ZOGENIX, INC. (Form: 10-Q, Received: 11/07/2019 17:23:07)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

___________________________________________

FORM 10-Q

___________________________________________

(Mark One)


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

For the quarterly period ended September 30, 2019


☐			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.)

5959 Horton Street, Suite 500 Emeryville, California			94608
(Address of Principal Executive Offices)			(Zip Code)

510-550-8300

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ZGNX

The Nasdaq Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No ☐

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 x No

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of October 31, 2019 was 44,254,761.

ZOGENIX, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2019

Table of Contents


			Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018	5

	Condensed Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2019 and 2018	6

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	8

	Notes to the Condensed Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	37

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	56

Item 5.	Other Information	56

Item 6.	Exhibits	57

	Signatures	59

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Zogenix, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except par value)


	September 30, 2019		December 31, 2018
Assets:
Current assets:
Cash and cash equivalents	$	33,099	$	68,454

Marketable securities	221,865		445,733


Prepaid expenses	9,108		6,718
Acquisition holdback amount placed in escrow	25,000		—
Other current assets	3,202		11,825

Total current assets	292,274		532,730
Property and equipment, net	9,782		2,870
Operating lease right-of-use assets	8,134		—
Intangible assets	102,500		102,500
Goodwill	6,234		6,234
Other noncurrent assets	1,442		3,997

Total assets	$	420,366	$	648,331
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	7,553	$	7,989
Accrued and other current liabilities	23,125		18,086
Acquisition holdback liability	24,444		—
Deferred revenue, current	5,688		—
Current portion of operating lease liabilities	1,431		—
Current portion of contingent consideration	35,200		32,300


Total current liabilities	97,441		58,375


Deferred revenue, noncurrent	8,113		—
Operating lease liabilities, net of current portion	11,095		—
Contingent consideration, net of current portion	35,700		45,900
Deferred income taxes	17,425		17,425
Other long-term liabilities	—		3,830
Total liabilities	169,774		125,530
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding	—		—
Common stock, $0.001 par value; 100,000 and 50,000 shares authorized and 44,251 and 42,078 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	44		42
Additional paid-in capital	1,309,523		1,218,710
Accumulated deficit	(1,059,397)		(695,954)
Accumulated other comprehensive income	422		3
Total stockholders’ equity	250,592		522,801
Total liabilities and stockholders’ equity	$	420,366	$	648,331

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Collaboration revenue	$	630	$	—	$	1,699	$	—
Operating expenses:
Research and development	28,372		27,608		79,820		77,329
Selling, general and administrative	15,762		11,016		42,139		27,663
Acquired in-process research and development and related costs	249,437		—		249,437		—
Change in fair value of contingent consideration	400		5,700		2,700		3,200
Total operating expenses	293,971		44,324		374,096		108,192
Loss from operations	(293,341)		(44,324)		(372,397)		(108,192)
Other income (expense):
Interest income	2,382		2,133		8,521		3,995


Other income (expense)	481		(73)		433		2,914
Total other income	2,863		2,060		8,954		6,909


Net loss from continuing operations	(290,478)		(42,264)		(363,443)		(101,283)
Loss from discontinued operations, net of tax	—		—		—		(198)
Net loss	$	(290,478)	$	(42,264)	$	(363,443)	$	(101,481)
Net loss per share, basic and diluted:
Continuing operations	$	(6.75)	$	(1.08)	$	(8.54)	$	(2.78)
Discontinued operations	—		—		—		—
Total	$	(6.75)	$	(1.08)	$	(8.54)	$	(2.78)

Weighted average common shares used in the calculation of basic and diluted net loss per common share	43,029		39,242		42,577		36,485

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc.

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Net loss	$	(290,478)	$	(42,264)	$	(363,443)	$	(101,481)
Other comprehensive income (loss):
Available-for-sale marketable securities:
Unrealized gains (losses) arising during period	18		(46)		741		(46)
Reclassification adjustments for realization of gain on sale of marketable securities included in net loss	(322)		—		(322)		—
Total other comprehensive (loss) income	(304)		(46)		419		(46)
Comprehensive loss	$	(290,782)	$	(42,310)	$	(363,024)	$	(101,527)

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc.

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

(in thousands)


	Nine Months Ended September 30, 2019
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2018	42,078	$	42	$	1,218,710	$	3	$	(695,954)	$	522,801
Net loss	—	—		—		—		(35,202)		(35,202)
Other comprehensive income	—	—		—		370		—		370
Issuance of common stock under employee equity plans	380	—		5,293		—		—		5,293
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	(12)	—		(606)		—		—		(606)
Stock-based compensation	—	—		4,223		—		—		4,223
Balance at March 31, 2019	42,446	$	42	$	1,227,620	$	373	$	(731,156)	$	496,879
Net loss	—	—		—		—		(37,763)		(37,763)
Other comprehensive income	—	—		—		353		—		353
Issuance of common stock under employee equity plans	52	—		888		—		—		888
Stock-based compensation	—	—		5,358		—		—		5,358
Balance at June 30, 2019	42,498	$	42	$	1,233,866	$	726	$	(768,919)	$	465,715
Net loss	—	—		—		—		(290,478)		(290,478)
Other comprehensive loss	—	—		—		(304)		—		(304)
Issuance of common stock as consideration for asset acquisition	1,595	2		68,122		—		—		68,124
Issuance of common stock under employee equity plans	163	—		2,238		—		—		2,238
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	(5)	—		(138)		—		—		(138)
Stock-based compensation	—	—		5,435		—		—		5,435
Balance at September 30, 2019	44,251	$	44	$	1,309,523	$	422	$	(1,059,397)	$	250,592

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc.

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

(in thousands)


	Nine Months Ended September 30, 2018
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2017	34,808	$	35	$	873,526	$	—	$	(572,040)	$	301,521
Net loss	—	—		—		—		(30,180)		(30,180)


Issuance of common stock under employee equity plans	198	—		1,930		—		—		1,930
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	(33)	—		(1,411)		—		—		(1,411)
Stock-based compensation	—	—		1,912		—		—		1,912
Balance at March 31, 2018	34,973	$	35	$	875,957	$	—	$	(602,220)	$	273,772
Net loss	—	—		—		—		(29,037)		(29,037)

Issuance of common stock, net of offering costs	740	1		30,251		—		—		30,252
Issuance of common stock under employee equity plans	114	—		1,838		—		—		1,838
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	—	—		(18)		—		—		(18)
Stock-based compensation	—	—		3,059		—		—		3,059
Balance at June 30, 2018	35,827	36		911,087		—		(631,257)		279,866
Net loss	—	—		—		—		(42,264)		(42,264)
Other comprehensive loss	—	—		—		(46)		—		(46)
Issuance of common stock, net of offering costs	6,000	6		292,880		—		—		292,886
Issuance of common stock under employee equity plans	98	—		1,357		—		—		1,357
Stock-based compensation	—	—		6,981		—		—		6,981
Balance at September 30, 2018	41,925	$	42	$	1,212,305	$	(46)	$	(673,521)	$	538,780

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2019		2018
Cash flow from operating activities:
Net loss	$	(363,443)	$	(101,481)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Stock-based compensation	15,016		11,952
Depreciation and amortization	910		76

Net accretion and amortization of investments in marketable securities	(4,495)		(521)
Realized gain on sale of available-for-sale marketable securities	(322)		—
Change in fair value of warrant liabilities	(241)		95
Acquired in-process research and development and related costs	249,437		—
Change in fair value of contingent purchase consideration	2,700		3,200
Changes in operating assets and liabilities:


Prepaid expenses, escrow holdback and other current assets	(18,056)		1,429
Other assets	(5,225)		551
Accounts payable, accrued and other liabilities	20,863		1,463
Operating lease liability	12,172		—
Deferred revenue	13,801		—
Net cash used in operating activities	(76,883)		(83,236)
Cash flows from investing activities:
Cash paid for asset acquisition, net of cash acquired	(175,732)		—
Purchases of marketable securities	(308,202)		(375,612)
Proceeds from maturities of marketable securities	364,345		—
Proceeds from sales of marketable securities	172,960		—
Purchases of property and equipment	(9,584)		(75)
Net cash provided by (used in) investing activities	43,787		(375,687)
Cash flows from financing activities:
Payment of contingent consideration	(10,000)		—
Proceeds from issuance of common stock under equity incentive plans	8,399		6,749
Taxes paid related to net share settlement of equity awards	(658)		(1,426)
Proceeds from issuance of common stock, net of issuance costs	—		323,135
Net cash (used in) provided by financing activities	(2,259)		328,458
Net decrease in cash and cash equivalents	(35,355)		(130,465)
Cash and cash equivalents, beginning of the period	68,454		293,503
Cash and cash equivalents, end of the period	$	33,099	$	163,038

Noncash investing activities:

Common stock issued as consideration for asset acquisition	$	68,124	$	—
Net liabilities assumed in connection with asset acquisition	$	3,688	$	—
Unpaid transaction costs related to asset acquisition	$	2,449	$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Organization and Basis of Presentation

Zogenix, Inc. and subsidiaries (the Company, we, us or our) is a global pharmaceutical company committed to developing and commercializing transformative therapies to improve the lives of patients and their families living with rare diseases. We are currently focused on developing and commercializing therapies to address rare or orphan disorders. Our lead product candidate, Fintepla (ZX008, fenfluramine) is currently being developed for the treatment of seizures associated with Dravet syndrome and Lennox-Gastaut syndrome (LGS).

In September 2019, we acquired all of the outstanding equity interests in Modis Therapeutics, Inc. (Modis), a privately-held biopharmaceutical company. Modis’ lead product, MT1621, is an investigational deoxynucleoside substrate enhancement therapy in development for the treatment of thymidine kinase 2 deficiency (TK2d), an inherited mitochondrial DNA depletion disorder that predominantly affects children and is often fatal. See Note 3 for additional information.

We operate in one business segment—the research, development and commercialization of pharmaceutical products and our headquarters are located in Emeryville, California.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Zogenix, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The results of operations for any interim period are not necessarily indicative of results of operations for any future period. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and related notes included in our 2018 Annual Report on Form 10-K, which was filed with the SEC on February 28, 2019.

Certain prior period amounts within the accompanying unaudited condensed consolidated financial statements have been reclassified to conform to current period presentation. These reclassifications did not affect our financial position, net loss, comprehensive loss, or cash flows as of and for the periods presented.

Our accompanying condensed consolidated financial statements include the assets acquired and liabilities assumed in connection with the acquisition of Modis, in addition to the operating results and cash flows, beginning with the date of the acquisition.

Future Funding Requirements

Excluding gains from two discrete business divestitures, we have incurred significant net losses and negative cash flows from operating activities since inception resulting in an accumulated deficit of $1.1 billion as of September 30, 2019. We expect to continue to incur significant operating losses and negative cash flows from operations as we continue to advance our product candidates through development and commercialization. Additionally, pursuant to our acquisition of Brabant Pharma Limited (Brabant) in 2014 to obtain worldwide development and commercialization rights to Fintepla, we are required to make additional payments to the former shareholders of Brabant in the event we achieve certain regulatory and sales milestones with Fintepla (See Note 6). Pursuant to our asset acquisition of Modis in September 2019, we are required to make additional payments to the former shareholders of Modis in the event we achieve certain regulatory milestones (See Note 3). Historically, we have relied primarily on the proceeds from equity offerings to finance our operations. Until such time, if ever, we can generate a sufficient amount of revenue to finance our cash requirements, we may need to continue to rely on additional financing to achieve our business objectives. However, if such financing is not available at adequate levels when needed, we may be required to significantly delay, scale back or discontinue one or more of our product development programs or commercialization efforts or other aspects of our business plans, and our operating results and financial condition would be adversely affected.

Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Significant Accounting Policies

Our other significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements included in our 2018 Annual Report on Form 10-K. As a result of material transactions entered into during the nine months ended September 30, 2019 and the adoption of the new lease accounting standard, we have updated our significant accounting policies disclosures herein. There were no other changes to our significant accounting policies from those disclosed in our 2018 Annual Report on Form 10-K.

Revenue Recognition

We analyze our collaboration arrangements to assess whether such arrangements, or transactions between arrangement participants, involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities or are more akin to a vendor-customer relationship. In making this evaluation, we consider whether the activities of the collaboration are considered to be distinct and deemed to be within the scope of the collaborative arrangement guidance and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customers guidance. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

For elements of collaboration arrangements that are not accounted for pursuant to the revenue from contracts with customers guidance, an appropriate recognition method is determined and applied consistently, generally by analogy to the revenue from contracts with customers guidance. Amounts related to transactions with a counterparty in a collaborative arrangement that is not a customer are presented as collaboration revenue and on a separate line item from revenue recognized from contracts with customers, if any, in our condensed consolidated statements of operations.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the condensed consolidated balance sheets. If the related efforts underlying the deferred revenue is expected to be satisfied within the next twelve months this will be classified in current liabilities. Unconditional rights to receive consideration in advance of performance are recorded as receivables and deferred revenue in the condensed consolidated balance sheets when we have a contractual right to bill and receive the payment, performance is expected to commence shortly and there is less than a year between billing and performance. Amounts recognized for satisfied performance obligations prior to the right to payment becoming unconditional are recorded as contract assets in the condensed consolidated balance sheets. If we expect to have an unconditional right to receive consideration in the next twelve months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer.

For arrangements or transactions between arrangement participants determined to be within the scope of the contracts with customers guidance, we perform the following steps to determine the appropriate amount of revenue to be recognized as we fulfill our obligations: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation.

At contract inception, we assess the goods or services promised in a contract with a customer and identify those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the performance obligation does not provide the customer with a material right.

We consider the terms of the contract and our customary business practices to determine the transaction price. The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative stand-alone selling prices unless the transaction price is variable and meets the criteria to be allocated entirely to one or more, but not all, performance obligations in the contract. The relative selling price for each performance obligation is based on observable prices if it is available. If observable prices are not available, we estimate stand-alone selling price for the performance obligation utilizing the estimated cost of the performance obligation with an estimated assumed margin. Once the transaction price has been allocated to a performance obligation using the applicable methodology, it is not subject to reassessment for subsequent changes in stand-alone selling prices.

Revenue is recognized when, or as, we satisfy a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset. For performance obligations that are satisfied over time, we recognize revenue using an input or output measure of progress that best depicts our satisfaction of the relevant performance obligation. Revenues from performance obligations associated with a purchase order of Fintepla will be recognized when the customer obtains control of our product, which will occur at a point in time which may be upon shipment or delivery to the customer.

After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any change in the overall transaction price is allocated to the performance obligations on the same methodology as at contract inception.

Management may be required to exercise judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified performance obligations, which may include forecasted revenue, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance obligations.

Acquisitions

We evaluate acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create outputs which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.

For asset acquisitions, a cost accumulation model is used to determine the cost of an asset acquisition. Common stock issued as consideration in an asset acquisition is generally measured based on the acquisition date fair value of the equity interests issued. Direct transaction costs are recognized as part of the cost of an asset acquisition. We also evaluate which elements of a transaction should be accounted for as a part of an asset acquisition and which should be accounted for separately. Consideration deposited into escrow accounts are evaluated to determine whether it should be included as part of the cost of an asset acquisition or accounted for as contingent consideration. Amounts held in escrow where we have legal title to such balances but where such accounts are not held in our name, are recorded on a gross basis as an asset with a corresponding liability in our condensed consolidated balance sheet.

The cost of an asset acquisition, including transaction costs, are allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. Goodwill is not recognized in an asset acquisition. Any difference between the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their relative fair values. Assets acquired as part of an asset acquisition that are considered to be in-process research and development (IPR&D) are immediately expensed unless there is an alternative future use in other research and development projects.

In addition to upfront consideration, our asset acquisitions may also include contingent consideration payments to be made for future milestone events or royalties on net sales of future products. We assess whether such contingent consideration meets the definition of a derivative. Contingent consideration payments in an asset acquisition not required to be accounted for as derivatives are recognized when the contingency is resolved, and the consideration is paid or becomes payable. Contingent consideration payments required to be accounted for as derivatives are recorded at fair value on the date of the acquisition and are subsequently remeasured to fair value at each reporting date. Contingent consideration payments made prior to regulatory approval are expensed as incurred. Contingent consideration payments made subsequent to regulatory approval are capitalized as intangible assets and amortized, subject to impairment assessments.

Recently Adopted Accounting Pronouncements

Accounting Standards Update (ASU) 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606 (ASU 2018-18) makes targeted improvements for collaborative arrangements by (1) clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under the contract with customer guidance (Topic 606) when the collaborative arrangement participant is a customer, (2) adding unit of account guidance to assess whether the collaborative arrangement, or a part of the arrangement, is with a customer and (3) precluding a company from presenting transactions with collaborative arrangement participants that are not directly related to sales to third parties together with revenue from contracts with customers. Entities must apply the guidance retrospectively as of the date of their initial application of Topic 606 and should recognize the cumulative effect of initially applying the amendments as an adjustment to opening retained earnings as of the later of (1) the earliest annual period presented and (2) the annual period that includes the date of the entity’s initial application of Topic 606. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted. We elected to early adopt this standard effective January 1, 2019 and have applied its guidance to our arrangement entered into in March 2019 with Nippon Shinyaku Co., Ltd. (See Note 4). No retrospective adjustment to our condensed consolidated financial statements was required as a result of our application of these amendments.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. Additionally, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, a summary of changes in each caption of stockholders’ equity presented in the consolidated balance sheets must be provided in a note or separate statement, and we have provided this disclosure beginning with the first quarter of 2019.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Topic 842 establishes a right-of-use asset model that requires all lessees to recognize ROU assets and liabilities for leases with a duration greater than one year on the balance sheet as well as provide disclosures with respect to certain qualitative and quantitative information regarding the amount, timing and uncertainty of cash flows arising from leases.

We adopted Topic 842 effective January 1, 2019 using the modified retrospective approach and elected the package of practical expedients permitted under transition guidance. Consequently, prior period financial information and related disclosures have not been adjusted and will continue to be presented in accordance with the previous lease standard. In addition, we elected the package of transition provisions available for existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct lease costs for existing leases. We did not elect the practical expedient allowing the use-of-hindsight which would require us to reassess the lease term of our leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio.

The adoption of Topic 842 did not have a material impact on our condensed consolidated statements of operations and cash flows. The impact on the accompanying condensed consolidated balance sheet as of January 1, 2019 was as follows (in thousands):


	December 31, 2018		Adjustments Due to the Adoption of Topic 842		January 1, 2019
Assets
Operating lease right-of-use assets	$	—	$	8,641	$	8,641

Liabilities
Other accrued liabilities	$	1,845	$	(363)	$	1,482
Current portion of operating lease liabilities	—		1,058		1,058
Operating lease liabilities, net of current portion	—		11,776		11,776
Other long-term liabilities	3,830		(3,830)		—
Total	$	5,675	$	8,641	$	14,316

Upon adoption on January 1, 2019, we recorded operating lease ROU assets and lease liabilities of $8.6 million and $12.8 million, respectively, with the difference between ROU assets and lease liabilities attributed to the reclassifications of deferred rent and lease incentive obligations, a cease-use liability and initial direct leasing costs as a component of ROU assets.

Prior to January 1, 2019, we recognized related rent expense on a straight-line basis over the term of the lease. Incentives granted under our operating lease, including allowances for leasehold improvements and rent holidays, were recognized as reductions to rent expense on a straight-line basis over the term of the lease. Deferred rent consisted of the difference between rent expense recognized on a straight-line basis and cash rent payments. Subsequent to the adoption of Accounting Standards Update (ASU) 2016-02 and related amendments (collectively, Topic 842) on January 1, 2019, we determine whether the arrangement is or contains a lease at the inception of the arrangement and if such a lease is classified as a financing lease or operating lease at lease commencement. All of our leases are classified as operating leases. Leases with a term greater than one year are included in operating lease right-of-use assets (ROU asset), current portion of lease liabilities, and lease liabilities, net of current portion in our condensed consolidated balance sheet at September 30, 2019. If a lease contains an option to renew, the renewal option is included in the calculation of lease liabilities if we are reasonably certain at lease commencement the renewal option will be exercised. Lease liabilities and their corresponding ROU assets are measured at the present value of the remaining lease payments, discounted at an appropriate incremental borrowing rate at lease commencement, or as of January 1, 2019, for our existing leases. Management uses judgment to estimate the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the ROU asset may be required for items such as initial direct lease costs, lease incentives, scheduled rent escalations and impairment charges if we determine the ROU asset is impaired. Operating lease expense is recognized on a straight-line basis over the lease term.

We elected the post-transition practical expedient to not separate lease components from non-lease components for all existing lease classes. We also elected a policy of not recording leases on our condensed balance sheets when a lease has a term of one year or less.

Recent Accounting Pronouncements Not Yet Effective

ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments requires that certain financial assets be measured at amortized cost net of an allowance for estimated credit losses such that the net receivable represents the present value of expected cash collection. In addition, this standard update requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based on all relevant information including historical information, current conditions and reasonable and supportable forecasts that affect the collectability of the amounts. This standard update is effective for us on January 1, 2020 with early adoption permitted. We expect to adopt this ASU on January 1, 2020 and are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The updated guidance requires a prospective adoption. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the timing and effect that the updated standard will have on our consolidated financial statements and related disclosures.

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted for any removed or modified disclosures. We are currently evaluating the timing and effect that the updated standard will have on our consolidated financial statements and related disclosures.

Note 3 – Modis Asset Acquisition and Assumption of License Agreements

Asset Acquisition of Modis

On September 6, 2019, the date the transaction closed, we acquired all of the outstanding equity interests of Modis, a privately-held biopharmaceutical company, to expand our late-stage development pipeline. Modis was formed in May 2016 through a collaboration with academic experts in mitochondrial biology. Modis holds an exclusive worldwide license from Columbia University in New York City (Columbia) to certain intellectual property rights owned or controlled by Columbia to develop and commercialize MT1621. MT1621 is an investigational deoxynucleoside substrate enhancement therapy (SET) for the treatment of thymidine kinase 2 deficiency (TK2d), an inherited mitochondrial DNA depletion disorder that predominantly affects children and is often fatal. Aggregate upfront consideration transferred of approximately $246.5 million consisted of $175.5 million in cash payments made and 1,595,025 unregistered shares of our common stock issued to the outstanding shareholders of Modis as well as employee award holders under the legacy Modis 2017 Stock Plan (Modis Plan). The fair value of common stock issued as acquisition consideration was $68.1 million on the date the transaction closed. Also included in the aggregate upfront consideration transferred were $3.5 million of transaction costs incurred, reduced by a net working capital adjustment receivable of $0.6 million. Pursuant to the terms of the Modis purchase agreement, certain unvested awards held by employees under the Modis Plan converted into the right to receive a pro-rata share of the purchase consideration at the date of acquisition, with no future service requirement. A component of the total consideration transferred was attributed to the unvested awards with a fair value of $4.9 million and was accounted for as a separate transaction from the asset acquisition. This amount was immediately expensed and included in the “Acquired in-process research and development and related costs” line item in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019.

Of the upfront cash consideration, $25.0 million was deposited into an escrow account to fund post-closing net working capital adjustments, and general representations and warranties for a one-year period. In addition, the former shareholders of Modis are eligible to receive milestone payments consisting of $100.0 million upon FDA approval and $50.0 million upon EMA approval of MT1621, as well as a 5% royalty on any future net sales of specified Modis products. The upfront cash consideration was funded by our cash and marketable securities on hand. The shares of our common stock provided as consideration were subsequently registered under our existing shelf registration statement on Form S-3 (No. 333-220759).

We determined substantially all of the fair value of Modis was concentrated in a single IPR&D asset group, which included license rights, clinical trial data, clinical trial development plans, research and development materials, formulations and intellectual property related to MT1621. Accordingly, the acquired set of assets and activities did not meet the definition of a business. As a result, we accounted for the transaction as an asset acquisition and allocated the remaining upfront consideration transferred to the identifiable tangible and intangible assets acquired and liabilities assumed based on their relative fair values resulting in $244.5 million being assigned to the IPR&D asset associated with MT1621 and $2.8 million for assumed net liabilities. In connection with the acquisition, 13 former Modis employees continued their employment with Zogenix on an at-will basis. The relative fair value attributed to this assembled workforce was deemed to be insignificant.

As of the acquisition date, Modis had completed a pivotal Phase 2 retrospective treatment clinical trial study (RETRO) of MT1621 substrate enhancement therapy in patients with TK2d and commenced a Phase 2 prospective, open-label extension clinical trial study of patients with TK2d. As the MT1621 program had not yet reached technological feasibility and had no alternative future use, the purchased IPR&D asset was expensed immediately subsequent to the acquisition within our condensed consolidated statements of operations. As we had no tax basis in the acquired IPR&D asset, and the acquired IPR&D asset was expensed prior to the measurement of any deferred taxes, no deferred taxes were recognized for the initial differences between the amounts recognized for financial reporting and tax purposes.

We have recorded the acquisition holdback amount placed in escrow of $25.0 million within current assets with a corresponding current liability, net of post-closing adjustment of $0.6 million on our condensed consolidated balance sheet at September 30, 2019.

The milestone payments due upon FDA or EMA approval and royalty payments on future net sales of MT1621 products were determined to be contingent consideration. We determined the contingent consideration was not subject to derivative accounting and will be recognized when the contingency is resolved, and the consideration is paid or becomes payable.

The nature of the remaining efforts for completion of the MT1621 program primarily consist of performing clinical trials and validating contract manufacturing abilities, the cost, length and success of which are extremely difficult to determine. Numerous risks and uncertainties can delay or stop clinical development of a pharmaceutical product prior to the receipt of marketing approval, including, but not limited to, results from clinical trials that do not support continuing development, issues related to manufacturing or intellectual property protection, and other events or circumstances that cause unanticipated delays, technical problems or other difficulties. Given these risks and uncertainties, there can be no assurance that the development of

MT1621 will be successfully completed. If the development of MT1621 is not successful, in whole or in part, or completed in a timely manner, we may not realize the expected financial benefits from the development of MT1621.

License Agreement with Columbia University

As a result of our acquisition of Modis, we became party to the Exclusive License Agreement, by and between Modis and the Trustees of Columbia University in the City of New York, dated as of September 26, 2016, related to MT1621. We are required to use commercially reasonable efforts to develop and commercialize licensed products worldwide, including to meet certain development and commercialization milestones within specified periods of time. Upon the achievement of certain regulatory and commercial milestones, we are required to pay Columbia University up to $2.9 million and $25.0 million, respectively, as well as tiered royalties on sales for each licensed product, at percentages ranging from the mid-single digits to the high single-digits. The royalty obligations and License Agreement will expire on a country-by-country and product-by-product basis upon the later of (i) 15 years after the first bona fide commercial sale of a licensed product, (ii) the expiration of the last to expire valid patent claim covering a licensed product in a country or (iii) expiration of any regulatory exclusivity covering such licensed product. The License Agreement may be terminated by either by Columbia or by us in the event of an uncured material breach by the other party, or by Columbia in the event we are subject to specified bankruptcy, insolvency or similar circumstances. We can terminate the License Agreement either in its entirety or on a product-by-product and country-by-country basis, upon specified prior written notice to Columbia, provided we are not exploiting licensed products in such countries.

Other License Agreement Assumed

We also became party to a license agreement between two other research institutions related to MT1621 where we may be required to pay up to $2.7 million for research, development and regulatory milestone events and up to $10.0 million for certain sales milestone events. We are also required to pay tiered royalties ranging from low to mid-single digits on net sales of licensed product.

Note 4 – Collaborative Arrangement

In March 2019, we entered into an agreement (Shinyaku Agreement) with Nippon Shinyaku Co., Ltd. (Shinyaku) for the exclusive distribution of Fintepla in Japan for the treatment of Dravet syndrome and LGS. As part of the Shinyaku Agreement, we are responsible for completing the global clinical development and all regulatory approval activities for Fintepla to support the submission of new drug applications in Japan for Dravet syndrome and LGS. Shinyaku will be responsible for the commercialization activities including the promotion, marketing, sale and distribution of Fintepla in Japan. Upon regulatory approval of Fintepla in Japan, Shinyaku will also act as our exclusive distributor for commercial shipment and distribution of Fintepla in Japan. If we pursue global development of Fintepla for indications other than Dravet syndrome or LGS, Shinyaku has the option to participate in the development for such indications in Japan, subject to cost sharing requirements pursuant to the agreement. Activities under the Shinyaku Agreement will be governed by a joint steering committee (JSC) consisting of three representatives from each party to the agreement. All decisions of the JSC are to be made by a unanimous vote with tie-breaking rights provided to each party for certain matters related to development, regulatory approval and commercialization.

Shinyaku has agreed to support development and regulatory approval of Fintepla in Japan by actively participating in the design of non-clinical, clinical and manufacturing requirements needed for regulatory submission, actively planning and participating in product labeling decisions and discussions with the Japanese Ministry of Health, Labor and Welfare (MHLW) and obtained distribution exclusivity through the payment of $20.0 million, of which $15.5 million was received shortly after the execution of the agreement with the remainder payable over the next two years. We will be actively running the clinical trials, performing manufacturing validation activities, preparing regulatory filings and holding discussions with MHLW, and negotiating pricing. We and Shinyaku have agreed to proportionally share the Japan specific development costs that may arise outside of the initial development plan and any post-approval clinical study costs in Japan. In addition, we can earn up to $66.0 million from Shinyaku for the achievement of certain regulatory milestones related to the treatment of Dravet syndrome and the treatment of LGS.

After regulatory approval of Fintepla in Japan has been obtained, we have agreed to supply Shinyaku with Fintepla upon receipt of purchase orders at our actual manufacturing cost plus a fixed transfer price mark-up, a fixed percentage of Shinyaku's net sales of Fintepla in Japan for such fiscal year, and a net price mark-up based on a percent of the applicable aggregate sales of Fintepla by Shinyaku for such fiscal year. The net price mark-up percentage increases with Shinyaku’s sales of Fintepla annual net sales in Japan and ranges between mid-twenties and is capped at a low thirties of the aggregate annual net sales for an applicable fiscal year.

In addition, we can earn up to an additional $42.5 million tied to the achievement of certain net sales milestones by Shinyaku through the term of the agreement.

The Shinyaku Agreement expires in September of 2045, unless earlier terminated by either party for a change in control, a material breach, bankruptcy, dissolution, or winding up of such other party. The Shinyaku Agreement may be also terminated by either party: (1) with one year prior written notice to the other party on or after the date of the first commercial sale of a competing generic version of the Fintepla in Japan, (2) if, prior to the launch of the Fintepla in Japan, a party has a good faith concern, based on credible evidence, that such launch is not likely to be possible with commercially reasonable efforts, or (3) if a party believes Fintepla poses a substantial safety concern. We may also terminate the agreement following the second anniversary of the first commercial sale of the Fintepla in Japan if Shinyaku has failed to achieve or maintain certain diligence obligations under the Shinyaku Agreement. Shinyaku may also terminate the agreement if, prior to the launch of the Fintepla in Japan, Shinyaku has a good faith concern that Fintepla will not be commercially viable in Japan.

We concluded that collaborative activities under the Shinyaku Agreement prior to regulatory approval are within the scope of the collaborative arrangements guidance as both parties are active participants and are exposed to significant risks and rewards dependent on the success of commercializing Fintepla in Japan. Shinyaku is not a customer as it does not obtain an output of our development and regulatory approval activities for Fintepla as they were not provided a license to its intellectual property or the ability to manufacture the product, and we do not consider performing development and regulatory approval services to be a part of our ongoing activities.

We considered the revenue from contracts with customers guidance by analogy in determining the unit of account, and the recognition and measurement of such unit of account for collaborative activities under the Shinyaku Agreement and concluded that there are two development programs akin to performance obligations related to collaborative activities for development and regulatory approval efforts for Dravet and LGS. Participation on the JSC was concluded to be both quantitatively and qualitatively immaterial in the context of the Shinyaku Agreement. We are the principal as it relates to the collaborative development and regulatory approval activities primarily because we are responsible for the acceptability of the results of the work of the third-party vendors that are used to assist us in performing such activities. Therefore, such collaboration revenue has been presented on a gross basis in our condensed consolidated statements of operations apart from research and development expenses incurred.

The initial collaboration consideration allocated on a relative standalone selling price basis to each associated development program was determined using the most likely method to consist solely of the fixed consideration payments of $20.0 million. Analogizing to the revenue from contracts with customers variable consideration guidance, all potential regulatory milestone payment consideration will be included in the collaboration consideration if and when it is probable that a significant reversal in the amount of cumulative collaboration consideration recognized will not occur when the uncertainty associated with the variable collaboration consideration is subsequently resolved. At contract inception and through September 30, 2019, this consideration was fully constrained as the achievement of the events tied to these regulatory milestone payments was highly dependent on factors outside our control.

Collaboration revenue is being recognized over time as the collaborative activities related to each development program are rendered. We determined an input method is a reasonable representative depiction of the performance of the collaborative activities under the Shinyaku Agreement. The method of measuring progress towards completion incorporates actual internal and external costs incurred, relative to total internal and external costs expected to be incurred over an estimated period to satisfy the collaborative activities. The period over which total costs are estimated reflects our estimate of the period over which it will perform the collaborative activities for each development program. We expect to recognize collaboration revenue for each development program over periods ranging from three to four years. Changes in estimates of total internal and external costs expected to be incurred are recognized in the period of change as a cumulative catch-up adjustment to collaboration revenue.

As of September 30, 2019, we had received $15.5 million out of the $20.0 million in fixed consideration. The remaining $4.5 million will be billed in accordance with the terms of the agreement and will be recorded when there is an unconditional right to receive this payment. For the three and nine months ended September 30, 2019, we recognized collaboration revenue of $0.6 million and $1.7 million, respectively. As of September 30, 2019, $13.8 million related to this agreement was recorded as deferred revenue, which is classified as either current or net of current portion in the accompanying condensed consolidated balance sheets based on the period over which the collaboration revenue is expected to be recognized. We expect to recognize collaboration revenue related to these collaborative activities through the end of 2023.

We concluded that the supply of Fintepla to Shinyaku will be within the scope of the revenue from contracts with customers guidance if regulatory approval in Japan occurs and when a purchase order is received from Shinyaku. Such activity is considered to be a vendor customer relationship as Shinyaku will be a party that has contracted with an us to obtain goods or

services that are an output of our ordinary activities in exchange for consideration and selling approved commercial product to a customer is expected to be part of our ongoing activities. Each purchase order for a shipment of Fintepla will be identified as a separate performance obligation as we did not grant Shinyaku intellectual property rights. The agreed upon price for the supply of Fintepla (cost plus a fixed transfer price mark-up, fixed percentage of aggregate sales of Fintepla by Shinyaku per year, the net price mark-up and sales milestones) to Shinyaku does not represent a material right, and therefore is not a performance obligation, and such pricing on an aggregate basis represents the standalone selling price a distributor would typically pay for such a product in that region or market. There are also no minimum purchase commitments. The transaction price to be allocated to the performance obligation will include the fixed consideration associated with the cost-plus price of Fintepla and variable consideration associated with a fixed percentage of aggregate sales of Fintepla by Shinyaku per year, the net price mark-up and sales milestones subject to the constraint. As of September 30, 2019, Shinyaku has not provided us with any purchase orders and thus no revenue has been recognized for the supply of Fintepla.

Note 5 – Cash, Cash Equivalents and Marketable Securities

The following tables summarize the amortized cost and the estimated fair value of our cash, cash equivalents and marketable securities as of September 30, 2019 and December 31, 2018 (in thousands):


	September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	23,568	$	—	$	—	$	23,568
Cash equivalents:
Commercial paper	996		—		—		996

Money market funds	8,535		—		—		8,535
Total cash equivalents	9,531		—		—		9,531
Total cash and cash equivalents	33,099		—		—		33,099
Marketable securities:
Commercial paper	86,936		—		—		86,936
Corporate debt securities	81,835		425		(3)		82,257
Certificate of deposits	52,672		—		—		52,672

Total marketable securities	221,443		425		(3)		221,865
Total cash, cash equivalents and marketable securities	$	254,542	$	425	$	(3)	$	254,964


	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	5,222	$	—	$	—	$	5,222


Cash equivalents:
Money market funds	63,232		—		—		63,232

Total cash and cash equivalents	68,454		—		—		68,454
Marketable securities:
Commercial paper	152,940		—		—		152,940
Corporate debt securities	60,622		58		(75)		60,605
Certificate of deposits	128,647		—		—		128,647
U.S. Treasury securities	103,521		31		(11)		103,541
Total marketable securities	445,730		89		(86)		445,733
Total cash, cash equivalents and marketable securities	$	514,184	$	89	$	(86)	$	514,187

The following table summarizes the cost and fair value of marketable securities based on stated effective maturities as of September 30, 2019 (in thousands):


	Amortized Cost		Fair Value
Due within one year	$	168,397	$	168,490
Due between one and two years	53,046		53,375
Total	$	221,443	$	221,865

We determine realized gains or losses on the sale of marketable securities on a specific identification method. We recognized gross realized gains of $0.3 million for the three and nine months ended September 30, 2019. There were no sales of available-for-sale securities during the three and nine months ended September 30, 2018. We reflect these gains and losses as a component of other income (expense), net in the condensed consolidated statements of operations. As of September 30, 2019, available-for-sale debt securities that were in a continuous loss position but were not deemed to be other than temporarily impaired were not material.

See Note 6 for further information regarding the fair value of our financial instruments.

Note 6 – Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy has been established under GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined 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.

Our financial instruments consist primarily of cash and cash equivalents, marketable securities, other current assets, accounts payable and accrued liabilities, contingent consideration liabilities and our outstanding common stock warrant liabilities. Certain cash equivalents, marketable securities, contingent consideration liabilities and common stock warrant liabilities are reported at their respective fair values on our condensed consolidated balance sheets. The remaining financial instruments are carried at cost which approximates their respective fair values because of the short-term nature of these financial instruments.

The following tables summarize assets and liabilities recognized or disclosed at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 (in thousands):


	September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Commercial paper	$	—	$	996	$	—	$	996
Money market funds	8,535		—		—		8,535

Marketable securities:
Commercial paper	—		86,936		—		86,936
Corporate debt securities	—		82,257		—		82,257
Certificate of deposits	—		52,672		—		52,672

Total assets⁽¹⁾	$	8,535	$	222,861	$	—	$	231,396
Liabilities:
Common stock warrant liabilities⁽²⁾	$	—	$	—	$	102	$	102
Contingent consideration liabilities⁽³⁾	—		—		70,900		70,900


Total liabilities						$	—					$	—					$	71,002					$	71,002


	December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	63,232	$	—	$	—	$	63,232
Marketable securities:
Commercial paper	—		152,940		—		152,940
Corporate debt securities	—		60,605		—		60,605
Certificate of deposits	—		128,647		—		128,647
U.S. Treasury securities	—		103,541		—		103,541
Total assets⁽¹⁾	$	63,232	$	445,733	$	—	$	508,965
Liabilities:
Common stock warrant liabilities⁽²⁾	$	—	$	—	$	343	$	343
Contingent consideration liabilities⁽³⁾	—		—		78,200		78,200
Total liabilities	$	—	$	—	$	78,543	$	78,543

(1) Fair value is determined by taking into consideration valuations obtained from third-party pricing services. The third-party pricing services utilize industry standard valuation models, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; and other observable inputs.

(2) Represents the fair value of common stock warrants outstanding that may require cash settlement under certain circumstances. We estimated the fair value of the warrant liabilities using the Black-Scholes valuation model. As of September 30, 2019 and December 31, 2018, common stock warrant liabilities relate to warrants issued in July 2011 in connection with a debt financing arrangement. The warrants entitle the holder to purchase up to 28,125 shares of our common stock at an exercise price of $72.00 per share and expires in July 2021.

(3) In connection with a prior acquisition in 2014, we may be required to pay future contingent consideration upon the achievement of specified development, regulatory approval or sales-based milestone events. We estimated the fair value of the contingent consideration liabilities on the acquisition date using a probability-weighted income approach, which reflects the probability and timing of future payments. This fair value measurement is based on significant Level 3 inputs such as the anticipated timelines and probability of achieving development, regulatory approval or sales-based milestone events and projected revenues. The resulting probability-weighted cash flows are discounted at risk-adjusted interest rates. Subsequent to the acquisition date, at each reporting period prior to settlement, we revalue these liabilities by performing a review of the assumptions listed above and record increases or decreases in the fair value of these contingent consideration liabilities. In the absence of any significant changes in key assumptions, the quarterly determination of fair values of these contingent consideration liabilities would primarily reflect the passage of time and risk-adjusted interest rates. Significant judgment is used in determining Level 3 inputs and fair value measurements as of the acquisition date and for each subsequent reporting period. Updates to assumptions could have a significant impact on our results of operations in any given period and actual results may differ from estimates. For example, significant increases in the probability of achieving a milestone or projected revenues would result in a significantly higher fair value measurement while significant decreases in the estimated probability of achieving a milestone or projected revenues would result in a significantly lower fair value measurement. Significant increases in the discount rate or in the anticipated timelines would result in a significantly lower fair value measurement while significant decreases in the discount rate or anticipated timelines would result in a significantly higher fair value measurement. The acquisition provides for aggregate contingent consideration of up to $95.0 million, of which $10.0 million was paid in March 2019. As of September 30, 2019, the estimated fair value of our contingent consideration liabilities was $70.9 million, of which $35.2 million has been classified as current liabilities. The classification was based upon our reasonable expectation as to the timing of settlement of certain specified milestones.

The following tables provide a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2019 and 2018 (in thousands):

Contingent Consideration Liabilities


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Balance at beginning of period	$	70,500	$	74,400	$	78,200	$	76,900
Change in fair value	400		5,700		2,700		3,200
Settlements	—		—		(10,000)		—
Balance at end of period	$	70,900	$	80,100	$	70,900	$	80,100

Common Stock Warrant Liabilities


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Balance at beginning of period	$	501	$	543	$	343	$	512
Change in fair value	(399)		64		(241)		95
Balance at end of period	$	102	$	607	$	102	$	607

The changes in fair value of the liabilities shown in the tables above are recorded through change in fair value of contingent consideration liabilities within operating expense and the change in fair value of common stock warrant liabilities within other income (expense) in the condensed consolidated statements of operations.

There were no transfers between levels during the periods presented. See Note 5 for further information regarding the amortized cost of our financial instruments.

Note 7 – Accrued and Other Current Liabilities

The following table provides details of accrued and other current liabilities (in thousands):


	September 30, 2019		December 31, 2018
Accrued clinical trial expenses	$	11,100	$	10,621
Accrued compensation	6,219		5,277
Other accrued liabilities	5,704		1,845
Common stock warrant liabilities	102		343
Total accrued and other current liabilities	$	23,125	$	18,086

Note 8 – Leases

We have noncancellable operating leases consisting of administrative and research and development office space for our Emeryville, California headquarters and former headquarters in San Diego, California that expire in May 2027 and March 2020, respectively. Our Emeryville lease includes a renewal option for an additional five years, which was not included in our determination of the lease term under the legacy lease standard as renewal was not reasonably assured at the inception of the lease. As a result, the renewal option to extend the lease was not included in determining our ROU assets and lease liabilities. Our former headquarters has been subleased to an unrelated third party for the remainder of our original lease term. As part of our acquisition of Modis in September 2019, we assumed the lease for Modis’ headquarters in Oakland, California. The Oakland lease expires in July 2021 and has been included in our ROU assets and lease liabilities in our condensed consolidated balance sheets. As of September 30, 2019, we do not have any material finance leases or service contracts with lease arrangements. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease costs, which were included in our condensed consolidated statements of operations, were as follows (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
Lease costs
Operating lease cost	$	510	$	1,505
Short-term lease cost⁽¹⁾	142		690
Sublease income	(145)		(435)
Total	$	507	$	1,760

⁽¹⁾Short-term lease cost included $0.2 million related to a short-term lease that expired in March 2019.

Cash paid for amounts included in the measurement of lease liabilities for the nine months ended September 30, 2019 was $1.2 million and was included in net cash used in operating activities in our condensed consolidated statements of cash flows.

Maturities of operating lease liabilities as of September 30, 2019 and lease commitments under noncancellable operating leases as of December 31, 2018 were as follows (in thousands):


	September 30, 2019		December 31, 2018
2019 (remaining 3 months and 12 months, respectively)	$	632	$	1,777
2020	1,986		1,788
2021	1,957		1,839
2022	1,894		1,894
2023	1,951		1,951
Thereafter	7,111		7,296
Total lease payments	15,531		$	16,545
Less imputed interest	(3,005)
Total operating lease liabilities	$	12,526


	September 30, 2019
Current portion of operating lease liabilities	$	1,431
Operating lease liabilities, net of current portion	11,095
Total lease liabilities	$	12,526

As of September 30, 2019, the weighted average remaining lease term was 7.3 years and the weighted average discount rate, weighted based on the remaining balance of lease payments, was 6.0%.

Note 9 – Common Stock and Stock-Based Compensation

Increase in Authorized Shares of Common Stock

In May 2019, our stockholders approved and we filed an amendment to our Fifth Amended and Restated Certificate of Incorporation, as amended, to increase the total number of authorized shares of common stock from 50,000,000 to 100,000,000.

Equity Incentive Plans

We have issued stock-based awards from various equity incentive and stock purchase plans, as more fully described in the consolidated financial statements and related notes included in our 2018 Annual Report on Form 10-K.

At December 31, 2018, 1,550,351 shares were available for grant under our 2010 Equity Incentive Award Plan (2010 Plan). Pursuant to its evergreen provision, the number of shares reserved for issuance under the 2010 Plan automatically increases on January 1 of each year, commencing on January 1, 2013, and on each January 1 through and including January 1, 2020, in an amount equal to 4% of the total number of shares of common stock outstanding on December 31 of the preceding year, or a lesser number of shares as determined by our board of directors. On January 1, 2019, the increase in shares reserved for issuance pursuant to the evergreen provision was limited to 589,619 shares as the 2010 Plan’s maximum 7,500,000 shares reserved for issuance was reached.

In May 2019, our stockholders approved the amendment and restatement of our 2010 Plan (2010 Restated Plan), which provided an increase in the number of shares of common stock reserved for issuance pursuant to awards granted under our 2010 Plan from 7,500,000 to 11,500,000 and an extension of the term of the 2010 Plan through March 2029. In addition, the 2010 Restated Plan eliminated the evergreen provision that provided for an annual increase in the number of shares available for issuance under the 2010 Plan on January 1 of each year discussed above. Following its approval, all future issuance of equity awards will be granted under the 2010 Restated Plan (other than the shares available for purchase under our 2010 Employee Stock Purchase Plan). As of September 30, 2019, 5,218,040 shares were available for future issuance under the 2010 Restated Plan.

Stock Options

The following is a summary of stock option activity for the nine months ended September 30, 2019 (in thousands, except per share data):


	Shares	Weighted- Average Exercise Price per Share
Outstanding at December 31, 2018	3,744	$	20.69
Granted	994	49.94
Exercised	(544)	14.82
Canceled	(81)	34.46
Outstanding at September 30, 2019	4,113	$	28.26

Restricted Stock Units

The following is a summary of restricted stock unit activity for the nine months ended September 30, 2019 (in thousands, except per share data):


	Shares	Weighted- Average Fair Value per Share at Grant Date
Outstanding at December 31, 2018	289	$	25.56
Granted	169	52.56
Vested	(37)	43.10
Canceled	(42)	32.20
Outstanding at September 30, 2019	379	$	35.13

Stock-Based Compensation Expense Allocation

The following table summarizes the components of total stock-based compensation expense included in the condensed consolidated statements of operations (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Research and development	$	2,012	$	3,275	$	5,521	$	5,018
Selling, general and administrative	3,423		3,706		9,495		6,934
Compensation expense related to acquired IPR&D	4,927		—		4,927		—
Total	$	10,362	$	6,981	$	19,943	$	11,952

Note 10 – Net Loss Per Share

Basic net loss from continuing operations per share is calculated by dividing net loss from continuing operations by the weighted average number of shares outstanding for the period. Diluted net loss from continuing operations per share is calculated by dividing net loss from continuing operations by the weighted average number of shares of common stock and

potential dilutive common stock equivalents outstanding during the period if the effect is dilutive. Our potentially dilutive shares of common stock include outstanding stock options, restricted stock units and warrants to purchase common stock.

A reconciliation of the numerators and denominators used in computing net loss from continuing operations per share is as follows (in thousands, except per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Numerator:
Net loss from continuing operations	$	(290,478)	$	(42,264)	$	(363,443)	$	(101,283)

Denominator:
Shares used in per share calculation	43,029		39,242		42,577		36,485

Net loss from continuing operations per share, basic and diluted	$	(6.75)	$	(1.08)	$	(8.54)	$	(2.78)

The following table presents the potential shares of common stock outstanding that were excluded from the computation of diluted net loss from continuing operations per share for the periods presented because including them would have been anti-dilutive (in thousands):


	Three Months Ended September 30,			Nine Months Ended September 30,
	2019	2018	2019	2018
Shares subject to outstanding stock options	4,172	3,957	4,040	3,752
Shares subject to outstanding restricted stock units	402	303	371	287
Shares subject to outstanding warrants to purchase common stock	28	28	28	35
Total	4,602	4,288	4,439	4,074

Note 11 – United Kingdom (U.K.) Research and Development Incentives

We carry out extensive research and development activities that benefit from the U.K.’s small and medium-sized enterprise (SME) research and development tax credit regime, whereby we may either receive an enhanced U.K. tax deduction on our eligible research and development activities or, when an SME entity is in a net operating loss position, elect to surrender net operating losses that arise from its eligible research and development activities in exchange for a cash payment from the U.K. tax authorities. These refundable cash credits, which may be received without regard to actual tax liability, are not subject to accounting for income taxes and have been recorded as a component of other income.

In December 2018, we filed a claim as an SME for a $7.1 million refundable cash credit for our 2016 tax year, which was received in February 2019. We recorded this amount as a component of other income for the year-ended December 31, 2018. As of the date hereof, we have not filed claims for any refundable cash credit for our 2017 or 2018 tax years, nor have we recorded any balances related to claims for these years or for the 2019 tax year, as collectability is deemed not probable or reasonably assured.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements include, but are not limited to, statements about:

•the progress and timing of clinical trials of our product candidates Fintepla and MT1621;

•the safety and efficacy of our product candidates;

•the timing of submissions to, and decisions made by the U.S. Food and Drug Administration (FDA) and other regulatory agencies, including foreign regulatory agencies, with regards to the demonstration of the safety and efficacy of our product candidates and adequacy of the manufacturing processes related to our product candidates to the satisfaction of the FDA and such other regulatory agencies;

•our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property or regulatory exclusivity protection of our product candidates and the ability to operate our business without infringing the intellectual property rights of others;

•the goals of our development activities and estimates of the potential markets for our product candidates, and our ability to compete within those markets;

•our ability to obtain and maintain adequate levels of coverage and reimbursement from third-party payors for any of our product candidates that may be approved for sale, the extent of such coverage and reimbursement and the willingness of third-party payors to pay for our products versus less expensive therapies;

•the impact of healthcare reform laws; and

•projected cash needs and our expected future revenues, operations and expenditures.

The forward-looking statements are contained principally in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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.

Fintepla^® 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. Use or display by us of other parties’ trademarks, trade dress or products is not intended to and does not imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owner.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Zogenix,” “we,” “us” and “our” refer to Zogenix, Inc., a Delaware corporation, and its consolidated subsidiaries.

The condensed consolidated financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2018 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our 2018 Annual Report on Form 10-K.

Overview

We are a global pharmaceutical company committed to developing and commercializing transformative therapies to improve the lives of patients and their families living with rare diseases. We are currently focused on developing and commercializing therapies to address rare or orphan disorders.

We own and control worldwide development and commercialization rights to Fintepla, our lead product candidate, other than in Japan where we have entered into an exclusive distribution agreement with Nippon Shinyaku Co., Ltd. (Shinyaku). Fintepla is low-dose fenfluramine under development for the treatment of seizures associated with two rare and catastrophic forms of childhood-onset epilepsy: Dravet syndrome and Lennox-Gastaut syndrome (LGS).

Recent Developments

Asset Acquisition of Modis

MT1621 is designed to restore mitochondrial function by targeting the underlying pathophysiology of TK2d. Deoxynucleoside SET has been shown to improve cell function and prolong life in preclinical models of TK2d. Data from a Phase 2 retrospective treatment clinical study, or the RETRO study as further described below, demonstrated increased survival probability and improved functional abilities for 38 patients treated with MT1621 compared with untreated natural history control patients, and suggest that MT1621 may meaningfully alter the course of the disease. The RETRO study began in November 2018 and was completed in May 2019. MT1621 has received Breakthrough Therapy designation and access to the PRIME scheme and is therefore eligible for an accelerated regulatory path in both the United States and Europe. In July, a Phase 2 prospective, open-label extension (OLE) trial to study patients with TK2d was commenced with a targeted enrollment of approximately 40 patients. The nature of the remaining efforts for completion of the MT1621 program primarily consist of performing clinical trials and validating contract manufacturing abilities, the cost, length and success of which are extremely difficult to determine.

As a result of our acquisition of Modis, we became party to the Exclusive License Agreement, by and between Modis and the Trustees of Columbia University in the City of New York, dated as of September 26, 2016 related to MT1621. We are required to use commercially reasonable efforts to develop and commercialize licensed products worldwide, including to meet certain development and commercialization milestones within specified periods of time. Upon the achievement of certain regulatory and commercial milestones, we are required to pay Columbia University up to $2.9 million and $25.0 million, respectively, as well as tiered royalties on sales for each licensed product, at percentages ranging from the mid-single digits to the high single-digits. The royalty obligations and License Agreement will expire on a country-by-country and product-by-product basis upon the later of (i) 15 years after the first bona fide commercial sale of a licensed product, (ii) the expiration of the last to expire valid patent claim covering a licensed product in a country or (iii) expiration of any regulatory exclusivity covering such licensed product. The License Agreement may be terminated by either by Columbia or by us in the event of an uncured material breach by the other party, or by Columbia in the event we are subject to specified bankruptcy, insolvency or similar circumstances. We can terminate the License Agreement either in its entirety or on a product-by-product and country-by-country basis, upon specified prior written notice to Columbia, provided we are not exploiting licensed products in such countries.

Key Development Programs

Fintepla for Patients with Dravet Syndrome

Dravet syndrome is a rare form of pediatric-onset epilepsy with life threatening consequences for patients and for which current treatment options are very limited. Fintepla has received orphan drug designation in the United States and the European Union (EU) for the treatment of Dravet syndrome. In addition, Fintepla for the treatment of Dravet syndrome received Fast Track designation from the FDA in January 2016. In September 2016, we initiated Part 1 of Study 1504, a two-part, double blind, randomized, two arm pivotal Phase 3 clinical trial of Fintepla in Dravet syndrome patients who are taking stiripentol with valproate and/or clobazam as part of their baseline standard care. Part 1 investigated the pharmacokinetic profile and safety of Fintepla when co-administered with the stiripentol regimen (stiripentol with valproate and/or clobazam). Based on the results of the pharmacokinetic and safety portion of the trial, in February 2017 we initiated the safety and efficacy portion of Study 1504 utilizing a dose of Fintepla 0.5mg/kg/day (20mg/day maximum). Study 1504, a two-arm study, compared Fintepla versus

placebo across the titration and 12-week maintenance periods at multiple sites located the Netherlands, United States, Canada, Germany, the United Kingdom and Spain. In January 2018, we announced patient enrollment was complete at 87 patients, with 43 patients randomized into the Fintepla-arm and 44 patients randomized to the placebo arm.

In July 2018, we reported positive top-line results from Cohort 2 of Study 1504. The study results, which are consistent with those reported in Study 1, successfully met the primary objective of demonstrating that Fintepla, at a dose of 0.5 mg/kg/day, when co-administered with stiripentol regimen (stiripentol with valproate and/or clobazam), was superior to placebo as adjunctive therapy in the treatment of Dravet syndrome in children and young adults based on change in the frequency of convulsive seizures between the 6-week baseline observation period and the 15-week treatment period (p<0.001). In the trial, Fintepla at a dose of 0.5 mg/kg/day also demonstrated statistically significant improvements versus placebo in all key secondary measures, the proportion of patients with clinically meaningful reductions in seizure frequency (50% or greater) and longest seizure-free interval. Fintepla was generally well-tolerated in this study, with the adverse events consistent with those observed in Study 1 and the known safety profile of fenfluramine without any signs or symptoms of valvular heart disease (valvulopathy) or pulmonary hypertension.

Upon completion of our Fintepla Phase 3 trials, eligible patients were permitted to enroll in an ongoing OLE trial to study the long-term safety and effectiveness of Fintepla (Study 1503). In December 2018, we presented interim data from Study 1503 regarding the effectiveness and overall safety of Fintepla observed in the study, including the long-term cardiovascular assessments and findings at the 72nd Annual Meeting of the American Epilepsy Society. A total of 232 patients from Study 1503 were included in the interim analysis of the OLE trial. As of March 13, 2018, the interim cutoff date, the median duration of treatment with Fintepla was 256 days and the range was 58-634 days (equivalent to 161 patient-years of exposure to Fintepla). In this interim analysis population of 232 patients, a total of 22 (9.5%) patients had discontinued treatment for the following reasons: lack of efficacy (16), subject withdrawal (2), adverse event (1), Sudden Unexpected Death in Epilepsy (SUDEP) (1), physician decision (1), and withdrawal by caregiver (1). Approximately 90% of patients remained in the study at the time of the interim analysis. The median percent reduction in monthly convulsive seizure frequency over the entire OLE treatment period was 66.8% (compared with baseline frequency established in the core Phase 3 studies). Over the same period, 64.4% of children and young adults showed a >50% reduction in convulsive seizure frequency and 41.2% showed a >75% reduction.

The occurrence of adverse events was consistent with the Phase 3 placebo-controlled studies. The most common adverse events occurring in more than 10% of children and young adults were pyrexia (22%), nasopharyngitis (20%), decreased appetite (16%), influenza (12%), diarrhea (11%), and upper respiratory tract infection (10%). A total of 13.4% of children lost >7% body weight at some point during the trial; in 42% of those children weight loss abated during the period covered by the interim analysis. Over the course of the OLE treatment period included in the interim analysis, one patient died from SUDEP that was deemed unrelated to Fintepla. A total of 703 color doppler echocardiograms were performed to assess cardiovascular health at baseline, week 4 or 6, and then every 3 months during the OLE trial. No patient developed valvular heart disease (valvulopathy) or pulmonary arterial hypertension at any time after daily treatment with Fintepla.

In October 2019, we presented additional data from the OLE trial at the Childhood Neurology Society (CNS) Congress which showed long-term, clinically meaningful reduction in convulsive seizure frequency in young Dravet syndrome patients (under six years of age). A total of 42 of 158 (26.6%) subjects enrolled in the OLE trial were under six years of age. The median baseline monthly convulsive seizure frequency for this age group prior to treatment was 10.7 seizures per month (ranging from 4.0 to 147.3). The median decrease in monthly convulsive seizure frequency for the under six years of age group over the entire observation period compared to baseline was 75.5% (p<0.001). This compared to a median decrease of 60.1% (p<0.001) in the older, over-six years of age group and a median decrease of 63.6% (p<0.001) in the overall study population (aged 2-18 years). Fintepla was generally well-tolerated and no case of valvular heart disease or pulmonary arterial hypertension was observed in any patient at any time.

Also at the October 2019 CNS Congress, we presented post-hoc analysis from Study 1 and Study 1504 which demonstrated that Fintepla reduced frequency of generalized tonic-clonic seizures and focal-to-bilateral tonic-clonic seizures. A total of 206 enrolled patients were randomized to placebo (n=84), or to treatment with Fintepla 0.7 (n=40), 0.4 (n=43), or 0.2 (n=39) mg/kg/day. The median baseline monthly frequency of generalized tonic-clonic seizures ranged from 8.0 to 12.3 per month in the four dose groups, and decreased by 80%, 64%, and 48% in the Fintepla 0.7, 0.4, and 0.2 mg/kg/day groups, respectively, compared to 10% in the placebo group. Focal-to-bilateral tonic-clonic seizures were experienced by fewer patients and had a median baseline frequency of 2.0 to 4.7 per month. During treatment, median percent reductions in focal-to-bilateral tonic-clonic seizure frequency were 97%, 33% and 69% in the Fintepla 0.7, 0.4, and 0.2 mg/kg/day groups, respectively, and 39% in the placebo group. Fintepla was generally well-tolerated and no case of valvular heart disease or pulmonary arterial hypertension occurred in any patient. The most common treatment emergent adverse events occurring in ≥10% of patients in any treatment group were decreased appetite, lethargy, fatigue, somnolence, and diarrhea.

In October 2019, at CNS, we also presented data from a Phase 1, Single-Dose, Open-Label Pharmacokinetic Study to Investigate the Drug-Drug Interaction Potential of ZX008 (Fenfluramine HCl Oral Solution) and Cannabidiol. This poster described data from a Phase 1, single-dose, open-label study to assess the tolerability and pharmacokinetic profiles (potential drug-drug interaction) of fenfluramine with and without co-administration of CBD. The results of the study showed that the effects of CBD on fenfluramine are unlikely to require dose adjustments when the drugs are co-administered.

In February 2019, we completed our rolling submission of a New Drug Application (NDA) with the FDA and submitted a Marketing Authorization Application to the EMA for Fintepla for the treatment of seizures associated with Dravet syndrome. The EMA has accepted the MAA and initiated its review.

In April 2019, we received a Refusal to File (RTF) letter from the FDA regarding our NDA for Fintepla for the treatment of seizures associated with Dravet syndrome. Upon its preliminary review, the FDA determined that the NDA submitted in February 2019 was not sufficiently complete to permit a substantive review. In the RTF letter, the FDA cited two reasons for the RTF decision: first, certain non-clinical studies were not submitted to allow assessment of the chronic administration of fenfluramine; and, second, the application contained an incorrect version of a clinical dataset, which prevented the completion of the review process that is necessary to support the filing of the NDA.

We held a Type A meeting with the FDA in May 2019 to review the two issues identified in the RTF letter. Based on the final meeting minutes received, the FDA has agreed with our plan to resubmit the NDA for Fintepla without the inclusion of the new chronic toxicity studies requested in the RTF letter. With regards to the second issue, we conducted and discussed with the FDA a root cause analysis identifying the issue with the incorrect clinical dataset submitted in the original NDA, and the FDA has requested that we include certain findings from our analysis in the resubmitted NDA. In September 2019, we resubmitted the NDA for Fintepla for the treatment of seizures associated with Dravet syndrome to the FDA.

Fintepla for Patients with LGS

LGS is another rare, refractory, debilitating pediatric-onset epilepsy with life threatening consequences for patients and for which current treatment options are limited and suboptimal. Beginning in first quarter of 2016, we funded an open-label, dose-finding, investigator-initiated study of the effectiveness and tolerability of Fintepla as an adjunctive therapy in patients with LGS. In December 2016, we presented initial data from an interim analysis of the first 13 patients to have completed at least 12 weeks of this Phase 2 clinical trial at the 70th Annual Meeting of the AES. In this interim analysis, Fintepla was observed to provide clinically meaningful improvement in major motor seizure frequency in patients with severe refractory LGS, with 7 out of 13 patients (54%) achieving at least a 50% reduction in the number of major motor seizures, at doses below the 0.8 mg/kg/day maximum allowed dose. In addition, Fintepla was generally well tolerated without any observed signs or symptoms of valvulopathy or pulmonary hypertension. We believe these data indicate that Fintepla has the potential to be a safe and effective adjunctive treatment of major motor seizures for patients with LGS. Based on the strength of the LGS data generated, in the first quarter of 2017, we submitted an Investigational New Drug Application (IND) to the FDA to initiate a Phase 3 program of Fintepla in LGS. Our IND for Fintepla as a potential treatment for LGS became effective in April 2017. In the first half of 2017, Fintepla received orphan drug designation for the treatment of LGS from the FDA in the United States and the EMA in the EU.

Study 1601

In November 2017, we announced the initiation of our multicenter global Phase 3 clinical trial of Fintepla as an adjunctive treatment for seizures in patients with LGS (Study 1601). Study 1601 is planned for up to 85 sites in North America, Europe, Asia-Pacific, South America, South Africa and Australia and is divided in two parts. Part 1 is a double-blind, placebo-controlled investigation to assess the safety, tolerability and efficacy of Fintepla when added to a patient’s current anti-epileptic therapy. The trial will include two dose levels of Fintepla (0.2 mg/kg/day and 0.8 mg/kg/day, up to a maximum daily dose of 30 mg), as well as placebo. After establishing baseline seizure frequency for 4 weeks, randomized patients will be titrated to their dose over a 2-week titration period, followed by a 12-week fixed dose maintenance period. The primary endpoint of the clinical trial is change in the number of seizures that result in drops between baseline and the combined titration and maintenance periods at the 0.8 mg/kg/day dose compared to placebo. The key secondary endpoints include change in the number of drop seizures between baseline and the combined titration and maintenance periods at the 0.2 mg/kg/day dose, and the proportion of patients achieving a 50% reduction in drop seizures. Part 2 of the clinical trial will be a 12-month OLE to evaluate the long-term safety, tolerability and effectiveness of Fintepla. In July 2019, we completed enrollment for Study 1601 with a total of 263 randomized patients, with approximately 87 subjects per treatment arm. We expect top-line data from this study will be available in the first quarter of 2020.

MT1621 for Patients with thymidine kinase 2 deficiency (TK2d)

TK2d is a rare, debilitating, and often fatal genetic disorder that primarily affects infants and children and for which there are currently no approved therapies. As of the September 6, 2019 acquisition date, Modis had completed a pivotal Phase 2 retrospective treatment study, or the RETRO study, of MT1621 in patients with TK2d and commenced a Phase 2 prospective, OLE study of patients with TK2d.

RETRO Study

RETRO is a global retrospective study of MT1621, a fixed combination treatment of two pyrimidine nucleosides (dC/dT), in 38 pediatric and adult patients with TK2 deficiency (median age of disease onset, 2.5 years) treated at eight clinical sites in three countries (United States, Spain and Israel). Subjects received MT1621 for a median of 77 weeks (range 92 days – 7 years). Each subject was scored across motor, respiratory, and feeding domains according to pre-defined response criteria and was compared to pre-treatment status to assess whether responses improved, remained stable, or worsened. Parallel to RETRO, we compiled a comprehensive, global TK2d Natural History dataset from published studies and individual case reports to document untreated patients’ disease course. From this natural history dataset, 68 patients reflecting the range of disease severity, age, and age of disease onset, were selected as a control group for treated patients in the RETRO study.

In October 2019, we announced positive top-line results from the pivotal Phase 2 RETRO study at the recent World Muscle Society congress in Copenhagen. 94.7% of treated patients had either improved (68%) or stabilized (26%) responses in major functional domains. A survival analysis using a time-dependent Cox regression model showed that the difference in probability of survival between treated patients and untreated natural history control patients was highly statistically significant (p<0.0006). Among clinical responders, a subset demonstrated profound responses, in some cases re-acquiring previously lost motor milestones such as ambulation, respiratory function and feeding. Safety data from RETRO indicated that MT1621 is generally safe and well-tolerated. Most reported adverse events were considered not related to study drug (199 of 292), with mild or moderate diarrhea being the most common treatment-related adverse event (AE), occurring in 63% of patients. Serious AEs (SAEs) were reported in 14 subjects (37%). The majority of SAEs were deemed related to TK2d; two patients experienced three events related to study drug alone (kidney stone, kidney stone removal, diarrhea). Two adult-onset patients stopped treatment due to asymptomatic increases in aminotransferase liver enzymes (no increase in bilirubin levels), which resolved upon discontinuation of treatment.

Collaborative Arrangement with Nippon Shinyaku

annual net sales in Japan and ranges between mid-twenties and is capped at a low thirties of the aggregate annual net sales for an applicable fiscal year.

In addition, we can earn up to an additional $42.5 million tied to the achievement of certain net sales milestones by Shinyaku through the term of the agreement.

Clinical Supply Agreement with PCI Pharma

In July 2019, we entered into a Supply Agreement (PCI Pharma Agreement) with Penn Pharmaceutical Services Limited, trading as PCI Pharma Services (PCI Pharma), pursuant to which PCI Pharma will be the commercial manufacturer and supplier of Fintepla. The PCI Pharma Agreement was effective as of June 17, 2019 (Effective Date). Pursuant to the PCI Pharma Agreement, PCI Pharma will procure the raw materials (other than the active pharmaceutical ingredient) for, test, bottle and package an oral solution of Fintepla for a specified price per batch. We will provide fenfluramine, the active pharmaceutical ingredient used in Fintepla, to PCI Pharma free of charge for these purposes. Under the PCI Pharma Agreement, the product will be supplied pursuant to purchase orders which we may deliver to PCI Pharma from time to time. Pursuant to the PCI Pharma Agreement, at a specified time prior to the anticipated receipt of the first marketing authorization by a regulatory agency to market Fintepla, and then each month following such receipt, we are required to deliver a rolling forecast of our expected commercial orders, a portion of which will be considered a binding, firm order.

The term of the PCI Pharma Agreement is five years from the Effective Date, which term shall be automatically extended for successive two-year periods thereafter, unless terminated earlier. After the second anniversary of the Effective Date, either party may terminate the PCI Pharma Agreement at any time without cause following a specified notice period applicable to the respective party. In addition, either party may terminate the agreement (1) upon written notice if the other party has failed to remedy a material breach of any of its representations, warranties or other obligations under the PCI Pharma Agreement within a specified period following receipt of written notice of such breach, (2) immediately in the event of a material breach of the other party’s representations, warranties or other obligations under the PCI Pharma Agreement and in the event that such breach is not capable of remedy and (3) in the event that the other party files for bankruptcy, reorganization, liquidation, administration or receivership proceedings, or a substantial portion of the assets of such party is assigned for the benefit of such party’s creditors. We may also terminate the PCI Pharma Agreement immediately in the event PCI Pharma is unable to supply Fintepla at specified quantities and within certain times. PCI Pharma may also terminate the Agreement upon notice if it determines its performance of services would violate applicable law. PCI Pharma’s manufacturing services under the PCI Pharma Agreement will also terminate automatically if Fintepla is withdrawn as a result of regulatory review or we decide to cease development activities of Fintepla.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in conformity with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Our critical accounting policies and estimates are described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our 2018 Annual Report on Form 10-K. As a result of material transactions entered into during the nine months ended September 30, 2019 and the adoption of the new lease accounting standard, we have updated our critical accounting policies and estimates herein. There were no other significant changes to our critical accounting policies during the nine months ended September 30, 2019, as compared to the critical accounting policies and estimates disclosed in our 2018 Annual Report on Form 10-K.

Revenue Recognition

or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

Leases

Acquisitions

definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements that are of significance or potential significance to us, see Note 2 “Summary of Significant Accounting Policies” in the notes to condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2019 and 2018

Collaboration Revenue


	Three Months Ended September 30,										Nine Months Ended September 30,
(in thousands)	2019		2018		Change		2019		2018		Change
Collaboration revenue	$	630	$	—	$	630	$	1,699	$	—	$	1,699

We currently do not have an approved product for sale. Collaboration revenue increased from prior periods as a result of our Shinyaku Agreement entered into in March 2019 and related performance of such collaboration activities under the agreement. We may also be entitled to receive additional milestone payments pursuant to the Shinyaku Agreement upon the occurrence of specific events. As the recognition of this collaboration revenue is based on costs incurred to date relative to total estimated costs at completion when measuring progress and the uncertainty of when the events underlying various milestones are resolved, we expect our collaboration revenue will fluctuate from period to period.

Research and Development Expenses


	Three Months Ended September 30,										Nine Months Ended September 30,
(in thousands)	2019		2018		Change		2019		2018		Change
Research and development	$	28,372	$	27,608	$	764	$	79,820	$	77,329	$	2,491

Research and development expenses consist of expenses incurred in developing, testing and seeking marketing approval of our product candidates, including: payments made to third-party clinical research organizations (CROs) and investigational sites, which conduct our clinical trials on our behalf, and consultants; expenses associated with regulatory submissions, pre-

clinical development and clinical trials; payments to third-party manufacturers, which produce our active pharmaceutical ingredient and finished product; personnel related expenses, such as salaries, benefits, travel and other related expenses, including stock-based compensation; and facility, maintenance, depreciation and other related expenses.

We utilize contract manufacturing organizations, CROs, contract laboratories and independent contractors to produce product candidate material and for the conduct of our pre-clinical studies and clinical trials. We track third-party costs by program. We recognize the expenses associated with the services provided by CROs based on estimated progress toward completion 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. The table below sets forth information regarding our research and development costs for our major development programs.


	Three Months Ended September 30,										Nine Months Ended September 30,
(in thousands)	2019		2018		Change		2019		2018		Change
Fintepla for Dravet syndrome	$	10,153	$	13,496	$	(3,343)	$	30,819	$	42,598	$	(11,779)
Fintepla for LGS	6,843		3,068		3,775		19,514		9,949		9,565
Other(1)	11,376		11,044		332		29,487		24,782		4,705
Total	$	28,372	$	27,608	$	764	$	79,820	$	77,329	$	2,491

(1) Other research and development expenses include employee and infrastructure resources that are not tracked on a program-by-program basis, as well as pre-clinical development costs incurred for other product candidates.

In October 2014, we acquired worldwide development and commercialization rights to Fintepla through a business acquisition and have since incurred significant expenditures related to conducting clinical trials of Fintepla. Research and development expenses related to Fintepla for Dravet syndrome decreased by $3.3 million and $11.8 million for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to wind-down of clinical activities related to our Phase 3 trials Study 1501 and Study 1504. Research and development spend related to Fintepla for LGS increased by $3.8 million and $9.6 million in the same year-over-year periods, respectively, reflecting the progression and expansion of our clinical trial activities within Study 1601, which was initiated in November 2017. Other research and development expenses increased by $4.7 million for the nine months ended September 30, 2019 compared to the same period in 2018 was primarily attributable to personnel-related costs from headcount additions.

Selling, General and Administrative Expenses


	Three Months Ended September 30,										Nine Months Ended September 30,
(in thousands)	2019		2018		Change		2019		2018		Change
Selling	$	6,498	$	4,200	$	2,298	$	17,930	$	8,911	$	9,019
General and administrative	9,264		6,816		2,448		24,209		18,752		5,457
Total selling, general and administrative	$	15,762	$	11,016	$	4,746	$	42,139	$	27,663	$	14,476

Selling expense consists primarily of salaries and benefits of sales and marketing management and market research expenses for product candidates that are in development. 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 professional fees for legal, consulting and accounting services.

Selling expense increased by $2.3 million and $9.0 million for the three and nine months ended September 30, 2019. respectively, compared to the same periods in 2018 and was primarily attributable to increased personnel-related costs as a result of headcount additions as well as increased marketing programs and projects in preparation for the potential approval and commercialization of Fintepla for Dravet syndrome.

General and administrative expense increased by $2.4 million and $5.5 million for the three and nine months ended September 30, 2019 compared to the same period in 2018 and was primarily attributable to increased personnel-related costs, including stock-based compensation and professional services.

Acquired In-Process Research and Development and Related Costs

Acquired IPR&D consists of existing research and development projects at the time of the acquisition. Projects that qualify as IPR&D assets represent those that have not yet reached technological feasibility and have no alternative future use.

Our asset acquisition of Modis in September 2019 included one IPR&D project, MT1621. We allocated $244.5 million of the cost of the acquisition to MT1621. As MT1621 has not reached technological feasibility and had no alternative future use, the amount allocated to MT1621 was charged to expense at the acquisition date. In addition, the terms of the purchase agreement provided for the conversion of certain outstanding, unvested stock-based compensation awards held by employees of Modis into rights to receive a pro-rata share of the purchase consideration at the date of acquisition, with no future service requirement. As a result, we incurred compensation expense related to the acquired IPR&D of $4.9 million.

Change in Fair Value of Contingent Consideration


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018
Change in fair value of contingent consideration	$	400	$	5,700	$	2,700	$	3,200

The contingent consideration liability relates to milestone payments under an existing agreement in connection with our prior acquisition of Fintepla. At each reporting period, the estimated fair value of the liability is determined by applying the income approach which utilizes variable inputs, such as the probability of success for achieving regulatory/commercial milestones, anticipated future cash flows, risk-free adjusted discount rates, and nonperformance risk. Any change in the fair value is recorded as contingent consideration (income) expense.

For the three months ended September 30, 2019, the estimated fair value of our contingent consideration liabilities increased by $0.4 million primarily due to the passage of time. For the nine months ended September 30, 2019, the estimated fair value of our contingent consideration liabilities increased by $2.7 million primarily due to the inclusion of sales in Japan in our forecast associated with the execution of the Shinyaku Agreement, which accelerated the estimated timing of when certain sales milestones will be reached, and a market driven decrease in the discount rate.

Other Income (Expense)


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018
Other income (expense):
Interest income	$	2,382	$	2,133	$	8,521	$	3,995
Other income, net	481		(73)		433		2,914
Total other income	$	2,863	$	2,060	$	8,954	$	6,909

The increase in interest income for the three and nine months ended September 30, 2019 compared to the same periods in 2018 was attributable to interest earned from higher average cash and investment balances as we invested our proceeds from our 2018 capital raises in marketable securities.

The decrease in other income, net for nine months ended September 30, 2019 compared to the same period in 2018 was primarily attributable to $3.0 million of other income recognized in the prior year periods related to our U.K.’s small and medium-sized enterprise and research and development tax credit regime for qualifying expenditures incurred in the 2015 tax year.

Liquidity and Capital Resources

Excluding gains from two discrete business divestitures, we have incurred significant net losses and negative cash flows from operating activities since inception. We had an accumulated deficit of $1.1 billion at September 30, 2019. We expect to continue to incur significant operating losses and negative cash flows from operations to advance our product candidates through development and commercialization. Additionally, we are obligated to make future milestone payments that are contingent upon the successful achievement of certain substantive development, regulatory and sales-based milestone events related to Fintepla and MT1621. As of September 30, 2019, we derive collaboration revenue from our Shinyaku Agreement related to development and commercialization activities for Fintepla in Japan. We do not know when, or if, we will generate any revenue from product sales and do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize our product candidates. To date, we have relied primarily on the proceeds from equity offerings to finance our operations.

As of September 30, 2019, our cash, cash equivalents and marketable securities totaled $255.0 million. Our principal uses of cash are research and development expenses, selling, general and administrative expenses and other working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•the rate of progress and cost of our clinical trials and other product development programs for Fintepla, MT1621 and our other product candidates and any other product candidates that we may develop, in-license or acquire;

•the timing of regulatory approval for any of our other product candidates and the commercial success of any approved products;

•the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with Fintepla, MT1621 and any of our other product candidates;

•the timing and amounts of the milestone or other payments we must make related to Fintepla and MT1621;

•the costs of establishing or outsourcing sales, marketing and distribution capabilities, should we elect to do so;

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

•the effect of competing technological and market developments.

Until we can generate a sufficient amount of revenue to finance our cash requirements, if ever, we may need to continue to rely on additional financing to achieve our business objectives. However, we may not be able to secure such financing in a timely manner or on favorable terms, if at all. If future funds are raised through issuance of equity or debt securities, these securities may have rights, preferences and privileges senior to those of our existing stockholders. If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. Without additional funds at the time we need such funding, we may be forced to delay, scale back or eliminate some of our research and development activities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue its operations. If any of these events occurs, our ability to achieve the development and commercialization goals could be adversely affected.

The following table presents selected information from our statements of cash flows (in thousands):


	Nine Months Ended September 30,
	2019		2018
Cash and cash equivalents, beginning of the period	$	68,454	$	293,503
Net cash used in operating activities	(76,883)		(83,236)
Net cash provided by (used in) investing activities	43,787		(375,687)
Net cash (used in) provided by financing activities	(2,259)		328,458
Net decrease in cash and cash equivalents	(35,355)		(130,465)
Cash and cash equivalents, end of the period	$	33,099	$	163,038

Operating Activities

For the nine months ended September 30, 2019, net cash used in operating activities of $76.9 million was primarily attributable to research and development spend related to clinical trials and manufacturing process development for Fintepla and general and administrative costs to support our research and development activities, offset by upfront payments received of $15.5 million in connection with the Shinyaku Agreement entered into in March 2019 and the receipt of $3.1 million in tenant improvement allowance related to our new headquarters.

For the nine months ended September 30, 2018, net cash used in operating activities of $83.2 million was primarily attributable to a net loss of $101.5 million, plus the net effect of non-cash items of $14.8 million and a net cash inflow from changes in operating assets and liabilities of $3.4 million.

Investing Activities

For the nine months ended September 30, 2019, net cash provided by investing activities of $43.8 million was attributable to net sales/maturities of our available-for-sale marketable securities of $229.1 million, of which approximately $175.7 million was used to fund the cash portion of the upfront payment for the asset acquisition of Modis. In addition, we incurred capital expenditures of $9.6 million primarily related to the build-out of our new headquarters, which we began to occupy in early March 2019.

For the nine months ended September 30, 2018, net cash used in investing activities was attributable to purchases of marketable securities.

Financing Activities

For the nine months ended September 30, 2019, net cash used in financing activities of $2.3 million consisted of a $10.0 million payment of contingent consideration related to a prior acquisition and cash used to remit withholding taxes of $0.6 million related to the vesting of restricted stock units that were net share-settled by us to cover the required withholding tax. These cash outflows were offset by $8.4 million of proceeds from common stock issuances pursuant to our equity incentive plans.

For the nine months ended September 30, 2018, net cash provided by financing activities of $328.5 million consisted of net proceeds from sales of common stock of $323.1 million in connection with equity offerings and $6.7 million in proceeds received from the issuance of common stock under equity incentive plans. These cash inflows were offset by cash used to remit withholding taxes of $1.4 million related to the vesting of restricted stock units that were net share-settled by us to cover the required withholding tax.

Contractual Obligations

There were no material changes outside the ordinary course of our business during the nine months ended September 30, 2019 to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2018 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of September 30, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our 2018 Annual Report on Form 10-K. Our exposures to market risk have not changed materially since December 31, 2018.

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 SEC 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 September 30, 2019 at the reasonable assurance level.

Changes in Disclosure Controls and Procedures

There were no changes in our internal control over financial reporting during the three months ended September 30, 2019 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

There have been no material updates to the legal proceedings as set forth in “Item 3. Legal Proceedings” in our 2018 Annual Report on Form 10-K other than as set forth below:

On April 12, 2019, a plaintiff stockholder filed a class action lawsuit against us and certain of our executive officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act in the United States District Court for the Northern District of California captioned Lake v. Zogenix, Case No. 3:19-cv-01975-RS. The plaintiff seeks to represent a class of investors who purchased our stock between February 6, 2019 and April 8, 2019, and alleges that certain statements made during this period regarding the prospects for our New Drug Application for Fintepla were false or misleading. The plaintiff seeks damages, interest, costs, attorneys’ fees, and other unspecified equitable relief. We and our executive officers believe the claims alleged in the complaint are without merit and intend to vigorously defend against them.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our 2018 Annual Report on Form 10-K, other than as set forth below.

Risks Related to Our Business and Industry

Our success depends substantially on our product candidates in development, Fintepla and MT1621. We cannot be certain that Fintepla, MT1621 or any future product candidates will receive regulatory approval or be successfully commercialized.

We have only two product candidates in clinical development, Fintepla and MT1621, and our business depends substantially on the successful development and commercialization of these product candidates. We currently have no drug products approved for sale, and we may not be able to develop marketable drug products in the future. Fintepla, MT1621 and any future product candidates will require additional clinical and pre-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenues from product sales. The research, testing, manufacturing, labeling, approval, sale, marketing, distribution and promotion of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, whose regulations differ from country to country.

We are not permitted to market our product candidates in the United States until we receive approval of a NDA from the FDA, or in any foreign countries until we receive the requisite approval from the regulatory authorities of such countries, and we may never receive such regulatory approvals. In February 2019, we completed our rolling submission of a NDA with the FDA and submitted an MAA to the EMA for Fintepla for the treatment of seizures associated with Dravet syndrome. The EMA has accepted the MAA and initiated its review. However, on April 5, 2019, we received RTF letter from the FDA regarding our NDA for Fintepla for the treatment of seizures associated with Dravet syndrome. The RTF letter provided the FDA’s determination that the NDA, as submitted on February 5, 2019, was not sufficiently complete to permit a substantive review of the NDA. In the RTF letter, the FDA cited two reasons for the RTF decision: first, certain non-clinical studies were not submitted to allow assessment of the chronic administration of fenfluramine; and, second, the application contained an incorrect version of a clinical dataset, which prevented the completion of the review process that is necessary to support the filing of the NDA. The FDA did not request or recommend in the RTF letter that we conduct any additional clinical efficacy or safety studies.

We held a Type A meeting with the FDA in May 2019 to review the two issues identified in the RTF letter. Based on the final meeting minutes received, the FDA has concurred with our plan to resubmit the NDA for Fintepla without the inclusion of the new chronic toxicity studies requested in the RTF letter. With regards to the second issue, we conducted and discussed with the FDA a root cause analysis identifying the issue with the incorrect clinical dataset submitted in the original NDA, and the FDA has requested that we include certain findings from our analysis in the resubmitted NDA. In September 2019, we resubmitted the NDA for Fintepla for the treatment of seizures associated with Dravet syndrome to the FDA. However, we cannot provide any assurance that we be able to adequately address the issues raised to FDA’s satisfaction or that the FDA will accept the resubmitted Fintepla NDA for filing, or that the FDA will ultimately approve our NDA following a substantive review. The FDA may determine later to require us to conduct additional non-clinical or clinical studies or may otherwise impose other requirements to be completed before or after approval of the NDA. In addition, the RTF letter could cause potential delays by the EMA on an approvability decision, or otherwise negatively affect such decision.

MT1621 has been evaluated in a Phase 2 retrospective treatment clinical study called RETRO, which demonstrated increased survival probability and improved functional abilities for patients treated with MT1621 compared with untreated

natural history control patients. However, the FDA or EMA may disagree with the design of the RETRO and the reliance on a natural history dataset as the comparator, and we may be required to conduct additional trials prior to seeking regulatory approval.

Obtaining regulatory approval for a product candidate is a lengthy, expensive and uncertain process, and may not be successful. Any failure to obtain regulatory approval of Fintepla, MT1621 or any future product candidate, or failure to obtain such approval for all of the indications and labeling claims we deem desirable, would limit our ability to generate future revenues, would potentially harm the development prospects of Fintepla and MT1621 and would have a material and adverse impact on our business.

Even if we successfully obtain regulatory approvals to market our product candidates, our revenues will be dependent, in part, on our ability to commercialize such products as well as the size of the markets in the territories for which we gain regulatory approval. If the markets for our product candidates are not as significant as we estimate, our business and prospects will be harmed.

Our clinical trials may fail to demonstrate acceptable levels of safety and efficacy for Fintepla, MT1621 or any future product candidates, which could prevent or significantly delay their regulatory approval.

Fintepla, MT1621 and any future product candidates are prone to the risks of failure inherent in drug development. Before obtaining U.S. regulatory approval for the commercial sale of Fintepla, MT1621 or any future product candidates, we must gather substantial evidence from well-controlled clinical trials that demonstrate to the satisfaction of the FDA that the product candidate in question is safe and effective, and similar regulatory approvals would be necessary to commercialize our product candidates in other countries. Failure can occur at any stage of our clinical trials, and we could encounter problems that cause us to abandon or repeat clinical trials.

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 Fintepla or MT1621 is not shown to be safe and effective in clinical trials, the programs could be delayed or terminated, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

The results of previous clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or non-U.S. regulatory authorities.

The results from the prior clinical trials of Fintepla or MT1621 may not necessarily be predictive of the results of future clinical trials or preclinical studies. The results of prior clinical trials of Fintepla or MT1621 may not be replicated in any future clinical trials of these product candidates. Clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in prior clinical trials nonetheless have failed to obtain FDA approval. If we fail to produce positive results in our clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our product candidates and our business and financial prospects, would be adversely affected.

Further, Fintepla may not be approved even though recent, positive top-line results showed that Fintepla met its primary and all key secondary endpoints in our ongoing Phase 3 clinical trials. Similarly, MT1621 may not be approved even though the RETRO data demonstrated improved survival probability of patients treated with MT1621 compared with a natural history patient control group. The FDA or non-U.S. regulatory authorities may disagree with our trial design and our interpretation of data from preclinical studies and clinical trials, including with the design of the Phase 2 retrospective study comparing the outcomes from the MT1621 active treatment group against outcomes from a natural history dataset. In addition, any of these regulatory authorities may change its requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal clinical trial that, if successful, would potentially form the basis for an application for approval by the FDA or another regulatory authority. Furthermore, any of these regulatory authorities may also approve our product candidates for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials.

Top-line data may not accurately reflect the complete results of a particular study or trial.

We may publicly disclose top-line or interim data from time to time, which is based on a preliminary analysis of then-available efficacy and safety data such as the reported RETRO data which is based on preliminary analysis of key efficacy and safety data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line results that we report may differ from future results of the same studies, or different conclusions or considerations

may qualify such results, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, top-line data should be viewed with caution until the final data are available. Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimations, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular drug candidate or drug and our company in general. In addition, the information we may publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our business. If the top-line data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

Delays in the commencement or completion of clinical testing for Fintepla or MT1621 or pre-clinical or clinical testing for any future product candidates could result in increased costs to us and delay or limit our ability to pursue regulatory approval for, or generate revenues from, such product candidates.

Clinical trials are very expensive, time consuming and difficult to design and implement. Delays in the commencement or completion of clinical testing for Fintepla or MT1621 or pre-clinical or clinical testing for any future product candidates could significantly affect our product development costs and business plan.

Our Phase 3 program for Fintepla includes three randomized, double-blind placebo-controlled clinical trials of Fintepla as adjunctive therapy for patients with uncontrolled seizures who have Dravet syndrome and one randomized, double-blind placebo-controlled clinical trial of Fintepla for patients with LGS. In September 2017, we announced positive top line data from two identical clinical trials, Study 1501 in the United States and Canada and Study 1502 in Europe and Australia, which we collectively refer to as Study 1. Study 1 evaluated two dose levels of Fintepla (0.2 mg/kg/day and 0.8 mg/kg/day, up to a maximum daily dose of 30 mg) and met its primary efficacy endpoint of reducing convulsive seizures experienced by patients after treatment of Fintepla compared to treatment with a placebo. In December 2017, we reported additional data from Study 1. Study 1504 is evaluating a single dose a Fintepla (0.5 mg/kg/day, up to a maximum daily dose of 20 mg, which has been shown to be equivalent to 0.8mg/kg/day in patients not taking stiripentol), in patients taking stiripentol, valproate and/or clobazam. Study 1504 is a multi-national study commenced in the third quarter 2016 and is being conducted in western Europe and North America. We reported top-line results from the trial in July 2018. Notwithstanding the aforementioned plans, we may not be able to identify and enroll sufficient number of study participants and interpret results on these time frames, and consequently the completion of our ongoing Phase 3 clinical trials may be delayed.

In July 2019, we announced that we had completed enrollment in our Phase 3 clinical trial of Fintepla as an adjunctive treatment of seizures associated with LGS, Study 1601. Study 1601 is divided in two parts. Part 1 is a double-blind, placebo-controlled investigation to assess the safety, tolerability and efficacy of Fintepla, low-dose fenfluramine, when added to a patient’s current anti-epileptic therapy. The trial will include two dose levels of Fintepla (0.2 mg/kg/day and 0.8 mg/kg/day, up to a maximum daily dose of 30 mg), as well as placebo. After establishing baseline seizure frequency for 4 weeks, randomized patients will be titrated to their dose over a 2-week titration period, followed by a 12-week fixed dose maintenance period. We are targeting a total of 225 patients (75 per treatment arm) in the trial. The primary endpoint of the clinical trial is change in the number of seizures that result in drops between baseline and the combined titration and maintenance periods at the 0.8 mg/kg/day dose. Part 2 of Study 1601 will be a 12-month open-label extension to evaluate the long-term safety, tolerability and effectiveness of Fintepla.

The completion of clinical trials can be delayed for a number of reasons, including delays related to:

•obtaining regulatory authorization to commence a clinical trial;

•reaching agreement on acceptable terms with CROs, clinical investigators and trial sites;

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

•obtaining institutional review board (IRB) approval to initiate and conduct a clinical trial at a prospective site;

•identifying, recruiting and training suitable clinical investigators;

•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 similar indications;

•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;

•uncertainty regarding proper dosing; and

•scheduling conflicts with participating clinicians and clinical institutions.

In addition, if a significant number of patients fail to stay enrolled in any of our current or future clinical trials of Fintepla 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:

•inability to design appropriate clinical trial protocols;

•inability by us, our employees, our CROs or their employees to conduct the clinical trial in accordance with all applicable FDA, drug enforcement administration (DEA) or other regulatory requirements or our clinical protocols;

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

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

•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;

•lack of effectiveness of any product candidate during clinical trials;

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

•inability 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;

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

•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 the FDA and IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, any of our clinical trials, the commercial prospects for Fintepla, MT1621 and any future product candidates may be harmed, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

Breakthrough therapy designation and access to the PRIME scheme for MT1621 may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that MT1621 or any of our product candidates will receive marketing approval.

In February 2019, the FDA granted breakthrough therapy designation for MT1621 in the United States for the treatment of TK2d. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for accelerated approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. We cannot be sure that any evaluation we may make of our product candidates as qualifying for breakthrough therapy designation will meet the FDA’s expectations. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even though MT1621 qualifies as a breakthrough therapy, the FDA may later decide that MT1621, or any other product that qualifies as a breakthrough therapy, no longer meet the conditions for qualification, or decide that the time period for FDA review or approval will not be shortened. For example, the FDA rescinded breakthrough therapy designation for Fintepla for Dravet syndrome because there are now two approved therapies for Dravet syndrome and, therefore, the administrative criteria for designation are no longer met.

The EMA has established the PRIME scheme to expedite the development and review of product candidates that show a potential to address to a significant extent an unmet medical need, based on early clinical data. In November 2018, MT1621 for the treatment of patients with TK2d was admitted to the PRIME scheme of the EMA. Even though we have access to PRIME for MT1621, this may not result in a materially faster development process, review or approval compared to conventional EMA procedures. Further, obtaining access to PRIME does not assure or increase the likelihood of EMA’s grant of a marketing authorization (MA).

We face intense competition, and if our competitors market and/or develop treatments for any of our product candidates’ indications 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 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, sales and marketing capabilities, including larger, well-established sales forces, manufacturing capabilities, experience in obtaining regulatory approvals for product candidates and other resources than we do.

If approved for the chronic treatment of Dravet syndrome, Fintepla may compete against other products and product candidates. In June 2018, the FDA approved the first treatment of seizures associated with Dravet syndrome, as well as LGS, GW Pharmaceuticals’ Epidiolex® (cannabidiol). Epidiolex is a liquid drug formulation of plant-derived purified cannabidiol (CBD), which is a chemical component of the Cannabis sativa plant, more commonly known as marijuana. In August 2018, the FDA approved a second treatment, Biocodex's Diacomit® (stiripentol), for the treatment of seizures associated with Dravet syndrome in patients who are also taking clobazam. Stiripentol is approved in Europe, Canada, Australia and Japan for the treatment of Dravet syndrome when used in conjunction with valproate and/or clobazam. GW Pharmaceuticals plc has filed a MAA in Europe for CBD in Dravet syndrome and LGS. Insys Therapeutics (Insys) is developing a synthetic CBD for the treatment of pediatric epilepsies, including Dravet syndrome. Insys previously advanced its synthetic CBD program, which has received orphan drug designation and Fast Track status by the FDA for use of CBD as a potential treatment for Dravet syndrome, into a Phase 1/2 clinical trial. Insys initiated Phase 2 development of its CBD product candidate for childhood absence epilepsy in December of 2017 and initiated a Phase 3 trial in infantile spasms, a pediatric epilepsy syndrome, in the first quarter of 2018. Ovid Therapeutics, Inc. is currently evaluating its product candidate OV935, a first-in-class inhibitor of the enzyme cholesterol 24-hydroxylase, for the potential treatment of adult and pediatric patients with Dravet syndrome and LGS in Phase 2 clinical trials.

We expect Fintepla, if approved, to compete on the basis of, among other things, product efficacy and safety, time to market, price, coverage and reimbursement by third-party payors, extent of adverse side effects and convenience of treatment procedures. One or more of our competitors may develop other products that compete with ours, obtain necessary approvals for such products from the FDA, or other agencies, if required, more rapidly than we do or develop alternative products or therapies that are safer, more effective and/or more cost effective than any products developed by us. The competition that we will encounter with respect to any of our product candidates that receive the requisite regulatory approval and classification and are marketed will have an effect on our product prices, market share and results of operations. We may not be able to successfully 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 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:

•capital resources;

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

•drug development, clinical trial and regulatory resources and experience;

•sales and marketing resources and experience;

•manufacturing and distribution resources and experience;

•name recognition; and

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

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

If Fintepla or MT1621 receive regulatory approval but do not achieve broad market acceptance or coverage by third-party payors, the revenues that we generate will be limited.

The commercial success of Fintepla or MT1621, if approved by the FDA or other regulatory authorities, will depend upon the acceptance of these products by physicians, patients, healthcare payors and the medical community. Adequate coverage and reimbursement of our approved product by third-party payors will also be critical for commercial success. The degree of market acceptance of any product candidates for which we may receive regulatory approval will depend on a number of factors, including:

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

•any negative publicity or political action related to our or our competitors’ products;

•the relative convenience and ease of administration;

•the prevalence and severity of adverse side effects;

•demonstration to authorities of the pharmacoeconomic benefits;

•demonstration to authorities of the improvement in burden of illness;

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

•the clinical indications for which a product is approved;

•availability and perceived advantages of alternative treatments;

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

•pricing and cost effectiveness;

•our ability to obtain sufficient U.S. third-party payor coverage and reimbursement;

•our ability to obtain European countries’ pricing authorities’ coverage and reimbursement; and

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

Our efforts to educate the medical community, U.S. third-party payors and European countries’ health authorities on the benefits of Fintepla or 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, pharmacists, patients, and the medical community, we may not generate sufficient revenue from these products to become or remain profitable.

We have a history of significant 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 year.

We were organized in 2006, began commercialization of Sumavel DosePro in January 2010 and launched the commercial sale of Zohydro ER in the United States in March 2014. We sold our Sumavel DosePro business in April 2014 and sold our Zohydro ER business in April 2015. Our business and prospects must be considered in light of the risks and uncertainties frequently encountered by pharmaceutical companies developing and commercializing new products.

Excluding gains from two discrete business divestitures, we have incurred significant net losses from our operations since the inception and have an accumulated deficit of $1.1 billion as of September 30, 2019. During the nine months ended September 30, 2019, net cash used in operating activities was $76.9 million. We expect to continue to incur operating losses and negative cash flow from operating activities for at least the next year primarily as a result of costs incurred related to the

development and commercialization of Fintepla and MT1621. Additionally, in the event that Fintepla or MT1621 is approved in the United States or the EU, we will owe milestone payments related to our 2014 acquisition of development and commercialization rights to Fintepla and our 2019 acquisition of development and commercialization rights to MT1621, respectively. Our ability to generate revenues from Fintepla or MT1621 will depend on a number of factors including 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 are subject to the risk that the marketplace will not accept our products.

Because of the numerous risks and uncertainties associated with our commercialization and product development efforts, we are unable to predict the extent of our future losses or when or if we will become profitable, if at all. If we do not generate significant sales from Fintepla or MT1621 or any future product candidate that may receive regulatory approval, there would likely be a material adverse effect on our business, results of operations, financial condition and prospects which could result in our inability to continue operations.

We rely on third parties to conduct our pre-clinical studies 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 program for Fintepla and our clinical development program of MT1621. We rely heavily on these parties for the execution of our clinical trials 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 and regulatory requirements. We and our CROs are required to comply with good clinical practice (GCP) requirements for clinical studies of our product candidates, and good laboratory practice (GLP) requirements for certain pre-clinical studies. The FDA enforces these regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable regulations, the data generated in our pre-clinical studies and clinical trials may be deemed unreliable and the FDA may require us to perform additional pre-clinical studies or 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 practice (cGMP), regulations, and require a large number of test subjects. Our inability 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 terminates, 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.

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. For example, in September 2019, we completed the acquisition of Modis, which owned worldwide development and commercialization rights to MT1621. 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:

•exposure to unknown liabilities;

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

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

•significant or higher than expected acquisition and integration costs;

•write-downs of assets or goodwill or impairment charges;

•increased amortization expenses;

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

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

•inability to retain key employees of any acquired businesses.

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

We are dependent on numerous third parties in our manufacturing supply chain, all of which are currently single source suppliers, for the clinical supply of Fintepla and MT1621, and if we experience problems with any of these suppliers, the development of Fintepla or MT1621 could be delayed.

We outsource all manufacturing and packaging of the clinical trial materials for Fintepla and MT1621 to third parties. For example, in February 2019, we entered into a master supply agreement with Aptuit (Oxford) Limited, an Evotec company (Aptuit), pursuant to which Aptuit will be our commercial manufacturer and supplier of the fenfluramine active pharmaceutical ingredient (API). In addition, in July 2019 we entered into supply agreement with PCI Pharma pursuant to which PCI Pharma will be our commercial manufacturer and supplier for Fintepla. Fintepla, if approved, would require us to complete process validation under FDA regulations, for which there can be no assurance of success. We may never be able to establish additional sources of supply for Fintepla.

Suppliers, including Aptuit and PCI Pharma, are subject to regulatory requirements covering, among other things, testing, quality control and record keeping relating to our product candidate, and are subject to ongoing inspections by regulatory agencies. Failure by any of our suppliers to comply with applicable regulations may result in long delays and interruptions, and increase our costs, while we seek to secure another supplier who meets all regulatory requirements, including obtaining regulatory approval to utilize the new supplier. Accordingly, the loss of any of our current suppliers could have a material adverse effect on our business, results of operations, financial condition and prospects.

Reliance on suppliers entails risks to which we would not be subject if we manufactured our product candidate ourselves, including:

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

•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

•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 are unable to provide the quantities of our product candidate 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 products, 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.

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 products.

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. As of September 30, 2019, we employed 136 full-time employees. Of the full-time employees, 72 were engaged in product development, quality assurance and clinical and regulatory activities, 43 were engaged in general and administrative activities (including business and corporate development) and 21 were engaged in sales and marketing activities. If we are not able to retain our employee base, we may not be able to effectively manage our business or be successful in commercializing our products.

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, especially in the San Francisco Bay Area where we operate. 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, our ability to implement our business strategy and our ability to maintain effective internal controls for financial reporting and disclosure controls and procedures as required by the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). The loss of the services of any members of our senior management team, especially our Chief Executive Officer and President, Stephen J. Farr, Ph.D., could delay or prevent the development and commercialization of Fintepla and our product candidates. 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.

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 never receive regulatory approval or commercialize our product candidate outside of the United States.

We intend to market Fintepla and MT1621 outside of the United States, if approved. For example, Fintepla has received orphan drug designation in the EU and MT1621 has access to the PRIME scheme in the European Union. In addition, we completed a Phase 3 clinical trial, which included sites in Europe and Australia, in 2017, and submitted a MAA to the EMA for Fintepla for the treatment of seizures associated with Dravet syndrome in February 2019. The EMA has accepted the MAA and initiated its review. In order to market our products outside of the United States, we, 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 those disclosed in Part I, Item 1A of our 2018 Annual Report on Form 10-K regarding FDA approval in the United States, as well as other risks.

For example, in the European Economic Area (EEA), which comprised of 28 EU member states plus Iceland, Liechtenstein, and Norway, medicinal products can only be commercialized after obtaining a MA. There are two types of MAs:

•The Community MA, which is issued by the European Commission through the Centralized · Procedure, based on the opinion of the Committee for Medicinal Products for Human Use (CHMP) of the EMA and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, and medicines that contain a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. Under the Centralized Procedure the maximum timeframe for the evaluation of a MAA is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when the authorization of a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. Under the accelerated procedure the standard 210-day review period is reduced to 150 days.

•National MAs, which are issued by the competent authorities of the member states of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a member state of the EEA, this National MA can be recognized in other member states through the Mutual Recognition Procedure. If the product has not received a National MA in any member state at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure.

In the EEA, upon receiving marketing authorization, new chemical entities generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the EU from referencing the innovator’s data to assess a generic application. During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic product can be marketed until the expiration of the market exclusivity. However, there is no guarantee that a product will be considered by the EU’s regulatory authorities to be a new chemical entity and qualify for data exclusivity.

In the EEA, we have taken advantage of the hybrid application pathway of the EU Centralized Procedure, which is similar to the FDA’s 505(b)(2) pathway. Hybrid applications may rely in part on the results of pre-clinical tests and clinical trials contained in the authorization dossier of the reference product, but must be supplemented with additional data. 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, 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. 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.

Inability 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 those disclosed in Part I, Item 1A of our 2018 Annual Report on Form 10-K 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, 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 are unable to comply with applicable foreign regulatory requirements.

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

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the 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.

Risks Related to Our Financial Position and Capital Requirements

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

We launched our first approved product, Sumavel DosePro, in January 2010 and subsequently sold the business in April 2014. We launched our approved product, Zohydro ER, in March 2014 and subsequently sold the business in April 2015. In September 2017, our remaining revenue-generating agreement to manufacture and supply Sumavel DosePro to Endo International plc (Endo) was terminated. We have financed our operations primarily through the proceeds from the issuance of equity securities, the sale of the Sumavel DosePro and Zohydro ER businesses, and debt, and have incurred negative cash flow from operations in each year since our inception. For the years ended December 31, 2017 and 2018, we incurred net losses of $126.8 million and $123.9 million, $126.8 million, respectively, and net losses of $363.4 million during the nine months ended

September 30, 2019. Net cash used in operating activities was $75.9 million in 2017, $111.7 million in 2018, and $76.9 million during the nine months ended September 30, 2019. As of September 30, 2019, we had an accumulated deficit of $1.1 billion and $696.0 million, respectively. The losses and negative cash flows from operations have had a material adverse effect on our stockholders’ equity and working capital.

We expect to continue to incur net losses and negative cash flow from operating activities for at least the next year to conduct clinical trials to support regulatory approval of our product candidates. As a result, we will remain dependent upon external sources of financing to fund our business and the development and commercialization of any approved products and product candidates. To the extent we need to raise additional capital in the future, we cannot ensure 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.

Risks Related to Government Regulation

Fintepla, MT1621 and any of our future product candidates are subject to extensive regulation, and we cannot give any assurance that it will receive regulatory approval or be successfully commercialized.

We currently are developing Fintepla for the treatment of seizures associated with Dravet syndrome and LGS and MT1621 for the treatment of TK2 deficiency. The research, testing, manufacturing, labeling, approval, sale, marketing, distribution and promotion of drug products, among other things, are subject to extensive regulation by the FDA and other regulatory authorities in the United States. We are not permitted to market Fintepla or any of our product candidates 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 any of our product candidates, or that any such product candidates will be successfully commercialized.

Under the policies agreed to by the FDA under the Prescription Drug User Fee Act (PDUFA), the FDA is subject to a two-tiered system of review times for new drugs: standard review and priority review. For drugs that do not contain a new molecular entity, such as Fintepla, a standard review means the FDA has a goal to complete its review of the NDA and respond to the applicant within ten months from the date of receipt of an NDA. The review process and the PDUFA target action date may be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the submission. The FDA’s review goals are subject to change, and the duration of the FDA’s review may depend on the number and type of other NDAs that are submitted to the FDA around the same time period.

The FDA may also refer applications for novel products or products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. Although the FDA is not bound by the recommendation of an advisory committee, the matters discussed at the advisory committee meeting, and in particular any concerns regarding safety, could limit our ability to successfully commercialize our product candidates subject to advisory committee review.

As part of its review of an NDA, the FDA may inspect the facility or facilities where the drug is manufactured. If the FDA’s evaluations of the NDA and the clinical and manufacturing procedures and facilities are favorable, the FDA will issue an action letter, which will be either an approval letter, authorizing commercial marketing of the drug for a specified indication, or a Complete Response letter containing the conditions that must be met in order to secure approval of the NDA. These conditions may include deficiencies identified in connection with the FDA’s evaluation of the NDA submission or the clinical and manufacturing procedures and facilities. Until any such conditions or deficiencies have been resolved, the FDA may refuse to approve the NDA. If and when those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example:

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

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

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

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

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

Our lead product candidate Fintepla and any of our other product candidates may not achieve their specified endpoints in clinical trials. Further, Fintepla and our other product candidates 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. Approval may also be contingent on a risk evaluation and mitigation strategy (REMS) program, which can limit the labeling and distribution of a drug product.

The safety and effectiveness of Fintepla has been evaluated in a single, continuing, long-term, open-label, study in patients with Dravet syndrome in Belgium. We initiated a Phase 3 clinical trial for Fintepla as an adjunctive treatment of seizures in children with Dravet syndrome in North America in January 2016 (Study 1501) and in Europe and Australia in June 2016 (Study 1502). In September 2017, we announced positive top-line results from Study 1501 and Study 1502 via a prospective merged study analysis approach whereby top-line results from the first approximately 120 subjects randomized into either Study 1501 or 1502 would have their study results analyzed and be reported initially as “Study 1”. In September 2016, we initiated Cohort 1 of Study 1504 that investigated the pharmacokinetic profile and safety of Fintepla when co-administered with the stiripentol regimen (stiripentol, valproate and/or clobazam). Based on the results of the Cohort 1 pharmacokinetic and safety portion of the trial, in February 2017 we initiated the Cohort 2 safety and efficacy portion of Study 1504 at multiple sites located in France, the Netherlands, United States, Canada, Germany, the United Kingdom and Spain. In July 2018, we reported positive top-line results from Study 1504, which are consistent with those reported in Study 1.

If we are unable to obtain regulatory approval for Fintepla or any of our product candidates on the timeline we anticipate, we may not be able to execute our business strategy effectively and our ability to generate revenues may be limited.

We may not be able to maintain orphan drug designation or obtain or maintain orphan drug exclusivity for Fintepla or MT1621.

We have obtained orphan drug designation for Fintepla in the United States and Europe for both the treatment of Dravet syndrome and LGS. We have also received orphan drug designation for MT1621 for the treatment of TK2 deficiency. In the United States, under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition affecting fewer than 200,000 individuals in the United States or, if it affects more than 200,000 people, there is no reasonable expectation that costs of research and development of the drug for the indication can be recovered by sales in the United States. In the EU, a drug may receive orphan designation if the prevalence of the condition in the EU is of no more than five in 10,000 or it if is unlikely that marketing of the medicine would generate sufficient returns to justify the investment needed for its development. Orphan drug designation in the United States confers certain benefits, including tax incentives and waiver of the applicable application fee upon submission of the product for approval in the rare disease or condition. In the EU, sponsors who obtain orphan designation benefit from a number of incentives, including protocol assistance and fee reductions.

If a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is eligible for a period of marketing exclusivity, which precludes the FDA or EMA from approving another marketing application for the same drug to treat the same rare disease or condition for that time period, except in limited circumstances. The applicable period is seven years in the United States and ten years in Europe. Also, we are only able to attain orphan drug status in Europe if we are able to demonstrate to EMA that Fintepla or MT1621 has incremental benefit over any other approved product for that orphan disorder. In July 2018, we reported positive top-line results from Study 1504 and in February 2019, we submitted a MAA to the EMA for Fintepla for the treatment of seizures associated with Dravet syndrome. The EMA has accepted the MAA and initiated its review. Currently in Europe, only stiripentol has orphan drug status, which has been approved for treatment of seizures in Dravet syndrome, but others could be approved.

The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.

Orphan drug exclusivity may not effectively protect the product from competition in the United States because different drugs can be approved for the same condition. Even after an orphan drug is approved and granted exclusivity, the FDA and EMA can subsequently approve the same or a similar drug for the same condition during the exclusivity period if the FDA or the EMA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

Fintepla or MT1621 may cause undesirable side effects or have other unexpected properties that could delay or prevent approval or result in post-approval regulatory action.

If we or others identify undesirable side effects, or other previously unknown problems, caused by Fintepla, MT1621 or any of our future product candidates with the same or related active ingredients, during development or after obtaining U.S. regulatory approval, a number of potentially significant negative consequences could result, including:

•regulatory authorities may not permit us to initiate our studies or could put them on hold;

•regulatory authorities may not approve, or may withdraw their approval of the product;

•regulatory authorities may require us to recall the product;

•regulatory authorities may add new limitations for distribution and marketing of the product;

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

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

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

•we may be required to implement a REMS program;

•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;

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

•our reputation may suffer.

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, if approved, and could substantially increase the costs of commercializing our product candidates.

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 depends in large part on obtaining and maintaining patent, trademark and trade secret protection of our product candidates, 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 unauthorized third parties from making, using, selling, offering to sell or importing 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-licensed certain data from a continuing, long-term, open-label study in 15 Dravet syndrome patients, as well as certain intellectual property related to fenfluramine for the treatment of Dravet syndrome from the Universities of Antwerp and Leuven in Belgium (the Universities).

Prior to receiving rights to four U.S. patents in 2017, we did not own or control any issued patents covering Fintepla or its use. There is no guarantee that any of our pending applications will issue as patents. The patents covering the API in Fintepla have expired and therefore it is not subject to patent protection. With respect to our MT1621 product candidate, we have certain patent rights that we obtained through our acquisition of Modis. In September 2016, Modis entered into a license agreement (the Columbia Agreement), with Columbia, under which Modis was granted an exclusive worldwide license and sublicense to certain intellectual property rights owned or controlled by Columbia to develop and commercialize MT1621 and certain backup compounds for any application or purpose. These licensed patent rights include patents owned by Columbia and patents jointly owned by Columbia and Vall d’Hebron Research Institute (VHIR). VHIR delegated to Columbia the rights to enter into the Columbia Agreement on VHIR’s behalf. The patent family owned by Columbia is directed to the use of MT1621 to treat TK2d and includes a granted U.S. patent and a pending U.S. patent application. The patent family jointly owned by Columbia and VHIR is directed to the use of MT1621 to treat TK2d and includes an issued European patent and pending applications in the

United States, Europe, Australia, Canada, China, Japan, Korea, Mexico and Russia. There are no patents covering the API in MT1621.

The initial applications covering MT1621 or the methods of treatment using Fintepla were licensed by us and not written by our attorneys. Neither we nor our licensors had control over the drafting and initial prosecution of these applications. Further, the counsel previously handling the Fintepla and MT1621 matters might not have given the same attention to the drafting and prosecution to these applications as we would have if we had been the owners and originators of the applications and had control over the drafting and prosecution. In addition, the former counsel handling these matters may not have been completely familiar with U.S. patent law or the patent law in various countries, possibly resulting in inadequate disclosure, improperly claiming inventions and/or filing of applications at times which do not meet appropriate priority requirements. The named inventors on the pending applications and others involved in the protection of the intellectual property related to Fintepla and MT1621 did not and may still not have sufficient knowledge relating to preferred procedures and the legal requirements related to the protection of intellectual property. They published papers which adversely affected our rights. Although they have been advised with respect to procedures going forward, we cannot directly control their actions. All of these factors and others could result in the inability to obtain the issuance of additional applications in the United States or elsewhere in the world. Even if additional patents issue, such issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts.

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 U.S. Patent and Trademark Office (USPTO), and Congress have recently made significant changes to the patent system. There have been three U.S. Supreme Court decisions that now show a trend of the Supreme Court which is distinctly negative on patents. The trend of these decisions along with resulting changes in patentability requirements being implemented by the USPTO could make it increasingly difficult for us to obtain and maintain patents on our products. 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:

•others may be able to make or use compounds that are the same or similar to the pharmaceutical compounds used in our product candidates but that are not covered by the claims of our patents or our in-licensed patents;

•the APIs in Fintepla are, or may soon become, commercially available in generic drug products, and no patent protection will be available without regard to formulation or method of use;

•the APIs in MT1621 are well-known and available commercially from many sources, and no patent protection claiming the APIs as a composition of matter will be available;

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

•we or our licensors, 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;

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

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

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

•it is possible that our owned or in-licensed U.S. patents are not Orange-Book eligible;

•it is possible that there are dominating patents to Fintepla and MT1621 of which we are not aware;

•it is possible that there are prior public disclosures that could invalidate our or our licensors’ patents, as the case may be, or parts of our or their patents;

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

•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;

•the claims of our owned or in-licensed issued patents or patent applications, if and when issued, may not cover our system or products or our system of product candidates;

•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 administrative challenges by third parties;

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

•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, state laws in the Unites States vary, and their courts as well as 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.

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.

Our existing license with the Universities and Columbia impose 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.

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 product candidate 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 Fintepla and MT1621. As the medical device, biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert that our products 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 products, 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 candidate or proprietary technologies. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and 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 product candidates 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 USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such proceedings may be decided against us 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. In addition, 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 USPTO 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, Australian Patent Office or other jurisdictions 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 our efforts would be unsuccessful. We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our 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 patent was found to cover our product candidate, 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 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 order prohibiting us from selling or licensing the product unless the third party licenses its patent 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.

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 substantially.

The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has recently 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 the nine months ended September 30, 2019, the price per share for our common stock on the Nasdaq Global Market has ranged from a low sale price of $36.17 to a high sale price of $55.01. This market volatility is likely to continue. These and other factors 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, both over short periods of time and the longer term, due to many factors, including those described elsewhere in this “Risk Factors” section, those disclosed in Part I, Item 1A of our 2018 Annual Report on Form 10-K, and the following:

•FDA or international regulatory actions and whether and when we receive regulatory approval for Fintepla or MT1621;

•the development status of Fintepla or MT1621, including the results from our clinical trials;

•variations in the level of expenses related to Fintepla or MT1621 clinical development programs, including relating to the timing of invoices from, and other billing practices of, our CROs and clinical trial sites;

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

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

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

•additions or departures of key personnel;

•third-party payor coverage and reimbursement policies;

•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, system failures or responses to these events;

•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 described in these “Risk Factors” and those disclosed in Part I, Item 1A of our 2018 Annual Report on Form 10-K, could have a dramatic and material adverse impact on the market price of our common stock.

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 success and costs of our Fintepla and MT1621 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:

•variations in the level of development and/or regulatory expenses related to Fintepla and MT1621 development programs;

•results of clinical trials for Fintepla or MT1621;

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

•the level of underlying demand for any of our product candidates that may receive regulatory approval;

•our ability to control production spending and underutilization of production capacity;

•those of our competitors; and

•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.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict.

Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. From time to time, in addition to the existing Shinyaku Agreement, we may enter into collaborative arrangements with other companies that include development funding and significant upfront and milestone payments and/or royalties, which may become an important source of our revenue. Accordingly, our revenue may depend on development funding and the achievement of development and clinical milestones under current and any potential future collaborative arrangements and sales of our products, if approved. Furthermore, revenues may consist of the recognition of deferred revenue from upfront, nonrefundable payments that we received from Shinyaku or payments we may receive under future collaboration agreements and the timing of recognizing deferred revenue is subject to significant management judgments, including estimating total costs at completion. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. As a result, any period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one period should not be relied upon as an indication of future performance.

The United Kingdom’s proposed withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business, which could reduce the price of our common stock.

We are a company with worldwide operations, including significant business operations in Europe, and our wholly owned subsidiary Zogenix Europe Limited is incorporated under the laws of England and Wales. Following a national referendum in which a majority of voters in the United Kingdom elected to withdraw from the European Union, the government of the United Kingdom formally initiated the process for withdrawal in March 2017. The terms of any withdrawal are subject to a complex and ongoing negotiation between the United Kingdom and the European Union whose result and timing remain unclear and which has created significant political and economic uncertainty about the future trading relationship between the United Kingdom and the European Union in the event of a withdrawal, particularly in light of the possibility that an immediate, so-called “no deal” withdrawal could occur without a negotiated agreement.

These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings have been and may continue to be subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal, including financial laws and regulations, tax and free trade agreements, tax and customs laws, intellectual property rights, environmental, health and safety laws and regulations, immigration laws, employment laws and transport laws could increase costs, disrupt supply chains, depress economic activity and restrict our access to capital.

If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms, barrier-free access between the United Kingdom and other European Union member states or among the European economic area overall could be diminished or eliminated. Any of these factors could have a material adverse effect on our business, financial condition and results of operations, affect our strategy in the European pharmaceutical market. and reduce the price of our common stock.

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

Unregistered Sales of Equity Securities

None.

Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBIT INDEX


Exhibit Number						Exhibit Description

2.1⁽¹⁾						Agreement and Plan of Merger, dated August 23, 2019, by and among the Registrant, Xena Merger Sub, Inc., Modis Therapeutics, Inc. and Shareholder Representative Services, LLC, as the shareholders’ representative

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

3.2⁽⁵⁾						Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant

3.3⁽⁶⁾						Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant

3.4⁽⁷⁾						Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant

3.5⁽¹⁾						Amended and Restated Bylaws of the Registrant

4.1⁽²⁾						Form of the Registrant’s Common Stock Certificate

4.5⁽³⁾						Warrant dated July 18, 2011 issued by the Registrant to Healthcare Royalty Partners (formerly Cowen Healthcare Royalty Partners II, L.P.)

10.1*						Exclusive License Agreement by and between the Trustees of Columbia University and Modis Therapeutics, Inc. (as successor-in-interest to Meves Pharmaceuticals, LLC), dated September 26, 2016

10.2*						Supply Agreement, by and between the Registrant and Penn Pharmaceutical Services Limited, trading as PCI Pharma Services, dated July 17, 2019

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.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

____________________

*Filed herewith.

(1)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 23, 2019.

(2)Incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 filed on October 27, 2010.

(3)Incorporated by reference to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 filed on November 4, 2010.

(4)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on August 12, 2011.

(5)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2012.

(6)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2015.

(7)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on August 6, 2019.

†Indicates management contract or compensatory plan.

**These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not subject to the liability of that section. These certifications are not to be incorporated by reference into any filing of Zogenix, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.

SIGNATURES

Pursuant to the requirements 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:	November 7, 2019	By:	/s/ Stephen J. Farr
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	November 7, 2019	By:	/s/ Michael P. Smith
			Executive Vice President, Chief Financial Officer, Treasurer and Secretary
			(Principal Financial and Accounting Officer)

Exhibit 10.1

CERTAIN INFORMATION (INDICATED BY ASTERISKS) HAS BEEN OMITTED FROM THIS DOCUMENT BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

EXCLUSIVE LICENSE AGREEMENT

AGREEMENT, dated September 26, 2016 (the “Effective Date”), between THE TRUSTEES OF COLUMBIA UNIVERSITY IN THE CITY OF NEW YORK, a New York corporation (“Columbia”), and MEVES PHARMACEUTICALS, LLC, a Delaware limited liability company (“Company”).

1.Definitions

a.“Affiliate” shall mean any corporation or other entity that directly or indirectly controls, is controlled by, or is under common control with, another corporation or entity. Control means to possess, directly or indirectly, the power to affirmatively direct the management and policies of such corporation or other entity, whether through direct or indirect ownership of, or other beneficial interest in, fifty percent (50%) or more of the voting stock, other voting interest, or income of a corporation or other entity or by contract relating to voting rights or corporate governance.

b.“Calendar Year” means (a) for the first Calendar Year, the period commencing on the Effective Date and ending on December 31 of the same year, (b) for the Calendar Year in which this Agreement expires or is terminated, the period beginning on January 1 of such Calendar Year and ending on the effective date of such expiration or termination, and (c) for all other years, each successive twelve (12) consecutive month period beginning on January 1 and ending December 31.

c.“Challenge” means [***].

d.“Change of Control” means, with respect to the Company, any merger or other transaction or series of related transactions (i) that results in the holders of voting securities of the Company outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or transaction or series of transactions, (ii) in which a Third Party acquires all or substantially all of the Company’s business or assets, whether by merger, acquisition, sale or otherwise, or (iii) in which a Third Party acquires less than all or substantially all of the Company’s business or assets but in which such Third Party acquires all or substantially all of the assets that make up that portion of the business of the Company to which this Agreement relates.

|US-DOCS\110970093.1||

e.“Combination Product” means any product comprising a combination of (i) a Product and (ii) and one or more additional therapeutically active ingredients (whether coformulated or copackaged) which are not Products but which may each or collectively form the basis for a separately saleable product (“Independent Subproduct”). Pharmaceutical dosage form vehicles, adjuvants, and excipients shall not be deemed to be “therapeutically active ingredients”, except in the case where such vehicle, adjuvant, or excipient is recognized by the FDA as an active ingredient in accordance with 21 CFR 210.3(b)(7).

f.“Commercially Reasonable Efforts” means [***].

g.“Cover” or “Covered By” shall mean that the use, manufacture, sale, offer for sale, development, commercialization or importation of the subject matter in question by an unlicensed entity would infringe a Valid Claim of a Patent Right.

h.“Designee” shall mean a corporation or other entity that is employed by, under contract to, or in partnership with (i) Company, (ii) a Sublicensee, (iii) an Affiliate of Company or (iv) an Affiliate of a Sublicensee, wherein such corporation or other entity is granted the right to make, use, sell, promote, distribute, market, import, or export Products.

i.“Field” shall mean any application, or purpose, including, without limitation, the treatment, palliation, diagnosis, or prevention of any human or animal disease, disorder, or condition.

j.“First Commercial Sale” means, with respect to a Product in any country, the first sale, transfer or disposition for value for end use or consumption of such Product in such country after marketing approval has been received in such country provided, that any sale, transfer or disposition (i) to a an Affiliate of Company will not constitute a First Commercial Sale, (ii) of samples with respect to a Product will not constitute a First Commercial Sale, and (iii) for use in a clinical trial or for compassionate use will not constitute a First Commercial Sale.

k.“Generic Equivalent” means, with respect to a particular Product in a country, a product that (i) contains the same active pharmaceutical ingredient as such Product in the same dosage as is in such Product, (ii) is bioequivalent to such Product, as determined under a regulatory approval for such product granted or approved, (iii) may be legally substituted by pharmacies in such country for such Product when filling a prescription written therefor without having to seek authorization to do so from the physician or other health care provider writing such prescription, and (iv) is legally marketed and sold in such country by a Third Party.

l.“IND “ means an investigational new drug application submitted to the U.S. Food and Drug Administration (“FDA”) pursuant to Part 312 of Title 21 of the U.S. Code of Federal Regulations, including any amendments thereto (or an equivalent filing in a jurisdiction outside of the United States).

m.“IPO” means the closing of a public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of securities of Company.

n.“License Year” shall mean the one-year period from the Effective Date of this Agreement or an anniversary thereof to the next anniversary of the Effective Date.

|US-DOCS\110970093.1||

o.“Materials” shall mean the tangible physical material, if any, delivered to Company hereunder, and any progeny or derivatives thereof developed by Company, its Affiliates or Sublicensees. Any Materials delivered to Company hereunder shall be listed in Exhibit B, attached hereto.

p.“Net Sales” means gross amounts invoiced or otherwise received for Company’s, its Affiliates’, and Sublicensees’ sales of Products, less the sum of the following, to the extent related to the sale of such Products: [***]. Such amounts shall be determined from the books and records of Company, its Affiliates, and Sublicensees maintained in accordance with such reasonable accounting principles as may be consistently applied by Company, its Affiliates, and Sublicensees. For the avoidance of doubt, a manufacturer of Products shall not have the right to sell Products to Third Parties unless such manufacturer is a Sublicensee.

Products and Services are considered “sold” when billed out or invoiced or, in the event such Products are not billed out or invoiced, when the consideration for sale of the Products is received. Notwithstanding the foregoing, Net Sales shall not include, and shall be deemed zero with respect to, [***].

If a Product is sold as part of a Combination Product, Net Sales shall be calculated by [***]. If either the Product or the Independent Subproduct(s) is(are) not at that time sold separately, then the allocation of Net Sales shall be [***].

q.“NDA” shall mean a new drug application (as defined in Title 21 of the CFR, as amended from time to time) submitted to the FDA seeking regulatory approval to market and sell the Product for human therapeutic use in the United States (including a new drug application submitted under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act) (or an equivalent filing in a jurisdiction outside of the United States).

r.“Other Product” shall mean any product or service (or component thereof), other than a Patent Product, the discovery, development, manufacture, use, sale, offering for sale, importation, exportation, distribution, rental or lease of which involves the use or incorporation, in whole or in part, of Materials or Technical Information.

|US-DOCS\110970093.1||

s.“Patent” or “Patents” shall mean: (i) the United States and foreign patents and/or patent applications listed in Exhibit A hereto; (ii) any non-provisional patent applications that claim priority to any provisional patent applications listed in Exhibit A hereto; (iii) any and all claims of continuation-in-part applications that claim priority to the United States patent applications listed in Exhibit A, but only where such claims are directed to inventions disclosed in the manner provided in the first paragraph of 35 U.S.C. Section 112 in the United States patent applications listed in Exhibit A, and such claims in any patents issuing from such continuation-in-part applications; (iv) any and all foreign patent applications, foreign patents or related foreign patent documents that claim priority to the patents and/or patent applications listed in Exhibit A; (v) any and all divisionals, continuations, reissues, re-examinations, renewals, substitutions, and extensions of the foregoing; and (vi) any and all patents issuing from the foregoing. Notwithstanding the preceding definition, Patent and Patents shall not include any patents or patent applications based on research conducted after the Effective Date, except as otherwise agreed in a separate writing. The Patent identified on Exhibit A as “Co-owned” is co-owned by Columbia and Fundio Hospital Universitari Vall d’Hebron-Institut de Recerca (“VHIR”) and VHIR has authorized Columbia to negotiate, execute and administer licenses to the Patents on its behalf pursuant to the Inter-Institutional Agreement between Columbia and VHIR dated December 11, 2015, amended on March 1, 2016 and August 1, 2016 (the “IIA”), as defined in Section 8a (the “Joint Patent”).

t.“Patent Product” shall mean any product or service (or component thereof) the discovery, development, manufacture, use, sale, offering for sale, importation, exportation, distribution, rental or lease of which is Covered By a Valid Claim of a Patent.

u.“Pivotal Clinical Trial” means, with respect to the Product, a clinical study (regardless how it is named) that is conducted as an “adequate and well controlled” trial, as defined in 21 C.F.R. § 314.126, for purposes of filing an NDA or other comparable product marketing authorization for the Product, and is consistent with 21 C.F.R. § 312.21(c) and/or, as applicable, other comparable laws. Notwithstanding the foregoing, the first clinical study involving a Product that is sponsored by Company, its Affiliates or a Sublicensee shall not be a Pivotal Clinical Trial.

v.“Priority Review Voucher” means a priority review voucher for a Product awarded by FDA pursuant to Section 524 or Section 529 of the Federal Food, Drug and Cosmetic Act (“FFDCA”).

w.“Priority Review Voucher Revenue” means any consideration actually received by Company or its Affiliates from a Third Party solely as consideration for a Priority Review Voucher Sale to such Third Party, provided that if the aggregate amount of Priority Review Voucher Revenue actually received by Company within sixty (60) days of the effective time of the respective Priority Review Voucher Sale is less than [***] ($[***]), the Priority Revenue Voucher Revenue on which a revenue share is calculated and payable pursuant to Section 4d shall be reduced by an amount equal to Company’s and its Affiliates’ direct and indirect research and development costs and expenses (determined from the books and records of Company and its Affiliates maintained in accordance with such reasonable accounting principles as may be consistently applied by Company or its Affiliates ) for the Product that is the subject of the Priority Review Voucher, such reduction not to exceed [***] ($[***]).

x.“Priority Review Voucher Sale” means the sale by the Company or Affiliate of a Priority Review Voucher to a Third Party where such sale is not in connection with the sale or transfer of other assets relating to a Product or as part of a Change of Control of Company or its Affiliates.

y.“PRV Sublicense” means a sublicense of the rights granted hereunder that includes rights to a Product for which a Priority Review Voucher could reasonably be obtained by the respective sublicensee, for so long as such Priority Review Voucher is reasonably likely to be obtained or has been obtained.

z.“Product” or “Products” shall mean a Patent Product and/or an Other Product.

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aa. “Regulatory Exclusivity” shall mean, with respect to a Product in a country in the Territory, that Company has been granted the exclusive legal right by a regulatory authority in such country to market and sell the Product in such country.

bb. “Sublicensee” shall mean any third party to whom Company has granted a sublicense pursuant to this Agreement. An Affiliate of Company exercising rights hereunder shall not be considered a Sublicensee.

cc. “Sublicensing Revenue” means any consideration actually received by Company from a Third Party as consideration for the grant of rights to the Patents (net of any tax or similar withholding obligations imposed by any tax or other government authority(ies) that are not reasonably recoverable by Company). Sublicensing Revenue includes, but is not limited to, [***], and excludes [***].

dd. “Technical Information” shall mean any know-how, technical information, regulatory filings, and data developed by [***]. Technical Information shall include, but is not limited to, the information set forth in Exhibit C hereto. VHIR has authorized Columbia to negotiate, execute and administer licenses to the Technical Information on its behalf pursuant to the Inter-Institutional Agreement between Columbia and VHIR dated December 11, 2015, amended on March 1, 2016 and August 1, 2016 (the “IIA”). If, after the Effective Date, any know-how, technical information, regulatory filings or data are obtained or developed by [***] and such know-how, technical information, regulatory filings or data are reasonably necessary for the discovery, development, manufacture, use, sale, offering for sale, importation, exportation, distribution, rental or lease of a Product, then [***].

ee. “Territory” shall mean the world.

ff. “Third Party” shall mean any entity or person other than Columbia, Company, Sublicensees, Designees, or their Affiliates.

gg. “Valid Claim” means a (i) claim of an issued and unexpired patent or a supplementary protection certificate, which claim has not been held invalid or unenforceable by a court or other government agency of competent jurisdiction from which no appeal can be or has been taken and has not been held or admitted to be invalid or unenforceable through re-examination or disclaimer, opposition procedure, nullity suit or otherwise and (ii) a claim in a pending patent application, provided that if a particular claim has not issued within eight (8) years of the earlier claimed priority date, it shall not be considered a Valid Claim for purposes of this Agreement unless and until such claim is included in an issued patent, notwithstanding the foregoing definition.

2.License Grant

a.Columbia grants to the Company and any Affiliate thereof, upon and subject to all the terms and conditions of this Agreement (including Section 3 hereof):

(i)an exclusive license under the Patents to discover, develop, manufacture, have made, use, sell, offer to sell, have sold, import, export, distribute, rent, or lease Products in the Field and throughout the Territory;

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(ii)an exclusive license to use Technical Information to discover, develop, manufacture, have made, use, sell, offer to sell, have sold, import, export, distribute, rent, or lease Products in the Field and throughout the Territory, provided that upon an item of Technical Information becoming publically available, the license to such item of Technical Information shall automatically convert to a non-exclusive license and provided further that nothing in this Agreement shall prevent Columbia or its faculty and employees from publishing or otherwise publically disseminating Technical Information; and

(iii)an exclusive license to use Materials to discover, develop, manufacture, have made, use, sell, offer to sell, have sold, import, export, distribute, rent, or lease Products in the Field and throughout the Territory.

b.Columbia grants to Company the right to grant sublicenses (through multiple tiers) under the rights granted to it pursuant to Section 2a, provided that: (i) the Sublicensee agrees to abide by and be subject to all the terms and provisions of this Agreement applicable to the Sublicensee’s exercise of the rights under its sublicense (excluding, without limitation, the payment obligations set forth herein); (ii) in the event any Sublicensee (or any entity or person acting on its behalf) initiates any Challenge, Company shall, upon written request by Columbia, terminate forthwith the sublicense agreement with such Sublicensee unless such Sublicensee terminates or withdraws such Challenge within thirty (30) days of receipt of notice of termination from Company, and the sublicense agreement shall provide for such right of termination by Company; (iii) the sublicense agreement shall provide that, in the event of any inconsistency between the sublicense agreement and this Agreement, this Agreement shall control; (iv) the Sublicensee will submit annual reports to Company consistent with the reporting provision of Section 5a herein; (v) Company remains fully liable for the performance of its obligations hereunder and its Sublicensee’s compliance with the terms and provisions of this Agreement applicable to the Sublicensee’s exercise of the rights under its sublicense; (vi) Company notifies Columbia of any proposed grant of a sublicense and provides to Columbia, upon request, a copy of any proposed sublicense agreement within thirty (30) days following the execution thereof; and (vii) no such sublicense or attempt to obtain a sublicensee shall relieve Company of its obligations under Section 6 hereof to exercise its own commercially reasonable efforts, directly or through a sublicense, to discover, develop and market Products, nor relieve Company of its obligations to pay Columbia any and all license fees, royalties and other payments due under the Agreement, including but not limited to under Sections 4, 5 and 11 of the Agreement.

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c.All rights and licenses granted by Columbia to Company under this Agreement are subject to the applicable requirements of 35 U.S.C. Sections 200 et seq., as amended, and implementing regulations and policies. Company agrees that, to the extent required under 35 U.S.C. Section 204, any Product used, sold, distributed, rented or leased by Company, Sublicensees, Designees, and their Affiliates in the United States will be manufactured substantially in the United States. In addition, Company agrees that, to the extent required under 35 U.S.C. Section 202(c)(4), the United States government is granted a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any Patent throughout the world.

d.All rights not specifically granted herein are reserved to Columbia. Except as expressly provided under this Section 2, no right or license is granted (expressly or by implication or estoppel) by Columbia to Company or its Affiliates or Sublicensees under any tangible or intellectual property, materials, patent, patent application, trademark, copyright, trade secret, know-how, technical information, data or other proprietary right.

e.Columbia shall transfer ownership of, or any beneficial interest in, Orphan Drug Designation request reference number 16-5327 and VHIR shall transfer ownership, of, or any beneficial interest in, Orphan Medicinal Product Designation for thymidine and deoxycytidine to treat thymidine kinase 2 deficiency to Company in accordance with 21 C.F.R. 316.27 and Article 5 (11) of Regulation (EC) No 141/2000 on Orphan Medicinal Products, respectively. Company acknowledges that as of the Effective Date, the Orphan Medicinal Product Designation reference number has not yet been assigned to VHIR’s application and VHIR shall notify Company once such application number is assigned. In connection therewith, Columbia or VHIR shall submit all documentation to the FDA or EMA reasonably required or requested by Company to effectuate the transfer of ownership of such Orphan Drug Designation or Orphan Medicinal Product Designations to Company. In the event that this Agreement is terminated by either Party under Section 17 and there are no sublicenses in effect as of the effective date of termination, Company will transfer the ownership of the Orphan Drug Designation and Orphan Medicinal Product Designation promptly after the effective date of termination of this Agreement to the original owners of the Orphan Drug Designation or Orphan Medicinal Product Designation.

f.Within thirty (30) days following the Effective Date, Columbia shall deliver to Company (i) complete and accurate copies of the Technical Information described on Exhibit C and (ii) the Materials listed on Exhibit B.

3.Reservation of Rights for Research Purposes; Freedom of Publication

a.Columbia reserves the right to practice the Patents and use Materials, to the extent Patents and Materials are exclusively licensed hereunder, for non-commercial academic research and educational purposes in the Field and to permit other entities or individuals to practice and use such Patents and Materials for non-commercial academic research and educational purposes in the Field. VHIR shall also have the foregoing rights solely with respect to the Joint Patent. Columbia and VHIR shall obtain from all entities or individuals who are given permission to practice and use such Patents and Materials an agreement in writing to limit such use to non-commercial academic research and educational purposes. Nothing in this Agreement shall be interpreted to limit in any way the right of Columbia and its faculty or employees to practice and use such Patents and Materials for any purpose outside the Field or to license or permit such use outside the Field by third parties.

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b.Company acknowledges that Columbia is dedicated to free scholarly exchange and to public dissemination of the results of its scholarly activities. Columbia and its faculty and employees shall have the right to publish, disseminate or otherwise disclose any information relating to its research activities, including Technical Information.

4.Fees, Royalties and Payment.

a.Importance of Technical Information and Materials. Company has requested, and Columbia and VHIR have agreed, to grant certain rights to Technical Information and Materials. Company requires these rights in order to develop and commercialize the technology licensed hereunder. Because of the importance of Technical Information and Materials, Company has agreed to pay certain royalties to Columbia on Other Products, as specified below, even if it is not Covered By a Patent, in order to obtain rights to Technical Information and Materials. Company has agreed to these payments because of the commercial value of Technical Information and Materials, separate and distinct from the commercial value of the Patents. Company acknowledges that it would not have entered into this Agreement without receiving the rights to the Technical Information and Materials specified in Section 2. Company further acknowledges that licenses to Technical Information, Materials, and each patent and application within the definition of Patents were separately available from a license to the Patents, and that for convenience and because of the preference of Company, the parties executed a combined license to the Patents, Technical Information, and Materials.

b.In consideration of the licenses granted under Section 2a of this Agreement, the Company shall pay to Columbia as follows:

(i)License Fee: A one-time nonrefundable, non-recoverable and non-creditable license fee in the sum of $[***], payable within 15 days of execution of this Agreement;

(ii)Annual Fee: Company shall pay Columbia an annual license maintenance fee within thirty days following the applicable anniversary of the Effective Date (the “Annual Fee”), as follows:

(A)$[***] for the first, second and third anniversary;

(B)$[***] for each subsequent anniversary until the submission of an NDA.

Upon the submission of an NDA the obligation to pay the Annual Fee shall terminate.

Any Milestone Payments paid pursuant to Section 4e below in the 12-month period preceding an Effective Date for which an Annual Fee is due shall be credited towards the respective Annual Fee.

Accrued Annual Fees shall be fully creditable against Milestone Payments due pursuant to Section 4e below.

(iii)Royalties:

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(A)Except as otherwise set forth in this Agreement, with respect to sales of Patent Products by Company, its Sublicensees or their Affiliates, in the Territory, a nonrefundable and non-recoverable royalty of:

(1)[***] ([***]%) of the first [***] ($[***]) of aggregate Net Sales of Patent Products sold by Company, its Affiliates, or Sublicensees in the Territory in any Calendar Year;

(2)[***] ([***]%) of all Net Sales of Patent Products sold by Company, its Affiliates, or Sublicensees in the Territory greater than [***] ($[***]) and up to [***] ($[***]) in any Calendar Year; and

(3)[***] ([***]%) of all Net Sales of Patent Products sold by Company, its Affiliates, or Sublicensees in the Territory greater than [***] ($[***]) in any Calendar Year (the applicable percentage, pursuant to the foregoing, of Net Sales of Products sold by Company, its Affiliates, or Sublicensees in the Territory, the “Base Rate”).

(B)With respect to sales of Other Products by Company, its Sublicensees or their Affiliates or Sublicensees, in the Territory, a nonrefundable and non-recoverable royalty of:

(1)[***]% of the royalty rates set forth in Section 4b(iii)(A) on the Net Sales of Other Products sold in a country in the Territory for which there was orphan drug exclusivity at the time of such sale;

(2)[***]% of the royalty rates set forth in Section 4b(iii)(A) on the Net Sales of Other Products sold in a country in the Territory for which there was no orphan drug exclusivity at the time of such sale; and

(3)[***]% of the royalty rates set forth in Section 4b(iii)(A) on the Net Sales of Other Products if there is, at the time of sale, a Generic Equivalent for sale in the country of sale.

(C)In the event that the royalties paid to Columbia pursuant to Section 4b(iii) in any full Calendar Year following the Calendar Year in which the First Commercial Sale of a Product occurs do not exceed [***] ($[***]), Company shall pay to Columbia the difference between such minimum royalty amount and the actual royalties paid within [***] days following the last day of such Calendar Year.

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(D)If Company, an Affiliate thereof, or any Sublicensee reasonably determines that it is necessary or advisable to obtain a license to any patent(s) or patent application(s) owned, licensed, or controlled by a Third Party in order to minimize, mitigate, or avoid the risk of infringement-related litigation with respect to the manufacture, use, delivery, or sale of a Product, then Company shall provide written notice of such determination to Columbia. If Company, an Affiliate thereof, or any Sublicensee pays fees, milestones, royalties, or other consideration to any such Third Party for any such rights (such consideration, “Third Party Royalties”), then Company may deduct [***] ([***]%) of the Third Party Royalties from any payments due Columbia under Section 4b(iii); provided that in no event will the royalties due to Columbia under Section 4b(iii) of this Agreement be reduced by more than [***]% by the offset in this Section 4b(iii)(D).

c. Company will pay Columbia an amount equal to the following percentages of all Sublicensing Revenue:

(i)if the respective sublicense was granted prior to the filing of an IND for a Product, [***]% of Sublicensing Revenue;

(ii)if the respective sublicense was granted following the filing of an IND for a Product and prior to the receipt by the Company or its Affiliates of the results (i.e., whether or not the clinical trial achieved its clinical endpoint) of a clinical trial covering a Product, then:

(A)[***]% of Sublicensing Revenue, if the agreement under which such sublicense is granted is not a PRV Sublicense; and

(B)[***]% of Sublicensing Revenue, if the agreement under which such sublicense is granted is a PRV Sublicense;

(iii)if the respective sublicense was granted (a) following the receipt by the Company or its Affiliates of the results (i.e., whether or not the clinical trial achieved its clinical endpoint) of a clinical trial covering a Product but (b) prior to the filing of an NDA for a Product,

(A)[***]% of Sublicensing Revenue, if the agreement under which such sublicense is granted is not a PRV Sublicense; and

(B)[***]% of Sublicensing Revenue, if the agreement under which such sublicense is granted is a PRV Sublicense;

(iv)if the respective sublicense is a PRV Sublicense and is effective following the filing of an NDA for a Product, [***]% of Sublicensing Revenue. For the avoidance of doubt, if a sublicense is granted following the filing of an NDA for a Product and the respective agreement is not a PRV Sublicense, then no share of Sublicensing Revenue is payable to Columbia.

Milestone Payments paid by Company shall be credited against the payments due under this Section 4c.

Until such time as Company has received Sublicensing Revenue of at least [***] ($[***]), the Sublicensing Revenue on which payments due under this Section 4c are based shall be reduced by an amount equal to Company’s direct and indirect research and development costs and expenses (as

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determined from the books and records of Company and its Affiliates maintained in accordance with such reasonable accounting principles as may be consistently applied by Company or its Affiliates) for Products (the “Deferred Sublicensing Revenue”), up to a maximum reduction of [***] ($[***]), and Company shall not be responsible for paying a royalty on the Deferred Sublicensing Revenue. Upon Company’s receipt of Sublicensing Revenue of at least [***] ($[***]), Company shall pay Columbia a one-time payment equal to the applicable percentage (as set forth above) multiplied by the Deferred Sublicensing Revenue.

d. Priority Review Voucher Revenue Share. Company will pay Columbia an amount equal to [***]% of Priority Review Voucher Revenue.

e. Development Milestone Payments: The following one-time nonrefundable, non-recoverable and non-creditable (other than against the Annual Fee as described in Section 4b(ii) and Sublicensing Revenue as described in Section 4(c) milestone payments (“Milestone Payments”) shall be made by Company to Columbia within sixty (60) calendar days of the initial achievement of the indicated milestone. Accrued Annual Fees shall be fully creditable against Milestone Payments due.


MILESTONE			PAYMENT
[***]			[***]
[***]			[***]
[***]			[***]
[***]			[***]
[***]			[***]
[***]			[***]
If cumulative Net Sales exceed [*] within [*] of the First Commercial Sale of a Product			[***]
If cumulative Net Sales exceed [*] within [*] of the First Commercial Sale of a Product			[***]
If cumulative Net Sales exceed [*] within [*] of the First Commercial Sale of a Product.			[***]

f. Duration of Other Product Royalties. Royalties shall be payable on a country-by-country and product-by-product basis until the later of (i) [***] after the first bona fide commercial sale of a Product in a country, (ii) the expiration of the last to expire Valid Claim covering a Product in a country or (iii) expiration of any Regulatory Exclusivity covering such Product (the “Royalty Term”).

g. Highest Royalty Due. If a Product is covered by both the definition of Patent Product and Other Product, Columbia shall be entitled to the Patent Product royalty rate on the Product. Columbia shall not be entitled to more than one royalty payment on the same Product sale under Section 4. To the extent a Product ceases being a Patent Product, but is still an Other Product, Columbia shall be entitled to the Other Product royalty rate on the Product, but only for such time as specified in Section 4(f).

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h. No Non-Monetary Consideration. Without Columbia’s prior written consent, such consent not to be unreasonably withheld, Company, Sublicensees, and Affiliates of the foregoing, shall not solicit or accept any consideration for the sale of any Product other than as will be accurately reflected in Net Sales. Furthermore, Company shall not enter into any transaction with any Affiliate that would circumvent its monetary or other obligations under this Agreement.

i. Rate Adjustment on Challenge; Payment of Costs and Expenses.

(i)In the event Company (or any entity or person acting on its behalf) initiates any Challenge, all royalty rates, minimum royalties, and other payment rates set forth in Sections 4b(iii) and 4c shall be automatically [***] on and after the date of such challenge for the remaining term of this Agreement.

(ii)Company shall pay all reasonable, documented, out-of-pocket costs and expenses incurred by Columbia (including actual attorneys’ fees) in connection with defending a Challenge. Columbia may bill Company on a quarterly basis with respect to such costs and expenses, and Company shall make payment within thirty (30) days after receiving an invoice from Columbia.

(iii)In the event at least one claim of a Patent that is subject to a Challenge survives the Challenge by not being found invalid or unenforceable, regardless of whether the claim is amended as part of the Challenge, all royalty rates, minimum royalties, and other payment rates set forth in Sections 4b(iii) and 4c shall be automatically trebled on and after the date of such finding for the remaining term of this Agreement.

Company acknowledges and agrees that the provisions set forth in this Section 4(i) reasonably reflect the value derived from the Agreement by Company in the event of a Challenge. In addition, Company acknowledges and agrees that any payments made under this Section 4(i) shall be nonrefundable and non-recoverable for any reason whatsoever.

j. Sale Below Fair Market Value. In the event that Company, Sublicensees, or their Affiliates sell Product to a Third Party in a transaction that is not at arms-length, the price for Licensed Product shall not be established such that Net Sales is below fair market value with the intent of increasing market share for other products sold by Company, Sublicensees, or their Affiliates to such Third Party or for the purpose of reducing the amount of royalties payable on the Net Sales of Product. If the sale of Product under such circumstances results in Net Sales below the fair market value of Product sold in an arms-length transaction, then the Net Sales of Product in such transaction shall be deemed to be the fair market value of Product sold in an arm’s length transaction for purposes of calculating payments owed to Columbia under this Agreement.

k. Subject to Columbia and Company executing a mutually agreed upon subscription agreement within three months of the Effective Date, Company shall issue to Columbia membership units (“Membership Units”) representing [***] ([***]%) of the Company’s outstanding membership units as of the Effective Date.

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Subject to the mutual execution of such subscription agreement and issuance of Membership Units as described above, Company shall issue additional Membership Units from time to time (“Adjusting Shares”) in order to maintain Columbia’s aggregate [***] ([***]%) holding of the Company’s Membership Units on a fully-diluted percentage, as described above (“Anti-Dilution Protection”). The Anti-Dilution Protection shall terminate on the earlier of the following: (i) IPO, (ii) a Change of Control of Company, or (iii) the Company’s receipt of a total of [***] ($[***]) in equity financing (including, for purposes of such calculation, the amount of any unpaid principal and interest due under any debt securities that may be converted into or used to purchase equity securities in any equity financing; provided, however, that such amount of unpaid principal and interest shall not be applied to the $[***] threshold until and to the extent such debt is converted into or used to purchase equity securities). For the avoidance of doubt, the Anti-Dilution Protection shall not apply to equity financing in excess of [***] ($[***]).

l. Upon the mutual execution of such subscription agreement and issuance of Membership Units as described above, Company grants to Columbia the right to designate non-voting Board Observer(s) who may attend, observe or otherwise participate in all meetings of the Board of Directors of the Company. The foregoing right shall terminate upon the earlier of (i) an IPO, (ii) Change of Control of the Company or (iii) Columbia no longer holding more than [***]% of Membership Interests on fully diluted basis.

5. Reports and Payments.

a.Within sixty (60) days after the first day of each Calendar Year of this Agreement, Company shall submit to Columbia a written report with respect to the preceding Calendar Year (the “Payment Report”) stating the number, description, country where manufactured, country where sold, aggregate selling prices, and Net Sales of Products (broken down by Patent Products and Other Products) sold in such year upon which royalty is payable, the amount of Sublicensing Revenue received during such year, and the royalty and sublicensing revenue share payments due under Sections 4b(iii) and 4c. Payment Reports shall be deemed Confidential Information of Company.

b.Simultaneously with the submission of each Payment Report, Company shall make payments to Columbia of the amounts due for the Calendar Year covered by the Payment Report. Payment shall be by check payable to The Trustees of Columbia University in the City of New York and sent to the following address:

The Trustees of Columbia University in the City of New York

Columbia Technology Ventures

P.O. Box 1394

New York, NY 10008-1394

or to such other address as Columbia may specify by notice hereunder, or if requested by Columbia, by wire transfer of immediately available funds by Company to:

Wells Fargo

375 Park Avenue, 6^th Floor

MAC J0127-063

New York, NY 10152

(This is the bank’s address not Columbia University’s.

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Do not use this address for correspondence to Columbia University.)

Routing #: [***]

Swift #:[***] (use for foreign wires)

Swift #: [***] (use for domestic wires)

Columbia Account #: [***]

Beneficiary: [***]

Other identifying info: include invoice #, contract #

or to such other bank and account identified by notice to Company by Columbia.

c.Within sixty (60) days after the date of termination or expiration of this Agreement, Company shall pay Columbia any and all amounts that are due pursuant to this Agreement as of the date of such termination or expiration, together with a Payment Report for such payment in accordance with Section 5a hereof, except that such Payment Report shall cover the period from the end of the last Calendar Year prior to termination or expiration to the date of termination or expiration. Nothing in the foregoing shall be deemed to satisfy any of Company’s other obligations under this Agreement upon termination or expiration.

d.Minimum royalty payments are payable in accordance with Section 4b(iii)(C).

e.With respect to revenues obtained by Company in foreign countries, Company shall make royalty payments to Columbia in the United States in United States Dollars. Royalty payments for transactions outside the United States shall first be determined in the currency of the country in which they are earned, and then converted to United States dollars using the buying rates of exchange quoted by The Wall Street Journal (or its successor) in New York, New York for the last business day of the calendar quarter in which the royalties were earned. Any and all loss of exchange value, taxes, or other expenses incurred in the transfer or conversion of foreign currency into U.S. dollars, and any income, remittance, or other taxes on such royalties required to be withheld at the source shall be the exclusive responsibility of Company, and shall not be used to decrease the amount of royalties due to Columbia. Notwithstanding the foregoing, all payments made by Company in fulfillment of Columbia’s tax liability in any particular country may be credited against earned royalties or fees due Columbia for that country. Royalty statements shall show sales both in the local currency and US dollars, with the exchange rate used clearly stated.

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f.Company shall maintain at its principal office usual books of account and records showing its actions under this Agreement, and sufficient to determine Company’s compliance with its obligations hereunder. Upon reasonable notice, but not more than once per Calendar Year, Columbia may have a certified public accountant or auditor, (each as to whom Company has pre-approved in writing, such approval to not be unreasonably withheld) inspect such books and records for purposes of verifying the accuracy of the amounts paid under this Agreement. Prior to any such inspection, such accountant or auditor shall enter into a reasonably confidential disclosure agreement with Company. Such certified public accountant and accountant shall not disclose to Columbia any information other than information reasonably relating to the accuracy of payments made under this Agreement, and all such information shall be deemed Confidential Information of Company except as necessary to legally enforce the provisions of this Section 5f. The review may cover a period of not more than five (5) years before the first day of the Calendar Year in which the review is requested. In the event that such review shows that Company has underpaid royalties by five percent (5%) or more with respect to any calendar quarter, or if such underpayment is in excess of $50,000 for any calendar quarter, or an aggregate of $100,000 for any Calendar Year, and Company does not dispute such review, Company shall pay, within ten days after demand by Columbia, the reasonable, documented out-of-pocket costs and expenses of such review (including the fees charged by Columbia’s accountant or auditor involved in the review), in addition to amount of any underpayment and any interest thereon. Company agrees to reasonably cooperate with such certified public accountant or auditor in connection with the inspection described above. During the review, Company shall provide Columbia’s accountant or auditor with all information reasonably requested to allow the accountant or auditor to audit and test for completeness of Company’s reports as well as accuracy of reported fees payable to Columbia, including, without limitation, information relating to sales, inventory, country of manufacture, transfer records, invoices, purchase orders, sales orders, shipping documentation, Third Party royalty reports, costs associated with royalties, pricing policies, and agreements with Third Parties (including Sublicensees, Affiliates of Company, Sublicensees and customers), but only to the extent reasonably necessary to determine completeness of Company’s reports as well as the accuracy of the payments due hereunder. All information disclosed by Company to Columbia’s accountant or auditor will be treated as confidential.

g.Notwithstanding anything to the contrary in this Agreement, and without limiting any of Columbia’s rights and remedies hereunder, any payment required hereunder that is made late (including unpaid portions of amounts due) shall bear interest, compounded monthly, at the rate of [***]% per annum. Any interest charged or paid in excess of the maximum rate permitted by applicable New York State Law shall be deemed the result of a mistake and interest paid in excess of the maximum rate shall be credited or refunded (at the Company’s option) to Company.

6. Diligence.

a.Company shall use its Commercially Reasonable Efforts to research, discover, develop and market Products for commercial sale and distribution in the Territory. Columbia agrees that the efforts of Sublicensees, Affiliates, Designees, and Third Party contractors shall be deemed the acts of Company for purposes of satisfying this Section 6a.

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b.Company shall use Commercially Reasonable Efforts to: (i) submit an IND to the FDA within [***] of the Effective Date, (ii) initiate a phase II clinical trial or phase III clinical trial involving a Product within [***] of the Effective Date and (iii) achieve the first commercial sale of a Product within [***] of the Effective Date. Prior to the achievement of the foregoing milestones, Company will be deemed to not be using Commercially Reasonable Efforts to achieve such milestones if in any twelve consecutive month period prior to the dosing of the first patient in a Pivotal Clinical Trial, Company does not engage in any activity relating to the research, development or manufacturing of Products. In the event that there are changes in technical and regulatory factors, target product profiles, product labeling, costs, market conditions, and regulatory environment that the Company believes would affect the timely achievement of any milestone, Company may request an extension from Columbia for such milestone, which will not be unreasonably withheld. Columbia agrees that the efforts of Sublicensees, Affiliates, Designees, and Third Party contractors shall be deemed the acts of Company for purposes of satisfying this Section 6b.

c.Notwithstanding any other provisions of this Agreement, upon a material breach of Section 6b by Company, followed by written notice by Columbia of such breach and a ninety (90) or 180 day period to cure as applicable under Section 16 (with Company not curing such breach during such period), Columbia shall have the option of [***].

d.On or before February 1 of each year after the Effective Date of this Agreement, Company shall report in writing to Columbia on progress made toward the diligence objectives set forth in Section 6b. All reports provided to Columbia pursuant to this Section shall be deemed Company’s Confidential Information.

7. Confidentiality.

a.Confidential Information. “Confidential Information” means all non-public, confidential, or proprietary information disclosed before, on or after the Effective Date, by either Party (a “Disclosing Party”) to the other Party (a “Recipient”) or its Affiliates, or to any of such Recipient’s or its Affiliates’ employees, officers, directors, partners, shareholders, agents, attorneys, accountants, or advisors (collectively, “Representatives”). Confidential Information must be disclosed in writing or in another tangible medium and must be clearly marked “Confidential.” Information disclosed orally must be summarized and reduced to writing and communicated to the other party within thirty (30) days of such disclosure. The terms and conditions of this Agreement are considered Confidential Information of both Parties.

b.Exclusions from Confidential Information. Except as required by applicable federal, state, or local law or regulation, the term “Confidential Information” of a Disclosing Party, as used in this Agreement, shall not include information that:

(i)at the time of disclosure is, or thereafter becomes, generally available to and known by the public other than as a result of, directly or indirectly, any violation of this Agreement by the Recipient or any of its Representatives;

(ii)at the time of disclosure is, or thereafter becomes, available to the Recipient on a non-confidential basis from a Third Party, provided that such Third Party is not and was not prohibited from disclosing such Confidential Information to the Recipient by a legal, fiduciary or contractual obligation to the Disclosing Party;

(iii)was, through no wrongdoing, known by or in the possession of the Recipient or its Representatives, as established by documentary evidence, before being disclosed by or on behalf of the Disclosing Party pursuant to this Agreement;

(iv)is approved for release by prior written authorization of the Disclosing Party; or

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(v)was or is independently developed by the Recipient, as established by documentary evidence, without reference to or use of, in whole or in part, any of the Disclosing Party’s Confidential Information.

c. Recipient Obligations. The Recipient shall:

(i)protect and safeguard the confidentiality of all such Confidential Information with at least the same degree of care as the Recipient would protect its own Confidential Information, but in no event with less than a commercially reasonable degree of care;

(ii)not use the Disclosing Party’s Confidential Information, or permit it to be accessed or used, for any purpose other than the purpose of this Agreement or otherwise in any manner to the Disclosing Party’s detriment;

(iii)not disclose any such Confidential Information to any person or entity, except to the Recipient’s Representatives who:

(A)need to know the Confidential Information to assist the Recipient, or act on its behalf, in relation to the purpose of this Agreement or to exercise its rights under the Agreement;

(B)are informed by the Recipient of the confidential nature of the Confidential Information; and

(C)are subject to confidentiality duties or obligations to the Recipient that are no less restrictive than the terms and conditions of this Agreement; and

(D)be responsible for any breach of this Agreement caused by any of its Representatives.

d. Required Disclosure. Any disclosure by the Recipient, any of its Affiliates, or its or its Affiliates’ Representatives of any of the Disclosing Party’s Confidential Information pursuant to applicable federal, state or local law, regulation or a valid order issued by a court or governmental agency of competent jurisdiction (a “Legal Order”) shall be subject to the terms of this Section. Before making any such disclosure, the Recipient shall provide the Disclosing Party with: (i) to the extent reasonably practicable, prompt written notice of such requirement so that the Disclosing Party may seek, at its sole cost and expense, a protective order or other remedy, and (ii) reasonable assistance, at the Disclosing Party’s sole cost and expense, in opposing such disclosure or seeking a protective order or other limitations on disclosure. If, after providing such notice and assistance as required herein, the Recipient remains subject to a Legal Order to disclose any of Disclosing Party’s Confidential Information, the Recipient (or its Affiliates, its or their Representatives, or other persons to whom such Legal Order is directed) shall disclose no more than that portion of the Confidential Information which, on the advice of the Recipient’s legal counsel, such Legal Order specifically requires the Recipient to disclose. The details of that advice shall be confidential and privileged at the sole discretion of Recipient.

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e. Specific Permitted Uses and Disclosure. Notwithstanding the foregoing, Company and its Affiliates, Designees, and Sublicensees may (i) use Columbia’s Confidential Information as necessary or useful to discover, develop, manufacture, obtain approval for, commercialize, use, sell, have sold, distribute, rent or lease Products and (ii) disclose Columbia’s Confidential Information to investors, prospective investors, employees, consultants, contractors, agents, collaborators, prospective collaborators and other third parties if each such recipient is bound by confidentiality obligations at least as protective of Columbia’s Confidential Information as those provided in this Section 7.

f. Term of Confidentiality. Confidential Information shall remain subject to the terms of this Section 7 for a period of five (5) years after the expiration or termination of this Agreement.

8. Disclaimer of Warranty; Limitations of Liability.

a.Columbia represents and warrants to Company that as of the Effective Date and to the best of the knowledge of the officers of Columbia’s Office of the General Counsel and Columbia Technology Ventures, it has the lawful right to grant the licenses set forth herein and has not granted any rights under the Patents that would conflict with this Agreement or interfere with the rights granted to Company hereunder. Columbia represents and warrants to Company that the executed copy of the Inter-Institutional Agreement between Columbia and VHIR dated December 11, 2015 (the “IIA”) provided to Company represents a true, accurate, and complete copy thereof as of the Effective Date and is in full force and effect as of the Effective Date and (ii) Columbia has not previously breached, and is not currently in breach of, the IIA. Columbia will not amend, terminate, or enter into any additional agreement concerning the subject matter of the IIA in a manner that would adversely affect Company’s rights under this Agreement.

b.EXCEPT AS SET FORTH IN SECTION 8a, COLUMBIA AND VHIR ARE LICENSING THE PATENTS, MATERIALS, TECHNICAL INFORMATION, AND THE SUBJECT OF ANY OTHER LICENSE HEREUNDER, ON AN “AS IS” BASIS. COLUMBIA MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED OF ANY KIND, AND HEREBY EXPRESSLY DISCLAIMS ANY WARRANTIES, REPRESENTATIONS OR GUARANTEES OF ANY KIND AS TO THE PATENTS, MATERIALS, TECHNICAL INFORMATION, PRODUCTS AND/OR ANYTHING DISCOVERED, DEVELOPED, MANUFACTURED, USED, SOLD, OFFERED FOR SALE, IMPORTED, EXPORTED, DISTRIBUTED, RENTED, LEASED OR OTHERWISE DISPOSED OF UNDER ANY LICENSE GRANTED HEREUNDER, INCLUDING BUT NOT LIMITED TO: ANY WARRANTIES OF MERCHANTABILITY, TITLE, FITNESS, ADEQUACY OR SUITABILITY FOR A PARTICULAR PURPOSE, USE OR RESULT; ANY WARRANTIES AS TO THE VALIDITY OF ANY PATENT; AND ANY WARRANTIES OF FREEDOM FROM INFRINGEMENT OF ANY DOMESTIC OR FOREIGN PATENTS, COPYRIGHTS, TRADE SECRETS OR OTHER PROPRIETARY RIGHTS OF ANY PARTY.

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c.In no event shall Columbia, VHIR, or its trustees, officers, faculty members, students, employees and agents, have any liability to Company, Sublicensees, Designees, or Affiliates of the foregoing, or any Third Party arising out of the use, operation or application of the Patents, Technical Information, Materials, Products, or anything discovered, developed, manufactured, used, sold, offered for sale, imported, exported, distributed, rented, leased or otherwise disposed of under any license granted hereunder by Company, Sublicensees, Designees or Affiliates of the foregoing, or any Third Party for any reason, including but not limited to, the unmerchantability, inadequacy or unsuitability of the Patents, Materials, Technical Information, Products and/or anything discovered, developed, manufactured, used, sold, offered for sale, imported, exported, distributed, rented, leased or otherwise disposed of under any license granted hereunder for any particular purpose or to produce any particular result, or for any latent defects therein.

d.In no event will Columbia, VHIR, or its trustees, officers, faculty members, students, employees and agents, be liable to the Company, Sublicensees, Designees or Affiliates of the foregoing, or any Third Party, for any consequential, incidental, special or indirect damages (including, but not limited to, from any destruction to property or from any loss of use, revenue, profit, time or good will) based on activity arising out of or related to this Agreement, whether pursuant to a claim of breach of contract or any other claim of any type. In no event will Company, its Affiliates, Sublicensees and their officers, directors, employees, contractors and agents, be liable to Columbia, or its trustees, officers, faculty members, students, employees and agents, or any Third Party, for any consequential, incidental, special or indirect damages (including, but not limited to, from any destruction to property or from any loss of use, revenue, profit, time or good will) based on activity arising out of or related to this Agreement, whether pursuant to a claim of breach of contract or any other claim of any type.

e.The parties hereto acknowledge that the limitations and exclusions of liability and disclaimers of warranty set forth in this Agreement form an essential basis of the bargain between the parties.

9. Prohibition Against Use of Name.

Except as provided below, neither party shall use or register the other party’s or VHIR’s name (alone or as part of another name) or any logos, seals, insignia or other words, names, symbols or devices that identify the other party for any purpose except with the prior written approval of, and in accordance with restrictions required by, such other party. Without limiting the foregoing, each party shall, and shall ensure that its Affiliates and Sublicensees shall, cease all use of the other party’s name(s), on the termination or expiration of this Agreement except as otherwise approved by the other party. This restriction shall not apply to any information required by law or regulation to be disclosed to any governmental entity.

10. Compliance with Governmental Obligations.

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a.Notwithstanding any provision in this Agreement, Columbia disclaims any obligation or liability arising under the license provisions of this Agreement if Company or its Affiliates is charged in a governmental action for not complying with or fails to comply with governmental regulations in the course of taking steps to bring any Product to a point of practical application.

Company and its Affiliates shall comply upon reasonable notice from Columbia with all governmental requests relating directly to Company’s exercise of its rights under this License Agreement directed to either Columbia or Company or its Affiliates and provide all information and assistance reasonably necessary to comply with such governmental requests.

b.Company and its Affiliates shall ensure that research, development, manufacturing and marketing under this Agreement complies with all government regulations in force and effect including, but not limited to, Federal, state, and municipal legislation.

11. Patent Prosecution and Maintenance; Litigation.

a.Columbia, by counsel it selects to whom Company has no reasonable objection, in consultation with Company and any counsel appointed by the Company, will prepare, file, prosecute and maintain all Patents in Columbia’s name and in countries designated by the Company. Columbia shall instruct its patent counsel (1) to copy Company on all correspondence related to Patents (including copies of each patent application, office action, response to office action, request for terminal disclaimer, and request for reissue or reexamination of any patent or patent application), as well as copies of all proposed responses to such correspondence in time for Company to review and comment on such response, (2) consult with Company, and reasonably consider Company’s comments and suggestions regarding matters relating to securing and maintaining the Patents, and (3) as requested by Company, to provide an update as to the current status of all Patents. The parties agree that consultation between the parties relating to the Patents under this Section 11 shall be pursuant to a common interest in the validity, enforceability and scope of the Patents. Each party shall treat such consultation, along with any information disclosed by each party in connection therewith (including any information concerning patent expenses), on a strictly confidential basis, and shall not disclose such consultation or information to any party without the other party’s prior written consent. If Company seeks to challenge the validity, enforceability or scope of any Patent, Columbia’s consultation obligation under this Section 11a shall automatically terminate; for the avoidance of doubt, any such termination shall not affect Company’s confidentiality and nondisclosure obligations with respect to consultation or disclosure of information prior to such termination, and shall not affect any other provisions of this Agreement (including Company’s reimbursement obligation under Section 11b).

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b.Company will reimburse Columbia for the reasonable, documented actual fees, costs, and expenses Columbia has incurred prior to June 30, 2016 and will pay the reasonable, documented actual fees, costs, and expenses that Columbia incurs following June 30, 2016 in preparing, filing, prosecuting and maintaining the Patents and those past reasonable, documented patent expenses Columbia incurred prior to June 30, 2016 relating to the following patents and patent applications to which Patents claim priority: United State Provisional Application Nos. 62/138,583 and 62/180,914, including without limitation, attorneys’ fees, the costs of any interference proceedings, oppositions, reexaminations, or any other ex parte or inter partes administrative proceeding before patent offices, taxes, annuities, issue fees, working fees, maintenance fees and renewal charges (collectively “Patent Expenses”). Columbia, using reasonable efforts, estimates that unreimbursed patent expenses incurred through June 30, 2016 under Section 11a in connection with the Patents set forth in Exhibit A are [***], and shall be reimbursed in full by Company to Columbia within Thirty (30) business days after the Effective Date. Patent Expenses incurred by Columbia after June 30, 2016 shall be reimbursed to Columbia by Company within thirty (30) days of receiving Columbia’s invoice. If Company decides that it does not wish to pay for the preparation, filing, prosecution, protection or maintenance of any Patents in a particular country (“Abandoned Patent Rights”), Company shall provide Columbia with prompt written notice of such election. Upon receipt of such notice by Columbia, Company shall be released from its obligation to reimburse Columbia for the expenses incurred thereafter as to such Abandoned Patent Rights. Any license granted by Columbia to Company hereunder with respect to Abandoned Patent Rights will terminate.

c.Each party shall promptly notify the other in writing of any actual, alleged or threatened challenge to the validity or enforceability of, Patents of which it becomes aware. Columbia shall have the first right to defend, control and settle any such validity or enforceability challenges. In the event Columbia does not defend any such validity or enforceability challenge within ninety days of becoming aware of the same, or if its ceases to defend such challenge, then Company shall have the right to defend, control and settle such validity or enforceability challenge, provided that the terms of any settlement shall be subject to Columbia’s prior written consent.

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d.In the event either party becomes aware of any possible or actual infringement of any Patents, that party shall promptly notify the other party and provide it with details regarding such infringement. Company will have the first right, at its expense, to initiate a suit or take other appropriate action that it believes is reasonably required to protect (i.e., prevent or abate actual or threatened infringement or misappropriation of) or otherwise enforce the Patents, including defending against any counterclaims or cross claims brought by any party against Company or Columbia regarding the Patents, subject to the provisions of Section 11c above. Before commencing any such suit, Company shall consult with Columbia concerning the advisability of bringing suit, the selection of counsel and the jurisdiction for such action and shall use reasonable efforts to accommodate the views of Columbia regarding the proposed action. If required under applicable law in order for Company to initiate or maintain such suit, or to collect damages, Columbia shall join as a party to the suit at Company’s expense. Upon Company’s request and at Company’s expense, Columbia shall provide reasonable assistance to Company in connection with an action brought under this Section. Any proposed disposition or settlement of a legal proceeding filed by Company pursuant to this Section 11d to enforce any issued patent falling within the definition of Patents against any third party infringer shall be subject to Columbia’s prior written approval, which approval shall not be unreasonably withheld or delayed. If Company fails to initiate a suit or take other appropriate action within ninety (90) days after becoming aware of the basis for such suit or action, then Columbia may, in its discretion, provide Company with written notice of Columbia’s intent to initiate a suit or take other appropriate action with respect to such infringement or misappropriation of the Patents; provided that prior to initiating any such suit, Columbia shall consult with Company concerning the advisability of bringing suit, the selection of counsel and the jurisdiction for such action, and shall use reasonable efforts to accommodate the views of Company regarding the proposed action. If Columbia brings such suit, upon Columbia’s request, Company shall provide reasonable assistance to Columbia in connection therewith and Columbia shall be responsible to Company for all reasonable out-of-pocket costs and expenses. Notwithstanding the foregoing, Company’s rights under this Section 11d shall apply only to claims of Patents that are exclusively licensed to Company under this Agreement and only in the Field and Territory that are exclusively licensed to Company under this Agreement.

e.Any recovery, whether by way of settlement or judgment, from a third party pursuant to a legal proceeding initiated in accordance with Section 11d shall first be used to reimburse the Parties for their reasonable, documented fees, costs and expenses incurred in connection with such proceeding. Any remaining amounts from any such settlement or judgment shall be divided as follows: (A) the portion thereof attributable to “lost sales” shall be retained by the Company and deemed to be Net Sales for the Calendar Year in which the amount is actually received by Company, and Company shall pay to Columbia a royalty on such Net Sales as set forth in Section 4b(iii) and (B) the portion thereof not attributable to “lost sales” shall be divided [***]% to the party who initiated or carried on the proceedings and [***]% to the other party.

f.In the event a party initiates or defends a legal proceeding concerning any Patent pursuant to Section 11, the other party shall cooperate fully with and supply all assistance reasonably requested by the party initiating such proceeding, including without limitation, joining the proceeding as a party if requested and the initiating party shall be responsible for all reasonable out-of-pocket expense incurred by the non-initiating party. The party that institutes any legal proceeding concerning any Patent pursuant to Section 11 shall have sole control of that proceeding.

g.Upon Company’s request and at Company’s expense, Columbia shall apply for a patent term extension, adjustment or restoration, supplementary protection certificate, or other form of market exclusivity conferred by applicable laws, rules, regulations, or guidelines in the relevant country.

12. Indemnity and Insurance.

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a.Company will indemnify, defend, and hold harmless Columbia, VHIR, its trustees, officers, faculty, employees, students and agents (collectively, “Indemnitees”), from and against any and all actions, suits, claims, demands, prosecutions, liabilities, costs, expenses, damages, deficiencies, losses or obligations (including attorneys’ fees) due to any claim by a Third Party (“Claim”) based on or arising out of, the exercise by Company, its Affiliates or Sublicensee of the rights and licenses granted to Company under this Agreement, including, without limitation, (i) the discovery, development, manufacture, packaging, use, sale, offering for sale, importation, exportation, distribution, rental or lease of Products, (ii) the use of Patents, Materials or Technical Information by Company, Sublicensees, Designees, or their Affiliates or customers, (iii) any representation made or warranty given by Company, Sublicensees, Designees, or their Affiliates with respect to Products, Patents, Materials or Technical Information, (iv) any infringement claims relating to Products, Patents, Materials or Technical Information, and (v) any asserted violation of the Export Laws (as defined in Section 14 hereof) by Company, Sublicensees, Designees, or their Affiliates. The previous sentence will not apply to the extent that any Claim is based on our arises out of (i) the gross negligence or willful misconduct of an Indemnitee or (ii) from any breach of Section 8a.

Company’s indemnification obligations under the preceding paragraph are conditioned upon (i) Columbia and VHIR notifying Company of any Claim hereunder as soon as reasonably practicable after it receives notice of the Claim; provided that the failure so to notify Company will relieve Company from liability for indemnification only if and to the extent such failure results in additional costs, expenses or liability, (ii) Columbia, VHIR and the Indemnitees permitting Company to assume direction and control of the defense of the Claim (including the right to settle the Claim); provided, however, that Company shall not settle any Claim without the prior written consent of Columbia or VHIR, such consent not to be unreasonably withheld, where such settlement (a) would include any admission of liability on the part of any Indemnitee or (b) would impose any restriction on any Indemnitee’s conduct of any of its activities or (c) would affect the validity or enforceability of any Patent and (iii) the Indemnitees shall cooperate as reasonably requested (at the expense of Company) in the investigation and defense of any Claim, and may not settle a Claim without the express written consent of Company.

b.Beginning at least ten (10) business days before the time any Product is being marketed or commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Company, or by an Affiliate or Sublicensee, Company shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $5,000,000 per incident and $5,000,000 annual aggregate. During clinical trials of any such Product, Company shall, at its sole cost and expense, procure and maintain commercial general liability insurance in such equal or lesser amount as is customary. Such insurance shall include Columbia, VHIR, its trustees, faculty, officers, employees and agents as additional insureds. Company shall furnish a certificate of insurance evidencing such coverage, with thirty days’ written notice to Columbia following cancellation or material change in coverage. The minimum amounts of insurance coverage required herein shall not be construed as creating any limitation on the Company’s indemnity obligation under Section 12a of this Agreement.

c.Company’s insurance shall be primary coverage; any insurance Columbia may purchase shall be excess and noncontributory. The Company’s insurance shall be written to cover claims incurred, discovered, manifested, or made during or after the expiration of this Agreement.

d.Company shall at all times comply with all statutory workers’ compensation and employers’ liability requirements covering its employees with respect to activities performed under this Agreement.

13. Marking.

Prior to the issuance of patents falling within the definition of Patents, and to the extent required under applicable laws, Company shall mark all Patent Products (or their containers)

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made, sold, offered for sale, imported, or otherwise disposed of by Company under the license granted in this Agreement with the words “Patent Pending,” and following the issuance of one or more patents, with the numbers of such patents. The Company shall cause its Affiliates to comply with the marking requirements of this Section 13 and shall contractually require its Sublicensees, Designees and their Affiliates to comply with such requirements.

14. Export Control Laws.

Company agrees to comply with U.S. export laws and regulations pertaining to the export of technical data, services and commodities, including the International Traffic in Arms Regulations (22 C.F.R. § 120 et seq.), the Export Administration Regulations (15 C.F.R. § 730 et seq.), the regulations administered by the Treasury Department’s Office of Foreign Assets Control (31 C.F.R. § 500, et seq.), and the Anti-Boycott Regulations (15 C.F.R. § 760). The parties shall cooperate with each other to facilitate compliance with these laws and regulations. Company understands that sharing controlled technical data with non-U.S. persons is an export to that person’s country of citizenship that is subject to U.S. export laws and regulations, even if the transfer occurs in the United States. Company shall obtain any necessary U.S. government license or other authorization required pursuant to the U.S. export control laws and regulations for the export or re-export of any commodity, service or technical data covered by this Agreement, including technical data acquired from Columbia pursuant to this Agreement and products created as a result of that data.

15. Breach and Cure.

In addition to applicable legal standards, Company shall be deemed to be in material breach of this Agreement for: (i) failure to pay fully and promptly amounts due pursuant to Section 4 and payable pursuant to Section 5; (ii) failure of Company to use commercially reasonable efforts to meet any of its obligations under Section 6(a) or 6(b) of this Agreement; (iii) Company’s breach of Section 10b; (iv) failure to reimburse Columbia for or pay fully and promptly the costs of prosecuting and maintaining Patents pursuant to Section 11; (v) failure to pay amounts due to Columbia pursuant to Section 11(b); and (vi) failure to comply with the Export Laws under Section 14. Upon such a material breach, Columbia shall have the rights set forth in Section 16(c) below.

16. Term of Agreement.

a.This Agreement shall be effective as of the Effective Date and shall continue in full force and effect until its expiration as described in Section 16b or termination in accordance with this Section 16.

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b.Unless terminated earlier under any provision of this Agreement, the term of this Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Section 16 shall continue in full force and effect, on a country-by-country and Product-by-Product basis until the Royalty Term in such country with respect to such Product expires, at which time this Agreement shall expire in its entirety with respect to such Product in such country. Upon expiration of the Royalty Term for a particular country and Product, Company, its Affiliates, and Sublicensees shall, notwithstanding anything herein to the contrary, have and are hereby granted a perpetual, irrevocable, fully-paid, royalty-free, transferable, sublicenseable right and license under the Technical Information and Materials to make, use, sell, offer for sale, and import such Product in such country.

c.If either party materially breaches this Agreement at any time, the non-breaching Party shall have the right to terminate this Agreement by written notice to the breaching Party, if (a) such material breach is not cured within ninety (90) calendar days following notice by the non-breaching party to the breaching party specifying the material breach (or, if such default is capable of being cured but cannot be cured within such 90-day period, the breaching party has commenced and diligently continued actions to cure such default provided always that, in such instance, such cure must have occurred within one hundred eighty (180) calendar days after notice thereof was provided to the breaching party by the non-breaching party to remedy such default) and (b) the non-breaching party provides notice confirming such termination within thirty (30) calendar days following the expiration of such ninety (90) or one hundred eighty (180) calendar day period, as applicable, without cure of such material breach. The foregoing notwithstanding, if such material breach is cured or remedied or shown to be non-existent within the aforesaid ninety (90) or one hundred eighty (180) calendar day period, the non-breaching party’s notice(s) hereunder shall be automatically withdrawn and of no effect.

d.Columbia may terminate this Agreement upon notice to Company if Company becomes insolvent, is adjudged bankrupt, applies for judicial or extra-judicial settlement with its creditors, makes an assignment for the benefit of its creditors, voluntarily files for bankruptcy or has a receiver or trustee (or the like) in bankruptcy appointed by reason of its insolvency, or in the event an involuntary bankruptcy action is filed against Company and not dismissed within ninety (90) days, or if Company becomes the subject of liquidation or dissolution proceedings.

e.Company, in its sole discretion, shall have the right to terminate, for its convenience, this Agreement in its entirety or on a Product-by-Product and country-by-country basis, upon sixty (60) days prior written notice, provided that Company is not making, using, selling, importing or exporting Products in such country(ies).

f.Notwithstanding anything to the contrary herein, upon termination of this Agreement prior to its expiration, any sublicenses granted by Company or any Affiliate thereof under the Patents, Technical Information and Materials shall, to the extent provided in the sublicense agreement, remain in effect and be assigned to and assumed by, Columbia, provided that: (i) if rights to intellectual property or property other than the Patents, Technical Information and Materials are licensed to the Sublicensee under such sublicense, such assignment and assumption shall be partial and limited to the Patents, Technical Information and Materials, (ii) Columbia shall not assume any obligations under such sublicense in excess of its obligations hereunder, and (iii) the Sublicensee shall thereafter pay Columbia any consideration that would have been due to Columbia hereunder with respect to the rights granted to such Sublicensee under the Patents, Technical Information and Materials in such sublicense (in lieu of the payment obligations set forth in such sublicense). At Company’s request, Columbia shall enter into a “stand-by license” agreement directly with the applicable Sublicensee on terms reasonably acceptable to Columbia, to confirm the rights of the Sublicensee set forth in this Section 16f.

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g.Sections 2e (last sentence), 4k, 5c, 5f, 5g, 7, 8, 9, 10, 12a, 14, 16b (last sentence), 16f, 16g, 16h, 16i, 16j, 17, 19, 22, 23, and 25 will survive any termination or expiration of this Agreement.

h.Any termination of this Agreement shall not adversely affect any rights or obligations that may have accrued to either party prior to the date of termination, including without limitation, Company’s obligation to pay all amounts due and payable under Sections 4 (including the minimum royalties accrued under subsection b(iii)(C) thereof and any payments required under subsection i thereof), 5 and 11 hereof.

i.Upon any termination of this Agreement (but not expiration) for any reason other than the termination by Columbia under Section 16c or 16d, Company, Sublicensees, Designees, and their Affiliates shall have the right, for one year or such longer period as the parties may reasonably agree, to dispose of Products or substantially completed Products then on hand, and to complete orders for Products then on hand, and royalties shall be paid to Columbia with respect to such Products as though this Agreement had not terminated.

j.Following termination of this Agreement by Columbia pursuant to Section 16(c), Company shall [***].

17. Notices.

Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and shall be considered given (i) when mailed by certified mail (return receipt requested), postage prepaid, or (ii) on the date of actual delivery by hand or overnight delivery, with receipt acknowledged,

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if to Columbia, to:						Executive Director
						Columbia Technology Ventures
						Columbia University
						80 Claremont Avenue, #4F, Mail Code 9606
						New York, NY 10027-5712

copy to:						General Counsel
						Columbia University
						412 Low Memorial Library
						535 West 116th Street, Mail Code 4308
						New York, New York 10027

if to the Company, to:						Meves Pharmaceuticals, LLC
						Attn: Peter Barber
						57 West 57th Street, 18th Floor
						New York, NY 10019

copy to (which shall not constitute notice):						Wyrick Robbins Yates & Ponton LLP
						Attn: Daniel S. Porper
						4101 Lake Boone Trail
						Suite 300
						Raleigh, NC 27607

18. Assignment.

Neither party may assign this Agreement, or any of its rights or obligations hereunder without the other party’s prior written consent, which consent shall not be unreasonably withheld, provided that, notwithstanding the foregoing, each party shall be entitled, without the other Party’s prior written consent, to assign or transfer this Agreement: (a) in connection with the transfer or sale of all or substantially all of such party’s assets or business or (b) in the event of such party’s merger, consolidation, reorganization, Change of Control or similar transaction. Any permitted assignee of either party shall, as a condition to such assignment, assume all obligations of its assignor arising under this Agreement following such assignment. Any purported assignment by a Party of this Agreement, or any of such party’s rights or obligations hereunder, in violation of this Section 18 shall be void.

19. Waiver and Election of Remedies.

The failure of any party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party thereafter of the right to insist upon strict adherence to that term or any other term of this Agreement. All waivers must be in writing and signed by an authorized representative of the party against which such waiver is being sought. The pursuit by either party of any remedy to which it is entitled at any time or continuation of the Agreement despite a breach by the other shall not

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be deemed an election of remedies or waiver of the right to pursue any other remedies to which it may be entitled.

20. Binding on Successors.

This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns to the extent assignment is permitted under this Agreement.

21. Independent Contractors.

It is the express intention of the parties that the relationship of Columbia and the Company shall be that of independent contractors and shall not be that of agents, partners or joint venturers. Nothing in this Agreement is intended or shall be construed to permit or authorize either party to incur, or represent that it has the power to incur, any obligation or liability on behalf of the other party.

22. Entire Agreement; Amendment.

This Agreement, together with the Exhibits, sets forth the entire agreement between the parties concerning the subject matter hereof and supersedes all previous agreements, written or oral, concerning such subject matter. This Agreement may be amended only by written agreement duly executed by the parties.

23. Severability.

In the event that any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable because it is invalid, illegal or unenforceable, the validity of the remaining provisions shall not be affected, and the rights and obligations of the parties shall be construed and enforced as if the Agreement did not contain the particular provisions held to be unenforceable, unless such construction would materially alter the meaning of this Agreement. By way of example, but not by way of limitation, Sections 4i(i), 4i(ii) and 4i(iii) are intended by Company and Columbia to be severable from each other, such that if one clause is found to be unenforceable, the other clauses remain operative and in effect.

24. No Third-Party Beneficiaries.

Except as expressly set forth herein, the parties hereto agree that there are no third-party beneficiaries of any kind to this Agreement.

25. Governing Law.

This Agreement shall be governed by and construed in accordance with the internal substantive laws of the State of New York as applicable to agreements made and wholly performed within the State of New York, and without reference to the conflict or choice of laws principles of any jurisdiction. Unless otherwise separately agreed in writing, the parties agree that any and all claims arising under or related to this Agreement shall be heard and determined only in either the United States District Court for the Southern District of New York or in the courts of the State of New York located in the City and County of New York, and the parties irrevocably agree to submit themselves to the exclusive and personal

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jurisdiction of those courts and irrevocably waive any and all rights any such party may now or hereafter have to object to such jurisdiction or the convenience of the forum.

26. Execution in Counterparts; Facsimile or Electronic Transmission

This Agreement may be executed in counterparts, and by facsimile or electronic transmission. This Agreement is not binding on the parties until it has been signed below on behalf of each party.

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IN WITNESS WHEREOF, Columbia and the Company have caused this Agreement to be executed by their duly authorized representatives as of the day and year first written above.


			THE TRUSTEES OF COLUMBIA
			UNIVERSITY IN THE CITY OF NEW YORK

			By:
						Executive Director
						Columbia Technology Ventures

						TTS#48870


			MEVES PHARMACEUTICALS, LLC

			By:
						Manager

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Exhibit A

Patents

Columbia Owned (Invention Report No. [***])

United States Provisional Application No. [***]

United States Utility Application No. [***]

Jointly Owned between Columbia and VHIR (Columbia Invention Report NO. [***])

United States Provisional Application No. [***]

International PCT Patent Application No. [***]

|US-DOCS\110970093.1||

Exhibit B

Materials

None to be transferred

|US-DOCS\110970093.1||

Exhibit C

Technical Information

[***]

|US-DOCS\110970093.1||

Exhibit 10.2

SUPPLY AGREEMENT ON FENFLURAMINE ORAL SOLUTION

By and Between

Penn Pharmaceutical Services Limited

And

Zogenix International Limited

This SUPPLY AGREEMENT(this “Agreement”) is made effective as of this 17^th day of June 2019 (the “Effective Date”), by and between Zogenix International Limited, a wholly owned UK subsidiary of Zogenix Inc., located at Siena Court, Broadway, Maidenhead, Berkshire SL6 1NJ,United Kingdom (“Zogenix”) and Penn Pharmaceutical Services Limited, trading as PCI Pharma Services, having its registered office at Capital Law, Capital Building, Tyndall Street, Cardiff CF10 4AZ, United Kingdom (“Supplier”) (each individually a “Party” and collectively the “Parties”).

WITNESSETH:

WHEREAS, Zogenix wishes to purchase certain pharmaceuticals for human use; and

WHEREAS, Supplier has the experience and expertise necessary to perform the Manufacturing Services for, and supply the Products to, Zogenix; and

WHEREAS, Zogenix desires Supplier to perform the Manufacturing Services and to supply such Products to Zogenix; and Supplier desires to perform the Manufacturing Services and to sell such Products to Zogenix, all on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, the Parties agree as follows:

1. DEFINITIONS

The following terms, whether used in the singular or plural, shall have the meaning assigned to them below for purposes of this Agreement:

1.1. “Affiliate” means any legal entity directly or indirectly controlled by, controlling or under common control with that party. For purposes of this definition, owning at least 50% of the stock, equity or property of such legal entity, or having the right to appoint at least 50% of the members or owner representatives of such legal entity, are examples of forms of control.

1.2. “Agreement” shall have the meaning set forth in the Preamble hereof.

1.3. “API (active pharmaceutical ingredient)” means any Fenfluramine Hydrochloride substance to be used in the manufacture of the Product.

1.4. “Applicable Laws” means all international, national, federal, state, provincial, and local laws, statutes, codes, rules, regulations, orders, judgments, injunctions and/or ordinances of relevant countries applicable to the Manufacture and supply of the Products or a Party’s conduct under this Agreement, including privacy laws such HIPAA, the Data Protection Directive (Directive 95/46/EC), and when implemented the General Data Protection Regulation, environmental laws, U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010, GDP, cGMP, EU GMP Directive (Directive 203/94) and the FD&C Act..

1.5. “Batch” means a specific quantity of material produced in a process or series of processes so that it is expected to be homogeneous within specified limits. The batch size is defined by a fixed quantity as set forth in the Scope of Work.

1.6. “Batch Record” means the written procedures for production, process control and testing of the Products designed to assure that the Products has the identity, strength, quality, and purity they purport or are represented to possess and is used to ensure uniformity from Batch to Batch and compliance with cGMPs.

1.7. “Business Day” means a day other than a Saturday, Sunday or a day that is a statutory holiday in the United Kingdom, the United States or Supplier’s place of business.

1.8. “Certificate of Analysis” (or “COA”) means a document prepared by a testing laboratory or Supplier to document the testing performed on a material, the methods used, and test results.

1.9. “Certificate of Compliance” (or “COC”) means a document which, when executed, formally certifies material has been tested and inspected and meets required specifications. A COC and COA may be consolidated into a single document.

1.10. “Current Good Manufacturing Practice” (or “cGMP”) means those practices in the manufacture of pharmaceutical products that are recognized as the current good manufacturing practices by the FDA, MHRA, PDMA or EMA in accordance with FDA, British, Japanese or European regulations, guidelines, other administrative interpretations, and rulings in connection therewith, including but not limited to those regulations cited in ICH Q7, Eudralex Volume 4 (EU), Orange Guide (UK), and 21 C.F.R. parts 210 and 211, all as they may be amended from time to time.

1.11. “Confidential Information” of a Party means all non-public information of such Party that is communicated in any way or form by the Disclosing Party or its Affiliates to the Receiving Party or its Affiliates, either prior to or after the Effective Date, and whether or not such information is identified as confidential at the time of disclosure, including but not limited to research and development data, information, reports, studies, validation methods and procedures, unpatented inventions, knowledge, trade secrets, technical or other data or information, or other materials, methods, procedures, processes, flow diagrams, materials, developments or technology, including all biological, chemical, pharmacological,

toxicological, clinical, manufacturing, analytical, safety, quality assurance, quality control and other data, information, reports, studies, or any other information that a reasonable person would consider confidential or proprietary under the circumstances.

1.12. “DEA” means the Drug Enforcement Administration of the U.S. Department of Justice, or any successor entity.

1.13. “Effective Date” shall have the meaning set forth in the Preamble hereof.

1.14. “FD&C Act” means the United States Federal Food, Drug and Cosmetic Act, as amended.

1.15. “FDA” means the United States Food and Drug Administration, or any successor entity.

1.16. “Forecast” shall have the meaning set forth in Section 4.1 hereof.

1.17. “Force Majeure Event” shall have the meaning set forth in Section 14 hereof.

1.18. “Free Goods Issue” means the API or other material to be supplied by Zogenix to Supplier free of charge for the purposes of this Agreement and as described in the Scope of Work, as may be amended by the mutual agreement of the Parties.

1.19. “First Approval” means receipt of the first Marketing Authorization to market the Product.

1.20. “Governmental Agency” means any court, agency, authority, department, regulatory body or other instrumentality of any government or country or of any national, federal, state, provincial, regional, county, city or other political subdivision of any such government or any supranational organization of which any such country is a member, which has competent and binding authority to decide, mandate, regulate, enforce, or otherwise control the activities of the Parties contemplated by this Agreement, including, without limitation, the EMA, FDA, PDMA, MHRA and the DEA.

1.21. “Inability to Supply” shall have the meaning set forth in Section 4.6 hereof.

1.22. “Initial Term” shall have the meaning set forth in Section 11.1 hereof.

1.23. “Manufacture” and “Manufacturing Services” means the procurement of Raw Materials, and testing, release and storage of Raw Materials and API, in support of manufacturing, quality control, quality assurance and release testing, stability testing, primary packaging, and related services, as contemplated in this Agreement, required to produce the Products.

1.24. “Manufacturing Process” means any and all processes (or any step in any process) used or planned to be used by Supplier to Manufacture the Products, as evidenced in the Batch Records.

1.25. “Manufacturing Site” means the facility, owned and operated by Supplier that is located at 23/24 Tafarnaubach Industrial Estate, Tredegar, Gwent, Wales NP22 3AA and/or other such facility as agreed in writing between the Parties.

1.26. “Marketing Authorization” or “MA” – shall mean an official document issued by the competent drug regulatory authority for the purpose of marketing or free distribution of a Product after evaluation for safety, efficacy and quality.

1.27. “NDA” shall have the meaning set forth in Section 2.6. hereof.

1.28. “Product” or “Products” means an oral solution dosage form incorporating API and Manufactured as described in the Scope of Work.

1.29. “Product Price” means the price to be charged by Supplier for Product Manufactured and supplied hereunder as delivered to Zogenix, which price shall include the cost of Raw Materials, Manufacturing, quality control and quality assurance costs, testing by Supplier, documentation, packaging, shipping materials, and taxes, (excluding value added tax, if applicable) as set forth in the Scope of Work (Exhibit 1).

1.30. “Purchase Order” means an order from Zogenix specifying a Purchase Order Delivery Date, cost and quantities of the Products to be Manufactured by Supplier.

1.31. “Purchase Order Delivery Date” means the date in a Purchase Order that the quantities of Product specified in the applicable Purchase Order are to be released to Zogenix and ready for immediate shipment.

1.32. “Quality/Technical Agreement” (or “QTA”) shall mean a separate agreement entered into by the Parties detailing quality assurance obligations and technical and regulatory matters associated with the provision of the Services. This will be attached as a Schedule to the Agreement.

1.33. “Raw Material” means, collectively, raw materials (excluding API), all excipients, packaging components, required to be used in order to produce the Products in accordance with the Specifications.

1.34. “Scope of Work” means a document incorporated herein by reference upon its execution by both Parties that defines the scope of work for a particular engagement under this Agreement. The Scope of Work will specify the Product, type of work and Product specific manufacturing requirements including: Product Price, Batch size and safety stock requirements, if any. This will be in the form of the document attached as Exhibit 1 to the Agreement.

1.35. “Services” shall mean Manufacturing Services and other services Supplier performs for Zogenix as requested from time to time.

1.36. “Specifications” means the file, for each Product, which contains documents relating to such Product, including, without limitation:

(a) Written specifications for the Product;

(b) Manufacturing, packaging process and analytical specifications;

(d) All environmental, health and safety information relating to the Product including material date safety sheets; and

(e) Any other technical information necessary to carry out the contracted operations correctly in accordance with any legal requirements,

all as updated, amended and revised from time to time by Zogenix in accordance with the terms of the Agreement.

1.37. “Third Party” shall mean any person or entity other than Zogenix, Supplier and their respective Affiliates.

The definitions in this Section 1 shall apply equally to both the singular and plural forms of the terms defined. As used in this Agreement, (i) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; (ii) the words “hereof”, “herein”, “hereby” and derivatives or similar words refer to this entire Agreement; (iii) all references to Sections shall be deemed references to Sections of this Agreement and all references to Attachments shall be deemed references to Attachments to this Agreement, unless the context shall otherwise require; and (iv) whenever this Agreement refers to a number of days, such number shall refer to calendar days unless otherwise specified.

2. MANUFACTURING SERVICES

2.1. Services. Supplier will perform the Services, as set forth in the Scope of Work, for, and ship the Products to, Zogenix, or designated recipient, in accordance with this Agreement. For each new Scope of Work, the Supplier will submit a written proposal to Zogenix outlining the Services to be provided and the estimated costs for performing such Services. Upon approval of the proposal by Zogenix, the parties will complete and execute a Scope of Work similar to the form attached hereto. Upon execution by both parties, each Scope of Work shall be deemed to be incorporated into this Agreement by Reference. Supplier will undertake the performance of work only upon full execution of the Scope of Work by Zogenix and Supplier

2.2. Quality Control and Quality Assurance. The Parties shall enter into a QTA, in a format suitable to meet Applicable Law relating to the Manufacture, storage, transportation and release of the Products. Upon execution by both Parties, the QTA shall deemed to be incorporated into this Agreement by Reference.

In the event of a conflict between this Agreement and the Quality/Technical Agreement, the Quality/Technical Agreement shall govern and control only with respect to the quality matters and this Agreement shall govern and control with respect to all other matters.

2.3. Process and Specification Changes. Supplier shall not make any changes to the process, API, Raw Materials, supply sources, Specifications, manufacturing locations or facilities used to make Product for Zogenix under this Agreement, including, without limitation, any such changes that may require Zogenix to provide notification to regulatory authorities, without the prior written consent of Zogenix.

2.4. Zogenix Requested Changes. Zogenix shall be entitled to request a change to the Specifications from time to time (which change is not the result of a requirement or mandate of a Governmental Agency) and Supplier shall make and implement all such changes in accordance with the Quality/Technical Agreement, Zogenix’s change control procedures, and a written implementation plan (including tasks, time and cost) agreed to by the Supply Committee. Zogenix shall retain the right and responsibility for final approval of the Specifications and any changes made thereto.

2.5. Changes Required by Applicable Law. If Supplier is required to change the Specifications in order to comply with Applicable Law, Supplier will promptly notify Zogenix of such changes and the cost of such changes. If Zogenix is unable to accept or unwilling to have such changes made, Zogenix will have the option of terminating this Agreement immediately upon notice to Supplier.

2.6. Technical Data. Supplier shall provide to Zogenix, without additional charge, all Product related data or available reports generated by Supplier under a Scope of Work, as needed and required for Zogenix’s New Drug Application (“NDA”) or Marketing Authorization Application (“MAA”) or other FDA, EMA or other Governmental Agency requests and/or requirements, in each case relating to any Product. Data and reports requested by Zogenix not covered under an existing Scope of Work shall be subject to a new proposal and Scope of Work.

2.7. Free Goods Issue. Zogenix will provide Free Goods Issue including API to the Supplier free of charge and used by the Supplier solely for the purpose of the Services outlined in this Agreement and the applicable Scope of Work. Unless otherwise agreed in writing between the Parties, Zogenix shall be solely responsible for the importation, release and customs clearance (and all associated costs) of Free Goods Issue to be provided by Zogenix for provision of the Services in the United Kingdom, or for any foreign customs purposes, including any return thereof required by any regulatory authority following the improper release by Zogenix, and Zogenix acknowledges that it is the owner of such items for customs purposes. Notwithstanding anything to the contrary herein, if any delay in customs clearance or release of any Free Goods Issue occurs such that Supplier is prevented from supplying the quantity of Product to Zogenix by the Purchase Order Delivery Dates due to a lack of such Free Goods Issue, then Supplier shall not be obligated to supply the Product under the applicable Purchase Order to Zogenix until full and proper customs clearance or release is obtained by Zogenix.

2.8. Raw Materials. Supplier will purchase and test all Raw Materials as required by the Specifications and as agreed between the Parties and as specified in the Scope of Work.

2.9. Packaging. Supplier will purchase packaging materials and package the Products as approved by Zogenix in a manner suitable for safe and lawful shipment, as set out in the Scope of Work.

2.10. Equipment. Supplier shall be solely responsible for the safe procurement, installation, operation and maintenance of all equipment used to fulfill its obligations under this Agreement, and all associated employee training, regardless of whether the equipment is owned by Zogenix, Supplier, or a Third Party. For the avoidance of doubt, any Product specific validation costs of equipment funded by Zogenix will be borne by Zogenix.

2.11. Shelf Life. Product shall be released to Zogenix no later than ninety (90) days from the start of Manufacturing unless otherwise mutually agreed by both Parties.

2.12. Validation Activities. Supplier shall prepare the documentation, protocols, and procedures as set out in a Scope of Work. Supplier shall validate its pharmaceutical manufacturing processes, tests, and methods as well as associated facilities, equipment and systems, keep such processes, tests, methods, facilities, equipment, and systems current, and make results of validation and annual reviews of such processes, tests, methods, facilities, equipment, and systems available on site for audit or review by Zogenix in accordance with the Quality/Technical Agreement

2.13. Compliance. Supplier shall comply with this Agreement, the QTA and all Applicable Laws related to the Manufacture, handling and transportation of the Products, and the supply or sale of the Products to Zogenix.

2.14. Subcontractors. Other than the use of couriers and data archiving providers, Supplier may not use subcontractors, including Affiliates, to perform any part of this Agreement without Zogenix’s prior written consent, as set out in the Quality/Technical Agreement.

2.15. Records. Supplier will keep records of the Manufacture, testing, and shipping of the Products, and retain samples of the Products as are necessary to comply with the QTA and Applicable Law, as well as to assist with resolving Product complaints and other similar investigations. Copies of the records and samples will be retained for a period of two (2) years following the date of Product expiry, or longer if required by Applicable Law, at which time Zogenix will be contacted concerning the delivery and destruction of the documents and/or samples of Products.

3. Oversight

3.1. Supply Committee. Promptly following the Effective Date, the Parties shall establish a supply committee which shall be comprised of at least three (3) representatives from each of Zogenix and Supplier representing technical, operations and quality functions having the appropriate credentials, knowledge and experience (the “Supply Committee”).

3.2. General Remit. The Supply Committee shall serve as the coordinating body for the Manufacture and supply of Product under this Agreement. The Supply Committee shall also work to resolve any Dispute which arises between the Parties relating to the Manufacture and supply of Product under this Agreement.

3.3. Service Level Agreement. The Supply Committee shall agree to specific service levels and monitor key performance indicators and continuous improvement projects as part of its remit.

3.4. Meetings. The Supply Committee shall meet monthly, either by telephone or in person, or as required and agreed by both Parties. Meeting agendas shall include as appropriate information on (a) anticipated market demand and inventory positions and any material changes in either, (b) supply capability, (c) any capacity concerns, unusual production situations, or prioritization issues including changes to delivery or sourcing, (e) any quality related issues, (f) and proposed amendments to Manufacturing process or Specifications, and (g) any other matters which may impact or influence the Product supply chain.

3.5. Costs. Each Party shall be responsible for its own costs in respect of travel and accommodation expenses in attending such meetings. Face-to-face meetings of the Supply Committee shall take place at Supplier’s premises in Tredegar.

3.6. Audit. Up to two (2) duly-authorized employees, agents and representatives of Zogenix may visit Supplier’s premises where the Services are being performed at reasonable times for a maximum of up to two (2) days (unless otherwise agreed to by Supplier in writing), on reasonable notice and during normal business hours to observe the progress of the Services. Zogenix may conduct a cGMP audit under this Section 3.6 once during any 12-month period; provided, that additional audits may be conducted upon reasonable advance written notice in the event there is a material quality or compliance issue concerning Manufacturing or packaging. Supplier agrees to address, in writing, within thirty (30) days of the conclusion of Zogenix’s audit of the facilities, any adverse findings made by Zogenix pursuant to the audit. The written report shall include an action plan for addressing the findings and a time line for the implementation of any corrective and preventative measures. Supplier shall permit, at the request of Zogenix, a follow-up inspection to ensure that all corrective and preventative measures have been implemented.

4. FORECASTS and PURCHASE ORDERS, CAPACITY

4.1. Forecasts and Purchase Orders: Zogenix shall deliver to Supplier a good faith, written, non-binding forecast, of its expected commercial requirements of the Product as follows:

4.1.1. Within thirty (30) days of the Effective Date, a non-binding forecast that covers a twenty-four (24) month period broken down on a quarterly basis, for the period beginning with the date on which the First Approval is anticipated;

4.1.2. At least thirty (30) days before anticipated receipt of a First Approval and then on or before the last working day of each calendar month during the Term, Zogenix shall provide to Supplier a rolling twenty-four (24) month forecast of its requirements for Product (“Forecast”), broken down on a monthly basis with the first three (3) months of each such forecast constituting a binding commitment upon Zogenix to purchase such quantities (“Firm Period Forecast”) as evidenced by Purchase Orders submitted in accordance with Section 4.1.3.

4.1.3. All firm orders for Product (the “Purchase Order”) shall specify: (i) the type of Product being ordered; (ii) the amount of such Product being ordered (which shall be in whole Batch size quantities); and (iii) the Purchase Order Delivery Date. Each Purchase Order shall be submitted to Supplier at least ninety (90) days before the Purchase Order Delivery Date, and shall be deemed to be automatically accepted unless Supplier notifies Zogenix of its rejection of the same within five (5) Business Days of receipt, (or in the case of any Purchase Orders with quantities in excess of those in the most recent applicable Firm Period Forecast, within ten (10) Business Days of receipt) provided that Supplier shall not reject Purchase Orders that are in compliance with this Section 4.1.3 and do not specify an amount of Product that is in excess of the most recent applicable Firm Period Forecast. Once accepted (or deemed to be accepted) by Supplier, Purchase Orders are firm and may not be cancelled or modified without the consent of the other Party. Supplier may reject a Purchase Order Delivery Date and offer another Purchase Order Delivery Date but the new Purchase Order Delivery Date cannot be more than seven (7) Business Days later or ten (10) Business Days earlier than original Purchase Order Delivery Date. If there is a new Zogenix accepted Purchase Order Delivery Date, the Forecast will be updated to reflect the new agreed upon date.

4.2. Forecast not a Purchase Order. Notwithstanding anything to the contrary, in no event shall a Forecast be deemed a Purchase Order.

4.3. Purchase Quantities. All Forecast and Purchase Order quantities should be multiples of the full batch size agreed minimum order quantities, as set out in the Scope of Work. Quantities actually delivered pursuant to a given Purchase Order may vary from the quantities reflected in such Purchase Order by up to ten percent (10%) and still be deemed to be in compliance with such Purchase Order; provided, that, any shortfall in the quantities actually delivered (based on the minimum Batch size set forth in the Scope of Work)) will result in a pro rata reduction in the corresponding batch Price according to the quantities of the Products which Supplier actually delivers to Zogenix, which shall be determined in a quarterly reconciliation exercise as set forth in the Scope of Work. Variance from committed Purchase Order Delivery Dates will be acceptable in the range ten (10) Business Days early and seven (7)

Business Days late. Zogenix agrees to purchase a minimum quantity of Products, as set forth in Exhibit 1.

4.4. Adjustments to Forecasts and Purchase Orders. Any change to the accepted Purchase Order amount or Purchase Order Delivery Date cannot occur without both Parties agreeing to such change in writing.

4.5. Delivery Terms and Purchase Order Delivery Date. Terms of delivery for the Products shall be FCA Supplier facility (ICC Incoterms® 2010). Title and risk of loss and/or damage to the Products shall pass to Zogenix after Product is loaded onto the agreed carrier by Supplier, which is preceded by Zogenix written authorization to ship. Zogenix authorization to ship shall occur within five (5) Business Days of Supplier supplying the documents specified in Section 6.1. All Products shall be properly prepared for safe and lawful shipment by Supplier and accompanied by appropriate transportation and other agreed upon documentation. Supplier shall make arrangements for shipping per the agreed upon carrier. No later than the day Product is shipped, Supplier shall provide Zogenix with agreed upon logistic documents.

4.6. Inability to Supply. In the event that Product is not delivered (i.e., released by Supplier and available for immediate shipment) in quantities equal to at least 80% of the quantities stated in 3 consecutive Purchase Orders within sixty days (60) days after the specified Purchase Order Delivery Dates, starting with day sixty-one (61) following the third such consecutive Purchase Order Delivery Date, Supplier will be deemed to be in an “Inability to Supply” status. In the event of any Inability to Supply: (i) Supplier shall fulfill Purchase Orders with such quantities of conforming Product as are available; (ii) unless and until such Inability to Supply is remedied, Zogenix shall be relieved from its obligations under this Agreement to (A) purchase any quantities subject to any outstanding Purchase Orders or Forecast, (B) submit any further Purchase Orders, and (iii) Zogenix may terminate Agreement without penalty. Nothing in this Section 4.6 shall relieve Supplier of any obligation or liability under this Agreement.

4.7. Without limiting the foregoing, in the event of, and during the occurrence of, any Inability to Supply, if Zogenix elects to purchase any Product from a Third Party in order to replace Products that Supplier could not deliver to Zogenix hereunder, then Supplier shall pay to Zogenix an amount equal to the product of: (a) the actual per unit cost for Product paid by Zogenix to such Third Party supplier (as evidenced by the Third Party supplier’s invoice to Zogenix) less the applicable per unit cost for such Product Zogenix would have paid to Supplier hereunder; times (b) the number of units of Product actually purchased by Zogenix from such Third Party supplier. The remedies granted to Zogenix pursuant to this Section shall be in addition to, and not in lieu of, any other remedies available to Zogenix at law or in equity. Supplier’s liability under this Section 4.7 shall be subject to the limits of liability in Section 12.4.

4.8. Capacity. The Supplier will provide sufficient organizational, financial, and personnel resources necessary to perform its obligation under this agreement to ensure available capacity to Manufacture and deliver Product to Zogenix, at a minimum of the latest Forecast plus thirty-three percent (33%). If at any time during

the term of this Agreement, Zogenix’s latest Forecast plus thirty-three (33%) exceeds Supplier’s then-current available capacity, the Supplier shall promptly notify Zogenix and Supplier and Zogenix shall meet and discuss in good faith ways in which additional Supplier capacity may be secured to meet the Forecast plus thirty-three percent (33%). Provision of Manufacturing capacity shall be at the Supplier’s sole cost and expense.

4.9. Alternate Suppliers. Nothing in this Agreement shall prevent, prohibit or restrict Zogenix from purchasing the Products from any Third Party.

4.10. Exclusivity. During the Term, Supplier shall not enter into any other agreements, with any Third Parties in relation to the Manufacture of any oral solution dosage forms of products that contain an API that is the same as the API that is supplied as Free Goods Issue without the prior written consent of Zogenix.

5. INVOICES, PAYMENT And TAXES

5.1. Invoices. Upon Supplier’s delivery of Product, Supplier shall submit an invoice to Zogenix at apinternational@zogenix.com. The invoices must be issued in line with the terms of the Value Added Tax Act 1994 and must be properly addressed to Zogenix International Limited at its UK business address.

5.2. Payment. Zogenix shall pay Supplier only for the Services requested by Zogenix and identified in the Scope of Work. If Supplier anticipates that a project shall exceed the costs identified in the Scope of Work, Supplier shall notify Zogenix, as soon as possible, of such additional costs. Zogenix must approve such additional costs in writing prior to Supplier incurring any such costs. Zogenix shall be obliged to pay only for the actual quantity of Product delivered at the Product Price stated in the applicable Scope of Work. Zogenix shall pay all undisputed amounts due within thirty (30) days from the date of receipt of the invoice by Zogenix. If Zogenix disputes all or any portion of an invoice, it shall be required to pay only the amount not in dispute, and in such event Zogenix shall notify Supplier of the amount and nature of the dispute. All payments due to Supplier shall be made wire transfer for deposit to the bank account of Supplier at a designated bank in the country where the Supplier’s place of business is located.

5.3. Taxes. The Product Price, and other fees for Services as provided for in the relevant Scope of Work, does not include value added tax. Where such value-added tax is properly chargeable by the Supplier, the amount of such tax, if any, will be added to the Product Price in effect at the time of the delivery of the Product thereof and shall be reflected in valid VAT invoices submitted to Zogenix by Supplier pursuant to this Agreement. Where Zogenix receives a valid VAT invoice, Zogenix shall pay the amount of such value-added tax indicated on the invoice to Supplier in accordance with the payment provisions of this Agreement. For the avoidance of doubt, where any Product Price is denominated in a currency other than Great British Pounds (GBP), any value-added tax must be shown on the invoice in GBP, along with any conversion rate used. Failure of the Supplier to issue a valid VAT invoice, including any failure to denominate any value-added tax charged in GBP, will render any such

invoice invalid and any payment provision shall not commence unless and until Zogenix receives a valid VAT invoice. Notwithstanding the foregoing, taxes (and any penalties thereon) imposed on Supplier based on Supplier’s income (however denominated) will be the responsibility of Supplier.

6. Inspection and acceptance

6.1. Supplier shall test and inspect each Batch of Product for compliance with the Specifications prior to the release and shipment thereof to Zogenix. Supplier will provide a Certificate of Analysis, Certificate of Compliance and executed Batch Records on or before each shipment of each Batch of Product signed by a responsible quality official of Supplier. The Certificate of Analysis and Certificate of Compliance must include the results (whether numerical or otherwise) for each test performed that verify that the Product is in compliance with the Specifications, as well as a statement that the subject Batch was Manufactured in accordance with the Batch Records, cGMP and any applicable regulatory approvals.

6.2. Zogenix may test and inspect the Product after receipt and either accept or reject it. Product may be rejected if it does not comply with the Specifications or conform with any of the warranties provided by Supplier in this Agreement or the Quality/Technical Agreement, or is otherwise defective. Zogenix will be deemed to have accepted the Product, except as to latent defects which are not reasonably discoverable, if Zogenix fails to give notice of rejection within thirty (30) days after receipt by Zogenix of such Product. The written notice of rejection shall be given to Supplier and shall include identification of the lot number and description of the Specification non-compliance or other defect.

6.3. Following receipt of written notice of rejection of a particular Batch of Product, Supplier shall, subject to the limitations of liability in section 12.4, at Zogenix’s option, provide a credit, refund or replacement of Product to Zogenix, together with reimbursement for the cost of Free Goods Issue and Raw Materials incorporated in the rejected Product and Zogenix’s costs of shipping, insurance premiums, duties, taxes, and other reasonable out-of-pocket costs directly incurred in connection with the transportation and return or destruction of the rejected Product; provided, however, that if Supplier does not agree with Zogenix’s claim of noncompliance with the Specifications or other defect, then the Parties shall designate a mutually acceptable Third Party laboratory to make a determination on such matter from a sample obtained from the allegedly non-compliant or defective Batch shipped to Zogenix. The decision of the Third Party laboratory shall be binding on all Parties hereto and all expenses related to such Third Party investigation shall be borne by the Party found to have been mistaken. Should such Third Party laboratory confirm Zogenix’s claim of Product noncompliance, Supplier shall (subject to the provisions and limitations of liability in Sections 12.4) at Zogenix’s request, promptly provide Zogenix with a credit, refund or prompt replacement of Product to Zogenix, together with reimbursement for the cost of Free Goods Issue and Raw Materials incorporated in the rejected Product and Zogenix’s costs of shipping, insurance premiums, duties,

taxes, and other reasonable out-of-pocket costs directly incurred in connection with the transportation and return or destruction of the rejected Product.

6.4. Zogenix shall return any rejected Product to Supplier at Supplier’s expense to an address that Supplier may designate within ten (10) days of Supplier receiving written notice of rejection; provided, however, that if Supplier does not agree with Zogenix’s claim of noncompliance with the Specifications or other defect, Zogenix shall not be obligated to return the rejected Product to Supplier until ten (10) days after a final determination is made by a Third Party laboratory that such Product does not comply with the Specifications or is otherwise defective as provided in Section 6.3 above. All freight costs of such shipment shall be borne by Supplier.

7. REGULATORY, Inspections and Audits

7.1. Supplier shall be solely responsible for obtaining, and shall obtain in a timely manner, and maintain in good standing, all necessary licenses, registrations, notifications, certificates, approvals, authorizations or permits required under Applicable Law, whether de novo documents or modifications to existing documents, which are necessary to perform the Services, and Supplier shall bear all costs and expenses associated therewith, and Supplier shall provide copies of such documents to Zogenix upon request by Zogenix.

7.2. Supplier shall provide Zogenix with prompt verbal notice, confirmed in writing within two (2) Business Days, in the event of any significant condition or incident, which shall include any event, occurrence, or circumstance, including any governmental or private action, which could materially impact Supplier’s ability to fulfill its obligations under this Agreement. These include, but are not limited to: (i) material revocation or modification of any of the documents described in Section 7.1, (ii) any action by a Governmental Agency that may reasonably lead to the material revocation or modification of Supplier’s required permits, licenses, or authorizations, (iii) any Third Party claim against the management or ownership of the facility that could reasonably impact Supplier’s obligations under this Agreement, (iv) any fire, explosion, significant accident, or catastrophic release of hazardous substances, or significant “near miss” incident, (v) any material non-compliance with any Applicable Law, and (vi) any environmental condition or operating practice that may reasonably be believed to present a significant threat to human health, safety or the environment.

7.3. In the event of a Party receiving a notice from a Governmental Agency which directly relates to the Services, the Party receiving such notice shall promptly notify the other Party or forward to the other Party a copy of such notice (or extract thereof). Each Party will cooperate with the other in responding to such notice before referring to the other Party in any regulatory correspondence or disclosing any Confidential Information to a Governmental Agency. Except for responses which are Supplier’s sole responsibility under Applicable Law, Zogenix shall be responsible for providing all responses directly to a Governmental Agency regarding inquiries related to the

Manufacture, export, import, marketing, promotion, and/or sale of the Product, including any amendments or supplements to the NDA for the Product relating to its marketing, promotion and/or sale.

7.4. Supplier shall cooperate with any inspection or audit by a Governmental Agency and shall notify Zogenix promptly of any request by a Governmental Agency to conduct such audit or inspection directly relating to the Services that Supplier is providing under this Agreement. Supplier’s reasonable costs for hosting Product-specific inspections (e.g pre-approval inspections) shall be agreed in advance and paid by Zogenix.

7.5. If any inspections, audits or investigations conducted pursuant to this Section 7 result in a finding that Supplier has failed to comply with the terms of this Agreement or a Scope of Work, Supplier shall promptly provide to Zogenix a written report that includes an action plan for addressing the findings and a time line for the implementation of any corrective and preventative measures, and promptly take such measures at its own cost and expense as are necessary to correct such defaults identified in any such inspection, audit or investigation.

8. RECALLS

8.1. Control of Recall. All recalls of any Product, and EMA and FDA and other Governmental Agency contacts relating to any such recalls shall be the responsibility of, and under the control of, Zogenix. Zogenix shall notify the EMA, FDA, DEA, and any foreign regulatory agencies of any recall, and shall be responsible for coordinating all necessary activities regarding the action taken. Zogenix shall provide Supplier with a copy of submission to a Regulatory Authority in respect of any Recall and shall consider in good faith any comments from Supplier. In the event that either Party has reason to believe that any Products should be recalled or withdrawn from distribution, such Party shall promptly inform the other Party in writing prior to taking any such action. Zogenix shall have the responsibility for making the final decision regarding any recall, withdrawal or field correction relating to any Finished Product. Any such Recall shall be implemented and administered in a manner which is appropriate and reasonable under the circumstances and in conformity with any requests or orders of the applicable Regulatory Authority, as well as to the extent not inconsistent with requests or orders of the applicable Regulatory Authority, accepted trade practices.

8.2. Supplier Fault. If any Product is recalled as a result of Supplier’s failure to supply Product in accordance with this Agreement and/or the Quality/Technical Agreement, then, Supplier shall reimburse Zogenix for documented out-of-pocket expenses incurred by Zogenix as a result of such recall, subject to Supplier’s limits of liability in Section 12.4.4. Zogenix shall give Supplier prompt written notice of any Product recalls that Zogenix believes were caused or may have been caused by such failure by Supplier.

8.3. Sharing of Recall Expenses. If each Party contributes to the cause for a recall, the expenses actually incurred as a result of such recall will be shared in proportion to each Party’s responsibility, subject to Supplier’s limits of liability in Section 12.4.4.

9. INTELLECTUAL PROPERTY

9.1. Zogenix Property.

9.1.1. All materials, inventions, know-how, methodologies, trademarks, Specifications, information, data, writings and other property in any form whatsoever, which is provided or otherwise made available to Supplier by or on behalf of Zogenix, whether or not it is used by Supplier with respect to the performance of its obligations hereunder, and which was owned or Controlled by Zogenix prior to being provided or made available to Supplier, shall remain the property of Zogenix (the “Zogenix Property”). Without limiting the foregoing, Zogenix shall retain all rights, title and interest in and to such Zogenix Property, including without limitation all patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights and any ideas, concepts, designs, inventions and expressions embodied in or appurtenant to such Zogenix Property. Zogenix hereby grants to Supplier a non-transferable, non-exclusive license to use any Zogenix Property supplied to Supplier hereunder solely to the extent and for the duration necessary to enable Supplier to perform its obligations hereunder. Supplier shall not acquire any other right, title or interest in or to the Zogenix Property as a result of its performance hereunder. “Controlled” means, with respect to any material, item of information or intellectual property right, the possession, whether by ownership or license, of the right to grant a license or other right with respect thereto without violating the contractual or intellectual property rights of any Third Party.

9.1.2. Any improvements or modifications to Zogenix Property (“Improvements”), and any creative ideas, proprietary information, developments, or inventions developed, conceived, created, authored or reduced to practice by or on behalf of Supplier, either alone or in concert with Zogenix or any third parties, during the Term and related to the activities carried out in the performance of this Agreement (“Developments”), but for the avoidance of doubt expressly excluding any Supplier Property (as defined below), shall be the exclusive property of Zogenix, and Zogenix shall own all rights, title and interest in and to such Improvements and Developments. Such ownership shall inure to the benefit of Zogenix from the date of the conception, creation, reduction to practice or fixation in a tangible medium of expression of the Improvements or Developments, as the case may be. All copyrightable aspects of such Improvements and Developments shall be considered “Work Made For Hire” as defined in §101 of the 1976 Copyright Act (as amended). All rights, title and interest in and to all Improvements and Developments hereby is and shall be assigned and transferred to and vested in Zogenix without any additional compensation to Supplier or its personnel. In the event that any Improvements or Developments do not qualify to be Work Made For Hire, Supplier hereby

irrevocably transfers, assigns and conveys, and shall cause its personnel to irrevocably transfer, assign and convey, all rights, title and interest in and to such Improvements or Developments to Zogenix, at no cost to Zogenix, free and clear of any liens and encumbrances, and Supplier agrees to execute, and shall cause its personnel to execute, all documents necessary, in Zogenix’s discretion, to do so. All such assignments shall include, but are not limited to, those relating to existing or prospective copyrights, patent rights and all other intellectual property rights in any country. Supplier also agrees that it shall, and shall cause its personnel to, promptly notify Zogenix of any intellectual property developed or otherwise included as Improvements or Developments, and to provide reasonable assistance, at Zogenix’s expense, in the procurement or enforcement of any such intellectual property.

9.2. Supplier Property. All materials, inventions, know-how, methodologies, trademarks, information, data, writings and other property, in any form whatsoever, which is provided to Zogenix by or on behalf of Supplier, or which was used by Supplier with respect to the performance of its obligations hereunder, and which was owned or Controlled by Supplier prior to its performance hereunder, and any improvements thereof made by the Supplier that are generally applicable to pharmaceutical products shall remain the property of Supplier (the “Supplier Property”). For avoidance of doubt, Supplier Property excludes any Zogenix Property, Improvements and Developments. Zogenix shall acquire no right, title or interest in Supplier Property as a result of Supplier’s or Zogenix’s performance hereunder. In producing Improvements and Developments, Supplier shall not incorporate into such Improvements and Developments any Supplier Property or other materials in which Supplier has pre-existing proprietary rights (collectively, “Pre-Existing Materials”), except such Pre-Existing Materials as may be approved in advance by Zogenix in writing. Any such Pre-Existing Materials incorporated into the Improvements and Developments but not approved in advance by Zogenix in writing shall be deemed Improvements and Developments. With respect to Pre-Existing Materials incorporated into Improvements and Developments, Supplier hereby grants to Zogenix, in the case of Supplier’s Pre-Existing Materials, an unrestricted, royalty-free, fully-paid, perpetual, irrevocable, world-wide, non-exclusive, assignable right and license, solely to the extent necessary to use, disclose, reproduce, modify, prepare derivative works, publicly perform and display, transmit, sublicense, sell, offer for sale and distribute (including the right to sublicense, sell, offer for sale and distribute through multiple tiers), practice, make, have made, import and otherwise make use of such Pre-Existing Materials in connection with the Product, Improvements and Developments. Such rights shall only extend to Zogenix’s present and future Affiliates, successors and assigns.

10. REPRESENTATIONS AND WARRANTIES

10.1. Supplier represents and warrants:

10.1.1. that it has the experience, capability and resources to efficiently and expeditiously provide the Manufacturing Services under this Agreement, and that the

Manufacturing Services shall be performed in a workmanlike manner with professional diligence and skill and in conformance with the Specifications and the other applicable specifications or requirements as set forth in this Agreement, the Quality/Technical Agreement, the Scope of Work, and Applicable Law;

10.1.2. that the Products, at the time of delivery to Zogenix, shall (a) be of merchantable quality and be free from defects in material and workmanship; (b) conform to the Specifications, as then in effect, (c) have been Manufactured in compliance with all Applicable Laws, including cGMPs; (d) not be (i) adulterated or misbranded by Supplier within the meaning of the FD&C Act, or any similar law of any other jurisdiction or (ii) an article that may not be introduced into interstate commerce under the provisions of Section 404 or 505 of the FD&C Act or any similar law of any other jurisdiction; (e) meet all standards and requirements under Applicable Laws to be lawfully shipped and sold;

10.1.3. that it is not a party to any agreement that would prevent it from fulfilling its obligations under this Agreement, and that it shall not enter into an agreement to provide services that would restrict its ability to perform its obligations under this Agreement during the Term;

10.1.4. that as of the effective date of this Agreement there is no pending or likely governmental enforcement action or private claim against Supplier, or any environmental conditions, events or circumstances that are reasonably likely to limit, impede or otherwise jeopardize the Supplier’s ability to meet its obligations under this Agreement;

10.1.5. that Supplier is not now nor has in the past been suspended, proposed for debarment or debarred by the United States Food and Drug Administration or any other government or regulatory authority, Supplier has never been convicted of a felony under federal law for conduct relating to the development or approval of a drug product and/or relating to a drug product, Supplier is not currently suspended or otherwise excluded by any Governmental Agency from receiving federal contracts, and Supplier’s employees, agents, representatives and subcontractors who perform Manufacturing Services under this Agreement are not suspended, proposed for debarment or debarred by the United States Food and Drug Administration or any other government or regulatory authority;

10.1.6. that it and its employees, subcontractors, agents, representatives, and invitees shall comply with all Applicable Laws in the performance of this Agreement, and that Supplier’s actions in establishing and performing this Agreement have been and will be consistent with ethical business practices and without the influence of any association with an Zogenix employee, officer or director that would amount to a conflict of interest;

10.1.7. that if it learns of any violation of Applicable Law by an employee or permitted Affiliate or subcontractor that performs any function under this Agreement (a “Compliance Event”), it will promptly notify Zogenix in writing of such

Compliance Event and the measures it has taken and intends to take to remedy such Compliance Event and to prevent its recurrence; and

10.1.8. that it will not release any Batch of Product if Supplier knows that the Batch of Product does not comply with Specifications.

10.2. Zogenix represents and warrants that

10.2.1. the Free Goods Issue and any other materials supplied by Zogenix (including artwork and labeling) shall have been produced in accordance with and do not violate Applicable Laws and shall comply with all applicable specifications;

10.2.2. no Free Goods Issue shall, at the time of delivery, be (i) adulterated or misbranded within the meaning of the FD&C Act, or any similar law of any other jurisdiction, or (ii) an article which may not, under the provisions of the FD&C Act, or any similar law of any other jurisdiction, be introduced into interstate commerce;

10.2.3. Zogenix will provide to Supplier any material safety data sheets that are applicable to any Free Goods Issue, in sufficient time for review by Supplier;

10.2.4. all Product delivered to Zogenix by Supplier will be held, used and disposed of by or on behalf of the Zogenix in accordance with all Applicable Laws, and Zogenix will otherwise comply with all laws, rules, regulations and guidelines applicable to Zogenix’s performance under this Agreement;

10.2.5. Zogenix will not release any Batch of Product if Zogenix knows that the Batch of Product does not comply with the Specifications;

10.2.6. to the knowledge of Zogenix, it has all necessary authority to use and to permit Supplier to use pursuant to this Agreement all intellectual property related to Free Goods Issue and Product (including artwork and labeling), including any copyrights, trademarks, trade dress, and patents;

10.2.7. all material information provided to Supplier in connection with the Services, including without limitation, all customs information and Specifications, is true, accurate and complete and in compliance with Applicable Law; and

10.2.8. to the knowledge of Zogenix, the work to be performed by Supplier to the extent detailed in a Scope of Work will not violate or infringe upon any trademark, trade name, copyright, patent, trade secret, trade dress or other intellectual property or other right held by any Third Party.

10.3. Supplier and Zogenix represent and warrant to the other that the execution, delivery and performance of this Agreement have been authorized by all necessary corporate action, do not conflict with or result in a material breach of the articles of incorporation or by-laws of such Party or any material agreement by which such Party

is bound, or any law, regulation or decree of any governmental entity or court that has jurisdiction over such Party.

10.4. Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON INFRINGEMENT.

11. TERM; TERMINATION

11.1. Term. Unless sooner terminated pursuant to the terms hereof, the term of this Agreement shall commence on the Effective Date and shall continue for five (5) years unless terminated earlier pursuant to this Section (the “Initial Term”). After the expiration of the Initial Term, this Agreement shall automatically renew for successive terms of two (2) years each (each a “Successive Term” and together with the Initial Term, the “Term”), unless terminated as set out below.

11.2. At Will Termination. This Agreement may be terminated at any time following the second anniversary of the Effective Date for any reason by: (i) Zogenix with at least twelve (12) months prior written notice to the Supplier, or (ii) Supplier with twenty-four (24) months prior written notice to Zogenix,. In the event of any termination of this Agreement, Zogenix shall be responsible for any portion of the compensation owed to Supplier for any Manufacturing Services rendered for any firm Purchase Orders prior to the effective date of such termination to the extent such fees and expenses are not cancelable.

11.3. Breach. This Agreement may be terminated by either Party in the event of a material breach by the other Party of the terms and conditions hereof; provided that if the breach is capable of remedy, the other Party shall first give to the defaulting Party written notice of the proposed termination or cancellation of this Agreement, specifying the grounds therefor. Upon receipt of such notice, the defaulting Party shall have sixty (60) days to respond by curing such default; or by delivering to the other Party a certificate that such breach is not capable of being cured within such sixty (60) days and that the breaching Party is working diligently to cure such breach; but in no event shall the time period for curing such breach exceed an additional sixty (60) days. If the breaching Party does not so respond or fails to work diligently and to cure such breach within the additional time set forth above, then the other Party may either suspend the Agreement indefinitely or terminate the Agreement. If the breach is not capable of remedy then the Agreement may be terminated immediately. Termination of this Agreement pursuant to this Section 11.3 shall not affect any other rights or remedies which may be available to the non-defaulting Party.

11.4. Product Withdrawal. A Scope of Work covering a particular Product will automatically terminate without any further action by either Party if the Product containing such Product is withdrawn as a result of FDA or EMA actions or

voluntarily withdrawn by Zogenix or if Zogenix decides to cease development activities for such Product.

11.5. Violation of Applicable Law. If Supplier in its discretion determines that its continued performance of Manufacturing Services will constitute a potential or actual violation of Applicable Law, then Supplier may terminate this Agreement by giving notice stating the effective date of such termination.

11.6. Inability to Supply. At Zogenix’s sole discretion, Zogenix may terminate this Agreement immediately by written notice to Supplier upon the occurrence of an Inability to Supply.

11.7. Bankruptcy; Insolvency. This Agreement may be terminated at any time during the Term by either Party upon the filing or institution of bankruptcy, reorganization, liquidation, administration or receivership proceedings, or upon an assignment of a substantial portion of the assets for the benefit of creditors by the other Party; provided, however, that in the event of any involuntary bankruptcy or receivership proceeding, such right to terminate shall only become effective if the Party consents to the involuntary bankruptcy or receivership, or such proceeding is not dismissed within ninety (90) days after the filing thereof.

11.8. Termination by Mutual Agreement. This Agreement may be terminated at any time upon mutual written agreement between the Parties.

11.9. Duties Upon Termination.

11.9.1. In the event of termination of this Agreement or any Scope of Work hereunder, both Parties shall promptly meet to finalize a plan to conclude and wind-down Supplier’s activities. Supplier shall cease all work and collect and deliver to Zogenix any work product and Free Goods Issue then in its possession in a manner prescribed by Zogenix. Except for (i) any Product Manufactured by Supplier before the effective date of termination, (ii) Supplier’s irrecoverable costs related to procurement of materials to satisfy the Firm Period Forecast quantities of Products last forecasted by Zogenix, (iii) Supplier’s reasonable Product close-down fees, detail for which shall be submitted to Zogenix for approval and not to exceed GBP10,000, and (iv) Supplier’s out-of-pocket costs for destruction of Product or materials or transportation thereof to Zogenix, Zogenix shall not be responsible for any payments or to make any reimbursements to Supplier. Any advance payments or other funds held by Supplier that are unearned shall be returned to Zogenix within thirty (30) days of the effective date of termination. In the event that only a given Scope of Work is terminated, then the foregoing provisions of this Section 11.9.1 shall only apply to such Scope of Work and the Product thereunder.

11.9.2. In the event that this Agreement or any Scope of Work hereunder is terminated by Zogenix for Supplier’s material breach under Section 11.3 or for Supplier’s Inability to Supply under Section 11.6 or by Supplier under Section 11.2, Supplier shall at the request of Zogenix (i) provide to Zogenix assistance

necessary to enable Zogenix or any Third Party appointed by Zogenix to take over the Manufacture of the applicable Product(s), and to facilitate the orderly continuation of Manufacture and supply of Product(s), including without limitation by providing any training and technical assistance that may be required for Zogenix or its Affiliate or Third Party designee to Manufacture Product(s), and (ii) transfer to Zogenix all tangible embodiments of any Supplier know-how required for Zogenix or any Third Party designee of Zogenix to Manufacture Product(s) (the assistance in (i) and (ii), the “Transition Assistance”). Zogenix will reimburse Supplier for any reasonable technical and training assistance fees and out-of-pocket costs incurred by Supplier in connection with Transition Assistance on a time and material basis at commercially reasonable rates.

11.10. Outstanding Orders in the Event of Termination. In the event that this Agreement or any Scope of Work hereunder is terminated, Supplier shall have the obligation to fill all outstanding Purchase Orders if, and only if, so requested by Zogenix, and in such case, all such Purchase Orders shall be completed by Supplier in accordance with the terms of this Agreement and Zogenix shall pay the Product Price for the quantities of Product supplier thereunder (provided that such Product complies with and is Manufactured in accordance with all the requirements of this Agreement and the Quality/Technical Agreement).

11.11. Survival. The following Sections of this Agreement shall survive any expiration or termination of this Agreement for any reason: Section 1 (to the extent necessary to give effect to the Sections enumerated in this Section 11.11), Section 2.14, Section 7.3, Section 7.4, Section 8, Section 9, Section 10, Section 11.9, Section 11.11, Section 11.11, Section 12, Section 13, Section 15, Section 16, and Section 17.

12. INDEMNIFICATION AND INSURANCE

12.1. Indemnification by Zogenix. Zogenix shall indemnify, defend and hold Supplier, its Affiliates and their respective directors, officers, employees, and agents (“Supplier Indemnified Parties”), harmless from and against any damages, judgments, claims, suits, actions liabilities, costs and expenses including, but not limited to, reasonable attorneys’ fees (“Losses”) resulting from any Third Party claims arising out of (a) Zogenix’s breach of this Agreement, any Scope of Work, the Quality/Technical Agreement or of any representation or warranty made by Zogenix to Supplier in this Agreement, any Scope of Work, or the Quality/Technical Agreement; (b) any negligent or reckless act or omission or misconduct on the part of any Zogenix Indemnified Party in the course of its or their performance under this Agreement; or (c) the sale, marketing, use or distribution of Zogenix’s Product including any infringement by the Product of a Third Party’s Intellectual Property, except to the extent that Supplier is obliged to indemnify, defend and hold harmless any Zogenix Indemnified Party pursuant to Section 12.2 below. Notwithstanding the foregoing, Zogenix shall not be liable for Losses to the extent such Losses are caused by the

negligence, recklessness or misconduct of Supplier or breach of any of the terms of this Agreement, any Scope of Work, or the Quality/Technical Agreement by Supplier.

12.2. Indemnification by Supplier. Supplier shall indemnify, defend and hold Zogenix, its Affiliates and their respective directors, officers, employees, and agents (“Zogenix Indemnified Parties”), harmless from and against any Losses resulting from any Third Party claims arising out of (a) Supplier’s breach of this Agreement, any Scope of Work, the Quality/Technical Agreement or of any representation or warranty made by Supplier to Zogenix in this Agreement, any Scope of Work, or the Quality/Technical Agreement; (b) Supplier’s supply of noncomplying Product or defective Product; or (c) any negligent or reckless act or omission or misconduct on the part of any Supplier Indemnified Party in the course of its or their performance under this Agreement, except to the extent that Zogenix is obliged to indemnify, defend and hold harmless any Supplier Indemnified Party pursuant to Section 12.1 above. Notwithstanding the foregoing, Supplier shall not be liable for Losses to the extent such Losses are caused by the negligence, recklessness or misconduct of Zogenix or breach of any of the terms of this Agreement, any Scope of Work, or the Quality/Technical Agreement by Zogenix.

12.3. Indemnification Procedure. If a Supplier Indemnified Party or a Zogenix Indemnified Party (in each case an "Indemnified Party"), receives any written claim which such Indemnified Party believes is the subject of indemnity hereunder by Zogenix or Supplier as the case may be (the "Indemnifying Party"), the Indemnified Party shall, as soon as reasonably practicable after forming such belief, give notice thereof to the Indemnifying Party, provided that the failure to give timely notice to the Indemnifying Party as contemplated hereby shall not release the Indemnifying Party from any liability to the Indemnified Party unless the Indemnifying Party demonstrates that the defense of such claim is prejudiced by such failure. The Indemnifying Party shall have the right, by prompt notice to the Indemnified Party to assume the defense of such claim at its cost, with counsel reasonably satisfactory to the Indemnified Party. If the Indemnifying Party does not so assume the defense of such claim or, having done so, does not diligently pursue such defense, the Indemnified Party may assume the defense, with counsel of its choice, but at the cost of the Indemnifying Party. If the Indemnifying Party assumes and diligently pursues the defense, it shall have absolute control of the litigation; the Indemnified Party may, nevertheless, participate therein through counsel of its choice and at its cost. The Party not assuming the defense of any such claim shall render all reasonable assistance to the Party assuming such defense, out-of-pocket costs of such assistance shall be for the account of the Indemnifying Party. No claim hereunder shall be settled other than by the Party defending the same, and then only with the consent of the other Party, which consent shall not be unreasonably withheld; provided that the Indemnified Party shall have no obligation to consent to any settlement of any such claim which imposes on the Indemnified Party any liability or obligation which cannot be assumed or performed in full by the Indemnifying Party.

12.4. Limitation of Liability and Claims.

12.4.1. NEITHER PARTY LIMITS ITS LIABILITY FOR DEATH NOR personal injury caused by its negligence, or that of its employees, agents or sub-contractors (as applicable); or fraud or fraudulent misrepresentation by it or its employees.

12.4.2. SUBJECT TO 12.4.1, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOSS OF PROFITS (WHETHER DIRECTLY OR INDIRECTLY ARISING) OR ANY LOSS OF OPPORTUNITY, LOSS OF GOODWILL, LOSS OF BUSINESS OR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE LOSS, EXCEPT TO THE EXTENT THAT SUCH LOSSES ARE (A) AWARDED TO A THIRD PARTY IN A CLAIM AGAINST AN INDEMNITEE FOR WHICH AN INDEMITOR IS RESPONSIBLE FOR INDEMNIFICATION HEREUNDER, (B) APPLY TO A BREACH OF SECTION 13, OR (C) APPLY IN THE EVENT OF A PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN WHICH CASES SUCH LOSSES SHALL BE SUBJECT TO CLAUSE 12.4.5.

12.4.3. Supplier’s liability for loss or damage to Free Goods Issue and other materials provided by Zogenix (“Zogenix Materials”) is limited solely to Zogenix Materials that are lost or damaged due to Supplier’s negligence or willful misconduct in its handling or storing of the Zogenix Materials in accordance with the Specifications and the Quality/Technical Agreement (“Zogenix Material Losses”). Zogenix Material Losses shall not include losses related to: (i) Zogenix Materials used for samples and testing and in the provision of pharmaceutical development and validation Services; (ii) Zogenix Materials that do not conform to Zogenix’s specifications at the time such Zogenix Materials are delivered to the Supplier; or (iii) Zogenix Materials that are not converted to Product on account of agreed process loss (“Loss Allowance”) per manufacturing Batch Records, per manufacturing campaign or per manufacturing project, as applicable, such Loss Allowance to be agreed between the Parties after the establishment by Supplier of a validated Manufacturing process. Within thirty (30) days of the date on which Zogenix Material Losses occurred or Supplier became aware of the occurrence of Zogenix Material Losses, the Parties will calculate the amount of Zogenix Material Losses occurring in such instance. Supplier will reimburse Zogenix for Zogenix Material Losses in each instance if any, at the lesser of (i) Zogenix’s cost to produce or acquire the Zogenix Materials constituting the Zogenix Material Losses, or (ii) the fees charged or otherwise to be charged for the particular Services specifically relating to the Zogenix Materials constituting the Zogenix Material Losses.

For purposes of this Section 12.4.3 “cost” shall mean (i) for Zogenix Materials produced by the Zogenix or its Affiliate, material, labor and overhead costs to manufacture or have manufactured the Zogenix Materials and (ii) for Zogenix Materials purchased from unaffiliated third parties, the actual price paid to the

Third Party for the Zogenix Materials. Payment for such Zogenix Material Losses shall be made by Supplier within thirty (30) days following final mutual determination of the reimbursable amount.

12.4.4. Supplier’s liability for Product recall costs and expenses incurred by Zogenix, as set out in Section 8.2 and 8.3, is limited to US$500,000.

12.4.5. Subject to 12.4.1, 12.4.2, 12.4.3 and 12.4.4 , and except for Supplier’s willful misconduct, Supplier's total aggregate liability in any calendar year in respect of all claims, losses or damages, whether arising from contract, tort, (including negligence), indemnity, breach of duty (statutory or otherwise) or otherwise under or in connection with this Agreement shall in no event exceed the lesser of (i) (a) during the first year of the Agreement, two times the total fees (excluding pass-through costs) paid or to be paid by Zogenix for Product or Services purchased or Forecasted to be purchased during the first year of the Agreement, or (b) from the second year of the Agreement, two times the total fees paid by Zogenix (excluding pass-through costs) under this Agreement during the 12 month period preceding the event under which the liability arose; or (ii) US$1,000,000 (one million dollars).

12.5. Insurance. Each Party shall maintain during the Term of this Agreement and for a period of three (3) years thereafter the following insurance or self-insurance in amounts no less than that specified for each type:

12.5.1. General liability insurance with combined limits of not less than $3,000,000 per occurrence and $3,000,000 per accident for bodily injury, including death, and property damage;

12.5.2. Product liability insurance with limits not less than $10,000,000.

For the avoidance of doubt, PCI has no obligation to maintain property insurance for Zogenix materials stored at PCI’s facility or while in transit.

12.6. Evidence of Insurance. Each Party shall provide the other with evidence of its insurance upon written request. Each Party shall provide to the other thirty (30) days, prior written notice of any cancellation or change in its coverage.

13. CONFIDENTIALITY

13.1. A Party receiving Confidential Information (the "Receiving Party") from the other Party (the "Disclosing Party") shall not to publish, disclose or use for any purpose other than its performance hereunder any of the Disclosing Party’s Confidential Information and shall use at least the same standard of care as it uses to protect its own Confidential Information, but in no event less than a reasonable level of care, to ensure that it and its Affiliates and their respective employees, agents, or consultants do not disclose or make any unauthorized use of Confidential Information provided

by the Disclosing Party. The Receiving Party shall notify the Disclosing Party promptly upon discovery of any unauthorized use or disclosure of the Disclosing Party's Confidential Information. The Receiving Party’s non-disclosure obligations hereunder shall persist during the Term and for a period of seven (7) years following the termination or expiry of this Agreement.

13.2. Each Party shall limit disclosure of Confidential Information received hereunder to only those of its (or its Affiliates’) officers, employees, contractors, agents and consultants who are directly concerned with the performance of this Agreement and its attorneys and potential acquirers (“Representatives”). Each Party shall advise such Representatives upon disclosure of any Confidential Information to them of the confidential nature of the Confidential Information and the terms and conditions of this Section 13, and shall use all reasonable safeguards to prevent unauthorized disclosure of the Confidential Information by such Representatives.

13.3. Both Parties agree that the following shall not be considered Confidential Information subject to this Agreement:

13.3.1. information that is in the public domain by publication or otherwise, provided that such publication is not in violation of this Agreement or any other confidentiality agreement;

13.3.2. information that the Receiving Party can establish in contemporaneous writing was in the Receiving Party’s possession prior to the time of disclosure by the Disclosing Party and was not acquired, directly or indirectly, from the Disclosing Party;

13.3.3. information that the Receiving Party lawfully receives from a Third Party; provided that such Third Party was not obligated to hold such information in confidence;

13.3.4. information that, prior to the Disclosing Party’s disclosure thereof, was independently developed by the Receiving Party without reference to any Confidential Information as established by appropriate documentation; and

13.3.5. information that the Receiving Party is compelled to disclose by a court, administrative agency, or other tribunal; provided that in such case the Receiving Party shall promptly and to the extent legally permissible, give as much advance notice as feasible to the Disclosing Party to enable the Disclosing Party to exercise its legal rights to prevent and/or limit such disclosure. In any event, the Receiving Party shall disclose only that portion of the Confidential Information that, in the opinion of the Receiving Party’s legal counsel, is legally required to be disclosed and will exercise reasonable efforts to ensure that any such information so disclosed will be accorded confidential treatment by said court, administrative agency or tribunal.

13.4. All Confidential Information shall remain the property of the Disclosing Party. At the termination of this Agreement upon the request of Zogenix, Supplier shall promptly return or destroy any Zogenix Confidential Information in Supplier’s possession,

custody or control, except that Supplier may keep one (1) copy for archival purposes, and provided, however, that retention of electronic copies of Confidential Information maintained pursuant to regular data archiving and record retention policies and practices shall not be deemed to be a violation of this Agreement.

13.5. Each Party acknowledges and expressly agrees that the remedy at law for any breach by it of the terms of this Section 13 shall be inadequate and that the full amount of damages which would result from such breach are not readily susceptible to being measured in monetary terms. Accordingly, in the event of a breach or threatened breach by either Party of this Section 13, the other Party shall be entitled to immediate injunctive relief prohibiting any such breach and requiring the immediate return of all Confidential Information. The remedies set forth in this Section 13 shall be in addition to any other remedies available for any such breach or threatened breach, including the recovery of damages from the breaching Party.

13.6. The terms and conditions of this Agreement, but not the fact of its existence, shall constitute Confidential Information of Zogenix, except that Supplier may disclose such terms and conditions to its Affiliates in accordance with Section 13.2 hereof.

14. FORCE MAJEURE

14.1. Effects of Force Majeure. Neither Party shall be held liable or responsible for failure or delay in fulfilling or performing any of its obligations under this Agreement in case such failure or delay is due to any condition beyond the reasonable control of the affected Party including, without limitation, Acts of God, Governmental Agency actions or guidance, war, riot, earthquake, tornado, hurricane, fire, civil disorder, explosion, accident, flood, sabotage, or national defense requirements (a “Force Majeure Event”). Such excuse shall continue as long as the Force Majeure Event continues, provided that Zogenix may cancel without penalty any and all Purchase Orders in the event Supplier is unable to fulfill an outstanding Purchase Order within ninety (90) days of its scheduled Purchase Order Delivery Date due to a Force Majeure Event. Upon cessation of such Force Majeure Event, Supplier shall promptly resume performance on all Purchase Orders which have not been terminated.

14.2. Notice of Force Majeure Event. In the event either Party is delayed or rendered unable to perform due to a Force Majeure Event, the affected Party shall give notice thereof and its expected duration to the other Party promptly after the occurrence of the Force Majeure Event; and thereafter, the obligations of the affected Party will be suspended during the continuance of the Force Majeure Event, provided that the affected Party shall take commercially reasonable steps to remedy the Force Majeure Event with all reasonable dispatch.

15. PRESS RELEASES; USE OF NAMES

15.1. Use of Names. Except as expressly provided or contemplated hereunder and except as otherwise required by Applicable Law, no right is granted pursuant to this Agreement to either Party to use in any manner the trademarks or name of the other

Party, or any other trade name, service mark, or trademark owned by or licensed to the other Party in connection with the performance of this Agreement. Notwithstanding the above, as may be required by Applicable Law, Zogenix, Supplier and their respective Affiliates shall be permitted to use the other Party’s name and to disclose the existence of this Agreement in connection with securities or other required public filings.

16. DISPUTE RESOLUTION; VENUE

16.1. Dispute Resolution. 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 (a “Dispute”). In the event of the occurrence of any Dispute, the Parties shall first try to settle their differences amicably via the Supply Committee. If the Supply Committee cannot achieve resolution, then 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 sixty (60) days after such notice is received. If either Party desires to pursue arbitration under Section 16.2 below to resolve any such Dispute, unless expressly provided for otherwise herein, a referral to such executives under this Section 16.1 shall be a mandatory condition precedent. Said designated executive as of the Effective Date are as follows.

For Zogenix: Chief Financial Officer

For Supplier: Managing Director

In the event that they shall be unable to resolve the Dispute by consensus within such sixty (60) day period, then the Dispute shall be finally settled by binding arbitration as provided below.

16.2. Arbitration. Except as expressly otherwise provided in this Agreement, in the event of 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”), such Dispute shall be finally settled by arbitration in accordance with the commercial arbitration rules of the London Court of International Arbitration (“LCIA”) by three (3) arbitrators (the “Arbitrators”) appointed in accordance with said rules, provided that the appointed arbitrators shall have appropriate experience in the biopharmaceutical industry. The place of arbitration shall be London, England, and the Arbitrators shall decide the dispute in accordance with the substantive law of England and Wales. The Arbitrators, by accepting their appointment, undertake to conduct the process such that the award shall be rendered within six (6) months of their appointment and shall be final and binding upon all Parties participating in such arbitration. The judgment rendered by the Arbitrators may, at the Arbitrator’s discretion, include costs of arbitration, reasonable attorneys’ fees and reasonable costs for any expert and other witnesses. Judgment upon the award may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award and/or an order of enforcement as the case may be.

Notwithstanding the foregoing, any Disputes regarding the scope, validity, enforceability or inventorship of any patents or patent applications shall be submitted for final resolution by a court of competent jurisdiction. This Section 16.2 shall not prohibit a Party from seeking preliminary injunctive relief in aid of arbitration from a court of competent jurisdiction.

16.3. The Parties consent to the exclusive jurisdiction of the courts of England and Wales (the “English Courts”) for any action in aid of arbitration, for provisional relief of the status quo, or to prevent irreparable harm prior to the appointment of the Arbitrators in Section 16.2 above, and to the exclusive jurisdiction of the English Courts for any action to enter or enforce any arbitral award entered in connection with this Agreement. THE PARTIES HEREBY IRREVOCABLY WAIVE, AND AGREE TO CAUSE THEIR RESPECTIVE AFFILIATES TO WAIVE, THE RIGHT TO TRIAL BY JURY IN SUCH ACTIONS.

16.4. The Parties agree that irreparable damage may occur if any provision of this Agreement is not performed in accordance with the terms hereof and that the Parties may be entitled to an injunction to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in the English Courts or by an arbitral tribunal specified in Section 16.2, in addition to any other remedy to which they are entitled at law or in equity.

17. MISCELLANEOUS

17.1. Independent Contractors. The relationship between Zogenix and Supplier is that of independent contractors and nothing herein shall be deemed to constitute the relationship of partners, joint venturers, nor of principal and agent between Zogenix and Supplier. Neither Party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Third Party.

17.2. Assignment. This Agreement may not be assigned or otherwise transferred by either Party without the prior written consent of the other Party; provided that either Party may, without such consent, assign this entire Agreement (a) in connection with the transfer or sale of all or substantially all of the assets of such Party or the line of business of which this Agreement forms a part, (b) in the event of the merger or consolidation of a Party hereto with another; or (c) to any Affiliate of the assigning Party. Any purported assignment in violation of the preceding sentence shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement.

17.3. Continuing Obligations. Termination, assignment or expiration of this Agreement shall not relieve either Party from full performance of any obligations incurred prior thereto.

17.4. Waiver. Neither Party’s waiver of any breach or failure to enforce any of the terms and conditions of this Agreement, at any time, shall in any way affect, limit or waive

such Party’s right thereafter to enforce and compel strict compliance with every term and condition of this Agreement.

17.5. Severability. Each Party hereby expressly agrees that it has no intention to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries, and that if any word, sentence, paragraph, clause or combination thereof in this Agreement is found by a court or executive body with judicial powers having jurisdiction over this Agreement or either Party hereto, in a final unappealed order, to be in violation of any such provisions in any country or community or association of countries, such words, sentences, paragraphs, clauses or combination shall be inoperative in such country or community or association of countries and the remainder of this Agreement shall remain binding upon the Parties, so long as enforcement of the remainder does not violate the Parties’ overall intentions in this transaction.

17.6. Exhibits, Schedules and Attachments. Any and all exhibits, schedules and attachments referred to herein form an integral part of this Agreement and are incorporated into this Agreement by such reference.

17.7. Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be delivered personally or sent by (a) registered or certified mail, return receipt requested, (b) a nationally-recognized courier service guaranteeing next-day delivery, charges prepaid or (c) facsimile or electronic mail (with the original promptly sent by any of the foregoing manners), and shall be deemed to have been given upon mailing or upon transmission by facsimile or electronic mail, as the case may be. Any such notices shall be addressed to the Receiving Party at such Party’s address set forth below, or at such other address as may from time to time be furnished by similar notice by either Party.

If to Supplier: Penn Pharmaceutical Services Limited

23-24 Tafarnaubach Industrial Estate

Tredegar NP22 3AA, Wales, UK

Attn: Legal Department

If to Zogenix: Zogenix International Limited

Siena Court, Broadway

Maidenhead, Berkshire SL6 1NJ, United Kingdom

Attention: Vice President, Technical Operations/Product Supply

With copy to: Zogenix, Inc.

5959 Horton Street, Fifth Floor

Emeryville, CA 94608 US

Attention: Legal

17.8. Counterparts. This Agreement and any amendment or supplement hereto may be executed in any number of counterparts and any Party hereto may execute any such

counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. The execution of this Agreement and any such amendment or supplement by any Party hereto will not become effective until counterparts hereof have been executed by both Parties hereto.

17.9. Governing Law; Entire Agreement. The validity, interpretation and performance of this Agreement shall be governed and construed in accordance with the laws of England and Wales without regard to the conflicts of laws provisions thereof. This Agreement constitutes the full understanding of the Parties and a complete and exclusive statement of the terms of their agreement for the purpose of this Agreement. No terms, conditions, understanding, or agreement purporting to modify or vary the terms of this Agreement shall be binding unless hereafter made in writing and signed by both Parties. No modification to this Agreement shall be effected by the acknowledgement or acceptance of any Purchase Order or shipping instruction forms or similar documents containing terms or conditions at variance with or in addition to those set forth herein.

[Signature Page Follows]

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized representative as of the Effective Date.

ZOGENIX INTERNATIONAL LIMITED, A WHOLLY OWNED SUBSIDIARY OF ZOGENIX, INC.

PENN PHARMACEUTICAL SERVICES, TRADING AS PCI PHARMA SERVICES

By:

/s/ Stephen J. Farr

By:

/s/ Richard Yarwood

Name:

Stephen J. Farr

Name:

Richard Yarwood

Title:

CEO/Director

Title:

SVP

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen J. Farr, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(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/ Stephen J. Farr
Stephen J. Farr
President and Chief Executive Officer
(Principal Executive Officer)

Date: November 7, 2019

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael P. Smith, 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/ Michael P. Smith
Michael P. Smith
Executive Vice President, Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer)

Date: November 7, 2019

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 September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen J. Farr, 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: November 7, 2019


/s/ Stephen J. Farr
Stephen J. Farr
President and 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-Q of Zogenix, Inc. (the “Company”) for the period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael P. Smith, 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: November 7, 2019



/s/ Michael P. Smith
Michael P. Smith
Executive Vice President, Chief Financial Officer, Treasurer and Secretary