stockholders to enter into the Loan Amendment and to consummate the transactions contemplated therein; and

WHEREAS, the Board of the Company has considered a private placement (the “ Offering ”) of (a) the Company’s common stock, par value $0.001 (the “ Common Stock ”) and warrants exercisable into shares of Common Stock (the “CHRP Warrants” ), to CHRP in connection with the Financing Agreement and (b) warrants exercisable into shares of Common Stock (the “Lender Warrants” and collectively with the CHRP Warrants, the “Warrants” ) in connection with the Loan Amendment; and

WHEREAS, the Board, acting in good faith, believes it to be in the best interests of the Company and its stockholders to issue and sell to CHRP shares of Common Stock ( “Shares” ), for an aggregate purchase price of $1.5 million, and to issue the Warrants in an Offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “ Securities Act ”) and

WHEREAS , capitalized terms used and not defined herein have the meanings given to them in the Financing Agreement;

NOW, THEREFORE, BE IT

T HE F INANCING A GREEMENT

RESOLVED, that the forms, terms and provisions set forth in the Financing Agreement, the Assignment Agreement, the Security Agreement and the other Transaction Documents to which the Company will be party, substantially as presented to the Board, together with such other agreements, documents and instruments relating to the Transaction Documents and necessary or desirable to effect the transactions contemplated thereunder, be and are, in all respects, authorized, adopted, ratified and approved, together with such amendments, modifications or changes as the officer or officers of the Company signing the same shall approve, the signature or signatures of such officer or officers on the Transaction Documents and such other agreements, documents and instruments to be conclusive evidence of (a) the approval by the Board of all such amendments, modifications and changes, and (b) the authority of such officer or officers to execute and deliver the Transaction Documents and such other agreements, documents and instruments; and be it further

RESOLVED, that the Company is hereby authorized to enter into the transactions contemplated in the Financing Agreement and the other Transaction Documents, and to incur and perform its obligations and duties thereunder, including without limitation, assigning the Assigned Rights, entering into the Stock and Warrant Purchase Agreement dated on or about June __, 2011 (the “ Purchase Agreement ”) between the Company and CHRP and issuing the Shares and the Warrants to CHRP as set forth in the Purchase Agreement, and granting the security contemplated in the Security Agreement; and be it further

RESOLVED, that the officers of the Company be, and each of them acting alone hereby is, authorized, empowered and directed, in the name and on behalf of this Company, to execute and deliver each of the Transaction Documents and any such other agreements, documents and instruments relating to the Transaction Documents and necessary or desirable to effect the transactions contemplated thereunder, together with such amendments, modifications or changes as the officer or officers of the Company signing the same shall approve; and be it further

RESOLVED, that any officers or directors of the Company be, and they hereby are, authorized, empowered and directed to execute and carry out the transactions contemplated under the Transaction Documents in the name of and on behalf of the Company, and are permitted to incur fees and expenses on behalf of the Company; and be it further

T HE O FFERING

RESOLVED, that the terms of the Offering, as presented to the Board, are hereby approved in all respects, and the Board hereby authorizes and approves the offering, issuance and sale to CHRP of the Shares and the issuance to CHRP and the Lenders of the Warrants; and be it further

RESOLVED, that the officers of the Company be, and each of them acting alone hereby is, authorized, empowered and directed, in the name and on behalf of this Company, to execute and cause a certificate or certificates evidencing the appropriate number of shares of Common Stock to be issued to CHRP, and such Shares, when issued and delivered in accordance with the terms and conditions provided for in the Purchase Agreement, against receipt of the consideration therefor, will be deemed to be and will be duly authorized and validly issued, fully paid and nonassessable and not subject to any pre-emptive rights or further call or assessments thereon, and any holder thereof shall not be liable for any further payment in respect thereof; and be it further

RESOLVED, that the appropriate number of shares of Common Stock be, and hereby are, reserved for issuance upon exercise of the Warrants, subject to adjustment as required pursuant to the Warrants; and be it further

RESOLVED , that any such shares of Common Stock issuable upon exercise of the Warrants (the “Warrant Shares” ), when issued and delivered in accordance with the terms and conditions provided for in the Warrants, against receipt of the consideration therefor, will be deemed to be and will be duly authorized and validly issued, fully paid and nonassessable and not subject to any pre-emptive rights or further call or assessments thereon, and any holder thereof shall not be liable for any further payment in respect thereof; and be it further

RESOLVED , that American Stock Transfer & Trust Company is hereby designated and appointed as stock transfer agent with respect to the Shares and the Warrant Shares to be issued pursuant to the Transaction Documents; and be it further

RESOLVED, that the officers of the Company be, and each of them acting alone hereby is, authorized and empowered in the name and on behalf of the Company to enter into such agreements with such transfer agent as may be necessary, appropriate or advisable in order to effectuate the foregoing designation and appointment; and be it further

RESOLVED, that the appropriate officers of the Company be, and each of them acting alone hereby is, authorized, empowered and directed, on behalf of the Company, to prepare, or cause to be prepared, to execute, and to file or cause to be filed, any applications on behalf of the Company to the Financial Industry Regulatory Authority and the Nasdaq Stock Market, Inc. for the listing and designation on the Nasdaq Capital Market of the Shares and the Warrant Shares including, but not limited to, a Notification Form for Listing of Additional Shares, and that any of such officers be, and each hereby is, authorized to execute and deliver any and all papers and agreements, and to do any and all things which may be necessary or desirable or appropriate to effect such listing and designation; and be it further

RESOLVED, that the Company’s officers, and each of them, are authorized in the name and on behalf of the Company, to take any and all actions which they deem necessary or advisable in order to effect the registration or qualification (or exemption therefrom) of the Shares, the Warrants or the Warrant Shares under the blue sky or securities laws of any of the applicable jurisdictions, and in connection therewith to execute, acknowledge, verify, deliver, file or cause to be filed any notices, filings, consents to service of process, appointments of attorneys to receive service of process and other papers and instruments which may be required under such laws, and to take any and all further action which they deem necessary or advisable in order to maintain any such registration or qualification for as long as they deem necessary or as required by law; and be it further

RESOLVED, that each resolution required to be adopted in each such jurisdiction in order to effect such registration or qualification or to obtain such an exemption therefrom is hereby adopted, and the Secretary of the Company is directed to attach a copy of each resolution so adopted to the minutes of this meeting; and be it further

T HE L OAN A MENDMENT

RESOLVED , that the forms, terms and provisions set forth in the Loan Amendment, substantially as presented to the Board, together with such other agreements, documents and instruments relating to the Loan Amendment and necessary or desirable to effect the transactions contemplated thereunder, be and are, in all respects, authorized, adopted, ratified and approved, together with such amendments, modifications or changes as the officer or officers of the Company signing the same shall approve, the signature or signatures of such officer or officers on the Loan Amendment and such other agreements, documents and instruments to be conclusive evidence of (a) the approval by the Board of all such amendments, modifications and changes, and (b) the authority of such officer or officers to execute and deliver the Loan Amendment and such other agreements, documents and instruments; and be it further

RESOLVED, that the Company is hereby authorized to enter into the transactions contemplated in the Loan Amendment and such other agreements, documents and instruments, including, but not limited to the Borrowing Resolutions attached hereto as Attachment A; and be it further

RESOLVED, that the officers of the Company be, and each of them acting alone hereby is, authorized, empowered and directed, in the name and on behalf of this Company, to execute and deliver the Loan Amendment and any such other agreements, documents and instruments relating to the Loan Amendment and necessary or desirable to effect the transactions contemplated thereunder, together with such amendments, modifications or changes as the officer or officers of the Company signing the same shall approve; and be it further

RESOLVED, that any officers or directors of the Company be, and they hereby are, authorized, empowered and directed to execute and carry out the transactions contemplated under the Loan Amendment in the name of and on behalf of the Company, and are permitted to incur fees and expenses on behalf of the Company; and be it further

RESOLVED , that the standard form of corporate resolution, if any, for entering into any Amendment, or any of the agreements, documents, certificates or instruments contemplated thereby, generally required by the Lenders thereunder is hereby adopted as the resolution of the Board, including, without limitation, the resolutions presented in the Borrowing Resolution attached hereto as Attachment A, and the Secretary of the Corporation be, and hereby is, authorized, empowered and directed to attach to these minutes a copy of such resolutions, if any, which resolutions shall be deemed to be adopted by the Board and incorporated in these minutes as a part of this action, and that the Secretary is hereby authorized and empowered to certify that any such form of resolutions has been adopted as part of this action.

G ENERAL A UTHORITY

RESOLVED, that any and all actions, whether previously or subsequently taken by the officers of the Company which are consistent with the intent and purposes of the foregoing resolutions, shall be, and the same hereby are, in all respects, ratified, approved and confirmed; and be it further

RESOLVED, that each of the officers of the Company and such persons appointed to act on their behalf pursuant to the foregoing resolutions are hereby authorized and directed in the name of the Company and on its behalf to execute any additional certificates, agreements, instruments or documents, or any amendments and/or supplements thereto, or to do or to cause to be done any and all other acts as they shall deem necessary, appropriate or in furtherance of the full effectuation of the purposes of each of the foregoing resolutions and the transactions contemplated therein.

ANNEX 2

See Exhibits 3.5 and 3.7 to the Registrant’s Registration Statement on Form S-1/A, filed on October 12, 2010

E XHIBIT G

P URCHASE A GREEMENT

See Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 11, 2011

E XHIBIT H

F ORM OF W ARRANT

See Exhibit 4.12 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 11, 2011

E XHIBIT I

F ORM OF O FFICER ’ S C ERTIFICATE (CHRP)

Dated as of June __, 2011

OFFICER’S CERTIFICATE

This Officer’s Certificate is delivered pursuant to Section 6.03(d) of the Financing Agreement, dated as of June __, 2011, (as amended, restated, supplemented or otherwise modified from time to time, the “Financing Agreement”), between Zogenix, Inc., a Delaware corporation (“Zogenix”), and Cowen Healthcare Royalty Partners, L.P., a limited partnership organized under the laws of the State of Delaware (“CHRP”). Capitalized terms used but not defined herein have the meanings given to them in the Financing Agreement.

The undersigned, Todd C. Davis, a Managing Director of Cowen Healthcare Royalty GP, LLC (“CHRGP”), the general partner of CHRP, hereby certifies to Zogenix as follows:

(a) CHRGP is the general partner of CHRP pursuant to the Limited Partnership Agreement of CHRP, as amended through the date hereof, and has full power and authority to execute the Transaction Documents on behalf of CHRP.

(b) Attached hereto as Annex 1 is a true and complete copy of resolutions duly adopted by the Managing Directors of CHRGP as of June __, 2011, authorizing the execution, delivery and performance of the Transaction Documents. Such resolutions have not in any way been amended, modified, revoked or rescinded, have been in full force and effect since their adoption through and including the date hereof, are now in full force and effect and are the only proceedings of CHRP or CHRGP now in force relating to or affecting the matters referred to therein.

(c) The following person holds the office or position of CHRGP set forth opposite such individual’s name, and is duly appointed by the resolutions attached hereto to execute and deliver documents on behalf of CHRP and CHRGP. The specimen signature written opposite such person’s name is such person’s genuine signature:


Name	Title	Signature
Todd C. Davis	Managing Director

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date first set forth above.




		Name: Todd C. Davis
		Title: Managing Director

ANNEX 1

RESOLUTIONS OF

THE MANAGING DIRECTORS OF

COWEN HEALTHCARE ROYALTY GP, LLC

RESOLVED , that Cowen Healthcare Royalty Partners, L.P. (“CHRP”) enter into the transactions described in that certain Financing Agreement (the “Financing Agreement”), with Zogenix, Inc., a Delaware corporation (“Zogenix”), substantially in the form presented to the Investment Committee of Cowen Healthcare Royalty GP, LLC (“CHRGP”); and it is further

RESOLVED , that CHRGP, on behalf of CHRP, execute and deliver the Financing Agreement, substantially in the form of the agreement presented to the Investment Committee of CHRGP, and all Transaction Documents described in the Financing Agreement; and it is further

RESOLVED , that Todd C. Davis as a Managing Director of CHRGP, the general partner of CHRP, is hereby authorized and directed to execute all Transaction Documents with such terms and in such form as he, in his sole discretion, may deem necessary, appropriate or desirable to effectuate the foregoing resolutions; and it is further

RESOLVED , that, without further action by the Managing Directors of CHRGP, each of them is hereby authorized and empowered, in the name of and on behalf of CHRGP and CHRP, to execute and deliver all such further instruments and documents and take all such further actions as they may deem necessary, appropriate or desirable in order to implement and give effect to the foregoing resolutions and the intent and purposes thereof.

E XHIBIT J

J OINT P RESS R ELEASE

Zogenix Enters $30 Million Royalty Financing Agreement

With Cowen Healthcare Royalty Partners

Includes an Additional $1.5 Million Equity Investment

SAN DIEGO, Calif., June 30, 2011 — Zogenix, Inc. (NASDAQ: ZGNX), a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain, announced today that it has entered into a $30 million royalty financing agreement with Cowen Healthcare Royalty Partners II, L.P. (“Cowen Royalty”). In addition, Cowen Royalty will make an equity investment of $1.5 million in Zogenix common stock and will receive warrants exercisable for 10 years into 225,000 shares of Zogenix common stock at an exercise price of $9.00 per share.

Under the terms of the structured royalty financing agreement, Cowen Royalty will invest $30 million in exchange for 5%, stepping down to 0.5%, of worldwide annual net sales of SUMAVEL ^® DosePro ^® , Zohydro™ (hydrocodone bitartrate) extended-release capsules (previously known as ZX002) and other products developed or marketed by Zogenix, co-promotion revenue and out-license revenues generated by Zogenix during the agreement term, subject to certain exclusions. Cowen Royalty will also receive fixed payments totaling $30 million, the last of which is payable in the first quarter of 2017, with the royalty obligation continuing through the first quarter of 2018. Concurrent with this agreement, Zogenix amended its $25 million term loan with Oxford Finance Corporation and Silicon Valley Bank to defer principal repayment to February 1, 2012, eliminating $3.7 million of principal payments in 2011.

Roger Hawley, Chief Executive Officer of Zogenix commented, “We are very pleased to announce this royalty financing with Cowen Royalty. We believe this financing structure provides us with minimally dilutive capital which enables us to continue executing our operating plan. We are presently driving continued adoption of SUMAVEL DosePro, completing Phase 3 clinical development for Zohydro in anticipation of a New Drug Application (NDA) filing by early 2012, and leveraging our DosePro delivery platform for additional CNS products.”

Todd C. Davis, Managing Director of Cowen Royalty, stated, “Zogenix is ideally positioned to address unmet needs in the CNS and pain markets with its currently promoted product, SUMAVEL DosePro, which addresses the multi-billion dollar migraine market, as well as its development pipeline. Our investment with Zogenix fits our strategy of focusing on unique commercial stage products and companies with attractive risk/reward profiles.”

Leerink Swann LLC acted as financial advisor to Zogenix for this financing. Additional details on the agreement can be found in the Current Report on Form 8-K that will be filed by Zogenix with the Securities and Exchange Commission on or about the date hereof.

About Zogenix

Zogenix, Inc. (NASDAQ: ZGNX), with offices in San Diego and Emeryville, California, is a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain. Zogenix’s first commercial product, SUMAVEL DosePro (sumatriptan injection) Needle-free Delivery System, was launched in January 2010 for the acute treatment of migraine and cluster headache. Zogenix’s lead product candidate, Zohydro (hydrocodone bitartrate), is a novel, oral, single-entity extended-release capsule formulation currently in Phase 3 clinical trials for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy.

For additional information, please visit www.zogenix.com .

About Cowen Healthcare Royalty Partners

Cowen Healthcare Royalty Partners is a global healthcare investment firm with more than $1.2 billion under management. The Firm invests principally in commercial-stage healthcare companies and products through drug royalty acquisitions and structured financings. Cowen Royalty’s investment team has over 100 years of healthcare related experience including principal investing, structured finance, healthcare industry senior management, Wall Street research and consulting, and scientific and clinical experience. For more information, visit www.cowenroyalty.com .

Forward Looking Statements

Zogenix cautions you that statements included in this press release and the conference call that are not a description of historical facts are forward-looking statements. Words such as “believes,” “anticipates,” “plans,” “expects,” “indicates,” “will,” “intends,” “potential,” “suggests,” “assuming,” “designed” and similar expressions are intended to identify forward-looking statements. These statements are based on the company’s current beliefs and expectations. These forward-looking statements include statements regarding: the continued adoption of SUMAVEL DosePro, the completion of the Phase 3 clinical trials for Zohydro, the filing of an NDA for Zohydro and the potential to add new products that may be paired with the DosePro delivery platform. The inclusion of forward-looking statements should not be regarded as a representation by Zogenix that any of its plans will be achieved. Actual results may differ from those set forth in this release due to the risk and uncertainties inherent in Zogenix’s business, including, without limitation: the market potential for migraine treatments, and Zogenix’s ability to compete within that market; inadequate therapeutic efficacy or unexpected adverse side effects relating to SUMAVEL DosePro that could prevent its ongoing commercialization, or that could result in recalls or product liability claims; Zogenix’s dependence on its collaboration with Astellas Pharma US, Inc. to promote SUMAVEL DosePro; the impact of any inability to raise sufficient capital to fund ongoing operations; the ability of Zogenix to ensure adequate and continued supply of SUMAVEL DosePro to successfully meet anticipated market demand; the progress and timing of Zogenix’s clinical trials; the potential that earlier clinical trials may not be predictive of future results; the potential for Zohydro to receive regulatory approval on a timely basis or at all; the potential for adverse safety findings relating to Zohydro to delay or prevent regulatory approval or commercialization; the ability of Zogenix and its licensors to obtain, maintain and successfully enforce adequate patent and other intellectual property protection of its products and product candidates and the ability to operate its business without infringing the intellectual property rights of others; and other risks described in Zogenix’s filings with the Securities and Exchange Commission.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and Zogenix undertakes no obligation to revise or update this presentation to reflect events or circumstances after the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement. This caution is made under the safe harbor provisions of Section 21E of the Private Securities Litigation Reform Act of 1995.

Zohydro is a trademark and SUMAVEL and DosePro are registered trademarks of Zogenix, Inc.

# # #

INVESTORS :

Zack Kubow | The Ruth Group

646.536.7020 | zkubow@theruthgroup.com

MEDIA :

Jason Rando | The Ruth Group

646.536.7025 | jrando@theruthgroup.com

E XHIBIT K

F ORM OF P LEDGE A GREEMENT

PLEDGE AND SECURITY AGREEMENT

This Pledge Agreement (“ Pledge Agreement ”) is made as of the day of July, 2011 by and between ZOGENIX, INC., a Delaware corporation (the “ Pledgor ”) with offices at 12671 High Bluff Drive, Suite 200, San Diego, CA 92130, and COWEN HEALTHCARE ROYALTY PARTNERS II, L.P., a Delaware limited partnership (the “ Pledgee ”), with offices at 177 Broad Street, Suite 1101, Stamford, CT 06901.

RECITALS:

A. Pledgee will make an advance to Pledgor of the sum of Thirty Million Dollars ($30,000,000) pursuant to the terms and conditions set forth in that certain Financing Agreement of even date herewith, between Pledgor and Pledgee (the “ Financing Agreement ”). All amounts due and payable by Pledgor to Pledgee under the Financing Agreement and the documents executed and delivered in connection therewith, whether in the form of Fixed Payments, Revenue Interest, fees, charges, costs, expenses, or otherwise, are hereinafter referred to as the “ Obligations .”

B. It is a condition to the consummation of the transactions contemplated by the Financing Agreement that Pledgor’s obligations thereunder be secured by, among other things, the collateral described herein.

The parties agree as follows:

Section 1. Definitions. As used in this Pledge Agreement, the following capitalized terms shall have the meanings respectively assigned to them below, and capitalized terms not otherwise defined herein have the meanings set forth in the Financing Agreement.

“ Equity Interest ” means, with respect to any Person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or nonvoting), of equity of such Person, including, if such Person is a partnership, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of property of, such partnership, whether outstanding on the date hereof or issued hereafter, but excluding debt securities convertible or exchangeable into such equity.

“ Financing Agreement ” has the meaning set forth in Recital A.

“ Obligations ” has the meaning set forth in Recital A.

“ Oxford Lien ” means the valid and perfected Lien of Oxford Finance LLC (successor in interest to Oxford Finance Corporation, “ Oxford ”) in, to and upon certain assets of Pledgor, securing the obligations of Pledgor to Oxford under the Second Amended and Restated Loan and Security Agreement dated October 8, 2010, among Oxford, the Lenders party thereto and Pledgor, and the documents made in connection therewith, as each of the foregoing may be amended, restated, supplemented or modified from time to time.

“ Pledge Agreement ” has the meaning set forth in the introductory paragraph.

“ Pledged Securities ” means the Equity Interest in whatever form, set forth on Schedule B annexed hereto.

“ Pledgee ” has the meaning set forth in the introductory paragraph.

“ Pledgor ” has the meaning set forth in the introductory paragraph.

“ Securities Act ” means the Securities Act of 1933, as amended, as the same may hereafter be supplemented, modified or amended from time to time, and the rules and regulations promulgated thereunder, or any corresponding or succeeding provisions of applicable law.

“ Securities Collateral ” has the meaning set forth Section 2 .

“ Security Agreement ” has the meaning set forth in Section 9(c) .

“ UCC ” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in the state of New York.

“ ZGX Subsidiaries ” means the Persons set forth in Schedule A annexed hereto, as the same may be amended from time to time.

Section 2. Pledge and Grant of Security Interest. As security for the payment and performance in full of all of the Obligations in accordance with their terms, Pledgor hereby pledges, assigns, transfers, grants, hypothecates and sets over unto Pledgee, grants to Pledgee a Lien on and security interest in all of Pledgor’s right, title and interest in, to and under the following personal property, in each case whether now existing or hereafter acquired or created, and whether constituting financial assets, investment property, general intangibles, securities, security entitlements, proceeds or otherwise: (a) all of the Pledged Securities; (b) all certificates, instruments, agreements and contract rights relating to the Pledged Securities; and (c) all Proceeds (as defined in the UCC) of the Pledged Securities (including, without limitation, all cash, cash equivalents, distributions, instruments, securities or other property) at any time and from time to time received, receivable, paid or otherwise distributed in respect of or in exchange for any or all of such Pledged Securities, whether in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination or split of interests, or otherwise (the items referred to in clauses (a) through (c) being collectively called the “ Securities Collateral ”).

Section 3. Delivery and Redelivery of Securities Collateral. Pledgor represents and warrants that it has delivered to Oxford all certificates and instruments evidencing or representing the Pledged Securities, properly endorsed in blank and in suitable form for transfer by delivery or accompanied by undated stock powers or instruments of transfer endorsed in blank.

Section 4. Representations and Warranties; Certain Covenants. Pledgor hereby represents, warrants and covenants to and with Pledgee that:

(a) Pledgor (i) is and will at all times during the term hereof continue to be the direct owner, beneficially and of record, of the Securities Collateral free and clear of all Liens (except for the Lien and security interest of Pledgee pursuant to this Pledge Agreement and of Oxford with respect to the Oxford Lien, if any), (ii) has made and will make no assignment, pledge, hypothecation, transfer or any disposition of, or create any Lien or other security interest in, the Securities Collateral (other than pursuant to the Oxford Lien and) and (iii) will cause any and all Securities Collateral, whether for value paid by Pledgor or otherwise, to be forthwith deposited with Pledgee and pledged and assigned hereunder, subject to the rights of Oxford with respect to the Oxford Lien, if any; provided , however , that upon release of the Oxford Lien, Pledgor agrees promptly to deliver, or cause to be delivered, to Pledgee any and all Securities Collateral together with any and all other certificates, instruments or documents representing or relating to transfer, possession or control of any of the Securities Collateral reasonably requested by and satisfactory to Pledgee.

(b) Pledgor (i) has good and indefeasible title, right and legal authority to enter into this Pledge Agreement and to pledge the Securities Collateral in the manner hereby done or contemplated and (ii) will defend its title or interest thereto or therein against any and all attachments, Liens, claims, security interests or other impediments of any nature;

(c) no consent or approval of any governmental authority or other person or entity was or is necessary to the validity of the pledge effected pursuant to this Pledge Agreement;

(d) the Pledged Securities were, and once issued, will be, duly authorized and validly issued, fully paid and non-assessable, and were and will be acquired in a transaction in compliance with and either registered or exempt from registration under the Securities Act and other applicable laws. Subject to the rights of Oxford with respect to the Oxford Lien, if any, the Pledged Securities (i) are not and will not be subject to any warrant, option, put, call or other right to acquire, redeem, sell, transfer or encumber them, (ii) are not governed by or otherwise subject to any agreement, voting trust or similar agreement or arrangement, and (iii) other than as to securities laws of general application, are not limited or otherwise restricted in any way respecting assignability or transferability or any voting, distribution or other ownership right;

(e) no effective mortgage, deed of trust, financing statement, security agreement or other instrument similar in effect which is not a Transaction Document is on file or of record in the office of any Governmental Authority with respect to any Securities Collateral that has not been released prior to or in connection with this Pledge Agreement, except for instruments evidencing the Oxford Lien.

(f) the pledge effected hereby is effective to vest in Pledgee the rights of Pledgor in the Securities Collateral as set forth herein without any notice to, consent of or filing with any person, entity or governmental authority;

(g) this Pledge Agreement creates a valid security interest in favor of Pledgee for the benefit of Pledgee in the Securities Collateral;

(h) Pledgor shall give immediate notice to Pledgee of the creation or acquisition of new Subsidiaries by Pledgor and any change in the ownership interests of Pledgor in any now-existing or hereafter acquired Subsidiaries (and shall immediately amend Schedule A to reflect any such creation, acquisition or change). As of the date hereof, Pledgor owns 5,621,790 ordinary shares of Zogenix Europe Limited, constituting one hundred percent (100%) of the outstanding Equity Interests of Zogenix Europe Limited, and there are no other Subsidiaries of Pledgor. Except for the rights of Oxford with respect to the Oxford Lien, if any, there are no outstanding options or rights of any Third Party to acquire or subscribe for any such Equity Interests in any of the ZGX Subsidiaries, or securities or instruments convertible into or exchangeable or exercisable for any such Equity Interests.

(i) Pledgee will not have any liabilities or obligations under any Securities Collateral as a result of this Pledge Agreement, the exercise by Pledgee of its rights under this Pledge Agreement or otherwise, or any obligation to enforce any claim with respect to the Securities Collateral, or to take any other action with respect to the Securities Collateral;

(j) Pledgor keeps its corporate records, stock ledger and all records and documents relating to the Securities Collateral at 12671 High Bluff Drive, Suite 200 San Diego, CA 92130;

(k) no litigation, arbitration or administrative proceedings are pending or, to Pledgor’s knowledge, threatened, involving or affecting the Securities Collateral, and none of the Securities Collateral is subject to any order, writ, injunction, execution or attachment;

(l) Pledgor will take no action, and will not permit its Subsidiaries to take any action, that could cause any of the Securities Collateral to constitute “margin stock” within the meaning of Regulation U or X issued by the Board of Governors of the United States Federal Reserve System; and

(m) all representations, warranties and covenants of Pledgor contained in this Pledge Agreement shall survive the execution, delivery and performance of this Pledge Agreement until the termination of this Pledge Agreement in accordance with its terms and provisions.

Section 5. Additional Covenants.

(a) Additional Securities, Rights, Grants or Issuances . Subject to the rights of Oxford with respect to the Oxford Lien, if any, if Pledgor shall receive any of the following regarding the Securities Collateral: (i) any certificate representing a distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination or split of interests, promissory notes or other instruments; (ii) any option or right, whether as an addition to, substitution for, or an exchange for, any Securities Collateral or otherwise; (iii) any distributions payable in

equity interests; or (iv) any distributions of equity interests in connection with a partial or total liquidation, dissolution or reduction of capital, capital surplus or paid-in surplus, then Pledgor shall receive such certificate, instrument, option, right or distribution in trust for the benefit of Pledgee, shall segregate it from Pledgor’s other property and shall deliver it forthwith to Pledgee in the exact form received accompanied by duly executed instruments of transfer or assignment in blank, in the form requested by Pledgee, to be held by Pledgee as Securities Collateral and as further collateral security for the Obligations. Pledgor shall not perform or cause to be performed any acts or omissions that would effect any change, amendment, impairment, substitution, or any of the events, transactions or circumstances in clauses (i) through (iv) above.

(b) Financing Statements . Pledgor hereby authorizes Pledgee to prepare and file such UCC financing statements (including renewal statements) or amendments thereof or supplements thereto or other instruments as Pledgee may from time to time deem necessary or appropriate in order to perfect and maintain the security interests granted hereunder in accordance with the UCC of the applicable jurisdiction. Pledgor shall execute and deliver to Pledgee such agreements, assignments or instruments (including affidavits, notices, reaffirmations and amendments and restatements of existing documents, as Pledgee may request) and do all such other things as Pledgee may deem necessary or appropriate to assure to Pledgee its security interests hereunder are perfected. To that end, Pledgor hereby irrevocably makes, constitutes and appoints Pledgee, Pledgee’s nominee or any other person whom Pledgee may designate, as Pledgor’s attorney-in-fact with full power of substitution, to effect any such financing statements, or amendments and supplements to financing statements, renewal financing statements, notices or any similar documents which in Pledgee’s discretion would be necessary, appropriate or convenient in order to perfect and maintain perfection of the security interests granted hereunder, such power, being coupled with an interest, being and remaining irrevocable so long as any of the Obligations remain outstanding. Pledgor agrees to mark its books and records to reflect the security interest of Pledgee in the Securities Collateral.

Section 6. Voting Rights; Distributions; etc.

(a) So long as no Event of Default shall have occurred and be continuing, Pledgor shall be entitled to fully exercise any and all voting and/or other consensual rights and powers that would otherwise accrue to an owner of the Pledged Securities or any part thereof for any purpose not inconsistent with the terms of the Transaction Documents and to receive and retain all dividends and other payments in respect of the Securities Collateral to the extent permitted by the Transaction Documents.

(b) Upon the occurrence and during the continuance of an Event of Default all rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to clause (a) of this subsection shall automatically cease and all such rights shall, subject to the rights of Oxford with respect to the Oxford Lien, if any, thereupon become vested in Pledgee which shall then have the sole right in its discretion to exercise such voting and other consensual rights, and Pledgor hereby grants Pledgee or its nominees Pledgor’s irrevocable and unconditional proxy for this purpose.

(c) Upon the occurrence and during the continuance of an Event of Default, subject to the terms hereof and the rights of Oxford with respect to the Oxford Lien, if any, any and all dividends and other payments in respect of the Securities Collateral received by Pledgor will be held in trust for Pledgee, and Pledgor will keep all such amounts separate and apart from all other funds and property so as to be capable of identification as the property of Pledgee, and will deliver these amounts at such time as Pledgee may request to Pledgee in the identical form received, properly endorsed or assigned if required to enable Pledgee to complete collection.

Section 7. Remedies Upon Default.

(a) Upon the occurrence and during the continuance of an Event of Default, and subject to the terms and conditions of this Pledge Agreement and the other Transaction Documents, as applicable, Pledgee may, without obligation to resort to any other security, right or remedy granted under any other agreement or instrument, at any time or from time to time in its sole discretion, exercise any or all of the rights and remedies set forth herein without notice to Pledgor, except as required by law or any of the Transaction Documents, and charge, set-off and otherwise apply all or any part of the Securities Collateral against the Obligations or any part thereof, including any expenses due in accordance with the Financing Agreement.

(b) If an Event of Default shall occur and be continuing, then, in addition to all other remedies granted to it in this Pledge Agreement or in any other instrument or agreement securing, evidencing or relating to the Obligations, and subject to the rights of Oxford with respect to the Oxford Lien, if any, Pledgee may exercise all rights and remedies of a secured party under the UCC and under any other applicable law. Without limiting the generality of the foregoing, Pledgor expressly agrees that in any such event Pledgee, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of the time and place of a public sale or the time after a private sale) to or upon Pledgor or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived to the fullest extent permitted by applicable law), may forthwith collect, receive, appropriate and realize upon the Securities Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase or sell, demand, collect, take possession of, receipt for, settle, compromise, adjust, sue for, liquidate, foreclose, or otherwise dispose of and deliver such Securities Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker’s board or at Pledgee’s offices or elsewhere at such prices as it may deem best in its sole discretion, for cash or on credit or for future delivery without assumption of any credit risk. Pledgee shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales to purchase the whole or any part of such Securities Collateral so sold, free of any right or equity of redemption in Pledgor which right or equity of redemption is hereby waived and released to the maximum extent permitted by applicable law. In connection with any sale or other disposition of all or any part of the Securities Collateral, Pledgee may comply with any applicable state or federal law requirements

and/or disclaim warranties of title, possession, quiet enjoyment or the like without affecting the commercial reasonableness of such sale or other disposition. Pledgor further agrees, at Pledgee’s request, to assemble the Collateral and to make it available to Pledgee at such places as Pledgee shall reasonably select, whether at Pledgor’s premises or elsewhere. Pledgee shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all costs and expenses of every kind incurred in connection with the foregoing or incidental to the care, safekeeping or otherwise of any or all of the Securities Collateral or in any way relating to the rights of Pledgee hereunder, including reasonable attorneys’ fees and legal expenses, to the payment in whole or in part of the Obligations, in such order as Pledgee may in its sole discretion elect, Pledgor remaining liable for any deficiency with respect to such costs and expenses remaining unpaid after such application, and only after so applying such net proceeds and after the payment by the Pledgee of any other amount required by any provision of law, including Section 9-615(a)(3) of the UCC, need Pledgee account for the surplus, if any, to Pledgor. To the extent permitted by applicable law, Pledgor waives all claims, damages and demands against Pledgee arising out of the repossession, retention or sale of the Securities Collateral and Pledgee shall not under any circumstances be liable for any punitive, consequential, or other special damages. Pledgee shall have, with respect to the Securities Collateral, in addition to any other rights and remedies that may be available to it at law or in equity or pursuant to this Pledge Agreement or any other Transaction Document or any other contract or agreement, all rights and remedies of a secured party under any applicable law, and it is expressly agreed that if Pledgee should proceed to dispose of or utilize the Securities Collateral, or any part thereof, in accordance with the provisions of said law, ten (10) days’ prior written notice by Pledgee to Pledgor shall be deemed to be reasonable notice under any such provision requiring such notice (provided that no prior notice shall be required for Securities Collateral that threatens to decline rapidly in value or that is of a type customarily sold on a recognized market). Pledgee shall not be obligated to make any sale of any Securities Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Securities Collateral shall have been given, and may, upon written notice, adjourn any public or private sale or cause the same to be adjourned from time by announcement at the time and place fixed for sale, upon at least ten (10) days’ additional prior notice, and such sale may be made at the time and place to which the same is so adjourned.

(c) Pledgor also agrees to pay all costs and expenses of Pledgee, including attorneys’ fees and disbursements, incurred with respect to the collection of any of the Obligations and the enforcement of any of Pledgee’s rights hereunder.

(d) Except as otherwise specifically provided herein, Pledgor hereby waives presentment, demand, protest or any notice (to the extent permitted by applicable law) of any kind in connection with this Pledge Agreement or any Securities Collateral.

(e) Pledgee shall not be required to marshal any present or future collateral security (including but not limited to the Securities Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall

be cumulative and in addition to all other rights and remedies, however existing or arising. To the extent that it lawfully may, Pledgor hereby agrees that it will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of Pledgee’s rights and remedies under this Pledge Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, Pledgor hereby irrevocably waives the benefits of all such laws.

(f) Pledgor acknowledges that any sale referred to above may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such sale shall be deemed to have been made in a commercially reasonable manner and that Pledgee shall have no obligation to delay sale of any such Securities Collateral for the period of time necessary to permit the issuer of such Securities Collateral to register such Securities Collateral for public sale under the Securities Act or other applicable law.

(g) In addition to the rights and remedies hereunder, and to the extent permitted under applicable law, upon the occurrence of an Event of Default, and during the continuation thereof, Pledgee may retain all or any portion of the Securities Collateral in satisfaction of the Obligations but only after providing the notices required by §§9-620 and 9-621 (or similar provision) of the UCC (or any successor sections of the UCC), and otherwise complying with the requirements of applicable law and only in the event that Pledgor does not exercise any right to object to such retention as provided by the UCC or applicable law. Unless and until Pledgee shall have provided such notices and complied with all applicable legal requirements, however, Pledgee shall not be deemed to have retained any Securities Collateral in satisfaction of any Obligations for any reason.

Section 8. Application of Proceeds of Sale. Subject to the rights of Oxford with respect to the Oxford Lien, if any, the proceeds of any sale of Securities Collateral pursuant to Section 7 , as well as any Securities Collateral consisting of cash, shall be applied by Pledgee in accordance with the terms of the Financing Agreement. Pledgor irrevocably waives the right to direct the application of such payments and proceeds, and acknowledges and agrees that Pledgee shall have the continuing and exclusive right to apply and reapply any and all such payments and proceeds in Pledgee’s sole discretion, notwithstanding any entry to the contrary upon any of its books and records.

Section 9. Continuing Security Interest; Pledgor’s Obligations Not Affected.

(a) This Pledge Agreement creates a continuing security interest in the Securities Collateral and will remain in full force and effect until the irrevocable and indefeasible payment in full of the ultimate balance of the Obligations, regardless of any intermediate payment or discharge in whole or in part.

(b) The obligations of Pledgor hereunder shall remain in full force and effect without regard to, and shall not be impaired by (i) any insolvency, bankruptcy, arrangement of or involving the Pledgor; (ii) any exercise or non-exercise, or any waiver, by the Pledgee of any right, remedy, power or privilege under or in respect of any of the Obligations or any security therefor (including this Pledge Agreement); (iii) any amendment or waiver of any of the terms of the Financing Agreement or any of the Obligations; (iv) any amendment or waiver of any of the terms of any instrument (other than this Pledge Agreement) securing any of the Obligations or (v) the taking of additional security for or any guaranty of any of the Obligations or the release or discharge or termination of any security or guaranty for any of the Obligations; whether or not the Pledgor shall have notice or knowledge of any of the foregoing.

(c) This Pledge Agreement is made in connection with that certain Security Agreement dated of even date herewith (the “ Security Agreement ”), between Pledgor and Pledgee. The Securities Collateral is a part of the “Collateral” under the Security Agreement, and in the event of any conflict between the terms hereof and the terms of the Security Agreement, the terms of the Security Agreement shall govern.

Section 10. Rights of Pledgee.

(a) Power of Attorney . In addition to other powers of attorney contained herein or in the Financing Agreement, Pledgor hereby designates and appoints Pledgee, on behalf of Pledgee, and each of its designees or agents, as attorney-in-fact of Pledgor, irrevocably and with power of substitution, with authority to take any or all of the following actions, subject to the rights of Oxford with respect to the Oxford Lien, if any, upon the occurrence and during the continuation of an Event of Default:

i to demand, collect, settle, compromise, adjust and give discharges and releases concerning the Securities Collateral;

ii to commence and prosecute any actions or proceedings for the purposes of collecting any of the Securities Collateral and enforcing any other right in respect thereof;

iii to defend, settle, adjust or compromise any action, suit or proceeding brought with respect to the Securities Collateral and, in connection therewith, give such discharge or release;

iv to pay or discharge taxes, security interests, or other Liens on or threatened against the Securities Collateral;

v to direct any parties liable for any payment to make payment on account of the Securities Collateral directly to Pledgee or as Pledgee shall direct;

vi to receive payment of and receipt for any and all monies, claims, and other amounts due and to become due at any time in respect of or arising out of any Securities Collateral or the Obligations;

vii to sign and endorse any drafts, assignments, proxies, consents, verifications, notices and other documents relating to the Securities Collateral;

viii to authorize, execute and deliver all assignments, conveyances, statements, financing statements, renewal financing statements, pledge agreements, affidavits, notices and other agreements, instruments and documents that Pledgee may determine necessary or appropriate in order to perfect and maintain the security interests and Liens granted in this Pledge Agreement and in order to fully consummate all of the transactions contemplated herein and in the Financing Agreement;

ix to exchange any of the Securities Collateral upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Securities Collateral with any committee, depository, transfer agent, registrar or other designated agency upon such terms as Pledgee may determine;

x to vote for a director, shareholder, partner, manager, or member resolution, or to sign any consent or instrument in writing, sanctioning the transfer of any or all of the Securities Collateral into the name of Pledgee or Pledgee’s nominee or into the name of any transferee to whom the Securities Collateral of Pledgor or any part thereof may be sold; and

xi to do and perform all such other acts and things as Pledgee may deem to be necessary, proper or convenient in connection with this Pledge Agreement.

This power of attorney is a power coupled with an interest and shall be irrevocable for so long as any of the Obligations remain outstanding. Pledgee shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to Pledgee in this Pledge Agreement, and shall not be liable for any failure to do so or any delay in doing so. Pledgee shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or its capacity as attorney-in-fact except acts or omissions resulting from its gross negligence or willful misconduct. This power of attorney is conferred on Pledgee solely to protect, preserve and realize upon its security interest in the Securities Collateral.

(b) Assignment by Pledgee . The Pledgee may from time to time assign its rights or obligations hereunder as provided in the Financing Agreement.

(c) Pledgee’s Duty of Care . Other than the exercise of reasonable care to ensure the safe custody of the Securities Collateral while being held by Pledgee hereunder, Pledgee shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that Pledgor shall be responsible for preservation of all rights in the Securities Collateral, and Pledgee shall be relieved of all responsibility for Securities Collateral upon surrendering it or tendering the surrender of it to Pledgor. Pledgee shall be deemed to have exercised reasonable care in the custody and preservation of the Securities Collateral in its possession if such Securities Collateral is accorded treatment

substantially equal to that which Pledgee accords its own property, it being understood that Pledgee shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Securities Collateral, whether or not Pledgee has or is deemed to have knowledge of such matters or (ii) taking any steps or refraining therefrom to preserve rights against any other parties with respect to any Securities Collateral.

(d) Rights and Remedies . Pledgee is entitled to exercise all rights and remedies available to it at law or in equity in connection with this Pledge Agreement. The rights and remedies of Pledgee hereunder are several and cumulative at Pledgee’s discretion and may be exercised at Pledgee’s discretion. Pledgor waives any right it may have of first requiring Pledgee (or any trustee or agent on its behalf) to proceed against or enforce any other rights, security or other claim payment from before claiming from the Pledgor under this Agreement.

(e) Costs of Counsel . If at any time hereafter, Pledgee employs counsel or other experts or advisors to take action or make a response in connection with this Pledge Agreement, the Securities Collateral, or the Financing Agreement, Pledgor agrees to promptly pay upon demand any and all such costs and expenses of Pledgee, all of which costs and expenses shall constitute Obligations.

Section 11. Termination. This Pledge Agreement shall terminate, and all security interests in the Securities Collateral shall automatically terminate and be completely released, when all the Obligations have been indefeasibly and fully paid and satisfied, at which time Pledgee shall release and deliver to Pledgor, or to such person or entity as Pledgor shall designate, against receipt, such of the Securities Collateral (if any) as shall not have been sold or otherwise applied by Pledgee pursuant to the terms hereof and shall still be held by Pledgee under this Pledge Agreement. Any such release shall be without recourse to or representation or warranty by Pledgee and at the expense of Pledgor.

Section 12. Further Assurances. Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, reassignments, agreements and instruments, as Pledgee may at any time reasonably request in connection with the administration and enforcement of this Pledge Agreement or with respect to the Securities Collateral or any part thereof, and with respect to the grant, release or termination of Pledgee’s security interest in any of the Securities Collateral, or otherwise in order better to assure and confirm unto Pledgee its rights and remedies under this Pledge Agreement and the Security Agreement.

Section 13. Notices. All notices, requests and demands to or upon the respective parties hereto shall be given in writing as set forth in Section 8.03 of the Financing Agreement.

Section 14. Choice of Law; Jurisdiction.

(a) This Pledge Agreement shall be governed by, and construed, interpreted and enforced in accordance with, the laws of the State of New York, without giving effect to the principles of conflicts of law thereof.

(b) Any legal action or proceeding with respect to this Pledge Agreement shall be brought in any state or federal court of competent jurisdiction in the state, county and city of New York. Each party hereby submits itself for the purpose of this Pledge Agreement and any controversy arising hereunder to the exclusive jurisdiction of the state and federal courts located in the County of New York, State of New York, USA, and any courts of appeal therefrom, and waives any objection on the grounds of lack of jurisdiction (including venue) to the exercise of such jurisdiction over it by any such courts.

(c) Each party hereto hereby irrevocably consents to the service of process out of any of the courts referred to in subsection (b) above of this Section 14 in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address set forth in Section 8.03 of the Financing Agreement. Each party hereto hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any suit, action or proceeding commenced hereunder that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of a party to serve process on the other party in any other manner permitted by law.

Section 15. Construction. No provision of this Pledge Agreement shall be construed against or interpreted to the disadvantage of any party hereto by reason of such party or its counsel having, or being deemed to have, structured or drafted such provision.

Section 16. Headings, Amendments, Waiver. Section and paragraph headings are for convenience only and shall not be construed as part of this Pledge Agreement. Any modification and amendment shall be in writing and signed by the parties, and any waiver of, or consent to any departure from, any representation, warranty, covenant or other term or provision shall be in writing and signed by each affected party hereto or thereto, as applicable. A waiver of a breach of any term, covenant or condition of this Pledge Agreement shall not operate or be construed as a continuing waiver of such term, covenant or condition, or breach, or of any other term, covenant or condition, or breach by such party. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy or power provided herein or by law or in equity.

Section 17. Entire Agreement . This Pledge Agreement represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties, and supersedes all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written.

Section 18. Survival. All covenants, agreements, representations and warranties made by Pledgor herein or in the other Transaction Documents or in any certificate, report or instrument contemplated hereby or thereby shall survive any independent investigation made by Pledgee and the execution and delivery of this Pledge Agreement, and such certificates, reports or instruments and shall continue so long as any Obligations are outstanding and unsatisfied, applicable statutes of limitations to the contrary notwithstanding.

Section 19. Severability. Every provision of this Pledge Agreement is intended to be severable. If, in any jurisdiction, any term or provision hereof is determined to be invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, (b) any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such term or provision in any other jurisdiction, and (c) the invalid or unenforceable term or provision shall, for purposes of such jurisdiction, be deemed replaced by 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. If a court of competent jurisdiction determines that any covenant or restriction, by the length of time or any other restriction, or portion thereof, set forth in this Pledge Agreement is unreasonable or unenforceable, the court shall reduce or modify such covenants or restrictions to those which it deems reasonable and enforceable under the circumstances and, as so reduced or modified, the parties hereto agree that such covenants and restrictions shall remain in full force and effect as so modified. In the event a court of competent jurisdiction determines that any provision of this Pledge Agreement is invalid or against public policy and cannot be so reduced or modified so as to be made enforceable, the remaining provisions of this Pledge Agreement shall not be affected thereby, and shall remain in full force and effect.

Section 20. Successors and Assigns; Assignment. All covenants, promises and agreements by or on behalf of the parties contained in this Pledge Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns; provided , however , that Pledgor shall not have the right to assign any of its rights or obligations hereunder without the prior written consent of Pledgee.

Section 21. Waiver of Jury Trial . THE PARTIES HERETO HEREBY WAIVE ANY AND ALL RIGHTS THAT THEY MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING BETWEEN PLEDGEE AND PLEDGOR OR THEIR SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY WAY CONNECTED WITH THIS PLEDGE AGREEMENT. IT IS INTENDED THAT SAID WAIVER SHALL APPLY TO ANY AND ALL DEFENSES, RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR PROCEEDINGS BETWEEN PLEDGOR AND PLEDGEE. PLEDGOR WAIVES ALL RIGHTS TO INTERPOSE ANY CLAIMS, DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND, NATURE OR DESCRIPTION IN ANY ACTION OR PROCEEDING INSTITUTED BY PLEDGEE WITH RESPECT TO THIS PLEDGE AGREEMENT, EXCEPT COMPULSORY COUNTERCLAIMS.

Section 22. Counterparts. This Pledge Agreement may be executed in one or more counterparts, and by facsimile or electronic signature, each of which when so executed, shall be deemed an original, but all of which shall constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Pledge and Security Agreement to be duly executed as of the date first above written.


PLEDGOR:

ZOGENIX, INC.

By:
Name:
Title:

PLEDGEE:

COWEN HEALTHCARE ROYALTY PARTNERS II, L.P.

By Cowen Healthcare Royalty GP, LLC, Its General Partner

By:
Name:		Todd C. Davis
Title:		Managing Director

[SIGNATURE PAGE – PLEDGE AND SECURITY AGREEMENT]

SCHEDULE A

Subsidiaries

Zogenix Europe Limited

SCHEDULE B

Pledged Securities

(A) 5,621,790 ordinary shares of Zogenix Europe Limited, representing 100% of all the issued and outstanding Equity Interests of Zogenix Europe Limited, and 100% of all future issued and outstanding Equity Interests of ZGX Europe Limited, (B) 100% of the issued and outstanding Equity Interests of any Subsidiary of Pledgor formed after the date hereof under the laws of a jurisdiction outside of the United States, its territories and possessions, and (C) 100% of the issued and outstanding Equity Interests of any Subsidiary of Pledgor formed after the date hereof under the laws of the United States.

Exhibit 10.3

STOCK AND WARRANT PURCHASE AGREEMENT

THIS STOCK AND WARRANT PURCHASE AGREEMENT (this “Agreement” ) is made as of June 30, 2011, between Zogenix, Inc., a corporation organized under the laws of the State of Delaware (the “ Company” ), and Cowen Healthcare Royalty Partners II, L.P., a limited partnership organized under the laws of the State of Delaware (the “ Purchaser” ).

WHEREAS, the parties desire that, upon the terms and subject to the conditions and limitations set forth herein, the Company shall issue and sell to the Purchaser, as provided herein, and the Purchaser shall purchase from the Company, the Shares (as defined below);

WHEREAS, such issuances will be made in reliance upon the provisions of Section 4(2) and Regulation D (“ Regulation D” ) of the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “ Securities Act” ), and/or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the issuances of the Shares to be made hereunder; and

WHEREAS, the parties hereto are concurrently entering into a Financing Agreement (the “ Financing Agreement” ). Defined terms used without definition in this Agreement shall have the meaning given them in the Financing Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual agreements and covenants contained in this Agreement, the Company and the Purchaser agree as follows:

SECTION 1. Authorization of Sale of the Securities . Subject to the terms and conditions of this Agreement, the Company has authorized:

1.1 the issuance and sale to the Purchaser of an aggregate number of shares of the Company’s common stock, par value $0.001 per share (“ Common Stock” ) equal to the number obtained by dividing (a) One Million Five Hundred Thousand Dollars ($1,500,000) by (b) the Purchase Price (as defined below) (the shares of Common Stock to be sold under this Agreement shall be referred to herein as the “ Shares” ); and

1.2 the issuance to the Purchaser of warrants to purchase up to Two Hundred Twenty Five Thousand (225,000) shares of Common Stock, in the form attached hereto as Exhibit A (the “ Warrants” ), on the terms and conditions set forth in the Warrants.

SECTION 2. Agreement to Sell and Purchase the Securities . On the Closing Date, the Company will sell to the Purchaser, and the Purchaser will buy from the Company, upon the terms and conditions hereinafter set forth, the Shares at a price per share (the “ Purchase Price” ) equal to $3.86.

SECTION 3. Delivery of the Securities at the Closing.

3.1 Closing. The completion of the purchase and sale of the Securities shall occur on the Closing Date (the “ Closing” ). On the Closing Date, the Company shall deliver to the Purchaser (a) evidence of issuance reasonably satisfactory to the Purchaser of a stock certificate registered in the name of the Purchaser representing the number of Shares set forth in Section 1 above and bearing appropriate legends referring to the fact that the Shares were sold in reliance upon an exemption from registration under the Securities Act (with delivery to the Purchaser of such original certificate promptly following the Closing Date) and (b) the Warrants. The Company’s obligation to complete the purchase and sale of the Securities and deliver such stock certificate and Warrants to the Purchaser at the Closing shall be subject to the following conditions, any one or more of which may be waived by the Company: (A) the Company’s receipt of the Revenue Investment Amount; and (B) the Purchaser’s fulfillment in all material respects of those undertakings of the Purchaser to be fulfilled prior to the Closing under this Agreement.

SECTION 4. Representations, Warranties and Covenants of the Company . The Company hereby represents and warrants to, and covenants with, the Purchaser, as of the date hereof and as of the Closing Date, as follows:

4.1 Organization and Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction in which qualification is required, except where failure to so qualify would not be reasonably expected to (a) materially impair or delay the Company’s ability to consummate the transactions contemplated hereby in accordance with the terms hereof or (b) have a material adverse effect upon the business, condition (financial or otherwise), properties or operations of the Company, taken as a whole (each of the foregoing (a) or (b), a “ Material Adverse Effect” ).

4.2 Due Execution, Delivery and Performance of this Agreement. The Company has corporate power and authority (i) to enter into this Agreement and perform the transactions contemplated hereby; (ii) to issue the Shares, the Warrants and any shares of Common Stock issuable upon exercise of the Warrants (the “ Warrant Shares ” ), in the manner and for the purpose contemplated by this Agreement; and (iii) to execute, deliver and perform its obligations under all other agreements and instruments executed and delivered by it pursuant to or in connection with this Agreement. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder has been taken or will be taken prior to the Closing. This Agreement has been duly authorized, executed and delivered by the Company. The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions herein contemplated (i) will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under, and will not result in the creation of any lien, charge, security interest or encumbrance upon any assets of the Company pursuant to the terms or provisions of (A) any agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which the Company is a party or by which the Company or any of its properties

may be bound or affected and in each case which is likely to result in a Material Adverse Effect, or (B) any statute, ordinance, code, rule or regulation, or any judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body (including any self-regulatory organization) applicable to the Company or any of its assets or properties where such conflict, breach, violation or default is likely to result in a Material Adverse Effect ( provided , however , that with respect to the sale of the Shares hereunder being made in a transaction exempt from registration under the Securities Act, the Company assumes the accuracy of the representations and warranties of the Purchaser in Section 5.2 of this Agreement), and (ii) will not violate any provision of the certificate of incorporation or bylaws of the Company. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body (including any self-regulatory organization) is required for the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, except such as have been obtained under the federal or state securities or Blue Sky laws or as shall be obtained following the Closing as permitted by and pursuant to such laws. No consent, approval, authorization or other order of any other third party is required for the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, except such as have been obtained or as shall be obtained prior to the Closing. Upon the execution and delivery of this Agreement, and assuming the valid execution of the Agreement by the Purchaser, this Agreement will constitute a valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors’ rights generally and except as enforceability may be limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

4.3 Valid Issuance of Securities. The Securities, when issued and paid for in compliance with the provisions of this Agreement, will be validly issued, fully paid and non- assessable. Assuming the accuracy of the representations of the Purchaser in this Agreement, the Securities will be issued in compliance with all applicable federal and state securities laws and will be free of any liens or encumbrances; provided, however , that the Securities and the Warrant Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein, and as may be required by future changes in such laws.

4.4 No Actions. There are no legal or governmental actions, suits or proceedings pending or, to the Company’s knowledge, threatened in writing involving the Company which, individually or in the aggregate, would reasonably be expected to result in the issuance of an order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement.

4.5 SEC Reports and Financial Statements. Each form, report, schedule, registration statement, definitive proxy statement and other document (together with all amendments thereof and supplements thereto) filed by the Company with the SEC since January 1, 2010 (in the case of any registration statement, as of its effective date, and with respect to all documents filed by the Company with the SEC, as of their respective filing dates and thereafter as of the date such documents have since the time of their filing been amended or supplemented, the “ Company SEC Reports” ), which are all the documents (other than preliminary material) that the Company was required to file with the SEC since such date, (i) complied in all material

respects with the requirements of the Securities Act, the Securities Exchange Act of 1934, as amended, (the “ Exchange Act” ), and the rules and regulations promulgated thereunder, as the case may be, (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (iii) were timely filed with the SEC. The audited financial statements and unaudited interim financial statements (including, in each case, the notes, if any, thereto) included in the Company SEC Reports (the “ Company Financial Statements” ) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments (which are not expected to be, individually or in the aggregate, materially adverse to Company taken as a whole)) in all material respects the financial position of Company as at the respective dates thereof and the results of operations and cash flows for the respective periods then ended.

4.6 Absence of Certain Changes or Events. Except as disclosed in the Company SEC Reports, since December 31, 2010, there has not been any change, event or development that has had, or that is likely to have, individually or in the aggregate, a Material Adverse Effect.

4.7 Absence of Undisclosed Liabilities. Except for matters reflected or reserved against in the balance sheet for the period ended December 31, 2010, and included in the Company Financial Statements, the Company did not have at such date, nor has it incurred since that date, any liabilities or obligations (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due) of any nature that would be required by GAAP to be reflected on a balance sheet of the Company (including the notes thereto), except liabilities or obligations (i) which were incurred in the ordinary course of business consistent with past practice, (ii) which have been reported in the Company SEC Reports, or (iii) which have not had, and are not likely to have, individually or in the aggregate, a Material Adverse Effect.

4.8 Capitalization; Options and Warrants. The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred Stock, par value $0.001 per share. As of May 31, 2011, 34,021,483 shares of Common Stock and no shares of Preferred Stock were issued and outstanding. Except for the transactions contemplated hereby and except as set forth in the Company’s SEC Reports, since December 31, 2010, the Company has not granted or agreed to grant any option (except for stock options granted under the Company’s stock option plans), warrants, rights (including conversion or preemptive rights, except for stock purchased under the Company’s employee stock purchase plan), or similar rights to any person or entity to purchase or acquire any rights with respect to any shares of capital stock of the Company that in the aggregate exceed 500,000 shares. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights.

4.9 Nasdaq Capital Market Designation. The Common Stock is currently listed on the Nasdaq Capital Market and the Company knows of no reason or set of facts which

is likely to result in the termination of listing of the Common Stock on Nasdaq or the inability of such stock to continue to be listed on Nasdaq. Nothing in this Agreement shall be interpreted to preclude the Company from listing its Common Stock on a national securities exchange in lieu of Nasdaq.

4.10 Material Non-Public Information. Except for this Agreement, and the transactions contemplated hereby and pursuant to the Financing Agreement, neither the Company nor its employees have disclosed to the Purchaser any material non-public information that, according to applicable law, rule or regulation, should have been disclosed publicly by the Company prior to the date hereof but which has not been so disclosed.

4.11 No General Solicitation or Advertising in Regard to this Transaction. Neither the Company nor any of its affiliates or any Person acting on its or their behalf (i) has conducted any general solicitation (as that term is used in Rule 502(c) of Regulation D) or general advertising with respect to any of the Securities or (ii) has made any offers or sales of any security or solicited any offers to buy any security under any circumstances that would require registration of the Securities under the Securities Act.

4.12 Accuracy of Representations and Warranties. No representation or warranty by the Company contained in this Agreement, and no statement contained in any exhibit, schedule, disclosure, certificate, list or other instrument delivered or to be delivered to the Purchaser pursuant hereto contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained herein or therein not misleading.

4.13 Compliance with Laws. To the knowledge of the Company, neither the Company nor any of the Company’s subsidiaries are in violation of any federal, state, provincial, county, municipal or local laws, ordinances or regulations governing the conduct of the Company’s business or the operation of the Company’s property, except such violations which, individually or in the aggregate, would not have a Material Adverse Effect. Neither the Company nor any of the Company’s subsidiaries has, since December 31, 2010, received any notice that any such violation will be or is being alleged.

4.14 Certificate. At the Closing, the Company will deliver to the Purchaser a certificate executed by the President and the chief financial or accounting officer of the Company (solely in their capacities as such), dated the Closing Date, in form and substance reasonably satisfactory to the Purchaser, to the effect that the representations and warranties of the Company set forth in this Section 4 are true and correct in all material respects as of the Closing Date, and the Company has complied in all material respects with all the agreements and satisfied all the conditions herein on its part to be performed or satisfied on or prior to the Closing Date.

SECTION 5. Representations, Warranties and Covenants of the Purchaser.

5.1 Authorization. The Purchaser represents and warrants to, and covenants with, the Company that (i) the Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) upon the execution and delivery of this Agreement, this Agreement shall constitute a legal, valid

and binding obligation of the Purchaser, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors’ and contracting parties’ rights generally and except as enforceability may be limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

5.2 Representations Regarding Investment Background and Acknowledgments.

(a) The Purchaser represents and warrants to, and covenants with, the Company that: (i) the Purchaser is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares representing an investment decision like that involved in the purchase of the Securities; (ii) the Purchaser is acquiring the Securities for its own account for investment only and with no present intention of distributing any of such Securities or any arrangement or understanding with any other persons regarding the distribution of such Securities; (iii) the Purchaser will not, directly or indirectly, offer, sell, pledge, sell short, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities except in compliance with the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, and any applicable state securities or blue sky laws; and (iv) the Purchaser is an “accredited investor” within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act.

(b) The Purchaser understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of the Securities Act, its rules and regulations, and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Securities.

(c) Under the Securities Act and rules and regulations promulgated thereunder, the Securities may not be resold without registration except in certain limited circumstances. In this connection, the Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

(d) The Purchaser understands that its investment in the Securities involves a significant degree of risk and that the market price of the Common Stock has been and continues to be volatile and that no representation is being made as to the future value or trading volume of the Common Stock.

(e) The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

(f) The Purchaser understands that, until such time as the resale of the Securities or the Warrant Shares is registered or they may be sold pursuant to Rule 144 under the

Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities and the Warrant Shares may bear restrictive legends in substantially the following form (and a stop-transfer order may be placed against transfer of the Securities or the Warrant Shares):

“The securities represented by this certificate were issued in a transaction that was not registered under the Securities Act of 1933, as amended (the ‘Securities Act’) or any state or other securities law. The securities may not be sold, pledged, transferred or assigned in the absence of an effective registration statement under the Securities Act, or an opinion of counsel, in form, substance and scope reasonably acceptable to the Company, that registration is not required under the Securities Act or unless sold pursuant to Rule 144 under the Securities Act.”

5.3 Information. The Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Purchaser. The Purchaser has reviewed or received copies of the Company SEC Reports. The Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company. The Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. The Purchaser understands that it (and not the Company) shall be responsible for its own tax liabilities that may arise as a result of this investment or the transactions contemplated by this Agreement.

5.4 Trading Restrictions. The Purchaser covenants that neither the Purchaser nor any of its affiliates nor any entity managed or controlled by the Purchaser will, or cause or assist any Person to, enter into or execute any “ short sale” (as such term is defined in Rule 200 of Regulation SHO, or any successor regulation, promulgated by the Commission under the Exchange Act) of any securities of the Company, and that the Purchaser and its affiliates shall comply with all other applicable laws with respect to trading in the Company’s securities.

5.5 Not an Affiliate. The Purchaser is not an officer, director or “ affiliate” (as defined in Rule 405 of the Securities Act) of the Company.

5.6 Manner of Sale. At no time was Purchaser presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising, in each case, with respect to an offer or sale of the Shares.

5.7 Transfers in Compliance with Agreements and Law. The Purchaser hereby covenants with the Company not to make any sale or other transfer of the Securities or the Warrant Shares without complying in all material respects with the provisions of this Agreement, and the Purchaser acknowledges and agrees that such Securities and Warrant Shares are not transferable on the books of the Company unless the certificate submitted to the transfer agent evidencing the Securities or the Warrant Shares is accompanied by a separate certificate executed by an officer of, or other authorized person expressly designated by, the Purchaser, to the effect that the applicable Securities or Warrant Shares have been sold in accordance with the Securities Act.

SECTION 6. Additional Covenants.

6.1 Nasdaq Notice of Issuance. If required, the Company shall give Nasdaq timely notice of the issuance of the Securities.

6.2 Additional Information. With a view to making available to the Purchaser the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit the Purchaser to sell securities of the Company to the public without registration, the Company shall: (a) make and keep available adequate current public information, as those terms are understood and defined in Rule 144, at all times after the date hereof; (b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act; and (c) so long as the Purchaser owns any Securities or Warrant Shares, furnish the Purchaser forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act, and the Exchange Act; and (ii) such other information as may be reasonably requested in availing the Purchaser of any rule or regulation of the SEC that permits the selling of any such securities without registration.

6.3 Additional Equity Purchase Obligation.

(a) The Company shall reserve for the benefit of the Purchaser shares of Common Stock and/or other equity securities the aggregate fair market value of which is One Million Five Hundred Thousand Dollars ($1,500,000) in the Company’s next bona fide equity financing after the date hereof which results in aggregate gross proceeds to the Company of at least Fifteen Million Dollars ($15,000,000) (a “ Subsequent Equity Financing” ), provided, however, that Purchaser shall have no obligation to purchase such shares without the prior approval of Purchaser’s investment committee in its sole discretion. The price to the Purchaser for such shares or other equity securities that Purchaser elects to purchase shall be equal to the price paid by the other investors in the Subsequent Equity Financing and Purchaser shall have rights, preferences, privileges and obligations no less favorable to Purchaser than those granted to, and imposed upon, the other investors by virtue of the Subsequent Equity Financing. If and to the extent that Purchaser participates in such Subsequent Equity Financing, Purchaser further agrees to be bound by any agreements that such other investors enter into in connection with such Subsequent Equity Financing.

(b) The Company shall deliver to the Purchaser, at least five (5) business days prior to the closing of a Subsequent Equity Financing, a written notice of any proposed Subsequent Equity Financing describing the securities being offered and, to the extent known, the price (or anticipated price range) and other terms upon which such securities are to be offered.

(c) Notwithstanding anything to the contrary herein, (i) in the event the Subsequent Equity Financing is a public offering of the Company’s Common Stock and/or other equity securities, Purchaser shall not participate in such public offering but instead shall

purchase such Common Stock and/or other equity securities pursuant to a separate, but concurrent private placement of such securities at a price per share not greater than that offered in such public offering.

(d) If the Company has been advised by counsel, an investment bank, underwriter, placement agent or other financial advisor that prior notice of the Subsequent Equity Financing could reasonably be expected to jeopardize the ability of the Company to consummate such Subsequent Equity Financing, then, notwithstanding the foregoing, immediately following the consummation of such Subsequent Equity Financing, the Company shall notify Purchaser of such Subsequent Equity Financing and the Company shall reserve for the benefit of the Purchaser shares of Common Stock and/or other equity securities otherwise in accordance with this Section 6.3, subject to the rules and regulations of the Commission and the Nasdaq Stock Market LLC.

(e) For the avoidance of doubt, Purchaser shall have no right to negotiate any of the terms or conditions of the Subsequent Equity Financing, including without limitation, the price per share, which negotiation shall be conducted solely among the Company and the other investors in the Subsequent Equity Financing. This Section 6.3 shall not apply to: (i) shares of restricted stock, stock options or other stock awards granted by the Company to officers, directors, employees, advisors or consultants; (ii) shares of capital stock issued by the Company upon the exercise or conversion of stock options or other stock awards; (iii) shares of capital stock issued by the Company upon the exercise or conversion of warrants to purchase capital stock of the Company or other convertible securities; or (iv) securities of the Company issued pursuant to strategic transactions, licenses, partnerships, collaborations, co-promotions, distribution arrangements, product or technology acquisitions, or bank or equipment financings.

SECTION 7. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be sent by nationally recognized overnight express courier postage prepaid, and shall be deemed given upon receipt and shall be delivered as addressed as follows:

(a)

if to the Company, to:

Zogenix, Inc.

12671 High Bluff Drive, Suite 200

San Diego, CA 92130

Attention: Ann D. Rhoads

Fax: (858) 259-1166

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

Latham & Watkins LLP

12636 High Bluff Drive, Suite 400

San Diego, CA 92130

Attention: Faye H. Russell, Esq.

Fax: (858) 523-5450

or to such other person at such other place as the Company shall designate to the Purchaser in writing; and

(b)

if to the Purchaser, to:

Cowen Healthcare Royalty Partners II, L.P.

177 Broad Street, Suite 1101

Stamford, CT 06901

Attention: Todd C. Davis

Fax: (646) 562-1293

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

Cohen Tauber Spievack & Wagner P.C.

420 Lexington Avenue, Suite 2400

New York, NY 10170

Attention: Y. Jerry Cohen, Esq.

Fax: (212) 586-5800

or to such other person at such other place as the Purchaser shall designate to the Company in writing.

SECTION 8. Entire Agreement. This Agreement (and the exhibits hereto, including, without limitation, the Warrants and the Second Amendment to IRA, defined below) contain the entire understanding of the parties with respect to the specific matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters.

SECTION 9. Changes. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and the Purchaser.

SECTION 10. Waiver. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative.

SECTION 11. Assignment . Except as otherwise expressly provided herein, the respective rights and obligations of either party under this Agreement shall not be assignable in whole or in part by a party without the prior written consent of the other party, which consent shall not be unreasonably withheld, delayed or conditioned. This Agreement shall bind and inure to the benefit of parties and their permitted successors and assigns.

SECTION 12. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

SECTION 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York and the federal law of the United States of America, without regard to principles of conflicts of law which would result in the application of the laws of any other jurisdiction other than the laws of the State of New York and the federal law of the United States of America. Each party hereto hereby submits itself for the purpose of this Agreement and any controversy arising hereunder to the exclusive jurisdiction of the state and federal courts located in the County of New York, State of New York, USA, and any courts of appeal therefrom, and waives any objection on the grounds of lack of jurisdiction (including venue) to the exercise of such jurisdiction over it by any such courts.

SECTION 14. Counterparts. This Agreement may be executed in two counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. Facsimile signatures shall be deemed original signatures.

SECTION 15. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.

SECTION 16. Survival of Warranties. The warranties, representations and covenants of each party contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing, and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Purchaser or the Company.

SECTION 17. Finder’s Fee . Each party represents that it neither is nor will be obligated for any finders’ fee or commission in connection with this transaction. Each party agrees to indemnify and to hold harmless the other party from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which the indemnifying party or any of its officers, partners, employees or representatives is responsible.

SECTION 18. Expenses. Irrespective of whether the Closing is effected, each party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

SECTION 19. Registration Rights. Notwithstanding anything herein to the contrary, the Purchaser is entitled to have the Shares and the Warrant Shares registered for resale under the Securities Act pursuant to an amendment to that certain Third Amended and Restated Investors’ Rights Agreement, dated as of December 2, 2009, as amended through the date hereof. The Second Amendment to the Third Amended and Restated Investors’ Rights Agreement dated as of June 30, 2011 between the Purchaser and the Company is annexed hereto as Exhibit B (the “ Second Amendment to IRA” ).

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written.


ZOGENIX, INC.

By:		/s/ Ann Rhoads
Name: Ann Rhoads
Title: CFO

COWEN HEALTHCARE ROYALTY PARTNERS II, L.P.

By Cowen Healthcare Royalty GP, LLC, its General Partner

By:		/s/ Todd C. Davis
Name:		Todd C. Davis
		Title: Managing Director

WARRANTS

See Exhibit 4.12 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 11, 2011

EXHIBIT B

SECOND AMENDMENT TO IRA

See Exhibit 4.13 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 11, 2011

Exhibit 10.4

DEVELOPMENT AND LICENSE AGREEMENT

BETWEEN

DURECT CORPORATION

AND

ZOGENIX, INC.

DATED AS OF

JULY 11, 2011

DEVELOPMENT AND LICENSE AGREEMENT

THIS DEVELOPMENT AND LICENSE AGREEMENT (this “ Agreement ”), effective July 11, 2011 (“ Effective Date ”), is entered into by and between Durect Corporation, a corporation organized and existing under the laws of the State of Delaware, U.S.A. with a place of business at 2 Results Way, Cupertino, CA 95014 (“ Durect ”), and Zogenix, Inc., a corporation organized and existing under the laws of Delaware, with a place of business at 12671 High Bluff Drive, Suite 200, San Diego, CA 92130 (“ Zogenix ”).

PRELIMINARY STATEMENTS

A. DURECT is in the business of developing and commercializing controlled-release pharmaceutical products, extended-release pharmaceutical products, polymer and non-polymer pharmaceutical excipients, and medical devices for biomedical and non-biomedical applications;

B. Zogenix is in the business of developing and commercializing pharmaceutical products for CNS and pain applications including needle-free, liquid jet drug delivery devices;

C. Zogenix and Durect have been conducting feasibility evaluation work for a pharmaceutical drug candidate pursuant to the Feasibility Evaluation Agreement by and between Zogenix and Durect dated October 18, 2007, as amended (the “ Feasibility Agreement ”);

D. As contemplated by Section 8 of the Feasibility Agreement, Zogenix desires to exercise its exclusive option to acquire an exclusive license to the Durect Technology and Durect Technology Patents (as each is defined below) for the development, commercialization and manufacture of the Product (as defined below);

E. Zogenix desires to engage Durect to conduct specified Product development and Product supply activities, upon the terms and conditions hereinafter set forth; and

F. Durect desires to grant such exclusive license rights to Zogenix in respect of Durect Technology and Durect Technology Patents and conduct such Product development and Product supply activities, upon the terms and conditions hereinafter set forth.

AGREEMENT

NOW THEREFORE, in consideration of the mutual covenants and agreements provided herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

1.	DEFINITIONS.

As used in this Agreement, the following terms shall have the meanings set forth in this Section 1:

1.1 “ Active Agent ” means risperidone [***].

1.2 “ Affiliate ” means, with respect to a Person, any Person that controls, is controlled by or is under common control with such first Person. For purposes of this definition only, “control” means (a) to possess, directly or indirectly, the power to direct the management or policies of a Person, whether through ownership of voting securities, by contract relating to voting rights or corporate governance, or (b) to own, directly or indirectly, fifty percent (50%) or more of the outstanding voting securities or other ownership interest of such Person.

1.3 [***], including those Patents which constitute Durect Technology Patents as listed on Schedule 1.22 .

1.4 “ Applicable Laws ” means the applicable laws, rules and regulations, including any rules, regulations, guidelines or other requirements of the Regulatory Authorities, that may be in effect from time to time.

1.5 “ cGMP ” means current Good Manufacturing Practice for medicinal products for human use as set forth in U.S. Code of Federal Regulations 21 CFR Part 210, 211 et seq. , Commission Directive 2003/94/EC the EU Good Manufacturing Practice guideline, Volume 4 for medicinal products for Human and Veterinary Use, the European Pharmacopoeia, and equivalent thereof, as applicable, each as amended from time to time.

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

1.6 “ Change of Control ” means, as to Zogenix or Durect, (i) the sale of all or substantially all of such Party’s assets or business relating to this Agreement; (ii) a merger, reorganization or consolidation involving such Party in which the voting securities of such Party outstanding immediately prior thereto cease to represent at least fifty percent (50%) of the combined voting power of the surviving entity immediately after such merger, reorganization or consolidation; or (iii) when a person or entity, or group of persons or entities, acting in concert acquire more than fifty percent (50%) of the voting equity securities or management control of such Party.

1.7 “ Clinical Trial ” means an investigation in human subjects and/or patients intended to discover or verify the clinical, pharmacological and/or other pharmacodynamic effects of a Product, and/or to identify any adverse reactions to a Product, and/or to study absorption, distribution, metabolism, and/or excretion of a Product with the objective of ascertaining its safety, activity and/or efficacy.

1.8 “ CMC ” means chemistry, manufacturing and controls.

1.9 “ CMC Data ” means CMC data, results and reports that are generated with respect to the Product or the Durect Technology to the extent incorporated into or utilized in the Product, and that are Controlled at any time during the Term of this Agreement by a Party, or any Affiliate, subcontractor, agent, sublicensee thereof, or jointly by any of the foregoing.

1.10 “ CMO ” means a Third Party contract manufacturing organization.

1.11 “ Commercialization ” or “ Commercialize ” means the ongoing process and activities generally engaged in by a company marketing human pharmaceutical therapeutic products to establish and maintain a presence for such product in a given territory, including offering for sale, selling, marketing, promoting, distributing, importing and exporting such product.

1.12 “ Commercially Reasonable Efforts ” with respect to any activity means the efforts and resources that would be used in the development, registration, Reimbursement authorization, market launch, manufacturing and/or performance of the relevant activity in compliance with Applicable Law by a Person (engaged in the development or commercialization of pharmaceutical products) [***], all as measured by the facts and circumstances at the time such efforts are due. Where this Agreement requires a Party to use Commercially Reasonable Efforts, such efforts and resources that are used by such Party’s Affiliates, agents, sublicensees and licensees, as relevant, shall also be attributed to such Party.

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

1.13 “ Competitive Product ” means [***].

1.14 “ Control ” or “ Controlled ” means possession of the right to grant to the other Party a license, sublicense or other right to use, of the scope provided for in this Agreement, to Intellectual Property Rights (including patent rights, Know-How, trade secrets), data and rights to access or cross-reference regulatory filings without violating the terms of any Applicable Laws, agreement or other arrangement with any Third Party existing at the time a Party or its Affiliate would be first required hereunder to grant the other Party such license, sublicense or other right.

1.15 “ Cost ” means all internal and external costs, expenses, cost of labor and materials associated with an activity.

1.16 “ DMF ” means a Drug Master File as filed with a Regulatory Authority containing CMC Data and other information relevant for seeking and maintaining regulatory approval for a pharmaceutical product.

1.17 “ Development Data ” means all Preclinical, Non-Clinical and Clinical Trial data, results and reports and CMC Data, including pharmacological, pharmacokinetic and toxicological data, related to the Product or generated in the development of the Product (including the Active Agent and/or excipients included therein). For clarity, “Development Data” shall include Data (as defined in the Feasibility Agreement).

1.18 “ Dollars ” means U.S. Dollars, the lawful currency of the United States.

1.19 “ Dosage Form Development ” means any pharmaceutical development activities for the Product undertaken in order to design or modify a pharmaceutical formulation or dosage form to meet the desired clinical or commercial product profile, including in vitro studies on solubility, stability, physical and chemical characteristics, denaturation, particle formation, particle aggregation and settling, crystallization, micronization, excipient/material selection, compounding, mixing, casting, converting, drying, and similar activities.

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

1.20 “ DosePro ^® ” means Zogenix’s proprietary needle-free, liquid jet drug delivery device.

1.21 “ Durect Development Costs ” means the Costs incurred by Durect in performing the Durect Development Responsibilities as calculated in accordance with Schedule 1.21 .

1.22 “ Durect Technology Patents ” means those Patents in the Territory Controlled by Durect or any of its Affiliates at any time during the Term which relate in whole or in part to Durect Technology to the extent relevant to the manufacture, use or sale of Product in the Field and in the Territory, including as attached hereto as Schedule 1.22 , as such list shall be updated from time to time by Durect.

1.23 “ Durect Technology ” means: (i) any and all Know-How Controlled by Durect or any of its Affiliates at any time during the Term which relates in whole or in part to polymeric and/or non-polymeric carrier materials and systems (including the SABER™ Formulation Platform and the [***]) for imparting controlled release or other performance-enhancing qualities to products, including any combination or use of such materials or systems with the Active Agent; and (ii) Durect Project Technology, in each case, to the extent relevant to the manufacture, use or sale of Product in the Field and in the Territory, including in each case, any and all Intellectual Property Rights therein and thereto.

1.24 “ EMEA ” means the European Medicines Agency, and where and if applicable, the European Commission, the Council of the European Union and the Committee for Medicinal Product for Human Use or any successors thereto.

1.25 “EU” means the European Union, including each of the member states, as modified from time to time.

1.26 “ FDA ” means the Food and Drug Administration of the United States Department of Health and Human Services or any successor agency thereof performing similar functions.

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

1.27 “ FDC Act ” means the United States Federal Food, Drug, and Cosmetic Act and any successor acts thereto, as amended from time to time.

1.28 “ Field ” means the treatment of schizophrenia, bipolar disorder or other psychiatric related disorders in humans.

1.29 “ First Commercial Sale ” means: (i) with respect to a Jurisdiction, the first sale for use, consumption or resale of the Product by Zogenix or an Affiliate or Sublicensee thereof to a Third Party in a bona fide arms’-length transaction in such Jurisdiction and (ii) with respect to the Territory, the First Commercial Sale in any Jurisdiction. A sale to an Affiliate shall not constitute a First Commercial Sale unless the Affiliate is the end-user of the Product.

1.30 “ GAAP ” means generally accepted accounting principles in the United States, consistently applied by the Party at issue.

1.31 “ Governmental Entity ” means any regional, central, federal, state, provincial or local court, commission or governmental, regulatory or administrative body, board, bureau, agency, instrumentality, authority or tribunal or any subdivision thereof.

1.32 “ ICH Guidelines ” means the then-current guidelines applicable to pharmaceutical products adopted by the International Conference on Harmonization.

1.33 “ IND ” means an investigational new drug application (together with all subsequent submissions, supplements and amendments thereto, and any materials, documents or information referred to or relied upon thereby) filed with a Regulatory Authority in conformance with applicable laws and regulations, and the equivalent thereof (or other right to commence Clinical Trials), as applicable, in Jurisdictions outside the United States.

1.34 “ Intellectual Property Rights ” means Patents, copyrights, trade secrets, database rights, proprietary know-how and similar rights of any type (excluding trademarks) under the laws of any Governmental Entity, including all applications, registrations, extensions and renewals relating to any of the foregoing.

1.35 “ Jurisdiction ” means a country within the Territory.

1.36 “ Know-How ” means all technical information and other technical subject matter, proprietary methods, ideas, concepts, formulations, discoveries, inventions, devices, technology, trade secrets, compositions, designs, formulae, know-how, show-how, specifications, drawings, techniques, results, processes, methods, procedures and/or designs, whether or not patentable.

1.37 “ Knowledge ” means [***].

1.38 “ Major Market Jurisdiction ” means each of [***].

1.39 “ Marketing Exclusivity Right ” means a marketing or data exclusivity right conferred as a result of (a) designation as a drug for rare diseases or conditions under Sections 525 et seq. of the FDC Act, (b) an exclusive right to sell under an NDA pursuant to Section 505(j)(5)(F)(ii), (iii) and (iv) or 505(c)(3)(E)(ii), (iii) and (iv) of the FDC Act or any relevant subsequent legislation, rules or regulations, (c) the exclusive right granted by the FDA upon completion of pediatric studies requested by the FDA under Section 505A(a) of the FDC Act, (d) Article 10 of EU Directive 2001/83/EC and/or Article 3(3) of EU Regulation 726/2004/EC or (e) EU Regulations 141/2000/EC and/or 847/2000/E, as applicable, or any equivalent or similar rights in the Territory or Jurisdiction, successor legislations of any of the foregoing or subsequent legislation that has the effect of extending marketing or data exclusivity right to a pharmaceutical product.

1.40 “ NDA ” means a “New Drug Application,” or other application for Regulatory Approval to market a product in the U.S. submitted to the FDA as amended or supplemented from time to time.

1.41 “ Non-Clinical, ” when used with respect to studies or data, means safety, toxicology and other studies undertaken in non-human animals in support of Clinical Trials or otherwise in support of Regulatory Approval, or data generated therefrom.

1.42 “ Net Sales ” means, with respect to an applicable period, the gross amount invoiced by Zogenix, and/or its Affiliates and Sublicensees for sale or other commercial disposition of the Product (in final, finished presentation for use by an end-user) to an unrelated Third Party in an arms’-length transaction, minus the following allowances and other deductions which are actually incurred, allowed, accrued or specifically allocated in their normal and customary amounts: (i) credits, price adjustments or allowances for damaged products, returns

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

or rejections of the Product; (ii) trade, cash and quantity discounts, allowances and credits (including co-pay reduction programs); (iii) chargeback payments, fees and rebates granted to group purchasing organizations, managed health care organizations, wholesalers, pharmacy benefit management (PBM) or other similar organizations or to federal, state/provincial, local and other governments, including their agencies, or to trade customers; (iv) any invoiced freight, postage, shipping, insurance and other transportation charges; and (v) sales, value-added, and excise taxes, tariffs and duties, and other taxes directly related to the sale (but not including taxes assessed against the income derived from such sale).

For clarity, Net Sales shall be determined in accordance with GAAP and a sale or transfer by Zogenix to its Affiliates and/or Sublicensees for resale by such Affiliate and/or Sublicensee shall not be considered a sale for the purpose of this provision but the resale by such Affiliate and/or Sublicensee to a Third Party shall be a sale for such purposes. Transfer for Preclinical trials and Clinical Trials, testing or market research or promotional purposes shall not be a sale for the purpose of calculating Net Sales.

1.43 “ Party ” means Durect or Zogenix, as the case may be, and, when used in the plural, shall mean Durect and Zogenix.

1.44 “ Patent ” and “ Patents ” mean issued patents and patent applications, including any and all provisionals, continuations, divisionals, continuation-in-part applications, foreign counterparts, substitutions, reissues, renewals, re-examinations, supplementary protection certificates, patent term extensions, adjustments or restoration rights, registrations, confirmations, successor protective rights or subsequently issued protective rights of similar nature of any of the above.

1.45 “ Person ” means an individual or a corporation, partnership, association, trust, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

1.46 “ Phase II Clinical Trial ” means a Clinical Trial which meets the definition of a Phase 2 trial as set forth in 21 C.F.R. 312.21(b), as amended from time to time, or, if conducted for the purpose of seeking Regulatory Approval in a Jurisdiction other than the U.S., a Clinical Trial that meets the definition of a Phase 2 trial in the corresponding regulation in such Jurisdiction.

1.47 “ Phase III Clinical Trial ” means a Clinical Trial which meets the definition of a Phase 3 trial as set forth in 21 C.F.R. 312.21(c), as amended from time to time, or, if conducted for the purpose of seeking Regulatory Approval in a Jurisdiction other than the U.S., a Clinical Trial that meets the definition of a Phase 3 trial in the corresponding regulation in such Jurisdiction.

1.48 “ Preclinical, ” when used with respect to studies or data, means preliminary pharmacological studies of a Product or the Durect Technology undertaken in non-human animals, but not necessarily for purposes of submission in support of Regulatory Approval, or data generated therefrom.

1.49 “ Pricing ” or “ Pricing Approval ” means any approval or authorization of a Governmental Entity, establishing a pricing scheme for Product in a Jurisdiction.

1.50 “Product” means a formulation (whether or not in combination with DosePro ^® ) containing the Active Agent as the sole active pharmaceutical ingredient for administration by injection using the Durect Technology or Joint Technology or for which the formulation or method of making or using the same is claimed in the Durect Technology Patents or Joint Patent Rights. Product(s) shall include the formulation(s) under development pursuant to the Feasibility Agreement and any improvements, reformulations and line extensions thereof including pursuant to the Development Program (hereinafter “ Line Extension(s) ”), in each case consisting of a formulation (whether or not in combination with DosePro ^® ) containing the Active Agent as the sole active pharmaceutical ingredient for administration by injection using the Durect Technology or Joint Technology or for which the formulation or method of making or using the same is claimed in the Durect Technology Patents or Joint Patent Rights.

1.51 “ Product Specific Patent Rights ” means those Durect Technology Patents or one or more claims therein in the Territory Controlled by Durect or any of its Affiliates at any time during the Term which relate exclusively to the Product. For avoidance of doubt, Product Specific Patent Rights shall not include the SABER™ Formulation Platform or the [***].

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

1.52 “ Project Technology ” means any and all Know-How (a) conceived, developed and/or reduced to practice by either Party, an Affiliate of either Party, Sublicensees or any Third Party acting on the behalf of either Party such as a subcontractor or an agent thereof, and (b) arising under or in connection with the activities contemplated under this Agreement or by using any of the other Party’s Confidential Information. Project Technology shall not include Development Data.

1.53 “ Regulatory Approval ” means, with respect to one or more Jurisdictions, final approval of the Regulatory Approval Application (including, with respect to any Jurisdiction(s) other than the U.S., any Pricing Approvals and/or Reimbursement Approvals that are commercially necessary prior to commercial sale of the Product in such Jurisdiction(s)) for such Product filed in such Jurisdiction(s), including an approved NDA in the U.S. or equivalent local final approvals in Jurisdictions.

1.54 “ Regulatory Approval Application ” means a new drug application, health registration, marketing authorization application, common technical document, regulatory submission, notice of compliance or equivalent application (excluding local and general business licenses and permits) required to be approved before commercial sale or use of the Product as a pharmaceutical or medicinal product in a Jurisdiction (including, with respect to any Jurisdiction other than the U.S., any Pricing Approvals and/or Reimbursement Approvals that are commercially necessary prior to commercial sale of such Product in such Jurisdiction), together with all subsequent submissions, supplements and amendments thereto, including an NDA in the U.S. or local approvals in the Jurisdictions as applicable.

1.55 “ Regulatory Authority ” means the FDA, the EMEA and any health regulatory authorities in the Territory or Jurisdiction that hold responsibility for the regulation of and/or the Reimbursement of medicinal products intended for human use.

1.56 “ Regulatory Documentation ” means all submissions to Regulatory Authorities and other Governmental Entities, including for Clinical Trials, Non-Clinical Trials, Preclinical Trials, tests, and biostudies, relating to the Product, including all INDs, Regulatory Approval Applications and Regulatory Approvals, as well as all correspondence with Governmental Entities (registration and licenses, Pricing and Reimbursement correspondence, regulatory drug lists, advertising and promotion documents), adverse event files, complaint files, manufacturing records and inspection reports.

1.57 “ Reimbursement ” or “ Reimbursement Approval ” means the official decision by the relevant Governmental Entity in any Jurisdiction responsible for establishing a reimbursement scheme to cover the Costs related to the treatment of patients with the Product.

1.58 “ SABER™ Formulation Platform ” means Durect’s proprietary injectable non-polymeric, high viscosity liquid carrier system for imparting controlled release to active ingredients, including any and all Intellectual Property Rights therein and thereto.

1.59 “ Sublicense ” means the sublicense by Zogenix of any of its rights to the Product in the Field to any Third Party in the Territory such that the Third Party has the right to record sales for its own account in lieu of Zogenix (such Third Party grantee shall be deemed a “ Sublicensee ”).

1.60 “ Sublicense Fees ” means any upfront payments, milestone payments and other license payments (including the fair market value of debt or equity securities or other consideration) received by Zogenix or any Affiliate thereof as consideration for a Sublicense. Notwithstanding the foregoing, Sublicense Fees shall not include any payments that constitute: [***].

1.61 “ Territory ” means all countries of the world, excluding Terminated Countries.

1.62 “ Third Party ” means any Person who or which is neither a Party nor an Affiliate of a Party.

1.63 “ U.S. ” means the United States of America including all territories and protectorates thereof.

1.64 “ Valid Claim ” means, with respect to Product in a particular Jurisdiction, any claim of a Patent that either:

(a) with respect to a granted and unexpired Patent in such Jurisdiction, that (i) has not been held permanently revoked, unenforceable or invalid by a decision of a court or other Governmental Entity of competent jurisdiction, which decision is unappealable or unappealed within the time allowed for appeal, and (ii) has not been abandoned, disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise; or

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(b) with respect to a pending Patent application, that was filed and is being prosecuted in good faith and has not been abandoned or finally disallowed without the possibility of appeal or re-filing of the application and has not been on file with an applicable patent office for more than [***].

1.65 “ Zogenix Technology ” means: (i) any and all Know-How Controlled by Zogenix relating in whole or in part to needle-free auto injectors (including DosePro ^® ); and (ii) Zogenix Project Technology, in each case, to the extent relevant to the manufacture, use or sale of Product in the Field and in the Territory, including in each case, any and all Intellectual Property Rights therein and thereto.

1.66 “ Zogenix Technology Patents ” means those Patents in the Territory Controlled by Zogenix or any of its Affiliates during the Term which relate to Zogenix Technology, including as attached hereto as Schedule 1.66 , as such list shall be updated from time to time by Zogenix.

1.67 Other Definitions .

Each of the following terms is defined in the Section set forth opposite such term below:

“ AAA ” – Section 14.11(b)

“ Accelerated Arbitration Provisions ” – Section 14.11(b)

“ Adverse Event ” – Section 4.5

“ Agreement ” – Preamble

“[***]”—Section 1.3

“[***]”—Section 6.3

“ Annual Net Sales Period ” – Section 6.2(a)

“ Audited Party ” – Section 7.5

“ Auditing Party ” – Section 7.5

“ Confidential Information ” – Section 10.3

***	Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

“ CRO ” – Section 13.6(b)(iii)

“ Damages ” – Section 12.1

“ Designated Executives ” – Section 2.1(d)

“ Development Plan ” – Section 4.1

“ Development Program ” – Section 4.1

“ Dispute ” – Section 14.11(b)

“ Durect ” – Preamble

“ Durect Development Responsibilities ” – Section 4.4(a)

“ Durect Project Technology ” – Section 9.1(b)

“ Durect Related Party ” – Section 12.2

“ Durect Work Plan ” – Section 4.4(a)

“ Durect Work Plan Budget ” – Section 4.4(a)

“ Effective Date ” – Preamble

“ Expedited Rules ” – Section 14.11(b)

“ Feasibility Agreement ” – Preliminary Statements

“ Force Majeure ”– Section 14.13

“ Indemnified Party ” – Section 12.4

“ Indemnifying Party ” – Section 12.4

“ Joint Development Committee ” or “ JDC ” – Section 2.1(a)

“ Joint Technology ” – Section 9.1(c)

“ Joint Patent Rights ” – Section 9.2(b)

“ Know-How Royalties ” – Section 6.2

“ Know-How Royalty Term ” – Section 6.2(b)

“ Line Extensions ” – Section 1.50

“ One-Time Payment ” – Section 6.1

“ Orange Book ” – Section 9.2(d)

“ Other Project Technology ” – Section 9.1(d)

“ Patent Litigation Losses ” – Section 9.6(c)

“ Patent Royalties ” – Section 6.2

“ Patent Royalty Term ” – Section 6.2(a)

“ Product Formulation ” – Section 8.1

“ Product Material ” – Section 13.6(b)(ii)

“ Product Trademarks ” – Section 3.5(a)

“ Resolution Period ” – Section 2.1(d)

“ Royalties ” – Section 6.2

“ Serious Adverse Drug Experience ” – Section 4.5

“ Sublicensee ” – Section 1.59

“ Supply Agreement ” – Section 8.2

“ Technical Agreement ” – Section 8.2

“ Term ” – Section 13.1

“ Terminated Country ” – Section 5.2

“ Third Party License Fees ” – Section 9.6(e)

“ Zogenix ” – Preamble

“ Zogenix Project Technology ” – Section 9.1(a)

“ Zogenix Related Party ” – Section 12.1

1.68 Interpretation

(a) Whenever any provision of this Agreement uses the term “including” (or “includes”), such term shall be deemed to mean “including without limitation” and “including but not limited to” (or “includes without limitation” and “includes but is not limited to”) regardless of whether the words “without limitation” or “but not limited to” actually follow the term “including” (or “includes”);

(b) “Herein”, “hereby”, “hereunder”, “hereof” and other equivalent words shall refer to this Agreement in its entirety and not solely to the particular portion of this Agreement in which any such word is used;

(c) All definitions set forth herein shall be deemed applicable whether the words defined are used herein in the singular or the plural;

(d) Wherever used herein, any pronoun or pronouns shall be deemed to include both the singular and plural and to cover all genders;

(e) The recitals set forth at the start of this Agreement, along with the Exhibits and Schedules to this Agreement, and the terms and conditions incorporated in such recital, Exhibits and Schedules shall be deemed integral parts of this Agreement and all references in this Agreement to this Agreement shall encompass such recitals, Exhibits and Schedules and

the terms and conditions incorporated in such recitals, Exhibits and Schedules, provided , that in the event of any conflict between the terms and conditions of this Agreement and any terms and conditions set forth in the Exhibits and Schedules, the terms of this Agreement shall control;

(f) In the event of any conflict between the terms and conditions of this Agreement and any terms and conditions that may be set forth on any order, invoice, verbal agreement or otherwise, the terms and conditions of this Agreement shall govern;

(g) The Agreement shall be construed as if both Parties drafted it jointly, and shall not be construed against either Party as principal drafter;

(h) Unless otherwise provided, all references to Sections, Schedules and Exhibits in this Agreement are to Sections, Schedules and Exhibits of and to this Agreement;

(i) All references to days, months, quarters or years are references to calendar days, calendar months, calendar quarters or calendar years unless otherwise expressly provided; references to a “business day” herein shall mean a day when both Zogenix and Durect corporate headquarters are open during regular business hours for the conduct of normal business operations;

(j) Any reference to any federal, national, state, local or foreign statute or law shall be deemed to also refer to all rules and regulations promulgated thereunder, unless the context requires otherwise;

(k) Any requirements of notice or notification by one Party to another shall be construed to mean written notice in accordance with Section 14.4; and

(l) Wherever used, the word “shall” and the word “will” are each understood to be imperative or mandatory in nature and are interchangeable with one another.

2.	GOVERNANCE.

2.1 Joint Development Committee .

(a) Members; Officers . The Parties hereby establish a joint development committee (the “ Joint Development Committee ” or “ JDC ”), which shall consist of up to eight (8) members with an equal number of members nominated by each of Durect and Zogenix.

The initial members of the JDC are set forth on Schedule 2.1 , as may be amended by the designating Party from time to time. Such representatives shall be employees or consultants (so long as they are under confidentiality obligations as stringent as those contained in this Agreement) of each such Party or its Affiliates, and those representatives of each such Party shall, individually or collectively, have expertise in pharmaceutical drug development, regulatory matters, manufacturing, Clinical Trials, Non-Clinical studies and/or other expertise to the extent relevant. Durect and Zogenix may each replace any or all of its representatives on the JDC at any time upon written notice to the other Party. Durect and Zogenix each may, in its discretion, invite non-member representatives that are employees of such Party (or such Party’s Affiliates) and consultants (who are under confidentiality obligations as stringent as those contained in this Agreement) to attend meetings of the JDC. [***]. The chairperson shall appoint a secretary of the JDC, and such secretary shall serve for such term as designated by the chairperson.

(b) Responsibilities . The JDC shall perform the following functions:

(i) oversee the interactions of the Parties pursuant to the terms of the Agreement;

(ii) review the progress of the Development Program [***];

(iii) review any material deviations in the conduct of the Development Program from the Development Plan;

(iv) review further development activities after Regulatory Approval of the Product [***], including Phase IV Clinical Trials;

(v) review the development of any Line Extensions [***];

(vi) [***];

(vii) facilitate the exchange of information and coordinate between the Parties as necessary or useful for the Development [***]; and

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(viii) have such other responsibilities as may be mutually agreed upon by the Parties from time to time.

For clarity, any exchange of information at JDC meetings shall be subject to any confidentiality obligations imposed by Third Party agreements.

(c) Meetings . The JDC shall meet in person, by video teleconference or by telephone at least once every six (6) months and more frequently as Durect and Zogenix deem appropriate or on such dates, and at such places and times, as the Parties shall agree. From time to time, each Party may request a JDC meeting upon notice to the other Party specifying the subject matters to be discussed, and the Parties shall convene such JDC meeting within twenty (20) business days of the date of the notice. Meetings of the JDC that are held in person shall alternate between the offices of Durect and Zogenix (or the offices of their Affiliates designated by such Parties), or such other place as the Parties may agree. The members of the JDC also may convene or be polled or consulted from time to time by means of telecommunications, video conferences, electronic mail or correspondence, as deemed necessary or appropriate.

(d) Decision-making . The JDC may make decisions with respect to any subject matter that is subject to the JDC’s decision-making authority as set forth in Section 2.1(b); [***]. All decisions of the JDC shall be made by unanimous vote or written consent, with Durect and Zogenix each having, collectively, one vote in all decisions. The JDC shall use good faith and reasonable efforts to resolve the matters within its roles and functions or otherwise referred to it. With respect to all matters that are subject to the JDC’s decision-making authority, if the JDC cannot reach consensus within [***] after it has met and attempted to reach such consensus, the matter shall be referred on the [***] to the designated executive officers (“ Designated Executives ”) of Zogenix and Durect who shall meet as soon as practicable, but no later than [***] after such referral, to attempt in good faith to resolve the dispute. If the dispute related to the matter is not resolved by the Designated Executives by mutual agreement within [***] after a meeting to discuss the dispute (such [***] period after the meeting of the Designated Executives shall be referred to as the “ Resolution Period ”), then

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the chairperson [***] may make the final decision relating to the matter after good faith due consideration to [***]. For clarity, the JDC shall not have the authority to amend or waive any provision of this Agreement or to make any determination that any Party is in breach of this Agreement.

2.2 Minutes of JDC Meetings .

(a) Definitive minutes of all JDC meetings shall be finalized no later than fifteen (15) business days after the meeting to which the minutes pertain, as follows:

(i) Within five (5) business days after a JDC meeting, the secretary of the JDC shall prepare and distribute to all members of the JDC draft minutes of the meeting. Such minutes shall provide a list of any actions, decisions or determinations by the JDC and a list of any issues yet to be resolved (listing responsible persons and target completion dates), either within the JDC, or through the relevant escalation process.

(ii) The secretary of the JDC shall have ten (10) business days after distribution of the draft minutes to discuss the JDC members’ comments and finalize the minutes. The secretary and chairperson(s) of the JDC shall each sign and date the final minutes.

(b) If at any time during the preparation and finalization of the JDC meeting minutes, the JDC members do not agree on any issue with respect to the minutes, such issue shall be resolved as provided in Section 2.1(d). The decision resulting from the foregoing process shall be recorded by the secretary in amended finalized minutes for said meeting. All other issues in the minutes that are not subject to the foregoing process shall be finalized within the fifteen (15)-business day period as provided in Section 2.2(a).

2.3 Duration of JDC . The JDC’s existence shall terminate upon and coincident with the earlier of: (a) the completion of the Development Program, (b) [***], in each case in the Territory, or (c) thirty (30) days following Zogenix’s receipt of written notice from Durect of its desire to terminate the JDC’s existence.

2.4 Expenses . Each Party shall be responsible for all travel and related Costs for its members and other representatives to attend meetings of, and otherwise participate on, the JDC.

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2.5 Scope of JDC . Zogenix and Durect have chartered the JDC with a belief that vigorous interaction and cooperation between the Parties are essential for the successful development of the Product. Nothing in this Section 2 shall be deemed to modify or supersede any term or condition set forth in this Agreement, nor any decision or decision-making authority expressly provided to a Party in this Agreement.

3.	GRANT OF RIGHTS; EXCLUSIVITY.

3.1 Rights Granted to Zogenix . On the terms and subject to the conditions of this Agreement, Durect hereby grants to Zogenix:

(a) the exclusive right and license to make and have made (subject to Section 8), use, offer for sale, sell and import the Product in the Field and in the Territory, including the right to record sales for its own account;

(b) in each case, solely for use in the Field and Territory and to develop and Commercialize the Product and to otherwise exercise Zogenix’s rights and perform its obligations under this Agreement, an exclusive license under the Durect Technology, the Durect Technology Patents (including Product Specific Patent Rights) and Durect’s rights in the Joint Technology, Joint Patent Rights, Other Project Technology and Patents thereto; provided, however, the license granted to Zogenix in this Section 3.1 with respect to the [***] shall be subject to the terms and conditions of the [***]; and

(c) an exclusive license and the right of use and cross-reference to all Development Data Controlled by Durect solely to exercise Zogenix’s rights under Section 3.1(a) and (b) above.

3.2 Sublicense Rights . Zogenix shall have the right, [***], to delegate rights and obligations hereunder to an Affiliate and to appoint Affiliates to develop, manufacture or Commercialize the Product in the Territory. Furthermore, Zogenix shall have the right to appoint any Third Party sublicensee(s) or designee(s) to develop, manufacture or Commercialize the Product in the Territory alone or in combination with Zogenix or its Affiliates and/or to

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sublicense the rights granted to it under Section 3.1; provided that in the event of any sublicense or delegation of rights by Zogenix hereunder, such sublicense or delegation shall be subject to the terms and conditions of this Agreement that, by their terms, are applicable to the Product and to such sublicense or delegation, such Third Party sublicensee(s) or designee(s) shall be subject to the same obligations as applicable to Zogenix with respect to the activities sublicensed or delegated as to such sublicensee’s territory and field, and Zogenix shall ensure that each sublicense agreement contains terms to implement such obligations. Notwithstanding the foregoing, the sublicense or delegation by Zogenix hereunder shall not relieve Zogenix of its obligations under the Agreement.

3.3 Section 365(n) of the Bankruptcy Code . All rights and licenses granted under or pursuant to this Agreement, including amendments hereto, by each Party to the other Party are, for all purposes of 11 U.S.C. Section 365(n), licenses of rights to intellectual property as defined in Title 11. Each Party may elect to retain and may fully exercise all of its rights and elections under 11 U.S.C. Section 365(n).

3.4 Exclusivity . Subject to the terms and conditions of this Agreement (including the exclusive license grant to Zogenix):

(a) [***].

(b) [***].

(c) On a Jurisdiction-by-Jurisdiction basis, neither Party nor its Affiliates (nor any Third Party recipient of a Sublicense from Zogenix in the territory subject to the Sublicense) shall [***]. Notwithstanding the foregoing, however, in the event of [***].

3.5 Trademarks; Logos .

(a) Product Trademarks . Zogenix shall have the right to select the Product names and all trademarks used in connection with the marketing, promotion and Commercialization of the Product including special promotional or advertising taglines, in each case in the Territory (all such trademarks specific to the Product and including all

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goodwill associated therewith, and all applications, registrations, extensions and renewals relating thereto, shall be referred to as “ Product Trademarks ”). For clarity, Product Trademarks shall not include Zogenix ^® or DosePro ^® . During the Term, Zogenix shall be the exclusive owner of the Product Trademarks and all goodwill associated therewith, and shall use Commercially Reasonable Efforts to register and maintain, at its Cost, such Product Trademarks as shall be used for Commercialization of the Product in the Territory.

(b) Reference to Durect as Licensor . To the extent permitted by Applicable Laws, at Durect’s election, the labels and packaging of all Product to be marketed, distributed or sold in any Jurisdiction shall include text identifying Durect as the licensor of the Product and a Durect trademark selected by Durect to be placed in a size and location reasonably agreed to by the Parties, provided that such mark: (i) is used in a consistent and noticeable manner sufficient to constitute trademark usage under Applicable Law, (ii) is clearly identified as a trademark (i.e., through the use of a “ ^® ”, “™” or other appropriate identifier), and (iii) is not used as combination marks with other marks or trademarks. Furthermore, Product labels and packaging shall bear appropriate patent markings and notices as may be applicable, and are acceptable to all applicable Regulatory Authorities.

3.6 License to Zogenix Technology . Subject to the terms and conditions of this Agreement, Zogenix hereby grants to Durect a non-exclusive, royalty-free license, without the right to sublicense, under the Zogenix Technology and Zogenix Technology Patents and Zogenix’s rights in the Joint Technology, Joint Patent Rights, Other Project Technology and Patents thereto solely to perform Durect’s obligations under the Development Program.

4.	DEVELOPMENT AND REGULATORY.

4.1 Development Program; Development Plan . Zogenix will prepare a written plan (the “ Development Plan ”) covering the program for developing the Product [***] (the “ Development Program ”). The Development Plan will reflect Zogenix’s reasonable estimate of the steps necessary to [***]. The Development Plan will include, among other things, activities related to CMC development, Clinical and Non-Clinical development, [***], validation

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activities associated with manufacturing of Product for use in Clinical Trials, process development, scale-up for providing clinical supplies, and technology transfer as needed to establish commercial scale manufacturing of the Product in the Territory to meet commercial requirements as reasonably forecasted by Zogenix. The Development Plan shall also contain any other key elements reasonably necessary for the Parties to fulfill their responsibilities to each other under the terms of the Agreement. The initial Development Plan was agreed between the Parties prior to the Effective Date [***]. Zogenix shall update and provide a copy of the Development Plan to Durect for review and comment in accordance with [***], beginning in [***] no less frequently than [***]. Zogenix shall consider in good faith all material comments provided by Durect in writing and in reasonable detail to Zogenix on the Development Plan; provided that Zogenix shall have the sole discretion and authority to make all decisions with respect to the Development Plan; [***] .

4.2 Trials and Regulatory .

(a) Zogenix shall use Commercially Reasonable Efforts to conduct Preclinical and Non-Clinical trials, Clinical Trials and CMC and other relevant development activities, at its own Cost (either itself, through Durect, as set forth in Section 4.4 of this Agreement, or through Third Party contractors), as necessary to seek and maintain Regulatory Approval of at least one Product in the Territory. Zogenix shall also use Commercially Reasonable Efforts to obtain Regulatory Approvals for [***] in the Territory, including compiling, submitting and prosecuting all necessary data, documents and Regulatory Approval Applications (including labeling), in a format acceptable to the applicable Regulatory Authorities. If and when any such Regulatory Approval is secured anywhere in the Territory, Zogenix shall thereafter use Commercially Reasonable Efforts to maintain such Regulatory Approval and pay all user fees and other Costs required to maintain such Regulatory Approval.

(b) Zogenix will provide to Durect drafts of protocols for all Preclinical and Non-Clinical studies and Clinical Trials for the Product for Durect’s review and comment prior to finalization thereof. Zogenix shall consider in good faith all material comments provided by Durect in writing and in reasonable detail to Zogenix within the [***] following Durect’s receipt of such protocols; [***]. Zogenix shall promptly provide Durect with a copy of all final reports and final protocols from Preclinical and Non-Clinical trials and Clinical Trials for the Product in the Territory. [***].

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(c) Promptly following the Effective Date, to the extent not previously provided to Zogenix or otherwise in Zogenix’s possession, Durect shall provide to Zogenix copies of all Data (as defined in the Feasibility Agreement) and tangible copies of Durect Technology (which are the subject to the license granted to Zogenix in Section 3.1), in each case as in existence as of the Effective Date. Commencing from the Effective Date, Zogenix shall be responsible for all Product-related reporting and other obligations to any Regulatory Authorities. Throughout the Term, Durect shall provide to Zogenix copies of all Development Data and tangible copies of Durect Technology and Project Technology, in each case which come into existence during the Term.

(d) As between the Parties, Zogenix shall exclusively own all Regulatory Approvals in the Territory.

(i) Zogenix will provide to Durect drafts of regulatory filings and correspondence regarding major or material issues proposed to be made or sent with respect to the Product for Durect’s review [***].

(ii) Zogenix shall provide to Durect one paper copy or electronic file, such as a PDF, of all regulatory filings and correspondence regarding major or material issues from or to such Regulatory Authorities concerning the Product in the Territory within [***] following such submission to or receipt from the Regulatory Authority, or if not practicable, as promptly thereafter as practicable; [***].

(iii) Except as set forth in Section 4.2(d)(iv), [***].

(iv) With regard to the NDA, Durect shall, at Zogenix’s request and at Zogenix’s Cost, assist Zogenix in creating and finalizing portions of the NDA relating to work performed by Durect and Durect Technology. In addition, Durect shall, at Zogenix’s request and at Zogenix’s Cost, provide input for the creation and review of the Integrated Summary of Safety and the Integrated Summary of Efficacy.

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(v) At the request of Zogenix, Durect shall participate, at Zogenix’s Cost, in any major conference or meeting with Regulatory Authorities with respect to the Product in the Territory, and in any event, to the extent permitted by Applicable Law, Durect shall have the right to attend and observe at such conference or meeting at Durect’s Cost. Zogenix shall notify Durect in writing of its receipt of Regulatory Approval to market the Product in any Jurisdiction within [***] after receipt of any such approval.

(e) Durect shall have the right to maintain DMFs regarding the safety and manufacture of all excipients which are components of the Durect Technology, and Zogenix shall promptly provide to Durect any such information in its possession which is reasonably necessary for Durect’s inclusion in such DMFs. All information included within such DMFs, including Development Data, shall also be available for reference by Zogenix, its Affiliates or Sublicensees in all Regulatory Documentation. [***].

4.3 Zogenix Additional Development Diligence . Without limiting the obligations set forth in Section 4.2(a), Zogenix (either directly or through its Affiliates or Sublicensees) will: (i) fully fund the Development Plan and use its Commercially Reasonable Efforts to perform the Zogenix activities and to meet the associated timelines for such activities in the Development Plan and (ii) [***], provide that such failure is not due to [***]. For avoidance of doubt, failure of Zogenix to meet the obligations under Section 4.3(ii) shall be a material breach of the Agreement by Zogenix for which Durect shall have the right to terminate the Agreement in accordance with Section 13.3.

4.4 Durect Development Responsibilities .

(a) Notwithstanding anything herein to the contrary, the following activities with respect to Product development are to be performed by Durect (collectively “ Durect Development Responsibilities ”): (i) Dosage Form Development; (ii) Preclinical and Non-Clinical studies; (iii) manufacturing method development, analytical method development, validation, stability and other CMC-related activities; (iv) manufacture of Product or Product

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Formulation, as applicable, required for all Clinical Trials through the completion of all Phase II Clinical Trials; (v) if Durect does not supply Product or Product Formulation, as applicable, for Phase III Clinical Trials or Commercialization as set forth in Section 8, management of any and all technology transfer, scale-up to commercial batch size and validation activities that may be required to enable any Person chosen by Zogenix and reasonably approved by Durect to manufacture Phase III Clinical Trial and commercial supplies of the Product or Product Formulation (as applicable); (vi) generation of necessary documents related to the Durect Development Responsibilities in order for Zogenix to perform Clinical Trials, complete Regulatory Documentation and Regulatory Approval Applications, and file for Regulatory Approvals in the Territory; and (vii) any other development activity to be performed by Durect, as mutually agreed by Zogenix and Durect. The Durect Development Responsibilities shall be detailed in a work plan (“ Durect Work Plan ”) agreed to in writing by the Parties which shall include the activities, timeline and detailed budget (“ Durect Work Plan Budget ”) associated with the Durect Development Responsibilities. Any amendments to the Durect Work Plan shall be agreed to in writing by the Parties. Durect shall use Commercially Reasonable Efforts to perform the Durect Development Responsibilities in accordance with the Durect Work Plan (including Durect Work Plan Budget and timeline set forth therein) for such Durect Development Responsibilities.

(b) Durect shall invoice Zogenix for the Durect Development Costs incurred in the performance of the Durect Development Responsibilities [***]. Zogenix shall pay to Durect such Durect Development Costs within [***] from the receipt of an invoice from Durect with reasonable detail of the work performed. Notwithstanding the foregoing, Zogenix shall have no obligation to reimburse Durect’s Development Costs in excess of the then-current Durect Work Plan Budget, and Durect shall have no obligation to perform activities which would result in Durect incurring Costs in excess of the then-current Durect Work Plan Budget, in each case, until the Parties have approved any increase in the amounts set forth in the Durect Work Plan Budget.

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(c) Durect may, with the prior written consent of Zogenix (not to be unreasonably withheld, delayed or conditioned), retain Third Party contractors to perform some or all of the Durect Development Responsibilities so long as the Third Party is subject to the applicable terms of this Agreement, including confidentiality obligations to Durect that are no less stringent than the confidentiality obligations set forth in Section 10 and ownership of all work product and Intellectual Property Rights relating to the Product resulting from such work as set forth in this Agreement (including the assignment of ownership provisions set forth in Section 9.1). Durect will remain responsible to Zogenix for all Durect Development Responsibilities carried out by such Third Party contractors.

(d) In the event that Durect fails to perform any material task included in the Durect Development Responsibilities, including with respect to a material delay in timelines, and provided that such failure is not the result of: (i) [***] or (ii) [***], then Zogenix shall have the right to perform such task included in the Durect Development Responsibilities itself or subcontract such tasks to a Third Party [***] to Durect, unless Durect shall have cured such default within [***]. In the event that Zogenix undertakes any task under this Section 4.4(d), upon Zogenix’s request, Durect shall, [***], promptly provide its full cooperation and assistance to transfer responsibility for, and information necessary to perform, such task to Zogenix or its designee.

4.5 Reporting Adverse Events . Zogenix shall be responsible for collection, investigation, reporting of information concerning adverse events with respect to the Product (as defined in the then current edition of ICH Guidelines and any other relevant regulations or regulatory guidelines) or any other safety problem of significance (each such adverse event or problem, an “ Adverse Event ”) to the appropriate Regulatory Authorities in the Territory in accordance with Applicable Laws. Each Party shall notify the other of all Adverse Events which qualify as a “serious adverse drug experience” as defined or contemplated by 21 C.F.R. 312.32 or 314.80, as may be amended from time to time, associated with use of the Product

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(“ Serious Adverse Drug Experience ”) within [***] of the time such Adverse Event becomes known to such Party (including its employees). In addition, the Parties shall enter into a supplemental safety agreement prior to First Commercial Sale setting forth additional reporting obligations with respect to the Product.

4.6 Permitted Development Personnel . Neither Party will engage, retain or employ any employees, subcontractors or consultants to perform any part of the Development Program that (A ) have been debarred or convicted of a crime for which an entity or person could be debarred under 21 U.S.C. Section 335a (or equivalent law in any applicable Jurisdiction), or (B) is under indictment for a crime for which a person or an entity could be debarred under 21 U.S.C. Section 335a (or equivalent law in any applicable Jurisdiction).

5.	DISTRIBUTION AND PROMOTION.

5.1 Generally . As between the Parties, Zogenix will be exclusively responsible for Commercializing the Product in the Territory and all Costs associated therewith.

5.2 Commercial Diligence . After obtaining Regulatory Approval in a Jurisdiction (and in any event within [***] after such approvals), Zogenix shall use Commercially Reasonable Efforts to Commercialize the Product in such Jurisdiction; provided, however, [***]. In connection with its responsibilities for Commercialization of the Product in the Territory, Zogenix shall, at its Cost, use Commercially Reasonable Efforts to provide sales force personnel (including sales administration and training), order entry, customer service, reimbursement management, medical affairs, medical information, marketing (including all advertising and promotional expenditures), warehousing, physical distribution, invoicing, credit and collections, forecasting and other related personnel, facilities and services necessary for such Commercialization. Without limiting the foregoing, at any time after [***] of the First Commercial Sale in the U.S., Durect may, upon [***] prior written notice to Zogenix, terminate the rights granted to Zogenix under Section 3.1 in either the [***] (such country(ies) in which rights have been terminated hereunder a “ Terminated Country ” or “ Terminated Countries ”) if, within [***]: (a) a [***], as the case may be; or (b [***], as the case may be. Product launch in any [***] shall satisfy the obligation with respect to [***] set forth in subsection (a) of the immediately preceding sentence.

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PAYMENTS.

6.1 One-time Payments to Durect . Zogenix shall pay to Durect the following one-time, non-refundable and non-creditable payments (each a “ One-Time Payment ”) within [***] after the occurrence of the specific event set forth in the table below, provided, however , in the case of the One-Time Payment payable upon the occurrence of Milestone No. 1, such payment shall be made [***] following the Effective Date and in the case of each of the One-Time Payments payable upon the occurrence of Milestone Nos. 9-11 set forth in the table below, concurrently with the payment of Royalties based on the applicable quarterly report.


Milestone No.	Timing	One-Time Payments to Durect (U.S. Dollars)
1	The Effective Date of this Agreement	Two Million Two Hundred Fifty Thousand Dollars ($2,250,000)
2	[***]	[***]
3	[***]	[***]
4	[***]	[***]
5	[***]	[***]
6	[***]	[***]
7	[***]	[***]
8	[***]	[***]
9	[***]	[***]
10	[***]	[***]
11	[***]	[***]

Each Party shall promptly notify the other Party when any event triggering a One-Time Payment listed above has occurred.

6.2 Royalties . As long as Zogenix sells Product commercially under this Agreement, and subject to the other provisions of this Section 6, Zogenix shall pay Royalties to Durect in respect of the licenses granted to Zogenix by Durect hereunder. If the Patent Royalty Term is in effect in a Jurisdiction, Zogenix shall owe Durect “ Patent Royalties ” with respect to annual Net Sales in such Jurisdiction. If the Know-How Royalty Term is in effect in a Jurisdiction, Zogenix shall owe Durect “ Know-How Royalties ” with respect to annual Net Sales in that Jurisdiction. The aggregate of all Patent Royalties and Know-How Royalties that are due to Durect in any Annual Net Sales Period (as defined below) shall be referred to herein as “ Royalties .”

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(a) Patent Royalties . Patent Royalties shall begin to accrue on Net Sales on a Jurisdiction-by-Jurisdiction basis on the date of the First Commercial Sale in such Jurisdiction and shall be payable until the later of: (i) the expiration of all Durect Technology Patents and/or Joint Patent Rights containing one or more Valid Claims that would be infringed by the manufacture, sale, offer for sale, use or importation of the Product in such Jurisdiction; (ii) Marketing Exclusivity Rights in such Jurisdiction; or (iii) fifteen (15) years from the First Commercial Sale of the Product in such Jurisdiction (such period the “ Patent Royalty Term ”). If the Patent Royalty Term is in effect, Zogenix shall pay Durect, subject to Section 6.3, Patent Royalties equal to the following percentages of the aggregate annual Net Sales in the applicable Jurisdiction in the Territory:


Annual Net Sales in the Territory ($Million Dollars)		Patent Royalty Rate
[***]		[***]
[***]		[***]
[***]		[***]
[***]		[***]

The Royalty rates set forth above shall apply only to that portion of Net Sales within the applicable tier of Net Sales. For purposes of illustration, Patent Royalties owed on [***] in annual Net Sales would be calculated as the sum of [***]. The periods by which annual Net Sales are measured for purposes of this Section 6.2(a) shall be a calendar year (each, an “ Annual Net Sales Period ”) except that the first Annual Net Sales Period in a Jurisdiction shall begin on the first day of the calendar quarter preceding the First Launch and continue to the end of the calendar quarter ending on December 31 ^st of that calendar year.

(b) Know-How Royalties . Know-How Royalties shall begin to accrue on Net Sales on a Jurisdiction-by-Jurisdiction basis immediately after the expiration of the Patent Royalty Term in such Jurisdiction and shall be payable [***] (such period the “ Know-How

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Royalty Term ”). If the Know-How Royalty Term is in effect, Zogenix shall pay Durect Know-How Royalties with respect to the aggregate annual Net Sales in the applicable Jurisdiction in the Territory at a rate of [***] of the rates set forth in the table in Section 6.2(a). The first Annual Net Sales Period in which Know-How Royalties are payable in a Jurisdiction shall begin on the first day of the Know-How Royalty Term and continue to the end of the calendar quarter ending on December 31 ^st of that calendar year.

6.3 Third Party Royalties Owed by Durect . If (i) the Product is also a “Product” as defined under the [***], and (ii) Durect has provided written confirmation to Zogenix of the payments of any and all royalties required to be paid with respect to the [***] Patent for Product sales for the applicable period (the [***]), the Patent Royalty rate payable by Zogenix to Durect for Net Sales up to [***] for the calendar quarter for which such [***] has been paid shall be [***] set forth in Section 6.2(a) (e.g., during the Patent Royalty Term, the rate for Net Sales up to $[***] would be [***]). Subject to the foregoing sentence, Royalties paid by Zogenix hereunder shall be inclusive of any royalties owed to a Third Party for Product sales which were incurred by Durect or its Affiliates prior to the Effective Date, including any royalties owed to [***] under the [***]. Durect shall be responsible for paying such [***] royalties to [***] as and when due in accordance with the [***].

6.4 Sublicense Income . In addition to the payments required to be made under Sections 6.1 and 6.2 above, if Zogenix grants a Sublicense under Section 3.2 with respect to a Jurisdiction, Zogenix shall thereafter pay Durect, within [***] after the receipt thereof by Zogenix, the applicable percentage set forth below of any Sublicense Fees received by Zogenix [***].


[***]	[	***]
[***]	[	***]
[***]	[	***]
[***]	[	***]

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7.	PAYMENTS AND REPORTS.

7.1 Payments of Royalties

(a) Beginning [***] after the end of the calendar quarter in which the First Commercial Sale is made and for each calendar quarter thereafter (no later than [***] after the end of such calendar quarter), Zogenix shall submit a statement to Durect, which shall set forth the amount of Net Sales in the Territory by Jurisdiction, during such quarter, and the calculation of Royalties due on such Net Sales in each Jurisdiction and in the aggregate for the Territory for such quarter. Each such statement shall be accompanied by the payment of Royalties due to Durect.

(b) In addition to the reports provided by Zogenix pursuant to Section 7.1(a), Zogenix agrees to provide to Durect good faith non-binding estimates of Net Sales and other information reasonably necessary for Durect to estimate the Royalties in each calendar quarter provided that Durect shall request such estimates no more frequently [***] for each calendar quarter.

7.2 Mode of Payment for One-Time Payments and Royalties . Zogenix shall make all payments required under this Agreement by wire transfer to any account specified by Durect or as otherwise directed by Durect from time to time (but at least [***] prior to the date on which such payment is due) in Dollars.

7.3 Currency Conversion . Royalties with respect to any Net Sales in Jurisdictions where the Dollar is not used as currency shall be calculated by converting the amount of Net Sales into the corresponding amount in Dollars and applying the applicable Royalties percentage under Section 6 to such amount. The currency conversion shall be made using [***].

7.4 Records Retention . Each Party (and its respective Affiliates and Sublicensees) shall keep complete and accurate records pertaining to Zogenix’s development Costs, Durect Development Costs and the calculation of Net Sales in the Territory, as applicable, for a minimum period of [***] after the calendar year in which such Costs or sales occurred, maintained in accordance with GAAP and in sufficient detail to permit the Parties to confirm the accuracy of each of the foregoing.

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7.5 Audit Request . During the Term of this Agreement and for a period of [***] thereafter, at the request and Cost of a Party (the “ Auditing Party ”), Durect and its Affiliates (in the case of a request by Zogenix) or Zogenix and its Affiliates (in the case of a request by Durect) (the “ Audited Party ”) shall permit an independent, certified public accountant appointed by the Auditing Party and reasonably acceptable to the Audited Party, at reasonable times and upon reasonable advance notice of not less than [***], but not more often than [***] in each calendar year, to examine such records related to the [***] prior to the notice as may be necessary to determine the correctness of any report or payment made under this Agreement or obtain information [***] the Durect Development Costs, Net Sales and Royalties payable for any calendar quarter in such audited period. Results of any such examination shall be made available to all Parties except that said independent, certified public accountant shall verify to the Auditing Party such amounts and shall disclose no other information revealed in such audit. The examination shall also include disclosure of the methodology and calculations used to determine the results. The said independent, certified public accountant shall execute a written confidentiality agreement with the Audited Party.

7.6 Cost of Audit . The Auditing Party shall [***]. If, as a result of any inspection of the books and records of the Audited Party, it is shown that payments made by one Party to the other under this Agreement were less than the amount which should have been paid (in the case of Royalties) or the amount of Costs charged by one Party to the other Party were more than the amount that should have been charged (in the case of Durect Development Costs), then the under-paying or over-charging Party, as applicable, shall make all payments required to be made to eliminate any discrepancy revealed by said inspection within [***], including in each case interest at the rate of [***] (or the maximum interest allowable by Applicable Law, whichever is less) for the amount of the discrepancy. Furthermore, if the payments made or [***] were less than [***] of the amount that should have been paid or spent during any calendar year, or if there was an overcharge of more than [***] of the amount of that was owed, in either case due to the error of the Audited Party, [***].

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7.7 No Non-Monetary Consideration for Sale . Zogenix and its Sublicensees and Affiliates shall not accept or solicit any non-monetary consideration for the sale of Product without the prior written consent of Durect; provided, however , the use by Zogenix and its Sublicensees and its Affiliates of a customary and reasonable amount of Product for promotional sampling, compassionate use or donations shall not violate this Section 7.7.

8.	SUPPLY OF PRODUCT FORMULATION

8.1 Phase III Clinical Trial and Commercial Supply of Product Formulation . Subject to the terms of this Section 8, Durect shall have the right but not the obligation to supply Zogenix’s and its Affiliates’ and Sublicensees’ Phase III Clinical Trial and commercial requirements (including Phase IV Clinical Trials) in the Territory of: (i) Product in the event that the Product does not include DosePro ^® or (ii) if the Product includes DosePro ^® , the formulation to be filled into DosePro ^® (“ Product Formulation ”). At least [***] prior to the initiation of the first [***] in the Territory, Zogenix shall provide to Durect a preliminary forecast of anticipated supply requirements (including specifications, quality and quantity requirements and other customary requirements) for Product or Product Formulation, as applicable, with respect to all Phase III Clinical Trials in the Territory and commercial sales. Durect shall have [***] following receipt of such forecast to notify Zogenix, in writing, of its interest to supply Zogenix’s Phase III Clinical Trial and commercial requirements for Product or Product Formulation, as applicable, in the Territory. Within [***] thereafter, Zogenix and Durect shall meet to discuss supply matters, including Zogenix’s anticipated requirements, Durect’s (including its CMOs’) capabilities, timing of supply and other logistics. Durect shall supply Zogenix with any documentation reasonably requested by Zogenix to provide [***].

8.2 Supply Agreement . Within [***] after the meeting referenced in Section 8.1, Durect shall notify Zogenix in writing if Durect elects to supply Zogenix’s Phase III Clinical Trial and commercial requirements for Product or Product Formulation, as applicable, in the Territory. If

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Durect so elects to supply, Durect and Zogenix shall each use Commercially Reasonable Efforts to enter into a supply agreement (the “ Supply Agreement ”) and associated technical agreement governing QA (“ Technical Agreement ”) providing for the supply by Durect (by itself or through a Third Party manufacturer reasonably acceptable to Zogenix) of all of Zogenix’s and its Affiliates’ and Sublicensees’ commercial requirements (including Phase IV Clinical Trials) of Product or Product Formulation, as applicable, in the Territory. Each Party shall use Commercially Reasonable Efforts to enter into the Supply Agreement no later than [***] prior to the initiation of the first Phase III Clinical Trial. Product or Product Formulation, as applicable, supplied shall meet the specifications provided for in the Supply Agreement and associated Technical Agreement to be executed by each of the Parties hereto. Under the Supply Agreement, Zogenix shall pay Durect a transfer price for the Product or Product Formulation, as applicable, equal to Durect’s fully burdened manufacturing Cost, such term to be defined in the Supply Agreement [***], to produce Product or Product Formulation, as applicable, plus [***]). The Supply Agreement shall also contain provisions for back-up sources of supply and other customary terms and conditions for such type of agreements.

8.3 Alternative Suppliers . [***]. In the event that Durect is not the supplier of Zogenix’s and its Affiliates’ and Sublicensees’ Phase III Clinical Trial and commercial requirements for Product or Product Formulation, as applicable, in the Territory in accordance with the terms of this Section 8, Durect shall (i) if requested by Zogenix, recommend a Third Party CMO for manufacturing Phase III Clinical Trial and commercial supplies of Product or Product Formulation, as applicable, and (ii) consistent with its obligation under Section 4.4(a)(v), manage the technology transfer, manufacturing process development, scale-up to commercial batch size and validation activities that may be required to enable Zogenix or a Third Party CMO chosen by Zogenix and reasonably approved by Durect to manufacture Phase III Clinical Trial and commercial supplies of Product or Product Formulation, as applicable.

9.	INTELLECTUAL PROPERTY.

9.1 Ownership of Project Technology and Development Data . Subject to the terms hereof, including the licenses and other rights granted hereunder, all Project Technology shall be owned as follows:

(a) Without regard to inventorship or authorship, Zogenix shall own exclusively [***].

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(b) Without regard to inventorship or authorship, Durect shall own exclusively [***].

(c) [***] shall be jointly owned by Zogenix and Durect, with each Party owning an equal, undivided interest therein (as defined below) and, subject to and consistent with the rights granted each Party under this Agreement and except as otherwise specifically provided under this Agreement (including as set forth in Section 3.4), each Party may make, use, sell, keep, license or assign its interest in Joint Technology and otherwise undertake all activities a sole owner might undertake with respect to such Joint Technology, without the consent of and without accounting to the other Party.

(d) All [***] shall be owned by the Party whose employees or subcontractors were the inventors of such Project Technology.

(e) Without regard to inventorship or authorship, Zogenix shall own exclusively [***].

(f)

(i) Without regard to inventorship or authorship, Durect shall own exclusively [***].

(ii) Without regard to inventorship or authorship, Zogenix and Durect shall jointly own [***].

(g) Inventorship under this Agreement shall be determined in accordance with United States patent laws (Title 35, United States Code). Each Party may use and practice its own Project Technology and Development Data in any manner not inconsistent with or in violation of the terms of this Agreement (including Sections 3.4 and 9.2(b)) without the consent of the other Party and without an obligation to notify the other Party of such intended use or to pay royalties or other compensation to the other by reason of such use. For the avoidance of doubt, neither Party is granted any license rights to any Intellectual Property Rights of the other Party which may be required for such Party to use Project Technology, unless otherwise expressly granted herein.

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(h) Subject to appropriate confidentiality undertakings, each Party shall notify the other Party in writing of the creation of any Project Technology as soon as practicable, but in any event, prior to the filing of any patent application incorporating any such Project Technology or, to the extent arising under the Agreement or the Feasibility Agreement, any Development Data. Each Party shall, at the request of the other Party, execute all assignment documents necessary to perfect the ownership interests in Project Technology and Development Data as determined pursuant to this Section 9.1. Each Party will cooperate in good faith regarding the inclusion of Development Data owned by such Party in Patents covering Project Technology owned by the other Party.

(i) Each Party has and will continue to have written contracts with all Third Parties (including employees and subcontractors) performing services on its behalf under this Agreement and, where such services may give rise to the creation of Development Data or inventions that may be Project Technology, such Party shall ensure that such contracts provide for the assignment to such Party all Development Data and Project Technology and rights therein.

9.2 Prosecution of Patents .

(a) Durect Controlled Patents .

(i) As between Durect and Zogenix, Durect shall prepare, prosecute and maintain all Durect Technology Patents in the Territory (including their issuance, reissuance, reexamination and the defense of any interference, revocation or opposition proceedings) [***]. Zogenix shall be entitled to timely notice and a right to comment on all Product-specific decisions related to the Durect Technology Patents. Zogenix shall offer its comments promptly and Durect shall consider in good faith such comments of Zogenix.

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(ii) With respect to Product Specific Patent Rights, Durect shall furnish Zogenix with copies of drafts of such Product Specific Patent Rights and copies of all substantive prosecution correspondence to and from patent offices in the Territory sufficiently in advance of the due date for such correspondence and permit Zogenix to offer its comments thereon before Durect makes any such submission or response to a patent office. Durect will inform Zogenix of the additional countries in which it intends to file Product Specific Patent Rights. Durect shall provide Zogenix a reasonable time to offer its comments thereon before Durect makes a submission to the relevant patent office, provided that [***]. Zogenix shall offer its comments promptly, and [***].

(iii) If, subject to Zogenix’s foregoing consent right, Durect determines to abandon, or not to file, prosecute, defend or maintain, any Product Specific Patent Rights (including not to defend any interference, revocation or opposition proceedings) in any Jurisdiction, then Durect shall provide Zogenix with [***] prior written notice (or, if not possible, such shorter time period that would permit Zogenix a reasonable opportunity to respond without any loss of rights to such Product Specific Patent Rights under this Agreement) of such determination. Zogenix shall have the right and opportunity to file, prosecute, defend and/or maintain such Product Specific Patent Right in Durect’s name and [***]; provided, however, that the payment of such Costs therefor by Zogenix shall not affect Durect’s ownership in any such Patent.

(b) Joint Patents . With respect to the decision to initiate the drafting and filing of a new patent application claiming Joint Technology, the Parties shall first exchange sufficient information identifying such Joint Technology and discuss in good faith the relative merits of seeking patent rights thereto and, upon the prior mutual agreement of the Parties to proceed, not unreasonably withheld, Zogenix shall take such actions as are necessary or appropriate to procure, prosecute and maintain patents and/or patent applications to such Joint Technology (“ Joint Patent Rights ”) (including any issuance, reissuance or reexamination thereof and the defense of any interference, revocation or opposition proceedings related thereto) [***] Zogenix shall furnish Durect with copies of drafts of such Joint Patent Rights and any substantive prosecution correspondence relating thereto to and from patent offices throughout the Territory and permit Durect to offer its comments thereon before Zogenix makes any submission or response to a patent office. Zogenix will inform Durect of the

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countries in which it intends to file Joint Patent Rights. Durect shall offer its comments promptly, including any request that the Joint Patent Rights be filed in additional countries; [***]. If Zogenix determines in its sole discretion not to file, prosecute, defend or maintain any Joint Patent Rights (including failing to defend any interference, revocation or opposition proceedings) in any country, then Zogenix shall provide Durect with [***]prior written notice (or, if not possible, such shorter time period that would permit Durect a reasonable opportunity to respond in a timely manner) of such determination, and Durect shall have the right and opportunity to file, prosecute, defend and/or maintain such Joint Patent Rights on behalf of the Parties at [***].

(i) As between Durect and Zogenix, Zogenix shall have the exclusive right to and may prepare, prosecute and maintain any or all Zogenix Technology Patents and Zogenix solely invented Other Project Technology (including their issuance, reissuance, reexamination and the defense of any interference, revocation or opposition proceedings) at [***].

(ii) As between Durect and Zogenix, Durect shall have the exclusive right to and may prepare, prosecute and maintain any or all Durect solely invented Other Project Technology (including their issuance, reissuance, reexamination and the defense of any interference, revocation or opposition proceedings) [***].

(d) Orange Book Listing . The Parties acknowledge that Zogenix, as the holder of the NDA, may refer to applicable Durect Technology Patents or Joint Patents (including the [***], the SABER ^® Formulation Platform and the Product Specific Patent Rights) in the listing for the Product in the FDA’s Approved Drug Product List with Therapeutic Equivalence Evaluations (which lists all products and the patents that cover the products, that have been approved by the FDA for safety and effectiveness, and explains the therapeutic equivalence code for multi-source products) (the “ Orange Book ”). Zogenix shall have the exclusive right to list Product Specific Patent Rights in the Orange Book with respect to the Product; in

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addition, Zogenix shall have the right to list other Durect Technology Patents in the Orange Book with respect to the Product. At Zogenix’s request, Durect shall support Zogenix in listing the applicable Durect Technology Patents in the Orange Book. In the event that Durect Technology Patents are listed in the Orange Book pursuant to this Section 9.2(d), Zogenix shall use Commercially Reasonable Efforts to ensure that Durect shall be listed as the assignee of the Durect Technology Patents and both Zogenix and Durect shall be identified as the point of contact for any Paragraph IV notifications.

(e) Each Party shall, at its sole Cost and at the reasonable request of the other Party, execute all lawful papers, all divisional, continuing, reissue and foreign applications, make all rightful oaths and take such other actions as may be reasonably requested by the other Party in conjunction with submission, filing, prosecution, perfecting ownership and defense of Patents and to aid in obtaining the proper protection of inventions pursuant to this Section 9.2.

9.3 Paragraph IV Certifications . In the event either Party receives notice that a Third Party has filed a patent certification under the Hatch-Waxman Act or any successor statute (e.g., a Paragraph IV Certification under 21 C.F.R. §314.50(i) or 314.94(a)(12)) referencing a Patent licensed under Section 3.1, then such Party shall immediately notify the other Party in writing of such notice. The allocation of the right between the Parties to institute an action against a Third Party for infringement of Patents listed in the Orange Book covering the Product in response to such Third Party’s filing of a Paragraph IV certification referencing such Patent, and the rights and obligations applicable to any actions so brought shall be [***].

9.4 Enforcement of Patent Rights .

(a) In the event that either Zogenix or Durect becomes aware of any pharmaceutical product that is or is intended to be made, used, or sold in the Field and in the Territory by a Third Party that it believes to infringe any Durect Technology Patents, Joint Patent Rights or Zogenix Technology Patents, such Party will promptly notify the other Party of all the relevant facts and circumstances known by it in connection with the infringement to the extent consistent with applicable confidentiality obligations to which such Party is subject. To the extent such pharmaceutical product is a Product or a Competitive Product, Zogenix and Durect shall thereafter consult and cooperate fully to determine a course of action, including the commencement of legal action by either or both Parties consistent with this Section 9.4, to terminate any such infringement, and each Party may hire separate counsel. In connection with such cooperation, the Parties, as soon as reasonably practicable, shall enter into a mutually agreeable joint defense agreement.

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(b) As between Durect and Zogenix, Zogenix shall have the first right, but not the duty, upon written notice to Durect to initiate, prosecute and control the enforcement of any of the Product Specific Patent Rights against infringement by a Third Party in the Territory through the manufacture, use, marketing, sale, offer for sale or import of a Competitive Product. If Zogenix does not institute a proceeding against such Third Party alleging infringement of the Product Specific Patent Right within [***] of a Party’s first notice to the other Party of such Third Party infringement, then Durect shall have the right, but not the duty, to institute such an action against such Third Party for infringement of such Product Specific Patent Right. For clarity, if an action includes both Product Specific Patent Rights and other Durect Technology Patents, Section 9.4(c) shall govern. The Party pursuing the proceeding shall furnish the other Party with copies of substantive litigation documents sufficiently in advance of the due date for such document, permit the other Party to offer its comments thereon before such document is due or delivered to the opposing side and consider any such comments in good faith, incorporating such comments if reasonable.

(c) As between Durect and Zogenix, Durect shall have the first right, but not the duty, upon written notice to Zogenix, to initiate, prosecute and control the enforcement of any of the Durect Technology Patents other than Product Specific Patent Rights against infringement by a Third Party in the Territory through the manufacture, use, marketing, sale, offer for sale or import of a Competitive Product. If Durect does not institute a proceeding against such Third Party alleging infringement of such Durect Technology Patents within [***] of a Party’s first notice to the other Party of such Third Party infringement, then Zogenix shall have the right, but not the duty, to institute such an action against such Third Party for infringement of any of the Durect Technology Patents; provided, however , that Zogenix’s right

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to undertake any such action alleging infringement of such Durect Technology Patents shall be subject to the prior written consent of Durect, not to be unreasonably withheld or delayed. For clarity, if an action includes both Product Specific Patent Rights and other Durect Technology Patents, this Section 9.4(c) shall govern. The Party pursuing such action shall furnish the other Party with copies of substantive litigation documents sufficiently in advance of the due date for such document, permit the other Party to offer its comments thereon before such document is due or delivered to the opposing side and consider any such comments in good faith, incorporating such comments if reasonable.

(d) As between Durect and Zogenix, Zogenix shall have the first right, but not the duty, upon written notice to Durect to initiate, prosecute and control the enforcement of any of Joint Patent Rights against infringement by a Third Party in the Territory through the manufacture, use, marketing, sale, offer for sale or import of a Competitive Product. If Zogenix does not institute a proceeding against such Third Party alleging infringement of the Joint Patent Right within [***] of a Party’s first notice to the other Party of such Third Party infringement, then Durect shall have the right, but not the duty, to institute such an action against such Third Party for infringement of such Joint Patent Right. The Party pursuing the proceeding shall furnish the other Party with copies of substantive litigation documents sufficiently in advance of the due date for such document, permit the other Party to offer its comments thereon before such document is due or delivered to the opposing side and consider any such comments in good faith, incorporating such comments if reasonable.

(e)

(i) The Costs of any such action under this Section 9.4 (including fees of attorneys and other professionals) shall be borne [***].

(ii) For any such action under this Section 9.4, in the event that either Party is unable to initiate or prosecute such action solely in its own name or it is otherwise advisable to obtain an effective remedy, the other Party will join such action, or agree to have such action initiated or prosecuted in its name, voluntarily and will execute

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and cause its Affiliates to execute all documents necessary for the enforcing Party to initiate and maintain such action. Each Party shall [***] promptly give to the Party bringing such infringement proceedings such reasonable assistance as the Party bringing the action may reasonably request.

(iii) The Party instituting any such action may not enter into any settlement, consent judgment or other voluntary final disposition of such action that settles a Paragraph IV Certification, admits the invalidity or unenforceability of any Patent licensed hereunder, subjects the other Party to an injunction, requires the other Party to contribute to any monetary payment or otherwise materially and adversely affects the rights licensed hereunder without the prior written consent of the other Party, not to be unreasonably withheld by the other Party.

(iv) The Party undertaking any proceedings shall keep the other reasonably informed of the progress of the action and shall consider the comments and observations of the other in prosecuting the proceedings.

(f) Any recovery obtained as a result of an infringement action brought under this Section 9.4, whether by judgment, award, decree or settlement, [***].

(g) As between Durect and Zogenix, Zogenix shall have the sole discretion and control of enforcing any Zogenix Technology Patents against any Third Party infringement thereof. Notwithstanding Section 9.4(e) and (f), [***].

9.5 Defense of Patents .

(a) In the event that either Zogenix or Durect becomes aware of any action initiated by a Third Party (or any counterclaim or defense asserted in any other action) in the Territory alleging invalidity or unenforceability of any Durect Technology Patents, Joint Patent Rights and Zogenix Technology Patents, such Party will promptly notify the other Party of all the relevant facts and circumstances known by it in connection with such action. Zogenix and Durect shall thereafter consult and cooperate fully to determine a course of action consistent with this Section 9.5, and each Party may hire separate counsel. In connection with such cooperation, the Parties, as soon as reasonably practicable, shall enter into a mutually agreeable joint defense agreement.

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(b) As between Durect and Zogenix, Zogenix shall have the first right, but not the duty, upon written notice to Durect, to defend and control any action initiated by a Third Party (or any counterclaim or defense asserted in any other action) in the Territory alleging invalidity or unenforceability of any Product Specific Patent Rights. If Zogenix fails to defend any such action initiated by a Third Party (or any counterclaim or defense asserted in any other action) within [***] of notice from such Third Party (or, if not possible, such shorter time period that would permit Durect a reasonable opportunity to respond in a timely manner), Durect shall thereafter have the right, but not the duty, to defend and control any such invalidity action, counterclaim or defense in the Territory. For clarity, if an action includes both Product Specific Patent Rights and other Durect Technology Patents, Section 9.5(c) shall govern. The Party pursuing the action shall furnish the other Party with copies of substantive litigation documents sufficiently in advance of the due date for such document, permit the other Party to offer its comments thereon before such document is due or delivered to the opposing side and consider any such comments in good faith, incorporating such comments if reasonable.

(c) As between Durect and Zogenix, Durect shall have the first right, but not the duty, upon written notice to Zogenix, to defend and control any action initiated by a Third Party (or any counterclaim or defense asserted in any other action) in the Territory alleging invalidity or unenforceability of any Durect Technology Patents other than Product Specific Patent Rights. If Durect fails to defend any such action initiated by a Third Party (or any counterclaim or defense asserted in any other action) within [***] of notice from such Third Party (or, if not possible, such shorter time period that would permit Zogenix a reasonable opportunity to respond in a timely manner), then Zogenix shall have the right, but not the duty, to defend and control any such invalidity action, counterclaim or defense in the Territory; provided, however , that Zogenix’s right to undertake any defense of such action relating to such Durect Technology Patents shall be subject to the prior written consent of Durect, not to

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be unreasonably withheld or delayed. For clarity, if an action includes both Product Specific Patent Rights and other Durect Technology Patents, this Section 9.5(c) shall govern. The Party pursuing such an action shall furnish the other Party with copies of substantive litigation documents sufficiently in advance of the due date for such document, permit the other Party to offer its comments thereon before such document is due or delivered to the opposing side and consider any such comments in good faith, incorporating such comments if reasonable.

(d) As between Durect and Zogenix, Zogenix shall have the first right, but not the duty, upon written notice to Durect, to defend and control any action initiated by a Third Party (or any counterclaim or defense asserted in any other action) in the Territory alleging invalidity or unenforceability of any Joint Patent Rights. If Zogenix fails to defend any such action initiated by a Third Party (or any counterclaim or defense asserted in any other action ) within [***] of notice from such Third Party (or, if not possible, such shorter time period that would permit Durect a reasonable opportunity to respond in a timely manner), then Durect shall have the right, but not the duty, to defend and control any such action. The Party pursuing the proceeding shall furnish the other Party with copies of substantive litigation documents sufficiently in advance of the due date for such document, permit the other Party to offer its comments thereon before such document is due or delivered to the opposing side and consider any such comments in good faith, incorporating such comments if reasonable.

(e)

(i) The Costs of any such action under this Section 9.5 (including fees of attorneys and other professionals) shall be borne [***], or, if the Parties elect to cooperate in instituting and maintaining such action, such Costs shall be borne [***].

(ii) For any such action under this Section 9.5, in the event that either Party is unable to defend such action solely in its own name or it is otherwise advisable to obtain an effective remedy, the other Party will join such action or agree to have such action initiated or prosecuted in its name, voluntarily and will execute and cause its Affiliates to execute all documents necessary for the defending Party to defend such action. Each Party shall at its own expense promptly give to the defending Party such reasonable assistance as the Party defending the action may reasonably request.

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(iii) The defending Party may not enter into any settlement, consent judgment or other voluntary final disposition of such action that admits the invalidity or unenforceability of any Patent licensed hereunder, subjects the other Party to an injunction, requires the other Party to contribute to any monetary payment or otherwise materially and adversely affects the rights licensed hereunder without the prior written consent of the other Party, not to be unreasonably withheld or delayed by the other Party.

(iv) The Party undertaking any such defense shall keep the other reasonably informed of the progress of the action and shall consider the comments and observations of the other in the proceedings.

(f)

(i) As between Durect and Zogenix, Zogenix shall have the sole discretion and control of defending any Zogenix Technology Patents, Zogenix solely invented Other Project Technology and Joint Patent Rights against any Third Party challenge [***].

(ii) As between Durect and Zogenix, Durect shall have the sole discretion and control of defending any Durect solely invented Other Project Technology against any Third Party challenge [***].

9.6 Patent Infringement Claims .

(a) Each Party shall notify the other Party promptly in writing of any claim of, or action for, infringement of any Patents or misappropriation of trade secret rights of any Third Party that is threatened, made or brought against either Party by reason of the development, manufacture, use, sale, offer for sale, importation or exportation of the Product in the Territory.

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(b) In the event of the institution of any suit by a Third Party against either Party for Patent infringement involving the development, manufacture, use, sale, offer for sale, importation or exportation by or on behalf of Zogenix, its Affiliates or Sublicensees of the Product in the Territory after the Effective Date, Zogenix shall be responsible for the defense of any such suit and, subject to the terms of this Section 9.6, Zogenix shall control such defense. Zogenix shall select defense counsel and, provided that Zogenix can do so without compromising attorney-client privilege, regularly consult with Durect and its counsel to keep them reasonably informed on the progress and status of the suit. Durect shall assist Zogenix and cooperate in any such litigation [***]. No settlement, compromise or other disposition of any such proceeding that subjects Durect to an injunction or requires Durect to contribute to any monetary payment or otherwise materially and adversely affect Durect’s rights hereunder shall be entered into without Durect’s prior written consent, which consent will not be unreasonably withheld or delayed.

(d) In the event a Third Party threatens suit against either Party for Patent infringement involving the development, manufacture, use, sale, offer for sale, importation, exportation, license or marketing of the Product in the Territory, the Parties shall confer with respect to the appropriate course of action, and if they determine that a declaratory action is warranted, then with respect to such action, the provisions of this Section 9.6 shall apply thereto with respect to the prosecution of such action and the defense of any claims asserted in response thereto.

(e) In the event that either Party becomes aware of a Third Party Patent to which a license would be reasonably required in order to avoid infringement by the development, manufacture or Commercialization of the Product in any Jurisdiction, such Party shall promptly notify the other Party. The Parties shall then confer in good faith with respect to the appropriate course of action. Zogenix shall have the right to negotiate and obtain such a license or other resolution and, [***] (the “ Third Party License Fees ”); provided, however , that: (i) [***], Zogenix may [***]; and (ii) if Durect does not agree with Zogenix’s

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determination that the license is reasonably required, either Party may [***]. Zogenix shall provide Durect with complete copies of the license agreement with such Third Party and other material information in its possession in respect of such technology subject to any confidentiality provisions imposed by such Third Party.

10.	PUBLICATION; CONFIDENTIALITY

10.1 Scientific Publications .

(a) Notification . During the Term, Durect will not submit any publications regarding the Product without the prior written consent of Zogenix. Any proposed publication by Zogenix regarding the Product in the Territory shall comply with this Section 10. At least [***] before a manuscript is to be submitted to a publisher, Zogenix will provide Durect with a copy of the manuscript. If Zogenix wishes to make an oral or visual presentation at any conference, it will provide Durect with a summary of such presentation, unless such disclosed information has previously been reviewed by Durect, at least [***] before such oral or visual presentation and, if an abstract is to be published, [***] before such abstract is to be submitted. Any oral or visual presentation, including any question period, shall not include any Confidential Information belonging to Durect unless Durect agrees in writing to such inclusion in advance of such oral presentation.

(b) Review . Durect will review the manuscript, abstract, text or any other material provided to it under Section 10.1 to determine whether patentable subject matter or valuable trade secrets of Durect are disclosed and to assess the accuracy of the technical content therein. Durect will notify Zogenix within [***] of receipt of the proposed publication if Durect, in good faith, determines that patentable subject matter or valuable trade secrets of Durect are or may be disclosed, or if Durect, in good faith, believes Confidential Information of Durect is or may be disclosed. If it is determined by Durect that patent applications should be filed in advance of the proposed publication, Zogenix shall delay its publication or presentation for a period not to exceed [***] from Durect’s receipt of the proposed publication or presentation to allow time for the filing of patent applications covering patentable subject

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matter. In the event that the delay needed to complete the filing of any necessary patent application will exceed the [***], Durect will discuss the need for obtaining an extension of the publication delay beyond the [***]. If it is determined in good faith by Durect that Confidential Information or proprietary information of Durect is being disclosed, the Parties shall consult in good faith to arrive at an agreement on mutually acceptable modifications to the proposed publication or presentation to avoid such disclosure. Any publications (whether written or oral), where consistent with customary academic practice, shall acknowledge Durect as the developer and licensor of the Product Formulation.

10.2 Publicity . Neither Party shall make any public announcement, including press releases, announcements at investor conferences, reports to any Governmental Entities regulating securities such as the SEC, concerning the existence of or the terms of this Agreement nor regarding the development or Commercialization of Product in the Territory, without the prior written consent of the other Party with regard to the form, content and precise timing of such announcement, except such as may be required to be made by either Party in order to comply with Applicable Laws. Such consent will not be unreasonably withheld or delayed by such other Party. Prior to any such public announcement requiring the other Party’s prior written consent, the Party wishing to make the announcement will submit a draft of the proposed announcement to the other Party not less than [***] in advance to enable the other Party to consider and comment thereon. Failure to respond with comments in writing prior to [***] before scheduled release shall be deemed approval of such release. Notwithstanding anything to the contrary in this Agreement, nothing in this Section 10.2 is intended to prohibit either Party from republishing or restating information that has already been approved by the other Party for use in a prior press release or public announcement. Any written public announcements or presentations shall include a standard statement in a form agreed to by the Parties stating that the relevant Product has been licensed from Durect.

10.3 Confidentiality . Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the Parties agree that, during the Term and for [***] thereafter, the receiving Party, its Affiliates and its designees shall, and shall ensure that their respective

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employees, officers, directors and other representatives shall, keep confidential and not publish or otherwise disclose and not use for any purpose, other than the development and Commercialization of the Product in the Territory, any information including all Know-How furnished to it by the other Party, its Affiliates or its designees, except to the extent that it can be established by the receiving Party by competent proof that such information: (i) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the disclosing Party; (ii) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (iii) became generally available to the public or was otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; (iv) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had, to the receiving Party’s knowledge, no legal obligation not to disclose such information to others; or (v) was independently generated by the receiving Party without reference to Confidential Information of the disclosing Party (all such information to which none of the foregoing exceptions applies, and the terms of this Agreement, shall be deemed “ Confidential Information ”). Any and all information, data and materials, including any and all Intellectual Property Rights therein and thereto, owned by a Party shall constitute Confidential Information of such Party which shall be deemed the disclosing Party with respect to such Confidential Information for the purposes of this Section 10. Notwithstanding the foregoing, the obligations of confidentiality under this Section 10.3 regarding any Confidential Information relating to or containing a Party’s trade secret that has been suitably identified to the other Party as such shall continue beyond the period set forth in this Section 10.3 (i.e., the Term plus [***] so long as the subject matter remains a trade secret.

10.4 Exceptions to Obligation . The restrictions contained in Section 10.3 shall not apply to Confidential Information that: (i) is submitted by the recipient to a Regulatory Authority to obtain Regulatory Approval for the Product; (ii) is provided by the recipient to Third Parties under confidentiality provisions at least as stringent as those in this Agreement, in connection with consulting, development, manufacturing, external testing, or

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Commercialization of the Product or in connection with a proposed financing transaction or Change of Control of a Party; or (iii) is otherwise required to be disclosed in compliance with Applicable Laws or by a Governmental Entity; provided that, if a Party is required to make any such disclosure of the disclosing Party’s Confidential Information, such Party will, except where impracticable for necessary disclosures (for example, to physicians conducting studies or to health authorities), give reasonable advance notice to the disclosing Party of such disclosure requirement and reasonably cooperate with the disclosing Party to secure confidential treatment of such Confidential Information required to be disclosed.

10.5 Limitations on Use . Each Party shall use, and cause each of its Affiliates and use its Commercially Reasonable Efforts to cause each of its licensees to use, any Confidential Information obtained by such Party from the disclosing Party, its Affiliates or its licensees, pursuant to this Agreement or otherwise, solely in connection with the activities or transactions contemplated by this Agreement.

10.6 Remedies . Each Party shall be entitled, in addition to any other right or remedy it may have, at law or in equity, to seek an injunction, without the posting of any bond or other security, enjoining or restraining the other Party, its Affiliates and/or its licensees from any violation or threatened violation of this Section 10.

11.	REPRESENTATIONS, WARRANTIES AND COVENANTS

11.1 Representations and Warranties of the Parties .

Each Party represents and warrants to the other Party that as of the Effective Date:

(a) Such Party is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof;

(b) Such Party has taken all corporate action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement and has full power and authority to enter into this Agreement and perform its obligations under this Agreement;

(c) This Agreement has been duly executed by such Party and constitutes a valid and legally binding obligation of such Party, enforceable in accordance with its terms, subject to and limited by: (i) applicable bankruptcy, insolvency, reorganization, moratorium, and other laws generally applicable to creditors’ rights; and (ii) judicial discretion in the availability of equitable relief;

(d) With the exception of required Regulatory Approvals, such Party has obtained, or is not required to obtain, the consent, approval, order, or authorization of any Third Party, or has completed, or is not required to complete, any registration, qualification, designation, declaration or filing with, any Governmental Entity, in connection with the execution and delivery of this Agreement and the performance by such Party of its obligations under this Agreement, including any grant of rights to the other Party pursuant to this Agreement;

(e) The execution and delivery of this Agreement, and the performance by such Party of its obligations under this Agreement, including the grant of rights to the other Party pursuant to this Agreement, does not and will not: (i) conflict with, nor result in any violation of or default under any instrument, judgment, order, writ, decree, contract or provision to which such Party is otherwise bound; (ii) give rise to any lien, charge or encumbrance upon any assets of such Party or the suspension, revocation, impairment, forfeiture or non-renewal of any material permit, license, authorization or approval that applies to such Party, its business or operations or any of its assets or properties; or (iii) conflict with any rights granted by such Party to any Third Party or breach any obligation that such Party has to any Third Party;

(f) Every officer, scientific employee and technical consultant of such Party has an obligation to assign his or her inventions to such Party to the extent such inventions are within the scope of his or her activities for such Party with respect to this Agreement, and all such officers, scientific employees and technical consultants retained by such Party to provide services to such Party has an obligation to maintain the confidentiality of such Party’s confidential information; and

(g) Each Party is in compliance with Section 3.4. [***].

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11.2 Additional Representations and Warranties of Durect . Durect hereby further represents and warrants to Zogenix that as of the Effective Date:

(a) Durect is the sole owner of the Durect Technology and Durect Technology Patents in existence on the Effective Date, free and clear of all encumbrances and security interests ([***]). Durect has the right to grant to Zogenix the rights granted under this Agreement (including the right granted in Section 3.1 to develop, manufacture and Commercialize the Product in the Territory), and Durect has not granted prior to the date hereof any options or licenses on the Product Specific Patent Rights. To the Knowledge of Durect, the Durect Technology Patents, are valid, in full force and effect and have been maintained to date, and [***];

(b) To the Knowledge of Durect, [***];

(d) [***];

(e) Exhibit 1.22 sets forth a true, complete and correct list of the Durect Technology Patents as of the Effective Date;

(f) Prior to the Effective Date, Durect has made available to Zogenix through an electronic data room a true, complete and correct copy of the [***];

(g) [***];

(h) [***];

(i) To the Knowledge of Durect, all of the studies, tests and Preclinical and Clinical Trials of the Product conducted prior to, or being conducted as of, the Effective Date were conducted, or are being conducted, in accordance with Applicable Laws; and

(j) Durect has provided to Zogenix access to true and correct summary of the provisions of that certain [***].

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11.3 Additional Representations and Warranties of Zogenix . Zogenix hereby further represents and warrants to Durect that as of the Effective Date:

(a) [***].

11.4 Disclaimer of Other Warranties . EXCEPT AS SET FORTH IN THIS AGREEMENT, THE PARTIES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT .

11.5 Covenants of Durect . Durect shall have the right, at its sole discretion, to amend, modify or supplement the [***]; provided, however , that Durect agrees that it shall not amend, modify or supplement the [***] in any manner that would adversely affect Zogenix’s rights under this Agreement without the prior written consent of Zogenix. In addition, Durect shall not sell, assign, convey, pledge, hypothecate or otherwise transfer the [***] or Durect’s rights or obligations thereunder, or otherwise make any commitments or offers, in each case, in a manner that conflicts with Zogenix’s rights hereunder without the prior written consent of Zogenix.

11.6 Survival of Representations . The representations and warranties set forth in this Section 11 shall survive indefinitely.

12.	INDEMNIFICATION; INSURANCE

12.1 Indemnification by Durect . Durect shall indemnify, defend and hold Zogenix and its Affiliates, and their respective directors, officers, employees and agents (each a “ Zogenix Related Party ”) harmless from and against any and all damages, losses, judgments, penalties, fines, settlements, and Costs and expenses (including reasonable fees of attorneys and other professionals) (“ Damages ”) arising out of Third Party claims that result from: (i) any breach by Durect of this Agreement, including breach by Durect of its representations and warranties hereunder, (ii) the performance of the Durect Development Responsibilities by Durect, its Affiliates or designees, or (iii) Durect’s activities with respect to the Durect Technology, Joint Technology or Development Data outside the scope of this Agreement.

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12.2 Indemnification by Zogenix . Zogenix shall indemnify, defend and hold Durect and its Affiliates and their respective directors, officers, employees and agents (each a “ Durect Related Party ”) harmless from and against any and all Damages arising out of Third Party claims that result from: (i) any breach by Zogenix of this Agreement, including breach by Zogenix of its representations and warranties hereunder or (ii) the development or Commercialization of the Product by Zogenix, its Sublicensees, Affiliates or designees under this Agreement.

12.3 Shared Liability . If Damages arise out of Third Party claims that are subject to indemnification by Zogenix under Section 12.2 and also subject to indemnification by Durect under Section 12.1, then the Parties shall indemnify each other to the extent of their respective liability for the Damages. In the event that the Parties cannot agree to their respective indemnity obligations hereunder, a Party shall be free at any time to seek resolution of the respective indemnity obligations of the Parties under this Section 12 pursuant to the provisions set forth in Section 14.11.

12.4 Indemnification Procedure . Upon receipt by the Party seeking indemnification hereunder (an “ Indemnified Party ”) of notice of any action, suit, proceeding, claim, demand or assessment against such Indemnified Party which might give rise to Damages, the Indemnified Party shall give prompt written notice thereof to the Party from which indemnification is sought (the “ Indemnifying Party ”) indicating the nature of the claim and the basis therefore, provided that the failure to give such prompt notice shall not relieve the Indemnifying Party of its obligations hereunder except to the extent the Indemnifying Party or the defense of any such claim is materially prejudiced thereby. The Indemnifying Party shall have the right, at its option, to assume the defense of, at its own Cost and by its own counsel, any such claim involving the asserted liability of the Indemnified Party. If any Indemnifying Party shall undertake to compromise or defend any such asserted liability, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall agree to cooperate fully with the Indemnifying Party and its counsel in the compromise of, or defense against, any such asserted liability; provided, however , that the Indemnifying Party shall not, as part of any settlement or other compromise, admit to liability for which the Indemnifying Party is not fully indemnifying the Indemnified Party or agree to an injunction with respect to activities of the Indemnified Party without the written consent of the Indemnified Party. Notwithstanding an election by the Indemnifying Party to assume the defense of any claim as set forth above, such Indemnified Party shall have the right (at its own Cost if the Indemnifying Party has elected to assume such defense) to employ separate counsel and to participate in the defense of any claim.

12.5 Cost of Enforcement . All Costs incurred by an Indemnified Party in connection with enforcement of its rights under Sections 12.1, 12.2 and 12.3, as applicable, shall also be reimbursed by the Indemnifying Party (or, in the case of Section 12.3, allocated between the Parties in accordance with Section 12.3) promptly after final determination that such Indemnified Party is entitled to such indemnification by the Indemnifying Party.

12.6 LIMITATION ON DAMAGES . IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER, WHETHER PURSUANT TO THE FOREGOING INDEMNIFICATION OBLIGATIONS OR OTHERWISE UNDER THIS AGREEMENT, FOR SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, INCLUDING BUSINESS INTERRUPTION OR LOST PROFITS, OR PUNITIVE DAMAGES; PROVIDED , HOWEVER , THIS EXCLUSION IS NOT INTENDED TO, NOR SHALL, EXCLUDE ACTUAL OR COMPENSATORY DAMAGES OF THE AFFECTED PARTY, INCLUDING SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, OWED TO THIRD PARTIES AS A RESULT OF A THIRD PARTY CLAIM.

12.7 Insurance . Each Party shall carry and maintain in full force and effect while this Agreement is in effect reasonable insurance in view of its obligations hereunder but in amounts no less than that specified for each type:

(a) Commercial general liability insurance with combined limits of not less than $[***] per occurrence and $[***] per accident for bodily injury, including death, and property damage;

(b) Workers’ compensation insurance in the amounts required by the law of the Jurisdictions, countries or states in which such Party’s workers are located; and

(c) Product liability insurance with a policy limit of at least $[***] per occurrence and in the aggregate; provided that Zogenix shall have a policy with a limit of no less than $[***] upon First Commercial Sale in the Territory.

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Each Party hereto shall name the other Party hereto as an “additional insured” on all commercial and product liability policies relating to the insurance described in Sections 12.7(a) and (c). Each Party upon request shall provide the other with evidence of such insurance. Each Party shall provide to the other [***] prior written notice of any proposed cancellation, termination, reduction or change in its coverage.

13.	TERM AND TERMINATION

13.1 Term of Agreement . This Agreement shall become effective as of the Effective Date and remain in effect on a Jurisdiction-by-Jurisdiction basis until the expiration of the applicable Royalty Terms with respect to all Products or earlier termination of this Agreement pursuant to this Section 13 (the “ Term ”).

13.2 Termination by Zogenix .

(a) Without Cause . Zogenix may terminate this Agreement in its entirety [***]. In such event, during the [***].

(b) Safety . If during the development or Commercialization of the Product, (i) the Product becomes subject to one or more Serious Adverse Drug Experiences or (ii) either Party receives notice from a Regulatory Authority, independent review committee, data safety monitoring board or another similar Clinical Trial or post-marketing monitoring body alleging significant concern regarding a patient safety issue, in each case which Zogenix, in good faith, reasonably believes would seriously impact the long-term viability of the Product, Zogenix may terminate this Agreement upon [***] days’ prior written notice. Zogenix may also immediately terminate any ongoing Clinical Trial in the event of a termination for safety under subsection (ii).

13.3 Termination for Material Breach . Upon the material breach by one Party under this Agreement, the other Party shall notify the breaching Party of such breach, and require that the breaching Party cure such breach within [***] calendar days or, in the case of payment defaults, within [***] days, or in the case of a breach that cannot be cured within [***] days, within a reasonable period not exceeding [***] days so long as the breaching Party is diligently proceeding to cure such default. In the event that a material breach by such Party is not cured within the applicable cure period and without limiting other available remedies, the other Party shall have the right to terminate this Agreement upon written notice.

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13.4 Termination for Patent Challenge .

(a) In the event that Zogenix or any of its Affiliates or Sublicensees commences or otherwise pursues, directly or indirectly (or voluntarily assists Third Parties to do so, other than as required by law or legal process), any proceeding seeking to have any of the Product Specific Patent Rights or Durect Technology Patents revoked or declared invalid, unpatentable, or unenforceable, Durect may terminate this Agreement upon written notice to Zogenix.

(b) In the event that Durect or any of its Affiliates or licensees/sublicensees commences or otherwise pursues, directly or indirectly (or voluntarily assists Third Parties to do so, other than as required by law or legal process), any proceeding seeking to have any of the Zogenix Technology Patents revoked or declared invalid, unpatentable, or unenforceable, Zogenix may terminate this Agreement upon written notice to Durect.

13.5 Termination for Bankruptcy . Either Party may immediately terminate this Agreement upon the occurrence of either of the following: (a) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of the other Party in an involuntary case under any applicable national, federal, or state insolvency or other similar law, and the continuance of any such decree or order unstayed and in effect for a period of [***] consecutive calendar days; or (b) the filing by the other Party of a petition for relief under any applicable national, federal, or state insolvency or other similar law.

13.6 Effect of Termination .

(a) If this Agreement is terminated by Zogenix pursuant to Section 13.3 (Durect Material Breach), Section 13.4(b) (Durect Patent Challenge) or Section 13.5 (Durect Bankruptcy), the following provisions shall apply:

(i) all licenses granted to Zogenix under this Agreement, including pursuant to Section 3.1, shall survive, subject to the payment by Zogenix to Durect of [***];

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(ii) The provisions of Sections 9.2-9.6 shall apply, and the provisions of Article 7 shall apply with respect to any such royalties payable under this Section 13.6(a); and

(iii) If Durect is manufacturing the Product or Product Formulation at the time of termination by Zogenix as set forth in this Section 13.6(a), upon Zogenix’s request, Durect shall provide such reasonable technical assistance as needed by Zogenix to commence manufacture of the Product or Product Formulation, [***]; provided however , that Durect shall be responsible for the manufacture of the Product or Product Formulation until termination of the Supply Agreement pursuant to its terms.

(b) If this Agreement is terminated by Zogenix pursuant to Section 13.2(a) (Without Cause) or Section 13.2(b) (Safety), or by Durect pursuant to Section 13.3 (Zogenix Material Breach), Section 13.4(a) (Zogenix Patent Challenge), Section 13.5 (Zogenix Bankruptcy), or in the event Durect terminates Zogenix’s license in any Terminated Country in accordance with Section 5.2, the following provisions shall apply:

(i) all licenses granted by Durect to Zogenix in Section 3.1 shall terminate with respect to such Product in the Territory or Terminated Country, as applicable;

(ii) within [***] of such termination, in the Territory or Terminated Country, as applicable, Zogenix shall or shall cause its Affiliates, if any, to assign or transfer to Durect to the extent not already owned by Durect) at no Cost all material Regulatory Documentation, Development Data, Product Trademarks (and goodwill associated therewith) Controlled by Zogenix or its Affiliates and Sublicensees whose licenses do not continue hereunder that are used in the development, manufacturing, use or sale of such Product as of the effective date of termination (collectively, the “ Product Material );

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(iii) if terminated by Durect pursuant to Section 13.3 (Zogenix Material Breach), Section 13.4(a) (Zogenix Patent Challenge), Section 13.5 (Zogenix Bankruptcy), if applicable, Zogenix shall continue during the notice period before termination becomes effective (or if reasonably practicable and agreed to by Zogenix at such time, allow Durect or its Clinical research organizations (“ CROs ”) to continue) any ongoing Clinical Trial for which Zogenix has responsibility [***];

(iv) if terminated by Zogenix pursuant to Section 13.2(a) (Without Cause), if applicable, Zogenix shall continue during the notice period before termination becomes effective (or if reasonably practicable and agreed to by Zogenix at such time, allow Durect or its CROs to continue) any ongoing Clinical Trial for which Zogenix has responsibility [***];

(v) if terminated by Zogenix pursuant to Section 13.2(b) (Safety), if applicable, Zogenix shall continue during the notice period before termination becomes effective (or if reasonably practicable and agreed to by Zogenix at such time, allow Durect or its nominees to continue) any ongoing Clinical Trial for which Zogenix has responsibility, [***];

(vi) if Zogenix has manufactured, or has had manufactured such Product for Clinical Trial or Commercialization, Zogenix at its option shall either transition the manufacturing process to Durect or a mutually agreed Third Party CMO or supply the Product to Durect; provided , that Zogenix shall have no obligation hereunder to transition any manufacturing process that relates to DosePro ^® , and if Zogenix chooses to transition the manufacturing process to Durect or a mutually agreed Third Party CMO, Zogenix will continue to supply such Product until the completion of the transition and associated Regulatory Approvals have been received, but in no event for a period exceeding [***], and provided further that during any period in which Zogenix continues to supply such Product to Durect (either through a Third Party CMO or itself), Durect shall [***]) to supply the Product;

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(vii) If the First Commercial Sale has occurred at the time of termination, then Zogenix will have the right to sell-through its existing inventory of the Product for a period not to exceed [***] from the effective date of termination, and such sales will be subject to the royalty provisions contained herein. At the end of any such sell-through period, in each case at Durect’s sole election, all unsold inventory will be returned to Durect, and Durect will purchase such inventory from Zogenix as is in good and saleable condition, in its original, unopened packaging, at [***] for the Product;

(viii) In the event Durect terminates Zogenix’s license in any Terminated Country in accordance with Section 5.2, if requested by Durect, Zogenix will reasonably transition [***] the development and Commercialization of Product to Durect or its licensees in the Terminated Countries with Section 13.6(b)(vi) governing manufacturing of Product in the Terminated Countries; and

(ix) [***].

13.7 Additional Remedies . In addition to the right to terminate this Agreement as set forth in this Section 13, in the event that a Party is in breach of any of its material obligations under this Agreement, then the other Party shall have the right to seek damages and such other remedies as may be available to it under law or in equity.

13.8 Surviving Provisions . Upon termination or expiration of the Agreement, all rights and obligations of the Parties shall terminate; provided, however, notwithstanding the foregoing, expiration or any termination of this Agreement shall not release a Party from the obligations to make any payments or perform any obligations that were due or had accrued immediately prior to the effective date of such termination (including non-cancelable obligations or commitments made in good faith prior to notice of termination), and the following Sections of this Agreement shall survive any expiration or termination of this Agreement for any reason (in addition to the provisions which survive under Section 13.6 above): (i) Sections 1 (to the extent necessary to interpret any other surviving provisions), 4.5, 7, 9.1, 10.2 (with respect to any public announcements concerning the Parties’ activities hereunder or the terms of this Agreement), 10.3-10.6, 11.4, 12.1-12.6, 13.6, this 13.8 and 14, and (ii) Sections 9.2-9.6 (with respect to events occurring during the Term).

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14.	MISCELLANEOUS PROVISIONS

14.1 Relationship of Parties . Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee or joint venture relationship between the Parties. No Party shall incur any debts or make any commitments for the other, except to the extent, if at all, specifically provided herein.

14.2 Assignment . Neither Party shall assign this Agreement or its rights or obligations hereunder without the express written consent of the other Party hereto, except that either Party may assign or transfer this Agreement and its rights or obligations hereunder without the consent of the other Party to (i) an Affiliate, (ii) any assignee of all or substantially all of its business or assets relating to this Agreement, or (iii) its successor in the event of a Change of Control of such Party. An assignment or transfer by a Party pursuant to this Section 14.2 shall be binding on its successors or assigns. In addition, either Party may assign its right to receive proceeds under this Agreement or grant a security interest in such right to receive proceeds to one or more financial institutions providing financing to such Party pursuant to the terms of a security or other agreement related to such financing. Any permitted assignee shall assume all assigned obligations of its assignor under this Agreement. The assigning Party shall promptly notify the other Party of any such assignment (including a Change of Control) and shall use all reasonable efforts to provide such notification at least [***] before the assignment or before the completion of the Change of Control, as the case may be. No such assignment or transfer shall be valid or effective unless done in accordance with this Section 14.2.

14.3 Further Actions . Each Party shall execute, acknowledge and deliver such further instruments, and do all such other acts, as may be reasonably necessary or appropriate in order to carry out the purposes and intent of this Agreement.

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14.4 Notice . Any notice, request or other communication required or permitted to be given under or in connection with this Agreement shall be deemed to have been sufficiently given if in writing and personally delivered, facsimile transmission (receipt verified) or overnight express courier service (signature required), prepaid, to the Party for which such notice is intended, at the address set forth for such Party below:

In the case of Durect, to:

Durect Corporation

2 Results Way

Cupertino, CA 95014

Attention: General Counsel

Facsimile No.: (408) 777-3577

In the case of Zogenix, to:

Zogenix, Inc.

12671 High Bluff Drive, Suite 200

San Diego, California 92130

Attention: General Counsel

Facsimile No.: (858) 259-1166

or to such other address for such Party as it shall have specified by like notice to the other Party, provided that notices of a change of address shall be effective only upon receipt thereof. If delivered personally or by facsimile transmission, the date of delivery shall be deemed to be the date on which such notice or request was given. If sent by overnight express courier service, the date of delivery shall be deemed to be the next business day after such notice or request was deposited with such service.

14.5 Use of Name . Except as otherwise provided herein, Durect, on the one hand, and Zogenix on the other hand, shall not have any right, express or implied, to use in any manner the name or other designation of the other or any other trade name, trademark or logos of the other for any purpose, unless consented to in writing by the other Party.

14.6 Waiver . A waiver by any Party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and except as specifically provided herein none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either Party.

14.7 Counterparts . This Agreement may be executed simultaneously in any number of counterparts, any one of which need not contain the signature of more than one Party but all such counterparts taken together shall constitute one and the same agreement. This Agreement, to the extent signed and delivered by means of a facsimile machine (or pdf-file attachment to Email), shall be treated in all manner and respects and for all purposes as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.

14.8 Severability . When possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

14.9 Amendment . No amendment, modification or supplement of any provisions of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party.

14.10 Governing Law . This Agreement shall be governed by and interpreted in accordance with the laws of the State of California without regard to conflicts of law principles.

14.11 Dispute Resolution .

(a) The Parties recognize that a bona fide dispute as to certain matters may from time to time arise during the Term that relate to a Party’s rights or obligations hereunder. In the event of the occurrence of any Dispute, either Party may, by written notice to the other, have such Dispute referred to its highest ranking officer for attempted resolution by good faith negotiations within [***] after such notice is received. If either Party desires to pursue arbitration under paragraph (b) below to resolve any such Dispute, unless expressly provided for otherwise herein, a referral to such executives under this paragraph (a) shall be a mandatory condition precedent. Said designated officers as of the Effective Date are as follows.

For Durect: Chief Executive Officer

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For Zogenix: Chief Executive Officer

In the event that they shall be unable to resolve the Dispute by consensus within such [***], then the Dispute shall be finally settled by binding arbitration as provided below.

(b) Except as expressly otherwise provided in this Agreement, any dispute arising out of or relating to the interpretation of any provisions of this Agreement or the failure of either Party to perform or comply with any obligation of such Party pursuant to this Agreement or the breach, termination or validity hereof (a “ Dispute ”), shall be exclusively and finally settled by arbitration under the then current American Arbitration Association (“ AAA ”) Expedited Procedures applicable to the Commercial Arbitration rules of the AAA (“ Expedited Rules ”) and in accordance with the terms set forth in this Section 14.11(b) (the “ Accelerated Arbitration Provisions ”): The place of arbitration shall be San Francisco, California, if Zogenix initiates the Dispute process hereunder, and San Diego, California, if Durect initiates the Dispute process hereunder. Such arbitration shall be conducted by a single neutral and impartial arbitrator agreed upon by the Parties within [***] of receipt by respondent of a copy of the demand for arbitration. If the Parties fail to timely agree, on the request of any Party, such arbitrator shall be appointed by the AAA in accordance with the Expedited Rules. The Dispute shall be resolved by submission of documents unless the arbitrator determines (or the Parties agree) that an oral hearing is necessary. The award shall be rendered, if practicable, within [***] of the appointment of the arbitrator. Any award rendered by the arbitrator shall be final and binding upon the Parties. Judgment upon any award rendered may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. Except as provided in Section 12.5, [***]. This Section 14.11(b) shall not prohibit a Party from seeking preliminary injunctive relief in aid of arbitration from a court of competent jurisdiction in the event of a breach or prospective breach of this Agreement by any other Party which would cause irreparable harm to the Party seeking such relief. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitrator shall have full authority to grant provisional remedies and to direct the Parties to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any Party to respect the arbitrator’s orders to that effect.

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14.12 Compliance with Laws . Each Party shall review in good faith and cooperate in taking actions to ensure compliance of this Agreement and the Parties’ activities hereunder with all Applicable Laws. Each Party shall provide the other Party such reasonable assistance as may be required for the Party requesting such assistance to comply with all Applicable Laws necessary to permit the Parties to perform hereunder and to exercise their respective rights hereunder.

14.13 Force Majeure . Except where expressly provided for herein, neither Party shall be held liable or responsible to the other Party nor be deemed to be in default under, or in breach of any provision of, this Agreement for failure or delay in fulfilling or performing any obligation of this Agreement to the extent that such failure or delay is due to Force Majeure, and without the willful wrongdoing, recklessness or gross negligence of the Party so failing or delaying. For purposes of this Agreement, “ Force Majeure ” is defined as causes beyond the reasonable control of the Party, including acts of God; changes in regulations or laws of any government; war; terrorism; civil commotion; destruction of production facilities or materials by fire, flood, earthquake, explosion or storm; labor disturbances; epidemic; and failure of public utilities or common carriers. In the event that the ability of Durect or Zogenix to perform its obligations under this Agreement, as the case may be, shall be so affected, the affected Party shall immediately notify the other Party of such inability and of the period for which such inability is expected to continue. The Party giving such notice shall thereupon be excused from such of its obligations under this Agreement as it is thereby disabled from performing for so long as it is [***]. To the extent possible, each Party shall use Commercially Reasonable Efforts to minimize the duration of any Force Majeure.

14.14 Entire Agreement . This Agreement including schedules and exhibits thereto, including the Development Plan together with all other future written agreements entered into by the Parties and specifically made a part of this Agreement, constitute the entire agreement between the Parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the Parties with respect to the subject matter of this Agreement.

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14.15 Parties in Interest . All of the terms and provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties hereto and their respective permitted successors and assigns.

14.16 No Third Party Beneficiaries . Except for rights and obligations specifically referred to herein that apply to Affiliates, sublicenses or licensees of the Parties, nothing in this Agreement is intended to confer on any Person other than Durect or Zogenix any rights or obligations under this Agreement, and there are no intended Third Party beneficiaries to this Agreement.

14.17 Descriptive Headings; Certain Terms . The descriptive headings of this Agreement are for convenience only, and shall be of no force or effect in construing or interpreting any of the provisions of this Agreement.

14.18 Fees and Payments . All fees and payments made by one Party to the other under this Agreement shall be deemed non-refundable and non-creditable unless expressly provided to the contrary herein.

14.19 No Implied Licenses . Except as specifically and expressly granted in this Agreement, no rights or licenses to any Intellectual Property Rights are granted by either Party to the other, by implication, estoppel or otherwise, and each Party specifically reserves all its rights with respect to any Intellectual Property Rights not specifically granted hereunder. Furthermore, unless expressly provided otherwise herein, each Party may use and practice its own Intellectual Property Rights, technology and data in any manner not inconsistent with the terms of this Agreement without the consent of the other Party and without obligation to notify the other Party of its intended use.

14.20 Information for Financial Reporting . In addition to any reports provided by the Parties hereunder, including the reports provided by Zogenix pursuant to Section 7.1 , each Party agrees to use reasonable efforts to provide the other party such financial information, including Development Costs and/or estimated [***] allow the other Party to accrue the proper expenses and revenues as required by GAAP and required for financial reporting under Applicable Laws; provided however, for clarity, this Section 14.20 shall not be construed to require a Party to disclose any information that is not otherwise required to be disclosed to the other Party under the terms of this Agreement.

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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly authorized representative as of the day and year first above written.


Durect Corporation

By:		/s/ Felix Theeuwes
		Name: Felix Theeuwes, D.Sc.
		Title: Chairman and Chief Scientific Officer

Zogenix, Inc.

By:		/s/ Stephen J. Farr
		Name: Stephen J. Farr, Ph.D.
		Title: President and Chief Operating Officer

Schedule 1.21 - Durect Development Costs

Durect Development Costs , including [***]

CONFIDENTIAL

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Schedule 1.22 - Durect Technology Patents

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Schedule 1.66 - Zogenix Technology Patents

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Schedule 2.1 - Initial Members of JDC

DURECT MEMBERS

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ZOGENIX MEMBERS

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Exhibit 10.5

ZOGENIX, INC.

ANNUAL INCENTIVE PLAN

PURPOSE

This Zogenix, Inc. Annual Incentive Plan (the “ Plan ”) is intended to provide an incentive for eligible employees of Zogenix, Inc. (the “ Company ”) to perform to the best of their abilities, to further the growth, development and financial success of the Company, and to enable the Company to attract and retain highly qualified employees.

2.	PARTICIPANTS

All employees of the Company and its subsidiaries meeting the eligibility requirements set forth in this Section 2 shall be eligible to receive a bonus award (an “ Award ”) hereunder (each such eligible employee, a “ Participant ”). To receive an Award under the Plan with respect to any Incentive Plan Year (as defined below), a Participant must:

(a) Be an “ Active ” employee as of the date of payment of his or her Award. For purposes of this Plan, “ Active ” shall mean an employee who is actively employed by the Company, including those employees on an approved leave of absence such as medical, personal or military leave, but not an employee who has been moved to “inactive” status pursuant to the Company’s employee handbook.

(b) Be a “ Regular Full-Time Employee ” at the end of the relevant Incentive Plan Year. For purposes of this Plan, “ Regular Full-Time Employee ” shall mean an employee who actually worked at least 1,560 regular hours during the relevant Incentive Plan Year (or the equivalent of 30 hours per week). The preceding hours requirement will be prorated for employees out on a medical leave of absence covered by the federal Family and Medical Leave Act or similar state law. Temporary or seasonal employees, interns, independent contractors and consultants are ineligible to participate in the Plan.

(c) Have been in an eligible position for at least three (3) consecutive months prior to the end of the relevant Incentive Plan Year.

(d) Be performing at a minimum level of “Needs Improvement” or higher at the time his or her Award is paid.

(e) Not engage in and/or be involuntarily terminated as a result of, serious misconduct ( e.g., theft, dishonesty, workplace violence) or violation of Company policy during the Incentive Plan Year or prior to the payment of his or her Award, as determined by the Company.

3.	THE COMMITTEE

The Plan shall be administered by a committee (the “ Committee ”) of the Board of Directors of the Company (the “ Board ”), which shall be appointed by the Board. Initially, the Compensation Committee of the Board shall constitute the Committee. The Committee shall have the discretion and authority to administer and interpret the Plan, including the authority to establish bonus programs under the Plan from time to time containing such terms and conditions as the Committee may determine or deem appropriate in its discretion.

4.	PERFORMANCE GOALS

The Plan is intended to provide incentive for the achievement of approved annual corporate and individual objectives (the “ Performance Goals ”) with respect to each calendar year during the term of the Plan (each an “ Incentive Plan Year ”).

(a) Corporate Performance Goals. Prior to or at the beginning of each Incentive Plan Year, the Committee shall select such objective corporate Performance Goals for such Incentive Plan Year as the Committee may determine in its sole discretion. It is intended that the corporate Performance Goals be objectively determinable and based upon financial metrics set forth in the Company’s annual business plan or strategic objectives consistent with the Company’s annual business plan, with the weighting of the various objectives to be approved by the Committee.

(b) Individual Performance Goals . All Participants in the Plan will work with their managers to develop a list of key individual Performance Goals, which individual Performance Goals will be subject to the approval of each Participant’s manager. The individual Performance Goals for the executive officers of the Company will be approved by the Chief Executive Officer of the Company.

5.	TARGET AWARD PERCENTAGES

Each Participant will be assigned a “ Target Award Percentage ” based on his or her job classification and responsibilities. A Participant’s Target Award Percentage for any given Incentive Plan Year will be based on his or her job classification as of December 31 of such Incentive Plan Year. The Target Award Percentages will be reviewed annually by the Committee and be adjusted, as necessary or appropriate. The initial Target Award Percentages for purposes of the Plan will be as follows:


Position	Target Award Percentage (% of base salary)
Chief Executive Officer		50	%
President/COO/CFO		45	%
CCO/CDO/SVP		35	%
Vice Presidents		30	%
Senior Directors/Controller		22.5	%
Directors		20	%
Associate Directors		17.5	%
Managers		15	%
Administrative Staff		10	%

A “ Target Award ” for each Participant for each Incentive Plan Year will be determined by multiplying his or her “ Target Award Percentage ” by his or her base salary as of December 31 of such Incentive Plan Year.

If a Participant moves from one Target Award Percentage tier to another during an Incentive Plan Year, the Participant’s Award will be prorated according to the time in each position during the evaluation period. Proration for partial months will be calculated using the number of days in a given position for the partial month.

6.	WEIGHTINGS

Other than the Chief Executive Officer of the Company, whose Award will be determined solely by reference to corporate Performance Goal achievement, a portion of each Participant’s Award will be based on corporate Performance Goal achievement and a portion will be based on individual Performance Goal achievement. The relative weight between these goals will vary based on levels within the organization. The weighting will be reviewed annually by the Committee and be adjusted, as necessary or appropriate.

The initial weightings for purposes of the Plan will be as follows:


	Corporate			Individual
Chief Executive Officer		100	%		0	%
President/COO/CFO		80	%		20	%
CCO/CDO/SVP		60	%		40	%
Vice Presidents		60	%		40	%
Senior Directors/Controller		50	%		50	%
Directors		40	%		60	%
Associate Directors		35	%		65	%
Managers		30	%		70	%
Administrative Staff		20	%		80	%

7.	PERFORMANCE MEASUREMENT

Separate “ Performance Factors ” will be established for each of the corporate and individual Performance Goals applicable to each Award for each Incentive Plan Year.

(a) Corporate Performance Factor . The Chief Executive Officer of the Company will present to the Committee for its approval his assessment of the level of the Company’s achievement of its corporate Performance Goals, in its sole discretion. The corporate “Performance Factor” shall be expressed as a percentage within the range specified by the Committee with respect to each Incentive Plan Year, which percentage may exceed 100%. The same corporate “Performance Factor,” as approved by the Committee, shall be applied to each Participant’s overall Award and used for the corporate component of each Participant’s Award.

(b) Individual Performance Factor . A Participant’s achievement level relative to his or her individual Performance Goals will be used to calculate a Performance Factor for such Participant which shall be expressed as a percentage within the range specified by the Committee or its designee with respect to each Incentive Plan Year, which percentage may exceed 100%. While a Participant’s direct manager shall take a Participant’s achievement with respect to his or her individual Performance Goals for the Incentive Plan Year into account in determining the individual Performance Factor, any such determination remains in the sole discretion of the direct manager based on their subjective assessment of a Participant’s overall performance. The proposed individual Performance Factors for the executive officers of the Company will be presented by the Chief Executive Officer of the Company to the Committee for its approval, which shall retain the sole discretion to determine such executive individual Performance Factors based on its subjective assessment of an executive’s overall performance.

8.	AWARD CALCULATIONS

The actual Award for a Participant will be calculated by first multiplying the corporate Performance Factor by each Participant’s Target Award. The resulting amount for each Participant will then be allocated between the corporate and individual weightings for the relevant Incentive Plan Year, and then applying the corresponding Performance Factor to each such amount.

The example below shows a sample Award calculation under the Plan. First, a total Target Award is calculated by multiplying the Plan Participant’s base salary by the Target Award Percentage. This amount is then multiplied by the corporate Performance Factor. The resulting amount is then divided into its corporate component and its individual component, if any, based on the relative weightings for that Participant’s specific position. This calculation establishes specific dollar Target Award for the Plan year for each component of the Award.


Example:	Position:	Senior Director
	Base Salary:	$200,000
	Target Award Percentage:	30%
	Target Award (in dollars):	$60,000

	Assumed Performance Factors based on the following assessment of corporate and individual performance:
	Corporate Performance Factor	90%
	Individual Performance Factor	100%

	Award Calculation:

	Target Award Adjusted for	$54,000
	Corporate Performance	($60,000 x 90%)

	Award components (based on weightings):
	Corporate performance (50%):	$27,000
	Individual performance (50%):	$27,000

	Corporate component	$27,000
	Individual component	$27,000 ($27,000 x 100%)
	Total Award:	$54,000

Award calculations will be based on a Participant’s base salary as of the last day of the applicable Plan year.

Participants who have been in an eligible position for less than a year, but who hold an eligible position for at least three months prior to the end of the Plan year and remain continuously employed through the end of the Plan year, will receive a pro-rata Award based on the portion of the Plan year they hold an eligible position. Award payments will also be prorated for any time during the year an employee is not classified as an Active employee or Regular Full-Time Employee. Proration for partial months will be calculated using the number of days as an Active employee for the partial months. Other than as stated above, Awards will not be prorated for partial year service.

The Committee may, in its discretion, reduce or eliminate an Award otherwise payable to any Participant. Any such reduction or elimination may be made based on such objective or subjective determinations as the Committee determines appropriate.

9.	PAYMENT OF AWARDS

The payment of Awards under the Plan shall be made on any date or dates determined by the Committee during the calendar year following the Incentive Plan Year to which such Awards relate and shall be subject to such terms and conditions as may be determined by the Committee in its sole discretion. As provided in Section 2, a Participant must be an Active employee of the Company or its subsidiaries and in good standing as of the date on which the Award is paid in order to be entitled to receive such Award. If a Participant dies or a Participant’s employment is terminated for any reason prior to the payment of his or her Award, the payment of any Award (and in the case of death, the person or persons to whom such payment shall be made) shall be determined at the sole discretion of the Committee.

Any Award that becomes payable under the Plan may be paid in the form of cash, shares of the Company’s common stock or a combination of both, as determined by the Committee in its sole discretion. To the extent that the Committee determines to pay an Award in the form of shares of the Company’s common stock, such shares shall be awarded under the Company’s 2010 Equity Incentive Award Plan, as amended from time to time, and shall be subject to the terms and conditions thereof.

10.	AMENDMENT, SUSPENSION AND TERMINATION

The Company may amend, suspend or terminate the Plan at any time in its sole discretion. Such discretion may be exercised any time before, during, and after the Plan year is completed. No Participant shall have any vested right to receive any payment until actual delivery of such compensation.

11.	MISCELLANEOUS

(a) The Company shall deduct all federal, state, and local taxes required by law or Company policy from any Award paid hereunder.

(b) In no event shall the Company be obligated to pay to any Participant an Award for any period by reason of the Company’s payment of an Award to such Participant in any other period, or by reason of the Company’s payment of an Award to any other Participant or Participants in such period or in any other period.

(c) This Plan does not, and Company policies and practices in administering this Plan do not, constitute an express or implied contract or other agreement concerning the payment of any Award or the duration of any Participant’s employment with the Company. The employment relationship of each Participant is “at will” and may be terminated at any time by the Company or by the Participant, with or without cause.

(d) The Plan shall be unfunded. Amounts payable under the Plan are not and will not be transferred into a trust or otherwise set aside. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under the Plan. Any accounts under the Plan are for bookkeeping purposes only and do not represent a claim against the specific assets of the Company.

(e) No rights of any Participant to payments of any amounts under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated. All rights with respect to an Award granted to a Participant under the Plan shall be available during his or her lifetime only to the Participant.

(f) Any provision of the Plan that is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of the Plan.

(g) The Plan shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of California (without regard to principles of conflicts of law).

* * * * *

I hereby certify that the foregoing Plan was duly adopted by the Committee on May 24, 2011.


/s/ Ann D. Rhoads
Name:		Ann D. Rhoads
Title:		Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Roger L. Hawley, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Zogenix, 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 consolidated 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)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) 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

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Roger L. Hawley

Roger L. Hawley

Chief Executive Officer

Date: August 11, 2011

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-

OXLEY ACT OF 2002

I, Ann D. Rhoads, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Zogenix, 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.

/s/ Ann D. Rhoads

Ann D. Rhoads

Chief Financial Officer

Date: August 11, 2011

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

In connection with the Quarterly Report on Form 10-Q of Zogenix, Inc. (the “Company”) for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Roger L. Hawley, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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 11, 2011				/s/ Roger L. Hawley
				Roger L. Hawley
				Chief Executive Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

In connection with the Quarterly Report on Form 10-Qof Zogenix, Inc. (the “Company”) for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ann D. Rhoads, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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 11, 2011				/s/ Ann D. Rhoads
				Ann D. Rhoads
				Chief Financial Officer