ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto, appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and involving risk and uncertainties. For example, statements regarding our expectations as to our plans and strategy for our business, future financial performance, expense levels, and liquidity sources are forward-looking statements. Our actual results and the timing of those events could differ materially from those discussed in our forward-looking statements because of many factors, including those set forth under the "Risk Factors" section and elsewhere in this report.

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Overview

We are a biopharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases. Our diverse neuroscience portfolio includes approved treatments for epilepsy, migraine, attention-deficit hyperactivity disorder (ADHD), hypomobility in Parkinson’s Disease (PD), cervical dystonia, chronic sialorrhea, dyskinesia in PD patients receiving levodopa-based therapy, and drug-induced extrapyramidal reactions in adult patients. We are developing a broad range of novel CNS product candidates including new potential treatments for hypomobility in PD, epilepsy, depression, and other CNS disorders.

On February 18, 2022, the U.S. Food and Drug Administration (FDA) accepted for review the New Drug Application (NDA) for SPN-830 (apomorphine infusion device) for the continuous treatment of motor fluctuations ("off" episodes) in PD and assigned a Prescription Drug User Fee Act (PDUFA) target action date of October 7, 2022.

On October 10, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, Adamas Pharmaceuticals, Inc. (Adamas) and Supernus Reef, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Purchaser"). On November 24, 2021, the Purchaser was merged with and into Adamas (Merger), with Adamas continuing as the surviving corporation in the Merger as a wholly owned subsidiary of the Company (Adamas Acquisition). At the time of the Adamas Acquisition, Adamas held two established commercial products in its portfolio, GOCOVRI®, Osmolex ER®, and had royalty rights to Namzaric®. Allergan plc markets and sells Namzaric in the U.S.

Following the Adamas Acquisition, during the fourth quarter of 2021 and continuing into the first quarter of 2022, Adamas was reorganized with the interests of Adamas Pharmaceuticals, LLC, formerly Adamas Pharmaceuticals, Inc, in GOCOVRI and Osmolex ER effectively transferred to Adamas Operations, LLC (Adamas Operations), which, alongside Adamas Pharmaceuticals, LLC, is a wholly-owned subsidiary of Adamas Holdings, LLC (collectively, the "Adamas Subsidiaries"), which is itself a wholly-owned subsidiary of Supernus Pharmaceuticals, Inc. During the first quarter of 2022, Supernus Pharmaceuticals, Inc. was granted a license by Adamas Operations to market and sell GOCOVRI and Osmolex ER (such reorganization and licensing agreement, the "Adamas Reorganization"). Each of the Adamas Subsidiaries are distinct legal entities that contract with Supernus Pharmaceuticals, Inc. for the provision of certain corporate and other support services.

On April 2, 2021, the FDA approved Qelbree for the treatment of ADHD in pediatric patients 6 to 17 years of age. In May 2021, we launched Qelbree in the U.S. On September 2, 2021, the FDA has acknowledged receipt of the supplemental new drug application (sNDA) for adult patients with ADHD and assigned a PDUFA date of April 29, 2022.

On April 28, 2020, we entered into a Sale and Purchase Agreement with US WorldMeds Partners, LLC to acquire the CNS portfolio of USWM Enterprises, LLC (USWM Enterprises) (USWM Acquisition). With the acquisition, completed on June 9, 2020, the Company added three established commercial products, APOKYN, XADAGO, and MYOBLOC, and a product candidate in late-stage development to its portfolio, through its subsidiaries. In the second quarter of 2021 and within one year from the Closing Date, the Company finalized its accounting for the business combination, including the purchase price allocation.

On April 21, 2020, we entered into a Development and Option Agreement (Development Agreement) with Navitor Pharmaceuticals, Inc. (Navitor Inc.) and also acquired an ownership position in Navitor Inc. Under the terms of the Development Agreement, the Company and Navitor Inc. will jointly conduct a Phase II clinical program for NV-5138 (SPN-820) in treatment resistant depression (TRD). In March 2021, Navitor Inc. underwent a legal restructuring whereby Navitor Inc. became a wholly owned subsidiary of a newly formed limited liability company, Navitor Pharmaceuticals, LLC (Navitor LLC) (Navitor Restructuring) and our ownership position in Navitor Inc. was exchanged for an equivalent ownership position in Navitor LLC. In December 2021, we received a $12.9 million cash distribution pursuant to our ownership position in Navitor LLC following its sale of its subsidiary.

We, including through our subsidiaries, have a portfolio of commercial products and product candidates.

Commercial Products

•Trokendi XR is the first once-daily extended release topiramate product indicated for the treatment of epilepsy and the prophylaxis of migraine headache in the United States (U.S.) market.

•Oxtellar XR is indicated as therapy of partial onset seizures in adults and children 6 years to 17 years of age and is the first once-daily extended release oxcarbazepine product indicated for the treatment of epilepsy in the U.S.

•Qelbree, a novel non-stimulant product candidate for the treatment of ADHD in pediatric patients 6 to 17 years of age.

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•APOKYN is a product indicated for the acute, intermittent treatment of hypomobility or "off" episodes ("end-of-dose wearing off" and unpredictable "on-off" episodes) in patients with advanced PD.

•XADAGO is a once-daily product indicated as adjunctive treatment to levodopa/carbidopa in patients with Parkinson's disease experiencing "off" episodes.

•MYOBLOC is a product indicated for the treatment of cervical dystonia and sialorrhea in adults, and it is the only Type B toxin available on the market.

•GOCOVRI is the first and only FDA-approved medicine indicated for the treatment of dyskinesia in patients with PD receiving levodopa-based therapy, with or without concomitant dopaminergic medications, and as an adjunctive treatment to levodopa/carbidopa in patients with Parkinson's disease experiencing "off" episodes.

•Osmolex ER extended release tablets is for the treatment of Parkinson's disease and drug-induced extrapyramidal reactions in adult patients.

Product Candidates

We have various product candidates in different stages of development. Our late-stage product candidates include:

•Qelbree, a novel non-stimulant product candidate for the treatment of ADHD in adult patients with ADHD.

•SPN-830 is a late-stage drug/device combination product candidate for the continuous prevention of "off" episodes in PD.

Intellectual property portfolio

We continue to expand our intellectual property portfolio to provide additional protection for our technologies, products, and product candidates. See Part I, Item I—Business, Intellectual Property, and Exclusivity, for a complete description of our intellectual property position.

Operational Highlights

Qelbree Launch Update

•Total IQVIA prescriptions were 34,328 in the fourth quarter of 2021, an increase of 122% compared to total prescriptions of 15,453 in the third quarter of 2021. In February 2022, total prescriptions reached 14,767.

•Total prescriptions are showing a quarter-to-date (first seven weeks) sequential growth rate of 42% in the first quarter 2022 versus the corresponding same seven-week period in the fourth quarter of 2021.

•Qelbree continues to expand its base of prescribers, with over 5,600 prescribers in the fourth quarter of 2021, up from 3,470 prescribers from the third quarter of 2021.

•Continued progress in securing and improving managed care coverage.

•Preparations for the potential launch in the adult market are well underway, assuming timely approval by the FDA of the sNDA for the adult indication.

Acquisition of Adamas Pharmaceuticals, Inc.

•We completed the acquisition of Adamas in late November 2021, and the Adamas Reorganization in the first quarter of 2022, strengthening our Parkinson's disease portfolio with two marketed products, including GOCOVRI extended release capsules, the first and only FDA-approved medicine indicated for the treatment of both "off" episodes and dyskinesia in patients with Parkinson's disease receiving levodopa-based therapy. In addition, the acquisition diversifies and increases the Company’s revenue base and cash flow.

•Total prescriptions for GOCOVRI in January 2022 grew by 30% compared to January 2021.

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Product Pipeline Update

Qelbree (viloxazine, extended-release capsules) - Novel non-stimulant for the treatment of ADHD in adults

•In September 2021, the FDA acknowledged it received the sNDA for Qelbree for the treatment of ADHD in adult patients. The sNDA has a PDUFA date in late April 2022.

SPN-830 (apomorphine infusion device) - Continuous treatment of motor fluctuations ("on-off" episodes) in Parkinson's disease

(PD)

•The Company received notice from the FDA that its New Drug Application (NDA) resubmission for SPN-830 for the continuous treatment of motor fluctuations ("off" episodes) in Parkinson's disease is considered a Standard Review, thereby assigning a timeline of 10 months for review by the FDA and establishing a PDUFA target action date of October 7, 2022.

•The Company will work closely with the FDA as it reviews the SPN-830 NDA. The Company is preparing for the commercial launch of SPN-830 in the first quarter of 2023, assuming timely approval by the FDA.

SPN-820 - Novel first-in-class activator of mTORC1

•The Company has initiated a Phase II multicenter, randomized double-blind placebo-controlled parallel design study of SPN-820 in adults with treatment resistant depression. The study will examine the efficacy and safety of SPN-820 over a course of five weeks of treatment in approximately 400 patients. The primary outcome measure is the change from baseline to end of treatment period on the Montgomery-Asberg Depression Rating Scale (MADRS) Total Score, a standard depression rating scale.

SPN-817 – A novel product candidate for the treatment of epilepsy

•A randomized Phase II clinical study of SPN-817 for the treatment of focal seizures is expected to start in the second half of 2022.

COVID-19 Impact

In March 2020, we began to observe the impact of the COVID-19 pandemic in the U.S and globally and the impact it may have on our business operations and our financial results. The macroeconomic impacts of COVID-19 are significant and continue to evolve, as exhibited by, among other things, a rise in unemployment, changes in consumer behavior, and market volatility.

The full impact of the COVID-19 pandemic on our business remains uncertain and subject to change. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business operations and have assessed the impact of the COVID-19 pandemic on our consolidated financial statements. Although the COVID-19 pandemic has not significantly impacted our consolidated financial statements as of and for the year ended December 31, 2021, it may have a future impact, especially if the severity worsens, the duration lengthens, or the nature of the effects changes.

The effects of the pandemic may vary significantly across different aspects of our business operations. We do not and cannot yet know the full extent of the potential impact on our execution of clinical trials, new product launches, including Qelbree, our manufacturing and supply chain, or related impacts on our business or financial condition. These effects could include the adverse impact on research and development activities as a result of a disruption in clinical projects; adverse impact on selling and marketing efforts as a result of temporarily halting in-person interactions by our sales force with healthcare providers; adverse impact on net product sales as a result of decreased new prescriptions due to fewer patient visits to physicians to begin treatment; potential changes in payor segment mix; increased use of co-pay programs due to rising unemployment; and potential future disruption to our supply chain and manufacturing operations.

These effects could have a material impact on our liquidity, cash flows, capital resources, and business operations. Financial effects could include impairment of intangible and long-lived assets, increased sales deductions that could adversely impact our net product sales, and cash collections and adjustments for market volatility for items subject to fair value measurement, such as marketable securities. See "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K for additional information on risk factors that could impact our business and our results.

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For the year ended December 31, 2021, except for the effects already cited, there has been no material impact on our operations, liquidity, and financial position due to the COVID-19 pandemic. We expect to continue to generate positive cash flows and to meet our short-term liquidity needs.

Ransomware Incident

On November 24, 2021, we announced we were the target of a ransomware attack. The Company currently believes unauthorized activity on its information technology systems began in late September 2021. Abnormal behavior on the Company's information technology systems was first detected by the Company in mid-November 2021. Based on the investigation, we believe the criminal ransomware groups (the "criminal groups") copied certain data from our systems, encrypted certain data on our systems and then deployed malware designed to impede access to our IT systems. Thereafter the criminal groups contacted the Company and threatened to publish certain data copied from our systems. Upon detection of the ransomware attack, we notified government authorities, engaged third-party cybersecurity experts through our outside counsel, and commenced its recovery process. We maintain redundant off-site data backups, which were verified to have not been compromised by the ransomware attack and were utilized to restore the data encrypted by the criminal groups. At this time, we have successfully recovered the impacted files and have taken additional steps designed to protect our networks and files.

We have not paid any ransom amounts and do not currently anticipate paying any ransom amounts. While we remain unaware of any actual or attempted misuse of information copied from our IT systems, our investigation into the incident remains ongoing and there can be no assurance that the information has not already been misused and will not be misused in the future.

While the attack had no significant impact on the business and did not cause any long-term disruption to our operations, the encryption of certain data did impact our use of our enterprise resource planning system (the "legacy ERP"). Following the attack, we:

(i) restored securely backed-up data from our redundant off-site data backups into our legacy ERP,

(ii) manually processed certain functions which were previously automated by our legacy ERP, and

(iii) simultaneously accelerated our planned transition to a more modern ERP software.

Although the ransomware attack has not significantly impacted our business and there was no long-term disruption to our operations, there can be no assurance that further attacks may not significantly impact our business or disrupt operations and that information improperly obtained by the criminal groups may not be exploited by the criminal groups or other third parties. For additional information on the risks we face related to cybersecurity refer to Part I, Item 1A—Risk Factors–Cybersecurity incidents may adversely impact our financial condition, results of operations, and reputation for risks associated with cybersecurity.

While we have not been the subject of any legal proceedings involving the ransomware attack, it is possible we could be the subject of claims from persons alleging they suffered damages from the incident or actions by governmental authorities.

At the time of the ransomware attack we self-insured by assuming the full risk of costs related to cybersecurity incidents. Following the attack and a re-assessment of our likelihood of being the target of a cybersecurity attack, we are in the process of obtaining cyber insurance in addition to our business insurance coverage, however, it will not cover the 2021 ransomware attack.No claim has been made to date. We have incurred costs in 2021 and expect to continue to incur costs in the future, which may be significant, in connection with efforts designed to enhance our data security and take further steps designed to protect against unauthorized access to, or manipulation of, our systems and data. These costs were primarily comprised of certain employee related expenses and various third party consulting services, including forensic experts, legal counsel and other IT and accounting professional expenses and enhancements to our cyber security measures. We expect to incur additional costs related to the ransomware incident in the future, including costs related to our response to the ransomware incident and our efforts designed to enhance our security measures.

Critical Accounting Policies and the Use of Estimates

The significant accounting policies and basis of presentation for our consolidated financial statements are described in Part II, Item 8—Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements. Our consolidated financial statements are prepared in accordance with the U.S. generally accepted accounting principles (U.S. GAAP), requiring us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and other related disclosures. Some judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions.

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We believe the judgments, estimates, and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements:

•Revenue recognition;

•Business combination accounting and valuation of acquired assets;

•Impairment of intangible assets;

•Valuation of contingent consideration; and

• Income taxes.

Revenue Recognition

Our principal source of revenue is product sales. Revenue from product sales is recognized when physical control of our products is transferred to our customers, who are primarily pharmaceutical wholesalers, specialty pharmacies, and distributors. Product sales are recorded net of various forms of variable consideration, including: estimated rebates; sales discounts; and an estimated liability for future product returns (collectively, "sales deductions").

The variability in the net transaction price for our products arises primarily from the aforementioned sales deductions. Significant judgment is required in estimating certain sales deductions. In making these estimates, we consider: historical experience; product price increases; current contractual arrangements under applicable payor programs; unbilled claims; processing time lags for claims; inventory levels in the wholesale, specialty pharmacy, and retail distribution channel; and product life cycle. We adjust our estimates at the earlier of when the most likely amount of consideration we expect to receive changes, or when the consideration becomes fixed. Variable consideration on product sales is only recognized when it is probable that a significant reversal will not occur. If actual results in the future vary from our estimates, we adjust our estimates in the period identified. These adjustments could materially affect net product sales and earnings in the period in which the adjustment(s) is recorded. Refer to Part II, Item 8—Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements, for further discussion on each of the different sales deductions.

Rebates

Rebate amounts are typically based upon the volume of purchases using contractual or statutory prices, which may vary by product and by payer. For each type of rebate, the factors used in the calculations of the accruals for that rebate include the identification of the products subject to the rebate, applicable price terms and estimated lag time between sale and payment of the rebate, which can be significant. In order to establish the rebate accruals, we use both internal and external data to estimate the level of inventory in the distribution channel and the rebate claims processing lag time for each type of rebate. To estimate the rebate percentage or net price, we track sales by product and by customer or payer. We evaluate inventory data reported by wholesalers, available prescription volume information, product pricing, historical experience and other factors in order to determine the adequacy of our accruals. We regularly monitor our accruals and record adjustments when rebate trends, rebate programs and contract terms, legislative changes, or other significant events indicate that a change in reserve is appropriate. Historically, adjustments to rebate accruals have not been material to net earnings.

Rebates are discounts which the Company pays under either public sector or private sector health care programs. Rebates paid under public sector programs are generally mandated under law, whereas private sector rebates are generally contractually negotiated by the Company with managed care providers. Both types of rebates vary over time. A significant portion of rebates we pay are on state Medicaid programs. We participate in state Medicaid programs wherein the lag time from the date of sale of our product when we accrue for provision for rebates and the ultimate invoicing by the individual state Medicaid program can occur up to several quarters after the sale of our product. Because of the time lag for Medicaid, in any particular quarter, our adjustments may incorporate revisions of accruals for prior periods. Estimates associated with our participation in state Medicaid programs are particularly susceptible to adjustment given the extensive time lag.

Returns

Consistent with industry practice, we maintain a return policy that allows our customers to return products within a specified period of time. Sales of our products are not subject to a general right of return; however, we will accept return of expired product 6 months prior to and up to 12 months subsequent to the product's expiry date for certain products. Our products have a shelf life of up to 48 months from date of manufacture. The product return accrual is estimated principally based on historical experience, the level and estimated shelf life of inventory in the distribution channel, our return policy and expected market events, including generic competition. The time lag from date of sale of our products when we accrue our provision for product returns and the time at which we issue credit for expired product can occur up to several years after the sale of our

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product. Estimates associated with our provision for product returns are particularly susceptible to adjustment given the extensive time lag. In regards to Trokendi XR, the Company has entered into settlement agreements with third parties, permitting the sale of a generic version of Trokendi XR on or after January 1, 2023, or earlier under certain circumstances. The Company is actively monitoring returns activity in light of the expected patent expiration and potential sales decline based on timing of generic entry. The entry of a generic competitor may cause our future Trokendi XR product return rates to change from historical trends, and this change could have a material effect on the future provision for product returns.

Sales discounts

The estimated sales discounts have historically been predictable and less subjective due to the limited number of assumptions involved, the consistency of historical experience and the fact that we generally settle these amounts upon receipt of payment from the customer.

For a roll-forward of the sales deductions, see the section entitled Results of Operations - Revenues - Sales deductions and related accruals.

Business Combination Accounting and Valuation of Acquired Assets

The Company completed the USWM Acquisition on June 9, 2020, and the Adamas Acquisition on November 24, 2021. Each transaction was accounted for as a business combination. To determine whether the acquisition should be accounted for as a business combination or as an asset acquisition, the Company made certain judgments regarding whether the acquired set of activities and assets met the definition of a business. Judgment is required in assessing whether the acquired processes or activities, along with their inputs, would be substantive to constitute a business, as defined by U.S. GAAP.

The acquisition method of accounting requires that we recognize the assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed. The purchase price allocation is a critical accounting policy because the estimation of fair values of acquired assets and assumed liabilities is judgmental and requires various assumptions. Further, the amounts and useful lives assigned to depreciable and amortizable assets versus amounts assigned to Goodwill, which is not amortized, can significantly affect the results of operations in the period of and for periods subsequent to a business combination.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and therefore represents an exit price. When identifiable intangible assets, including in-process research and development (IPR&D) assets, are acquired, we determine the fair values of the assets as of the acquisition date. An income approach, which generally relies upon projected cash flow models, is used in estimating the fair value of the acquired intangible assets. These cash flow projections are based on management's estimates of economic and market conditions including: the timing and probability of success of clinical events or regulatory approvals for the IPR&D assets; the estimated future cash flows from revenues of acquired assets; the timing and projection of costs and expenses, including the costs to complete the IPR&D assets; discount rates; and tax rates.

While we use our best estimates and assumptions as part of the process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair values of assets acquired and liabilities assumed, if based on facts and circumstances existing at the acquisition date, are recorded on a retroactive basis as of the acquisition date, with the corresponding offset to Goodwill. Any adjustments not based on facts and circumstances existing at the acquisition date, or if subsequent to the conclusion of the measurement period, will be recorded to our consolidated statements of earnings.

Impairment of Intangible Assets

Intangible assets with indefinite lives are not amortized but are tested for impairment at least annually or when indicators of impairment are identified. Our annual evaluation is generally based on an assessment of qualitative factors to determine whether it is more likely than not the fair value of the asset is less than its carrying amount. Significant judgment is required in assessing the qualitative factors. In performing the qualitative assessment, we consider events and circumstances, focusing on the significant inputs affecting the fair value of an indefinite-lived intangible asset to determine whether it is necessary to perform the quantitative impairment test. If the Company is unable to conclude that the indefinite intangible asset is not impaired during its qualitative assessment, the Company will perform a quantitative assessment by estimating the fair value of the indefinite-lived intangible asset and comparing the fair value to the carrying amount.

In connection with the USWM acquisition in June 2020, we acquired the right to further develop and commercialize SPN-830 (apomorphine infusion device), a late-stage product candidate (IPR&D intangible asset). The significant inputs and assumptions used to estimate the fair value of the IPR&D intangible asset include: the timing and probability of success of clinical and regulatory approvals for the IPR&D asset, the estimated future cash flows from product sales, the timing and projection of

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costs and expenses. We believe that the timing and probability of success of clinical and regulatory approval for the IPR&D asset is key and directly drives the timing and realization of the estimated future cashflows from product sales and the incurrence of costs and expenses. The drug regulatory approval process is inherently uncertain, lengthy, and difficult. 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. In addition, the actual review and approval process time required may vary substantially based upon the type, complexity, and novelty of the product or disease. Any adverse action by the FDA can potentially impact our estimated fair value of the IPR&D intangible asset. In February 2022, the NDA for SPN-830 was accepted for review by the FDA. The FDA assigned a PDUFA target action date of October 7, 2022. We consider the positive results of clinical trials, industry benchmarks, available market data, and recent communications with the FDA regarding SPN-830 in determining the probability of technical and regulatory success input and assumption. The carrying amount of the indefinite-lived intangible asset was $124.0 million as of December 31, 2021.

Intangible assets with definite useful lives are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When performing our impairment assessment for definite-lived intangible assets, we rely upon cash flow projections attributable to the asset group to determine if the carrying value of the asset group is recoverable, on an undiscounted cash flow basis. If the carrying value of a definite-lived intangible asset is not recoverable, we will recognize impairment in the amount by which the carrying value of the asset exceeds its fair value. Some of the more significant inputs and assumptions in estimating fair value are the same inputs and assumptions described in the business combinations section above for estimating fair value of the acquired intangible assets in a business combination. The carrying amount of the definite-lived intangible assets, net was $660.7 million as of December 31, 2021.

The assumptions and estimates used in evaluating and estimating impairment can be complex and often subjective. These can include a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. Although we believe the assumptions, judgments, and estimates we have used in our assessments are reasonable and appropriate, a material change in any of our assumptions or external factors could lead to impairment charges.

Valuation of Contingent Consideration

We record contingent consideration resulting from a business combination at its fair value on the acquisition date. During the measurement period, if we obtain new information regarding facts and circumstances that existed as of the respective USWM or Adamas Closing Dates that, if known, would have resulted in revised estimates of fair values of acquired assets, assumed liabilities or contingent consideration, the Company will accordingly revise its estimates of fair values and purchase price allocation. In addition, on a quarterly basis, we will revalue the contingent consideration liability and record increases or decreases in their fair value as an adjustment to operating earnings. The determination of the initial and subsequent fair value of the contingent consideration liability requires significant judgment by management. Changes in any of the inputs not related to facts and circumstances existing as of the acquisition date may result in a significant fair value adjustment, which can impact the results of operations in the period in which the adjustment is made.

As of December 31, 2021 and December 31, 2020, the Company reported $80.5 million and $76.7 million, respectively, in its consolidated balance sheets related to the USWM Acquisition and the Adamas Acquisition.

The USWM contingent consideration of $70.2 million and $76.7 million as of December 31, 2021 and December 31, 2020, respectively, is primarily associated with the fair value of the regulatory and developmental contingent consideration payments. The key assumptions considered in estimating the fair value include the estimated probability and timing of milestone achievement, such as the probability and timing of obtaining regulatory approval. The drug regulatory approval process is inherently uncertain, and any adverse action taken by the FDA can potentially impact our estimated fair value of these regulatory and commercial activities milestones. The possible outcomes for the contingent consideration range $0 to $230.0 million on an undiscounted basis.

The remaining $10.3 million of contingent consideration liabilities as of December 31, 2021 is associated with the estimated fair value of contingent consideration related to the Adamas Acquisition. The contingent consideration is related to two non-tradable contingent value rights (CVRs) which represents the contractual right to receive a contingent payment upon the achievement of the applicable sales-based milestones. The estimated fair value of the contingent consideration was determined using the Monte Carlo simulation. The key assumptions considered include the estimated amount and timing of projected cash flows, volatility, estimated discount rates and risk-free interest rate. The possible outcomes for the contingent consideration range from $0 to $50.9 million on an undiscounted basis.

Refer to Note 6, Fair Value of Financial Instruments and Contingent Consideration, for further information.

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Income taxes

A valuation allowance is established for deferred tax assets for which it is more likely than not that some portion or all of the deferred tax assets will not be realized. We periodically evaluate the likelihood of the realization of deferred tax assets and reduce the carrying amount of these deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized based on all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, results of recent operations, and our historical earnings experience by taxing jurisdiction. Significant judgment is required in determining whether it is probable that sufficient future taxable income will be available against which a deferred tax asset can be utilized. In determining future taxable income, we are required to make assumptions including the amount of taxable income in the various jurisdictions in which we operate. These assumptions require significant judgment about forecasts of future taxable income. Actual operating results in future years could differ from our current assumption of the recoverability of deferred tax assets.

We recorded a valuation allowance of $70.5 million as of December 31, 2021, of which $69.7 million is associated with the Adamas Acquisition. The valuation allowance is primarily related to federal and state net operating losses carryforwards acquired from the Adamas Acquisition that are not expected to be realizable in the future.

Results of Operations

In this section, we discuss the results of our operations for the year ended December 31, 2021, compared to the year ended December 31, 2020. Our Annual Report on Form 10-K for the year ended December 31, 2020, includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2019, in Part II,

Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations.

Revenues

Our primary source of revenue is from the sale of our commercial products. The table below lists our net product sales by product and royalty revenues from our collaborative licensing arrangements (dollars in thousands):

Years Ended December 31, Change

Net product sales

Net Product Sales

Net product sales increased by $58.2 million from $509.4 million in 2020 to $567.5 million in 2021. The increase in net product sales was primarily due to a $51.1 million increase in net product sales of the acquired commercial products from both the USWM Acquisition in June 2020 and Adamas Acquisition in November 2021, as well as a $12.0 million increase in net product sales of Oxtellar XR and $9.9 million net product sales from Qelbree, which was launched in May 2021. Partially offsetting this increase was $14.8 million decrease in net product sales of Trokendi XR.

Trokendi XR net product sales decreased by $14.8 million, from $319.6 million in 2020 to $304.8 million in 2021. This decrease was attributable to a decline in unit demand partially offset by the favorable impact of the price increase taken in January 2021 and favorable improvements in sales deductions. Oxtellar XR net product sales increasedby $12.0 million, from $98.7 million in 2020 to $110.7 million in 2021. This increase was primarily attributable to the favorable impact of both unit demand and a price increase in January 2021.

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Sales deductions and related accruals

We record accrued product rebates and accrued product returns as current liabilities on our consolidated balance sheets under Accrued product returns and rebates. We record sales discounts as a reduction against Accounts receivable on the consolidated balance sheets. The outstanding amounts are affected by changes in gross sales, the provision for net product sales deductions, and the timing of payments/credits.

The following table provides a summary of activities with respect to accrued product returns and rebates for the years ended December 31, 2021 and 2020 (dollars in thousands):

Accrued Product Returns and Rebates

ProductRebates ProductReturns Allowance forSales Discounts Total

Provision

Accrued product returns and rebates

The accrued product rebates balance increased from $96.6 million as of December 31, 2020 to $97.6 million as of December 31, 2021 primarily due to Adamas liabilities assumed in 2021.

The accrued product returns balance increased from $29.6 million as of December 31, 2020 to $35.1 million as of December 31, 2021 due to timing of related return activity whereby the provision for product return exceeds actual returns by $5.3 million in 2021.

Provision for returns and rebates

The provision for product rebates increased from $350.1 million in 2020 to $371.6 million in 2021. The increase was primarily attributable to greater utilization of our patient co-pay programs primarily with the launch of Qelbree in May 2021, and higher per patient payments under both Medicaid and commercial managed care programs.

The provision for product returns decreased from $23.9 million in 2020 to $12.7 million in 2021. This decrease was primarily due to the unfavorable actual returns experienced in the first quarter of 2020 for discontinued Trokendi XR commercial blister pack configurations, for which all production and distribution ceased in 2017.

The provision for sales discounts increased from $67.9 million in 2020 to $69.4 million in 2021. The increase is due to higher gross sales.

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Adjustments related to prior year sales

Adjustments related to prior year sales in 2021 of $1.7 million was less than 1% of both net product sales and total provision, compared to $13.8 million or 3% in 2020. Adjustments related to prior year sales in 2020 was primarily due to the aforementioned unfavorable return experience for discontinued Trokendi XR commercial blister pack configurations.

Royalty Revenue

Royalty revenue includes royalties from the following products (dollars in thousands):

Change

(1) Royalty from net product sales of Mydayis, a product of Takeda Pharmaceuticals Company Ltd.

(2) Noncash royalty revenue pursuant to an agreement with Healthcare Royalty Partners III, L.P. (HC Royalty). HC Royalty receives royalty payments from United Therapeutics Corporation (United Therapeutics), based on net product sales of United Therapeutics' product Orenitram.

(3) Namzaric is currently marketed in the U.S. by Allergan plc under an exclusive license agreement.

Royalty revenue increased by approximately $1.2 million, or 11%, in 2021 compared to 2020, primarily due to increased product sales of Orenitram and royalties from Namzaric associated with the Adamas Acquisition.

Cost of Goods Sold

The following table provides information regarding our cost of goods sold for the years indicated (dollars in thousands):

Change

Cost of goods sold includes the cost of royalties; cost of materials, including active pharmaceutical ingredients (API); and cost to manufacture, including tableting, packaging, personnel, overhead, stability testing, and distribution. Royalty payments associated with both the acquired commercial products, APOKYN and XADAGO, made up the majority of the cost of goods sold.

Cost of good sold increased from $52.5 million in 2020 to $75.1 million in 2021. The increase was primarily due to higher cost recorded in 2021 for the acquired commercial products which is attributable to the timing of the USWM Acquisition that was completed in June 2020 and costs of $7.3 million for rejected MYOBLOC inventory lots in 2021. Refer to Part I, Item 8, Consolidated Financial Statements, Note 15, Commitments and Contingencies in the Notes to the Consolidated Financial Statements for discussion regarding annual minimum purchase quantity requirements of MYOBLOC.

Also included in cost of goods sold in 2021 are de minimis costs for Qelbree inventory sold. We manufacture Qelbree inventory for commercial sale and for use in our samples program. Manufacturing costs related to Qelbree inventory build-up incurred before FDA approval and prior to first quarter of 2020, when the Company began capitalizing pre-launch inventory, were expensed to Research and development expense. The manufactured Qelbree inventory prior to FDA approval consisted of $8.6 million raw materials inventory, which was expensed as research and development expense in 2020. Therefore, cost of goods sold for Qelbree for 2021 does not include raw material cost that was previously expensed. We have sold as commercial inventory or consumed as samples all of the reduced-cost inventory in 2021.

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Research and Development Expenses

The following table provides information regarding our research and development (R&D) expenses for the years indicated (dollars in thousands):

Change

R&D expenses increased from $76.0 million in 2020 to $90.5 million in 2021. The increase was primarily due to the $15.0 million write-down of the investment in Navitor LLC in 2021; increased spending on SPN-820, which has advanced to a Phase II clinical program; increased spending on MYOBLOC post-marketing commitment studies; and higher regulatory activities related to the acquired products. These increases are partially offset by reduced spending on SPN-812 (Qelbree) Phase III programs and the $10 million option fee paid in 2020. Refer to Note 5, Investments in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of the write-down of the investment in Navitor LLC in 2021 and the option fee payment in 2020.

Selling, General, and Administrative Expense

The table below provides information regarding our selling, general, and administrative (SG&A) expenses for the years indicated (dollars in thousands):

Change

Selling and Marketing Expense

Selling and marketing expenses increased from $134.8 million in 2020 to $199.7 million in 2021. The increase was primarily attributable to increased marketing expenses and professional consulting spend for the launch of Qelbree and the acquired commercial products from the USWM Acquisition. Further, employee-related expenses also increased due to higher headcount to support the launch of Qelbree and due to non-recurring employee-related acquisition costs of approximately $5.1 million.

The reduced-cost Qelbree samples were also included in selling and marketing expenses in 2021. At full cost, these Qelbree samples would have resulted in $4.3 million higher selling and marketing expenses in 2021. At this time, we have sold as commercial inventory or consumed as samples all of the reduced-cost inventory in 2021.

General and Administrative Expense

General and administrative expenses increased from $65.9 million in 2020 to $105.1 million in 2021. The increase was primarily attributable to increased professional consulting spend and increased headcount to support the integration of MDD and Adamas and higher acquisition-related costs incurred in 2021. Acquisition-related costs incurred in 2021 was $22.3 million, which includes $6.7 million in transaction costs and approximately $8.2 million of employee-related expenses in general and administrative expense. Acquisition -related costs in 2020 was $8.4 million which primarily represents transaction costs.

Amortization of Intangible Assets

The following table provides information regarding the amortization expense for intangible assets during the periods indicated (dollars in thousands):

Change

Amortization of intangible assets increased for the year ended December 31, 2021, primarily due to the timing of the USWM Acquisition, which was completed in June 2020 and the amortization of acquired intangibles from the Adamas Acquisition in November 2021.

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Contingent Consideration Expense

The following table provides information regarding the contingent consideration expense during the periods indicated (dollars in thousands):

Change

Contingent consideration (gain) expense $ (6,530) $ 1,900 $ (8,430) **

Contingent consideration gain recorded for the year ended December 31, 2021 of $6.5 million reflects the reduction of the USWM Acquisition sales based contingent consideration liabilities recorded in the second quarter of 2021, offset by an increase in the estimated fair value of regulatory and developmental milestones due to the passage of time. The Company assessed that the sales-based milestones that are part of the USWM Acquisition will not be achieved based on the revised net sales projections.

Other (Expense) Income

The following table provides the components of other (expense) income during the years indicated (dollars in thousands):

Change

Interest income includes primarily interest earned from cash, cash equivalents, and marketable securities holdings. Interest income decreased from $18.7 million 2020 to $10.6 million in 2021. The decrease in interest income was primarily due to lower interest income on marketable securities holdings in 2021 and lower gains generated from sales of our marketable securities in 2021 compared to 2020. Specifically, in 2020, we sold securities at a gain of $4.4 million to finance the up-front cash payment for the USWM Acquisition. In 2021, we sold securities at a gain of $0.3 million to finance the up-front cash payment for the Adamas Acquisition.

Both the interest expense related to the 2023 Notes issued in March 2018 and noncash interest expense related to our nonrecourse royalty liability generally remained unchanged from 2020 to 2021.

Income Tax Expense

The following table provides information regarding our income tax expense during the periods indicated (dollars in thousands):

Effective tax rate 27.0 % 24.7 %

The decrease in our income tax expense was primarily due to year over year decrease in earnings. The increase in the effective tax rate is primarily due to a larger research and development benefit in 2020 as compared to 2021 partially offset by higher stock option exercise shortfall and forfeiture in 2021.

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Net Earnings

The following table provides information regarding our net earnings during the periods indicated (dollars in thousands):

Change

The decrease in net earnings was primarily due to higher costs associated with the Qelbree launch and integration costs related to both the USWM and Adamas acquisitions and higher acquisition-related costs incurred in 2021 . Further, overall costs and expenses were higher in 2021 compared to 2020 due to the timing of the USWM acquisition.

Summary of Cash Flows

The following table summarizes the major sources and uses of cash for the periods set forth below (dollars in thousands):

December 31, Change

Net cash provided by (used in):

Operating Activities

Net cash provided by operating activities is comprised of two components: cash provided by operating earnings; and cash provided by (used in) changes in working capital. The net cash provided by operating activities was $127.1 million in 2021 compared to $138.4 million in 2020. The year over year change was primarily driven by decreased operating earnings, offset by an increase in working capital and non-cash items.

Investing Activities

Net cash used in investing activities was $81.9 million in 2021 compared to $34.7 million in 2020. The year over year change of $47.2 million was primarily attributed to the following:

•Cash outflows related to marketable securities activity were higher by $63.6 million in 2021 compared to 2020;

•Cash outflows related to acquisitions were higher by $13.2 million in 2021 compared to 2020;

•Cash inflow from cash distribution received in 2021 of $12.9 million, offset by cash outflow in 2020 of $15.0 million related to investment in Navitor.

Financing Activities

Net cash used in financing activities was $130.4 million in 2021 compared to $3.6 million provided in the same period in 2020. This year over year change is primarily attributable to the repayment of the acquired debt from the Adamas Acquisition partially offset by the increase in proceeds from the issuance of common stock.

Liquidity and Capital Resources

Cash and cash equivalents, marketable securities, and long term marketable securities presented below are as follows (dollars in thousands):

Cash and cash equivalents $ 203,434

Long term marketable securities 119,166

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We have financed our operations primarily with cash generated from product sales, supplemented by revenues from royalty and licensing arrangements, as well as proceeds from the sale of equity and debt securities. Continued cash generation is highly dependent on the success of our commercial products, as well as the success of our product candidates if approved by the FDA. While we expect continued profitability in future years, we anticipate there may be significant variability from year to year in the level of our profits particularly due to the commercial launch of Qelbree in May 2021; future commercial launches of Qelbree for the treatment of ADHD in adults and SPN-830 (apomorphine infusion device), in each case, if approved by the FDA; continued market and payor pressures for our commercial products; and the likely unfavorable impact of the upcoming loss of patent exclusivity for Trokendi XR in January 2023, or sooner under certain conditions.

The Company believes its balances of cash, cash equivalents and unrestricted marketable securities, which totaled $458.8 million as of December 31, 2021, along with cash generated from ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements over the next 12 months and beyond.

We may, from time to time, consider raising additional capital through: new collaborative arrangements; strategic alliances; additional equity and/or debt financings; or financing from other sources, especially in conjunction with opportunistic business development initiatives. We will continue to actively manage our capital structure and to consider all financing opportunities that could strengthen our long-term financial profile. Any such capital raises may or may not be similar to transactions in which we have engaged in the past. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.

Our material cash requirements include the following contractual and other obligations.

Convertible Notes due 2023

As of December 31, 2021, the outstanding principal on the 0.625% Convertible Senior Notes due 2023 (2023 Notes) was $402.5 million. No 2023 Notes were converted as of December 31, 2021. Contemporaneous with the issuance of the 2023 Notes, the Company also entered into separate convertible note hedge transactions (collectively, the Convertible Note Hedge Transactions), issuing 402,500 convertible note hedge options. The Convertible Note Hedge Transactions are expected to reduce the potential dilution of the Company's common stock upon conversion of the 2023 Notes. Concurrently with entering into the Convertible Note Hedge Transactions, we also entered into separate warrant transactions, issuing a total of 6,783,939 warrants (the Warrant Transactions). Refer to Note 8, Convertible Senior Notes Due 2023 in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

Leases

Our operating lease commitments include leases of fleet vehicles, leases of certain facilities, including the lease of the current headquarters office and laboratory space. As of December 31, 2021, we have fixed lease payment obligations of $57.3 million, with $7.8 million payable within 12 months. Refer to Note 12, Leases in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

Manufacturing Purchase Obligations

In October 2021, we entered into an amendment to the Merz Agreement which increased the price of the annual purchase commitment of MYOBLOC from €3.0 million to approximately €3.9 million. For further discussion on the embedded operating lease related to the Merz Agreement, refer to Note 12, Leases in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

In addition, USWM Enterprises had an existing license and distribution agreement for XADAGO. This included an annual minimum promotional spend to support the marketing of XADAGO until July 2022. As of December 31, 2021, the remaining contractual commitment for XADAGO is $0.3 million for the period from June 2021 to July 2022. Refer to Note 3, Acquisitions, for further discussion on the USWM Acquisition.

Milestone Payment Obligations

The Company has contingent consideration milestones payable related to the Adamas Acquisition. The possible outcomes for the contingent consideration range, on an undiscounted basis, from $0 to $50.9 million. One Milestone Payment is payable (subject to certain terms and conditions) upon the first occurrence of the achievement of aggregate worldwide net sales of GOCOVRI in excess of $150 million during any consecutive 12-month period ending on or before December 31, 2024 (Milestone 2024). Another Milestone Payment is payable (subject to certain terms and conditions) upon the first occurrence of the achievement of aggregate worldwide net sales of GOCOVRI in excess of $225 million during any consecutive 12-month period

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ending on or before December 31, 2025 (Milestone 2025 and, together with Milestone 2024, the Milestones). Each Milestone may only be achieved once.

We also have contingent consideration milestones payable related to the USWM Acquisition. The regulatory and developmental contingent consideration payments include a $25 million milestone due upon the FDA acceptance of the SPN-830 NDA for review. On February 18, 2022, the FDA accepted the SPN-830 NDA for review and we paid the resulting $25 million milestone in the first quarter of 2022. In addition, there are two other regulatory and developmental contingent consideration milestone payments: the first is a $25 million milestone due upon the FDA's regulatory approval and $30 million upon commercial launch of SPN-830. If SPN-830 is approved by the FDA and commercially launched, we expect these milestones to become due and be paid in between 2022 and 2023.

Navitor Development Agreement

We have obligations from the Development Agreement with Navitor we entered into in April 2020. The Company can terminate the Development Agreement upon 30 days notice. Under the terms of the Development Agreement, the Company and Navitor will jointly conduct a Phase II clinical program for NV-5138 (SPN-820) for treatment-resistant depression. The Company will bear all of Phase I and Phase II development costs incurred by either party, up to a maximum of $50 million. In addition, the Company will incur certain other research and development support costs.

Royalty Payments

We obtained exclusive licenses from third parties for proprietary rights to support our commercial products and product candidates. We are obligated to pay royalties to third parties, computed as a percentage of net product sales, for each respective product under a license agreement, beginning upon commercialization. As of December 31, 2021, we have outstanding royalty liabilities of $13.8 million of which the majority was paid in the first quarter of 2022. The amount of future royalty obligations are dependent on future net product sales of each of the respective products under a license agreement.

Other Obligations

We have other obligations in which the timing, likelihood and, in some situations, the amount of such payments are not known, which include the following:

•any milestone payments which may become payable to third parties under license agreements or contractual agreements regarding our clinical trials, or those which may become payable upon achieving sales and developmental milestones per contractual agreements.

•any future royalty payments to third parties.

•liabilities related to uncertain tax positions. Due to uncertainties in the timing of potential tax audits, the timing and the amounts associated with the resolution of these positions is uncertain. As such, we are unable to make a reasonably reliable estimate regarding the timing of payments beyond 12 months.

Off-Balance Sheet Arrangements

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.

Recently Issued Accounting Pronouncements

For a discussion of new accounting pronouncements, see Note 2 in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The primary objective of our investment activities is to preserve our capital to fund operations and to facilitate business development activities. We also seek to maximize income from our investments without assuming significant interest rate risk, liquidity risk, or risk of default by investing in investment grade securities with maturities of four years or less. Our exposure to market risk is confined to investments in cash and cash equivalents, marketable securities, and long term marketable securities. As of December 31, 2021, we had unrestricted cash and cash equivalents, marketable securities, and long term marketable securities of $458.8 million.

In connection with the 2023 Notes, we have separately entered into Convertible Note Hedge Transactions and Warrant Transactions to reduce the potential dilution of the Company's common stock upon conversion of the 2023 Notes, and to partially offset the cost to purchase the Convertible Note Hedge Transactions, respectively.

Our cash and cash equivalents consist primarily of cash held at banks and investments in highly liquid financial instruments with an original maturity of three months or less. Our marketable securities, which are reported at fair value, consist of investments in U.S. Treasury bills and notes; bank certificates of deposit; various U.S. governmental agency debt securities; corporate and municipal debt securities; and other fixed income securities. We place all investments with governmental, industrial, or financial institutions whose debt is rated as investment grade. We generally hold these securities to maturities of one to four years. Because of the relatively short period that we hold our investments and because we generally hold these securities to maturity, we do not believe that an increase in interest rates would have any significant impact on the realizable value of our investments. We do not have any currency or other derivative financial instruments other than outstanding warrants to purchase common stock and the convertible note hedges.

We may contract with clinical research organizations (CROs) and investigational sites globally. Currently, we have only one ongoing trial, which is being conducted outside the U.S. for SPN-817. We do not hedge our foreign currency exchange rate risk. Transactions denominated in currencies other than the U.S. dollar are recorded based on exchange rates at the time such transactions arise. As of December 31, 2021, and December 31, 2020, substantially all of our liabilities were denominated in the U.S. dollar.

Inflation generally affects us by increasing our cost of labor and the cost of services provided by our vendors. We do not believe that inflation and changing prices over the years ended December 31, 2021, and 2020 had a significant impact on our consolidated results of operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Supernus Pharmaceuticals, Inc.

Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm (PCAOB ID 185) 95

Consolidated Balance Sheets 99

Consolidated Statements of Earnings 100

Consolidated Statements of Comprehensive Earnings 101

Consolidated Statements of Changes in Stockholders' Equity 102

Consolidated Statements of Cash Flows 103

Notes to Consolidated Financial Statements 104

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Supernus Pharmaceuticals, Inc.:

Opinion on the ConsolidatedFinancial Statements

We have audited the accompanying consolidated balance sheets of Supernus Pharmaceuticals, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of earnings, comprehensive earnings, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 13, 2022 expressed an adverse opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued sales deductions related to product returns

As disclosed in Notes 2 and 13 to the consolidated financial statements, the Company recorded accrued product returns of $35,127 (dollars in thousands) as of December 31, 2021. The related provision for product returns is reflected as a reduction of gross product sales, and is recorded at the time of sale when the customer takes title to the product. Sale of the Company's products are not subject to a general right of return; however, the Company will accept return of expired product six months prior to and up to 12 months subsequent to the product's expiry date for certain products. The Company's products have a shelf life of up to 48 months from date of manufacture.

We identified the evaluation of accrued sales deductions related to Trokendi XR and Oxtellar XR product returns, and specifically the assessment of the expected long-term return rates, as a critical audit matter. The assessment of the expected long-term return rates included a comparison to actual returns experience and involved a high degree of auditor judgment due to the significant passage of time between product sale and the time at which the Company issues credit for expired product.

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The following are the primary procedures we performed to address this critical audit matter. We assessed the Company's long-term return rate assumptions by evaluating the consistency of those assumptions with the trend of actual historical return rates. We compared prior period expected long-term return rate assumptions against actual return rates experience.

/s/ KPMG LLP

We have served as the Company's auditor since 2015.

Baltimore, Maryland

April 13, 2022

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Supernus Pharmaceuticals, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Supernus Pharmaceuticals, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31 , 2021 and 2020, the related consolidated statements of earnings, comprehensive earnings, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated April 13, 2022 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses related to the Company not having sufficient resources and as a result, the Company did not adequately perform the following: assess, redesign and timely evaluate performance of controls over financial reporting risks as a result of existing circumstances; train, monitor, and supervise newly hired contractors and employees; and generate real time information across the organization to allow the finance department to perform timely controls; which in the aggregate, create a reasonable possibility that material misstatements in substantially all financial reporting processes and financial statement accounts in the consolidated financial statements will not be prevented or detected on a timely basis, have been identified and included in management's assessment. The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

The Company acquired Adamas Pharmaceuticals, Inc. during 2021, and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2021, Adamas Pharmaceuticals, Inc's internal control over financial reporting associated with 8% of total assets (excluding the goodwill and other intangible assets, which are included within the scope of the assessment) and 2% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Adamas Pharmaceuticals, Inc.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

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accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Baltimore, Maryland

April 13, 2022

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Supernus Pharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except share amounts)

Assets

Current assets

Prepaid expenses and other current assets 27,019 18,682

Liabilities and stockholders’ equity

Current liabilities

Accounts payable and accrued liabilities $ 117,683 $ 78,934

Contingent consideration, current portion 44,840 30,900

Operating lease liabilities, long term 41,298 28,579

Stockholders’ equity

Accumulated other comprehensive earnings, net of tax 1,539 8,975

See accompanying notes.

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Supernus Pharmaceuticals, Inc.

Consolidated Statements of Earnings

(in thousands, except share and per share data)

Years Ended December 31,

Revenue

Costs and expenses

Contingent consideration (gain) expense (6,530) 1,900 —

Other (expense) income

Earnings per share

Weighted-average shares outstanding

(a) Excludes amortization of acquired intangible assets.

See accompanying notes.

100

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Supernus Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Earnings

(in thousands)

Years Ended December 31,

Other comprehensive earnings (loss):

Unrealized gain (loss) on marketable securities, net of tax (7,436) 1,558 10,575

Other comprehensive earnings (loss), net of tax (7,436) 1,558 10,575

See accompanying notes.

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Supernus Pharmaceuticals, Inc.

Consolidated Statements of Changes in Stockholders' Equity

Years Ended December 31, 2019, 2020 and 2021

(in thousands, except share data)

Shares Amount

Unrealized gain on marketable securities, net of tax — — — 10,575 — 10,575

Unrealized gain on marketable securities, net of tax — — — 1,558 — 1,558

Unrealized loss on marketable securities, net of tax — — — (7,436) — (7,436)

See accompanying notes.

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Supernus Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Years Ended December 31,

Cash flows from operating activities

Navitor investment R&D expense 15,000 — —

Amortization of deferred financing costs and debt discount 17,501 16,581 15,708

Realized gains from sales of marketable securities (347) (4,352) (301)

Amortization of premium/discount on marketable securities 418 (2,889) (4,034)

Changes in fair value of contingent consideration (6,530) 1,900 —

Deferred income tax (benefit) provision (4,994) 568 (5,832)

Changes in operating assets and liabilities:

Cash flows from investing activities

Acquisition of USWM, net of cash acquired (950) (298,541) —

Acquisition of Adamas, net of cash acquired (310,742) — —

Distribution from (investment in) Navitor 12,888 (15,000) —

Cash flows from financing activities

Proceeds from governmental loan and grant 800 — —

Repayment of acquired Adamas loan (138,315) — —

Payments on finance lease liability — (802) —

Net cash (used in) provided by financing activities (130,420) 3,559 3,928

Supplemental cash flow information:

Cash paid for interest on convertible notes $ 2,516 $ 2,516 $ 2,516

Noncash investing and financing activity:

Contingent consideration liability related to acquisitions $ 10,307 $ 76,700 $ —

Lease assets obtained for new finance lease $ — $ 22,747 $ —

See accompanying notes.

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Supernus Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

1. Organization and Business

Supernus Pharmaceuticals, Inc. (the Company) was incorporated in Delaware and commenced operations in 2005. The Company is a biopharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases. The Company's diverse neuroscience portfolio includes approved treatments for epilepsy, migraine, attention-deficit hyperactivity disorder (ADHD), hypomobility in Parkinson's Disease (PD), cervical dystonia, chronic sialorrhea, dyskinesia in PD patients receiving levodopa-based therapy, and drug-induced extrapyramidal reactions in adult patients. The Company is developing a broad range of novel CNS product candidates including new potential treatments for hypomobility in PD, epilepsy, depression, and other CNS disorders.

The Company has eight commercial products: Trokendi XR®, Oxtellar XR®, Qelbree®, APOKYN®, XADAGO®, MYOBLOC®, GOCOVRI®, and Osmolex ER®. In addition, the Company has two late-stage development products included in its product candidates portfolio, including SPN-830 (apomorphine infusion device), an acquired product candidate from the USWM Acquisition.

In February 2022, the Company's New Drug Application (NDA) for SPN-830 (apomorphine infusion device) was accepted for review by the U.S. Food and Drug Administration (FDA) and was assigned a Prescription Drug User Fee Act (PDUFA) target action date of October 7, 2022.

2021 Adamas Acquisition

On October 10, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement”) by and among the Company, Adamas Pharmaceuticals, Inc. (Adamas) and Supernus Reef, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (Purchaser). On November 24, 2021, the Purchaser was merged with and into Adamas (the "Merger"), with Adamas continuing as the surviving corporation in the Merger as a wholly owned subsidiary of the Company (the Adamas Acquisition). At the time of the Adamas Acquisition, Adamas had two established commercial products in its portfolio, GOCOVRI and Osmolex ER, in addition to royalty rights to Namzaric. Refer to Note 3, Acquisitions, for further discussion on the Adamas Acquisition.

Navitor Development Agreement

On April 21, 2020, the Company entered into a Development and Option Agreement (Development Agreement) with Navitor Pharmaceuticals, Inc. (Navitor). Under the terms of the Development Agreement, the Company and Navitor will jointly conduct a Phase II clinical program for NV-5138 (SPN-820) in treatment-resistant depression (TRD). Refer to Note 5, Investments, for further discussion on the Navitor Development Agreement.

2020 USWM Acquisition

On April 28, 2020, the Company entered into a Sale and Purchase Agreement with US WorldMeds Partners, LLC to acquire the CNS portfolio of USWM Enterprises, LLC (USWM Enterprises) (the USWM Acquisition). With the acquisition, completed on June 9, 2020, the Company added three established commercial products, APOKYN, XADAGO, and MYOBLOC, and a product candidate in late-stage development, SPN-830 (apomorphine infusion device), to its portfolio. Refer to Note 3, Acquisitions, for further discussion on the USWM Acquisition.

Ransomware Incident

On November 24, 2021, we announced that we were the target of a ransomware attack. The attack had no significant impact on our business and did not cause any long-term disruption to our operations. Based on the preliminary results of the ongoing investigation, the Company believes the criminal ransomware groups ("criminal groups") copied certain data from our systems, encrypted certain data on the Company's systems, and then deployed malware designed to impede access to our systems. Thereafter the criminal groups contacted the Company and threatened to publish certain data copied from the Company's systems. Upon detection of the ransomware attack, the Company notified government authorities, engaged third-party cybersecurity experts through our outside counsel, and commenced its recovery process. The Company maintains redundant off-site data backups, which were verified to have not been compromised by the ransomware attack and were utilized to restore the data encrypted by the criminal groups. At this time, the Company has successfully recovered the impacted files and has taken additional steps designed to further protect its networks and files. We have not paid any ransom amounts. We have incurred costs in 2021 and expect

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1. Organization and Business (Continued)

to continue to incur costs in the future, which may be significant, in connection with efforts designed to enhance our data security and take further steps designed to protect against unauthorized access to, or manipulation of, our systems and data. These costs were primarily comprised of certain employee related expenses and various third party consulting services, including forensic experts, legal counsel and other IT and accounting professional expenses, and enhancements to our cyber security measures. We expect to incur additional costs related to the ransomware attack in the future, including costs related to our response to the ransomware incident and our efforts designed to enhance our security measures.

The Company continues to monitor the situation. Refer to Note 15, Commitments and Contingencies.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company's consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP).

The Company, which is primarily located in the United States (U.S.), operates in one operating segment.

Reclassifications

Certain prior year amounts in the consolidated balance sheets, statements of cashflows, and statements of earnings have been reclassified to conform to the current year presentation, including a reclassification made to present amortization of intangible assets separately. This was previously included in Selling, general and administrative expenses and now is recorded as a component of Amortization of intangible assets on the consolidated statements of earnings. These reclassifications did not affect operating earnings or other consolidated financial statements for the years ended December 31, 2021, 2020, and 2019.

Consolidation

The Company's consolidated financial statements include the accounts of: Supernus Pharmaceuticals, Inc.; Supernus Europe Ltd.; Biscayne Neurotherapeutics, Inc. and its wholly owned subsidiaries; MDD US Enterprises, LLC (formerly USWM Enterprises, LLC) and its wholly owned subsidiaries; and Adamas Holdings, LLC. and its wholly owned subsidiaries. These are collectively referred to herein as "Supernus" or "the Company." All significant intercompany transactions and balances have been eliminated in consolidation.

The consolidated financial statements reflect the consolidation of entities in which the Company has a controlling financial interest. In determining whether there is a controlling financial interest, the Company considers if it has a majority of the voting interests of the entity, or if the entity is a variable interest entity (VIE) and if the Company is the primary beneficiary. In determining the primary beneficiary of a VIE, the Company evaluates whether it has both: the power to direct the activities of the VIE that most significantly impact the VIE's economic performance; and the obligation to absorb losses of, or the right to receive benefits from the VIE that could potentially be significant to that VIE. The Company's judgment with respect to its level of influence or control of an entity involves the consideration of various factors, including the form of an ownership interest; representation in the entity's governance; the size of the investment; estimates of future cash flows; the ability to participate in policymaking decisions; and the rights of the other investors to participate in the decision making process, including the right to liquidate the entity, if applicable. If the Company is not the primary beneficiary of the VIE, and an ownership interest is maintained in the entity, the interest is accounted for under the equity or cost methods of accounting, as appropriate.

The Company continuously assesses whether it is the primary beneficiary of a VIE as changes to existing relationships or future transactions may affect its conclusions.

Use of Estimates

The Company bases its estimates on historical experience; various forecasts; information received from its service providers; information from other sources, including public and proprietary sources; and other assumptions that the Company

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2. Summary of Significant Accounting Policies (Continued)

believes are reasonable under the circumstances. Actual results could differ materially from the Company's estimates. The Company periodically evaluates the methodologies employed in making its estimates on an ongoing basis.

The extent to which the COVID-19 pandemic may directly or indirectly impact our business, financial condition and results of operations is highly uncertain and subject to change. As a result, certain of our estimates and assumptions, including the provision for sales deductions (i.e., provision for estimated rebates, provision for estimated future product returns, and an estimated provision for discounts), the creditworthiness of customers entering into revenue arrangements, the valuation of the assets and liabilities acquired in the acquisitions, and the fair values of our financial instruments, require increased judgment and carry a higher degree of variability and volatility that could result in material changes to our estimates in future periods.

Cash and Cash Equivalents

The Company considers all investments in highly liquid financial instruments with an original maturity of three months or less to be cash equivalents.

Marketable Securities

Marketable securities consist of investments in U.S. Treasury bills and notes; bank certificates of deposit; various U.S. government agency debt securities; corporate and municipal debt securities; and other fixed income securities. The Company places all investments with governmental, industrial, or financial institutions whose debt is rated as investment grade.

The Company's investments are classified as available-for-sale and are carried at fair value. The Company classifies all available-for-sale marketable securities with maturities greater than one year from the balance sheet date as non-current assets.

Any unrealized holding gains or losses on debt securities, including their tax effect, are reported as components of Other comprehensive earnings (loss) in the consolidated statement of comprehensive earnings. Realized gains and losses, included in Interest and other income, net in the consolidated statement of earnings, are determined using the specific identification method for determining the cost of securities sold.

The Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) on January 1, 2020, using the allowance approach. Declines in fair value below amortized cost related to credit losses (i.e., impairment due to credit losses) are included in the consolidated statement of earnings, with a corresponding allowance established. If the estimate of expected credit losses decreases in subsequent periods, the Company will reverse the credit losses through current period earnings and adjust the allowance accordingly. Refer to Recently Issued Accounting Pronouncements in this Note 2.

Business Combinations and Contingent Considerations

In determining whether an acquisition should be accounted for as a business combination or as an asset acquisition, the Company makes certain judgments regarding whether the acquired set of activities and assets meets the definition of a business. Significant judgment is required in assessing whether the acquired processes or activities, along with their inputs, would be substantive to constitute a business, as defined by U.S. GAAP.

If the acquired set of activities and assets does not meet the definition of a business, the transaction is accounted for as an asset acquisition. In an asset acquisition, any acquired research and development that does not have an alternative future use is charged to expense as of the acquisition date, and no goodwill is recorded.

If the acquired set of activities and assets meets the definition of a business, the Company applies the acquisition method of accounting and accounts for the transaction as a business combination. In a business combination, assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition date. The excess of the purchase price over the fair value of the acquired net assets, if applicable, is recorded as goodwill.

In a business combination, the operating results of the acquired business are included in the Company's consolidated statement of earnings, beginning on the effective acquisition date. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

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2. Summary of Significant Accounting Policies (Continued)

Significant judgment is involved in the determination of the fair value assigned to assets acquired and liabilities assumed in a business combination, as well as the estimated useful lives of assets. These estimates can materially affect our consolidated results of operations and financial position. The fair value of intangible assets are determined using information available as of the acquisition date and are based on estimates and assumptions that are deemed reasonable by management. Significant estimates and assumptions include but are not limited to: the probability of regulatory approval, revenue growth, and appropriate discount rate. Depending on the facts and circumstances, the Company may deem it necessary to engage an independent valuation expert to assist in valuing significant assets and liabilities.

While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed as of the acquisition date, estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information related to facts and circumstances existing as of the acquisition date and evaluates these estimates and assumptions. The Company records measurement period adjustments to the Company's preliminary estimates to goodwill based on the facts and circumstances existing as of the acquisition date.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to our consolidated statements of earnings in the period that these adjustments are identified.

Contingent Consideration

Business combinations often include provisions for additional consideration to be transferred to former shareholders based upon the achievement of certain milestones, referred to as contingent consideration. Contingent consideration from product development milestones and sales-based milestone payments on future product sales are included in the purchase price for business combinations. The fair value of the contingent consideration liability is determined as of the acquisition date using estimated or forecasted inputs. These inputs include the estimated amount and timing of projected revenues, probability and timing of milestone achievement, probability of in-process research & development ("IPR&D") achieving regulatory approval, revenue volatility, and the estimated discount rates and risk-free rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period prior to the resolution of the contingency, the contingent consideration liability is remeasured at current fair value, with changes recorded in earnings in the period of remeasurement.

The determination of the initial and subsequent fair value of the contingent consideration liability requires significant judgment by management. Changes in any of the inputs not related to facts and circumstances existing as of the acquisition date may result in a significant fair value adjustment, which can impact the results of operations in the period in which the adjustment is made. Changes that are not measurement period adjustments are reported on the consolidated statement of earnings in Contingent consideration (gain) expense.

Additional information regarding contingent consideration is included in Note 3, Acquisitions.

Accounts Receivable, Net

Accounts receivable are reported on the consolidated balance sheets at outstanding amounts due from customers, less an allowance for doubtful accounts, and sales discounts. The Company extends credit without requiring collateral.

The Company writes off uncollectible receivables when the customer has had a change in creditworthiness and the likelihood of collection is remote. Payment terms for receivables are based on customary commercial terms and are predominantly less than one year.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk concentrations consist of cash, cash equivalents, marketable securities, and accounts receivable. The counterparties are various corporations, governmental institutions, and financial institutions of high credit standing.

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2. Summary of Significant Accounting Policies (Continued)

Substantially all of the Company's cash, cash equivalents, and marketable securities are maintained in U.S. government agency debt and debt of well-known, investment grade corporations. Deposits held with banks may exceed the amount of governmental insurance provided on such deposits. Generally, these deposits may be redeemed upon demand, and therefore, these bear minimal default risk.

The following table shows the percentage of the Company's sales made to and percentage of accounts receivables from wholesalers and distributors representing more than 10% of the Company's total net product sales and more than 10% of the Company's accounts receivables, net:

Percentage of Net Product Sales Percentage of Accounts Receivable, net

Refer to Note 4, Disaggregated Revenues, for the concentration of net product sales.

Inventories

Inventories are recorded at the lower of cost or net realizable value, and include materials, labor, direct costs and indirect costs. These are valued using the first-in, first-out method. The Company writes down inventory that has become obsolete or has a cost basis in excess of its expected net realizable value. Expired inventory is destroyed, and the related costs are recognized as Cost of goods sold in the consolidated statement of earnings.

Inventories Produced in Preparation of Product Launches

The Company capitalizes inventories produced in preparation for product launches when future commercialization of a product is probable and when a future economic benefit is expected to be realized. The determination to capitalize is based on the particular facts and circumstances relating to the product. Capitalization of such inventory begins when the Company determines that (i) positive clinical trial results have been obtained in order to support regulatory approval; (ii) uncertainties regarding regulatory approval have been significantly reduced; and (iii) it is probable that these capitalized costs will provide a future economic benefit in excess of capitalized costs.

In evaluating whether these conditions are met, the Company considers the following factors: the product candidate's current status in the regulatory approval process; results from the related pivotal and supportive clinical trials; results from meetings with relevant regulatory agencies prior to the filing of regulatory applications; completion of the regulatory applications; consequent acceptance by the regulatory agency; potential impediments to the approval process such as product safety or efficacy concerns, potential labeling restrictions, and other impediments: historical experience with manufacturing and commercializing similar products as well as the manufacture of the relevant product candidate; and the Company's manufacturing environment, and supply chain in determining logistical constraints that could hamper approval or commercialization.

In assessing the economic benefit that the Company is likely to realize, the Company considers the shelf life of the product in relation to the expected timeline for approval; patent related or contractual issues that may prevent or delay commercialization and product stability data of all pre-approval production to assess the adequacy of expected shelf life; viability of commercialization taking into account competitive dynamics in the marketplace and market acceptance; and anticipated future sales and anticipated reimbursement strategies that may prevail with respect to the product, to determine product profit margin.

In applying the lower of cost or net realizable value to pre-launch inventory, the Company estimates a range of likely commercial prices based on the pricing of competitive commercial products and pre-launch discussions with managed care providers.

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2. Summary of Significant Accounting Policies (Continued)

The Company could be required to write down previously capitalized costs related to pre-launch inventories upon a change in facts and circumstances, including, among other potential factors, a denial or significant delay of approval by regulatory bodies, a delay in commercialization, or other adverse factors.

Intangible Assets

Intangible assets consist of definite-lived intangible assets: acquired developed technology and product rights, and patent defense costs, and an indefinite-lived intangible asset: acquired IPR&D.

Patent defense costs are legal fees that have been incurred in connection with legal proceedings related to the defense of patents. Patent defense costs are charged to expense in the event of an unsuccessful litigation outcome, or if they are deemed to not provide an increase in the value of the patent.

Definite-lived intangible assets are carried at cost less accumulated amortization, with amortization calculated on a straight line basis over the estimated useful lives of the assets. The Company evaluates the estimated remaining useful life of its intangible assets annually, or when events or changes in circumstances warrant a revision to the remaining periods of amortization.

Acquired IPR&D in a business combination is considered an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts. Upon successful completion of the project, the Company will determine the then-useful life of the intangible asset. This is generally determined as the period over which the substantial majority of the cash flows are expected to be generated. The capitalized amount is then amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written off immediately. During the period prior to completion or abandonment, the IPR&D asset is not amortized but tested for impairment on an annual basis or when potential indicators of impairment are identified.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment, operating and finance lease assets, and definite-lived intangible assets. The Company assesses the recoverability of its long-lived assets with definite lives whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indications of impairment exist, projected future undiscounted cash flows associated with the asset would be compared to the carrying value of the asset to determine whether the asset's value is recoverable. If impairment is determined, the Company writes down the asset to its estimated fair value and records an impairment loss equal to the excess of the carrying value of the long-lived asset over its estimated fair value in the period at which such a determination is made.

Impairment of Indefinite-Lived Intangible Assets

For indefinite-lived intangible assets, such as the acquired IPR&D asset, the Company evaluates impairment annually (during the fourth quarter of each fiscal year) or more frequently if impairment indicators exist. The annual evaluation is generally based on an assessment of qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. The Company considers various factors including but not limited to significant or adverse changes in the legal and regulatory environment, adverse clinical trial results, significant trial delays, inability to obtain governmental approval, inability to commercialize a product candidate, the introduction or advancement of competitive products, and product candidates, or other events that indicate it is more likely than not that fair value is less than its carrying value. If the Company is unable to conclude whether the indefinite-lived intangible asset is not impaired after considering the totality of events and circumstances during its qualitative assessment, the Company performs a quantitative assessment by estimating the fair value of the indefinite-lived intangible asset and comparing the fair value to the carrying amount. Evaluating for impairment requires judgment, including evaluating current economic and competitive circumstances, estimating future cash flows, future growth rates, future profitability, and the expected life over which projected cash flows would occur. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, the Company writes down the indefinite-lived intangible asset to its estimated fair value, and an impairment loss equal to the difference between the assets fair value and carrying value is recognized in the consolidated statement of earnings in the period at which such determination is made.

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Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Goodwill and Goodwill Impairment Assessment

Goodwill is calculated as the excess of the consideration paid consequent to completing an acquisition compared to the net assets recognized in a business combination. Goodwill represents the future economic benefits from the other acquired assets that could not be individually identified and separately quantified.

The Company evaluates goodwill for possible impairment at least annually (during the fourth quarter of each fiscal year), or more often, if and when events and circumstances indicate that goodwill may be impaired. The annual evaluation is generally based on an assessment of qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. This includes but is not limited to significant adverse changes in the business climate, market conditions, or other events that indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the Company is unable to conclude whether the goodwill is not impaired after considering the totality of events and circumstances during its qualitative assessment, the Company performs a quantitative assessment by estimating the fair value of the reporting unit and comparing the fair value to the carrying amount. Evaluating for impairment requires judgment, including identifying reporting units and estimating future cash flows. The Company estimates the fair values of its reporting unit using discounted cash flow models or other valuation models, such as comparative transactions or market multiples. If the carrying amount of the reporting unit exceeds its fair value, the Company writes down the goodwill to the estimated fair value, and an impairment loss equal to the difference is recognized in the consolidated statement of earnings in the period at which such determination is made.

Interest Expense

Interest expense includes stated interest and the amortization of deferred financing costs and debt discount incurred by the Company in connection with the issuance of $402.5 million of 0.625% Convertible Senior Notes due 2023 (see Note 14). The Company amortizes the deferred financing costs and debt discount over the term of the debt, using the effective interest method.

Revenue Recognition

The Company recognizes revenue in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company does not adjust revenue for any financing effects in transactions where the Company expects the period between the transfer of the goods or services and collection to be less than one year.

No contract assets or liabilities were recorded as of December 31, 2021, or 2020.

Revenue from Product Sales

The Company's customers are primarily pharmaceutical wholesalers, specialty pharmacies, and pharmaceutical distributors. Customers purchase product to fulfill orders from retail pharmacy chains and independent pharmacies of varying size and purchasing power. The Company recognizes gross revenue when its products are shipped from a third party fulfillment center and physically received by its customers. The Company's customers take control of its products, including title and ownership, upon the physical receipt of its products at their facilities. Customer orders are generally fulfilled within a few days of order receipt, resulting in minimal order backlog. There are no minimum product purchase requirements with our customers.

The Company recognizes revenue from product sales in an amount that reflects the consideration the Company expects to ultimately receive in exchange for those goods. Product sales are recorded net of various forms of variable consideration, including: provision for estimated rebates; provision for estimated future product returns; and an estimated provision for discounts. These are collectively considered "sales deductions."

As described below, variability in the net transaction price for the Company's products arises primarily from the aforementioned sales deductions. Significant judgment is required in estimating certain sales deductions. In making these estimates, the Company considers: historical experience; product price increases; current contractual arrangements under applicable payor programs; unbilled claims; processing time lags for claims; inventory levels in the wholesale, specialty pharmacy, and retail distribution channel; and product life cycle. The Company adjusts its estimates of revenue either when the most likely amount of consideration it expects to receive changes, or when the consideration becomes fixed.

Variable consideration on product sales is only recognized when it is probable that a significant reversal will not occur.

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2. Summary of Significant Accounting Policies (Continued)

If actual results in the future vary from our estimates, the Company adjusts its estimates in the period identified. These adjustments could materially affect net product sales and earnings in the period in which the adjustment(s) is recorded.

Sales Deductions

The Company records product sales net of the following sales deductions:

Rebates:

Public sector rebate programs encompass: various Medicaid drug rebate programs; Medicare gap coverage programs; programs covering public health service institutions; and programs covering government entities. All federal employees and agencies purchase drugs under the Federal Supply Schedule.

Private sector rebate programs include: contractual agreements with managed care providers, under which the Company pays fees to gain access to that provider's patient drug formulary; and Company-sponsored programs, under which the Company defrays or eliminates patient co-payment charges that the patient would otherwise be obligated to pay to their managed care provider in order to fill their prescription.

Rebates are owed when our customer dispenses our product to a patient; i.e., filling a prescription. The accrual balance for rebates consists of the following three components. First, because rebates are generally invoiced and paid in arrears, the accrual balance consists of an estimate of the amount expected to be incurred for prescriptions dispensed in the current quarter. Second, the accrual balance also includes an estimate for known or estimated prior quarters' unpaid rebates, covering those prescriptions dispensed in past quarters but for which no invoice has yet been received. Third, the accrual balance includes an estimate for rebates that will be prospectively owed for prescriptions filled in future quarters. This estimate pertains to a product that has been sold by the Company to wholesalers or distributors and which resides either as wholesaler/distributor inventory or as inventory held at pharmacies. As of the end of the reporting period, this product has not been dispensed to a patient.

The Company’s estimates of expected rebate claims vary by program and by type of customer because the period between the date at which the prescription is filled and the date the Company receives and pays the invoice varies substantially. For each of its products, the Company bases its estimates of expected rebate claims on multiple factors, including: historical levels of deductions; contractual terms with managed care providers; actual and anticipated changes in product price; prospective changes in managed care fee for service contracts; prospective changes in co-payment assistance programs; and anticipated changes in program utilization rates; i.e., patient participation rates under each specific program.

The Company records an estimated liability for rebates at the time the customer takes title to the product (i.e., at the time of sale to wholesalers/distributors). This liability is recorded as a reduction to gross product sales, and an increase in Accrued product returns and rebates. The liability is recorded as a component of current liabilities on the consolidated balance sheets.

The sensitivity of the Company's estimates to subsequent adjustment varies by program and by type of customer. If actual rebates vary from estimated amounts, the Company adjusts the balances of such accrued rebates to reflect actual experience. These adjustments could materially affect the estimated liability balance, net product sales, and earnings in the period in which these adjustments are made.

Returns:

Sales of the Company's products are not subject to a general right of return. A product that has been used to fill patient prescriptions is no longer subject to any right of return. However, the Company will accept a return of product that is damaged or defective when shipped from its third party fulfillment centers.

The Company will also accept a return of expired product six months prior to and up to 12 months subsequent to the product's expiry date for certain products. Expired or defective returned product cannot be re-sold and is therefore destroyed.

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2. Summary of Significant Accounting Policies (Continued)

The Company records an estimated liability for product returns at the time the customer takes title to the product (i.e., at time of sale). The liability is reflected as a reduction to gross product sales, and an increase in Accrued product returns and rebates. This liability is recorded as a component of current liabilities on the consolidated balance sheets. The Company estimates the liability for returns primarily based on the actual returns experience for its commercial products.

Because the Company's products have a shelf life up to 48 months from the date of manufacture, and because the Company accepts return of product up to 12 months post its expiry date, there is a time lag of several years between the time when the product is sold and the time when the Company may issue credit on the expired product.

The Company's returns policy generally permits product returns to be processed at the current wholesaler price rather than at historical acquisition price; hence, the Company's estimated liability for product returns is affected by price increases taken subsequent to the date of sale and prior to its return.

At the time the Company adjusts its estimates for product returns, such adjustment affects the estimated liability, product sales, and earnings in the period of adjustment. Those adjustments may be material to our financial results.

Sales discounts:

Distributors and wholesalers of the Company's pharmaceutical products are generally offered various forms of consideration, including allowances, service fees and prompt payment discounts, for distributing our products. Distributor and wholesaler allowances and service fees arise from contractual agreements and are estimated as a percentage of the price at which the Company sells product to them. In addition, distributors and wholesalers are offered a prompt pay discount for payment within a specified period. Prompt pay discounts are estimated as a percentage of the price at which the Company sells product.

The Company accounts for these discounts at the time of sale as a reduction to gross product sales and accounts receivable, net.

License Revenue

The Company has entered into collaboration agreements to commercialize certain of its products outside of the U.S. Those agreements include the right to use the Company's intellectual property as a functional license and generally include an up-front license fee and ongoing milestone payments upon the achievement of certain specific events. These agreements may also require minimum royalty payments based on sales of products that use the applicable intellectual property.

Up-front license fees are recognized once the license has been executed between the Company and its licensee.

Milestones are a form of variable consideration recognized when either the underlying events have transpired (i.e., event-based milestone) or when the sales-based targets have been met by the collaborative partner (i.e., sales-based milestone). Both types of milestone payments are nonrefundable. The Company evaluates whether achieving the milestone is considered probable and estimates the amount of the milestone to be included in the transaction price using the most likely amount method. The value of the associated milestone is not included in the transaction price if it is probable that a significant revenue reversal would occur. This estimation is based on management's judgment and may require assessing factors that are outside of the Company's influence, such as: likelihood of regulatory success; availability of third party information; and expected time period until achievement of the event. These factors are evaluated based on the specific facts and circumstances.

Event-based milestones are recognized in the period that the related event, such as regulatory approval, occurs. Milestones that are not within the control of the Company, such as approval from regulatory authorities, or where attainment of the specified event is dependent on the success of a third-party, are not considered probable until the specified event occurs.

Sales-based milestones are recognized as revenue only when the sales-based target is achieved.

There are no guaranteed minimum amounts owed to the Company related to license and collaboration agreements.

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Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Royalty Revenue

The Company recognizes noncash royalty revenue for amounts earned pursuant to its royalty agreement with United Therapeutics Corporation (United Therapeutics), based on estimated product sales of Orenitram by United Therapeutics (see Note 4). This agreement includes the right to use the Company's intellectual property as a functional license.

In 2014, the Company sold certain of these royalty rights to Healthcare Royalty Partners III, L.P. (HC Royalty) (see Note 15). Consequent to this agreement, the Company recorded a nonrecourse liability related to this transaction and amortizes this liability as noncash royalty revenue. Sales of Orenitram by United Therapeutics result in payments from United Therapeutics to HC Royalty, in accordance with this agreement.

The Company also recognizes noncash interest expense related to the nonrecourse liability and accrues interest expense at an estimated effective interest rate (see Note 14). This interest rate is determined based on projections of HC Royalty's rate of return.

Royalty revenue also includes cash royalty amounts received from other collaboration partners for the right to use the Company's intellectual property as a functional license. The Company has a royalty arrangement with Takeda Pharmaceutical Company Ltd., based on net product sales of Takeda's product, Mydayis, and with Allergan, based on net product sales of Namzaric. For these arrangements that include sales-based royalties on the licensed intellectual property to which the royalties relate, royalty revenue is only recognized when the underlying product sale has occurred. Sales-based royalties are recorded based on estimated quarterly net sales of the underlying product. Differences between actual results and estimated amounts are adjusted in the period in which they become known, which typically follows the quarterly period in which the estimate is made. To date, actual royalties received have not differed materially from estimates.

There are no guaranteed minimum amounts owed to the Company related to any of these royalty revenue agreements.

Cost of Goods Sold

The cost of goods sold consists primarily of materials; third-party manufacturing costs; freight and distribution costs; direct labor; cost of royalties; cost to write down inventory to net realizable value and manufacturing overhead costs, including quality control and assurance.

Research and Development Expenses

Research and development expenditures are expensed as incurred. These expenses include: employee salaries, benefits, and share-based compensation; cost of contract research and development services provided by third parties; costs for preclinical and clinical studies; cost of acquiring or manufacturing clinical trial materials; regulatory costs; research facilities costs; depreciation expense and allocated occupancy expenses; and license fees and milestone payments related to in-licensed products and technologies. Acquired IPR&D assets that are used for research and development and have no future alternative use are expensed as incurred in-process research and development.

The Company estimates preclinical and clinical trial expenses based on services performed pursuant to contracts with research institutions, clinical investigators, clinical research organizations (CROs), and other service providers that perform services on the Company's behalf. In recording service fees, the Company estimates the cost of those services performed on behalf of the Company during the current period and compares those costs with the cumulative expenses recorded and payments made for such services. As appropriate, the Company accrues additional expense for services that have been delivered or defers nonrefundable advance payments until the related services are performed.

If the actual timing of the performance of services or the level of effort varies from our estimate, the Company adjusts its accrued expenses, or its deferred advance payments, accordingly. If the Company subsequently determines that it no longer expects the services associated with a nonrefundable advance payment to be rendered, the remaining portion of that advance payment is charged to expense in the period in which such determination is made.

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Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Share-Based Compensation

Stock Options

The Company recognizes share-based compensation expense over the service period, using the straight-line method. Employee share-based compensation for stock options is determined using the Black-Scholes option-pricing model to compute the fair value of option grants as of their grant date. Forfeitures are accounted for as incurred. The Company uses the following assumptions for estimating the fair value of option grants:

•Fair Value of Common Stock—The fair value of the common stock underlying the option grants is determined based on observable market prices of the Company's common stock.

•Expected Volatility—Volatility is a measure of the amount by which the Company's share price has historically fluctuated or is expected to fluctuate on a daily basis and is expected to fluctuate (i.e., expected volatility) in the future.

•Dividend Yield—The Company has never declared or paid dividends and has no plans to do so in the foreseeable future. Dividend yield is therefore zero.

•Expected Term—This is the period of time during which options are expected to remain unexercised. For the years ended December 31, 2021, and 2020, we determined the expected term based on the historical exercise behavior of the stock option plan participants. Options have a maximum contractual term of ten years.

•Risk-Free Interest Rate—This is the observed U.S. Treasury Note rate as of the week each option grant is issued, with a term that most closely resembles the expected term of the option.

Restricted Stock Units (RSUs)

Share-based compensation expense is recorded based on amortizing the fair market value of the RSU as of the date of the grant over the implied service period. RSUs generally vest one year from the date of the grant and are subject to continued service requirements. Forfeitures are accounted for as incurred.

Performance Stock Units (PSUs)

Performance-Based Awards

Share-based compensation expense for performance-based awards is recognized based on amortizing the fair market value of the award as of the grant date over the periods during which the achievement of the performance target is probable. Performance-based awards require certain performance targets to be achieved in order for the award to vest. Vesting occurs on the date of achievement of the performance target. Forfeitures are accounted for as incurred.

Market-Based Awards

Share-based compensation expense for market-based awards is recognized on a straight-line basis over the requisite service period, regardless of whether the market condition has been satisfied. Market-based PSU awards vest upon the achievement of the performance target. Forfeitures are accounted for as incurred.

The Company estimates the fair value of these awards as of the grant date using a Monte Carlo simulation that incorporates option-pricing inputs. This simulation covers the period from the grant date through the end of the derived requisite service period. Volatility as of the grant date is estimated based on historical daily volatility of the Company's common stock over a period of time, which is equivalent to the expected term of the award. The risk-free interest rate is based on the U.S. Treasury Note rate, as of the week, the award is issued, with a duration that most closely resembles the expected term of the award.

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Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Leases

The Company determines if an arrangement is a lease considering whether there is an identified asset and the contract conveys the right to control its use. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Right-of-use (ROU) assets and lease liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. The Company calculates the present value of future payments by using an estimated incremental borrowing rate, which approximates the rate at which the Company would borrow, on a secured basis and over a similar term. This rate is estimated based on information available at the commencement date of the lease and may differ for individual leases or portfolios of leased assets. Additionally, for certain equipment leases, the Company applies a portfolio approach to effectively account for the operating lease ROU assets and lease liabilities.

Lease expense for operating leases is recognized on a straight-line basis over the expected lease term and recognized as an operating cost.

SUPN US Equity

SUPN · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

SUPN US Equity☆

SUPN · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

SUPN US Equity