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As filed with the Securities and Exchange Commission on June 18, 2008

Registration No. 333-149846

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

ZOGENIX, INC.
(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	2834 (Primary Standard Industrial Classification Code Number)	20-5300780 (I.R.S. Employer Identification Number)
11682 El Camino Real, Suite 320 San Diego, CA 92130 (866) 964-3649 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

Roger L. Hawley
Chief Executive Officer
Zogenix, Inc.
11682 El Camino Real, Suite 320
San Diego, CA 92130
(866) 964-3649
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
Scott N. Wolfe, Esq. Cheston J. Larson, Esq. Latham & Watkins LLP 12636 High Bluff Drive, Suite 400 San Diego, CA 92130 (858) 523-5400	Curtis L. Mo, Esq. Joseph K. Wyatt, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 1117 California Avenue Palo Alto, CA 94304 (650) 858-6000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

         If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information contained in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JUNE 18, 2008

Prospectus

             Shares

Zogenix, Inc.

Common Stock

        Zogenix, Inc. is offering                        shares of common stock. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $            and $            per share. After the offering, the market price for our shares may be outside this range.

        We have applied to list our common stock on the Nasdaq Global Market under the symbol "ZGNX."

Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 9.

	Per Share	Total
Public offering price	$	$
Discounts and commissions to underwriters	$	$
Offering proceeds to Zogenix, before expenses	$	$

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

        We have granted the underwriters the right to purchase up to an additional            shares of common stock on the same terms and conditions set forth above if the underwriters sell more than                        shares of common stock in this offering. The underwriters can exercise this right at any time and from time to time, in whole or in part, within 30 days after the offering. The underwriters expect to the deliver the shares of common stock to investors on or about                        , 2008.

Sole Book-Running Manager

Banc of America Securities LLC
Leerink S	wann
	Thomas Weisel	Partners LLC
		Susquehanna Financial Group, LLLP

The date of this prospectus is                  , 2008.

The product candidate depicted above has not yet been approved by the U.S. Food and Drug Administration, and we have not generated any product revenue.

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information. We are not making an offer of these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

TABLE OF CONTENTS

	Page
Summary	1
Risk Factors	9
Special Note Regarding Forward-Looking Statements	46
Use of Proceeds	48
Dividend Policy	48
Capitalization	49
Dilution	51
Selected Financial Data	53
Management's Discussion and Analysis of Financial Condition and Results of Operations	55
Business	68
Management	96
Executive Compensation	104
Principal Stockholders	128
Certain Relationships and Related Party Transactions	131
Description of Capital Stock	134
Shares Eligible for Future Sale	138
Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Our Common Stock	141
Underwriting	144
Legal Matters	149
Experts	149
Where You Can Find Additional Information	150
Index to Financial Statements	F-1

i

SUMMARY

This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully, especially the "Risk Factors" section and our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in shares of our common stock. Unless the context requires otherwise, references in this prospectus to "Zogenix," "we," "us" and "our" refer to Zogenix, Inc.

Our Company

        We are a specialty pharmaceutical company with two proprietary product candidates in late-stage development for the treatment of central nervous system disorders and pain. Our lead product candidate, sumatriptan DosePro™, enables needle-free subcutaneous delivery of sumatriptan for the treatment of acute migraine. We submitted a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. If sumatriptan DosePro is approved by the FDA, we intend to build our own focused sales force in the United States and launch the product in the first quarter of 2009. Our second product candidate, ZX002, is a novel controlled release formulation of hydrocodone for the treatment of chronic pain. This product candidate has completed Phase 2 clinical trials, and we anticipate initiating the Phase 3 clinical program in the second half of 2008. To date, we have no FDA-approved products and have not generated any product revenue.

        Our DosePro technology is a novel drug delivery system that subcutaneously delivers a pre-filled, single dose injection of a drug through an easy-to-use, needle-free device that can be self-administered. Preliminary pre-clinical and clinical studies demonstrate that DosePro can be used with small molecules and biological products, including protein therapeutics and monoclonal antibodies. We plan to build our internal product pipeline by investigating proven drugs that can be paired with DosePro to enhance their benefits and commercial attractiveness. We also plan to seek opportunities to in-license or acquire products and product candidates in the areas of central nervous system, or CNS, disorders and/or pain, with a focus on products and product candidates that utilize novel technologies to improve the profile of existing compounds. In both cases, we plan to focus on marketed compounds whose commercial potential has been limited by safety concerns, relative efficacy or patient adherence. In addition, we may further seek to capitalize on our DosePro technology by out-licensing it to potential partners seeking to enhance, differentiate, or extend the life cycle of their own injectable products. We have no present commitments or obligations with respect to any such in-licensing, out-licensing or acquisition opportunities.

Our Product Candidates

Sumatriptan DosePro

Sumatriptan DosePro utilizes our proprietary DosePro needle-free drug delivery system to subcutaneously administer sumatriptan for the treatment of migraine and cluster headache. Sumatriptan DosePro is a fast acting therapy that patients can self-administer in three easy steps. Sumatriptan, the active ingredient in sumatriptan DosePro, is currently marketed under the brand name Imitrex by GlaxoSmithKline. Sumatriptan has been in clinical use for over 15 years for the safe and effective treatment of migraine and cluster headache and is currently available as a tablet, nasal spray and subcutaneous injection. Injectable sumatriptan provides the fastest onset and most complete migraine relief of any form of migraine therapeutic, including all oral and nasal triptans. The currently available injectable form of sumatriptan is delivered by a traditional needle injection primarily as the branded Imitrex STATdose System, or Imitrex STATdose. However, these needle-based forms of injectable sumatriptan have several use-limiting characteristics such as patient fear of needles, needlestick risk and complexity of use.

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        Migraine is a syndrome that affects approximately 30 million people in the United States, according to the National Headache Foundation, and is characterized by four major symptoms: pain, nausea and abnormal sensitivity to both sound and light. Triptans, the class of drugs most often prescribed for treating migraines, generated 2007 sales of approximately $2.8 billion in the United States, according to average wholesale price data published by Wolters Kluwer Health. Imitrex is the leading triptan brand, with 2007 sales of approximately $1.6 billion in the United States. Of that amount, the injectable forms of sumatriptan accounted for $274 million, of which Imitrex STATdose accounted for $242 million.

        In clinical bioequivalence studies comparing sumatriptan DosePro to Imitrex STATdose injection, sumatriptan DosePro, when administered to the thigh or abdomen, provided the same rapid peak in sumatriptan blood levels that correlates with speed of migraine relief and overall drug effectiveness. Due to its ease of use and lack of a needle, we believe that sumatriptan DosePro may address many of the fears and concerns that have limited needle-based administration. Given the unique attributes of sumatriptan DosePro, we believe it has the potential to be used not only as a replacement for other injectable forms of sumatriptan, but also as a faster acting, more efficacious alternative to oral and nasal triptans. Based on triptan package insert data and clinical research published in the Journal of Headache and Pain in January 2007, we believe sumatriptan DosePro also has the potential to be effective for the approximately 30% of patients who fail to respond to an oral or nasal triptan. We submitted our NDA for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. We anticipate receiving tentative approval from the FDA in late 2008, and expect to receive final approval and launch this product candidate in the United States after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009. In Europe and other select countries, we have licensed commercialization rights to Desitin Arzneimittel GmbH, or Desitin, which will be responsible for obtaining regulatory approval and marketing sumatriptan DosePro if approved.

ZX002

        ZX002, our proprietary oral version of the opioid pain reliever hydrocodone, is designed to offer a controlled release profile that combines immediate release and extended release properties, using Elan Pharma International Ltd.'s proprietary Spheroidal Oral Drug Absorption System, or SODAS. We believe these attributes have the potential to provide similar onset, but longer-lasting and more consistent pain relief with fewer daily doses than the commercially available formulations of hydrocodone. Presently, hydrocodone is only available in immediate release product forms that are commonly dosed four to six times per day to provide pain relief. Additionally, existing hydrocodone products, including the branded products Vicodin, Lortab and Vicoprofen, and their generic equivalents, contain analgesic combination ingredients such as acetaminophen or non-steroidal anti-inflammatory drugs, or NSAIDs, which if taken in high quantities over time can lead to serious side effects such as liver toxicity and gastrointestinal damage. ZX002, if successfully developed, may represent the first available "single entity" controlled release version of hydrocodone that is not combined with acetaminophen or an NSAID. By eliminating the combination analgesic ingredient and by having a controlled release profile, ZX002 removes the potential limitations of existing hydrocodone combination formulations and allows for less frequent dosing. We in-licensed exclusive U.S. rights to ZX002 from Elan Pharma International Ltd. in November 2007.

        The American Pain Society estimated in 1999 that 9% of the U.S. adult population suffers from moderate to severe non-cancer related chronic pain. Chronic pain is treated with both immediate release and extended release opioids. We define our target market as prescription non-injectable codeine-based and extended release morphine-based pain products. This market generated 2007 U.S. sales of approximately $9.7 billion, based on average wholesale price, on approximately 185 million prescriptions, according to data published by Wolters Kluwer Health. During the same period, existing hydrocodone products, the most commonly prescribed opioid pain products, generated $2.5 billion in sales representing growth of 18.3% since 2006, according to that same data.

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        As a result of its unique controlled release single entity profile, we believe ZX002 will generate sales from both the immediate release and extended release segments of the prescription opioid market. In single and multiple dose pharmacokinetic evaluations, ZX002 demonstrated detectable plasma concentrations of hydrocodone within 15 minutes. ZX002 also demonstrated a sustained release effect significantly longer than currently available hydrocodone combination products such as Vicodin, dose proportional pharmacokinetics and an acceptable safety profile. In a Phase 2 chronic pain study, ZX002 demonstrated a reduction in pain intensity for chronic moderate to severe osteoarthritis pain patients across multiple dosage strengths and a clinically acceptable safety profile. We had an End of Phase 2 meeting with the FDA in June 2008 and plan to proceed with the Phase 3 clinical program in the United States in the second half of 2008. The program will be designed to evaluate the safety and efficacy of ZX002 for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy.

Our Technology

        Our proprietary DosePro technology is an easy-to-use drug delivery system designed to enable self-administration of pre-filled, single doses of liquid drug formulations, subcutaneously, without a needle. The results of our sumatriptan DosePro usability studies confirm its ease of use during self-administration, and we believe that it has the potential to become a preferred delivery option for patients and physicians for many injected medicines beyond sumatriptan. Several clinical trials and market research studies have shown DosePro to be preferred by patients and physicians over conventional needle-based delivery systems. There have also been three positive single-dose human pilot studies conducted with a combination of a protein pharmaceutical and DosePro, including testing with human growth hormone, erythropoietin, or EPO, and granulocyte colony-stimulating factor, or G-CSF. Pre-clinical work with monoclonal antibodies evaluating bioavailability, pharmacokinetics and a lack of immunogenicity has also been conducted. As a result of the versatility of DosePro to deliver various types of drug products, this technology may have significant market potential across a broad range of therapeutic areas, including those typically treated with small volume injectable products, such as hepatitis, infertility, multiple sclerosis and rheumatoid arthritis. We acquired the tangible assets and intellectual property related to DosePro from Aradigm Corporation in August 2006. Our needle-free delivery technology is the result of more than 10 years of development work and significant capital investment with 15 related issued U.S. patents, 44 related issued foreign patents, eight related pending U.S. patent applications and 28 related pending foreign patent applications.

Our Commercialization Plan

        Prior to the launch of sumatriptan DosePro, which we anticipate will occur in the first quarter of 2009, we intend to build a commercial organization in the United States focused on promoting our products to physicians, nurses and other healthcare professionals. For the launch of sumatriptan DosePro in the United States, we intend to build a sales force of approximately 100 people to target top triptan prescribers. In order to expand the U.S. commercial opportunity of sumatriptan DosePro, we will also seek to establish partnerships with pharmaceutical companies or contract sales organizations to market and sell to a broader physician audience than can be reached by our sales force alone. For the commercialization of sumatriptan DosePro outside the United States, we entered into a licensing and distribution agreement in March 2008 with Desitin under which we granted to Desitin exclusive rights to develop, obtain regulatory approvals for and commercialize sumatriptan DosePro in the European Union and other select countries, and we may also enter into similar agreements in other countries.

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Our Strategy

        Our core strategy is to develop and commercialize differentiated CNS and pain therapeutics that can address significant unmet medical needs or overcome limitations of existing products. Key elements of our strategy include:

•

obtaining regulatory approval for our most advanced product candidate, sumatriptan DosePro for the treatment of migraine;



•

building a focused sales and marketing infrastructure to commercialize sumatriptan DosePro;



•

expanding the market opportunity for sumatriptan DosePro through commercial partnerships;



•

developing and commercializing ZX002 for the treatment of moderate to severe chronic pain;



•

expanding our product pipeline in CNS and/or pain; and



•

seeking to out-license our proprietary DosePro technology.

Our Risks

        Our business and our ability to execute our business strategy are subject to a number of risks that you should be aware of before you decide to buy our common stock. In particular you should consider the following risks, which are discussed more fully in "Risk Factors":

•

We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the next several years. Our net loss applicable to common stockholders was $5.4 million in 2006 and $46.0 million in 2007. As of March 31, 2008, we had an accumulated deficit of $42.1 million.



•

We have not generated any revenue from our product candidates and may never be profitable.



•

We are largely dependent on the success of our two most advanced product candidates, sumatriptan DosePro and ZX002, and we cannot give any assurance that either product candidate will receive regulatory approval or be successfully commercialized.



•

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



•

Delays in the commencement or completion of clinical testing for ZX002 or pre-clinical or clinical testing for any future product candidates could result in increased costs to us and delay or limit our ability to pursue regulatory approval or generate revenues.



•

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



•

We are dependent on numerous third parties for the manufacture of our product candidates and our supply chain, and if we experience problems with any of these suppliers, the manufacturing of our products could be delayed.



•

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

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Company Information

        We were formed as a Delaware corporation on May 11, 2006 as SJ2 Therapeutics, Inc. We commenced our operations on August 25, 2006 and changed our name to Zogenix, Inc. on August 28, 2006. Our principal executive offices are located at 11682 El Camino Real, Suite 320, San Diego, CA 92130, and our telephone number is 1-866-ZOGENIX (1-866-964-3649). Our website address is www.zogenix.com. The information on, or accessible through, our website is not part of this prospectus.

        DosePro™, Intraject® and Zogenix™ are our trademarks. This prospectus also contains trademarks of other companies including Amerge®, Axert®, Frova™, Imigran®, Imitrex®, Imitrex STATdose System®, Lortab®, Maxalt®, Neurontin®, Relpax®, SODAS®, Treximet™, Vicodin®, Vicoprofen® and Zomig™. References in this prospectus to data published by Wolters Kluwer Health refer to Wolters Kluwer Health, Pharmaceutical Audit Suite, 2007.

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THE OFFERING

Common stock offered	shares
Common stock to be outstanding after this offering	shares
Use of proceeds	We expect to use the net proceeds from this offering to establish a sales and marketing infrastructure, to fund research and development activities of our product candidates and for working capital and other general corporate purposes.
Risk factors	You should read the "Risk Factors" section of this prospectus for a discussion of the factors to consider carefully before deciding to purchase any shares of our common stock.
Proposed Nasdaq Global Market symbol	ZGNX

        The number of shares of common stock to be outstanding after this offering is based on 91,348,097 shares outstanding as of March 31, 2008, after giving effect to the conversion of all of our outstanding shares of preferred stock as of March 31, 2008 into shares of common stock, and excludes:

•

2,920,000 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2008 at a weighted average exercise price of $0.11 per share;



•

200,000 shares of common stock issuable upon the exercise of a warrant outstanding as of March 31, 2008 at an exercise price of $1.00 per share;



•

            shares of our common stock reserved for future issuance under our 2008 equity incentive award plan, which will become effective on the day prior to the day on which we become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (including 1,490,000 shares of common stock reserved for future grant or issuance under our 2006 equity incentive plan, which shares will be added to the shares to be reserved under our 2008 equity incentive award plan upon the effectiveness of the 2008 equity incentive award plan); and



•

            shares of common stock reserved for issuance under our 2008 employee stock purchase plan, which will become effective upon the completion of this offering.

        Except as otherwise indicated, all information in this prospectus assumes:

•

no exercise by the underwriters of their option to purchase up to an additional                        shares of common stock to cover overallotments;



•

the filing of our amended and restated certificate of incorporation and adoption of our amended and restated bylaws upon completion of this offering;



•

the conversion of all outstanding shares of our preferred stock into 77,890,909 shares of common stock upon completion of this offering; and



•

a one-for-    reverse stock split of our common stock to be effected before the completion of this offering.

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SUMMARY FINANCIAL DATA

        The following table summarizes certain of our financial data. The summary financial data are derived from our audited financial statements included elsewhere in this prospectus for the period from August 25, 2006 (inception) through December 31, 2006, the year ended December 31, 2007 and the period from August 25, 2006 (inception) through December 31, 2007. The statement of operations data for the three-month periods ended March 31, 2007 and 2008 and the period from August 25, 2006 (inception) through March 31, 2008, and the balance sheet data as of March 31, 2008 have been derived from our unaudited financial statements, which are included elsewhere in this prospectus. The data should be read together with our financial statements and related notes, "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

        The pro forma as adjusted balance sheet data gives effect to the conversion of all outstanding shares of our preferred stock into 77,890,909 shares of our common stock and our sale of                     shares of our common stock in this offering at the assumed initial public offering price of $        per share (the mid-point of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

			Period from August 25, 2006 (Inception) through December 31, 2006												Period from August 25, 2006 (Inception) through March 31, 2008
									Three Months ended March 31,
						Year ended December 31, 2007
									2007			2008
									(Unaudited)						(Unaudited)
			(in thousands, except per share amounts)
Statement of Operations Data
Operating expenses:
	Research and development		$	4,902		$	24,323		$	3,632		$	7,485		$	36,710
	Selling, general and administrative			1,474			4,702			969			1,631			7,807
		Total operating expenses		6,376			29,025			4,601			9,116			44,517
Loss from operations				(6,376	)		(29,025	)		(4,601	)		(9,116	)		(44,517	)
Other income (expense):
	Interest income			395			927			261			345			1,667
	Interest expense			—			(484	)		(32	)		(187	)		(671	)
	Other financing income			582			906			228			—			1,488
	Other expense			—			(4	)		—			(51	)		(55	)
Total other income (expense)				977			1,345			457			107			2,429
Net loss				(5,399	)		(27,680	)		(4,144	)		(9,009	)		(42,008	)
Deemed dividend for the beneficial conversion on Series A-1 and Series A-2 convertible preferred stock				—			(18,360	)		—			—			(18,360	)
Net loss applicable to common stockholders			$	(5,399	)	$	(46,040	)	$	(4,144	)	$	(9,009	)	$	(60,448	)
Basic and diluted net loss applicable to common stockholders(1)			$	(1.36	)	$	(8.08	)	$	(0.88	)	$	(1.22	)
Shares used to calculate net loss applicable to common stockholders(1)				3,970			5,701			4,716			7,407
Pro forma net loss per share, basic and diluted(1)						$	(0.65	)				$	(0.11	)
Shares used to calculate pro forma net loss per share(1)							42,827						85,298

(1)

See Notes 2 and 12 of Notes to Financial Statements for an explanation of the method used to calculate net loss per share and the number of shares used in the computation of the per share amounts.

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		As of March 31, 2008
		Actual			Pro Forma As Adjusted(1)
		(in thousands)
Balance Sheet Data:
	Cash and cash equivalents and investment securities, available for sale	$	33,046		$
	Working capital		27,915
	Total assets		44,575
	Long-term debt, less current portion		2,619
	Convertible preferred stock		76,955
	Deficit accumulated during the development stage		(42,088	)
	Total stockholders' equity (deficit)		(41,868	)

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $        per share would increase or decrease, respectively, the amount of cash and cash equivalents and investment securities, working capital, total assets and total stockholders' equity by approximately $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in shares of our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and/or prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the next several years.

        We are a development stage company with a limited operating history. We have focused primarily on developing our two most advanced product candidates, sumatriptan DosePro and ZX002, with the goal of supporting regulatory approval for these product candidates. We have financed our operations almost exclusively through private placements of preferred stock and debt and have incurred losses in each year since our formation in May 2006. Our net loss applicable to common stockholders was $5.4 million in 2006 and $46.0 million in 2007. As of March 31, 2008, we had an accumulated deficit of $42.1 million. These losses, combined with expected future losses, have had and will continue to have a material adverse effect on our stockholders' equity and working capital. We expect our development expenses to increase in connection with our planned Phase 3 clinical trials for ZX002. In addition, if we obtain regulatory approval for sumatriptan DosePro or any of our other product candidates, we expect to incur significant sales, marketing and manufacturing expenses as well as continued development expenses. As a result, we expect to continue to incur significant and increasing operating losses for the next several years. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

We have not generated any revenue from our product candidates and may never be profitable.

        Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from our product candidates, and we do not know when, or if, we will generate any revenue. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:

•

obtain regulatory approval for sumatriptan DosePro;



•

successfully complete our planned clinical trials and obtain regulatory approval for ZX002;



•

successfully complete clinical trials and obtain regulatory approval for any other product candidates that we advance into clinical trials;



•

manufacture commercial quantities of our product candidates at acceptable cost levels if regulatory approvals are received;



•

build and maintain successful sales, distribution and marketing for our products; and



•

identify and enter into one or more strategic collaborations to effectively market and sell our products to a broader physician audience than we could reach with our planned sales force alone.

        Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product. Because of the numerous risks and uncertainties associated with our development efforts and other factors, we may not achieve profitability soon, or ever. If we are unable to generate revenues, we will not become

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profitable and may be unable to continue operations without additional funding. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis.

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

        We were incorporated on May 11, 2006 and commenced our operations on August 25, 2006. Our operations to date have been limited to organizing and staffing our company, scaling up manufacturing operations and conducting product development activities for our product candidates. We have not yet demonstrated an ability to obtain regulatory approval for or commercialize a product candidate. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.

We are largely dependent on the success of our two most advanced product candidates, sumatriptan DosePro and ZX002, and we cannot give any assurance that either product candidate will receive regulatory approval or be successfully commercialized.

        We currently have a limited number of product candidates in clinical development, and our business depends on their successful development and commercialization. We currently have no drug products for sale and we may never be able to develop marketable drug products. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products, among other things, are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, the Drug Enforcement Administration, or DEA, and other regulatory authorities in the United States. We are not permitted to market our product candidates in the United States until we receive regulatory approval from the FDA. We are highly dependent on sumatriptan DosePro and ZX002, and we cannot provide any assurance that we will obtain regulatory approval for these product candidates or that these product candidates will be successfully commercialized.

        Based on the results of the pharmacokinetics study and bioequivalence clinical trial that we conducted for sumatriptan DosePro, we submitted a new drug application, or NDA, for sumatriptan DosePro to the FDA in December 2007, and it was accepted for filing in March 2008. While we anticipate receiving tentative approval of this NDA in late 2008 and final approval after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009, there can be no assurance that the FDA will issue tentative or final approvals within this timeframe, or at all. We also cannot be certain that we will be able to respond to any regulatory requests during the NDA review period in a timely manner without delaying potential regulatory approval. In addition, we have not yet completed all necessary studies, nor submitted an NDA or received marketing approval, for any of our other product candidates, including ZX002. Obtaining approval of an NDA is a lengthy, expensive and uncertain process. The FDA also has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example:

•

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



•

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



•

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



•

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



•

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

        For example, in our pre-NDA meeting with the FDA for sumatriptan DosePro in June 2007, the FDA requested that we conduct a usability study of sumatriptan DosePro to demonstrate the product candidate's correct use by patients during acute migraine attacks. The FDA also indicated that additional non-clinical toxicology testing of impurities would be necessary to support the extension of

10

the storage life of sumatriptan DosePro at room temperature from an estimated 12 months to 24 months. The FDA may require additional studies for sumatriptan DosePro as part of its NDA review process. Any such additional studies could delay approval of this product candidate. In addition, the original owner and developer of the DosePro technology, Weston Medical, failed in its efforts to develop a product based on this technology, highlighting the challenges of developing a needle-free, pre-filled drug delivery system. Weston Medical encountered technical challenges in late-stage development related to injection performance and reliability of the technology. These changes necessitated design modifications which were later implemented by Aradigm Corporation, or Aradigm, from which we acquired the technology. Other challenges of such a system include the maintenance of sterility, the need for a drug container that ensures long-term drug stability, the need to achieve a commercially appropriate shelf life, the capital intensive nature of an aseptic assembly and overall reliability issues. While we believe the studies and trials we have conducted to date have shown that we have overcome these challenges, there can be no assurance that the FDA will approve our NDA or that we will not face future setbacks in any additional trials the FDA requires that we conduct before or after approval, if approved.

        ZX002 has undergone Phase 1 pharmacokinetics studies as well as Phase 2 clinical trials. However, we will also need to successfully complete pivotal clinical trials to establish its safety and efficacy prior to our submission of an NDA to the FDA for approval. ZX002 and any other product candidates we develop may fail to achieve their specified endpoints in clinical trials. Furthermore, product candidates such as ZX002 may not be approved even if they achieve their specified endpoints in clinical trials. The FDA may disagree with our trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. The FDA may also approve a product candidate for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDA may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our product candidates.

        If we are unable to obtain regulatory approval for sumatriptan DosePro or ZX002 and successfully commercialize these product candidates in the sequence and on the timeline we anticipate, we will not be able to execute our business strategy effectively and our ability to generate revenues will be limited, which would have a material adverse impact on our business.

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

        Our product candidates are prone to the risks of failure inherent in drug development. Before obtaining U.S. regulatory approval for the commercial sale of sumatriptan DosePro, ZX002 or any other product candidate, we must gather substantial evidence from well-controlled clinical trials that demonstrate to the satisfaction of the FDA that the product candidate is safe and effective.

        In light of widely publicized events concerning the safety risk of certain drug products, particularly opioid drug products, regulatory authorities, members of Congress, the Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of risk management programs that may, for instance, restrict distribution of drug products after approval. In addition, the recently enacted Food and Drug Administration Amendments Act of 2007, or FDAAA, grants significant expanded authority to the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, the new law authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling to reflect new safety information and require risk evaluation and mitigation strategies for certain drugs, including certain currently approved drugs. It also significantly expands the federal government's clinical trial registry and results databank,

11

which we expect will result in significantly increased government oversight of clinical trials. Under the FDAAA, companies that violate these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties.

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

        With regard to sumatriptan DosePro, we believe the pharmacokinetics study and bioequivalence trial we have conducted, together with the clinical efficacy of injectable sumatriptan demonstrated to the FDA by others, supports the required safety and efficacy to lead to potential approval of an NDA for this product candidate. Adverse events seen in our pivotal clinical studies are consistent with previously reported adverse events for injectable sumatriptan and include injection site reactions, unusual sensations, such as tingling and warm/hot sensations, dizziness and flushing. Although we submitted an NDA for sumatriptan DosePro to the FDA in December 2007 and it was accepted for filing by the FDA in March 2008, as part of the NDA review process, the FDA may require us to conduct additional clinical trials to establish the safety and efficacy of this product candidate or impose other requirements. Any additional requirements could require substantial time and the results of any additional studies and trials may not replicate the positive results observed in earlier trials.

        With regard to ZX002, data from a Phase 2 clinical trial has shown what we believe is a clinically acceptable safety profile and a reduction in moderate to severe pain in patients requiring around-the-clock opioid therapy. In the two Phase 2 clinical trials conducted to date, patients experienced mild to moderate adverse events, including dizziness, sedation, nausea, vomiting and constipation, which are similar to the reported side effects of currently prescribed chronic opioids. However, our licensor, Elan Pharma International Ltd., or Elan, conducted this trial and we have not independently verified the data or completed any of our own trials for this product candidate. In addition, these results may not be predictive of results obtained in planned or any other required future trials, and we may be unable to demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or approvals for commercially viable uses. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. If ZX002 is not shown to be safe and effective in clinical trials, this program could be delayed or terminated.

If any product candidate for which we receive regulatory approval does not achieve broad market acceptance, the revenues that we generate will be limited.

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

•

our ability to provide acceptable evidence of safety and efficacy;



•

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



•

the relative convenience and ease of administration;



•

the prevalence and severity of adverse side effects;



•

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

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•

the clinical indications for which the product is approved;



•

the DEA scheduling classification;



•

availability and perceived advantages of alternative treatments;



•

any negative publicity related to our products;



•

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



•

pricing and cost effectiveness;



•

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



•

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

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

        In addition, products used to treat and manage pain, especially in the case of opioids, are from time to time subject to negative publicity, including with respect to illegal use, overdoses, abuse, diversion, serious injury and death. ZX002 contains hydrocodone, a Schedule II controlled substance, and despite the strict regulations on the marketing, prescribing and dispensing of such substances, illicit use and abuse of hydrocodone is well-documented. Thus, the regulatory approval process and the marketing of ZX002 may generate public controversy that may adversely affect regulatory approval and market acceptance of ZX002.

        Our efforts to educate the medical community and third-party payors on the benefits of our products and gain broad market acceptance may require significant resources and may never be successful. If our products do not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient revenue from these products to become or remain profitable.

Delays in the commencement or completion of clinical testing for ZX002 or pre-clinical or clinical testing for any future product candidates could result in increased costs to us and delay or limit our ability to pursue regulatory approval or generate revenues.

        Clinical trials are very expensive, time consuming and difficult to design and implement. Even if the results of our clinical trials are favorable, the clinical trials of ZX002 will continue for several years and may take significantly longer than expected to complete. Delays in the commencement or completion of clinical testing for ZX002 or pre-clinical or clinical testing for any future product candidates could significantly affect our product development costs and business plan. We have never conducted a pivotal efficacy trial, including Phase 3 clinical trials for ZX002. Phase 3 clinical efficacy trials, in general, are significantly more complex and time-consuming and involve more patients than the clinical trials that we have conducted to date. We do not know whether planned clinical trials of ZX002 or any other pre-clinical or clinical trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

•

obtaining regulatory approvals to commence a clinical trial;



•

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

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•

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



•

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



•

identifying, recruiting and training suitable clinical investigators;



•

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



•

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



•

uncertainty regarding proper dosing; and



•

scheduling conflicts with participating clinicians and clinical institutions.

        We believe that we have planned and designed an adequate Phase 3 clinical trial program for ZX002, and we presented this trial design to the FDA at our End of Phase 2 meeting in June 2008. Although we believe the FDA has generally agreed with our Phase 3 clinical trial program, the FDA could still determine that it is not satisfied with our plan or the details of our pivotal clinical trial protocols and designs, or that we need to conduct additional Phase 2 trials prior to initiating our Phase 3 program. While the FDA will provide us with a written record of the agreements that we reached at our End of Phase 2 meeting, such agreements may not be definitive on whether our trial design is sufficient for the purpose of obtaining marketing approval for ZX002. Any changes to the protocols, designs or scope of our Phase 3 clinical trials based on the outcome of our End of Phase 2 meeting, or delays in receiving the written record of any agreements, if any agreements are obtained, could delay the commencement or completion of clinical testing for ZX002.

        In addition, chronic pain patients have historically been difficult to keep enrolled in clinical trials. If a significant number of patients fail to stay enrolled in any of our future clinical trials of ZX002 and such failure is not adequately accounted for in our trial design and assumptions, our clinical development program could be delayed. Clinical trials may also be delayed or repeated as a result of ambiguous or negative interim results or unforeseen complications in testing. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:

•

failure to design appropriate clinical trial protocols;



•

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



•

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



•

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



•

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



•

lack of effectiveness of any product candidate during clinical trials;

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•

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



•

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



•

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



•

regulatory concerns with opioid products generally and the potential for abuse and diversion of the drugs; and



•

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

        Additionally, changes in applicable regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our product candidates may be harmed, and our ability to generate product revenues will be delayed.

If we do not produce our DosePro-based products cost effectively, our potential profits may suffer.

        Any DosePro-based product will contain physical components relating to the needle-free, pre-filled, disposable and compressed gas powered features, in addition to active pharmaceutical ingredients. For example, as a result of the cost of developing and producing these components, the cost to produce sumatriptan DosePro is expected to be higher per dose than the cost to produce tablet, nasal spray and traditional needle-based injection products for the same active pharmaceutical ingredient. In addition, we obtain all of the components of DosePro from multiple suppliers in Europe and the assembly and manufacture of the entire device is also conducted in Europe. This may subject us to financial risk from foreign currency exchange fluctuations as well as volatile fuel costs associated with shipping the product to and from different assembly sites in Europe and ultimately to our potential customers in the United States. This overall increased cost of goods may reduce any potential profits from the sale of sumatriptan DosePro or any future DosePro product. Any delay in or failure to develop and manufacture any future DosePro product in a cost effective way could negatively affect our potential profitability.

We have limited sales and marketing resources, and we may not be able to effectively market and sell our products.

        We do not currently have an organization for sales, marketing and distribution of pharmaceutical products, and we must build this organization or make arrangements with third parties to perform these functions in order to commercialize any products that we successfully develop and for which we obtain regulatory approvals. In addition, while members of our management team have prior experience in marketing and selling pharmaceutical products, we as a company do not have any experience in selling or marketing our products. We currently intend to commercialize our product candidates by building an internal sales and marketing infrastructure as well as establishing partnerships with pharmaceutical companies or contract sales organizations to market and sell to a broader physician audience in the United States than can be reached by our planned sales force alone. Within the United States, we intend to initially build a focused sales force of approximately 100 people by early 2009 to market and sell sumatriptan DosePro, if approved, to top triptan prescribers such as neurologists, headache specialists and key primary care physicians. We will exclusively rely on Desitin Arzneimittel GmbH, or Desitin, to market and sell sumatriptan DosePro in the European Union and other select countries. We may also rely on other commercial partners to market and sell sumatriptan DosePro and any other products in other countries. We cannot assure you that this sales and marketing strategy will be effective for our company. Even if we are able to effectively build our sales force and

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marketing capabilities or establish U.S. or additional foreign partnership agreements, we or our partners may not be successful in commercializing our products.

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

        The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. We face competition from a number of sources, including large pharmaceutical companies, smaller pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions, many of which have greater financial resources, marketing capabilities and experience in obtaining regulatory approvals for product candidates than us. These entities are actively engaged in research and development of products which may target the same indications as our product candidates. We expect any future products we develop to compete on the basis of, among other things, product efficacy and safety, time to market, price, patient reimbursement rules of government and private health insurers, extent of adverse side effects and convenience of treatment procedures. One or more of our competitors may develop needle-free injectable products, obtain necessary approvals for such products from the FDA, or other agencies, if required, more rapidly than us or develop alternative products or therapies that are safer, more effective and/or more cost effective than any products developed by us. If any of our product candidates receive the requisite regulatory approval and classification and are marketed, the competition which we will encounter will have an effect on our product prices, market share, revenues and profitability. We may not be able to differentiate any products that we are able to market from those of our competitors, successfully develop or introduce new products that are less costly or offer better results than those of our competitors, or offer purchasers of our products payment and other commercial terms as favorable as those offered by our competitors.

        The indications for which we are developing products have a number of established therapies and products already commercially available as well as a number under development by other companies with which our product candidates will compete. In addition, competitors may seek to develop alternative formulations of our product candidates and/or alternative drug delivery technologies that address our targeted indications. The commercial opportunity for our product candidates could be significantly harmed if competitors are able to develop alternative formulations and/or drug delivery technologies outside the scope of our products. Compared to us, many of our potential competitors have substantially greater:

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capital resources;



•

research and development resources, including personnel and technology;



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drug development, clinical trial and regulatory experience;



•

sales and marketing experience;



•

manufacturing and distribution experience;



•

name recognition; and



•

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

        As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are more effective, more useful, better tolerated, subject to fewer or less severe side effects, more widely prescribed or accepted or less costly than ours and may also be more successful than us in manufacturing and marketing their products. If our competitors are successful in developing such drugs, our ability to generate revenues and profits may be adversely affected.

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Our competitors could pursue regulatory and other strategies to combat competition from 505(b)(2) products, which may negatively affect the approval and commercialization of our product candidates.

        The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act, or FFDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. We have sought FDA marketing approval of sumatriptan DosePro under Section 505(b)(2) and may in the future seek approval of other product candidates under Section 505(b)(2). However, certain of our competitors have taken numerous steps to combat competition from 505(b)(2) products, including:

•

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



•

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



•

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



•

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

        If any of these strategies are successful, our ability to obtain approval of and commercialize our product candidates will be adversely affected.

The migraine market is extremely competitive. We will seek to compete with highly-prescribed branded products, products in development and potentially both oral and injectable generic sumatriptan products, all of which may negatively affect the commercial prospects for sumatriptan DosePro.

        If approved for the treatment of acute migraine attacks with or without aura, we anticipate that sumatriptan DosePro would compete against other currently marketed migraine therapeutics. These include eight other branded triptans being sold by pharmaceutical companies including AstraZeneca PLC, Endo Pharmaceutical Holdings Inc., GlaxoSmithKline, Johnson & Johnson, Merck & Co., Inc. and Pfizer Inc. Triptans are the largest class of prescription products for treatment of acute migraine and are available in oral and nasal spray forms. We also expect to compete against generic sumatriptan needle-based subcutaneous injection and tablets that will be available by the time we launch sumatriptan DosePro. For example, Par Pharmaceuticals Company, Inc. has announced plans to launch an authorized generic version of Imitrex injection no later than November 2008. There are also other classes of migraine therapeutics against which we will compete, including prescription migraine preventative therapies, which may affect the need for acute migraine products such as sumatriptan DosePro. All of these products are marketed by pharmaceutical companies with substantially greater resources than us. There are also several product candidates under development by large pharmaceutical companies, such as GlaxoSmithKline and Merck & Co., Inc., and other smaller companies such as Alexza Pharmaceuticals, Inc. and Map Pharmaceuticals, Inc., that could potentially be used to prevent and/or treat acute migraine and thereby compete with sumatriptan DosePro, if approved.

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The pain market is characterized by intense competition among a variety of established pharmaceutical products, as well as potential new competition from a number of product candidates under development, which may negatively affect the commercialization of ZX002.

        If approved for the treatment of moderate to severe chronic pain, we anticipate that ZX002 would compete against other marketed branded and generic pain therapeutics and may compete with additional product candidates currently under development. Opioid therapeutics generally fall into two classes: codeines, which include oxycodones and hydrocodones, and morphines. ZX002 is a hydrocodone, the most commonly prescribed opioid, and we expect ZX002 will compete with therapeutics within both the codeine and morphine classes. These therapeutics include both Schedule II and Schedule III products.

        Current competitors in the opioid pain therapeutics space include, but are not limited to, Abbott Laboratories, Alpharma Inc., Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, King Pharmaceuticals, Inc., Mallinckrodt Inc., Purdue Pharma L.P., Teva Pharmaceutical Industries Limited and Watson Pharmaceuticals, Inc. There are at least fifteen opioid product candidates, including abuse and diversion resistant formulations of currently available opioids, novel opioids and alternative delivery forms of various opioids under development at other pharmaceutical companies, including an extended release version of Vicodin being developed by Abbott Laboratories, and an extended-release hydrocodone product candidate being developed by Alpharma, Inc. ZX002 may also face competition from non-opioid product candidates including new chemical entities, as well as alternative delivery forms of NSAIDs. In addition to most of the previously named companies, a number of pharmaceutical companies are developing these new product candidates, including, but not limited to, Acura Pharmaceuticals, Inc., Altea Therapeutics Corporation, Elite Pharmaceuticals, Inc., Javelin Pharmaceuticals, Inc., Neuromed Pharmaceuticals, Ltd., Pfizer, Inc., QRxPharma Ltd. and Shire, plc. All of these existing and potential future products could negatively affect our ability to commercialize and gain market acceptance of ZX002, if approved.

Our failure to successfully acquire, develop and market additional product candidates or approved products would impair our ability to grow our business.

        As part of our growth strategy we intend to seek to expand our product pipeline by exploring acquisition or in-licensing opportunities of proven drugs that can be paired with our DosePro needle-free drug delivery system. However, the current version of our DosePro drug delivery system cannot be used with drug formulation volumes greater than 0.5mL. Currently approved injectable products for subcutaneous administration with formulation volumes greater than 0.5mL will require reformulation, if possible, to accommodate the approved doses in smaller volumes that are compatible with DosePro. This may increase the risk of failure during development, extend the development timelines and add additional complexity to the regulatory approval process. If we are not able to identify additional drug compounds that can be delivered via the current version of our DosePro technology, or if we are unable to successfully develop higher dose versions of this technology, our ability to develop additional product candidates and grow our business would be adversely affected. We will also seek opportunities to out-license the DosePro technology to partners seeking to enhance, differentiate, or extend the life-cycle of their injectable products. If we are unable to secure partnerships with companies that have compounds that can be delivered via the current version of our DosePro technology, or if we are unable to successfully develop higher dose versions of this technology, we will not be able to generate revenues from out-licensing our DosePro technology.

        Furthermore, we intend to in-license, acquire, develop and/or market additional products and product candidates in the areas of pain and central nervous system, or CNS, disorders. Because our internal research and development capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify and select

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promising pharmaceutical product candidates and products and negotiate licensing or acquisition agreements with their current owners.

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

        In addition, any future acquisitions may entail numerous operational and financial risks, including:

•

exposure to unknown liabilities;



•

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



•

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



•

higher than expected acquisition and integration costs;



•

increased amortization expenses;



•

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



•

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



•

inability to retain key employees of any acquired businesses.

        Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including pre-clinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we develop or approved products that we acquire will be manufactured profitably or achieve market acceptance. If we are unable to license or acquire additional product candidates and successfully develop and commercialize them, we may not be able to grow our potential revenues and profits, although to date, we have not received any product revenue from any of our product candidates.

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

        Our success depends on our continued ability to attract, retain and motivate highly qualified management and key clinical development, regulatory, sales and marketing and other personnel. We are highly dependent on the development, regulatory, commercial and financial expertise of our senior management team. We may not be able to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the areas in Southern and Northern California, where we currently operate. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly

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impede the achievement of our development and commercialization objectives, our ability to raise additional capital and our ability to implement our business strategy. The loss of the services of any members of our senior management team, especially our Chief Executive Officer, Roger L. Hawley, and President and Chief Operating Officer, Stephen J. Farr, Ph.D., could delay or prevent the commercialization of our product candidates. If we lose any members of our senior management team, we may not be able to find suitable replacements, and our business may be harmed as a result. In addition to the competition for personnel, our locations in California in particular are characterized by a high cost of living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts.

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

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

        Our management, personnel, systems and facilities currently in place may not be adequate to support our business plan and future growth. As of May 31, 2008, we had 32 full-time employees. We will need to continue to expand our managerial, operational, sales and marketing, financial and other resources in order to manage our operations and clinical trials, continue our development activities and commercialize our product candidates. Our management and personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:

•

manage our internal development and commercialization efforts effectively while carrying out our contractual obligations to licensors, contractors, collaborators and other third parties;



•

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



•

manage our clinical trials effectively; and



•

attract and retain sufficient numbers of talented employees, including building a sales force of approximately 100 people to market sumatriptan DosePro.

        We have traditionally utilized the services of outside consultants and vendors to perform a wide range of tasks for us, including clinical trial management, statistics, regulatory affairs, pharmacokinetics and other drug development functions. Our growth strategy may also entail expanding our group of contractors to implement these tasks going forward. Because we may rely on a substantial number of consultants, effectively outsourcing many key functions of our business, we will need to be able to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. However, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all. If we are

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not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and vendors, we may be unable to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

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

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

We are subject to uncertainty relating to coverage and reimbursement policies which, if not favorable to our product candidates, could hinder or prevent our product candidates' commercial success.

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

        In addition, the market for our future products will depend significantly on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. Industry competition to be included in such formularies results in downward pricing pressures on pharmaceutical companies. Third-party payors may refuse to include a particular branded drug in their formularies when a less costly generic equivalent or related alternative is available.

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

        Further, we believe that future coverage and reimbursement may be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for our products may not be available or adequate in either the United States or international markets, limiting our ability to sell our products on a profitable basis.

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

        The use of our product candidates in clinical trials and the sale and marketing of any products for which we obtain marketing approval expose us to the risk of product liability claims. Our product candidates are designed to affect important bodily functions and processes. Any side effects,

21

manufacturing defects, misuse or abuse associated with our product candidates could result in injury to a patient or even death. For example, because our DosePro technology is designed to be self-administered by patients, it is possible that a patient could fail to follow instructions and as a result apply a dose in a manner that results in injury. In addition, ZX002 is an opioid pain reliever that contains hydrocodone, which is a regulated "controlled substance" under the Controlled Substances Act of 1970, or CSA, and could result in harm to patients relating to its potential for abuse. In addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:

•

the inability to commercialize our product candidates;



•

decreased demand for our product candidates;



•

impairment of our business reputation;



•

product recall or withdrawal from the market;



•

withdrawal of clinical trial participants;



•

costs of related litigation;



•

distraction of management's attention from our primary business;



•

substantial monetary awards to patients or other claimants; or



•

loss of revenues.

        We have obtained product liability insurance coverage for our sumatriptan DosePro clinical trials with a $5 million per occurrence and a $5 million annual aggregate coverage limit. However, we will need to expand our insurance coverage for our planned Phase 3 trials for ZX002. Our insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to liability. If and when we obtain marketing approval for any of our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain this product liability insurance on commercially reasonable terms or with insurance coverage that will be adequate to satisfy any liability that may arise. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects, including side effects that are less severe than those of our product candidates. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

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

        Despite the implementation of security measures, our internal computer systems and those of our potential partners, contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event was to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or

22

security breach was to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.

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

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

Risks Related to Regulatory Approval and Regulation of our Product Candidates

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

        The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the FFDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Under this statutory provision, the FDA may rely, for purposes of approving an NDA, on findings of safety and effectiveness based on data not developed by the filer of the NDA. In addition, even though we may be able to take advantage of Section 505(b)(2) to support potential U.S. approval for sumatriptan DosePro, the FDA may require us, and already has required us with respect to sumatriptan DosePro, to perform additional studies or measurements to support approval. In addition, the FDA's interpretation and use of Section 505(b)(2) has been controversial and has previously been challenged in court, but without a definitive ruling on the propriety of the FDA's approach. Future challenges, including a direct challenge to the approval of our products, may be possible and, if successful, could limit or eliminate our ability to rely on the Section 505(b)(2) pathway for the approval of our products. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of our products.

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

        Any trade name we intend to use for our products will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office, or PTO. The FDA typically conducts a rigorous review of proposed trade names, including an evaluation of potential for confusion with other trade names. The FDA may also object to a trade name if it believes the name inappropriately implies medical claims. We have submitted proposed trade

23

names for sumatriptan DosePro to the FDA for approval. If the FDA objects to our proposed trade names, we may be required to adopt an alternative name for our product candidate. If we adopt an alternative name, we would lose the benefit of our existing trademark applications and may be required to expend significant additional resources in an effort to identify a suitable trade name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to generate revenues from our products.

Even if our product candidates receive regulatory approvals, they will be subject to ongoing obligations of the FDA and DEA and continued regulatory review, which may result in significant expense and limit our ability to commercialize our product candidates.

        Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product's indicated uses or marketing and distribution or impose ongoing requirements for potentially costly post-approval studies and surveillance to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review, such as continued safety testing, surveillance and reporting requirements, and we may also be subject to additional FDA post-marketing obligations, all of which may result in significant expense and limit our ability to commercialize our product candidates. We and our contract manufacturers will also be subject to ongoing DEA regulatory obligations, including, among other things, annual registration renewal, security, recordkeeping, theft and loss reporting, periodic inspection and annual quota allotments for the raw material for commercial production of our products. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practices, or cGMP, regulations and Quality System regulation, or QSR, requirements for medical device components. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where, or processes by which, the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturer or us, including requiring withdrawal of the product from the market or suspension of manufacturing.

        If any of our product candidates receive U.S. regulatory approval, the FDA may impose significant restrictions or limitations on the indicated uses for which such drugs may be marketed. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

•

suspend or withdraw product approvals or revoke necessary licenses;



•

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



•

commence criminal investigations and prosecutions;



•

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



•

impose fines or other civil or criminal penalties;



•

suspend any ongoing clinical trials;



•

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



•

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



•

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



•

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



•

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

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

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

Our product candidates may cause undesirable side effects or have other unexpected properties that could result in post approval regulatory action.

        If any of our product candidates receives marketing approval and we or others later identify undesirable side effects, or other previously unknown problems, caused by the product or other products with the same or related active ingredients, a number of potentially significant negative consequences could result, including:

•

regulatory authorities may withdraw their approval of the product;



•

regulatory authorities may require us to recall product;



•

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



•

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



•

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



•

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



•

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



•

our reputation may suffer.

        Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates.

ZX002 will be subject to DEA regulations and, failure to comply with these regulations, or the cost of compliance with these regulations, may adversely affect our business.

        ZX002 contains hydrocodone, a regulated "controlled substance" under the CSA, which establishes, among other things, certain registration, production quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. ZX002,

25

because it is a single entity hydrocodone product, is currently and will continue to be regulated by the DEA as a Schedule II controlled substance under the CSA. All Schedule II substance prescriptions, such as prescriptions for ZX002, must be in writing and signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

        The manufacture, shipment, storage, sale and use, among other things, of controlled substances that are pharmaceutical products are subject to a high degree of regulation, including security, recordkeeping and reporting obligations enforced by the DEA. Our failure to comply with these requirements could result in the loss of our DEA registration, significant restrictions on ZX002, civil penalties or criminal prosecution.

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

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

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

Annual DEA quotas on the amount of hydrocodone allowed to be produced in the United States and our specific allocation of hydrocodone by the DEA could significantly limit the clinical development of ZX002 as well as the production or sale of ZX002 even if we obtain FDA approval.

        The DEA limits the availability and production of all Schedule II substances through a quota system which includes a national aggregate quota and individual quotas. Because hydrocodone is subject to the DEA's production and procurement quota scheme, the DEA establishes annually an aggregate quota for how much hydrocodone may be produced in total in the United States based on the DEA's estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount of hydrocodone that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. The DEA requires substantial evidence and documentation of expected legitimate medical and scientific needs before assigning quotas to manufacturers. The DEA may adjust aggregate production quotas and individual production and

26

procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. The DEA's final revised aggregate production quotas for hydrocodone were 37,604 kg in 2005, 42,000 kg in 2006, 46,000 kg in 2007 and 45,200 kg in 2008. In 2007, our licensor was allocated a sufficient quantity of hydrocodone to meet our planned testing needs during 2008. However, we may need significantly greater amounts of hydrocodone in future years to implement our business plan.

        Moreover, we do not know what amounts of hydrocodone other companies developing product candidates containing hydrocodone may request for 2008 or future years. The DEA, in assessing factors such as medical need, abuse and diversion potential and other policy considerations, may choose to set the aggregate hydrocodone quota lower than the total amount requested by the companies. We are permitted to petition the DEA to increase the annual aggregate quota after it is initially established, but there is no guarantee that the DEA would act favorably upon such a petition. Our procurement quota of hydrocodone may not be sufficient to meet our future clinical development needs or commercial demand if we receive regulatory approval for our product candidate. Any delay or refusal by the DEA in establishing the procurement quota or a reduction in our quota for hydrocodone or a failure to increase it over time as we anticipate could delay or stop the clinical development of our product candidate or if approved, the product launch or commercial sale of our product or cause us to fail to achieve our expected operating results, which could have a material adverse effect on our business, our ability to execute on our business plan, our financial position and results of operations and our ability to generate revenue to fund the development of other product candidates.

Even if our product candidates receive regulatory approval in the United States, we, Desitin, or any potential partner may never receive approval or commercialize our products outside of the United States.

        We have established an exclusive commercial partnership for sumatriptan DosePro with Desitin in the European Union and other select countries in order to seek to accelerate the development and regulatory approvals in those territories. We may also seek to establish commercial partnerships for sumatriptan DosePro in other foreign countries. In order to market sumatriptan DosePro or any other products outside of the United States, we, Desitin, or any potential partner must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our products. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States, as well as other risks. For example, legislation analogous to Section 505(b)(2) of the FFDCA in the United States does not exist in other countries. In territories where data is not freely available, we or our partners may not have the ability to commercialize our products without negotiating rights from third parties to refer to their clinical data in our regulatory applications, which could require the expenditure of significant additional funds. We, Desitin, or any potential partner may be unable to obtain rights to the necessary clinical data and may be required to develop our own proprietary safety effectiveness dossiers. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed above regarding FDA approval in the United States. As described above, such effects include the risks that our product candidates may not be approved for all indications requested, which could limit the uses of our product candidates and have an adverse effect on their commercial potential or require costly, post-marketing studies. In addition, we, Desitin, or any potential partner may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution if we fail to comply with applicable foreign regulatory requirements.

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Recently enacted legislation may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market and distribute products after approval.

        The FDAAA, which was signed by the President on September 27, 2007, grants a variety of new powers to the FDA, many of which are aimed at improving the safety of drug products before and after approval. Under the FDAAA, companies that violate the new law are subject to substantial civil monetary penalties. While we expect the FDAAA to have a substantial effect on the pharmaceutical industry, the extent of that effect is not yet known. As the FDA issues regulations, guidance and interpretations relating to the new legislation, the impact on the industry, as well as our business, will become clearer. The new requirements and other changes that the FDAAA imposes may make it more difficult, and likely more costly, to obtain approval of new pharmaceutical products and to produce, market and distribute products after approval.

Health care reform measures and changes in policies, funding, staffing and leadership at the FDA and other agencies could hinder or prevent our product candidates' commercial success.

        In the United States, there have been a number of legislative and regulatory changes to the healthcare system in ways that could affect our future revenues and profitability and the future revenues and profitability of our potential customers. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established a new Part D prescription drug benefit, which became effective January 1, 2006. Under the prescription drug benefit, Medicare beneficiaries can obtain prescription drug coverage from private sector plans that are permitted to limit the number of prescription drugs that are covered in each therapeutic category and class on their formularies. If our products are not widely included on the formularies of these plans, our ability to market our products to the Medicare population could suffer.

        There also have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care services to contain or reduce costs of health care may adversely affect one or more of the following:

•

our ability to set a price we believe is fair or desire for our products;



•

our ability to generate revenues and achieve or maintain profitability;



•

the future revenues and profitability of our potential customers, suppliers and collaborators; and



•

the availability of capital.

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

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which could also reduce the revenue we generate from our product sales. It is also possible that other legislative proposals having similar effects will be adopted.

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

If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

        In addition to FDA and DEA restrictions on the marketing of pharmaceutical products and federal and state restrictions on prescribing these products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical and medical device industries in recent years. As a manufacturer of pharmaceuticals, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The regulations that may affect our ability to operate include:

•

the federal healthcare program Anti-Kickback Law, which prohibits, among other things, persons from soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;



•

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



•

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;



•

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



•

the FFDCA, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples; and



•

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

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

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

        We are subject to risks associated with the regulations relating to the import and export of products and materials. We cannot predict whether the import and/or export of our products will be adversely affected by changes in, or enactment of new quotas, duties, taxes or other charges or restrictions imposed by India, the United Kingdom or any other country in the future. Any of these factors could adversely affect our potential profitability.

Risks Related to Our Dependence On Third Parties

We are dependent on numerous third parties for the manufacture of our product candidates and our supply chain, and if we experience problems with any of these suppliers, the manufacturing of our products could be delayed.

        We do not own or operate manufacturing facilities and currently lack the in-house capability to manufacture any of our product candidates on a clinical or commercial scale. We outsource all manufacturing and packaging of our clinical product candidates to third parties. However, we currently do not have long-term commercial supply agreements with any third-party manufacturers for our product candidates. We may be unable to enter into agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms. Even if we enter into these agreements, the various manufacturers of each product candidate will likely be single source suppliers to us for a significant period of time. We may not be able to establish additional sources of supply for our products prior to commercialization. Such suppliers are subject to regulatory requirements covering, among other things, manufacturing, testing, quality control and record keeping relating to our product candidates, and are subject to ongoing inspections by regulatory agencies. Failure by any of our suppliers to comply with applicable regulations may result in long delays and interruptions to our manufacturing supply, and increase our costs, while we seek to secure another supplier who meets all regulatory requirements.

        Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:

•

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



•

the possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and



•

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

        Any of these factors could cause the delay or suspension of initiation or completion of clinical trials, regulatory submissions, required approvals or commercialization of our products, cause us to

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incur higher costs and could prevent us from commercializing our product candidates successfully. Furthermore, if our contract manufacturers fail to deliver the required commercial quantities of our finished product on a timely basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality, and on a timely basis, we would likely be unable to meet demand for our products and we would lose potential revenue. It may take a significant period of time to establish an alternative source of supply for our product candidates and to have any such new source approved by the FDA.

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

        Our DosePro drug delivery system is sourced, manufactured and assembled by multiple third parties across different geographic locations in Europe. The components of DosePro include the actuator subassembly, aseptic capsule, setting lever and outer shell. The actuator subassembly is comprised of nine individual components which are collectively supplied by six different third-party manufacturers. The aseptic capsule that houses the sterile drug formulation sumatriptan is comprised of six different components also supplied by multiple third-party manufacturers. If any of these third-party manufacturers is unable to supply its respective component for any reason, including due to violations of the FDA's QSR requirements, our ability to manufacture the finished DosePro device will be adversely affected and our ability to meet the distribution requirements for any potential product sales and the resulting revenue therefrom will be negatively affected.

        For example, the actuator subassembly and injection-molded components of our DosePro drug delivery system have historically been manufactured for us by Bespak plc, or Bespak. However, Bespak has advised us that it will be closing its manufacturing facility for business reasons unrelated to us, and that we would need to move our company-owned automated manufacturing processes and equipment to a new contract manufacturer. As a result, Nypro Ireland has replaced Bespak as the manufacturer of these component parts. However, there can be no guarantee that we will not face similar facility interruptions from our other third-party manufacturers in the future. While we plan on obtaining from our third-party manufacturers individual components in sufficient quantities to mitigate the risk associated with relying on single source manufacturers, there can be no assurance that any failure in any part of our supply chain will not materially and adversely affect our ability to generate revenue from sumatriptan DosePro, if approved.

Our failure to successfully establish partnerships with pharmaceutical companies or contract sales organizations would impair our ability to effectively market and sell our products.

        Traditional pharmaceutical companies employ groups of sales representatives numbering in the thousands to call on the large number of primary care physicians. In order to expand the market opportunity for our product candidates into the broader primary care physician audiences, we will need to establish partnerships with pharmaceutical companies or contract sales organizations. We do not currently employ any sales force personnel and may not be successful in establishing partnership arrangements on acceptable terms, if at all. Although we have established a commercial partnership for sumatriptan DosePro in the European Union and other select countries, we have not yet established a partnership to market and sell sumatriptan DosePro in the United States. We also face competition in our search for partners. Further, by entering into strategic partnerships or similar arrangements, we may rely in part on third parties for financial and commercialization resources. Even if we are able to identify suitable partners to assist in the commercialization of our product candidates, they may fail to devote the resources necessary to realize the full commercial potential of our product candidates. We cannot assure you that our sales and marketing strategy will work effectively for our company. Even if we are able to successfully establish partnership arrangements, the sales force and marketing teams of those partners may not be successful in commercializing our product candidates, which would adversely affect our ability to generate revenue.

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

        In March 2008, we entered into a licensing and distribution agreement with Desitin pursuant to which we have we granted Desitin the exclusive right under our intellectual property rights related to sumatriptan DosePro to develop, use, distribute, sell, offer for sale, and import sumatriptan DosePro in the European Union, Norway, Switzerland and Turkey. Since we will depend on Desitin to develop, obtain regulatory approval for and, if regulatory approval is granted, sell sumatriptan DosePro in these countries, we will have limited control over the success of Desitin's development, regulatory approval and commercialization efforts. For example, any additional clinical studies Desitin may conduct as part of the regulatory approval process may not corroborate the results of the clinical studies we have conducted or may have adverse results or effects on our ability to obtain regulatory approvals in the United States or other countries. In addition, Desitin may not develop sumatriptan DosePro as fast or generate as large of a market as we would like or as the market may expect and Desitin may not seek to develop or obtain approval for sumatriptan DosePro in countries for which it has exclusive rights, other than in Germany, where Desitin is required to actively develop, seek approval for and commercialize sumatriptan DosePro. Any failure by Desitin to successfully commercialize sumatriptan DosePro or to successfully obtain applicable foreign regulatory approval for sumatriptan DosePro would limit our opportunity to receive revenue from the territories licensed to Desitin. Furthermore, negative developments occurring in those territories controlled by Desitin could have a negative impact on physician and patient impressions of our product in the United States.

Risks Related to Intellectual Property

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

        Our commercial success will depend in part on obtaining and maintaining patent, trademark and trade secret protection of our device and pharmaceutical product candidates, sumatriptan DosePro and ZX002, their respective components, formulations, methods used to manufacture them and methods of treatment, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.

        We license certain intellectual property for ZX002 from Elan, and we rely on Elan to file and prosecute patent applications and maintain patents and otherwise protect the licensed intellectual property. We have not had and do not have primary control over these activities for certain of our patents or patent applications and other intellectual property rights. We cannot be certain that such activities by Elan have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. Enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents would also be subject to the control or cooperation of Elan.

        Most of our patents related to DosePro were acquired from Aradigm, who acquired those patents from a predecessor owner. Our patents related to ZX002 are licensed from Elan. Thus, most of our patents, as well as many of our applications, were not written by us or our attorneys, and we did not have control over the drafting and prosecution of these patents. Further, the former patent owners and our licensor might not have given the same attention to the drafting and prosecution of these patents and applications as we would have if we had been the owners of the patents and applications and had control over the drafting and prosecution. This could possibly result in findings of invalidity or unenforceability of our patents, reduced claim scope, or in pending applications not issuing as patents.

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

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

•

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



•

the active pharmaceutical agents in our device and product candidates are, or will soon become, available generically, and no patent protection will be available without regard to formulation or method of use;



•

we might not have been the first to make the inventions covered by our issued patents or pending patent applications;



•

we might not have been the first to file patent applications for these inventions;



•

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



•

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



•

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



•

it is possible that there are prior public disclosures that could invalidate our inventions or parts of our inventions of which we are not aware;



•

it is possible that others may circumvent our patents;



•

the laws of foreign countries may not protect our proprietary rights to the same extent as the laws of the Untied States;



•

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



•

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



•

we may not develop additional proprietary technologies that are patentable; or



•

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

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        If any of our patents are found to be invalid or unenforceable, or if we are otherwise unable to adequately protect our rights, it could have a material impact on our business and our ability to commercialize or license our technology and products.

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

        We are a party to a license agreement with Elan, pursuant to which we license key intellectual property for ZX002. This existing license imposes various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, Elan may have the right to terminate the license, in which event we might not be able to develop or market ZX002. If we lose such license rights, our business may be materially adversely affected. We may enter into additional licenses in the future and if we fail to comply with obligations under those agreements, we could suffer similar consequences.

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

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

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

        We may also not be able to detect infringement against our own or in-licensed patents, which may be especially difficult for methods of manufacturing or formulation products. While we intend to take actions reasonably necessary to enforce our patent rights, we depend, in part, on our licensors and collaborators to protect a substantial portion of our proprietary rights. For example, Elan, our licensor, is primarily responsible for the enforcement of the intellectual property rights related to ZX002. Under the agreement, Elan has the first right, but not the obligation, to initiate an infringement proceeding against a third-party infringer. If Elan decides not to commence or continue any action, they are required to notify us and we have the right to initiate proceedings after receiving their notice. We have limited control over the amount or timing of resources Elan devotes on our behalf or the priority they place on enforcing these patent rights to our advantage.

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

        Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our device and product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing products. As the device, biotechnology and pharmaceutical industries

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expand and more patents are issued, the risk increases that others may assert our device and/or pharmaceutical products infringe the patent rights of others. Moreover, it is not always clear to industry participants, including us, which patents cover various types of medical devices, products or their methods of use. Thus, because of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our products, technology or methods.

        In addition, there may be issued patents of third parties of which we are currently unaware, that are infringed or are alleged to be infringed by our device and/or product candidates or proprietary technologies. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications, or that we were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering our products or technology similar to ours. Any such patent application may have priority over our patent applications or patents, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the PTO to determine priority of invention in the United States. If another party has reason to assert a substantial new question or patentability against any of our claims in our U.S. patents, the third party can request that the PTO reexamine the patent claims, which may result in a loss of scope of some claims or a loss of the entire patent. In addition to potential infringement claims, interference and reexamination proceedings, we may become a party to other patent litigation and other proceedings in the European Patent Office. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our U.S. patent position with respect to such inventions.

        We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our device and/or product candidates and/or proprietary technologies infringe their intellectual property rights. These lawsuits are costly and could affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we or our commercialization partners are infringing the third party's patents and would order us or our partners to stop the activities covered by the patents. In addition, there is a risk that a court will order us or our partners to pay the other party damages for having violated the other party's patents.

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

        There is a substantial amount of litigation involving patent and other intellectual property rights in the device, biotechnology and pharmaceutical industries generally. If a third party claims that we or our

35

collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:

•

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



•

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



•

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



•

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



•

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

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

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

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

        For the patents and patent applications related to ZX002, Elan is obligated to maintain our licensed patents in the United States under our license agreement. Should Elan fail to pursue maintenance of our licensed patents and patent applications, Elan is obligated to notify us and, at that time, we will be granted an opportunity to maintain the prosecution and avoid withdrawal, cancellation, expiration or abandonment of the licensed U.S. patents and applications.

        We also may rely on trade secrets and confidentiality agreements to protect our technology and know-how, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect, and we have limited control over the protection of trade secrets used by our licensors, collaborators and suppliers. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third

36

party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. If our confidential or proprietary information is divulged to or acquired by third parties, including our competitors, our competitive position in the marketplace will be harmed and our ability to successfully generate revenues from our products could be adversely affected.

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

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

Risks Relating to this Offering and an Investment in Our Stock

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

        Prior to this offering, there has been no public market for our common stock, and there can be no assurance that a regular trading market will develop and continue after this offering or that the market price of our common stock will not decline below the initial public offering price. The initial public offering price will be determined through negotiations between us and the representatives of the underwriters and may not be indicative of the market price of our common stock following this offering. Among the factors considered in such negotiations are prevailing market conditions, certain of our financial information, market valuations of other companies that we and the representatives of the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant. See "Underwriting" for additional information. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the Nasdaq Global Market or otherwise or how liquid that market might become. An active public market for our common stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all.

If you purchase shares of our common stock sold in this offering, you will experience immediate and substantial dilution in the net tangible book value of your shares.

        The initial public offering price of our common stock in this offering is considerably more than the net tangible book value per share of our outstanding common stock. Investors purchasing shares of common stock in this offering will pay a price that substantially exceeds the value of our tangible assets after subtracting liabilities. As a result, investors will:

•

incur immediate dilution of $        per share, based on an assumed initial public offering price of $        per share, the mid-point of our expected public offering price range; and



•

contribute        % of the total amount invested to date to fund our company based on an assumed initial offering price to the public of $        per share, the mid-point of our expected public offering price range, but will own only        % of the shares of common stock outstanding after the offering.

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        To the extent outstanding stock options are exercised, there will be further dilution to new investors.

        Because we will need to raise additional capital to fund our clinical development programs, among other things, we may conduct substantial additional equity offerings. These future equity issuances, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, will result in further dilution to investors. See the "Dilution" section in this prospectus.

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a significant return.

        The net proceeds from this offering will be used to establish a sales and marketing infrastructure, to fund research and development activities of our product candidates and for working capital and other general corporate purposes. We may also use a portion of the net proceeds to in-license, acquire or invest in complementary businesses or products. We have no present commitments or obligations with respect to any such in-licenses, acquisitions or investments and no portion of the net proceeds from this offering has been allocated for any specific transaction. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value. The failure of our management to apply these funds effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.

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

        Our operations have consumed substantial amounts of cash since inception. To date, our operations have been primarily financed through the proceeds from the issuance of our preferred stock and borrowings under our loan and security agreement with General Electric Capital Corporation, or GE Capital. We expect to spend substantial amounts on commercialization activities for sumatriptan DosePro, development activities for ZX002 and any future product candidates, including significant amounts on conducting clinical trials, manufacturing, clinical supplies and expanding our product development programs. Developing products for the pain-relief market, conducting clinical trials, establishing outsourced manufacturing relationships and successfully manufacturing and marketing drugs that we may develop is expensive and we expect that our monthly cash used by operations will increase substantially for the next several years. We may need to raise additional capital to:

•

commercialize sumatriptan DosePro;



•

scale-up capacity, and qualify secondary sources, for the manufacturing of sumatriptan DosePro;



•

fund our operations and continue to conduct clinical trials of ZX002 and any future product candidate to support potential regulatory approval of marketing applications; and



•

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

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

•

the timing of regulatory approval of sumatriptan DosePro or our other product candidates, if at all;



•

the rate of progress and cost of our clinical trials and other product development programs for ZX002 and any other product candidates that we may develop, in-license or acquire;



•

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



•

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



•

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



•

the effect of competing technological and market developments; and



•

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

        Until we can generate a sufficient amount of product revenue and achieve profitability, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, as well as through interest income earned on cash balances. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to significantly delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts. We also may be required to relinquish, license or otherwise dispose of rights to product candidates or products that we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available.

Our quarterly operating results may fluctuate significantly.

        We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:

•

variations in the level of expenses related to our two existing product candidates or future development programs;



•

addition or termination of clinical trials or funding support;



•

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



•

regulatory developments affecting our product candidates or those of our competitors;



•

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



•

if either of our product candidates receives regulatory approval, the level of underlying demand for our product candidates and wholesalers' buying patterns.

        If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

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We expect that the price of our common stock will fluctuate substantially.

        The initial public offering price for the shares of our common stock sold in this offering has been determined by negotiation between the representatives of the underwriters and us. This price may not reflect the market price of our common stock following this offering. The price of our common stock may decline. In addition, following this offering the market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:

•

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



•

the development status of our product candidates, including the results from our clinical trials;



•

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



•

our execution of our manufacturing, sales and marketing, and other aspects of our business plan;



•

failure of any of our product candidates, if approved, to achieve commercial success;



•

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



•

market conditions or trends in the pharmaceutical and biotechnology sectors or the economy as a whole;



•

changes in operating performance and stock market valuations of other pharmaceutical companies;



•

price and volume fluctuations in the overall stock market;



•

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



•

the public's response to press releases or other public announcements by us or third parties, including our filings with the SEC and announcements relating to litigation, intellectual property or our business;



•

litigation or public concern about the safety of our potential products;



•

actual and anticipated fluctuations in our quarterly operating results;



•

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



•

deviations in our operating results from the estimates of securities analysts or other analyst comments;



•

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



•

additions or departures of key personnel;



•

third-party coverage and reimbursement policies;



•

developments concerning current or future strategic collaborations including our execution of collaborative, co-promotion, licensing or other arrangements, and the timing of payments we may make or receive under these arrangements;



•

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



•

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

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•

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



•

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



•

changes in accounting principles; and



•

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

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

We may become involved in securities class action litigation that could divert management's attention and adversely affect our business.

        The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical companies. These broad market fluctuations as well as the realization of any of the risks described in these "Risk Factors" may cause the market price of our common stock to decline. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent years. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management's attention and resources, which could adversely affect our business.

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

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

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

        Immediately following this offering, our executive officers, key employees and directors and their affiliates will together control approximately        % of our outstanding common stock. Five of our non-employee directors are, or are representatives designated by, significant stockholders and two of our directors are executive officers. As a result, these stockholders will collectively be able to significantly influence all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions such as mergers, consolidations or the sale of all or substantially all of our assets. The concentration of ownership may delay, prevent or deter a change in control of our company even when such a change may be in the best interests of some stockholders, impede a merger, consolidation, takeover or other business combination involving us, or could deprive

41

our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might affect the prevailing market price of our common stock.

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

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

        We may raise additional funds through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership will be diluted. Debt financing typically contains covenants that restrict operating activities. Our loan and security agreement with GE Capital is secured by a pledge of specific equipment assets and contains provisions which allow GE Capital to accelerate the debt if a material adverse change in our business occurs. Any future debt financing we enter into may involve more onerous covenants that restrict our operations. Our obligations under this loan and security agreement or any future debt financing will need to be repaid, which creates additional financial risk for our company, particularly if our business or prevailing financial market conditions are not conducive to paying-off or refinancing our outstanding debt obligations.

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

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

        Sales of a substantial number of shares of our common stock or securities convertible or exchangeable into our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have                outstanding shares of common stock based on the number of shares outstanding as of                             and after giving effect to the conversion of all of the shares of our preferred stock outstanding as of                             into shares of common stock in connection with this offering. This also includes the shares that we are selling in this offering, which may be resold in the public market immediately. Of the remaining shares,                  shares are currently restricted as a result of securities laws or lock-up agreements but will be available for resale in the public market as described in the "Shares Eligible for Future Sale" section of this prospectus. As a result of the lock-up agreements between our underwriters and our security holders and the provisions of Rule 144 and Rule 701 under the Securities Act, the shares of our common stock (excluding the shares sold in this offering) that will be available for sale in the public market are as follows:

•

            shares will be eligible for sale under Rule 144 or Rule 701 upon the expiration of the lock-up agreements, beginning 180 days after the date of this prospectus;



•

            shares will be eligible for sale under Rule 144 upon the expiration of the lock-up agreements, subject to volume limitations, manner of sale requirements and other restrictions, beginning 180 days after the date of this prospectus;

42

•

            shares will be eligible for sale, upon exercise of vested options, upon the expiration of the lock-up agreements, beginning 180 days after the date of this prospectus; and



•

            shares will be eligible for sale, upon exercise of outstanding warrants, upon expiration of the lock-up agreements, beginning 180 days after the date of this prospectus.

        Moreover, we also intend to register all shares of common stock that we may issue after this offering under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described above and in the "Underwriting" section of this prospectus.

        After this offering, holders of approximately                  shares of common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. These rights will continue following this offering and will terminate five years following the completion of this offering, or for any particular holder with registration rights, at such time following this offering when all securities held by that stockholder subject to registration rights may be sold pursuant to Rule 144 under the Securities Act. All holders of our preferred stock are parties to this agreement. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the "Underwriting" section of this prospectus.

        If a large number of shares of our common stock or securities convertible into our common stock are sold in the public market after they become eligible for sale, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.

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

        Our amended and restated certificate of incorporation and amended and restated bylaws, which are to become effective at the closing of this offering, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

•

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



•

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



•

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



•

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



•

a requirement of approval of not less than 66²/3% of all outstanding shares of our capital stock entitled to vote to amend any bylaws by stockholder action, or to amend specific provisions of our certificate of incorporation; and



•

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

        In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations

43

with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including to delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

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

        The continued operation and expansion of our business will require substantial funding. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. We have paid no cash dividends on any of our classes of capital stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur.

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

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act and the Nasdaq Stock Market Rules, or Nasdaq rules. The requirements of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. The Exchange Act will require, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as the Nasdaq rules and rules subsequently implemented by the SEC, has imposed various new requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

        The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure. Ensuring that we have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently. In particular, commencing in fiscal 2009, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing

44

by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or identify other areas for further attention or improvement. We expect to incur significant expense and devote substantial management effort toward ensuring compliance with Section 404. We currently do not have an internal audit function, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Implementing any appropriate changes to our internal controls may require specific compliance training for our directors, officers and employees, entail substantial costs to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources.

        Compliance with these reporting, Sarbanes-Oxley Act and Nasdaq Stock Market requirements will require us to build out our accounting and finance staff. We currently employ a small number of accounting and finance employees. Our failure to adequately build out our accounting and financing staff would harm our ability to comply with the requirements listed above.

Rules established by the Financial Accounting Standards Board, or FASB, require us to expense equity compensation given to our employees and may impact our ability to effectively utilize equity compensation to attract and retain employees.

        The FASB has adopted changes that require companies to record a charge to earnings for employee stock option grants and other equity incentives effective January 1, 2006, which we have adopted. These accounting changes may cause us to reduce the availability and amount of equity incentives provided to employees, which may make it more difficult for us to attract, retain and motivate key personnel. Additionally, it may be difficult for us to estimate the impact of such compensation charges on future operating results because they will be based upon the fair market value of our common stock and other assumptions at future dates.

Future interpretations of existing accounting standards could adversely affect our operating results.

        Generally accepted accounting principles in the United States are subject to interpretation by FASB, the American Institute of Certified Public Accountants, the SEC and various other bodies that promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

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

        Certain payments to our suppliers are denominated in Euro and U.K. pounds sterling. Our reporting currency is the U.S. dollar. As a result, we are exposed to foreign exchange risk, and our results of operations may be negatively impacted by fluctuations in the exchange rate between the U.S. dollar and the Euro or U.K pound sterling. A significant appreciation in the Euro or U.K pound sterling relative to the U.S. dollar will result in higher expenses and cause increases in our net losses. We currently have not entered into any foreign currency hedging contracts to reduce the effect of adverse changes in foreign currencies.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that involve substantial risks and uncertainties, including statements regarding the progress and timing of clinical trials, the safety and efficacy of our product candidates, the goals of our development activities, estimates of the potential markets for our product candidates, our ability to develop sales and marketing capabilities, estimates of the capacity of manufacturing and other facilities to support our products, projected cash needs and our expected future revenues, operations and expenditures. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include, among others:

•

our short operating history, our lack of significant revenue and profitability, our significant historical operating losses and our ability to obtain additional funding to continue to operate our business, which funding may not be available on commercially reasonable terms, or at all;



•

our dependence on the success of sumatriptan DosePro and ZX002;



•

our ability to successfully complete clinical development of our product candidates, including ZX002, on expected timetables, or at all, which includes enrolling sufficient patients in our clinical trials and demonstrating the safety and efficacy of these product candidates in such trials;



•

the timing of the FDA's approval, if at all, of our NDA for sumatriptan DosePro;



•

the content and timing of submissions to, and decisions made by, the FDA and other regulatory agencies, including foreign regulatory agencies, and demonstrating the safety and efficacy of our product candidates to the satisfaction of the FDA and such other agencies;



•

our ability to develop sales, distribution and marketing capabilities or enter into agreements with third parties to sell, distribute and market any of our product candidates that may be approved for sale;



•

the intense competition in the pharmaceutical industry and the ability of our competitors, many of whom have greater resources than we do, to offer different or better therapeutic alternatives than our product candidates;



•

our ability to grow our business by identifying and acquiring or in-licensing new product candidates, increasing the size of our organization and attracting and retaining key personnel;



•

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



•

market acceptance of and future development and regulatory difficulties relating to any product candidates for which we receive regulatory approval;



•

our reliance on third parties for the manufacture and supply of our product candidates;



•

our compliance with the agreements under which we license certain patents and other rights related to our product candidates; and



•

our and our licensors' ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection of our product candidates and the rights relating thereto.

46

        Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "intend," "plan," "anticipate," "believe," "estimate," "project," "predict," "potential," or the negative of those terms, and similar expressions and comparable terminology intended to identify forward-looking statements. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may materially differ from what we expect. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this prospectus and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this prospectus. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.

47

USE OF PROCEEDS

        We estimate that we will receive net proceeds of approximately $         million from the sale of the shares of common stock in this offering, based on an assumed initial public offering price of $        per share (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us. Each $1.00 increase or decrease in the assumed initial public offering price of $        per share would increase or decrease, respectively, the net proceeds to us from this offering by approximately $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

        We currently expect to use our net proceeds from this offering as follows:

•

approximately $        million to establish a sales and marketing infrastructure;



•

approximately $        million to fund research and development activities of ZX002; and



•

the remainder to fund working capital and other general corporate purposes.

        We may also use a portion of the net proceeds to in-license, acquire or invest in complementary businesses or products. However, we have no current commitments or obligations to do so. We anticipate that the net proceeds from this offering will allow us to complete our first Phase 3 clinical trial for ZX002 and initiate two additional ZX002 Phase 3 clinical trials.

        The amounts and timing of our actual expenditures will depend on numerous factors, including the FDA's approval decision on our NDA for sumatriptan DosePro and the progress of our clinical trials and other development and commercialization efforts, as well as the amount of cash used in our operations. We therefore cannot estimate the amount of net proceeds to be used for all of the purposes described above. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application of the net proceeds. Pending the uses described above, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

        We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our common stock. We expect to retain future earnings, if any, to finance ongoing operations and the growth of our business. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and contractual restrictions.

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CAPITALIZATION

        The following table sets forth our cash and cash equivalents and investment securities, available for sale, and capitalization as of March 31, 2008:

•

on an actual basis; and



•

on a pro forma as adjusted basis to reflect (a) the conversion upon the consummation of this offering of all outstanding shares of our preferred stock into 77,890,909 shares of common stock and (b) our sale of                  shares of common stock in this offering and our receipt of the estimated net proceeds therefrom, based on an assumed initial public offering price of $      per share (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

        The information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes appearing elsewhere in this prospectus.

		As of March 31, 2008
		Actual			Pro Forma As Adjusted(1)
		(in thousands)
Cash and cash equivalents and investment securities, available-for-sale		$	33,046		$
Long-term debt, less current portion		$	2,619
Convertible preferred stock warrant			316
Series A-1, A-2 and A-3 convertible preferred stock, $0.001 par value; 83,000,000 shares authorized, 77,890,909 shares issued and outstanding; pro forma as adjusted—no shares authorized, issued or outstanding			76,955
Stockholders' equity (deficit)
	Preferred stock, $0.001 par value; actual—no shares authorized, issued or outstanding; pro forma as adjusted—10,000,000 shares authorized, no shares issued or outstanding		—
	Common stock, $0.001 par value; actual—111,000,000 shares authorized, 13,457,188 shares issued and outstanding; pro forma as adjusted—100,000,000 shares authorized,              shares issued and outstanding		13
	Additional paid-in capital		207
	Accumulated other comprehensive income		—
	Deficit accumulated during the development stage		(42,088	)
	Total stockholders' equity (deficit)		(41,868	)
	Total capitalization	$	38,022		$

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $      per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase or decrease, respectively, the amount of cash and cash equivalents and investment securities, additional paid-in capital and total capitalization by approximately $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

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        The number of shares of common stock shown as issued and outstanding in the table excludes:

•

2,920,000 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2008 at a weighted average exercise price of $0.11 per share;



•

200,000 shares of common stock issuable upon the exercise of a warrant outstanding as of March 31, 2008 at an exercise price of $1.00 per share;



•

            shares of our common stock reserved for future issuance under our 2008 equity incentive award plan, which will become effective on the day prior to the day on which we become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (including 1,490,000 shares of common stock reserved for future grant or issuance under our 2006 equity incentive plan, which shares will be added to the shares to be reserved under our 2008 equity incentive award plan upon the effectiveness of the 2008 equity incentive award plan); and



•

            shares of common stock reserved for issuance under our 2008 employee stock purchase plan, which will become effective upon the completion of this offering.

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DILUTION

        If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock after this offering.

        As of March 31, 2008, our historical net tangible book value was a deficit of $41.9 million, or $3.11 per share of common stock, based on 13,457,188 shares of our common stock outstanding at March 31, 2008. Our historical net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and convertible preferred stock, divided by the total number of shares of our common stock outstanding as of March 31, 2008. Dilution in net tangible book value represents the difference between the amount per share that you pay in this offering and the net tangible book value per share immediately after this offering.

        After giving effect to the conversion upon consummation of this offering of all of our outstanding shares of preferred stock into 77,890,909 shares of our common stock, and after giving effect to our sale in this offering of                        shares of our common stock at an assumed initial public offering price of $      per share (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering costs payable by us, our as adjusted net tangible book value as of March 31, 2008 would have been $      million, or $      per share of our common stock. This represents an immediate increase of net tangible book value of $      per share to our existing stockholders and an immediate dilution of $      per share to investors purchasing shares in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per share					$
	Net tangible book value per share at December 31, 2007, before giving effect to this offering	$	(3.11	)
	Increase per share attributable to conversion of all outstanding shares of convertible preferred stock		3.50
	Increase per share attributable to investors purchasing shares in this offering
Net tangible book value per share, as adjusted to give effect to this offering
Dilution to investors in this offering					$

        Each $1.00 increase or decrease in the assumed initial public offering price of $      per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase or decrease our adjusted net tangible book value by approximately $      million, the adjusted net tangible book value per share after this offering by approximately $      per share and the dilution in pro forma net tangible book value per share to investors in this offering by approximately $      per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

        If the underwriters fully exercise their option to purchase additional shares, the pro forma net tangible book value per share after giving effect to this offering would be $      per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $      per share.

        The following table summarizes, as of March 31, 2008, the differences between the number of shares of common stock purchased from us, after giving effect the conversion of our Series A-1 and Series A-2 convertible preferred stock into common stock, the total effective cash consideration paid

51

and the average price per share paid by our existing stockholders and by investors participating in this offering at an assumed initial public offering price of $      per share (the mid-point of the price range set forth on the cover page of this prospectus) before deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us:

		Shares Purchased			Total Consideration
									Average Price Per Share
		Number	Percent		Amount		Percent
Existing stockholders before this offering		91,348,097		%	$	78,940,642		%	$	0.86
Investors participating in this offering
	Total		100.0	%	$		100.0	%

        Each $1.00 increase or decrease in the assumed initial public offering price of $      per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase or decrease total consideration paid by new investors, total consideration paid by all stockholders and the average price per share paid by all stockholders by $      million, $      million and $            , respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering costs payable by us.

        If the underwriters fully exercise their option to purchase additional shares, our existing stockholders would own        % and our new investors would own            % of the total number of shares of our common stock outstanding after this offering.

        The above information assumes no exercise of stock options or warrants outstanding as of March 31, 2008, and excludes:

•

2,920,000 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2008 at a weighted average exercise price of $0.11 per share;



•

200,000 shares of common stock issuable upon the exercise of a warrant outstanding as of March 31, 2008 at an exercise price of $1.00 per share;



•

            shares of our common stock reserved for future issuance under our 2008 equity incentive award plan, which will become effective on the day prior to the day on which we become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (including 1,490,000 shares of common stock reserved for future grant or issuance under our 2006 equity incentive plan, which shares will be added to the shares to be reserved under our 2008 equity incentive award plan upon the effectiveness of the 2008 equity incentive award plan); and



•

            shares of common stock reserved for issuance under our 2008 employee stock purchase plan, which will become effective upon the completion of this offering.

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SELECTED FINANCIAL DATA

        The selected statement of operations data for the period from August 25, 2006 (inception) through December 31, 2006 and the year ended December 31, 2007, and the balance sheet data as of December 31, 2006 and 2007 have been derived from our audited financial statements included elsewhere in this prospectus. The selected statement of operations data for the three-month periods ended March 31, 2007 and 2008 and the period from August 25, 2006 (inception) through March 31, 2008, and the balance sheet data as of March 31, 2008, have been derived from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements and, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, that we consider necessary for the fair presentation of the financial data. Historical results are not necessarily indicative of future results. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus.

			Period from August 25, 2006 (Inception) through December 31, 2006												Period from August 25, 2006 (Inception) through March 31, 2008
									Three Months ended March 31,
						Year ended December 31, 2007
									2007			2008
									(Unaudited)						(Unaudited)
			(in thousands, except per share amounts)
Statement of Operations Data
Operating expenses:
	Research and development		$	4,902		$	24,323		$	3,632		$	7,485		$	36,710
	Selling, general and administrative			1,474			4,702			969			1,631			7,807
		Total operating expenses		6,376			29,025			4,601			9,116			44,517
Loss from operations				(6,376	)		(29,025	)		(4,601	)		(9,116	)		(44,517	)
Other income (expense):
	Interest income			395			927			261			345			1,667
	Interest expense			—			(484	)		(32	)		(187	)		(671	)
	Other financing income			582			906			228			—			1,488
	Other expense			—			(4	)		—			(51	)		(55	)
Total other income (expense)				977			1,345			457			107			2,429
Net loss				(5,399	)		(27,680	)		(4,144	)		(9,009	)		(42,088	)
Deemed dividend for the beneficial conversion on Series A-1 and Series A-2 convertible preferred stock				—			(18,360	)		—			—			(18,360	)
Net loss applicable to common stockholders			$	(5,399	)	$	(46,040	)	$	(4,144	)	$	(9,009	)	$	(60,448	)
Basic and diluted net loss applicable to common stockholders(1)			$	(1.36	)	$	(8.08	)	$	(0.88	)	$	(1.22	)
Shares used to calculate net loss applicable to common stockholders(1)				3,970			5,701			4,716			7,407
Pro forma net loss per share, basic and diluted(1)						$	(0.65	)				$	(0.11	)
Shares used to calculate pro forma net loss per share(1)							42,827						85,298

(1)

See Notes 2 and 12 of Notes to Financial Statements for an explanation of the method used to calculate net loss per share and the number of shares used in the computation of the per share amounts.

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		As of December 31,						As of March 31,
		2006			2007			2008
								(Unaudited)
		(in thousands)
Balance Sheet Data:
	Cash and cash equivalents and investment securities, available for sale	$	22,103		$	43,255		$	33,046
	Working capital		20,035			38,836			27,915
	Total assets		26,942			53,007			44,575
	Long-term debt, less current portion		—			2,870			2,619
	Convertible preferred stock		27,110			76,955			76,955
	Deficit accumulated during the development stage		(5,399	)		(33,079	)		(42,088	)
	Total stockholders' equity (deficit)		(5,385	)		(32,926	)		(41,868	)

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our financial statements and related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

Background

        We are a specialty pharmaceutical company with two proprietary product candidates in late-stage development for the treatment of central nervous system disorders and pain. Our lead product candidate, sumatriptan DosePro, enables needle-free subcutaneous delivery of sumatriptan for the treatment of acute migraine. We submitted a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. If sumatriptan DosePro is approved by the FDA, we intend to build our own focused sales force in the United States and launch the product in the first quarter of 2009. Our second product candidate, ZX002, is a novel controlled release formulation of hydrocodone for the treatment of chronic pain. This product candidate has completed Phase 2 clinical trials, and we anticipate initiating the Phase 3 clinical program in the second half of 2008.

        Until sumatriptan DosePro is approved, we will be considered to be in the development stage. In addition, we have experienced losses since inception, and as of March 31, 2008, had an accumulated deficit of $42.1 million. We expect to continue to incur losses for the next several years, even if we obtain approval of sumatriptan DosePro and commercialize that product. Successful transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure. Until that time, we will continue to need to raise additional capital through debt or equity financing. We believe that we have sufficient capital to fund operations through at least December 31, 2008.

        Our failure to obtain approval of sumatriptan DosePro by the FDA would have a material adverse effect on our business, results of operations, cash flows and financial condition.

Revenues

        We have not generated any revenues to date, and we do not expect to generate any revenues from product sales, licensing or achievement of milestones until we are able to commercialize our product candidates or execute a collaboration arrangement.

Research and Development Expenses

        The majority of our operating expenses to date have been incurred for research and development activities. Our research and development expenses consist primarily of costs associated with pre-clinical testing, clinical development and the manufacturing development of sumatriptan DosePro. These expenses include payments to vendors such as contract manufacturing organizations, or CMOs, investigators, suppliers of clinical drug materials and related consultants. Salaries and related employee benefits for certain personnel, and costs associated with certain non-clinical activities such as regulatory expenses, are also included in these expenses. We charge all research and development expenses to operations as incurred.

        We use our employee and infrastructure resources across multiple research projects, including our drug development programs. Therefore, we have not tracked expenses related to our product

55

development activities on a program-by-program basis. However, we estimate that the majority of our research and development expenses incurred to date are attributable to our sumatriptan DosePro program. The following table illustrates, for each period presented, our research and development costs broken down by major categories of the cost:

			Period from August 25, 2006 (Inception) through December 31, 2006								Period from August 25, 2006 (Inception) through March 31, 2008
							Three Months ended March 31,
					Year ended December 31, 2007
							2007		2008
			(in thousands)
Research and development expenses:
	Manufacturing development expenses		$	2,747	$	13,701	$	2,139	$	4,883	$	21,331
	Clinical/regulatory expenses			835		10,622		1,493		2,602		14,059
	Purchased in-process research and development			1,320		—		—		—		1,320
		Total	$	4,902	$	24,323	$	3,632	$	7,485	$	36,710

        The successful development of our product candidates is highly uncertain. Our NDA for sumatriptan DosePro was accepted for filing by the FDA in March 2008 and we anticipate initiating the Phase 3 clinical program for ZX002 in the second half of 2008. However, at this time, we cannot reasonably estimate or know the nature, specific timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of, or the period, if any, in which material net cash inflows may commence from our product candidates. This is due to the numerous risks and uncertainties associated with developing and commercializing drugs, including the uncertainty of:

•

approval by the FDA of our NDA for sumatriptan DosePro;



•

the progress and results of our clinical trials of ZX002;



•

the costs, timing and outcome of regulatory review of ZX002;



•

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



•

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



•

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



•

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



•

our degree of success in commercializing sumatriptan DosePro and our other product candidates; and



•

our ability to establish and maintain collaborations and the terms and success of those collaborations, including the timing and amount of payments that we might receive from potential strategic collaborators.

        A change in the outcome of any of these variables with respect to the development of our product candidates could mean a significant change in the costs and timing associated with these efforts. While we are currently focused on advancing each of our product development programs, our future research and development expenses will depend on the design of our clinical trials, the results of these trials and

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ongoing assessments as to each product candidate's commercial potential. In addition, we cannot forecast with any degree of certainty which product candidates will be subject to future partnership arrangements, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and expenses.

Selling, General and Administrative Expenses

        To date, our selling expenses, which include sales and marketing costs, have consisted primarily of salaries, benefits, consulting fees and market research studies related to preparing strategically for the potential launch of our product candidates. In 2008, we intend to expand our commercial infrastructure, including sales and marketing management, and to hire a portion of our sales representatives. We anticipate increases in selling and marketing expenses as we add these personnel, develop our professional and patient advertising and promotional materials, continue market research, purchase market data and begin our outreach to the wholesale and retail distribution channels, in preparation for the potential launch of sumatriptan DosePro.

        Our general and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, accounting, business development and internal support functions. In addition, general and administrative expenses include professional fees for legal, consulting and accounting services. We anticipate increases in general and administrative expenses as we add personnel and continue to build our corporate infrastructure to support our continued development, prepare for the potential commercialization of our product candidates and comply with the reporting and other obligations applicable to public companies.

Interest Income

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

Interest Expense

        Interest expense consists of interest incurred in connection with our $10.0 million loan and security agreement with General Electric Capital Corporation, or GE Capital, and non-cash interest expense associated with the increase in the fair value of the common stock issuable upon the exercise of a warrant issued to GE Capital.

Other Financing Income

        Other financing income represents the changes in the estimated fair value of our obligation resulting from a right granted to the investors of Series A-1 convertible preferred stock. This right obligates us to deliver additional shares of Series A-1 convertible preferred stock at a specified price in the future, prior to the achievement of specified milestones, at the option of the investors holding at least 67% of the then-outstanding Series A-1 convertible preferred shares. At each reporting date, we determine the estimated fair value of this obligation using a valuation model which considers the probability of achieving the specified milestones, our cost of capital, the estimated time period the right will be outstanding, consideration received for the instrument with the right, the number and price of shares to be issued to satisfy the right and any changes in the fair value of the underlying instrument of the right.

Other Expense

        Other expense consists of foreign currency transaction gains and losses and state franchise taxes.

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Net Operating Losses and Tax Credit Carryforwards

        As of December 31, 2007, we had federal and state net operating loss carryforwards of approximately $32.2 million. If not utilized, the net operating loss carryforwards will begin expiring in 2026 for federal tax purposes and 2016 for state tax purposes. As of December 31, 2007, we had federal and state research and development tax credit carryforwards of approximately $269,000 and $283,000, respectively. The federal tax credits will begin expiring in 2026 unless previously utilized and the state tax credits carry forward indefinitely. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, substantial changes in our ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income. Any such annual limitation may significantly reduce the utilization of the net operating losses before they expire. In each period since our inception, we have recorded a valuation allowance for the full amount of our deferred tax asset, as the realization of the deferred tax asset is uncertain. As a result, we have not recorded any federal or state income tax benefit in our statement of operations.

Beneficial Conversion Feature

        During December 2007, we completed the sale of 23,025,000 shares of Series A-1 convertible preferred stock and 9,090,909 shares of Series A-2 convertible preferred stock for net proceeds of approximately $23.0 million and $9.9 million, respectively. The Series A-1 and Series A-2 convertible preferred stock were sold at prices per share below the estimated fair value of our common stock. Accordingly, pursuant to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features, we recorded a deemed dividend on the Series A-1 and Series A-2 convertible preferred stock of $18.4 million which is equal to the number of shares of Series A-1 and Series A-2 convertible preferred stock sold multiplied by the difference between the estimated fair value of the underlying common stock and the Series A-1 and Series A-2 issuance price per share.

Critical Accounting Policies and Estimates

        Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. Actual results could differ from those estimates.

        We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Stock-Based Compensation

        On January 1, 2006, we adopted Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the requisite service period, which is generally the vesting period. While we adopted SFAS No. 123(R) prospectively for new equity awards issued subsequent to January 1, 2006, we did not issue our first stock based awards until February 2007.

        Under SFAS No. 123(R), we calculate the fair value of stock option grants using the Black-Scholes option-pricing model which requires the use of certain assumptions. The weighted average assumptions used in the Black-Scholes model were 6.0 years for the expected term, 77% for the expected volatility, 4.6% for the risk free rate and 0% for dividend yield for the year ended December 31, 2007. Future

58

expense amounts for any particular quarterly or annual period could be affected by changes in our assumptions.

        The weighted average expected option term for 2007 reflects the application of the simplified method set out in the SEC's Staff Accounting Bulletin, or SAB, No. 107 which was issued in March 2005. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option grants.

        Estimated volatility for fiscal year 2007 and for the three months ended March 31, 2008 also reflects the application of SAB No. 107 interpretive guidance and, accordingly, incorporates historical volatility of a peer group of similar public entities.

        As of March 31, 2008, total unrecognized share-based compensation costs related to non-vested option awards was $922,000 and is expected to be recognized over a weighted average period of 3.25 years.

        As of March 31, 2008, there were outstanding options to purchase 2,920,000 shares of common stock. Of these, options to purchase 443,000 shares were vested and exercisable with a weighted-average exercise price of $0.07 per share and options to purchase 2,477,000 shares were unvested with a weighted-average exercise price of $0.12 per share. The intrinsic value of outstanding vested and unvested options based on an estimated initial public offering price of $1.91 per share was $5.2 million.

        We initiated preparation for our initial public offering on January 18, 2008. In connection with the preparation of our financial statements necessary for the initial public offering as contemplated by the filing of this prospectus and based on the preliminary valuation information presented by the underwriters of this offering, we retrospectively reassessed the estimated fair value of our common stock in light of the potential completion of this offering. This reassessment assumed that the completion of this offering would be contingent on the FDA accepting our NDA filing for sumatriptan DosePro and the same agency setting a Prescription Drug User Fee Act, or PDUFA, review date, which occurred in March 2008. The valuation methodology that most significantly impacted our reassessment of fair value at December 31, 2007 was our market-based assessment of the valuation of existing comparable small capitalization, recently public biopharmaceutical companies along with the valuation information presented by the underwriters. In determining the reassessed fair value of our common stock during 2007, we established $1.60 as the reassessed fair value at December 31, 2007, after we applied a 15% discount to the offering price management estimated for our common stock based on its discussion with underwriters and based on comparables. The discount represents our assessment of the market adjustment for the risk involved in not completing our initial public offering due to delays in, or rejection of, the submission of our NDA for sumatriptan DosePro by the FDA. With the acceptance of the filing of the NDA for sumatriptan DosePro by the FDA, the discount will no longer be considered in determining the estimated fair value of our common stock.

        We also then reassessed our estimate of fair value for the period from February 13, 2007, the grant date of our first stock options, to December 31, 2007 based on the nature of our operations, our achievements in executing against our operating plan during 2007 and the impact that achievement of unique milestones had on our valuation during the reassessment period, including:

•

during September 2007, we raised an additional $15.0 million in a second tranche of our Series A-1 convertible preferred stock, selling 15,000,000 shares at $1.00 per share;



•

as of September 30, 2007, management performed a valuation of our common stock following the completion of the financing discussed above;



•

on November 27, 2007, we entered into an agreement with Elan to in-license the exclusive U.S. rights to ZX002, a product candidate for which we expect to initiate a Phase 3 clinical program in the second half of 2008;

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•

during December 2007, we raised an additional $15.0 million in a third tranche of Series A-1 convertible preferred stock, selling 15,000,000 shares at $1.00 per share, and we also raised $18.0 million, selling $8.0 million of our Series A-1 convertible preferred stock to our existing investors at $1.00 per share and $10.0 million of Series A-2 convertible preferred stock to a new investor at $1.10 per share; and



•

on December 28, 2007, we submitted our NDA to the FDA for sumatriptan DosePro.

        Stock-based compensation expense for the period from February 1, 2007 to December 31, 2007 includes the difference between the reassessed fair value per share of our common stock on the date of grant and the exercise price per share and is amortized over the vesting period of the underlying option, generally four years, using the straight-line method. There are significant judgments and estimates inherent in the determination of the reassessed fair values. For this and other reasons, the reassessed fair value used to compute the stock-based compensation expense may not be reflective of the fair market value that would result from the application of other valuation methods, including accepted valuation methods for tax purposes.

        During the period from February 1, 2007 to August 31, 2007, we granted options to employees to purchase a total of 3,872,500 shares of common stock at an exercise price of $0.05 per share and in November 2007 we granted options to employees to purchase 1,215,000 shares of common stock at $0.21 per share.

        The exercise prices for stock options granted to employees were originally established by our board of directors based on their determination of the fair value of our common stock. In addition, prior to issuing any stock options, management performed a contemporaneous valuation of our common stock as of December 31, 2006. The valuation was prepared using the guidance in the American Institute of Certified Public Accounting's, or the AICPA, Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. This process valued our total equity and then allocated it between our common stock and our preferred stock. To arrive at total equity value, the cost approach, the market approach, and the income approach were evaluated. The cost approach, which establishes value based on the cost of reproducing or replacing property, was deemed the most appropriate methodology because our assets consisted primarily of cash, and our very early stage of development. The AICPA's Technical Practice Aid defines the stages of development of an enterprise and states that this is an important factor in determining the value of an enterprise. Through September 6, 2007, we considered the company to be primarily in Stage 1 under the AICPA's Technical Practice Aid, which includes companies similar to ours that have no product revenue to date, limited operating history, typically an incomplete management team, and generally have completed a first-round of financing. The cost approach is most appropriate to companies in Stage 1. The market and income approaches were not considered as the uncertainty of the FDA approval process made it difficult to identify comparables and also impacted the ability to predict future cash flows.

        Our management then used two approaches for allocating value among our common stock and our preferred stock: the option pricing method and the current value method. Under the option pricing method, the shares were valued by creating a series of call options with exercises based on the liquidation preference of the Series A-1 convertible preferred stock and the conversion behavior under certain scenarios. The Series A-1 convertible preferred stock receives its liquidation preference first and the common stock receives the remainder of the value, if any. Under the current value method, the total equity value determined by the cost approach is reduced by the liquidation preference of the Series A-1 convertible preferred stock to arrive at the value of the common stock. Management applied these methods and then assigned a weight to the resulting values. The per share value determined by the current value method was assigned a 90% weight because of our Stage 1 development classification and the per share value determined by the option pricing method was weighted 10%. As a result the weighted value of the common stock at December 31, 2006 was determined to be $0.05 per share.

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        In determining that we were in Stage 1 through August 2007, we considered that the initial investors originally committed to purchase a total of approximately $60.8 million of Series A-1 convertible preferred stock in two tranches: $30.8 million at closing, and the remainder upon receiving a PDUFA date for the NDA for sumatriptan DosePro. Of the initial $30.8 million invested, most of the money was spent by August 31, 2007, leaving us with approximately two months of cash at our then cash burn rate. The rights, preferences and privileges of the preferred stock include a liquidation preference, dividend provisions, antidilution protective provisions and voting preferences, among other rights, while the common stock has none of these features and, therefore, these preferences were considered significant especially with our weak financial position. Accordingly, management concluded that additional contemporaneous valuations of the common stock as part of the May and August stock option grants were not necessary. As part of this analysis, management also concluded that the likelihood of achieving a liquidity event could not be determined. Our board of directors concurred with the 2006 valuation prepared by management that the common stock only had a nominal fair value of $0.05 and that it was still appropriate until September 6, 2007. On September 6, 2007, we and the investors amended the terms of the Series A-1 convertible preferred stock, purchasing a second tranche of $15.0 million based upon the progress that we had made to date even though the NDA for sumatriptan DosePro had not been submitted.

        In connection with our investors' decision in September 2007 to continue investing in us, management prepared a contemporaneous valuation of the common stock taking into account our financial performance during the first nine months of 2007, the stage of development under the AICPA's Technical Practice Aid, the investment of an additional $15.0 million under the Series A-1 preferred stock round, additional equity infusions in 2007, the potential license of the rights to ZX002, changes in market conditions in the form of recent acquisition transactions and the market values of comparable companies with publicly traded shares. Management's criteria for comparability were principally companies with small market capitalizations, operating losses and either pursuing the development of drug delivery technologies or the development of pain therapies. In addition, the valuation assumed a liquidity event in the fourth quarter of 2008. The contemporaneous valuation utilized the same methodology as the previous one done as of December 31, 2006, except that in determining the enterprise value, the market approach (market value determined based on the average market values of invested capital of guideline companies) was weighted equally with the cost approach. In applying the market approach, management used an average of the fair market values because, while many of the companies were similar to us, none were exactly comparable to us. The enterprise value was then allocated to the common and preferred stock using the option pricing method. In applying the option pricing method using the Black-Scholes option-pricing model to arrive at a series of call option values, we made the following significant assumptions: (i) a risk free interest rate of 4.05% (equal to the yield on the 1-year U.S. Treasury Note at the time); (ii) a time to expiration of 1.27 years (representing management's estimate of the time to a liquidity event); and (iii) a volatility measure of .60 (which represents the historical volatility of the comparable companies). Once the enterprise value was allocated to the common stock, it was discounted by 23.5% for lack of marketability. This discount was arrived at by applying the Black-Scholes model. Our board of directors concurred with the valuation prepared by management that the fair value of our common stock was $0.21 per share at September 30, 2007. Management also concluded that no event had occurred since September 30, 2007 that might affect significantly that value, including no significant change in the stage of development under the AICPA's Technical Practice Aid. Therefore, management did not perform any contemporaneous valuations of the common stock as part of the November stock option grants. Our board of directors concurred with management's conclusion and used the price of $0.21 per share as the exercise price of stock options granted in November 2007.

        In reassessing the fair values of our common stock in connection with this offering, we concluded that the value of the preferences of our Series A-1 convertible preferred stock should not be given as much weight beginning on November 1, 2007. Instead, beginning on that date, management concluded

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that significantly greater weight should be attributed to the license of the rights to ZX002 because of the progress made in the negotiations with Elan. Further, a successful conclusion to the Elan negotiation was one of two events that would enable us to proceed with an initial public offering, minimizing the value of the preferred preferences. Accordingly, management determined that the reassessed fair value of our common stock for financial reporting purposes starting with options granted on November 1, 2007 was $0.91 per share. This price valued the preferred preferences at $0.09 per share, a 9% discount to the price at which we sold our Series A-1 convertible preferred stock in September 2007. The reassessed fair value of our common stock was increased from $0.91 per share to $1.60 per share on November 27, 2007 following the execution of the license to ZX002 with Elan. This was considered one of the two key events in making us a candidate for an initial public offering. $1.60 per share represents the estimated fair value in an initial public offering of $1.91, less a 15% discount for the risk of successfully filing the NDA for sumatriptan DosePro with the FDA and successfully having the NDA accepted by the FDA. This is the second key milestone in enabling us to potentially complete an initial public offering.

        Based upon the reassessment discussed above, we determined that the reassessed fair value of the options granted through August 2007 to purchase an aggregate of 3,872,500 shares of common stock was $0.05, or equal to the exercise price; that the options to purchase 985,000 shares of common stock granted to employees on November 1, 2007 was $0.91 per share and that the options granted on November 27, 2007 to purchase 230,000 shares of common stock was $1.60 per share. Prior to September 30, 2007, when we completed the sale of our second tranche of Series A-1 convertible preferred stock, we were thinly capitalized and had not yet achieved any major milestones. Accordingly, we believe that the estimated fair value as determined by our board of directors to price stock options granted to employees through August 2007 was appropriate.

        Equity instruments issued to non-employees are recorded at their fair value as determined in accordance with SFAS No. 123(R) and Emerging Issues Task Force 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services, and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period.

Impairment of Long-Lived Assets

        Long-lived assets consist of property and equipment. In accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We also periodically re-evaluate the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of all of our long-lived assets. The determinants used for this evaluation include our estimate of the asset's ability to generate positive income from operations and positive cash flow in future periods.

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Results of Operations

Comparison of three months ended March 31, 2008 and 2007

        Research and Development Expenses.    Research and development expenses increased to $7.5 million for the three months ended March 31, 2008 compared to $3.6 million for the three months ended March 31, 2007. This increase of $3.9 million primarily was due to:

•

an increase of approximately $2.8 million resulting from manufacturing costs related to services and supplies in the testing and manufacturing development of sumatriptan DosePro, inclusive of related salaries and personnel costs; and



•

an increase of approximately $1.1 million in expenses associated with consulting services and contract testing in connection with the clinical trials of sumatriptan DosePro, and related salaries and personnel costs.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $1.6 million for the three months ended March 31, 2008 compared to $969,000 for the three months ended March 31, 2007. Our sales and marketing expenses increased $165,000 due primarily to an increase in market research, branding and sales and marketing personnel costs.

        General and administrative expenses increased to $1.2 million for the three months ended March 31, 2008 compared to $684,000 for the three months ended March 31, 2007. Our general and administrative expenses increased $498,000 primarily due to an increase in salaries and related costs as we expanded our finance and administrative functions to support our operations, as well as legal fees, other professional fees and consulting fees.

        Interest Income.    Interest income increased to $345,000 for the three months ended March 31, 2008 compared to $261,000 for the three months ended March 31, 2007. This increase of $84,000 was due primarily to the increase in average cash and investment balances as a result of investing the proceeds received from the sale of Series A-1 and Series A-2 convertible preferred stock in September and December 2007 at prevailing interest rates.

        Interest Expense.    Interest expense increased to $187,000 for the three months ended March 31, 2008 compared to $32,000 for the three months ended March 31, 2007. This increase of $155,000 was primarily due to the amortization of debt issuance and debt discount costs in connection with the $10.0 million loan and security agreement with GE Capital, interest on the $4.4 million borrowed under the loan and security agreement during 2007 and the increase in fair value of the warrant to purchase Series A-1 convertible preferred stock issued to GE Capital.

        Other Financing Income.    Other financing income decreased to zero for the three months ended March 31, 2008 compared to $228,000 for the three months ended March 31, 2007. Other financing income reported for the three months ended March 31, 2007 was derived from changes in the estimated fair value of our investors' right to purchase additional shares of Series A-1 convertible preferred stock. In December 2007, our investors exercised their right to purchase the remaining 23,035,000 shares of Series A-1 convertible preferred stock available for sale.

        Other Expense.    Other expense increased to $51,000 for the three months ended March 31, 2008 compared to zero for the three months ended March 31, 2007. This increase was due to foreign currency transaction losses which primarily relates to the settlement of our liabilities payable in Euro and U.K. pounds sterling.

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Comparison of year ended December 31, 2007 to the four month period from August 25, 2006 (inception) through December 31, 2006

        Research and Development Expenses.    Research and development expenses increased to $24.3 million for the year ended December 31, 2007 compared to $4.9 million for the period ended December 31, 2006. This increase of $19.4 million primarily was due to:

•

an increase of approximately $10.9 million resulting from manufacturing costs related to services and supplies in the testing and manufacturing development of sumatriptan DosePro, inclusive of related salaries and personnel costs;



•

an increase of approximately $9.8 million in expenses associated with consulting services and regulatory filing fees in connection with the clinical trials of sumatriptan DosePro, the filing of the NDA for that product candidate and related salaries and personnel costs; and



•

a decrease of $1.3 million related to purchased in-process research and development costs incurred in connection with our purchase of the DosePro technology and assets from Aradigm Corporation in August 2006.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $4.7 million for the year ended December 31, 2007 compared to $1.5 million for the period ended December 31, 2006. Our sales and marketing expenses increased $1.2 million due primarily to an increase in market research, branding and sales and marketing personnel costs in 2007.

        General and administrative expenses increased to $2.0 million primarily due to an increase in salaries and related costs as we expanded our general and administrative functions to support our operations, as well as legal fees, other professional fees and consulting fees.

        Interest Income.    Interest income increased to $927,000 for the year ended December 31, 2007 compared to $395,000 for the period ended December 31, 2006. This increase of $532,000 was due primarily to the increase in average cash and investment balances as a result of investing the proceeds received from the sale of Series A-1 and Series A-2 convertible preferred stock in September and December 2007 at prevailing interest rates.

        Interest Expense.    Interest expense increased to $484,000 for the year ended December 31, 2007 compared to zero for the period ended December 31, 2006. This increase of $484,000 was primarily due to the amortization of debt issuance and debt discount costs in connection with the $10.0 million loan and security agreement with GE Capital, interest on the $4.4 million borrowed under the loan and security agreement during 2007 and the increase in fair value of the warrant to purchase Series A-1 convertible preferred stock issued to GE Capital.

        Other Financing Income.    Other financing income increased to $906,000 for the year ended December 31, 2007 compared to $582,000 for the period ended December 31, 2006. This increase of $324,000 was due to the decrease in the estimated fair value of our investors' right to purchase additional shares of Series A-1 convertible preferred stock primarily as a result of a decrease in the time in which the shareholders may exercise this right.

        Other Expense.    Other expense increased to $4,000 for the year ended December 31, 2007 compared to zero for the period ended December 31, 2006. This net increase of $4,000 was due to $29,000 in state franchise taxes offset by foreign currency transaction gains of $25,000, which primarily relates to the settlement of our liabilities payable in Euro and U.K. pounds sterling.

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Liquidity and Capital Resources

        Since inception, our operations have been financed primarily through the sale of equity securities. Through March 31, 2008, we received aggregate net cash proceeds of approximately $78.5 million from the sale of shares of our preferred and common stock as follows:

•

from August 25, 2006 (inception) to December 31, 2007, we issued and sold a total of 13,457,188 shares of common stock for aggregate net cash proceeds of $141,000;



•

in August 2006, we issued and sold a total of 30,775,000 shares of Series A-1 convertible preferred stock for aggregate net cash proceeds of $30.5 million;



•

in September 2007 and December 2007, we issued and sold an additional 38,025,000 shares of Series A-1 convertible preferred stock for aggregate net cash proceeds of $38.0 million; and



•

in December 2007, we issued and sold a total of 9,090,909 shares of Series A-2 convertible preferred stock for aggregate net cash proceeds of $9.9 million.

        In March 2007, we entered into a $10.0 million loan and security agreement with GE Capital for the purpose of financing our working capital. Under the agreement, we may borrow up to $10.0 million based on purchases of property and equipment at a floating interest rate equal the current Treasury Index plus 5.43%. We borrowed approximately $4.4 million under two promissory notes during the year ended December 31, 2007. Monthly payments pursuant to borrowings advanced for capital additions are generally required to be made over a 47 month period beginning on the date of the advance. The outstanding balance is collateralized by specific manufacturing equipment owned by us. There are no financial covenants in connection with the loan agreement.

        In March 2008, we entered into a non-binding term sheet regarding a loan proposal with Oxford Finance Corporation, or Oxford. Under the term sheet, we expect to be able to borrow $18.0 million upon the execution of a loan and security agreement with Oxford. However, there can be no assurance that we and Oxford will reach a mutually acceptable definitive agreement.

        Cash and Cash Equivalents.    As of March 31, 2008, we had $33.0 million in cash and cash equivalents. We have invested our available cash in money market funds placed with reputable financial institutions for which credit loss is not anticipated. In addition, we have established guidelines relating to the diversification and maturities of our investments to preserve principal and maintain liquidity.

        Operating Activities.    Net cash used in operating activities was $9.0 million and $4.2 million for the three months ended March 31, 2008 and 2007, respectively. Net cash used in each of these periods primarily reflects expenditures related to external research and product development, clinical trial costs, personnel-related costs, third-party supplier expenses and professional fees.

        Investing Activities.    Net cash provided by investing activities was $776,000 for the three months ended March 31, 2008 compared to net cash used in investing activities of $8.4 million for the three months ended March 31, 2007. These amounts are the result of the purchase of property and equipment and the net purchases, sales and maturities of investment securities.

        Financing Activities.    Net cash used in financing activities was $229,000 for the three months ended March 31, 2008 and was comprised of principal repayments on our $4.4 million draw down under our loan and security agreement with GE Capital. Net cash provided by financing activities of $3.4 million for the three months ended March 31, 2007 was comprised primarily of proceeds from the draw down of $3.4 million under the GE Capital loan and security agreement in 2007 along with $18,000 received from the issuance of our common stock.

        We cannot be certain if, when or to what extent we will receive cash inflows from the commercialization of our product candidates. We expect our development and commercialization

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expenses to be substantial and to increase over the next few years as we continue the advancement of our product candidates.

        To the extent that funds generated by this offering, together with existing cash and cash equivalents, cash from operations and funds available under our loan and security agreement, are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Although we are currently not a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, businesses, services or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all. Although it is difficult to predict future liquidity requirements, we believe that the funds generated by this offering, together with existing cash and cash equivalents and cash from operations are sufficient to fund our activities for the next twelve months.

Contractual Obligations and Commitments

        The following table describes our long-term contractual obligations and commitments as of March 31, 2008:

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(in thousands)
Debt obligations(1)	$	3,833	$	777	$	3,030	$	26	$	—
Debt interest(2)		681		263		418		—		—
Operating lease obligations(3)		1,422		326		1,096		—		—
Purchase obligations(4)		3,002		3,002		—		—		—
Total	$	8,938	$	4,368	$	4,544	$	26	$	—

(1)

Represents principal payments due in each period on our loan and security agreement with GE Capital. Principal payments under the agreement are approximately: $777,000 in 2008, $1.1 million in 2009, $1.3 million in 2010, $648,000 in 2011 and $26,000 million in 2012.

(2)

Includes the interest on regular scheduled debt payments to GE Capital at an annual rate of 10.08% on the first draw down of $3.5 million beginning in March 2007 and at an annual rate of 9.91% on the second draw down of $1.0 million beginning in December 2007.

(3)

Includes the minimum rental payments for our San Diego, California office pursuant to a sublease entered into in March 2007 and expiring in May 2010, which office houses our general and administrative, sales and marketing operations personnel. Also includes the minimum rental payments for our Emeryville, California, office pursuant to a lease entered into in July 2007 and expiring in November 2011, which office houses our research and product development operations personnel. The rent for each of our facilities also includes a 3.0% annual increase for the duration of the lease or sublease.

(4)

This amount represents open purchase orders related to contract manufacturing services and manufacturing equipment construction in progress.

        Under our asset purchase agreement with Aradigm Corporation and our license agreement with Elan Pharma International Ltd., we may be required to pay specified amounts upon the achievement of certain milestones. We also enter into agreements with third parties to manufacture our product candidates, conduct our clinical trials and perform data collection and analysis. Our payment obligations under these agreements depend upon the progress of our development programs. Therefore, we are unable at this time to estimate with certainty the future costs we will incur under these agreements.

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Recent Accounting Pronouncements

        In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value under Generally Accepted Accounting Principles ("GAAP"), and expands disclosures about fair value measurements. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007, which for us is fiscal year 2008. Because SFAS No. 157 does not require any new fair value measurements or re-measurements of previously computed fair values, we do not believe the impact of adopting SFAS No. 157 on our financial statements will be material.

        In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS No. 159"), which permits entities the option to measure certain financial assets and liabilities at fair value. SFAS No. 159 will be effective for fiscal years beginning after November 15, 2007, which is our fiscal year 2008. We are in the process of evaluating the potential impact of adopting SFAS No. 159 on our financial statements.

Off-Balance Sheet Arrangements

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

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

        Our cash and cash equivalents as of March 31, 2008 consisted primarily of cash and money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. Instruments that meet this objective include commercial paper, money market funds and government and non-government debt securities. Some of the investment securities available-for-sale that we invest in may be subject to market risk. This means that a change in prevailing interest rates may cause the value of the investment securities available-for-sale to fluctuate. To minimize this risk, we intend to continue to maintain our portfolio of cash and money market funds. Due to the short-term nature of our investments and our ability to hold them to maturity, we believe that there is no material exposure to interest rate risk.

Foreign Exchange Risk

        Certain payments to our suppliers are denominated in the Euro and U.K. pounds sterling, thereby increasing our exposure to exchange rate gains and losses on non-U.S. currency transactions. Foreign currency gains and losses associated with these expenditures have not been significant and we believe that future changes in exchange rates will not have a material impact on our financial statements. We do not currently hedge our foreign currency exchange rate risk. Because most of our obligations to foreign vendors are denominated in U.S. dollars, we do not believe that a change in the value of the U.S. dollar against foreign currencies would have a material impact on our operating results and financial condition.

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BUSINESS

Overview

        We are a specialty pharmaceutical company with two proprietary product candidates in late-stage development for the treatment of central nervous system disorders and pain. Our lead product candidate, sumatriptan DosePro™, enables needle-free subcutaneous delivery of sumatriptan for the treatment of acute migraine. We submitted a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA, for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. If sumatriptan DosePro is approved by the FDA, we intend to build our own focused sales force in the United States and launch the product in the first quarter of 2009. Our second product candidate, ZX002, is a novel controlled release formulation of hydrocodone for the treatment of chronic pain. This product candidate has completed Phase 2 clinical trials, and we anticipate initiating the Phase 3 clinical program in the second half of 2008.

        Our DosePro technology is a novel drug delivery system that subcutaneously delivers a pre-filled, single dose injection of a drug through an easy-to-use, needle-free device that can be self-administered. Preliminary pre-clinical and clinical studies demonstrate that DosePro can be used with small molecules and biological products, including protein therapeutics and monoclonal antibodies. We plan to build our internal product pipeline by investigating proven drugs that can be paired with DosePro to enhance their benefits and commercial attractiveness. We also plan to seek opportunities to in-license or acquire products and product candidates in the areas of central nervous system, or CNS, disorders and/or pain, with a focus on products and product candidates that utilize novel technologies to improve the profile of existing compounds. In both cases, we plan to focus on marketed compounds whose commercial potential has been limited by safety concerns, relative efficacy or patient adherence. In addition, we may further seek to capitalize on our DosePro technology by out-licensing it to potential partners seeking to enhance, differentiate, or extend the life cycle of their own injectable products. We have no present commitments or obligations with respect to any such in-licensing, out-licensing or acquisition opportunities.

Sumatriptan DosePro

Sumatriptan DosePro utilizes our proprietary DosePro needle-free drug delivery system to subcutaneously administer sumatriptan for the treatment of migraine and cluster headache. Sumatriptan DosePro is a fast acting therapy that patients can self-administer in three easy steps. Sumatriptan, the active ingredient in sumatriptan DosePro, is currently marketed under the brand name Imitrex by GlaxoSmithKline. Sumatriptan has been in clinical use for over 15 years for the safe and effective treatment of migraine and cluster headache and is currently available as a tablet, nasal spray and subcutaneous injection. Injectable sumatriptan provides the fastest onset and most complete migraine relief of any form of migraine therapeutic, including all oral and nasal triptans. The currently available injectable form of sumatriptan is delivered by a traditional needle injection primarily as the branded Imitrex STATdose System, or Imitrex STATdose. However, the needle-based forms of injectable sumatriptan have several use-limiting characteristics such as patient fear of needles, needlestick risk and complexity of use.

        Migraine is a syndrome that affects approximately 30 million people in the United States, according to the National Headache Foundation, and is characterized by four major symptoms: pain, nausea and abnormal sensitivity to both sound and light. Triptans, the class of drugs most often prescribed for treating migraines, generated 2007 sales of approximately $2.8 billion in the United States, according to average wholesale price data published by Wolters Kluwer Health. Imitrex is the market leading triptan brand, with 2007 sales of approximately $1.6 billion in the United States. Of that amount, the injectable forms of sumatriptan accounted for $274 million, of which Imitrex STATdose accounted for $242 million.

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        In clinical bioequivalence studies comparing sumatriptan DosePro to Imitrex STATdose injection, sumatriptan DosePro, when administered to the thigh or abdomen, provided the same rapid peak in sumatriptan blood levels that correlates with speed of migraine relief and overall drug effectiveness. Due to its ease of use and lack of a needle, we believe that sumatriptan DosePro may address many of the fears and concerns that have limited needle-based administration. Given the unique attributes of sumatriptan DosePro, we believe it has the potential to be used not only as a replacement for other injectable forms of sumatriptan but also as a faster acting, more efficacious alternative to oral and nasal triptans. Based on triptan package insert data and clinical research published in the Journal of Headache and Pain in January 2007, we believe sumatriptan DosePro also has the potential to be effective for the approximately 30% of patients who fail to respond to an oral or nasal triptan. We submitted our NDA for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. We anticipate receiving tentative approval from the FDA in late 2008, and expect to receive final approval and launch this product candidate in the United States after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009. In Europe and other select countries, we have licensed commercialization rights to Desitin Arzneimittel GmbH, or Desitin, which will be responsible for obtaining regulatory approval and marketing sumatriptan DosePro if approved.

ZX002

        ZX002, our proprietary oral version of the opioid pain reliever hydrocodone, is designed to offer a controlled release profile that combines immediate release and extended release properties, using Elan Pharma International Ltd.'s proprietary Spheroidal Oral Drug Absorption System, or SODAS. We believe these attributes have the potential to provide similar onset, but longer-lasting and more consistent pain relief with fewer daily doses than the commercially available formulations of hydrocodone. Presently, hydrocodone is only available in immediate release product forms that are commonly dosed four to six times per day to provide pain relief. Additionally, existing hydrocodone products, including the branded products Vicodin, Lortab and Vicoprofen, and their generic equivalents, contain analgesic combination ingredients such as acetaminophen or non-steroidal anti-inflammatory drugs, or NSAIDs, which if taken in high quantities over time can lead to serious side effects such as liver toxicity and gastrointestinal damage. ZX002, if successfully developed, may represent the first available "single entity" controlled release version of hydrocodone that is not combined with acetaminophen or an NSAID. By eliminating the combination analgesic ingredient and by using a controlled release profile, ZX002 removes the potential limitations of existing hydrocodone combination formulations and allows for less frequent dosing. We in-licensed exclusive U.S. rights to ZX002 from Elan Pharma International Ltd. in November 2007.

        The American Pain Society estimated in 1999 that 9% of the U.S. adult population suffers from moderate to severe non-cancer related chronic pain. Chronic pain is treated with both immediate release and extended release opioids. We define our target market as prescription non-injectable codeine-based and extended release morphine-based pain products. This market generated 2007 U.S. sales of approximately $9.7 billion, based on average wholesale price, on approximately 185 million prescriptions, according to data published by Wolters Kluwer Health. During the same period, existing hydrocodone products, the most commonly prescribed opioid pain products, generated $2.5 billion in sales representing growth of 18.3% since 2006, according to that same data.

        As a result of its unique controlled release single entity profile, we believe ZX002 will generate sales from both the immediate release and extended release segments of the prescription opioid market. In single and multiple dose pharmacokinetic evaluations, ZX002 demonstrated detectable plasma concentrations of hydrocodone within 15 minutes. ZX002 also demonstrated a sustained release effect significantly longer than currently available hydrocodone combination products such as Vicodin, dose proportional pharmacokinetics and an acceptable safety profile. In a Phase 2 chronic pain study, ZX002 demonstrated a reduction in pain intensity for chronic moderate to severe osteoarthritis pain

69

patients across multiple dosage strengths and a clinically acceptable safety profile. We had an End of Phase 2 meeting with the FDA in June 2008 and plan to proceed with the Phase 3 clinical program in the United States in the second half of 2008. The program will be designed to evaluate the safety and efficacy of ZX002 for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy.

Our Strategy

        Our core strategy is to develop and commercialize differentiated CNS and pain therapeutics that can address significant unmet medical needs or overcome limitations of existing products. Key elements of our strategy include:

•

Obtain regulatory approval for our most advanced product candidate, sumatriptan DosePro for the treatment of migraine.    We submitted our NDA for sumatriptan DosePro in December 2007, and we anticipate receiving tentative approval from the FDA in late 2008. We expect to receive final approval and launch this product candidate after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009.



•

Build a focused sales and marketing infrastructure to commercialize sumatriptan DosePro.    We intend to establish our commercial infrastructure, including marketing and sales management, in 2008. We plan to build a targeted sales force of approximately 100 representatives in the United States to promote sumatriptan DosePro at its commercial launch. Our sales force will target the top triptan prescribers including neurologists, headache specialists and key primary care physicians. We intend to launch this product candidate as soon as possible after receiving final FDA approval.



•

Expand the market opportunity for sumatriptan DosePro through commercial partnerships.    In order to expand the U.S. commercial opportunity of sumatriptan DosePro, we will seek to establish partnerships with pharmaceutical companies or contract sales organizations to market and sell to a broader physician audience than can be reached by our planned sales force alone. Outside the United States, we have established a commercial partnership for sumatriptan DosePro with Desitin for the European Union and other select countries in order to accelerate development and regulatory approvals in those countries and further enhance the commercial potential of this product candidate.



•

Develop and commercialize ZX002 for the treatment of moderate to severe chronic pain.    We had an End of Phase 2 meeting with the FDA in June 2008 and plan to initiate the Phase 3 clinical trial program for ZX002 in the second half of 2008. Our Phase 3 clinical program for ZX002 will focus on establishing safety and efficacy of controlled-release single entity hydrocodone to treat moderate to severe chronic pain in patients requiring around-the-clock opioid therapy. If our clinical program is successful and we receive FDA approval, we intend to expand our sales and marketing infrastructure to support the commercialization of ZX002.



•

Expand our product pipeline in CNS and/or pain.    We intend to expand our pipeline by leveraging our proprietary DosePro technology and by in-licensing or acquiring products and product candidates. We are evaluating compounds that could be paired with DosePro to enhance their benefits and commercial attractiveness. We also continue to evaluate in-licensing or acquisition opportunities in the areas of CNS and/or pain, with a focus on product candidates that utilize novel technologies to improve the profile of existing compounds. In both cases, we plan to focus on marketed compounds whose commercial potential has been limited by safety concerns, relative efficacy or patient adherence.



•

Seek to out-license our proprietary DosePro technology.    We will seek opportunities to out-license the DosePro needle-free drug delivery technology to partners seeking to enhance, differentiate,

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or extend the life-cycle of their injectable products. These opportunities include both currently marketed products and development stage product candidates. We believe the results of preliminary pre-clinical and clinical studies support the use of DosePro for the delivery of small molecules and biological products including therapeutic proteins, monoclonal antibodies and growth factors. These studies have shown that such agents administered using DosePro are bioequivalent to and/or pharmacodynamically equivalent to conventional needle-injection. We believe that the needle-free nature of DosePro and its ability to be easily and conveniently self-administered by patients present advantages over existing needle-based delivery systems and thus may have significant market potential across a broad range of therapeutic areas, including those typically treated with injectable products, such as hepatitis, infertility, multiple sclerosis and rheumatoid arthritis.

Our Product Candidates

Sumatriptan DosePro for the Treatment of Migraine

Sumatriptan DosePro is a new drug-device combination that subcutaneously delivers sumatriptan utilizing our proprietary DosePro needle-free drug delivery system to treat migraine attacks with or without aura and cluster headache episodes. Sumatriptan DosePro is a fast acting, easy-to-use therapy that patients can self-administer. We submitted our NDA for sumatriptan DosePro in December 2007, and it was accepted for filing by the FDA in March 2008. We anticipate receiving FDA tentative approval in late 2008, and expect to receive final approval and launch sumatriptan DosePro after the expiration of GlaxoSmithKline's Imitrex sumatriptan succinate patent in February 2009. Given the unique attributes of sumatriptan DosePro, we believe it has the potential to be used as a replacement for other injectable forms of sumatriptan and also as a faster acting, more efficacious alternative to tablet and nasal triptans.

Migraine Market

        Migraine is a chronic and common neurovascular disorder characterized by episodic attacks. According to the National Headache Foundation, approximately 30 million people in the United States suffer from migraines. Both men and women experience migraine, although women are three times more likely to suffer from it. Migraine attacks typically manifest themselves as moderate to severe headache pain, with symptoms that often include nausea and vomiting, abnormal sensitivity to light and sound, and visual disturbances or aura. Migraines limit the normal daily functioning of patients, who often seek dark, quiet surroundings until the episode has passed. According to the National Headache Foundation, the duration of untreated or unsuccessfully treated migraine episodes ranges from 4 to 72 hours. The median duration of an untreated migraine is approximately 24 hours, according to an article published in the January 2002 issue of the New England Journal of Medicine. The median frequency of attack is 1.5 times per month, although approximately 25% of migraine sufferers experience one or more attacks every week, according to that same article in the New England Journal of Medicine and the American Migraine Study II, respectively. Approximately 60% of migraine patients self-treat with over-the-counter medications and do not seek professional help to treat their migraines, according to the American Migraine Study II.

        Cluster headaches are characterized by groups or clusters of debilitating headaches lasting weeks or months, then disappearing for months or years. This type of headache affects an estimated one million sufferers in the United States, and approximately 90% of these sufferers are male, according to the National Headache Foundation. Due to the severe nature of cluster headache, patients are commonly treated with prescription medication.

        Acute therapies dominate the prescription migraine and cluster headache market and are used during intermittent attacks. The goals of acute therapy are to stop the attack quickly and consistently,

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to maintain the patient's ability to function, to use the least amount of medication and to limit adverse side effects.

        Triptans, the class of drugs most often prescribed for treating migraine and cluster headaches, generated 2007 sales of approximately $2.8 billion in the United States, according to average wholesale price data published by Wolters Kluwer Health. Approximately 94% of U.S. triptan doses are for oral formulations, with the remaining 6% split between injectable and nasal formulations, according to that same data. Of the approximate $2.8 billion triptan market in the United States, oral, nasal and injectable formulations accounted for approximately $2.5 billion, $114 million and $274 million of sales in 2007, respectively. Imitrex, launched in 1993, was the first triptan approved and remains the market leader of the eight triptan brands, with 2007 sales of approximately $1.6 billion in the United States, according to average wholesale price data published by Wolters Kluwer Health. Of that amount, the injectable forms of sumatriptan accounted for $274 million, of which Imitrex STATdose accounted for $242 million. In the five major countries of Europe—France, Germany, Italy, Spain and the United Kingdom—triptans generated total sales for the 12 month period ended June 30, 2007 of approximately $550 million, according to average wholesale price data published by IMS Health MIDAS. Of that $550 million, the European equivalent of Imitrex, Imigran, represented sales of approximately $148 million, of which the injectable form accounted for approximately $35 million. Globally, sumatriptan is the only triptan available to patients in the injectable form.

        Injectable sumatriptan, currently marketed as Imitrex single dose vials and Imitrex STATdose, is a traditional needle-based injection for the subcutaneous administration of sumatriptan. It has been in clinical use for over 15 years for the safe and effective treatment of migraine. It is generally used for fast-onset migraine, migraine which has progressed to severe pain, migraine associated with extreme nausea, or early morning migraine.

Limitations of Current Prescription Migraine Therapies

        The type of migraine treatment pursued depends on the frequency and severity of the headache, speed of onset and previous response to medication. In published studies, migraine sufferers most often cite faster onset of pain relief as the key therapeutic attribute they would like from their medication. The current treatment paradigm typically involves patients self-medicating with over-the-counter drugs when pain is mild and attacks are infrequent. Patients with more frequent or severe migraines or those who do not respond to simple analgesics may seek medical attention with a primary care physician initially and then with a headache clinic or neurology specialist if needed. Once a physician has diagnosed migraine, oral triptans are generally prescribed. Approved in December 1992 and launched in early 1993, Imitrex (injectable sumatriptan) was the first triptan introduced in the United States. Subsequently, a total of eight triptan drugs have been marketed in the United States. If a patient does not respond to one triptan product, the physician may switch to another since the response to various triptans varies from patient to patient.

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        The following table includes data from the package inserts for the different formulations of marketed triptans:

Table 1: Triptan Package Insert Data

Form/Triptan		Tmax	Relief at 2 hrs
Injection
	Imitrex (sumatriptan)	12 minutes	82	%
Nasal
	Imitrex (sumatriptan)	Not provided	43-64	%
	Zomig (zolmitriptan)	3.0 hrs	69-70	%
Fastmelt
	Zomig (zolmitriptan)	3.0 hrs	63	%
	Maxalt (rizatriptan)	1.6-2.5 hrs	59-74	%
Tablets
	Imitrex (sumatriptan)	2.0-2.5 hrs	50-62	%
	Zomig (zolmitriptan)	1.5 hrs	59-67	%
	Maxalt (rizatriptan)	1.0-1.5 hrs	60-77	%
	Amerge (naratriptan)	2.0-3.0 hrs	50-66	%*
	Axert (almotriptan)	1.0-3.0 hrs	55-65	%
	Frova (frovatriptan)	2.0-4.0 hrs	37-46	%
	Relpax (eletriptan)	1.5-2.0 hrs	47-77	%
	Treximet (sumatriptan and naproxen sodium)	1.0 hr	57-65	%

*

Amount represents relief at 4 hours.

        This table compares the Tmax and two-hour pain relief of oral forms, including fastmelt and tablets, and nasal forms of triptans to the injectable form. Tmax is the time to maximum concentration of the triptan in the patient's blood. Tmax is closely correlated to speed of onset of pain relief, and has also been shown to be correlated with completeness of pain relief over time. Relief at two hours is the standard endpoint used in migraine studies and represents the percentage of patients reporting a reduction of migraine symptoms from a classification of severe or moderate down to mild or none within two hours after taking the medication.

        Limitations of oral and nasal triptan formulations include:

•

Slower onset of pain relief.    As shown in Table 1, compared to Imitrex injection, each oral and nasal triptan has a longer Tmax, which studies show is correlated with a slower onset of action.



•

Lower degree of pain relief.    As shown in Table 1, oral and nasal triptans have a lower percentage of patients reporting pain relief at two hours as compared to Imitrex injection.



•

Significant numbers of non-responders.    According to our market research with physicians and patients, approximately 30% of migraine patients fail to respond to an oral or nasal triptan.



•

Nasal route unpleasant.    The nasal route is an alternative to oral delivery; however, the nasal spray can be unpleasant in taste and sensation.

        Despite its faster onset and improved pain relief over oral and nasal triptans, Imitrex injection has been limited to less than 10% of the triptan market on a dollar basis and less than 3% on a total dose basis, according to data published by Wolters Kluwer Health. We believe this is largely due to limitations related to its delivery system which include:

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Needle-based.    Approximately 50% of patients refuse to use a needle-based injectable product for migraine, specifically citing the issue of needle anxiety or fear, or a lack of confidence in

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their ability to administer an injection correctly, according to market research conducted by Palace Healthcare Group, Inc. on our behalf.

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Needlestick risk.    Needle-based systems may require special handling and needle disposal containers to avoid needlestick injuries.



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Cumbersome to use.    Imitrex STATdose requires more than 15 steps to prepare, administer and reload for its next use. This multi-step process, which patients have to complete during a migraine episode, is prone to error. Further, market research finds that physicians report that the training required for Imitrex STATdose is a barrier to prescribing.

Our Solution: sumatriptan DosePro

Sumatriptan DosePro is a pre-filled, single-use disposable, needle-free drug delivery system designed to deliver 6mg of sumatriptan in 0.5mL of sterile liquid. Sumatriptan is delivered subcutaneously from DosePro in three easy steps. To use, the patient snaps off a plastic tip, flips back a lever and presses the end of the device to the skin of the abdomen or thigh. Under the pressure of a small amount of compressed nitrogen gas, the liquid form of sumatriptan is expelled out of the device as a thin jet of the medication which pierces the skin and deposits into the subcutaneous tissue. This process occurs in less than 1/10th of a second.

        Due to the unique attributes of sumatriptan DosePro, we believe it has the potential to be used not only as a replacement for other injectable forms of sumatriptan but also as a faster acting, more efficacious alternative to oral and nasal triptans. Sumatriptan DosePro may provide patients with the following benefits when compared to existing oral and nasal triptan formulations:

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Rapid onset of relief.    As shown in Table 1 above, Imitrex injection has the shortest Tmax, which studies show is correlated to the fastest onset of relief. The administration of sumatriptan via our DosePro needle-free subcutaneous delivery system has been shown to have a comparable pharmacokinetic profile as Imitrex injection in a pivotal clinical trial. This pharmacokinetic profile has been correlated with onset of pain relief in as little as 10 minutes, which is substantially faster than onset of pain relief for oral and nasal triptans.



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Degree of relief.    As shown in Table 1 above, Imitrex injection has the highest percent of patients reporting pain relief at 2 hours. In addition to 82% of patients showing pain relief at 2 hours, according to the approved labeling for Imitrex injection, 70% of Imitrex injection patients have pain relief at 1 hour and 65% report they are completely pain free at 2 hours.



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Help for triptan tablet non-responders.    Independent clinical data published in the Journal of Headache and Pain in January 2007 suggest injectable sumatriptan provides relief in up to 90% of migraine patients who have not previously responded to oral tablet triptans. In this study, 43 patients who had failed to respond to oral triptans in at least 2 of their last 3 migraines were given Imitrex injection for their next migraine. Of these patients, 91% reported pain relief at 2 hours.



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Palatable delivery system.    The unpleasant smell, taste and sensations resulting from the use of oral or nasal triptans may result in the discontinuation of their use. We believe sumatriptan DosePro provides the drug in a delivery system palatable to patients because it does not involve smell, taste or swallowing.

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        We believe that sumatriptan DosePro also provides the following benefits when compared to existing injectable sumatriptan products:

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Simplicity, through a new, convenient and easy-to-use option.Sumatriptan DosePro is based on our unique delivery system. The portable device is pre-filled with a single dose, can be quickly administered in three easy steps and is then disposable. Sumatriptan DosePro is intuitive and easy-to-use, which may result in increased patient acceptance and adherence to the prescribed regimen. We believe healthcare providers will also appreciate the simplicity of DosePro because it will be easy to train patients to use properly. Our usability study showed 98% of patients were able to self-administer sumatriptan DosePro in the home during an acute migraine attack, without clinical supervision and with minimal prior training.



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Needle-free, eliminating needle-based issues.    Because it is needle-free, we believe sumatriptan DosePro may eliminate the basis for needle phobia and fear. Additionally, it removes the risks of cross-contamination from needle-stick injury, the cost and inconvenience of needle disposal, issues resulting from poor injection technique and costs associated with professionally administered needle-based injections. Studies show when a choice between needle-based and needle-free injection is available, the majority of patients prefer needle-free injection. More specifically, in a head-to-head study conducted by GlaxoSmithKline versus the European branded version of Imitrex STATdose, a needle-based delivery system, 61% of migraine patients preferred using sumatriptan DosePro while only 18% preferred using the European branded version of Imitrex STATdose over sumatriptan DosePro, with the remaining patients expressing no preference.

Sumatriptan DosePro Clinical Development Program

        Since sumatriptan is well-characterized and has been previously approved, we have sought FDA marketing approval of sumatriptan DosePro under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or the FFDCA, utilizing Imitrex sumatriptan injection as the reference listed product. Section 505(b)(2) of the FFDCA provides an alternate path to FDA approval for modifications to formulations or new dosing of products previously approved by the FDA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. This has expedited the development program for sumatriptan DosePro by decreasing the overall scope of clinical and pre-clinical work required to be completed by us.

        The clinical efficacy of subcutaneous injectable sumatriptan for migraine and cluster headache has been established by the reference listed product, Imitrex sumatriptan injection, which was approved in 1992. Based on our clinical bioequivalence studies, we have concluded that sumatriptan DosePro is bioequivalent to injectable sumatriptan administered in the thigh or abdomen using Imitrex STATdose and is well tolerated when compared to this reference listed product. We completed all clinical work that we believe was required for NDA submission and submitted our NDA in December 2007. Our NDA was subsequently accepted for filing by the FDA in March 2008.

        DosePro and sumatriptan DosePro Clinical Experience.    The DosePro drug delivery system has been in development for more than ten years. Over this time, multiple clinical studies have been conducted to assure the proper functioning of the system. Approximately 9,000 injections have been delivered in clinical trials in healthy volunteers using the DosePro needle-free drug delivery system. The majority of these were saline injections, but also included are approximately 470 injections containing proteins or small-molecule drugs. Using the final or near-final configuration of the DosePro system, a total of 1,318 injections in 485 subjects were given in eight clinical trials. Approximately 66%, or 866, of these were saline injections and 34%, or 452, were with the liquid formulation of sumatriptan.

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        Sumatriptan DosePro Pivotal Clinical Program.    Based on discussions with the FDA, and due to the existing body of data on injectable sumatriptan, our pivotal clinical program evaluated sumatriptan DosePro in studies solely for pharmacokinetics, bioequivalence, safety, local injection site signs and reactions, and clinical injection performance. We conducted a single pivotal pharmacokinetics and bioequivalence clinical trial for the purpose of providing evidence of bioequivalence and safety of sumatriptan DosePro as compared to Imitrex STATdose. This study, completed in April 2007, was a randomized, open-label, cross-over trial comparing safety and pharmacokinetics in 54 subjects. The primary endpoint of bioequivalence was demonstrated in the commonly used abdomen and thigh injection sites. A separate patient usability study was conducted in the second half of 2007 to evaluate the usability of sumatriptan DosePro in patients during acute migraine attacks in an outpatient setting. In this study of 52 patients, 98% were able to use sumatriptan DosePro correctly during a migraine attack on their first attempt, thus confirming the product candidate's ease of use. Further use of sumatriptan DosePro by the same patients in their treatment of subsequent migraine attacks provided consistent evidence of usability in the outpatient setting. In addition, we conducted a safety trial with sumatriptan DosePro in December 2007 to study the effect of repeat dosing and multiple injections. Adverse events seen in our pivotal clinical studies are consistent with previously reported adverse events for injectable sumatriptan and include injection site reactions, unusual sensations, such as tingling and warm/hot sensations, dizziness and flushing. Our commercialization partner in the European Union and other selected countries, Desitin, expects to use these clinical trial results in seeking regulatory approval in Europe in addition to any other clinical studies which may be required to support such approval.

ZX002 for the Treatment of Moderate to Severe Chronic Pain

        ZX002 is our proprietary oral version of the opioid pain reliever hydrocodone, designed to offer a controlled release profile that combines immediate release and extended release properties, using Elan's proprietary SODAS System. We believe these attributes have the potential to provide similar onset, but longer-lasting and more consistent pain relief with fewer daily doses than the commercially available formulations of hydrocodone. We believe ZX002 will generate sales from both the immediate release and extended release segments of the prescription opioid market. We had an End of Phase 2 meeting with the FDA in June 2008, and plan to initiate the Phase 3 clinical program in the second half of 2008. The program will evaluate the safety and efficacy of ZX002 for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy.

The Chronic Pain Market

        Pain is a worldwide problem with serious health and economic consequences. The American Pain Society estimated in 1999 that 9% of the U.S. adult population suffers from moderate to severe non-cancer related chronic pain. Chronic pain may be defined as pain that lasts beyond the healing of an injury or that persists beyond three months. The most common causes of chronic pain include lower back pain, arthritis, headache, and face and jaw pain. While mild pain does not typically stop an individual from their daily activities, moderate pain may stop an individual from participating in their daily activities and severe pain stops an individual from participating in their daily activities and induces a patient to pain avoidance behaviors.

        Chronic pain treatment depends on the individual patient, their diagnosis, and their pain severity. Chronic pain patients typically first attempt self-medication with over-the-counter drugs such as acetaminophen, aspirin or another NSAID. Patients with more constant and/or moderate to severe pain typically seek medical attention and prescription pain medication from a primary care physician and then, if necessary, are referred to a neurologist, physical medicine, or pain specialist. At this point, physicians commonly prescribe opioids, including products from the codeine and morphine classes. The general objective of the physician is to safely achieve adequate control of pain.

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        Physicians generally assess the patient and, if appropriate, start treatment with a trial of opioid therapy to determine the optimal opioid regimen. A trial of opioid therapy usually begins with short-acting doses taken on an as-needed basis. This allows the clinician and patient to assess the total opioid requirement. Patients taking substantial doses of short-acting opioids multiple times per day may find substitution of an extended release agent taken one to two times per day extremely helpful to provide more consistent pain relief. In theory, the more consistent opioid blood levels of extended release products may provide more consistent pain relief and better sleep quality. Dosing intervals less frequent than every four to six hours may also provide improved patient adherence to the prescribed regimen and improved patient convenience. Finally, individual patients may do poorly on one opioid, but better after switching to another. This practice is called opioid rotation and is regularly employed in chronic pain management. Opioids, while very effective for pain treatment, are associated with numerous adverse effects, including opioid induced bowel dysfunction, sedation, nausea, vomiting, decreased respiratory function, addiction and, in some instances, death.

Hydrocodone is often used as a "starter" opioid to initiate an opioid trial because it is viewed by many physicians as a less strong opioid. Historically, hydrocodone preparations in the United States have been utilized for treatment of acute pain following surgery or injury. For this purpose, they were combined with analgesics, including acetaminophen or an NSAID, which treat the acute inflammatory component of the pain. These analgesics are fairly innocuous when used at lower doses or for short periods of time. However, at higher doses or over extended periods of time, they significantly increase patient risk for gastrointestinal, liver and kidney damage.

        As the practice of pain management has broadened to include chronic therapy for more moderate to severe pain, physicians continue their practice of using hydrocodone/analgesic combinations for their opioid trial, and this use sometimes extends to chronic therapy. In the United States, market research conducted by bioStrategies Group on our behalf indicates that approximately 50% of the use of immediate release combination products that include hydrocodone, codeine or oxycodone is for the treatment of chronic pain. However, physicians have found the analgesic component in combination hydrocodone products creates a ceiling effect when they wish to escalate doses. For example, the most commonly prescribed dose of Vicodin (5mg hydrocodone/500mg acetaminophen) given at a maximum dose of eight tablets per day delivers 4g of acetaminophen, which approaches or exceeds recommended dosing, while only delivering 40mg of hydrocodone, based on the Vicodin package insert. If a physician wishes to further increase the opioid dose, the physician is compelled to transition to an opioid not in combination, such as oxycodone, or stronger opioids such as fentanyl or oxymorphone.

        In 2007, our target market, which we define as prescription non-injectable codeine-based and extended release morphine-based pain products, generated sales of approximately $9.7 billion in the United States on approximately 185 million prescriptions, according to data published by Wolters Kluwer Health. Of the $9.7 billion, hydrocodone products, part of the codeine class and the most commonly prescribed opioid pain products, generated $2.5 billion in sales on approximately 117 million prescriptions representing growth of 18.3% and 5.6%, respectively, since 2006, according to that same data.

        The United States Drug Enforcement Administration, or DEA, regulates controlled substances, such as opioid analgesics, under the Controlled Substances Act of 1970, or CSA. Single entity hydrocodone, the active ingredient of ZX002, is listed by the DEA as a Schedule II controlled substance under the CSA. Consequently, its manufacture, shipment, storage, sale and use, among other things, are subject to a high degree of regulation. For example, all Schedule II drug prescriptions must be in writing and signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

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Limitations of Current Opioid Pain Therapies

        Physicians generally prefer to start patients on less strong opioids where possible. While hydrocodone in combination products remains the most commonly prescribed opioid, currently available hydrocodone formulations have several major limitations, including:

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Short-acting/immediate-release only.    There are currently no extended release hydrocodone formulations on the market.



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Adherence dependent.    Because hydrocodone is available only in immediate release formulations that are dosed every four to six hours, its around-the-clock efficacy is dependent on diligent adherence by the patient. Published studies across therapeutic categories, including the treatment of diabetes, hypertension and infectious disease, demonstrate that patient adherence to drug regimens declines as the number of daily drug doses increases.



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Inconsistent pain relief.    Because of the dosing issues noted above, many patients experience inconsistent pain relief due to variable opioid blood levels, particularly at the end of dosing intervals.



•

Dose is limited by combination analgesics.    The overwhelming majority of current hydrocodone use includes acetaminophen in the formulation. Because of the potential side effects of constant and increasing acetaminophen doses, the acetaminophen component of these combination products can become a dose limiting factor. In these cases, patients must limit their total hydrocodone dose to avoid potential liver and other side effects of acetaminophen and thus may receive a sub-optimal daily dose of hydrocodone, or they must switch to other pure opioids, such as oxycodone. Hydrocodone combinations with NSAIDs have similar dose limitations due to the gastrointestinal side effects associated with NSAIDs.

        While other extended release, single entity opioids exist, published study reports indicate that patients are regularly taking more daily doses of extended release opioids than the recommended labeled dose, suggesting that not all of them provide true 12- or 24-hour dosing. For example, results from a study of 437 patients published in the May/June 2003 issue of the Journal of Managed Care Pharmacy indicated that patients taking extended release oxycodone on average took 4.6 tablets per day, at an average dosing interval of 7.8 hours. In the same study, among extended release oxycodone patients, only 1.9% reported the duration of pain relief as 12 or more hours. A separate study published in the September/October 2004 issue of The Clinical Journal of Pain indicated that the prescribed frequency of dosing extended release oxycodone determined through clinical practice was twice daily for 33% of patients, with 67% of patients requiring greater than twice daily dosing.

Our Solution: ZX002

        We believe that ZX002, if approved, may provide patients with the following benefits when compared to existing opioid pain medications:

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True around-the-clock relief.    ZX002, via its SODAS controlled release profile, is designed to provide consistent, around-the-clock relief of moderate to severe chronic pain. Clinical studies have shown a pharmacokinetic profile that supports the expected extended relief profile of ZX002.



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Easier adherence/greater patient convenience.    ZX002 is designed to work with fewer daily doses than currently available hydrocodone formulations, thereby increasing the likelihood of patient adherence and convenience.



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Single entity hydrocodone.    ZX002, if successfully developed and approved by the FDA, is expected to be the first non-combination, controlled release hydrocodone product to be

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commercialized in the United States, giving physicians and patients a hydrocodone option unencumbered with acetaminophen or NSAIDs and their potential side effects.

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Proven drug and drug delivery technology.    ZX002 incorporates both a known, efficacious opioid, hydrocodone, and a proven controlled release technology, SODAS. The SODAS technology is currently used in other marketed products including Avinza, Focalin XR and Ritalin LA. We believe patients and physicians who are familiar with this compound and/or technology may more readily adopt our product candidate.



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Another opioid option for chronic medication rotation.    The unique profile of ZX002 provides another option for physicians looking for new alternatives to offer patients who require medication rotation due to tolerance, side effects, or poor pain control.

ZX002 Development Status

        Our licensor for ZX002, Elan, conducted pre-clinical and clinical studies of ZX002 under an Investigational New Drug Application, or IND, initiated in 2002. Based on this prior development, we believe the current pre-clinical and clinical data package for ZX002 is adequate to support initiation of a Phase 3 clinical program. We had an End of Phase 2 meeting with the FDA in June 2008 and plan to initiate Phase 3 clinical trials in the second half of 2008. The purpose of our Phase 3 clinical trials is to provide evidence of safety and efficacy of ZX002 for the treatment of moderate to severe chronic pain in patients requiring around-the-clock opioid therapy.

        Phase 1 and Phase 2 Clinical Development.    In both single and multiple dose pharmacokinetic evaluations, ZX002 demonstrated detectable plasma concentrations of hydrocodone within 15 minutes of administration. ZX002 also demonstrated a sustained release effect significantly longer than currently available hydrocodone combination products such as Vicodin, as well as dose proportional pharmacokinetics. Consistent, steady-state plasma levels, which are believed to be desirable for chronic pain patients who require around-the-clock opioid therapy, were achieved within one week of the initiation of dosing. In addition, ZX002 has been tested under both fed and fasted conditions and the amount of drug exposure was not affected by food, which we believe provides the basis for a flexible administration regimen in chronic pain. We believe that these prior pharmacokinetic studies demonstrate that ZX002 displays a consistent, controlled release profile, dose-proportional pharmacokinetics and an acceptable safety profile.

        ZX002 has also been evaluated in two distinct Phase 2 pain studies. The first study was a randomized, single-dose, parallel group, placebo-controlled, active-comparator study to evaluate the safety, efficacy and pharmacokinetics of increasing doses of ZX002 in opioid-naive adults immediately following bunion removal surgery. This study was designed to evaluate pain prevention rather than pain treatment. In this 241-patient study (39-41 per treatment arm), patients were treated with either one of four doses of ZX002 (10, 20, 30 or 40mg controlled release hydrocodone bitartrate), an active immediate release comparator consisting of 10mg hydrocodone bitartrate plus 325mg acetaminophen, or placebo. The primary efficacy measurement was the visual analog scale of pain intensity from 0 to 12 hours after dosing. The 40mg dose of ZX002 was significantly more effective (p<0.05) vs. placebo in controlling postoperative pain. In addition, efficacy of the 40mg dose did not significantly differ from the hydrocodone bitartrate/acetaminophen active comparator in any of the efficacy outcome measures. None of the three lower doses of ZX002 were superior to placebo in the primary efficacy measurements. In addition, all four doses were found to be safe and well-tolerated. We believe this efficacy and safety information is useful in establishing proof of concept for ZX002.

        The second Phase 2 study was a 4-week, multiple-dose, safety, tolerability, and pharmacokinetic dose-escalation study of ZX002 in opioid-experienced adults with chronic, moderate-to-severe osteoarthritis pain. The primary objective was to assess the safety, tolerability, and pharmacokinetics of ZX002 at steady state over a range of escalating daily doses. Thirty-seven patients in two dosing

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cohorts received escalating doses of ZX002 over four weeks. This study demonstrated a clinically acceptable safety profile and a reduction in pain intensity for chronic moderate to severe osteoarthritis pain patients across multiple dosage strengths. We believe that the study also demonstrated a steady-state pharmacokinetic profile that is appropriate for the management of chronic pain. In both Phase 2 studies, patients experienced mild to moderate adverse events, such as dizziness, sedation, nausea, vomiting and constipation, which are similar to the reported effects of currently prescribed chronic opioids.

        Planned Phase 3 Clinical Program.    We intend to initiate a pivotal Phase 3 trial in the second half of 2008 that will compare the safety and efficacy of ZX002 to placebo in the treatment of chronic lower back pain. Our trial will be based on a protocol design that has been used to demonstrate the efficacy of other opioid therapies for chronic pain. The study will be a randomized, 12-week double-blind, placebo-controlled trial in at least 300 opioid-experienced adults with moderate to severe chronic low back pain. The primary efficacy endpoint will be the mean change in average daily pain intensity scores between ZX002 and placebo.

        To further assess the safety and tolerability of ZX002 in chronic pain therapy, we also plan to perform an open-label Phase 3 trial in opioid-experienced adults with any indication appropriate for chronic opioid treatment. The goal of this study will be to evaluate the safety and tolerability of ZX002 through six and 12 months. Additional Phase 3 safety and efficacy trials in one or more additional chronic pain conditions, such as osteoarthritis, may be required to support our proposed label. Concurrent with the Phase 3 program, we also plan to conduct several pharmacokinetic and clinical pharmacology trials, as well as any remaining pre-clinical studies required to file an NDA and support the approval of this product candidate. Determinations about additional clinical trials and pre-clinical studies, if any, will be made after receipt of the minutes of our End of Phase 2 meeting with the FDA.

Our Commercialization Strategy

        We intend to build a commercial organization in the United States focused on promoting our products to physicians, nurses and other healthcare professionals. We believe that we can achieve our strategic goals by deploying an experienced sales organization supported by an internal marketing infrastructure.

        For the launch of sumatriptan DosePro in the United States, we intend to build our own commercial organization, including a sales force of approximately 100 people to target top prescribers. We plan to support this field sales force with an internal commercial team which will include product management, commercial analytics, sales operations, managed care and key account management staff. We will also seek to establish partnerships with pharmaceutical companies or contract sales organizations to market and sell to a broader physician audience than can be reached by our planned sales force alone. Sales calls will primarily target neurologists, headache specialists and key primary care physicians. Other targets will include targeted pain specialists, obstetrician/gynecologists providing primary care to female patients and nurse educators. Key factors in the successful adoption of sumatriptan DosePro will include expanding its use as an alternative to nasal and oral triptan therapy, switching current injectable users to DosePro and building patient awareness and trial. We will also target dissatisfied triptan oral tablet patients and triptan oral tablet non-responders.

        In March 2008, we entered into a licensing and distribution agreement with Desitin, a private German pharmaceutical company focused on the development, manufacturing and distribution of products for the treatment of CNS disorders. Under the terms of the agreement, we licensed to Desitin the exclusive development and commercialization rights to sumatriptan DosePro for the European Union, Norway, Switzerland and Turkey. Desitin will oversee, and be responsible for the expenses related to, all clinical development, regulatory approval and commercialization efforts required to market sumatriptan DosePro in the territories in which Desitin elects to develop and market sumatriptan DosePro. We will manufacture and supply the product to Desitin for commercial sale.

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Desitin will pay us a specified transfer price for commercial product and a specified royalty on annual net sales. We retain full commercial rights to sumatriptan DosePro in all other countries not licensed under the Desitin agreement, including the United States, Canada, the countries in Asia and certain other countries.

        For the launch of ZX002, if approved, we intend to expand our sales force to approximately 250 people to allow us to reach the top opioid prescribers in our target market. Our primary target audiences will include anesthesiologists, pain specialists, physical medicine specialists and targeted primary care physicians.

Our Technology

        Our proprietary DosePro technology is an easy-to-use drug delivery system designed to enable self-administration of pre-filled, single doses of liquid drug formulations, subcutaneously, without a needle. The DosePro technology (formerly known as Intraject) has undergone more than ten years of design, process engineering, clinical evaluation and development work, including significant capital investment by the predecessor owners of the technology, Weston Medical Group, plc and Aradigm Corporation, or Aradigm. We believe the approval and launch of sumatriptan DosePro will validate this technology's commercial viability and readiness for other potential drug applications.

        We believe that DosePro offers several benefits to patients compared to other subcutaneous delivery methods, and that it will become a preferred delivery option for patients and physicians for many injected medicines beyond sumatriptan, particularly those that are self-administered. These benefits include less anxiety or fear due to the lack of a needle, easier disposal without the need for a needle disposal container, no risk of needle-stick injury or contamination, an easy-to-use three step process, no need to fill or manipulate the device, reliable performance, and discreet portability. In several clinical trials and market research studies, DosePro has been shown to be preferred by patients over conventional needle-based systems. In addition, patient ease of use means that DosePro requires less time from physicians and other caregivers to train patients to use the device. Physician preference for DosePro as a needle-free alternative to conventional needle-based injections has also been demonstrated in market research studies.

        In addition to its multiple potential benefits to both patients and physicians, DosePro shows significant versatility in its ability to deliver various types of therapeutic compounds, including both small molecules and biologic products where the dose volume is 0.5 mL or less. While DosePro has already shown positive results in clinical studies performed with saline and sumatriptan, there have been three positive single-dose human pilot studies conducted with a combination of a protein pharmaceutical and DosePro. These studies include pharmacokinetic bioequivalence studies comparing DosePro to a conventional needle injection for human growth hormone and erythropoietin, or EPO, and pharmacodynamic equivalence study using granulocyte colony-stimulating factor, or G-CSF. Pre-clinical work with monoclonal antibodies evaluating bioavailability, pharmacokinetics and a lack of immunogenicity has also been conducted. In vitro studies with DosePro technology have demonstrated the potential to allow the subcutaneous delivery of highly viscous formulations, which can be a limiting factor for use of traditional needle-based delivery systems. As a result of the versatility of DosePro to deliver various types of drug products, this technology may have significant market potential across a broad range of therapeutic areas, including those typically treated with small volume injectable products, such as hepatitis, infertility, multiple sclerosis and rheumatoid arthritis.

        Given its multiple benefits and therapeutic versatility, we believe the DosePro technology provides us with an opportunity to develop our own product candidates beyond sumatriptan DosePro by pairing DosePro with proven drugs to enhance their commercial attractiveness. We also believe DosePro provides an attractive licensing option for other pharmaceutical and biotech companies seeking to enhance, differentiate, or extend the life-cycle of their own injectable products. These opportunities include both currently marketed products as well as development stage product candidates.

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Manufacturing

        Our DosePro technology and sumatriptan DosePro are manufactured by contract manufacturers, component fabricators and secondary service providers. Final aseptic fill, finish, assembly and packaging are performed at Patheon, Swindon, United Kingdom, a specialist in aseptic fill/finish of injectables and other sterile pharmaceutical products. Suppliers of components, subassemblies and other materials are located in the United Kingdom, Ireland, Germany, France and the United States. All contract manufacturers and component suppliers have been selected for their specific competencies in the manufacturing processes and materials that make up the DosePro system. FDA regulations require that materials be produced under cGMP or Quality System regulations, or QSR, as required for the respective unit operation within the manufacturing process. Throughout the supply chain, manufacturing equipment specific to the production of DosePro components or assemblies were developed and purchased by us or our predecessors and are currently owned by us. We manage the supply chain for sumatriptan DosePro, consisting of the DosePro system and the sumatriptan active pharmaceutical ingredient, or API, internally with experienced operations professionals, including employees residing in the United Kingdom who oversee European contract operations.

        We are a party to a supply agreement with Dr. Reddy's Laboratories, Inc., or Dr. Reddy's. Under the terms of the agreement, Dr. Reddy's, a global pharmaceutical company and supplier of bulk API located in India, agreed to supply us with the sumatriptan API for sumatriptan DosePro at a specified price. Dr. Reddy's has agreed to sell to us, and we agreed to purchase on a non-exclusive basis from Dr. Reddy's, not less than 50% of our quarterly requirements for sumatriptan in the United States, Canada and the European Union. The term of the agreement is for a period of ten years following the date of the first commercial sale by us in the United States, Canada or European Union of a drug product containing sumatriptan. The term of the agreement may be extended by us for successive one year periods by written notice to Dr. Reddy's, unless Dr. Reddy's gives written notice to us that it does not wish to extend the term. We may terminate the agreement upon written notice if Dr. Reddy's is unable to deliver sufficient amounts of sumatriptan over a specified period of time. We may also terminate the agreement if we are negotiating an agreement with a third party to commercialize such third party's formulation of sumatriptan and such agreement would preclude us from sourcing sumatriptan from any party other than such third party. Either party may terminate the agreement upon written notice if the other party commits a material breach of its obligations and fails to remedy the breach within a specified time period, if the other party becomes insolvent or subject to bankruptcy proceedings or where a force majeure event continues for a specified period of time.

        All DosePro manufacturing processes through aseptic filling have produced supplies for clinical trials and stability testing, and are designed to produce at commercial levels. In 2007, the aseptic assembly and filling processes were successfully validated in media fill simulations. We expect that the remaining non-critical, post-aseptic operations, such as final device assembly and final packaging, will be fully automated during 2008 upon completion of automation projects currently underway. We currently have no long-term supply agreements relating to sumatriptan DosePro. However, by the end of 2008, we plan to enter into agreements with our contract manufacturers, component fabricators and secondary service providers to secure long-term commercial supply for sumatriptan DosePro and expect manufacturing capacity to adequately support our projected sumatriptan DosePro demand through 2010.

        DosePro systems intended for clinical trials of DosePro-based products other than sumatriptan DosePro are provided for by using the existing manufacturing infrastructure, supplemented with clinical scale aseptic fill/finish as appropriate for the stage and scale of the product under clinical development.

        Clinical materials for our planned ZX002 clinical program will be manufactured by Elan Drug Delivery, Inc.

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Competition

        The pharmaceutical industry is highly competitive, with a number of established, large pharmaceutical companies, as well as many smaller companies. Many of these companies have greater financial resources, sales and marketing capabilities and experience in obtaining regulatory approvals for product candidates than us. There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations actively engaged in research and development of products which may target the same indications as our product candidates. We face competition not only in the commercialization of our most advanced product candidates, but also for the in-licensing or acquisition of additional product candidates, and the out-licensing of our DosePro drug delivery technology.

Sumatriptan DosePro

        If approved for the treatment of acute migraine, sumatriptan DosePro will compete against other marketed migraine therapeutics. The largest class of marketed prescription products for treatment of migraine is the triptan class. The largest selling triptan is Imitrex from GlaxoSmithKline, and there are eight other branded triptan therapies being sold by pharmaceutical companies including AstraZeneca PLC, Endo Pharmaceuticals Holdings Inc., GlaxoSmithKline, Johnson & Johnson, Merck & Co., Inc., and Pfizer Inc. In addition to marketed migraine therapeutics, there are several product candidates under development that could potentially be used to treat migraines and compete with sumatriptan DosePro, including several products under development by large pharmaceutical companies such as GlaxoSmithKline plc and Merck & Co., Inc., and other smaller companies such as Alexza Pharmaceuticals, Inc. and MAP Pharmaceuticals, Inc.

        In addition, we may face competition from generic sumatriptan, the active ingredient in Imitrex, including generic injectable sumatriptan in the form of vials and syringes, pre-filled syringes, and/or auto-injector systems. For example, Par Pharmaceuticals Company, Inc. has announced plans to launch an authorized generic version of Imitrex injection no later than November 2008. Although these products may not be directly substituted for sumatriptan DosePro, generic versions of injectable sumatriptan may reduce the adoption of our product candidate by health insurers and consumers, as financial pressure to use generic products may encourage the use of a generic product over sumatriptan DosePro.

ZX002

        If approved for the treatment of moderate to severe chronic pain, ZX002 will compete against other marketed branded and generic pain therapeutics and may compete with additional product candidates currently under development. Current competitors in the opioid pain therapeutics space include, but are not limited to, Abbott Laboratories, Alpharma Inc., Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, King Pharmaceuticals, Inc., Mallinckrodt Inc., Purdue Pharma L.P., Teva Pharmaceutical Industries Limited and Watson Pharmaceuticals, Inc. There are at least fifteen opioid product candidates, including abuse and diversion resistant formulations of currently available opioids, novel opioids and alternative delivery forms of various opioids under development at other pharmaceutical companies, including an extended release version of Vicodin being developed by Abbott Laboratories and an extended-release hydrocodone product candidate being developed by Alpharma, Inc. ZX002 may also face competition from non-opioid product candidates including new chemical entities, as well as alternative delivery forms of NSAIDs. In addition to most of the previously named companies, a number of pharmaceutical companies are developing these new product candidates including, but not limited to, Acura Pharmaceuticals, Inc., Altea Therapeutics Corporation, Elite Pharmaceuticals, Inc., Javelin Pharmaceuticals, Inc., Neuromed Pharmaceuticals, Ltd., Pfizer Inc., QRxPharma Ltd., and Shire, plc.

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DosePro Technology

        Traditional needle and syringe remain the primary method for administering intramuscular and subcutaneous injections. The injectable drug market is increasingly adopting new injection systems including pre-filled syringes, pen injectors and auto injector devices. The majority of these devices, however, still employ a needle. We will compete with companies operating in the needle-based drug delivery market. These companies include, but are not limited to, Becton, Dickinson and Company, Owen Mumford Ltd. and Ypsomed. Additional competition may come from companies focused on out-licensing needle-free technology including Bioject Inc. and Antares Pharma Inc., which have both commercialized spring-driven, multiple-use, patient-filled, needle-free injectors, primarily for injecting insulin for diabetes. We believe that market acceptance of these devices has been limited due to a combination of the cost of the devices, the large size and the complexities of their use. Other companies may also be developing single-use, pre-filled, needle-free delivery systems. We also may experience future competition from alternative delivery systems which bypass the need for an injection, including inhaled, nasal, sublingual, or transdermal technologies.

Intellectual Property

        Our success will depend to a significant extent on our ability to obtain, expand and protect our intellectual property estate, enforce patents, maintain trade secret protection and operate without infringing the proprietary rights of other parties.

Needle-free Drug Delivery Technologies

Sumatriptan DosePro is a new drug-device combination that subcutaneously delivers sumatriptan utilizing our proprietary needle-free drug delivery system to treat migraine and cluster headache. Our patent portfolio is directed to various types and components of needle-free and other drug delivery systems. As of June 10, 2008, we have 15 issued U.S. patents, eight pending U.S. patent applications, 44 issued foreign patents and 28 pending foreign patent applications. Of the above, we have six issued U.S. patents, three pending U.S. patent applications, 28 issued foreign patents and six pending foreign patent applications relating to various aspects of our sumatriptan DosePro product candidate.

        Our issued U.S. Patent No. 5,891,086 is directed towards the overall design and use of certain needle-free injectors, including our sumatriptan DosePro product candidate, and is expected to expire in 2016. We have a corresponding patent in Canada, and two each in Germany, Spain, France, United Kingdom, Italy and Japan, which are all expected to expire in 2013. Our issued U.S. Patent No. 6,135,979 is also directed towards the overall design of certain needle-free injectors, including our sumatriptan DosePro product candidate, and is expected to expire in 2017. We have corresponding patents in Germany, France, United Kingdom and Japan, which are all expected to expire in 2016. Our issued U.S. Patent No. 5,957,886 is directed towards certain needle-free injectors using viscous damping medium to damp recoil during injection, including our sumatriptan DosePro product candidate, and is expected to expire in 2016. We have corresponding patents in Canada, Germany, France, United Kingdom and Japan, which are all expected to expire in 2015.

        We have two U.S. patents and three pending foreign patent applications in Canada, Europe and Japan corresponding to methods of proof testing glass drug containers, such as those used in the manufacture of our sumatriptan DosePro product candidate. These patents, and applications if they issue, are expected to expire in 2023. We also have one U.S. patent, three foreign patents in Germany, France and the United Kingdom, and one pending foreign patent application in Canada corresponding to methods of filling needle-free injector capsules, such as those used in the manufacture of our sumatriptan DosePro product candidate. These patents, and applications if they issue, are expected to expire in 2022.

        We also have two pending U.S. patent applications, three foreign patents in Germany, France and the United Kingdom, and two pending foreign patent applications in Canada and Japan corresponding

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to needle-free injector drug capsules and methods for filling capsules with liquid drug, such as those used in the manufacture of our sumatriptan DosePro product candidate. These patents, and applications if they issue, are expected to expire in 2022.

        We also have a U.S. provisional patent application relating to follow-on products to our sumatriptan DosePro product candidate, which, if it issues, is expected to expire in 2029.

        Our remaining nine issued U.S. patents, five pending U.S. patent applications, 19 issued foreign patents, and 15 pending foreign patent applications are not currently used in the sumatriptan DosePro product candidate, but may be used with alternate versions of, or future product candidates utilizing, our DosePro technology.

ZX002

        ZX002 is an oral version of an opioid pain reliever, which is designed to offer a controlled release profile using Elan's proprietary SODAS system. Our in-licensed intellectual property from Elan relating to ZX002 includes an issued U.S. patent and a pending U.S. application. The license agreement is described below in further detail. The issued U.S. patent contains claims directed towards the proprietary ZX002 formulation, including controlled release opiate compositions. The issued patent is expected to expire in November 2019. The pending U.S. patent application also contains claims directed towards the proprietary ZX002 formulation, including controlled release opiate compositions. The U.S. patent, if it issues from our licensed U.S. application, will also expire in 2019, but may be eligible for patent term adjustment or patent term restoration.

Collaborations, Commercial and License Agreements

Aradigm Corporation Asset Purchase Agreement

        In August 2006, we entered into an asset purchase agreement with Aradigm. Under the terms of the agreement, Aradigm assigned and transferred to us all of its right, title and interest to tangible assets and intellectual property related to the DosePro (formerly known as Intraject) needle-free drug delivery system. Aradigm also granted to us a non-exclusive, fully paid, worldwide, perpetual, irrevocable, transferable, sublicensable license under all other intellectual property of Aradigm that is necessary or useful to the development, manufacture or commercialization of the DosePro delivery system. Aradigm also retained a worldwide, royalty-free, non-exclusive license, with a right to sublicense, under all transferred intellectual property rights solely for purposes of the pulmonary field, and we granted Aradigm a license under other intellectual property rights solely for use in the pulmonary field.

        At the time of the closing of the asset purchase, we paid to Aradigm a sum of $4.0 million as consideration. Under the agreement, we are required to make a $4.0 million milestone payment to Aradigm upon the U.S. commercialization of sumatriptan DosePro. We are also required to pay a specified royalty based on global net sales of sumatriptan DosePro, by us or one of our future licensees, if any, for the longer of the ten year anniversary of first commercial sale of the product in the United States, but no more than 20 years after the closing date of the asset purchase, or the expiration of the last valid claim of the transferred patents covering the manufacture, use, or sale of the product.

        In addition, in the event we or one of our future licensees, if any, commercializes a non-sumatriptan product in the DosePro delivery system, we will be required to pay Aradigm, at our election, either a specified royalty on net sales of each non-sumatriptan product commercialized, or a fixed percentage of the royalty revenues received by us from the licensee. Royalty revenues under this agreement include, if applicable, running royalties on the net sales of non-sumatriptan products, license or milestone fees not allocable to development or other related costs incurred by us, payments in consideration of goods or products in excess of their cost, or payments in consideration for equity in excess of the then fair market value of the equity.

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Elan Pharma International Limited License Agreement

        In November 2007, we entered into a license agreement with Elan. Under the terms of this license agreement, Elan granted to us an exclusive license in the United States and its possessions and territories, with defined sub-license rights to third parties other than certain technological competitors of Elan, to certain Elan intellectual property rights related to our ZX002 product candidate. The Agreement grants us the exclusive right under certain Elan intellectual property to import, use, offer for sale and sell oral controlled release capsule or tablet formulations of hydrocodone bitartrate, where hydrocodone bitartrate is the sole active ingredient, for oral prescriptions in the treatment or relief of pain, pain syndromes or pain associated with medical conditions or procedures in the United States. This right enables us to exclusively develop and sell ZX002 in the United States. Elan has retained the exclusive right to take action in the event of infringement or threatened infringement by a third party of Elan's intellectual property under the license agreement. We have the right to pursue an infringement claim against the alleged infringer should Elan decline to take or continue an action.

        Under the terms of the agreement, the parties agreed that, subject to the future negotiation of a commercial manufacture and supply agreement, Elan, or an affiliate of Elan, will have the sole and exclusive right to manufacture and commercially supply ZX002 to us under agreed upon financial terms.

        Elan also granted to us, in the event that Elan is unwilling or unable to manufacture or supply commercial product to us, a non-exclusive license to make product under Elan's intellectual property rights. This non-exclusive license also includes the right to sublicense product manufacturing to a third party, other than certain technology competitors of Elan.

        Under the license agreement, we paid an upfront fee of $500,000 and are required to make payments to Elan based upon achievement of certain development and sales milestones. As of December 31, 2007, we may be obligated to pay Elan up to $4.5 million in total future milestone payments with respect to ZX002 depending upon the achievement of various development and commercial events. We are also required to pay specified royalties based on net sales of the product for an initial royalty term equal to the longer of the expiration of Elan's patents covering the product in the United States, or 15 years after commercial launch, if Elan does not have patents covering the product in such country. After the initial royalty term, the license agreement will continue automatically for three-year rolling periods where we will continue to pay royalties on product sales to Elan at reduced rates.

        Either party may terminate the agreement upon a material, uncured default of the other party or upon 12 months' written notice prior to the end of the initial royalty term or any additional three-year rolling period. Elan may terminate the agreement in the event that we fail to meet specified development and commercialization milestones within specified time periods. We may terminate the agreement, with or without cause, at any time upon six months' written notice prior to NDA approval for ZX002 and at any time upon 12 months' prior written notice after NDA approval for ZX002.

Desitin License and Distribution Agreement

        In March 2008, we entered into a licensing and distribution agreement with Desitin. Under the terms of the agreement, we granted Desitin the exclusive right under our intellectual property rights related to sumatriptan DosePro to develop, use, distribute, sell, offer for sale, and import sumatriptan DosePro and any potential modified versions of sumatriptan DosePro in the European Union, Norway, Switzerland and Turkey. Under the agreement, Desitin has the right, but with the exception of Germany not the obligation, at its own expense, to develop, obtain marketing approval and commercialize sumatriptan DosePro in these territories. In addition, Desitin has a right of first refusal on the commercialization of any potential line extensions of sumatriptan DosePro. We will manufacture and supply the product to Desitin for commercial sale in the licensed territories. Desitin will pay us a specified transfer price for commercial product and a specified royalty on annual net sales for an initial

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term, on a country to country basis until the greater of ten years after the first commercial sale in that country or the expiration, in such country, of the last patent right to expire under the licensed technology. After the initial term, in countries where the product has had commercial sales, the agreement will be automatically renewed on a country-by-country basis by additional successive specified periods unless it is terminated by either party giving a specified prior written notice.

        Either party may terminate the agreement upon a material uncured breach, insolvency or bankruptcy, adverse event which affects the other party's ability to perform its obligations under the agreement or upon the enactment of any law, decree or regulation which would impair or restrict either our right, title or interest in the intellectual property, or Desitin's right to market or distribute the product in accordance with the agreement. Desitin may terminate the agreement upon a competent regulatory authority in the territories either imposing therapeutic indications not acceptable to Desitin or requiring the product to be marketed as a generic drug. Desitin also may terminate the agreement if more than one study regarding bioequivalence is required to obtain marketing authorization. We may terminate the agreement upon a specified prior written notice if in each of a specified number of consecutive calendar years Desitin fails to meet a specified percentage of sales forecasts to be mutually agreed upon under the agreement, if Desitin takes any act impairing our intellectual property rights or if Desitin ceases to carry on business in the marketing of pharmaceutical products in the territories. Desitin may also terminate the agreement, upon written notice, if the price at which we supply our product to Desitin exceeds a specified threshold.

Government Regulation

FDA Approval Process

        In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The FFDCA and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable FDA or other requirements may subject a company to a variety of administrative or judicial sanctions, such as the FDA's refusal to approve pending applications, a clinical hold, warning letters, recall or seizure of products, partial or total suspension of production, withdrawal of the product from the market, injunctions, fines, civil penalties or criminal prosecution.

        FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States. The process required by the FDA before a drug may be marketed in the United States generally involves:

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completion of pre-clinical laboratory and animal testing and formulation studies in compliance with the FDA's good laboratory practice, or GLP, regulations;



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submission to the FDA of an IND for human clinical testing which must become effective before human clinical trials may begin in the United States;



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approval by an independent institutional review board, or IRB, at each clinical trial site before each trial may be initiated;



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performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each intended use;



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satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product is manufactured to assess compliance with the FDA's cGMP regulations, and for devices and device components, the QSR, and to assure that the facilities, methods and controls are adequate to preserve the drug's identity, strength, quality and purity;



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submission to the FDA of a new drug application, or NDA;

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satisfactory completion of an FDA advisory committee review, if applicable; and



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FDA review and approval of the NDA.

        The pre-clinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all. Pre-clinical tests include laboratory evaluation of product chemistry, formulation, stability and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product. The results of pre-clinical tests, together with manufacturing information, analytical data and a proposed clinical trial protocol and other information, are submitted as part of an IND to the FDA. Some pre-clinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to one or more proposed clinical trials and places the clinical trial on a clinical hold, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, our submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development.

        Further, an independent IRB, covering each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and informed consent information for subjects before the trial commences at that site and it must monitor the study until completed. The FDA, the IRB, or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk or for failure to comply with the IRB's requirements, or may impose other conditions.

        As a separate amendment to an IND, a sponsor may submit a request for a Special Protocol Assessment, or SPA, from the FDA. Under the SPA procedure, a sponsor may seek the FDA's agreement on the proposed design and size of a clinical trial intended to form the primary basis for determining a product's efficacy. Upon specific request by a sponsor, the FDA will evaluate the protocol and respond to a sponsor's questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial adequately address objectives in support of a regulatory submission. Agreements and disagreements between the FDA and the sponsor regarding an SPA are documented by the FDA in an SPA letter to the sponsor or in the minutes of a meeting between the sponsor and the FDA. Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under an SPA, the FDA may revoke or alter its agreement under certain circumstances, including:

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public health concerns emerge that were unrecognized at the time of the protocol assessment;



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a sponsor fails to follow a protocol that was agreed upon with the FDA;



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the relevant data, assumptions, or information provided by the sponsor in a request for an SPA change are found to be false or to omit relevant facts; or



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the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study.

        Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. For purposes of an NDA submission and approval, human clinical trials are typically conducted in the following three sequential phases, which may overlap or be combined:

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Phase 1:    The drug is initially introduced into healthy human subjects or patients and tested for safety, dose tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness.

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Phase 2:    The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dose tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more extensive Phase 3 clinical trials.



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Phase 3:    These are commonly referred to as pivotal studies. When Phase 2 evaluations demonstrate that a dose range of the product appears to be effective and has an acceptable safety profile, Phase 3 trials are undertaken in large patient populations to further evaluate dosage, to obtain additional evidence of clinical efficacy and safety in an expanded patient population at multiple, geographically-dispersed clinical trial sites, to establish the overall risk-benefit relationship of the drug and to provide adequate information for the labeling of the drug.



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Phase 4:    In some cases, the FDA may condition approval of an NDA for a product candidate on the sponsor's agreement to conduct additional clinical trials to further assess the drug's safety and effectiveness after NDA approval. Such post approval trials are typically referred to as Phase 4 studies.

        The results of product development, pre-clinical studies and clinical trials are submitted to the FDA as part of an NDA. NDAs must also contain extensive information relating to the product's pharmacology, chemistry, manufacture, controls and proposed labeling, among other things. For some drugs, especially controlled substances, the FDA may require a risk evaluation and mitigation strategies, or REMS, which could include measures imposed by the FDA such as prescribing restrictions, requirements for post-marketing studies or certain restrictions on distribution and use. Under federal law, the submission of most NDAs is additionally subject to a substantial application user fee, and the manufacturer and/or sponsor under an approved NDA are also subject to annual product and establishment user fees. The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency's threshold determination that it is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information and is subject to payment of additional user fees. The resubmitted application is also subject to review before the FDA accepts it for filing.

        Once the submission has been accepted for filing, the FDA begins an in-depth substantive review. Under the Prescription Drug User Fee Act, or PDUFA, the FDA agrees to specific performance goals for NDA review time through a two-tiered classification system, Standard Review and Priority Review. Standard Review NDAs have a goal of being completed within a ten-month timeframe. A Priority Review designation is given to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. The goal for completing a Priority Review is six months. It is likely that our product candidates will be granted a Standard Review. The review process may be extended by the FDA for three additional months to consider certain information or obtain clarification regarding information already provided in the submission. The FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it considers such recommendations carefully when making decisions. In addition, for combination products like sumatriptan DosePro, the FDA's review may include the participation of both the FDA's Center for Drug Evaluation and Research and the FDA's Center for Devices and Radiological Health, which may complicate or prolong the review.

        Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP, and if applicable, QSR, requirements and adequate to assure consistent production of the product within required specifications. Additionally, the FDA will typically inspect one or more clinical sites to assure compliance with GCP before approving an NDA.

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        After the FDA evaluates the NDA and the manufacturing facilities, it may issue an approval letter, an approvable letter or a not-approvable letter. Both approvable and not-approvable letters generally outline the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when the deficiencies have been addressed to the FDA's satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

        Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if safety problems are identified after the product reaches the market. In addition, the FDA may require post-approval testing, including Phase 4 studies, and surveillance programs to monitor the effect of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved label, and, even if the FDA approves a product, it may limit the approved indications for use for the product or impose other conditions, including labeling or distribution restrictions or other risk-management mechanisms. Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new or supplemental NDA, which may require us to develop additional data or conduct additional pre-clinical studies and clinical trials.

Post-Approval Requirements

        Once an NDA is approved, a product will be subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. There also are extensive DEA regulations applicable to marketed controlled substances.

        In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and generally require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

        Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;



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fines, warning letters or holds on post-approval clinical trials;



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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;



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product seizure or detention, or refusal to permit the import or export of products; or



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injunctions or the imposition of civil or criminal penalties.

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        The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off label uses, and a company that is found to have improperly promoted off label uses may be subject to significant liability.

        In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Section 505(b)(2) New Drug Applications

        As an alternate path to FDA approval for modifications to formulations or uses of products previously approved by the FDA, an applicant may file an NDA under Section 505(b)(2) of the FFDCA. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, and permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon the FDA's findings of safety and effectiveness based on certain pre-clinical or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

        To the extent that a Section 505(b)(2) NDA relies on studies conducted for a previously approved drug product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book. Specifically, the applicant must certify for each listed patent that (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the new product. A certification that the new product will not infringe the already approved product's listed patent or that such patent is invalid is known as a Paragraph IV certification. If the applicant does not challenge the listed patents through a Paragraph IV certification, the Section 505(b)(2) NDA application will not be approved until all the listed patents claiming the referenced product have expired. The Section 505(b)(2) NDA application also will not be accepted or approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a New Chemical Entity, listed in the Orange Book for the referenced product, has expired.

        If the 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the referenced NDA and patent holders once the 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a legal challenge to the Paragraph IV certification. Under the FFDCA, the filing of a patent infringement lawsuit within 45 days of their receipt of a Paragraph IV certification in most cases automatically prevents the FDA from approving the Section 505(b)(2) NDA for 30 months, or until a court decision or settlement finding that the patent is invalid, unenforceable or not infringed, whichever is earlier. The court also has the ability to shorten or lengthen the 30 month stay if either party is found not to be reasonably cooperating in expediting the litigation. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its product only to be subject to significant delay and patent litigation before its product may be commercialized.

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DEA Regulation

        One of our product candidates, ZX002, will be regulated as a "controlled substance" as defined in the Controlled Substances Act of 1970, or CSA, which establishes registration, security, recordkeeping, reporting, storage, distribution and other requirements administered by the U.S. Drug Enforcement Administration, or DEA. The DEA is concerned with the control of handlers of controlled substances, and with the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of commerce.

        The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. ZX002, our proprietary oral, controlled release version of hydrocodone, will be listed by the DEA as a Schedule II controlled substance under the CSA. Consequently, its manufacture, shipment, storage, sale and use will be subject to a high degree of regulation. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

        Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are authorized.

        The DEA typically inspects a facility to review its security measures prior to issuing a registration. Security requirements vary by controlled substance schedule, with the most stringent requirements applying to Schedule I and Schedule II substances. Required security measures include background checks on employees and physical control of inventory through measures such as cages, surveillance cameras and inventory reconciliations. Records must be maintained for the handling of all controlled substances, and periodic reports made to the DEA, for example distribution reports for Schedule I and II controlled substances, Schedule III substances that are narcotics, and other designated substances. Reports must also be made for thefts or losses of any controlled substance, and to obtain authorization to destroy any controlled substance. In addition, special authorization and notification requirements apply to imports and exports.

        In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II. Distributions of any Schedule I or II controlled substance must also be accompanied by special order forms, with copies provided to the DEA. Because ZX002, an oral, controlled release version of hydrocodone, will be regulated as a Schedule II controlled substance, it will be subject to the DEA's production and procurement quota scheme. The DEA establishes annually an aggregate quota for how much hydrocodone may be produced in total in the United States based on the DEA's estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount of hydrocodone that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. We and our contract manufacturers must receive an annual quota from the DEA in order to produce or procure any Schedule I or Schedule II substance, including hydrocodone for use in manufacturing ZX002. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. Our, or our contract manufacturers', quota of an active ingredient may not be sufficient to meet commercial demand or complete clinical trials. Any delay or refusal by the DEA in establishing our, or our contract manufacturers', quota for controlled substances could delay or stop our clinical trials or product

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launches, which could have a material adverse effect on our business, financial position and results of operations.

        To meet its responsibilities, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure to maintain compliance with applicable requirements, particularly as manifested in loss or diversion, can result in enforcement action that could have a material adverse effect on our business, results of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could eventuate in criminal proceedings.

        Individual states also regulate controlled substances, and we and our contract manufacturers will be subject to state regulation on distribution of these products.

New Legislation

        On September 27, 2007, the President signed the Food and Drug Administration Amendments Act of 2007, or FDAAA. This law grants significant expanded authority to the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, it authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling to reflect new safety information, and require REMS for certain drugs, including certain currently approved drugs. In addition, it significantly expands the federal government's clinical trial registry and results databank and creates new restrictions on the advertising and promotion of drug products. Under the FDAAA, companies that violate these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties.

        While we expect these provisions of the FDAAA, among others, to have a substantial effect on the pharmaceutical industry, the extent of that effect is not yet known. As the FDA issues regulations, guidance and interpretations relating to the new legislation, the impact on the industry, as well as our business, will become clearer. The new requirements and other changes that the FDAAA imposes may make it more difficult, and likely more costly, to obtain approval of new pharmaceutical products and to produce, market and distribute existing products.

International Regulation

        In addition to regulations in the United States, we will be subject to a variety of foreign regulations regarding safety and efficacy and governing, among other things, clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and can involve additional product testing and additional review periods, and the time may be longer or shorter than that required to obtain FDA approval and, if applicable, DEA classification. The requirements governing, among other things, the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.

        Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval.

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        In addition to regulations in Europe and the United States, we will be subject to a variety of other foreign regulations governing, among other things, the conduct of clinical trials, pricing and reimbursement and commercial distribution of our products. If we fail to comply with applicable foreign regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

        To date, we have not initiated any discussions with the European Medicines Agency, or EMEA, or any other foreign regulatory authorities with respect to seeking regulatory approval for any of our product candidates in Europe or in any other country outside the United States.

Third-Party Payor Coverage and Reimbursement

        Although none of our product candidates has been commercialized for any indication, once they are approved for marketing, commercial success of our product candidates will depend, in part, upon the availability of coverage and reimbursement from third-party payors at the federal, state and private levels. Government payor programs, including Medicare and Medicaid, private health care insurance companies, and managed-care plans have attempted to control costs by limiting coverage and the amount of reimbursement for particular procedures or drug treatments. The United States Congress and state legislatures from time to time propose and adopt initiatives aimed at cost-containment. Ongoing federal and state government initiatives directed at lowering the total cost of health care will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid payment systems. Examples of how limits on drug coverage and reimbursement in the United States may cause reduced payments for drugs in the future include:

•

changing Medicare reimbursement methodologies;



•

fluctuating decisions on which drugs to include in formularies;



•

revising drug rebate calculations under the Medicaid program; and



•

reforming drug importation laws that restrict imports of drugs available at lower prices outside of the United States.

        Some third-party payors also require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse health care providers who use such therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, these requirements or any announcement or adoption of such proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and to operate profitably.

Manufacturing Requirements

        We and our third-party manufacturers must comply with applicable FDA regulations relating to FDA's cGMP regulations and, if applicable, QSR requirements. The cGMP regulations include requirements relating to, among other things, organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. The manufacturing facilities for our products must meet cGMP requirements to the satisfaction of the FDA pursuant to a pre-approval inspection before we can use them to manufacture our products. We and our third-party manufacturers are also subject to periodic unannounced inspections of facilities by the FDA and other authorities, including procedures and operations used in the testing and manufacture of our products to assess our compliance with applicable regulations. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including, among other things, warning letters, the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations and civil and criminal penalties.

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Other Regulatory Requirements

        With respect to post-market product advertising and promotion, the FDA imposes a number of complex regulations on entities that advertise and promote pharmaceuticals, which include, among others, standards for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the internet. The FDA has very broad enforcement authority under the FFDCA, and failure to abide by these regulations can result in penalties, including the issuance of a warning letter directing entities to correct deviations from FDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA, and state and federal civil and criminal investigations and prosecutions.

        We are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances in connection with our research. In each of these areas, as above, the FDA has broad regulatory and enforcement powers, including, among other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect on us.

Legal Proceedings

        We are not currently a party to any legal proceeding.

Employees

        As of May 31, 2008, we employed 32 full-time employees. Of the full-time employees, three were engaged in sales and marketing, nine were engaged in manufacturing operations, 13 were engaged in product development, quality assurance and clinical and regulatory activities and seven were engaged in general and administrative activities (including business and corporate development). We plan to continue to expand our product development programs. To support this growth, we will need to expand managerial, operations, development, regulatory, sales, marketing, finance and other functions. None of our employees are represented by a labor union, and we consider our employee relations to be good.

Facilities

        Our facilities are located in San Diego and Emeryville, California. Our general and administrative and sales and marketing personnel are located at our San Diego facility. Our manufacturing operations, product development, quality assurance and clinical and regulatory personnel are located in our Emeryville facility.

        We occupy 7,416 square feet of office space in Emeryville under a lease which expires in 2011. We believe that the office space in Emeryville is adequate to meet our needs there, and that, if necessary, additional space can be leased to accommodate any future growth.

        We occupy 4,193 square feet of office space in San Diego under a lease which expires in 2010. We can extend the lease on the San Diego office for an additional 17 months upon six months' prior written notice. The lease gives us an option to expand into an adjacent 3,794 square feet of office space should our landlord decide to vacate it. Given the anticipated growth of our sales and marketing department, we may need additional office space in San Diego. We believe additional space can be leased to accommodate our potential growth.

        The manufacturing equipment used to produce our DosePro technology is currently located at our contract manufacturers' and component suppliers' facilities in Europe where we occupy an aggregate of approximately 21,665 square feet of space that is used to manufacture sumatriptan DosePro.

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MANAGEMENT

Executive Officers, Key Employees and Directors

        The following table sets forth certain information about our executive officers, key employees and directors:

Name	Age	Position
Executive Officers
Roger L. Hawley	55	Chief Executive Officer and Director
Stephen J. Farr, Ph.D.	49	President, Chief Operating Officer and Director
David W. Nassif	54	Executive Vice President, Chief Financial Officer, Secretary and Treasurer
Stephen J. Peroutka, M.D., Ph.D.	54	Chief Medical Officer
Cynthia Y. Robinson, Ph.D.	49	Chief Development Officer
Jennifer D. ("J.D.") Haldeman	43	Chief Commercial Officer
Key Employees
Bret E. Megargel	39	Vice President, Corporate Development
Jonathan M. Rigby	40	Vice President, Business Development
Mark R. Thompson	55	Vice President, Sales & Managed Markets
John J. Turanin	50	Vice President, Operations
Directors
Cam L. Garner(1)	60	Chairman of the Board of Directors
James C. Blair, Ph.D.(1)	69	Director
Louis C. Bock(2)	43	Director
Erle T. Mast(2)	46	Director
Kurt C. Wheeler(1)	55	Director
Alex Zisson(2)	39	Director

(1)

Member of the Compensation Committee.

(2)

Member of the Audit Committee.

(3)

Member of the Nominating/Corporate Governance Committee.

Executive Officers

Roger L. Hawley is one of our co-founders and has served as our Chief Executive Officer and as a member of our board of directors since August 2006. From January 2006 to August 2006, Mr. Hawley served as a consultant to us and to our predecessor company, which was originally known as CG Pharma, Inc. From August 2003 to January 2006 he served as Executive Vice President, Commercial and Technical Operations for InterMune, Inc., a biopharmaceutical company focused on therapies in hepatology and pulmonology. From October 2002 to July 2003, Mr. Hawley was the Chief Commercial Officer at Prometheus Laboratories Inc., a specialty pharmaceutical and diagnostics company. From 2001 to 2002, Mr. Hawley served as General Manager & Vice President of Sales and Marketing at Elan Pharmaceuticals, Inc. From 1987 to 2001, Mr. Hawley held a broad range of management positions in commercial operations, alliance/partnership management, and regional sales and corporate finance at GlaxoSmithKline, or GSK. His last position at GSK was Vice President of Sales-CNS/GI Division. From 1976 to 1987, he held various financial management positions with Marathon Oil Company, including serving four years in London, England. While at Marathon, he was a certified treasury

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manager and a certified public accountant. Mr. Hawley is a member of the board of directors of Cypress Bioscience, Inc., a publicly-traded pharmaceutical company, Targeted Genetics Corporation, a publicly-traded clinical-stage biotechnology company, and Alios BioPharma Inc., a privately-held biotechnology company. Mr. Hawley holds a B.Sc. in Accounting from Eastern Illinois University.

Stephen J. Farr, Ph.D. is one of our co-founders and has served as our President and as a member of our board of directors since our formation in May 2006. From May 2006 to October 2006, Dr. Farr also served as our Chief Executive Officer and since October 2006, Dr. Farr has served as our Chief Operating Officer. From 1995 to June 2006, Dr. Farr held positions of increasing responsibility within pharmaceutical sciences and research and development at Aradigm Corporation, and serving most recently as Senior Vice President and Chief Scientific Officer. In 2003, he played a key role in identifying and acquiring the DosePro technology and became technical director and executive sponsor for the development of sumatriptan DosePro at Aradigm Corporation. From 1986 to 1994, Dr. Farr was a tenured professor at the Welsh School of Pharmacy, Cardiff University, United Kingdom, concentrating in the areas of physical pharmacy and biopharmaceutics. He is a fellow of the American Association of Pharmaceutical Scientists and visiting Associate Professor in the Department of Pharmaceutics, School of Pharmacy, Virginia Commonwealth University. Dr. Farr is a registered pharmacist in the United Kingdom and obtained his Ph.D. degree in Pharmaceutics from the University of Wales.

David W. Nassif, J.D. has served as our Executive Vice President, Chief Financial Officer, Secretary and Treasurer since May 2007 after consulting for us from October 2006 to May 2007. From May 2006 to October 2006, as well as earlier from 2001 to 2002, Mr. Nassif served as a principal at Strategic Consulting Services providing capital raising, mergers and acquisitions, licensing and investor relations services to various public and private life science and technology companies, including Amphastar. From 2002 to May 2006, Mr. Nassif was the Chief Financial Officer and Senior Vice President of Global Licensing at Amphastar Pharmaceuticals, Inc., a privately-held, generic and specialty pharmaceutical company. From 2000 to 2001, he was the Senior Vice President and Chief Financial Officer of RealAge, Inc., a privately-held health care database information marketing company. From 1993 to 1999, Mr. Nassif held various positions with Cypros Pharmaceutical Corporation, an American Stock Exchange listed specialty pharmaceutical company, culminating in the position of Senior Vice President and Chief Financial Officer. Mr. Nassif received a B.Sc. in Finance and Management Information Systems from the University of Virginia and a J.D. from the University of Virginia School of Law.

Stephen J. Peroutka, M.D., Ph.D. has served as our Chief Medical Officer since November 2007. From August 2005 to October 2007, Dr. Peroutka held positions of increasing responsibility at Johnson & Johnson, serving most recently as a Medical and Business Strategy Leader. From January 2003 to August 2005, he was the President and Chief Executive Officer of Synergia Pharma, Inc., a private biopharmaceutical company focusing on neurological disorders. From 2001 to 2002, Dr. Peroutka was the Vice President of Clinical Research at Deltagen. From 2000 to 2001, Dr. Peroutka was the Chief Medical Officer at Collabra Pharma. From 1993 to 1997, Dr. Peroutka was the President and Chief Executive Officer of Spectra Biomedical, Inc., an association genetics company focused on migraine, which he founded. In 1997, Spectra Biomedical, Inc. was acquired by Glaxo Wellcome Inc. after which time he continued to serve as President to the company until 1999. From 1990 to 1993, Dr. Peroutka worked at Genentech, Inc. where he established the Department of Neuroscience and became its first Director in 1991. From 1988 to 1990, Dr. Peroutka was Chief, Neurology Service, at the Palo Alto Veterans Administration Hospital. From 1984 to 1990, he was an Assistant Professor of Neurology and Pharmacology at Stanford University. Dr. Peroutka received his M.D. and Ph.D. degrees from the Johns Hopkins University School of Medicine. Dr. Peroutka earned his A.B. degree from Cornell University.

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Cynthia Y. Robinson, Ph.D. has served as our Chief Development Officer since April 2008, after consulting for us from April 2007 to April 2008. From November 2004 to July 2007, Dr. Robinson served as Senior Vice President, Development Operations at InterMune, Inc. From April 1989 to June 2004, Dr. Robinson held positions of increasing responsibility at Elan Pharmaceuticals, Inc., serving most recently as Vice President, Project Management, where she oversaw a portfolio of 14 global development programs from pre-clinical through commercialization, including multiple products in the therapeutic areas of CNS and pain. These efforts resulted in nine U.S. New Drug Applications, four European Marketing Authorization Applications and four U.S. product launches. Dr. Robinson holds a B.S. in Chemistry and a Ph.D. in Organic Chemistry from the University of Alabama.

        J.D. Haldeman has served as our Chief Commercial Officer since May 2008 and previously as our Vice President, Commercial Strategy and Corporate Communications since October 2006. From March 2006 to October 2006, Ms. Haldeman served as a consultant to us and to our predecessor company, which was originally known as CG Pharma, Inc. From January 2006 to March 2006, Ms. Haldeman served as a consultant to Valeant Pharmaceuticals International. From June 2004 to December 2005, Ms. Haldeman was Vice President, Marketing at InterMune, Inc. where she managed the full scope of marketing activities for its hepatology, pulmonology, and oncology businesses. From 2003 to March 2004, Ms. Haldeman served as Vice President, Marketing & Commercial Analytics at Prometheus Laboratories Inc., a specialty pharmaceutical and diagnostics company. From 2000 to 2003, Ms. Haldeman led commercial operations and business development as a Vice President at Tandem Medical, a private drug delivery company. From 1997 to 1999, Ms. Haldeman served as Vice President, Commercial Development & Corporate Communications at Shaman Pharmaceuticals, Inc. From 1988 to 1997, Ms. Haldeman served in a broad range of positions in commercial operations including product management, global product planning, and sales at Parke-Davis, a division of Warner-Lambert (now Pfizer). She co-led the launch of Neurontin, a CNS product, and rose to the level of Senior Director, Cardiovascular Disease Team. Ms. Haldeman holds an M.B.A. from Northwestern University and a B.A. of Philosophy from Brigham Young University.

Key Employees

Bret E. Megargel is one of our co-founders and has served as our Vice President of Corporate Development since August 2006. From December 2005 to August 2006, Mr. Megargel served as a consultant to our predecessor company, which was originally known as CG Pharma, Inc. From January 2005 to August 2007, Mr. Megargel served as Vice President of Planet Technologies, Inc. From 2002 to December 2004, Mr. Megargel served as Vice President of Business Development for Avera Pharmaceuticals, Inc., a private, CNS focused development company. From 1999 to 2002, Mr. Megargel served as a Venture Partner for Windamere Venture Partners, LLC. During his tenure at Windamere, Mr. Megargel served as Vice President of Business Development for MD Edge, Inc., and Director of Business Development for Converge Medical, Inc. and was a member of the founding team of Dexcom, Inc. From 1991 to 1996, Mr. Megargel served as a consultant for The Healthcare Group of Marketing Corporation of America (now a Division of The InterPublic Group), where he was a case manager for projects that included major product development, licensing and acquisition, and marketing strategy assignments for pharmaceutical clients. Mr. Megargel received his M.B.A. at the Stanford University Graduate School of Business and is a graduate of Dartmouth College, where he obtained a B.A. in Economics.

Jonathan Rigby is one of our co-founders and has served as our Vice President of Business Development since our formation in May 2006. From 2002 to August 2006, Mr. Rigby served as Vice President Business Development at Aradigm Corporation where he was responsible for the strategic acquisition of the DosePro technology and related assets in 2003. In 2006 Mr. Rigby co-led the management buy out of the DosePro assets from Aradigm Corporation and the associated venture financing of the company. From 1995 to 2002, Mr. Rigby served as Head of Business Development,

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Head of Business Intelligence and Head of UK Sales for Profile Therapeutics UK. Earlier in his career Mr. Rigby served in various sales and marketing capacities for Merck & Co., Inc. and Bristol Myers Squibb. Mr. Rigby is a frequent speaker at industry conferences in the drug delivery sector and serves as Vice Chairman of the Board of the Association of Needle Free Injection Manufacturers. Mr. Rigby earned his undergraduate degree in Biological Sciences with Honors from Sheffield University, UK. He also holds a British Technology Higher National Diploma in Applied Biology from Sheffield University, UK and an M.B.A. from Portsmouth University, UK.

Mark R. Thompson has served as our Vice President, Sales and Managed Markets since April 2008. From January 2006 to July 2007, Mr. Thompson served as Vice President, Sales of Valeant Pharmaceuticals International where he led both the hepatology and neuroscience sales teams, as well as management of sales operations, analytics, and training. From March 2004 to December 2005, Mr. Thompson was the Vice President, Sales at InterMune, Inc. and from October 2002 to March 2004, he was the Vice President, Sales at SkinMedica, Inc. From August 2001 to October 2002, Mr. Thompson served as Senior Director, National Sales for Elan Biopharmaceuticals, Inc., Primary Care Division leading a sales team of approximately 500 people. From July 1980 to August 2001, Mr. Thompson held positions of increasing responsibility at GlaxoSmithKline Capital serving most recently as Regional Vice President, where his responsibilities included sales of Imitrex® and other CNS products. Mr. Thompson holds a M.Ed. in Administration and Supervision from the University of North Carolina—Chapel Hill.

John J. Turanin is one of our co-founders and has served as our Vice President, Operations since our formation in May 2006. From 1997 to April 2006, Mr. Turanin served as Vice President, Corporate Planning and Program Management and held positions as Senior Director of Program Management, Director of New Product Planning, and Director of Respiratory Products Business Unit at Aradigm Corporation where he was responsible for leading numerous product development programs and strategic alliances. Mr. Turanin was also responsible for directing Aradigm's integration of the DosePro technology acquisition and serving as program director for the sumatriptan DosePro development program. From 1987 to 1996, Mr. Turanin was General Manager of operations, quality, product development, and marketing for the respiratory therapeutics division at Invacare Corporation, a global manufacturer of home medical products. Mr. Turanin holds an M.B.A. from the University of Pittsburgh and a B.A. in Business from Indiana University of Pennsylvania.

Board of Directors

Cam L. Garner is one of our co-founders and has served as chairman of our board of directors since August 2006. Mr. Garner co-founded specialty pharmaceutical companies, Verus Pharmaceuticals, Inc., Somaxon Pharmaceuticals, Inc., Cadence Pharmaceuticals, Inc., Evoke Pharma, Elevation Pharmaceuticals, DJ Pharma, Xcel Pharmaceuticals, Inc. and Meritage Pharma, Inc. He has served as Executive Chairman of Verus since November 2002 and Chairman of Cadence, Evoke, Elevation and Meritage since May 2004, January 2007, December 2007 and February 2008, respectively. Xcel was acquired in March 2005 by Valeant Pharmaceuticals International and DJ Pharma was sold to Biovail in 2000. He was Chief Executive Officer of Dura Pharmaceuticals, Inc. from 1989 to 1995 and its Chairman and Chief Executive Officer from 1995 to 2000 until it was sold to Elan in November 2000. Mr. Garner has also served on the board of directors of Favrille, Inc. and Aegis Therapeutics, LLC since December 2006 and November 2004, respectively. Mr. Garner earned his M.B.A. from Baldwin-Wallace College and his B.A. in Biology from Virginia Wesleyan College.

James C. Blair, Ph.D. has served as a member of our board of directors since August 2006. Dr. Blair is a Managing Member of Domain Associates, LLC, where he has been a Partner since its founding in 1985, and has over 35 years of experience with venture and emerging growth companies. In the course of this experience, Dr. Blair has been involved in the creation and development of over 50 life sciences companies, including Amgen, Aurora Biosciences, Amylin Pharmaceuticals, Applied

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Biosystems, Dura Pharmaceuticals (acquired by Elan), GeneOhm Sciences (acquired by Becton Dickinson), Molecular Dynamics (acquired by GE Amersham), Nuvasive, Inc., Pharmion Corporation (acquired by Celgene) and Volcano. He is currently a Director of Cadence Pharmaceuticals, and a Director of eight private companies. Dr. Blair also serves on the board of directors of the Prostate Cancer Foundation and is on the Advisory Boards of the Department of Molecular Biology at Princeton University and the Department of Bioengineering of the University of Pennsylvania. He is also a member of the Board of Councilors for the USC Stevens Institute for Innovation. Dr. Blair received a B.S.E. from Princeton University and an M.S.E and Ph.D. from the University of Pennsylvania.

Louis C. Bock has served as a member of our board of directors since August 2006. Mr. Bock is a Managing Director of Scale Venture Partners, a venture capital firm. Mr. Bock joined Scale Venture Partners in September 1997 from Gilead Sciences, Inc., a biopharmaceutical company, where he held positions in research, project management, business development and sales from September 1989 to September 1997. Prior to Gilead, he was a research associate at Genentech, Inc. from November 1987 to September 1989. He currently serves as a director of Ascenta Therapeutics, Inc., diaDexus Inc., SGX Pharmaceuticals, Inc., Horizon Therapeutics, Inc., Orexigen Therapeutics, Inc. and Sonexa Therapeutics, Inc. and is responsible for Scale Venture Partners' investments in Prestwick Pharmaceuticals, Inc. and Somaxon Pharmaceuticals, Inc. Mr. Bock received his B.S. in Biology from California State University, Chico and an M.B.A. from California State University, San Francisco.

        Erle T. Mast has served as a member of our board of directors since May 2008. From July 2002 to May 2008, Mr. Mast served as Executive Vice President and Chief Financial Officer of Pharmion Corporation. From 2000 to 2002, after Elan Pharma International Ltd. acquired Dura Pharmaceuticals, Inc., Mr. Mast served as Chief Financial Officer for the Global Biopharmaceuticals business unit of Elan. From 1997 to 2000, Mr. Mast served as Vice President of Finance for Dura Pharmaceuticals. From 1984 to 1997, Mr. Mast held positions of increasing responsibility at Deloitte & Touche, LLP, serving most recently as Partner, where he provided accounting, auditing and business consulting services to companies in various industries, including the healthcare, pharmaceutical, biotech and manufacturing industries. Mr. Mast also serves on the board of directors of Somaxon Pharmaceuticals, Inc. and Verus Pharmaceuticals, Inc. Mr. Mast received a B.Sc. in Business Administration from California State University Bakersfield.

Kurt C. Wheeler has served as a member of our board of directors since August 2006. Mr. Wheeler is a Managing Director of Clarus Ventures, a venture capital firm, a position he has held since February 2005, and is a General Partner of MPM Capital BioVentures II and III funds, a position he has held since March 2000. From March 1992 to September 1998, Mr. Wheeler was Chairman and Chief Executive Officer of InControl, Inc., a publicly traded medical device company that designed, developed, and marketed implantable medical devices to treat irregular heart rhythms, which was sold to Guidant Corporation. Mr. Wheeler serves on the board of directors of Somaxon Pharmaceuticals, Inc., CryoCor, Inc. and Alsius, Inc., as well as a number of private medial device and biopharmaceutical companies. Mr. Wheeler holds a B.A. degree from Brigham Young University and a M.B.A. degree from Northwestern University, where he serves on the Kellogg Alumni Advisory Board.

Alex Zisson has served as a member of our board of directors since August 2006. Mr. Zisson is a Partner at Thomas, McNerney & Partners, a firm he joined in 2002. He is currently a board member of three other private companies including Clarus Therapeutics, Inc., Quinnova Pharmaceuticals, Inc. and Tranzyme Pharma, Inc. From 1991 to 2002, he was in the research department at Hambrecht & Quist (and its successor firms Chase H&Q and JPMorgan H&Q). In 1997, Mr. Zisson was named a Managing Director and after the merger of Chase H&Q and JPMorgan became the firm's Health Care Strategist. Mr. Zisson graduated magna cum laude from Brown University, where he was elected to Phi Beta Kappa.

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Board Composition and Election of Directors

        Our board of directors is currently authorized to have eight members and is currently composed of six non-employee members, our current Chief Executive Officer, Roger L. Hawley, and our current President and Chief Operating Officer, Stephen J. Farr, Ph.D. Each of our non-employee directors, Cam L. Garner, James C. Blair, Louis C. Bock, Erle T. Mast, Kurt C. Wheeler and Alex Zisson, is independent within the meaning of the independent director standards of the Securities and Exchange Commission, or SEC, and the Nasdaq Stock Market. Upon completion of this offering, our amended and restated certificate of incorporation will provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, a portion of our board of directors will be elected each year. To implement the classified structure, prior to the consummation of this offering, two of the nominees to the board will be appointed to one-year terms, two will be appointed to two-year terms and three will be appointed to three-year terms. Thereafter, directors will be elected for three-year terms. Our Class I directors, whose terms will expire at the 2009 annual meeting of stockholders, will be                        and                                     . Our Class II directors, whose terms will expire at the 2010 annual meeting of stockholders, will be                        ,                         and                         . Our Class III directors, whose terms will expire at the 2011 annual meeting of stockholders, will be                        ,                         and                         . This classification of our board of directors may have the effect of delaying or preventing changes in our control or management. Our directors may be removed for cause by the affirmative vote of the holders of at least 66²/3% of our outstanding voting stock.

Board Committees

        Our board of directors has established three committees: the audit committee, the compensation committee and the nominating/corporate governance committee. Our board of directors may establish other committees to facilitate the management of our business.

Audit Committee

        Our audit committee consists of Messrs. Mast (chairman and audit committee financial expert), Bock and Zisson, each of whom our board of directors has determined is independent within the meaning of the independent director standards of the SEC and the Nasdaq Stock Market.

        This committee's main function is to oversee our accounting and financial reporting processes, internal systems of control, independent registered public accounting firm relationships and the audits of our financial statements. This committee's responsibilities include, among other things:

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selecting and engaging our independent registered public accounting firm;



•

evaluating the qualifications, independence and performance of our independent registered public accounting firm;



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approving the audit and non-audit services to be performed by our independent registered public accounting firm;



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reviewing the design, implementation, adequacy and effectiveness of our internal controls and our critical accounting policies;



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discussing with management and the independent registered public accounting firm the results of our annual audit and the review of our quarterly unaudited financial statements;



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reviewing, overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;

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•

reviewing with management and our auditors any earnings announcements and other public announcements regarding our results of operations;



•

preparing the report that the SEC requires in our annual proxy statement;



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reviewing and approving any related party transactions and reviewing and monitoring compliance with our code of conduct and ethics; and



•

reviewing and evaluating, at least annually, the performance of the audit committee and its members including compliance of the audit committee with its charter.

Compensation Committee

        Our compensation committee consists of Dr. Blair and Messrs. Garner (chairman) and Wheeler, each of whom our board of directors has determined is independent within the meaning of the independent director standards of the Nasdaq Stock Market. This committee's purpose is to assist our board of directors in determining the development plans and compensation for our senior management and directors and recommend these plans to our board. This committee's responsibilities include, among other things:

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reviewing and recommending compensation and benefit plans for our executive officers and compensation policies for members of our board of directors and board committees;



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reviewing the terms of offer letters and employment agreements and arrangements with our officers;



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setting performance goals for our officers and reviewing their performance against these goals and setting compensation based on such review;



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evaluating the competitiveness of our executive compensation plans and periodically reviewing executive succession plans;



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administering our benefit plans and the issuance of stock options and other awards under our equity incentive plans;



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preparing the report that the SEC requires in our annual proxy statement; and



•

reviewing and evaluating, at least annually, the performance of the compensation committee and its members including compliance of the compensation committee with its charter.

Nominating/Corporate Governance Committee

        Our nominating/corporate governance committee consists of                                    (chairman),                         and                         , each of whom our board of directors has determined is independent within the meaning of the independent director standards of the Nasdaq Stock Market. This committee's purpose is to assist our board of directors by identifying individuals qualified to become members of our board of directors, consistent with criteria set by our board, and to develop our corporate governance principles. This committee's responsibilities include among other things:

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evaluating the composition, size and governance of our board of directors and its committees and making recommendations regarding future planning and the appointment of directors to our committees;



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administering a policy for considering stockholder nominees for election to our board of directors;



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evaluating and recommending candidates for election to our board of directors;



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developing guidelines for board compensation;

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•

overseeing our board of directors' performance and self-evaluation process;



•

reviewing our corporate governance principles and providing recommendations to the board regarding possible changes; and



•

reviewing and evaluating, at least annually, the performance of the nominating/corporate governance committee and its members including compliance of the nominating/corporate governance committee with its charter.

Compensation Committee Interlocks and Insider Participation

        None of the members of our compensation committee has ever been one of our officers or employees. None of our executive officers currently serves, or has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee.

Code of Business Conduct and Ethics

        Prior to the completion of this offering, we expect to adopt a code of business conduct and ethics that applies to our officers, directors and employees. We expect that our code of business conduct and ethics will be available on our website at www.zogenix.com upon the completion of this offering. We intend to disclose any amendments to the code, or waivers to its requirements, on our website.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

        In this section we summarize our plans and programs for compensating our executive officers who are named in the Summary Compensation Table that appears below. These "named executive officers" consist of our Chief Executive Officer; our President and Chief Operating Officer; our Executive Vice President, Chief Financial Officer, Secretary and Treasurer; and our other most highly paid executive officer as determined by total compensation for the year ended December 31, 2007. These individuals are: Roger L. Hawley, Chief Executive Officer; Stephen J. Farr, Ph.D., President and Chief Operating Officer; David W. Nassif, J.D., Executive Vice President, Chief Financial Officer, Secretary and Treasurer; and J.D. Haldeman, Chief Commercial Officer.

Overview

        We recognize that the ability to excel depends on the integrity, knowledge, imagination, skill, diversity and teamwork of our employees. To this end, we strive to create an environment of mutual respect, encouragement and teamwork—an environment that rewards commitment and performance and that is responsive to the needs of our employees. The objectives of our compensation and benefits programs for our employees generally, and for our named executive officers specifically, are to:

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attract, engage and retain the workforce that helps ensure our future success;



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motivate and inspire employee behavior that fosters a high-performance culture;



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support a cost-effective and flexible business model;



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reinforce key business objectives; and



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align employee interests with stockholder interests.

        Most of our compensation elements simultaneously fulfill one or more of these objectives. These elements consist of (1) base salary, (2) performance bonus, (3) long-term equity incentives, (4) retirement savings opportunity, (5) perquisites, health and welfare benefits and other compensation and (6) post-termination benefits. Each component aligns the interests of our named executive officers with the interests of our stockholders in different ways, whether through focusing on short-term and long-term performance goals, promoting an ownership mentality toward one's job, linking individual performance to our performance or by ensuring healthy employees. This mix of compensation is intended to ensure that total compensation reflects our overall success or failure and to motivate executive officers to meet appropriate performance measures. In determining each element of compensation for any given year, our board of directors and our compensation committee consider and determine each element individually and then review the resulting total compensation and determines whether it is reasonable and competitive. We have no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Each of these compensation elements is described in more detail below.

        The compensation programs in which our named executive officers participate are additionally designed to tie annual and long-term cash and equity incentives to the achievement of specified performance objectives and to align executives' incentives with the interests of our stockholders.

Compensation Determination Process

        Our compensation committee was formed in October 2006. Prior to that date, all compensation decisions were made by the full board of directors.

        The compensation committee of our board of directors develops, reviews and approves each of the elements of the executive compensation program of our company as a whole and for our named

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executive officers individually, although the full board of directors still makes certain compensation decisions with respect to our named executive officers when the compensation committee deems it to be appropriate. With respect to the compensation of our chief executive officer, our compensation committee has historically reviewed and recommended to the full board of directors corporate goals and objectives relating to the compensation of the chief executive officer, evaluated the performance of the chief executive officer in light of those goals and objectives and reviewed and recommended to the full board of directors the compensation of our chief executive officer based on such evaluation. Following the completion of this offering, we expect that our compensation committee will assume responsibility for the compensation of our chief executive officer. The compensation committee also regularly assesses the effectiveness and competitiveness of our compensation programs.

        In the first quarter of each year, the compensation committee reviews the performance of each of our named executive officers during the previous year. At this time the compensation committee also reviews our performance relative to the corporate performance objectives set by the board of directors for that year and makes the final bonus payment determinations based on our performance and the compensation committee's evaluation of each named executive officer's performance for the prior year. In connection with this review, the compensation committee also reviews and adjusts, as appropriate, annual base salaries for our named executive officers and grants additional stock option awards to our named executive officers and certain other eligible employees for the coming fiscal year. With respect to the compensation for our chief executive officer, the compensation committee then presents its recommendations to the full board of directors for approval.

        During the first quarter of each year our compensation committee also reviews the corporate performance objectives for purposes of our performance bonus programs, but such objectives are usually recommended to the full board of directors for approval. Our chief executive officer, with the assistance and support of the human resources department and the other executive officers, aids the compensation committee by providing annual recommendations regarding the compensation of all of our named executive officers, other than himself. The compensation committee also, on occasion, meets with our chief executive officer to obtain recommendations with respect to our compensation programs and practices generally. The compensation committee considers, but is not bound to accept, the chief executive officer's recommendations with respect to named executive officer compensation. In the beginning of each year, our named executive officers work with our chief executive officer to establish their individual performance goals for the year, based on their respective roles within the company.

        Our chief executive officer generally attends all of the compensation committee meetings, but the compensation committee also holds executive sessions that are not attended by any members of management or non-independent directors, as needed from time to time. The compensation committee discusses our chief executive officer's compensation package with him, but makes decisions with respect to his compensation without him present. The compensation committee has the ultimate authority to make decisions with respect to the compensation of our named executive officers, but may, if it chooses, delegate any of its responsibilities to subcommittees.

        The board of directors and our compensation committee have not historically reviewed relevant market compensation data in setting named executive officer compensation. Instead, our board of directors and our compensation committee rely upon the judgment of its members in making compensation decisions, after reviewing our performance and carefully evaluating a named executive officer's performance during the year against established goals, leadership qualities, operational performance, business responsibilities, career with us, current compensation arrangements and long-term potential to enhance stockholder value.

        We strive to achieve an appropriate mix between equity incentive awards and cash payments in order to meet our objectives. Any apportionment goal is not applied rigidly and does not control our compensation decisions, and our compensation committee does not have any policies for allocating

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compensation between long-term and short-term compensation or cash and non-cash compensation. Our mix of compensation elements is designed to reward recent results and motivate long-term performance through a combination of cash and equity incentive awards. We believe the most important indicator of whether our compensation objectives are being met is our ability to motivate our named executive officers to deliver superior performance and retain them to continue their careers with us on a cost-effective basis.

        The compensation levels of the named executive officers reflect to a significant degree the varying roles and responsibilities of such executives. As a result of the compensation committee's and the board of director's assessment of our chief executive officer's and president and chief operating officer's roles and responsibilities within our company, there are significant compensation differentials between these named executive officers and our other named executive officers.

        We do not have a formal policy to adjust or recover awards or payments if the relevant performance measures upon which they are based are restated or are otherwise adjusted in a manner that would otherwise reduce the size of the initial payment or award.

Base Salaries

        In general, base salaries for our named executive officers are initially established through arm's length negotiation at the time the executive is hired, taking into account such executive's qualifications, experience and prior salary. Base salaries of our named executive officers are approved and reviewed annually by our compensation committee and adjustments to base salaries are based on the scope of an executive's responsibilities, individual contribution, prior experience and sustained performance. Decisions regarding salary increases may take into account the executive officer's current salary, equity ownership, and the amounts paid to an executive officer's peers inside our company by conducting an internal analysis, which compares the pay of each executive officer to other members of the management team. Base salaries are also reviewed in the case of promotions or other significant changes in responsibility. Base salaries are not automatically increased if the compensation committee believes that other elements of the named executive officer's compensation are more appropriate in light of our stated objectives. This strategy is consistent with our intent of offering compensation that is both cost-effective, competitive and contingent on the achievement of performance objectives.

        Our chief executive officer's base salary is based upon the same policies and criteria used for other named executive officers as described above. Each year the compensation committee reviews the chief executive officer's compensation arrangements and his individual performance for the previous fiscal year, as well as our performance as a whole, and makes recommendations to the full board of directors of adjustments to such compensation, if appropriate.

        In August 2006, in connection with the inception of our company, the board of directors set annual base salaries for Mr. Hawley and Dr. Farr, each of whom is a founder of our company. These base salaries were set based on the board of director's analysis of the foregoing factors. In October 2006, we hired Ms. Haldeman as our Vice President, Commercial Strategy and Corporate Communications and she was promoted to be our Chief Commercial Officer in May 2008. Her initial base salary was set based on the compensation committee's analysis of the foregoing factors.

        In May 2007, we hired Mr. Nassif as our Executive Vice President, Chief Financial Officer, Secretary and Treasurer. His initial base salary was also set based on the compensation committee's analysis of the foregoing factors.

        In May 2007, the board of directors approved increases to Mr. Hawley's and Dr. Farr's base salaries. Mr. Hawley's salary was increased from $250,000 to $300,000 effective June 1, 2007, and Dr. Farr's salary was increased from $240,000 to $270,000 effective June 1, 2007. These adjustments were made at the recommendation of the compensation committee, which had reviewed Mr. Hawley's

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and Dr. Farr's compensation packages using the foregoing factors. The board of directors and the compensation committee further determined that our performance since its inception warranted higher base salaries for our most senior executive officers.

        The actual base salaries paid to all of our named executive officers for 2007 are set forth in the "Summary Compensation Table" below.

Performance Bonuses

        Each named executive officer is also eligible for a performance bonus based upon the achievement of certain corporate performance goals and objectives approved by our board of directors and, with respect to our named executive officers other than Mr. Hawley, individual performance. The compensation committee, in its discretion, may also award amounts either below or in excess of bonus targets based on the named executive officer's performance outside of the stated goals and objectives. All final bonus payments to our named executive officers are determined by our compensation committee, other than the bonus payments to our chief executive officer, whose compensation is approved by the full board of directors.

        With respect to each year, the corporate performance goals are generally designed to be achievable given effective performance of the executive officers and our company. For 2007, the corporate performance objectives applicable to our named executive officers' performance bonus opportunities included: (1) NDA for sumatriptan DosePro (25% weighting), (2) supply chain readiness for sumatriptan DosePro (20% weighting), (3) commercialize sumatriptan DosePro (20% weighting), (4) technology out-license (15% weighting), (5) development of follow-on products (10% weighting) and (6) financial and strategic planning (10% weighting). Other than the performance objective related to our submission of an NDA for sumatriptan DosePro and our objective related to the development of follow-on products, which we achieved due to the licensing transaction with Elan, each of these performance objectives was subjective in nature and not quantifiable. In addition, in determining the corporate achievement level for purposes of the 2007 annual bonuses, the compensation committee and the board of directors considered other achievements by the company during 2007 not originally contemplated in the pre-established corporate goals, such as the Elan licensing transaction, the completion of equity and debt financing transactions and the company's progress towards an initial public offering. In December 2007, the compensation committee and the board of directors reviewed and evaluated the achievement of these performance objectives and the company's overall performance and progress during 2007 and approved a corporate performance achievement level of 95.2%.

        For 2007, the compensation committee also determined the portion of each named executive officer's bonus related to individual performance (other than Mr. Hawley, whose bonus was based solely on corporate performance) based upon their achievement of individual performance goals established at the beginning of the year, as well as their subjective assessment of their performance. The 2007 individual performance objectives were designed to achieve Zogenix's strategic business plan and were designed to be achievable, but to require a substantial effort and initiative on the part of the named executive officers. For those named executive officers other than Mr. Hawley, the compensation committee determines the portion of the annual bonus attributable to individual performance based, in part, upon a rating assigned to such individuals by Mr. Hawley based upon his assessment of their achievement of performance goals as well as his subjective assessment of their performance.

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        Our named executive officers' target bonuses for 2007 and actual bonuses as a percentage of target are set forth in the table below. Mr. Hawley's bonus was based solely on our attainment of the pre-established corporate goals. With respect to our other named executive officers, a portion of their bonuses are based on our attainment of the pre-established corporate goals and a portion is based on individual performance, as set forth below.

	Performance Weighting (% Total)
Name	2007 Target Bonus (as a % of Base Salary)		Corporate		Individual		2007 Actual Bonus (as a % of Base Salary)
Roger L. Hawley Chief Executive Officer	40	%	100	%	0	%	41.6	%
Stephen J. Farr, Ph.D. President and Chief Operating Officer	35		80		20		35.3
David W. Nassif, J.D. Executive Vice President, Chief Financial Officer, Secretary and Treasurer	30		60		40		31.6	(1)
J.D. Haldeman Chief Commercial Officer	25		50		50		24.8

(1)

Mr. Nassif's bonus was prorated for 2007 based on the number of days he was employed by the company. Mr. Nassif commenced employment in May 2007 and the percentage reflected above was calculated based on Mr. Nassif's prorated base salary for 2007.

Long-Term Equity Incentives

        The goals of our long-term, equity-based incentive awards are to align the interests of our named executive officers with the interests of our stockholders. Because vesting is based on continued employment, our equity-based incentives also encourage the retention of our named executive officers through the vesting period of the awards. In determining the size of the long-term equity incentives to be awarded to our named executive officers, we take into account a number of internal factors, such as the relative job scope, the value of existing long-term incentive awards, individual performance history, prior contributions to us and the size of prior grants. Our compensation committee does not refer to competitive market data in determining long-term equity incentive awards. Based upon these factors, the compensation committee determines the size of the long-term equity incentives at levels it considers appropriate to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value. We have not granted any equity awards other than stock options to date.

        To reward and retain our named executive officers in a manner that best aligns employees' interests with stockholders' interests, we use stock options as the primary incentive vehicles for long-term compensation. We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of the stock options to our future performance. Because employees are able to profit from stock options only if our stock price increases relative to the stock option's exercise price, we believe stock options provide meaningful incentives to employees to achieve increases in the value of our stock over time.

        We use stock options to compensate our named executive officers both in the form of initial grants in connection with the commencement of employment and annual refresher grants. Annual grants of options are typically approved by the compensation committee during the first quarter of each year. While we intend that the majority of stock option awards to our employees be made pursuant to initial grants or our annual grant program, the compensation committee retains discretion to make stock

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option awards to employees at other times, including in connection with the promotion of an employee, to reward an employee, for retention purposes or for other circumstances recommended by management or the compensation committee.

        The exercise price of each stock option grant is the fair market value of our common stock on the grant date, as determined by our board of directors. For 2007, the determination of the appropriate fair market value was made by the board of directors after considering a contemporaneous valuation of our common stock as of December 31, 2006 and September 30, 2007 prepared by management. Stock option awards to our named executive officers typically vest over a four-year period as follows: 25% of the shares underlying the option vest on the first anniversary of the date of the vesting commencement date and the remainder of the shares underlying the option vest in equal monthly installments over the remaining 36 months thereafter. For a description of certain accelerated vesting provisions applicable to such options, see "—Equity Incentive Plans Plans—2008 Equity Incentive Award Plan" and "—2006 Equity Incentive Plan" below. We do not have any security ownership requirements for our named executive officers.

        In February 2007, following the adoption of our 2006 Equity Incentive Plan, our board of directors awarded Ms. Haldeman options to purchase 650,000 shares of our common stock that vest over four years as described above and have an exercise price of $0.05 per share, which the board of directors determined was the fair value per share of our common stock on the date of grant. The size of Ms. Haldeman's grant was determined based on the factors described above.

        In May 2007, the board of directors awarded the following options to our named executive officers: Mr. Hawley, options to purchase 900,000 shares; Mr. Nassif, options to purchase 1,250,000 shares; and Ms. Haldeman, 150,000 shares. Each of these option awards vest over four years as described above and have an exercise price of $0.05 per share, which the board of directors determined was the fair value per share of our common stock on the date of grant. These awards were recommended by the compensation committee and were determined based on the compensation committee's and the board of director's consideration of the factors described above. Such awards were also intended to reward the performance of our executive management team as compared to our business plan since the company's inception.

        As a privately-owned company, there has been no active market for our common stock. Accordingly, we have had no program, plan or practice pertaining to the timing of stock option grants to named executive officers coinciding with the release of material non-public information.

Retirement Savings

        All of our full-time employees in the U.S., including our named executive officers, are eligible to participate in our 401(k) plan. Pursuant to our 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit of $15,500 in 2007 and to have the amount of this reduction contributed to our 401(k) plan. While we may elect to make matching contributions, no contributions have been made.

Perquisites, Health and Welfare Benefits and Other Compensation

        The establishment of competitive benefit packages for our employees is an important factor in attracting and retaining highly qualified personnel.

        Health and Welfare Benefits.    Our named executive officers are eligible to participate in all of our employee benefit plans, including our medical, dental, vision, group life and disability insurance plans, in each case on the same basis as other employees. We believe that these health and welfare benefits help ensure that we have a productive and focused workforce through reliable and competitive health and other benefits.

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        Perquisites.    We do not provide significant perquisites or personal benefits to our named executive officers. We do, however, pay the premiums for term life insurance for our named executive officers.

Post Termination Benefits

        We have entered into employment agreements which provide for certain severance benefits in the event a named executive officer's employment is involuntarily or constructively terminated. Such severance benefits are intended and designed to alleviate the financial impact of an involuntary termination and maintaining a stable work environment through salary continuation and equity award vesting acceleration. We provide severance benefits because they are essential to help us fulfill our objective of attracting and retaining key managerial talent. While these arrangements form an integral part of the total compensation provided to these individuals and are considered by the compensation committee when determining executive officer compensation, the decision to offer these benefits did not influence the compensation committee's determinations concerning other direct compensation or benefit levels. The compensation committee has determined that such arrangements offer protection that is competitive within our industry and for our company size and are designed to attract highly qualified individuals and maintain their employment with us. In determining the severance benefits payable pursuant to the executive employment agreements, the compensation committee considered the input of our executives as to what they expected and what level of severance benefits would be sufficient to retain our current executive team and to recruit talented executives in the future. For a description of these employment agreements, see "—Employment Agreements" below.

        As described above, we routinely grant our named executive officers stock options under our equity incentive plans. For a description of the change in control provisions in such equity incentive plans applicable to these stock options, see "—Employee Equity Incentive Plans—2008 Equity Incentive Plan" and "—2006 Equity Incentive Plan" below.

Tax Deductibility of Executive Compensation

        The compensation committee and our board of directors have considered the potential future applicability of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, to the compensation paid to our executive officers. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for any of the executive officers named in the proxy statement, unless compensation is performance based. We have adopted a policy that, where reasonably practicable, we will seek to qualify the variable compensation paid to our executive officers for an exemption from the deductibility limitations of Section 162(m).

        In approving the amount and form of compensation for our executive officers, the compensation committee will continue to consider all elements of the cost to our company of providing such compensation, including the potential applicability of Section 162(m) to the compensation.

Accounting for Stock-Based Compensation

        We account for stock-based payments in accordance with the requirements of SFAS No. 123(R).

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Summary Compensation Table

        The following table shows information regarding the compensation earned by our named executive officers for the fiscal year ended December 31, 2007.

	Annual Compensation			Long Term Compensation
						Non-Equity Incentive Plan Compensation ($)(2)
Name and Principal Position	Salary ($)	Bonus ($)		Stock Awards ($)	Option Awards ($)(1)		All Other Compensation ($)(3)	Total ($)
Roger L. Hawley Chief Executive Officer	279,167	—		—	4,019	125,000	132	408,186
Stephen J. Farr, Ph.D. President and Chief Operating Officer	257,500	75,559	(4)	—	—	93,543	132	426,602
David W. Nassif, J.D.(5) Executive Vice President, Chief Financial Officer, Secretary and Treasurer	150,000	—		—	6,065	47,504	94,559	298,051
J.D. Haldeman Chief Commercial Officer	210,000	—		—	5,944	52,085	132	268,029

(1)

Represents compensation expense for stock option grants awarded in and prior to December 31, 2007, recognized for financial reporting purposes (assuming no forfeitures) under SFAS No. 123(R), for the year ended December 31, 2007. For a discussion of the valuation assumptions, see Note 8 to our consolidated financial statements for the year ended December 31, 2007 included elsewhere in this prospectus.

(2)

These amounts represent 2007 performance bonuses which are described above under "—Compensation Discussion and Analysis—Performance Bonuses."

(3)

Includes premiums paid by the company for term life insurance for our named executive officers. The amounts shown for Mr. Nassif also include consulting fees of $94,482 paid to him by the company during the period from January 2007 through May 2007, when he commenced employment a our Executive Vice President, Chief Financial Officer, Secretary and Treasurer.

(4)

This amount represents a bonus paid to Dr. Farr pursuant to his employment agreement in consideration of foregone severance otherwise payable by Aradigm, his former employer, following his termination of employment with Aradigm in connection with our acquisition of DosePro (formerly known as Intraject) needle-free drug delivery system.

(5)

Reflects a pro-rated salary and bonus for Mr. Nassif due to the fact that Mr. Nassif was appointed Executive Vice Present and Chief Financial Officer in May 2007.

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2007 Grants of Plan-Based Awards

        All stock options granted to our named executive officers were granted under our 2006 Equity Incentive Plan. The exercise price per share of each stock option is equal to the per share fair market value of our common stock as determined by our board of directors on the date of grant. The following table sets forth summary information regarding grants of plan-based awards made to our named executive officers during the year ended December 31, 2007.

		Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2)		All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)
						Exercise or Base Price of Option Awards ($/Sh)(3)	Grant Date Fair Value of Stock and Option Awards(4)
Name	Grant Date(1)
		Target ($)
Roger L. Hawley	5/30/07 —	— 120,000		— —	900,000 —	0.05 —	32,000 —
Stephen J. Farr, Ph.D.	—	94,500		—	—	—	—
David W. Nassif, J.D.	5/30/07 —	— 48,240	(5)	— —	1,250,000 —	0.05 —	44,000 —
J.D. Haldeman	2/13/07 5/30/07 —	— — 52,500		— — —	650,000 150,000 —	0.05 0.05 —	23,000 5,000 —

(1)

All of the stock option awards have a ten year term and vest over four years, with 25% vesting on the first anniversary of the vesting commencement date and the remainder vesting in 36 monthly installments thereafter based on the named executive officer's continued employment by or service to the company on each such vesting date. The vesting commencement dates for the stock option awards are as follows: Mr. Hawley's stock option award, May 31, 2007; Mr. Nassif's stock option award, May 16, 2007; Ms. Haldeman's February 13, 2007 stock option award, October 9, 2006; and Ms. Haldeman's May 30, 2007 stock option award, May 31, 2007.

(2)

Represents estimated possible payouts of non-equity incentive plan awards for 2007 under the executive bonus program. Actual amounts paid to the named executive officers for 2007 are disclosed in the Summary Compensation Table above under the heading "—Non-Equity Incentive Plan Compensation."

(3)

Reflects the fair market value per share of our common stock on the grant date as determined by our board of directors.

(4)

Reflects the grant date estimated fair value of stock options as calculated in accordance with SFAS No. 123(R), using a Black-Scholes option-pricing model (assuming no forfeitures). For a discussion of relevant assumptions, see Note 8 to our financial statements for the year ended December 31, 2007, included elsewhere in this prospectus.

(5)

Reflects a pro-rated target bonus for Mr. Nassif due to the fact that Mr. Nassif was appointed Executive Vice Present and Chief Financial Officer in May 2007.

Discussion of Summary Compensation and Grants of Plan-Based Awards Tables

        Our executive compensation policies and practices, pursuant to which the compensation set forth in the Summary Compensation Table and the Grants of Plan-Based Awards table was paid or awarded, are described above under "Compensation Discussion and Analysis." A summary of certain material terms of our employment agreements and compensation plans and arrangements is set forth below.

Employment Agreements

        In May 2008, our board of directors approved our entering into employment agreements with each of our named executive officers. Pursuant to each of the employment agreements, if we terminate such officer's employment without cause (as defined below) or such officer resigns for good reason (as defined below) or such officer's employment is terminated as a result of his or her death or following his or her permanent disability, the executive officer or his or her estate, as applicable, is entitled to the following payments and benefits: (1) his or her fully earned but unpaid base salary through the date

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of termination at the rate then in effect, plus all other benefits, if any, under any group retirement plan, nonqualified deferred compensation plan, equity award or agreement, health benefits plan or other group benefit plan of the company to which he or she may be entitled to under the terms of such plans or agreements; (2) a lump sum cash payment in an amount equal to 12 months of his or her base salary as in effect immediately prior to the date of termination; (3) continuation of health benefits for a period of 12 months following the date of termination; and (4) the automatic acceleration of the vesting and exercisability of outstanding unvested stock awards as to the number of stock awards that would have vested over the 12-month period following termination had such officer remained continuously employed by the company during such period.

        If a named executive officer is terminated without cause or resigns for good reason during the period commencing 60 days prior to a change in control (as defined below) or 12 months following a change in control, such officer shall be entitled to receive, in addition to the severance benefits described above, the following payments and benefits: (1) a lump sum cash payment in an amount equal to his or her bonus (as defined below) for the year in which the termination of employment occurs; and (2) in the case of Mr. Hawley, an additional lump sum cash payment in an amount equal to six months of his base salary as in effect immediately prior to the date of termination. In addition, in the event of a change in control, the vesting and exercisability of 50% of the executive officer's outstanding unvested stock awards shall be automatically accelerated and, in the event an executive officer is terminated without cause or resigns for good reason within three months prior to or 12 months following a change in control, the vesting and exercisability of 100% of the executive officer's outstanding unvested stock awards shall be automatically accelerated. For a further description of the potential compensation payable to our named executive officers under their employment agreements, please see "—Potential Benefits Upon Termination or Change in Control" below.

        For purposes of the employment agreements, "cause" generally means an executive officer's (1) commission of an act of fraud, embezzlement or dishonesty or some other illegal act that has a material adverse impact on the company or any successor or affiliate thereof, (2) conviction of, or entry into a plea of "guilty" or "no contest" to, a felony, (3) unauthorized use or disclosure of confidential information or trade secrets of the company or any successor or affiliate thereof that has, or may reasonably be expected to have, a material adverse impact on any such entity, (4) gross negligence, insubordination or material violation of any duty of loyalty to the company or any successor or affiliate thereof, or any other material misconduct on the part of the executive officer, (5) ongoing and repeated failure or refusal to perform or neglect of his or her duties as required by his or her employment agreement, which failure, refusal or neglect continues for 15 days following his or receipt of written notice from our board of directors, chief executive officer or supervising officer, as applicable, stating with specificity the nature of such failure, refusal or neglect, or (6) breach of any company policy or any material provision of his or her employment agreement.

        For purposes of the employment agreements, "good reason" generally means (1) a material diminution in the executive officer's authority, duties or responsibilities, (2) a material diminution in the executive officer's base compensation, unless such a reduction is imposed across-the-board to senior management of the company, (3) a material change in the geographic location at which the executive officer must perform his or her duties, or (4) any other action or inaction that constitutes a material breach by the company or any successor or affiliate of its obligations to the executive officer under his or her employment agreement.

        For purposes of the employment agreements, "bonus" generally means an amount equal to the average of the bonuses awarded to the named executive officer for each of the three fiscal years prior to the date of his or her termination of employment, or such lesser number of years as may be applicable if the executive officer has not been employed for three full years on the date of termination of employment. However, to the extent the executive officer has not received any bonus prior to the date of his or her termination of employment due to the fact that his or her employment commenced

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during the fiscal year in which the termination occurs, "bonus" means an amount equal to his or her target bonus for the fiscal year in which such termination occurs (calculated by reference to the target bonus level in effect on the date of termination) multiplied by the corporate performance achievement percentage approved by the board of directors or its designee with respect to the payment of executive bonuses for the preceding fiscal year.

        For purposes of the employment agreements, "change in control" has the same meaning as such term is given under the terms of our 2008 Equity Incentive Award Plan, as described below.

Employee Equity Incentive Plans

2008 Equity Incentive Award Plan

        In                        2008, our board of directors adopted our 2008 Equity Incentive Award Plan, or the 2008 Plan, which was approved by our stockholders in                              2008. The 2008 Plan will become effective on the day prior to the effective date of this offering.

        We have initially reserved                shares of our common stock for issuance under the 2008 Plan. In addition, the number of shares initially reserved under the 2008 Plan will be increased by (1) the number of shares of common stock available for issuance and not subject to options granted under the 2006 Plan as of the effective date of the 2008 Plan, and (2) the number of shares of common stock related to options granted under our 2006 Plan that are repurchased, forfeited, expired or are cancelled on or after the effective date of the 2008 Plan. The total number of shares described in clauses (1) and (2) of the preceding sentence shall not exceed                shares of our common stock. The 2008 Plan contains an "evergreen provision" that allows for an annual increase in the number of shares available for issuance under the 2008 Plan on January 1 of each year during the ten-year term of the 2008 Plan, beginning on January 1, 2009. The annual increase in the number of shares shall be equal to the least of:

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                % of our outstanding common stock on the applicable January 1^st of the applicable year;



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                shares; and



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a lesser number of shares as determined by our board of directors.

        The 2008 Plan also provides for an aggregate limit of                shares of common stock that may be issued under the 2008 Plan over the course of its ten-year term. All of the foregoing share reserve numbers reflect the reverse stock split to be implemented by us prior to the offering and will not be adjusted as a result of such reverse stock split. The material terms of the 2008 Plan are summarized below. The 2008 Plan is filed as an exhibit to the registration statement of which this prospectus is a part.

        Administration.    The compensation committee of our board of directors will administer the 2008 Plan (except with respect to any award granted to non-employee directors, which must be administered by our full board of directors). To administer the 2008 Plan, our compensation committee must consist of at least two members of our board of directors, each of whom is a "non-employee director" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and an "outside director" for purposes of Section 162(m) of the Internal Revenue Code. Subject to the terms and conditions of the 2008 Plan, our compensation committee has the authority to select the persons to whom awards are to be made, to determine the type or types of awards to be granted to each person, determine the number of awards to grant, determine the number of shares to be subject to such awards, and determine the terms and conditions of such awards, and to make all other determinations and decisions and to take all other actions necessary or advisable for the administration of the 2008 Plan. Our compensation committee is also authorized to establish, adopt, amend or revise rules relating to administration of the 2008 Plan, subject to certain restrictions. Our board of directors may at any time revert to itself the authority to administer the 2008 Plan. Our full board of directors will administer the 2008 Plan with respect to awards to non-employee directors.

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        Eligibility.    Awards under the 2008 Plan may be granted to individuals who are our employees or are the employees of any of our parent companies' subsidiaries on the date of grant. Such awards may also be granted to our non-employee directors and consultants but only employees may be granted incentive stock options, or ISOs. As of                        , 2008, if the 2008 Plan had been in effect there were                non-employee directors,                consultants and                 employees who would have been eligible for awards under the 2008 Plan. The maximum number of shares that may be subject to awards granted under the 2008 Plan to any individual in any calendar year cannot exceed                and the maximum performance bonus that may be awarded to any individual in any calendar year cannot exceed $                .

        Awards.    The 2008 Plan provides that our compensation committee (or the board of directors, in the case of awards to non-employee directors) may grant or issue stock options, SARs, restricted stock, restricted stock units, dividend equivalents, stock payments, performance bonus awards and other stock-based awards, or any combination thereof. The compensation committee (or the board of directors, in the case of awards to non-employee directors) will consider each award grant subjectively, considering factors such as the individual performance of the recipient and the anticipated contribution of the recipient to the attainment of our long-term goals. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.

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Nonqualified stock options, or NQSOs, will provide for the right to purchase shares of our common stock at a specified price which may not be less than the fair market value of a share of stock on the date of grant, and usually will become exercisable (at the discretion of our compensation committee or the board of directors, in the case of awards to non-employee directors) in one or more installments after the grant date, subject to the participant's continued employment or service with us and/or subject to the satisfaction of performance targets established by our compensation committee (or the board of directors, in the case of awards to non-employee directors). NQSOs may be granted for any term specified by our compensation committee (or the board of directors, in the case of awards to non-employee directors), but the term may not exceed ten years.



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Incentive stock options, or ISOs, will be designed to comply with the provisions of the Internal Revenue Code and will be subject to specified restrictions contained in the Internal Revenue Code applicable to ISOs. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, must expire within a specified period of time following the optionee's termination of employment, and must be exercised within the ten years after the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) more than 10% of the total combined voting power of all classes of our capital stock on the date of grant, the 2008 Plan provides that the exercise price must be more than 110% of the fair market value of a share of common stock on the date of grant and the ISO must expire on the fifth anniversary of the date of its grant.



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Restricted stock may be granted to participants and made subject to such restrictions as may be determined by our compensation committee (or the board of directors, in the case of awards to non-employee directors). Typically, restricted stock may be repurchased by us at the original purchase price or, if no cash consideration was paid for such stock, forfeited for no consideration if the conditions or restrictions are not met, and the restricted stock may not be sold or otherwise transferred to third parties until restrictions are removed or expire. Recipients of restricted stock, unlike recipients of options, may have voting rights and may receive dividends, if any, prior to when the restrictions lapse.



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Restricted stock units may be awarded to participants, typically without payment of consideration or for a nominal purchase price, but subject to vesting conditions including continued

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employment or on performance criteria established by our compensation committee (or the Board of directors, in the case of awards to non-employee directors). Like restricted stock, restricted stock units may not be sold or otherwise transferred or hypothecated until the vesting conditions are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until some time after the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied and the shares have been issued.

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SARs typically will provide for payments to the holder based upon increases in the price of our common stock over the exercise price of the SAR. Except as required by Section 162(m) of the Internal Revenue Code with respect to SARs intended to qualify as performance-based compensation as described in Section 162(m) of the Internal Revenue Code, there are no restrictions specified in the 2008 Plan on the exercise of SARs or the amount of gain realizable therefrom. Our compensation committee (or the Board of directors, in the case of awards to non-employee directors) may elect to pay SARs in cash or in common stock or in a combination of both.



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Dividend equivalents may be awarded to participants and represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the stock options, SARs or other awards held by the participant.



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Performance awards (i.e., performance share awards, performance stock units, performance bonus awards, performance-based awards and deferred stock) may be granted by our compensation committee (or the Board of directors, in the case of awards to non-employee directors) on an individual or group basis. Generally, these awards will be based upon specific performance targets and may be paid in cash or in common stock or in a combination of both. Performance awards may include "phantom" stock awards that provide for payments based upon increases in the price of our common stock over a predetermined period. Performance awards may also include bonuses that may be granted by our compensation committee (or the Board of directors, in the case of awards to non- employee directors) on an individual or group basis, which may be paid on a current or deferred basis and may be payable in cash or in common stock or in a combination of both. The maximum amount of any such bonuses to a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code must not exceed $1,000,000 for any fiscal year during the term of the 2008 Plan.



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Stock payments may be authorized by our compensation committee (or the Board of directors, in the case of awards to non-employee directors) in the form of common stock or an option or other right to purchase common stock as part of a deferred compensation arrangement, made in lieu of all or any part of compensation, including bonuses, that would otherwise be payable to employees, consultants or members of our Board of directors.

        Corporate Transactions.    In the event of a change of control where the acquirer does not assume awards granted under the 2008 Plan, awards issued under the 2008 Plan will be subject to accelerated vesting such that 100% of the awards will become vested and exercisable or payable, as applicable, immediately prior to a change of control. Under the 2008 Plan, a change of control is generally defined as:

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a transaction or series of related transactions whereby any person or entity or related group of persons or entities (other than us, our subsidiaries, an employee benefit plan maintained by us or any of our subsidiaries or a person or entity that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, us) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of more than 50% of the total combined voting power of our securities outstanding immediately after such acquisition;

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•

during any two-year period, individuals who, at the beginning of such period, constitute our board of directors together with any new director(s) whose election by our Board of directors or nomination for election by our stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of our Board of directors;



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our consummation (whether we are directly or indirectly involved through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) the sale or other disposition of all or substantially all of our assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case, other than a transaction that results in our voting securities outstanding immediately before the transaction continuing to represent, directly or indirectly, at least a majority of the combined voting power of the successor entity's outstanding voting securities immediately after the transaction, and after which no person or entity beneficially owns voting securities representing 50% or more of the combined voting power of the acquiring company that is not attributable to voting power held in the company prior to such transaction.

        Amendment and Termination of the 2008 Plan.    Our board of directors or our compensation committee may terminate, amend or modify the 2008 Plan. However, stockholder approval of any amendment to the 2008 Plan will be obtained to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, or for any amendment to the 2008 Plan that increases the number of shares available under the 2008 Plan. If not terminated earlier by the compensation committee or the board of directors, the 2008 Plan will terminate on the tenth anniversary of the date of its initial approval by our board of directors.

Securities Laws and Federal Income Taxes

        The 2008 Plan is designed to comply with applicable securities and federal tax laws as follows:

        Securities Laws.    The 2008 Plan is intended to conform to the provisions of the Securities Act of 1933, as amended, or the Securities Act, and the Exchange Act and any and all regulations and rules promulgated by the SEC thereunder, including, without limitation, Rule 16b-3. The 2008 Plan will be administered, and awards will be granted and may be exercised, in such a manner as to conform to such laws, rules and regulations.

        General Federal Tax Consequences.    Under current federal laws, in general, recipients of awards and grants of NQSOs, SARs, restricted stock, restricted stock units, dividend equivalents, performance awards and stock payments under the 2008 Plan are taxable under Section 83 of the Internal Revenue Code and, subject to Section 162(m) of the Internal Revenue Code, we will be entitled to an income tax deduction with respect to the amounts taxable to such recipients. However, Section 409A of the Internal Revenue Code provides certain requirements for non-qualified deferred compensation arrangements. Certain awards under the 2008 Plan may be subject to the requirements of Section 409A in form and in operation. We intend that all 2008 Plan awards that are subject to Section 409A will satisfy the requirements of Section 409A. However, if a 2008 Plan award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.

        Under Sections 421 and 422 of the Internal Revenue Code, recipients of ISOs are generally not taxed on their receipt of common stock upon their exercises of ISOs if the ISOs and option stock are held for specified minimum holding periods and, in such event, we are not entitled to income tax

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deductions with respect to such exercises. Participants in the 2008 Plan will be provided with detailed information regarding the tax consequences relating to the various types of awards and grants under the 2008 Plan.

        Section 162(m) Limitation.    In general, under Section 162(m) of the Internal Revenue Code, income tax deductions of publicly-held corporations may be limited to the extent total compensation (including base salary, annual bonus, stock option exercises and non-qualified benefits paid) for certain executive officers exceeds $1 million (less the amount of any "excess parachute payments" as defined in Section 280G of the Internal Revenue Code) in any one year. However, under Section 162(m), the deduction limit does not apply to certain "performance-based compensation" if an independent compensation committee determines performance goals and if the material terms of the performance-based compensation are disclosed to and approved by our stockholders. In particular, stock options and SARs will satisfy the "performance-based compensation" exception if the awards are made by a qualifying compensation committee, the plan sets the maximum number of shares that can be granted to any person within a specified period and the compensation is based solely on an increase in the stock price after the grant date. Specifically, the option exercise price must be equal to or greater than the fair market value of the stock subject to the award on the grant date. Under a Section 162(m) transition rule for compensation plans of corporations which are privately-held and which become publicly-held in an initial public offering, the 2008 Plan will not be subject to Section 162(m) until a specified transition date, which is the earlier of (1) the material modification of the 2008 Plan, (2) the issuance of all employer stock and other compensation that has been allocated under the 2008 Plan, or (3) the first annual meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the initial public offering occurs. After the transition date, rights or awards granted under the 2008 Plan, other than options and SARs, will not qualify as "performance-based compensation" for purposes of Section 162(m) unless such rights or awards are granted or vest upon pre-established objective performance goals, the material terms of which are disclosed to and approved by our stockholders.

        We have attempted to structure the 2008 Plan in such a manner that, after the transition date, the compensation attributable to stock options and SARs which meet the other requirements of Section 162(m) will not be subject to the $1 million limitation. We have not, however, requested a ruling from the Internal Revenue Service, or IRS, or an opinion of counsel regarding this issue.

2006 Equity Incentive Plan

        On October 4, 2006, our board of directors approved the Zogenix, Inc. 2006 Equity Incentive Plan, or the 2006 Plan. The 2006 Plan was approved by our stockholders in February 2007.

        We initially reserved 1,000,000 shares of our common stock for issuance under the 2006 Plan. In May 2007 and May 2008, the board of directors amended the 2006 Plan to increase the number of authorized plan shares to 6,540,000 and 11,340,000 shares of our common stock, respectively. These increases were approved by our stockholders in June 2007 and May 2008, respectively. After the effective date of the 2008 Plan, no additional awards will be granted under the 2006 Plan.

        The material terms of the 2006 Plan are summarized below. The 2006 Plan will be filed as an exhibit to the registration statement of which this prospectus is a part.

        Administration.    Our board of directors (or a committee of the board of directors) administers the 2006 Plan, except with respect to any award granted to non-employee directors (as defined in the 2006 Plan), which must be administered by our full board of directors. Following the completion of this offering, for a committee of the board of directors to administer the 2006 Plan, such committee must consist of at least two members of our board of directors, each of whom is a "non-employee director" for purposes of Rule 16b-3 under the Exchange Act, and an "outside director" for purposes of Section 162(m) of the Internal Revenue Code. Subject to the terms and conditions of the 2006 Plan,

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the administrator has the authority to select the persons to whom awards are to be made, to determine the type or types of awards to be granted to each person, determine the number of awards to grant, determine the number of shares to be subject to such awards, and the terms and conditions of such awards, and make all other determinations and decisions and to take all other actions necessary or advisable for the administration of the 2006 Plan. The plan administrator is also authorized to establish, adopt, amend or revise rules relating to administration of the 2006 Plan, subject to certain restrictions.

        Eligibility.    Options, stock appreciation rights, or SARs, restricted stock and other awards under the 2006 Plan may be granted to individuals who are then our employees, consultants and members of our board of directors and our subsidiaries. Only employees may be granted incentive stock options, or ISOs.

        Awards.    The 2006 Plan provides that our administrator may grant or issue stock options, restricted stock, restricted stock units, SARs, dividend equivalents, stock payments, or any combination thereof. The administrator considers each award grant subjectively, considering factors such as the individual performance of the recipient and the anticipated contribution of the recipient to the attainment of our long-term goals. Each award is set forth in a separate agreement with the person receiving the award and indicates the type, terms and conditions of the award.

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NQSOs provide for the right to purchase shares of our common stock at a specified price which may not be less than the fair market value of a share of stock on the date of grant, and usually will become exercisable (at the discretion of our compensation committee or the board of directors, in the case of awards to non-employee directors) in one or more installments after the grant date, subject to the participant's continued employment or service with us and/or subject to the satisfaction of performance targets established by our compensation committee (or the board of directors, in the case of awards to non-employee directors). NQSOs may be granted for any term specified by our compensation committee (or the board of directors, in the case of awards to non-employee directors), but the term may not exceed ten years.



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ISOs are designed to comply with the provisions of the Internal Revenue Code and are subject to specified restrictions contained in the Internal Revenue Code applicable to ISOs. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, must expire within a specified period of time following the optionee's termination of employment, and must be exercised within the ten years after the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) more than 10% of the total combined voting power of all classes of our capital stock on the date of grant, the 2006 Plan provides that the exercise price must be more than 110% of the fair market value of a share of common stock on the date of grant and the ISO must expire on the fifth anniversary of the date of its grant.



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Restricted stock may be granted to participants and made subject to such restrictions as may be determined by the administrator. Typically, restricted stock may be repurchased by us at the original purchase price or, if no cash consideration was paid for such stock, forfeited for no consideration if the conditions or restrictions are not met, and the restricted stock may not be sold or otherwise transferred to third parties until restrictions are removed or expire. Recipients of restricted stock, unlike recipients of options, may have voting rights and may receive dividends, if any, prior to when the restrictions lapse.



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Restricted stock units may be awarded to participants, typically without payment of consideration or for a nominal purchase price, but subject to vesting conditions including continued employment or on performance criteria established by the administrator. Like restricted stock, restricted stock units may not be sold or otherwise transferred or hypothecated until vesting conditions are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until some time after the restricted stock units have vested, and recipients of

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restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied and the shares have been issued.

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SARs typically will provide for payments to the holder based upon increases in the price of our common stock over the exercise price of the SAR. There are no restrictions specified in the 2006 Plan on the exercise of SARs or the amount of gain realizable therefrom. The administrator may elect to pay SARs in cash or in common stock or in a combination of both.



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Dividend equivalents may be awarded to participants and represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the stock options, SARs or other awards held by the participant.



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Stock payments may be authorized by the administrator in the form of common stock or an option or other right to purchase common stock as part of a deferred compensation arrangement, made in lieu of all or any part of compensation, including bonuses, that would otherwise be payable to employees, consultants or members of our board of directors.

        Corporate Transactions.    In the event of a change of control where the acquiror does not assume awards granted under the 2006 Plan, awards issued under the 2006 Plan will be subject to accelerated vesting such that 100% of the awards will become vested and exercisable or payable, as applicable, immediately prior to a change in control. Under the 2006 Plan, a change of control is generally defined as:

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a transaction or series of related transactions whereby any person or entity or related group of persons or entities (other than us, our subsidiaries, an employee benefit plan maintained by us or any of our subsidiaries or a person or entity that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, us) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of more than 50% of the total combined voting power of our securities outstanding immediately after such acquisition;



•

during any two-year period, individuals who, at the beginning of such period, constitute our board of directors together with any new director(s) whose election by our board of directors or nomination for election by our stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of our board of directors;



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our consummation (whether we are directly or indirectly involved through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) the sale or other disposition of all or substantially all of our assets or (z) the acquisition of assets or stock of another entity, in each case other than a transaction that results in our voting securities outstanding immediately before the transaction continuing to represent, directly or indirectly, at least a majority of the combined voting power of the successor entity's outstanding voting securities immediately after the transaction, and after which no person or entity beneficially owns voting securities representing 50% or more of the combined voting power of the acquiring company that is not attributable to voting power held in the company prior to such transaction; or



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the approval by our stockholders of a liquidation or dissolution of our company.

        Amendment and Termination of the 2006 Plan.    Our board of directors may terminate, amend or modify the 2006 Plan. However, stockholder approval of any amendment to the 2006 Plan must be obtained to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, or for any amendment to the 2006 Plan that increases the number of shares available under the 2006 Plan. The administrator may, with the consent of the affected option holders, cancel

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any or all outstanding awards under the 2006 Plan and grant new awards in substitution. If not terminated earlier by the compensation committee or the board of directors, the 2006 Plan will terminate on the tenth anniversary of the date of its initial approval by our board of directors.

        Securities Laws and Federal Income Taxes.    The 2006 Plan is designed to comply with applicable securities laws in the same manner as described above in the description of the 2008 Plan under the heading "Securities Laws and Federal Income Taxes—Securities Laws." The general federal tax consequences of awards under the 2006 Plan are the same as those described above in the description of the 2008 Plan under the heading "Securities Laws and Federal Income Taxes—General Federal Tax Consequences."

2008 Employee Stock Purchase Plan

        In                        2008, our board of directors approved our 2008 Employee Stock Purchase Plan, or the Purchase Plan, which was approved by our stockholders in                              2008. The compensation committee of the board of directors will administer the Purchase Plan. The Purchase Plan will be designed to allow our eligible employees and the eligible employees of our participating subsidiaries to purchase shares of common stock with accumulated payroll deductions. The Purchase Plan will become effective                . We intend to initially reserve a total of                shares of our common stock for issuance under the Purchase Plan. The Purchase Plan will contain an "evergreen provision" that allows for an annual increase in the number of shares available for issuance under the Purchase Plan on January 1 of each year during the ten-year term of the Purchase Plan, beginning on January 1, 2009. The annual increase shall be equal to the least of:

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                % of our outstanding common stock on January 1^st of the applicable year;



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                shares; and



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a lesser number of shares determined by our board of directors.

        All of the foregoing share reserve numbers reflect the reverse stock split to be implemented by us prior to the offering and will not be adjusted as a result of such reverse stock split.

        The Purchase Plan shall also provide for an aggregate limit on the number of shares of common stock which may be issued under the Purchase Plan over the course of its ten-year term. The material terms of the Purchase Plan are summarized below. The Purchase Plan shall be filed as an exhibit to the registration statement of which this prospectus is a part.

        The Purchase Plan will have consecutive                -month offering periods. Under the Purchase Plan, purchases will be made on the last day of each offering period. We expect the first offering period under the Purchase Plan will commence on the first                occurring following the completion of this offering. A new                -month offering period will commence on each                and                thereafter during the term of the Purchase Plan. Our compensation committee or board of directors may change the frequency and duration of offering periods under the Purchase Plan and may postpone the commencement of the initial offering period to a later date.

        Individuals scheduled to work more than 20 hours per week for more than 5 calendar months per year, who have been employed with us for at least                months, may join an offering period on the first day of the offering period to the extent such individual does not, immediately after any rights under the Purchase Plan are granted, own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of our common or other stock. As of December 31, 2007,                of our employees would have been eligible to participate in the Purchase Plan if it were in effect.

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        Participants may contribute up to                % of their cash earnings through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each purchase date. The purchase price per share will be equal to                % of the fair market value per share on the first day of the offering period or, if lower,                 % of the fair market value per share on the purchase date. In each calendar year, no employee is permitted to purchase more than $25,000 worth of shares at the fair market value determined as of the first day of the offering period.

        In the event of a proposed sale of all or substantially all of our assets, or our merger with or into another company, the outstanding rights under the Purchase Plan will be assumed or an equivalent right substituted by the successor company or its parent. If the successor company or its parent refuses to assume the outstanding rights or substitute an equivalent right, then all outstanding purchase rights will automatically be exercised prior to the effective date of the transaction. The purchase price will be equal to                % of the market value per share on the first day of the offering period in which an acquisition occurs or, if lower,                % of the fair market value per share on the date the purchase rights are exercised.

        The Purchase Plan will terminate no later than the tenth anniversary of the Purchase Plan's initial adoption by our board of directors.

        Securities Laws and Federal Income Taxes.    The Purchase Plan shall be designed to comply with various securities and federal income tax laws in the same manner as described above in the description of the Purchase Plan under the heading "Securities Laws and Federal Income Taxes."

401(k) Plan

        We provide a basic savings plan, or 401(k) plan, which is intended to qualify under Section 401(k) of the Internal Revenue Code so that contributions to our 401(k) plan by employees or by us, and the investment earnings thereon, are not taxable to employees until withdrawn from our 401(k) plan. If our 401(k) plan qualifies under Section 401(k) of the Internal Revenue Code, contributions by us, if any, will be deductible by us when made.

        All of our full-time employees in the U.S. are eligible to participate in our 401(k) plan. Pursuant to our 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit of $15,500 in 2008 and to have the amount of this reduction contributed to our 401(k) plan. Participants that are 50 years or older can also make "catch-up" contributions, which in calendar year 2008 may be up to an additional $5,000 above the statutory limit. Under the 401(k) plan, each participant is fully vested in his or her deferred salary contributions when contributed. Participant contributions are held and invested, pursuant to the participant's instructions, by the plan's trustee. Our 401(k) plan permits, but does not require, additional matching contributions to our 401(k) plan by us on behalf of all participants in our 401(k) plan. While we may elect to make matching contributions, no contributions have been made. The 401(k) Plan currently does not offer the ability to invest in our securities.

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Outstanding Equity Awards at Fiscal Year-End

        The following table sets forth specified information concerning unexercised stock options and unvested stock awards for each of the named executive officers outstanding as of December 31, 2007.

	Option Awards(1)					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)
Roger L. Hawley	—	—		—	—	—	—
Stephen J. Farr, Ph.D.	—	—		—	—	—	—
David W. Nassif, J.D.	—	750,000	$	0.05	5/30/2017	—	—
J.D. Haldeman	94,792	230,208		0.05	2/13/2017	—	—
	—	150,000		0.05	5/30/2017	—	—

(1)

All of the stock option awards have a ten year term and vest over four years, with 25% vesting on the first anniversary of the vesting commencement date and the remainder vesting in 36 monthly installments thereafter based on the named executive officer's continued employment by or service to the company on each such vesting date. The vesting commencement dates for the stock option awards are as follows: Mr. Nassif's stock option award, May 16, 2007; Ms. Haldeman's February 13, 2007 stock option award, October 9, 2006; and Ms. Haldeman's May 30, 2007 stock option award, May 31, 2007.

Option Exercises and Stock Vested

        The following table summarizes information regarding each exercise of stock options and vesting of stock awards during 2007 for each of the named executive officers.

	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)(1)	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
Roger L. Hawley	900,000	—	—	—
Stephen J. Farr, Ph.D.	—	—	—	—
David W. Nassif, J.D.	500,000	—	—	—
J.D. Haldeman	325,000	—	—	—

(1)

The value realized upon exercise of an option is calculated based on the number of shares issued upon exercise of such option multiplied by the difference between the fair market value per share on the date of exercise less the exercise price per share of such option. All of the stock options listed in the table were exercised at a time when the fair market value per share of our common stock was equal to the exercise price of such stock options.

Potential Benefits Upon Termination or Change in Control

        The following table summarizes the potential payments to our named executive officers upon termination by us without cause or the executive's resignation for good reason, termination by us following the executive's permanent disability or as a result of the executive's death, termination by us without cause or the executive's resignation for good reason within 60 days prior to or 12 months following a change in control, or in the event of a change in control without a termination of employment. The table assumes that the termination of employment or change in control, as applicable, occurred on December 31, 2007. The definitions of "cause", "good reason" and "bonus" are

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contained in the applicable employment agreement for each of our named executive officers, which are described above under the heading "—Employment Agreements."

Potential Change in Control and Severance Payments

Name and Position	Benefit Type	Payment in the Event of a Termination by the Company Without Cause or by Executive for Good Reason Apart from a Change in Control ($)(1)(2)		Payment in the Event of a Termination by the Company following Executive's Permanent Disability or as a Result of Executive's Death ($)(1)(2)		Payment in the Event of a Termination by the Company Without Cause or by Executive for Good Reason Within 60 Days Prior to or 12 Months Following a Change in Control ($)(3)(4)		Payment in the Event of a Change in Control Without Termination ($)(5)
Roger L. Hawley Chief Executive Officer	Severance Benefits(6) Equity Awards	$	300,000 4,344 570,000	$	300,000 4,344 570,000	$	575,000 4,344 1,440,000	$	— — 1,770,000
Stephen J. Farr, Ph.D. President and Chief Operating Officer	Severance Benefits(6) Equity Awards		270,000 6,324 —		270,000 6,324 —		363,543 6,324 —		— — 650,000
David W. Nassif, J.D. Executive Vice President, Chief Financial Officer, Secretary and Treasurer	Severance Benefits(6) Equity Awards		240,000 4,788 776,822		240,000 4,788 776,822		312,000 4,788 1,962,500		— — 981,250
J.D. Haldeman Vice President, Commercial Strategy and Corporate Communications	Severance Benefits(6) Equity Awards		210,000 4,320 591,471		210,000 4,320 591,471		262,085 4,320 957,655		— — 899,530

(1)

Cash severance represents 12 months of base salary for each named executive officer payable in cash in a lump sum.

(2)

Value of equity award acceleration represents the value of those options and restricted stock that would immediately vest and/or be released from the company's repurchase option, respectively, as a result of the named executive officer's termination or as a result of the named executive officer's death or disability. The value attributable to stock options not previously exercised that would vest in such event is the difference between the fair market value per share of our common stock on December 31, 2007 ($1.60) less the exercise price per share of such stock option multiplied by the number of shares that would vest. The value attributable to shares of restricted stock issued upon the early exercise of stock options that would be released from our repurchase option in such event equals the fair market value per share of our common stock on December 31, 2007 ($1.60) multiplied by the number of shares that would be released.

(3)

Cash severance represents (A) 12 months of base salary for each executive officer (18 months in the case of Mr. Hawley) payable in a lump sum cash payment, plus (B) the bonus paid by the company to the named executive officer for the year ending December 31, 2007, as no bonuses were paid by the company for the year ending December 31, 2006. Please see the definition of "bonus" under the heading "—Employment Agreements" above. Cash amounts are payable in a lump sum.

(4)

Value of equity award acceleration in the event named executive officer's employment is terminated three months prior to or 12 months following a change in control. Value of equity award acceleration represents the value of those options and restricted stock that would immediately vest and/or be released from the company's repurchase option, respectively, as a result of the named executive officer's termination. The value attributable to stock options not previously exercised that would vest in such event is the difference between the fair market value per share of our common stock on December 31, 2007 ($1.60) less the exercise price per share of such stock option multiplied by the number of shares that would vest. The value attributable to shares of restricted stock issued upon the early exercise of stock options that would be released from our repurchase option in such event equals the fair market value per share of our common stock on December 31, 2007 ($1.60) multiplied by the number of shares that would be released.

(5)

Value of equity award acceleration represents the value of those options and restricted stock that would immediately vest and/or be released from the company's repurchase option, respectively, upon a change in control. The value attributable to stock options not previously exercised that would vest in such event is the difference between the fair market value per share of our common stock on December 31, 2007 ($1.60) less the exercise price per share of such stock option multiplied by the number of shares that would vest. The value attributable to shares of restricted stock issued to the named executive officer pursuant to a founder's stock agreement or upon the early exercise of stock options that would be released from our

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repurchase option in such event equals the fair market value per share of our common stock on December 31, 2007 ($1.60) multiplied by the number of shares that would be released.

(6)

Represents the value of the continuation of health benefits for a period of 12 months following the date of the named executive officer's termination.

Director Compensation

        We compensate certain non-employee members of the board of directors. Directors who are also employees do not receive cash or equity compensation for service on the board of directors in addition to compensation payable for their service as our employees.

        The non-employee members of our board of directors are reimbursed for travel, lodging and other reasonable expenses incurred in attending board of directors or committee meetings. We provide an annual cash retainer of $50,000 to Cam L. Garner, the chairman of our board of directors, payable monthly. We do not currently provide any cash compensation to our other non-employee directors.

        In May 2007, our board of directors approved a director compensation program that provides for equity awards to our non-employee directors. Our non-employee directors are eligible for automatic awards of stock options to purchase shares of our common stock in the form of initial option grants and annual option grants. Any non-employee director who is first elected to the board of directors will be granted an option to purchase 75,000 shares of our common stock on the date of his or her initial election to the board of directors. Such options will have an exercise price per share equal to the fair market value of our common stock on the date of grant and will be fully vested on the date of grant. In addition, each year on May 30, each non-employee director will be eligible to receive an option to purchase 17,500 shares of common stock. The annual option grants will have an exercise price per share equal to the fair market value of our common stock on the date of grant and will vest monthly over 12 months following the date of grant. The board also approved initial option grants to purchase 75,000 shares of our common stock on the terms set forth above to each of James C. Blair, Louis C. Bock, Kurt C. Wheeler and Alex Zisson, the existing non-employee directors (other than Mr. Garner as of May 30, 2007). These stock options have an exercise price of $0.05 per share, the fair market value per share of our common stock on the date of grant as determined by our board of directors, and were fully vested on the date of grant. In May 2008, each of Dr. Blair and Messrs. Bock, Garner, Wheeler and Zisson received an annual option grant to purchase 17,500 shares of our common stock with an exercise price of $1.26 per share, the fair market value per share of our common stock on the date of grant as determined by our board, in accordance with the above program. Also in May 2008, in connection with Erle T. Mast's appointment as a member of our board, the board approved an option for Mr. Mast to purchase 100,000 shares of our common stock with an exercise price of $1.26 per share, in lieu of the initial option grant under the program described above, as compensation for his service on the board. Mr. Mast's option was fully vested on the date of grant. For a complete description of our director compensation program, see "—2006 Equity Incentive Plan" above.

        Following the completion of this offering, we will provide cash compensation in the form of an annual retainer of $                for each non-employee director. We will also pay an additional annual retainer of $                to the Chairman of our audit committee, $                to the chairs of our compensation committee and our nominating/corporate governance committee and $                to other non-employee directors for their service on each such committee. We will pay an additional annual retainer to the Chairman of our board of directors of $                per year. Following the completion of this offering, directors will also receive $                per board of directors meeting attended in person. We have reimbursed and will continue to reimburse our non-employee directors for their reasonable expenses incurred in attending meetings of our board of directors and committees of the board of directors.

        Following the completion of this offering, any non-employee director who is first elected to the board of directors will be granted an option to purchase                 shares of our common stock on the

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date of his or her initial election to the board of directors. In addition, on the date of each annual meeting of our stockholders following this offering, each non-employee director will be eligible to receive an option to purchase                shares of common stock. Such options will have an exercise price per share equal to the fair market value of our common stock on the date of grant.

        The initial options granted to non-employee directors described above will vest                , subject to the director's continuing service on our board of directors on those dates. The annual options granted to non-employee directors described above will vest                , subject to the director's continuing service on our board of directors (and, with respect to grants to a Chairman of the board of directors or board committee, service as Chairman of the board of directors or a committee) on those dates. The term of each option granted to a non-employee director shall be ten years. The terms of these options are described in more detail under "—Equity Compensation Plans and Other Benefit Plans—Employee Equity Incentive Plans—2008 Equity Incentive Award Plan."

        The following table summarizes cash and stock compensation received by our non-employee directors during the year ended December 31, 2007.

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)	Option Awards ($)(1)		All Other Compensation ($)	Total ($)
Cam L. Garner	$	50,000	—		—	—	$	50,000
Kurt C. Wheeler		—	—	$	2,500	—		2,500
James C. Blair, Ph.D.		—	—		2,500	—		2,500
Louis C. Bock		—	—		2,500	—		2,500
Alex Zisson		—	—		2,500	—		2,500

(1)

Represents the compensation expense for stock option grants awarded in and prior to December 31, 2007, recognized for financial reporting purposes (assuming no forfeitures) under SFAS No. 123(R), for the year ended December 31, 2007. For a discussion of the valuation assumptions, see Note 8 to our consolidated financial statements for the year ended December 31, 2007 included elsewhere in this prospectus.

Messrs. Wheeler, Bock and Zisson and Dr. Blair were the only non-employee directors to receive stock option awards during 2007. Each of them received a stock option to purchase 75,000 shares of our common stock in May 2007. The aggregate number of shares subject to stock options outstanding at the end of fiscal 2007 for each director and the grant date fair value of these option awards granted to our non-employee directors in fiscal 2007 are as follows:

Name	Shares Underlying Options Outstanding At December 31, 2007 (#)	Grant Date Fair Value for Options Awarded in 2007 ($)
Cam L. Garner	—	—
Kurt C. Wheeler	75,000	2,500
James C. Blair, Ph.D.	—	—
Louis C. Bock	75,000	2,500
Alex Zisson	75,000	2,500

The grant date fair value reflects the grant date estimated fair value of stock options as calculated in accordance with SFAS No. 123(R), using a Black-Scholes option-pricing model (assuming no forfeitures). For a discussion of relevant assumptions, see Note 8 to our financial statements for the year ended December 31, 2007, included elsewhere in this prospectus.

Limitations of Liability and Indemnification Matters

        Our amended and restated certificate of incorporation, which will become effective upon the completion of this offering, will limit the liability of our directors for monetary damages for breach of their fiduciary duties, except for liability that cannot be eliminated under the Delaware General Corporation Law. Delaware law provides that directors of a corporation will not be personally liable for

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monetary damages for breach of their fiduciary duties as directors, except liability for any of the following:

•

any breach of their duty of loyalty to the corporation or its stockholders;



•

acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;



•

unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or



•

any transaction from which the director derived an improper personal benefit.

        This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.

        Our amended and restated certificate of incorporation and our amended and restated bylaws also will provide that we shall indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. We believe that indemnification under our amended and restated bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in this capacity, regardless of whether our amended and restated bylaws would permit indemnification. We have obtained directors' and officers' liability insurance.

        We have entered into separate indemnification agreements with our directors and executive officers, in addition to indemnification provided for in our amended and restated certificate of incorporation and amended and restated bylaws. These agreements, among other things, provide for indemnification of our directors and executive officers for expenses, judgments, fines and settlement amounts incurred by this person in any action or proceeding arising out of this person's services as a director or executive officer or at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.

        Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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PRINCIPAL STOCKHOLDERS

        The following table sets forth information about the beneficial ownership of our common stock at May 31, 2008, and as adjusted to reflect the sale of the shares of common stock in this offering, for:

•

each person known to us, or group of affiliated persons, to be the beneficial owner of more than 5% of our common stock;



•

each named executive officer;



•

each of our directors; and



•

all of our executive officers and directors as a group.

        Unless otherwise noted below, the address of each beneficial owner listed on the table is c/o Zogenix, Inc., 11682 El Camino Real, Suite 320, San Diego, CA 92130. We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Except as indicated by the footnotes below, we believe, based on the information furnished to us by the stockholders, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. We have based our calculation of the percentage of beneficial ownership on 91,358,097 shares of common stock outstanding on May 31, 2008, which assumes the conversion of all outstanding shares of preferred stock into common stock and                        shares of common stock outstanding upon completion of this offering.

        In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of May 31, 2008. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*).

		Percentage of Common Stock Beneficially Owned
	Number of Shares Beneficially Owned
Beneficial Owner		Prior to Offering		After Offering
5% or Greater Stockholders:
Funds affiliated with Domain Associates, L.L.C.(1) One Palmer Square Princeton, NJ 08542	21,192,500	23.2	%		%
Clarus Lifesciences I, LP(2) One Memorial Drive, Suite 1230 Cambridge, MA 92142	21,092,500	23.1
Scale Venture Partners II, LP(3) 950 Tower Lane, Suite 700 Foster City, CA 94404	14,092,500	15.4
Funds affiliated with Thomas, McNerney & Partners, L.P.(4) 60 South 6th Street, Suite 3620 Minneapolis, MN 55402	12,092,500	13.2

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Funds affiliated with Abingworth Bioventures(5) 3000 Sand Hill Road Bldg. 4, Suite 135 Menlo Park, CA 94025	9,090,909	10.0	%
Directors and Executive Officers:
Roger L. Hawley(6)	4,000,000	4.3
Stephen J. Farr, Ph.D.(7)	3,075,000	3.4
David W. Nassif(8)	1,250,000	1.4
J.D. Haldeman(9)	800,000	*
Cam L. Garner(10)	1,967,500	2.2
Kurt C. Wheeler(2)	21,092,500	23.1
James C. Blair, Ph.D.(1)	21,192,500	23.2
Louis C. Bock(3)	14,092,500	15.4
Alex Zisson(4)	12,092,500	13.2
Erle T. Mast(11)	100,000	*
Executive officers and directors as a group (10 persons)(12)	80,862,500	85.0

*

Represents beneficial ownership of less than one percent of our outstanding common stock.

(1)

Includes 75,000 shares of common stock held by Domain Associates, L.L.C., 98,940 shares of common stock held by Domain Partners VI, L.P., 1,060 shares of common stock held by DP VI Associates, L.P., 20,647,825 shares of common stock held by Domain Partners VII, L.P. and 352,175 shares of common stock held by DP VII Associates, L.P. Includes 17,500 shares Dr. Blair has the right to acquire pursuant to outstanding options which are immediately exercisable, 14,583 of which are subject to our right of repurchase within 60 days of May 31, 2008. The voting and disposition of the shares held by Domain Partners VI, L.P. and DP VI Associates, L.P. is determined by the managing members of One Palmer Square Associates VI, L.L.C., the general partner of Domain Partners VI, L.P. and DP VI Associates, L.P. The voting and disposition of the shares held by Domain Partners VII, L.P. and DP VII Associates, L.P. is determined by the managing members of One Palmer Square Associates VII, L.L.C., the general partner of Domain Partners VII, L.P. and DP VII Associates, L.P. Dr. Blair, a member of our board of directors, is a managing member of Domain Associates, L.L.C., One Palmer Square Associates VI, L.L.C. and One Palmer Square Associates VII, L.L.C. and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.

(2)

Includes 21,000,000 shares held by Clarus Lifesciences I, L.P. Includes 92,500 shares Mr. Wheeler has the right to acquire pursuant to outstanding options which are immediately exercisable, 14,583 of which are subject to our right of repurchase within 60 days of May 31, 2008. Mr. Wheeler is a managing director of Clarus Ventures, LLC, the General Partner to Clarus Ventures I GP, LP, the General Partner to Clarus Lifesciences I, LP and has shared voting and disposition power related to all shares. All shares are held for the benefit of Clarus Lifesciences I, LP. Mr. Wheeler disclaims all beneficial ownership to these shares.

(3)

Includes 92,500 shares Mr. Bock has the right to acquire pursuant to outstanding options which are immediately exercisable, 14,583 of which are subject to our right of repurchase within 60 days of May 31, 2008. The voting and disposition of the shares held by Scale Venture Partners II, LP is determined by a majority in interest of the six managers of Scale Venture Management II, LLC, the ultimate general partner of Scale Venture Partners II, LP. Mr. Bock is one of the managers of Scale Venture Management II, LLC and as such has a proportionate pecuniary interest in such shares, but does not have sole voting or investment power with respect to such shares. Mr. Bock disclaims beneficial ownership of the shares held by Scale Venture Partners II, LP, except to the extent of his proportionate pecuniary interest therein.

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(4)

Includes 11,527,800 shares of common stock held by Thomas, McNerney & Partners, L.P., 428,400 shares of common stock held by TMP Nominee, LLC and 43,800 shares of common stock held by TMP Associates, LP. Includes 92,500 shares Mr. Zisson has the right to acquire pursuant to outstanding options which are immediately exercisable, 14,583 of which are subject to our right of repurchase within 60 days of May 31, 2008. Mr. Zisson, a member of our board of directors, holds shared voting and/or dispositive power over the shares held by Thomas, McNerney & Partners, L.P., TMP Nominee, LLC, and TMP Associates, L.P. Mr. Zisson disclaims beneficial ownership of these shares owned except to the extent of his proportionate pecuniary interest therein.

(5)

Includes 9,013,631 shares of common stock held by Abingworth Bioventures IV LP and 77,278 shares of common stock held by Abingworth Bioventures IV Executives LP. Abingworth Management Ltd. serves as investment manager of Abingworth Bioventures IV L.P. and Abingworth Bioventures IV Executives L.P. Dr. Joe Anderson, Mr. Michael Bigham, Dr. Stephen Bunting, Mr. David Leathers and Dr. Jonathan MacQuitty comprise the investment committee of Abingworth Management Ltd. and may be deemed to have voting and investment control over the shares held by these stockholders. Abingworth Management Ltd. and the individuals noted above disclaim beneficial ownership of the securities except to the extent of their pecuniary interest therein.

(6)

Includes 900,000 shares Mr. Hawley acquired upon the early exercise of options, 637,500 of which are subject to our right of repurchase within 60 days of May 31, 2008. Includes 900,000 shares Mr. Hawley has the right to acquire pursuant to outstanding options which are immediately exercisable, all of which are subject to our right of repurchase within 60 days of May 31, 2008. Includes 2,100,000 shares of restricted common stock, 820,313 of which are subject to our right of repurchase within 60 days of May 31, 2008.

(7)

Includes 75,000 shares Dr. Farr has the right to acquire pursuant to outstanding options which are immediately exercisable, all of which would be subject to our right of repurchase within 60 days of May 31, 2008.

(8)

Includes 750,000 shares Mr. Nassif has the right to acquire pursuant to outstanding options which are immediately exercisable, 531,250 of which are subject to our right of repurchase within 60 days of May 31, 2008. Includes 500,000 shares Mr. Nassif acquired upon the early exercise of options, 354,167 of which are subject to our right of repurchase within 60 days of May 31, 2008.

(9)

Includes 475,000 shares Ms. Haldeman has the right to acquire pursuant to outstanding options which are immediately exercisable, 289,062 of which would be subject to our right of repurchase within 60 days of May 31, 2008. Includes 325,000 shares Ms. Haldeman acquired upon the early exercise of options, 182,812 of which are subject to our right of repurchase within 60 days of May 31, 2008.

(10)

Includes 17,500 shares Mr. Garner has the right to acquire pursuant to outstanding options which are immediately exercisable, 14,583 of which are subject to our right of repurchase within 60 days of May 31, 2008. Includes 1,850,000 shares of restricted common stock, 722,656 of which are subject to our right of repurchase within 60 days of May 31, 2008.

(11)

Includes 100,000 shares Mr. Mast has the right to acquire pursuant to outstanding options which are immediately exercisable, none of which are subject to our right of repurchase within 60 days of May 31, 2008.

(12)

Includes 3,812,500 shares of common stock subject to outstanding options which are immediately exercisable, 3,068,229 of which would be subject to our right of repurchase within 60 days of May 31, 2008. Includes 1,725,000 shares acquired upon the early exercise of options, 1,174,479 of which will be subject to our right of repurchase within 60 days of May 31, 2008. Includes 6,950,000 shares of restricted common stock, 1,542,969 of which are subject to our right of repurchase within 60 days of May 31, 2008.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

        The following is a summary of transactions and series of similar transactions, since our inception, to which we were a party or will be a party, in which:

•

the amounts involved exceeded or will exceed $120,000; and



•

a director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

        We also describe below certain other transactions with our directors, executive officers and stockholders.

Preferred Stock Issuances

        In August 2006, September 2007 and December 2007, we issued in private placements an aggregate of 68,800,000 shares of Series A-1 convertible preferred stock at a per share price of $1.00, for aggregate consideration of $68,800,000. In December 2007, we issued in a private placement an aggregate of 9,090,909 shares of Series A-2 convertible preferred stock at a per share price of $1.10, for aggregate consideration of approximately $10,000,000.

        The following table sets forth the aggregate number of these securities acquired by the listed directors, executive officers or holders of more than 5% of our common stock, or their affiliates:

	Shares of Preferred Stock
Investor	Series A-1	Series A-2
Funds affiliated with Domain Associates, L.L.C.(1)	21,100,000	—
Clarus Lifesciences I, LP(2)	21,000,000	—
Scale Venture Partners II, LP(3)	14,000,000	—
Funds affiliated with Thomas, McNerney & Partners, L.P.(4)	12,000,000	—
Funds affiliated with Abingworth Bioventures(5)	—	9,090,909
Roger L. Hawley	100,000	—
Cam L. Garner	100,000	—

(1)

Includes 98,940 shares of Series A-1 preferred stock held by Domain Partners VI, L.P., 1,060 shares of Series A-1 preferred stock held by DP VI Associates, L.P., 20,647,825 shares of Series A-1 preferred stock held by Domain Partners VII, L.P. and 352,175 shares of Series A-1 preferred stock held by DP VII Associates, L.P. The voting and disposition of the shares held by Domain Partners VI, L.P. and DP VI Associates, L.P. is determined by the managing members of One Palmer Square Associates VI, L.L.C., the general partner of Domain Partners VI, L.P. and DP VI Associates, L.P. The voting and disposition of the shares held by Domain Partners VII, L.P. and DP VII Associates, L.P. is determined by the managing members of One Palmer Square Associates VII, L.L.C., the general partner of Domain Partners VII, L.P. and DP VII Associates, L.P. Dr. Blair, a member of our board of directors, is a managing member of One Palmer Square Associates VI, L.L.C. and One Palmer Square Associates VII, L.L.C. and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.

(2)

Mr. Wheeler, a member of our board of directors, is a managing director of Clarus Ventures, LLC, the General Partner to Clarus Ventures I GP, LP, the General Partner to Clarus Lifesciences I, LP and has shared voting and disposition power related to all shares. All shares are held for the benefit of Clarus Lifesciences I, LP. Mr. Wheeler disclaims all beneficial ownership to these shares.

(3)

The voting and disposition of the shares held by Scale Venture Partners II, LP is determined by a majority in interest of the six managers of Scale Venture Management II, LLC, the ultimate general partner of Scale Venture Partners II, LP. Mr. Bock, a member of our board of directors, is one of the managers of Scale Venture Management II, LLC and as such has a proportionate pecuniary interest in such shares, but does not have sole voting or investment power with respect to such shares. Mr. Bock disclaims beneficial ownership of the shares held by Scale Venture Partners II, LP, except to the extent of his proportionate pecuniary interest therein.

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(4)

Includes 11,527,800 shares of Series A-1 preferred stock held by Thomas, McNerney & Partners, L.P., 428,400 shares of Series A-1 preferred stock held by TMP Nominee, LLC and 43,800 shares of Series A-1 preferred stock held by TMP Associates, LP. Mr. Zisson, a member of our board of directors, holds shared voting and/or dispositive power over the shares held by Thomas, McNerney & Partners, L.P., TMP Nominee, LLC, and TMP Associates, L.P. Mr. Zisson disclaims beneficial ownership of these shares owned except to the extent of his proportionate pecuniary interest therein.

(5)

Includes 9,013,631 shares of Series A-2 preferred stock held by Abingworth Bioventures IV LP and 77,278 shares of Series A-2 preferred stock held by Abingworth Bioventures IV Executives LP.

Common Stock Issuances

        In May 2006, we issued to three of our co-founders a total of 2,520,000 shares of common stock for total aggregate consideration of $2,520. In August 2006, we issued in private placements a total of 9,220,000 shares of common stock for aggregate consideration of $4,900 to directors and executive officers. The following table sets forth these issuances:

Investor	Common Stock
Stephen J. Farr, Ph.D.(1)	3,000,000
Roger L. Hawley	2,100,000
Cam L. Garner(2)	2,000,000
Jonathan M. Rigby(3)	1,920,000
John J. Turanin(4)	1,920,000
Bret E. Megargel	800,000

(1)

Includes 2,160,000 shares that were issued to Dr. Farr on August 16, 2006 as the result of a 1 for 3.571429 forward stock split.

(2)

Of these 2,000,000 shares, 1,850,000 shares are held by a limited liability company for which Mr. Garner is the sole member and 150,000 shares are held by siblings of Mr. Garner.

(3)

Includes 420,000 shares that were issued to Mr. Rigby on May 29, 2006, but were contributed back to us pursuant to a capital contribution agreement on August 15, 2006 for no consideration. Includes 1,080,000 shares that were issued to Mr. Rigby on August 16, 2006 as the result of a 1 for 3.571429 forward stock split.

(4)

All shares were issued to a trust for the benefit of Mr. Turanin's family. Includes 420,000 shares that were issued to the trust, but were contributed back to us pursuant to a capital contribution agreement on August 15, 2006 for no consideration. Includes 1,080,000 shares that were issued to the trust on August 16, 2006 as the result of a 1 for 3.571429 forward stock split.

Investors' Rights Agreement

        We have entered into an amended and restated investors' rights agreement with purchasers of our preferred stock. This agreement provides for certain rights relating to the registration of their shares of common stock issuable upon conversion of their preferred stock, a right of first refusal to purchase future securities sold by us and certain additional covenants made by us. Except for the registration rights, all rights under this agreement will terminate upon completion of this offering. The registration rights will continue following this offering and will terminate five years following the completion of this offering, or for any particular holder with registration rights, at such time following this offering when all securities held by that stockholder subject to registration rights may be sold pursuant to Rule 144 under the Securities Act. All holders of our preferred stock are parties to this agreement. See "Description of Capital Stock—Registration Rights" for additional information.

Voting Agreement

        Pursuant to a voting agreement originally entered into in August 2006 and most recently amended in May 2008 by and among us and certain of our stockholders, the following directors were each

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elected to serve as members on our board of directors and, as of the date of this prospectus, continue to so serve: Drs. Blair and Farr and Messrs. Bock, Garner, Hawley, Mast, Wheeler and Zisson. Pursuant to the voting agreement, Mr. Hawley, as our chief executive officer, was initially selected to serve on our board of directors as a representative of our common stock, as designated by a majority of our common stockholders. Dr. Blair and Messrs. Bock, Wheeler and Zisson were initially selected to serve on our board of directors as representatives of our preferred stock, as designated by Domain Partners VII, L.P., Scale Venture Partners II, LP, Clarus Lifesciences I, LP and Thomas, McNerney & Partners, L.P., respectively.

        The voting agreement will terminate upon completion of this offering, and members previously elected to our board of directors pursuant to this agreement will continue to serve as directors until they resign, are removed or their successors are duly elected by holders of our common stock. The composition of our board of directors after this offering is described in more detail under "Management—Board Compensation and Election of Directors."

Employment Agreements

        We have entered into employment agreements with the following executive officers and key employees: Roger L. Hawley, our Chief Executive Officer; Stephen J. Farr, Ph.D., our President and Chief Operating Officer; David W. Nassif, our Executive Vice President, Chief Financial Officer, Secretary and Treasurer; Stephen J. Peroutka, M.D., our Chief Medical Officer; Cynthia Y. Robinson, Ph.D., our Chief Development Officer; J.D. Haldeman, our Chief Commercial Officer; Bret E. Megargel, our Vice President, Corporate Development; Jonathan Rigby, our Vice President, Business Development; Mark R. Thompson, our Vice President, Sales & Managed Markets; and John J. Turanin, our Vice President, Operations. For further information, see "Management—Employment Agreements."

Indemnification of Officers and Directors

        Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective upon the completion of this offering, will provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Further, we have entered into indemnification agreements with each of our directors and officers, and we have purchased a policy of directors' and officers' liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. For further information, see "Management—Limitations of Liability and Indemnification Matters."

Consulting Agreements

        In May 2006, we entered into a consulting agreement with Mr. Rigby, under which he agreed to provide services as our Vice President, Business Development. As compensation for his services, we paid him a total of $53,228 in 2006. This agreement terminated in November 2006, at which time he became our employee. In connection with our hiring of Mr. Rigby, we paid to Mr. Rigby's former employer, Aradigm Corporation, $120,609 to repay the balance on a loan he had outstanding with Aradigm and $53,956 to reimburse Aradigm for severance payments it made to Mr. Rigby.

Other Transactions

        We have granted stock options to our executive officers and certain of our directors. For further information, see "Executive Compensation."

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DESCRIPTION OF CAPITAL STOCK

        Upon completion of this offering and filing of our amended and restated certificate of incorporation, our authorized capital stock will consist of 100,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of preferred stock, $0.001 par value per share. The following description summarizes some of the terms of our capital stock that will be effective upon the completion of this offering. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description you should refer to our amended and restated certificate of incorporation and amended and restated bylaws, copies of which have been filed as exhibits to the registration statement of which the prospectus is a part.

Common Stock

        On March 31, 2008, there were 13,457,188 shares of common stock outstanding, held of record by 24 stockholders. This amount excludes our outstanding shares of preferred stock as of March 31, 2008 which will convert into 77,890,909 shares of common stock upon completion of the offering. After this offering, there will be            shares of our common stock outstanding, or            shares if the underwriters fully exercise their option to purchase additional shares.

        The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and do not have cumulative voting rights. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared by the board of directors out of legally available funds. Upon our liquidation, dissolution or winding up, the holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities of our company, subject to the prior rights of any preferred stock then outstanding. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking funds provisions applicable to the common stock. All outstanding shares of common stock are, and the common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

Preferred Stock

        On March 31, 2008, there were 77,890,909 shares of preferred stock outstanding, held of record by 25 stockholders. Our stockholders have agreed to convert their shares of preferred stock to common stock immediately prior to the completion of this offering. Accordingly, upon the completion of this offering, all outstanding shares of preferred stock as of March 31, 2008 will automatically convert into 77,890,909 shares of our common stock.

        Following the completion of this offering, under the terms of our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by our stockholders, to issue up to 10,000,000 shares of undesignated preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.

        Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control and may adversely affect the market price of the common stock and

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the voting and other rights of the holders of common stock. We have no current plans to issue any shares of preferred stock.

Warrants

        In March 2007, in connection with our loan and security agreement, we issued a warrant to purchase up to an aggregate of 200,000 shares of our Series A-1 preferred stock to General Electric Capital Corporation. This warrant is immediately exercisable at an exercise price of $1.00 per share and, excluding certain mergers or acquisitions, expires seven years from the date of grant, which is March 5, 2014. This warrant will become exercisable for an aggregate of 200,000 shares of our common stock, at an exercise price of $1.00 per share, upon completion of this offering.

        This warrant has a net exercise provision under which its holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive, after this offering, a net amount of shares of our common stock based on the fair market value of our common stock at the time of the net exercise of the warrant after deduction of the aggregate exercise price. This warrant for common stock also contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reorganizations and reclassifications and consolidations.

Registration Rights

        After this offering, the holders of approximately 77,415,909 shares of common stock and the holder of a warrant to purchase 200,000 shares of common stock will be entitled to rights with respect to the registration of these shares under the Securities Act. These shares are referred to as registrable securities. Under the terms of the agreement between us and the holders of the registrable securities, if we propose to register any of our securities under the Securities Act, these holders are entitled to notice of such registration and are entitled to include their shares of registrable securities in our registration. Certain of these holders are also entitled to demand registration, pursuant to which they may require us to use our best efforts to register their registrable securities under the Securities Act at our expense, up to a maximum of three such registrations. Holders of registrable securities may also require us to file an unlimited number of additional registration statements on Form S-3 at our expense so long as the holders propose to sell registrable securities of at least $5.0 million and we have not already filed two such registration statements on Form S-3 in the previous twelve months.

        All of these registration rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration and our right not to effect a requested registration 60 days prior to or 180 days after an offering of our securities, including this offering. These registration rights will continue following this offering and will terminate five years following the completion of this offering, or for any particular holder with registration rights, at such time following this offering when all securities held by that stockholder subject to registration rights may be immediately sold pursuant to Rule 144 under the Securities Act during any 90 day period. These registration rights have been waived with respect to this offering and for the period beginning 180 days after the date of this prospectus.

Anti-Takeover Effects of Provisions of Our Amended and Restated Certificate of Incorporation, Our Bylaws and Delaware Law

        Some provisions of Delaware law, our amended and restated certificate of incorporation and our bylaws contain provisions that could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in

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their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.

        These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Undesignated Preferred Stock

        The ability to issue up to 10,000,000 shares of undesignated preferred stock with voting or other rights or preferences as designated by our board of directors could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

Stockholder Meetings

        Our amended and restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board, chief executive officer or president, or by a resolution adopted by a majority of our board of directors.

Requirements for Advance Notification of Stockholder Nominations and Proposals

        Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.

Elimination of Stockholder Action by Written Consent

        Our amended and restated certificate of incorporation and amended and restated bylaws eliminate the right of stockholders to act by written consent without a meeting.

Election and Removal of Directors

        Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see "Management—Board of Directors." This system of electing and removing directors may tend to discourage a third-party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.

Delaware Anti-Takeover Statute

        We are subject to Section 203 of the Delaware General Corporation Law, which prohibits persons deemed to be "interested stockholders" from engaging in a "business combination" with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation's voting stock. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this

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provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.

Amendment of Charter Provisions

        The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock, would require approval by holders of at least 66²/3% of our then outstanding common stock.

        The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Transfer Agent and Registrar

        The transfer agent and registrar for our common stock is            , located at            .

Nasdaq Global Market Listing

        We have applied to have our common stock approved for listing on the Nasdaq Global Market under the symbol "ZGNX."

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, there has been no public market for our common stock. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock at such time and our ability to raise equity capital in the future.

Sales of Restricted Shares

        Based on the number of shares of our common stock outstanding as of                        , 2008, upon the closing of this offering and assuming no exercise of the underwriters' option to purchase additional shares and no exercise of outstanding options or warrants, we will have outstanding an aggregate of approximately            shares of common stock. Of these shares, the            shares of common stock to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are held by any of our "affiliates" as such term is defined in Rule 144 of the Securities Act. All remaining shares of common stock held by existing stockholders were issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below.

        As a result of the lock-up agreements described below and the provisions of Rule 144 and Rule 701 under the Securities Act, the shares of our common stock (excluding the shares sold in this offering) that will be available for sale in the public market are as follows:

•

            shares will be eligible for sale on the date of this prospectus;



•

            shares will be eligible for sale upon the expiration of the lock-up agreements, as more particularly and except as described below, beginning 180 days after the date of this prospectus;



•

            shares will be eligible for sale, upon exercise of vested options, upon the expiration of the lock-up agreements, as more particularly and except as described below, beginning 180 days after the date of the final prospectus; and



•

the remaining            restricted shares will be eligible for sale from time to time thereafter upon expiration of their respective six-month holding periods under Rule 144, but certain of these shares could be sold earlier if the holders exercise any available registration rights.

Lock-up Agreements

        We, each of our directors and executive officers, and all of the holders of our common stock and holders of securities exercisable for or convertible into shares of our common stock have each agreed not to sell or otherwise dispose of, directly or indirectly any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for a period without the prior written consent of Banc of America Securities LLC for a period of 180 days from the date of the final prospectus for the offering.

        The 180-day restricted period described above will be extended if:

•

during the last 17 days of the 180-day restricted period we issue an earnings release or material news, or a material event relating to us occurs; or



•

prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period.

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        Banc of America Securities LLC, in its sole discretion, at any time or from time to time and without notice, may release for sale in the public market all or any portion of the shares restricted by the terms of the lock-up agreements. The lock-up restrictions will not apply to transactions relating to common shares acquired in open market transactions after the closing of this offering provided that no filing by the transferor under Rule 144 of the Securities Act or Section 16 of the Exchange Act is required or will be voluntarily made in connection with such transactions. The lock-up restrictions also will not apply to certain transfers not involving a disposition for value, provided that the recipient agrees to be bound by these lock-up restrictions and provided that no filing by the transferor under Rule 144 of the Securities Act or Section 16 of the Exchange Act is required or will be voluntarily made in connection with such transfers.

Rule 144

        In general, under Rule 144, as amended effective February 15, 2008, a person (or persons whose shares are required to be aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell those shares, subject only to the availability of current public information about us.

        A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

•

1% of the number of common shares then outstanding, which will equal approximately            shares immediately after this offering (assuming no exercise of the underwriter's option to purchase additional shares and no outstanding options or warrants); or



•

the average weekly trading volume of our common shares on the Nasdaq Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

        Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.

Rule 701

        In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who acquires common stock from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering (to the extent such common stock is not subject to a lock-up agreement) is entitled to resell such shares beginning 90 days after the effective date of this offering in reliance on Rule 701 and Rule 144. The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the lock-up agreements described above, may be sold by persons other than affiliates, as defined in Rule 144, beginning 90 days after the date of this prospectus, and by affiliates under Rule 144 without compliance with its six month holding period requirement.

Stock Options and Stock Plans

        As of March 31, 2008, options to purchase a total of 2,920,000 shares of our common stock were outstanding, of which 443,000 were vested and exercisable. All of the shares subject to options are subject to the terms of the lock-up agreements with the underwriters. An additional 1,490,000 shares of common stock were available for future option grants under our 2006 equity incentive plan.

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        We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock subject to outstanding options and reserved for issuance under our equity incentive and employee stock purchase plans. See "Executive Compensation—Equity Compensation Plans and Other Benefit Plans" for additional information regarding these plans. The first such registration statement is expected to be filed soon after the closing of this offering and will automatically become effective upon filing with the Securities and Exchange Commission. Accordingly, subject to the lock-up and restrictions described above and the vesting and other restrictions imposed under the plans, an aggregate of             shares will be registered under such registration statement and will be available for sale in the open market subject to the volume limitations under Rule 144 applicable to affiliates.

Warrants

        As of March 31, 2008, a warrant to purchase a total of 200,000 shares of our Series A-1 preferred stock at a price of $1.00 per share was outstanding. Upon completion of this offering, this warrant will become exercisable for a total of 200,000 shares of our common stock at a price of $1.00 per share. Any shares purchased pursuant to the cashless exercise feature of the shares acquired upon the net exercise of the warrant will be tradeable under Rule 144, subject to the lock-up restrictions described above. See "Description of Capital Stock—Warrants." All of these shares are subject to the terms of the lock-up agreements with the underwriters.

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO
NON-U.S. HOLDERS OF OUR COMMON STOCK

        The following is a general discussion of the material U.S. federal income and estate tax consequences relating to the ownership and disposition of our common stock by a non-U.S. holder, but is not a complete analysis of all the potential tax consequences relating thereto. For the purposes of this discussion, a non-U.S. holder is any beneficial owner of our common stock that for U.S. federal income tax purposes is not a "United States person." For purposes of this discussion, the term "United States person" means:

•

an individual citizen or resident of the United States;



•

a corporation (or other entity taxable as a corporation) created or organized in the United States or under the laws of the United States or any state thereof or the District of Columbia;



•

an estate whose income is subject to U.S. federal income tax regardless of its source; or



•

a trust (x) if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a United States person under applicable U.S. Treasury regulations.

        If a partnership (or an entity treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships which hold our common stock and partners in such partnerships should consult their own tax advisors.

        This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant in light of a non-U.S. holder's special tax status or special circumstances. Former citizens or residents of the United States, insurance companies, tax-exempt organizations, partnerships or other pass-through entities for U.S. federal income tax purposes, dealers in securities, banks or other financial institutions, "controlled foreign corporations," "passive foreign investment companies," corporations that accumulate earnings to avoid U.S. federal income tax and investors that hold our common stock as part of a hedge, straddle or conversion transaction are among those categories of potential investors that are subject to special rules not covered in this discussion. This discussion does not address the tax consequences to non-U.S. holders that do not hold our common stock as a capital asset for U.S. federal income tax purposes (generally, property held for investment). This discussion also does not address any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, and Treasury Regulations and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. No ruling has been or will be sought from the Internal Revenue Service, or the IRS, with respect to the matters discussed below, and there can be no assurance that the IRS will not take a contrary position regarding the tax consequences of the acquisition, ownership or disposition of our common stock, or that any such contrary position would not be sustained by a court. Accordingly, each non-U.S. holder should consult its own tax advisors regarding the U.S. federal, state, local and non-United States income and other tax consequences of owning and disposing of our common stock.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF OWNING AND DISPOSING OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS.

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Dividends

        Distributions on our common stock, if any, generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and will first be applied against and reduce a holder's adjusted tax basis in the common stock, but not below zero, and then the excess, if any, will be treated as gain from the sale of the common stock.

        Amounts treated as dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax either at a rate of 30% of the gross amount of the dividends or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, a non-U.S. holder must provide a valid IRS Form W-8BEN or other successor form certifying qualification for the reduced rate.

        Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder are exempt from such withholding tax. In order to obtain this exemption, a non-U.S. holder must provide a valid IRS Form W-8ECI or other successor form properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are generally taxed at the same graduated rates applicable to United States persons, net of allowable deductions and credits, subject to an applicable income tax treaty providing otherwise.

        In addition to the graduated tax described above, dividends received by a corporate non-U.S. holder that are effectively connected with a U.S. trade or business of such holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.

        A non-U.S. holder may obtain a refund of any excess amounts withheld if an appropriate claim for refund is filed timely with the IRS.

Gain on Disposition of Common Stock

        A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

•

the gain is effectively connected with a U.S. trade or business of the non-U.S. holder or, if a tax treaty applies, is attributable to a U.S. permanent establishment maintained by such non-U.S. holder;



•

the non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the taxable year in which the sale or other disposition occurs and other conditions are met; or



•

our common stock constitutes a U.S. real property interest by reason of our status as a "United States real property holding corporation," or USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the holder's holding period for our common stock.

        We believe that we are not currently and do not anticipate becoming a USRPHC. Even if we become a USRPHC, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as a U.S. real property interest only if the non-U.S. holder actually or constructively held more than 5% of such regularly traded common stock during the applicable period.

        Unless an applicable tax treaty provides otherwise, gain described in the first bullet point above will be subject to the U.S. federal income tax imposed on net income on the same basis that applies to

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United States persons generally and, for corporate holders under certain circumstances, the branch profits tax, but will generally not be subject to withholding tax. Gain described in the second bullet point above (which may be offset by U.S. source capital losses) will be subject to a flat 30% U.S. federal income tax. Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules.

Federal Estate Tax

        Common stock held by an individual non-U.S. holder at the time of death will be included in such holder's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Backup Withholding and Information Reporting

        Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld, together with other information. A similar report is sent to the holder. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected dividends or withholding was reduced or eliminated by an applicable tax treaty. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence.

        Backup withholding (currently at a rate of 28%) will generally not apply to payments of dividends made by us or our paying agents, in their capacities as such, to a non-U.S. holder if the holder has provided certification that it is not a United States person (on the forms described above) or has otherwise established an exemption, provided we or the paying agent have no actual knowledge or reason to know that the beneficial owner is a United States person.

        Payments of the proceeds from a disposition effected outside the United States by a non-U.S. holder made by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting (but generally not backup withholding) will apply to such a payment if the broker is a United States person, a controlled foreign corporation for U.S. federal income tax purposes, a foreign person 50% or more of whose gross income is effectively connected with a U.S. trade or business for a specified three year period, or a foreign partnership if (i) at any time during its tax year, one or more of its partners are United States persons who, in the aggregate, hold more than 50% of the income or capital interest in such partnership or (ii) at any time during its tax year, it is engaged in the conduct of a trade or business in the United States, unless an exemption is otherwise established, provided that the broker has no knowledge or reason to know that the beneficial owner is a United States person.

        Payment of the proceeds from a disposition by a non-U.S. holder of common stock made by or through the U.S. office of a broker is generally subject to information reporting and backup withholding unless the non-U.S. holder certifies as to its non-U.S. holder status under penalties of perjury or otherwise establishes an exemption from information reporting and backup withholding, provided that the broker has no knowledge or reason to know that the beneficial owner is a United States person.

        Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder's U.S. federal income tax liability provided the required information is furnished timely to the IRS.

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UNDERWRITING

        We are offering the shares of common stock described in this prospectus through a number of underwriters. Banc of America Securities LLC, Leerink Swann LLC, Thomas Weisel Partners LLC and Susquehanna Financial Group, LLLP are the representatives of the underwriters. We have entered into a firm commitment underwriting agreement with the representatives. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has agreed to purchase, the number of shares of common stock listed next to its name in the following table:

Underwriter		Number of Shares
Banc of America Securities LLC
Leerink Swann LLC
Thomas Weisel Partners LLC
Susquehanna Financial Group, LLLP
	Total

        The underwriting agreement is subject to a number of terms and conditions and provides that the underwriters must buy all of the shares if they buy any of them. The underwriters will sell the shares to the public when and if the underwriters buy the shares from us.

        The underwriters initially will offer the shares to the public at the price specified on the cover page of this prospectus. The underwriters may allow a concession of not more than $         per share to selected dealers. The underwriters may also allow, and those dealers may re-allow, a concession of not more than $         per share to some other dealers. If all the shares are not sold at the public offering price, the underwriters may change the public offering price and the other selling terms. The common stock is offered subject to a number of conditions, including:

•

receipt and acceptance of the common stock by the underwriters; and



•

the underwriters' right to reject orders in whole or in part.

        Option to Purchase Additional Shares.    We have granted the underwriters an option to purchase up to              additional shares of our common stock at the same price per share as they are paying for the shares shown in the table above. These additional shares would cover sales by the underwriters which exceed the total number of shares shown in the table above. The underwriters may exercise this option at any time and from time to time, in whole or in part, within 30 days after the date of this prospectus. To the extent that the underwriters exercise this option, each underwriter will purchase additional shares from us in approximately the same proportion as it purchased the shares shown in the table above. We will pay the expenses associated with the exercise of the option.

        Discounts and Commissions.    The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. These amounts are shown assuming no exercise and full exercise of the underwriters' option to purchase additional shares.

        We estimate that the expenses of the offering to be paid by us, not including underwriting discounts and commissions, will be approximately $                .

		Paid by Us
		No Exercise	Full Exercise
Per Share		$	$
	Total	$	$

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        Listing.    We expect our common stock to be approved for listing on the Nasdaq Global Market under the symbol "ZGNX".

        Stabilization.    In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including:

•

stabilizing transactions;



•

short sales;



•

syndicate covering transactions;



•

imposition of penalty bids; and



•

purchases to cover positions created by short sales.

        Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while this offering is in progress. Stabilizing transactions may include making short sales of our common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock from us or on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' option to purchase additional shares referred to above, or may be "naked" shorts, which are short positions in excess of that amount. Syndicate covering transactions involve purchases of our common stock in the open market after the distribution has been completed in order to cover syndicate short positions.

        The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares as referred to above.

        A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchased in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

        The representatives also may impose a penalty bid on underwriters and dealers participating in the offering. This means that the representatives may reclaim from any syndicate members or other dealers participating in the offering the underwriting discount, commissions or selling concession on shares sold by them and purchased by the representatives in stabilizing or short covering transactions.

        These activities may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result of these activities, the price of our common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence the activities, they may discontinue them at any time. The underwriters may carry out these transactions on the Nasdaq Global Market, in the over-the-counter market or otherwise.

        Discretionary Accounts.    The underwriters have informed us that they do not expect to make sales to accounts over which they exercise discretionary authority in excess of 5% of the shares of common stock being offered.

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        IPO Pricing.    Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated between us and the representatives of the underwriters. Among the factors to be considered in these negotiations are:

•

the history of, and prospects for, our company and the industry in which we compete;



•

our past and present financial performance;



•

an assessment of our management;



•

the present state of our development;



•

the prospects for our future earnings;



•

the prevailing conditions of the applicable United States securities market at the time of this offering;



•

market valuations of publicly traded companies that we and the representatives of the underwriters believe to be comparable to us; and



•

other factors deemed relevant.

        The estimated initial public offering price range set forth on the cover of this preliminary prospectus is subject to change as a result of market conditions and other factors.

        Lock-up Agreements.    We, our directors and executive officers, all of our existing stockholders and all of our option holders have entered into lock-up agreements with the underwriters. Under these agreements, subject to exceptions, we may not issue any new shares of common stock, and those holders of stock and options may not, directly or indirectly, offer, sell, contract to sell, pledge or otherwise dispose of or hedge any common stock or securities convertible into or exchangeable for shares of common stock, or publicly announce the intention to do any of the foregoing, without the prior written consent of Banc of America Securities LLC, for a period of 180 days from the date of the final prospectus for the offering. This consent may be given at any time without public notice. In addition, during this lock-up period, we have also agreed not to file any registration statement for, and each of our officers and stockholders has agreed not to make any demand for, or exercise any right of, the registration of, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock or the filing of a prospectus with any Canadian securities regulatory authority without the prior written consent of Banc of America Securities LLC.

        The 180-day restricted period described above will be extended if:

•

during the last 17 days of the 180-day restricted period we issue an earnings release or material news, or a material event relating to us occurs; or



•

prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period.

        Indemnification.    We will indemnify the underwriters against some liabilities, including liabilities under the Securities Act and Canadian provincial securities legislation. If we are unable to provide this indemnification, we will contribute to payments the underwriters may be required to make in respect of those liabilities.

        Each underwriter intends to comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers the shares or has in its possession or distributes the prospectus.

        European Economic Area.    In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the

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Relevant Implementation Date) an offer of the shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that an offer to the public in that Relevant Member State of any shares may be made at any time under the following exemptions under the Prospectus Directive if they have been implemented in the Relevant Member State:

        (a)   to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

        (b)   to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

        (c)   in any other circumstances falling within Article 3 (2) of the Prospectus Directive,

        provided that no such offer of shares shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

        For the purposes of this provision, the expression an "offer of Securities to the public" in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

        No prospectus (including any amendment, supplement or replacement thereto) has been prepared in connection with the offering of the shares that has been approved by the Autorité des marchés financiers or by the competent authority of another State that is a contracting party to the Agreement on the European Economic Area and notified to the Autorité des marchés financiers; no shares have been offered or sold and will be offered or sold, directly or indirectly, to the public in France except to permitted investors ("Permitted Investors") consisting of persons licensed to provide the investment service of portfolio management for the account of third parties, qualified investors (investisseurs qualifiés) acting for their own account and/or investors belonging to a limited circle of investors (cercle restreint d'investisseurs) acting for their own account, with "qualified investors" and "limited circle of investors" having the meaning ascribed to them in Articles L. 411-2, D. 411-1, D. 411-2, D. 411-4, D. 734-1, D. 744-1, D. 754-1 and D. 764-1 of the French Code Monétaire et Financier and applicable regulations thereunder; none of this prospectus or any other materials related to the offering or information contained therein relating to the shares has been released, issued or distributed to the public in France except to Permitted Investors; and the direct or indirect resale to the public in France of any shares acquired by any Permitted Investors may be made only as provided by Articles L. 411-1, L. 411-2, L. 412-1 and L. 621-8 to L. 621-8-3 of the French Code Monétaire et Financier and applicable regulations thereunder.

        In addition:

•

an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 20000) has only been communicated or caused to be communicated and will only be communicated or caused to be communicated) in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to us; and

147

•

all applicable provisions of the FSMA have been complied with and will be complied with, with respect to anything done in relation to the shares in, from or otherwise involving the United Kingdom.

        This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). The shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

        The offering of the shares has not been cleared by the Italian Securities Exchange Commission (Commissione Nazionale per le Società e la Borsa, the "CONSOB") pursuant to Italian securities legislation and, accordingly, the shares may not and will not be offered, sold or delivered, nor may or will copies of the prospectus or any other documents relating to the shares be distributed in Italy, except (i) to professional investors (operatori qualificati), as defined in Article 31, second paragraph, of CONSOB Regulation No. 11522 of July 1, 1998, as amended, (the "Regulation No. 11522"), or (ii) in other circumstances which are exempted from the rules on solicitation of investments pursuant to Article 100 of Legislative Decree No. 58 of February 24, 1998 (the "Financial Service Act") and Article 33, first paragraph, of CONSOB Regulation No. 11971 of May 14, 1999, as amended.

        Any offer, sale or delivery of the shares or distribution of copies of the prospectus or any other document relating to the shares in Italy may and will be effected in accordance with all Italian securities, tax, exchange control and other applicable laws and regulations, and, in particular, will be: (i) made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Financial Services Act, Legislative Decree No. 385 of September 1, 1993, as amended (the "Italian Banking Law"), Regulation No. 11522, and any other applicable laws and regulations; (ii) in compliance with Article 129 of the Italian Banking Law and the implementing guidelines of the Bank of Italy; and (iii) in compliance with any other applicable notification requirement or limitation which may be imposed by CONSOB or the Bank of Italy.

        Any investor purchasing the shares in the offering is solely responsible for ensuring that any offer or resale of the shares it purchased in the offering occurs in compliance with applicable laws and regulations.

        The prospectus and the information contained therein are intended only for the use of its recipient and, unless in circumstances which are exempted from the rules on solicitation of investments pursuant to Article 100 of the "Financial Service Act" and Article 33, first paragraph, of CONSOB Regulation No. 11971 of May 14, 1999, as amended, is not to be distributed, for any reason, to any third-party resident or located in Italy. No person resident or located in Italy other than the original recipients of this document may rely on it or its content.

        Italy has only partially implemented the Prospectus Directive, the provisions under the heading "European Economic Area" above shall apply with respect to Italy only to the extent that the relevant provisions of the Prospectus Directive have already been implemented in Italy.

        Insofar as the requirements above are based on laws which are superseded at any time pursuant to the implementation of the Prospectus Directive, such requirements shall be replaced by the applicable requirements under the Prospectus Directive.

        Online Offering.    A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters participating in this offering. Other than the prospectus in electronic format, the information on any such web site, or accessible through any such web site, is not

148

part of the prospectus. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters that will make internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders.

        Conflicts/Affiliates.    The underwriters and their affiliates may in the future provide various investment banking, commercial banking and other financial services for us for which services they may in the future receive customary fees.

LEGAL MATTERS

        The validity of our common stock offered by this prospectus will be passed upon for us by Latham & Watkins LLP, San Diego, California. Latham & Watkins LLP and certain attorneys and investment funds affiliated with the firm collectively own an aggregate of 25,000 shares of our preferred stock, which will convert into an aggregate of 25,000 shares of our common stock upon the completion of this offering. Wilmer Cutler Pickering Hale and Dorr LLP, Palo Alto, California, has acted as counsel for the underwriters in connection with certain legal matters related to this offering.

EXPERTS

        Ernst & Young LLP, independent registered public accounting firm, has audited our financial statements at December 31, 2006 and 2007, and for the period from August 25, 2006 (inception) to December 31, 2006, the year ended December 31, 2007 and for the period from August 25, 2006 (inception) to December 31, 2007, as set forth in their report. We have included our financial statements in this prospectus and elsewhere in the registration statement in reliance upon Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

        We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the shares of our common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. Some items are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and the common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus as to the contents of any contract, agreement or any other document are summaries of the material terms of this contract, agreement or other document. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is made to the exhibits for a more complete description of the matter involved. Each of these statements is qualified in all respects by this reference. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the SEC at 100 F Street NE, Washington, D.C. 20549. Copies of these materials may be obtained from the Public Reference Section of the SEC at 100 F Street NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facility. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC's website is http://www.sec.gov.

        Upon completion of this offering, we will become subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC. This registration statement and future filings will be available for inspection and copying at the SEC's Public Reference Room and the website of the SEC referred to above.

        This prospectus includes statistical data that were obtained from industry publications. These industry publications generally indicate that the authors of these publications have obtained information from sources believed to be reliable but do not guarantee the accuracy and completeness of their information. While we believe these industry publications to be reliable, we have not independently verified their data.

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Zogenix, Inc.

INDEX TO FINANCIAL STATEMENTS SELECTED FINANCIAL DATA

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets	F-3
Statements of Operations	F-4
Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)	F-5
Statements of Cash Flows	F-6
Notes to Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
Zogenix, Inc.

        We have audited the accompanying balance sheets of Zogenix, Inc. (a development stage enterprise) as of December 31, 2006 and 2007, and the related statements of operations, convertible preferred stock and stockholders' equity (deficit), and cash flows for the period from August 25, 2006 (inception) to December 31, 2006 and for the year ended December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Zogenix, Inc. at December 31, 2006 and 2007, and the results of its operations and its cash flows for the period from August 25, 2006 (inception) to December 31, 2006 and for the year ended December 31, 2007 in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

San Diego, California
March 3, 2008

F-2

ZOGENIX, INC.
(a development stage enterprise)

BALANCE SHEETS

(in thousands, except par value)

		December 31,									Pro forma Stockholders' equity as of March 31, 2008
								March 31, 2008
		2006			2007
								(Unaudited)			(Unaudited) (Note 12)
ASSETS
Current assets:
	Cash and cash equivalents	$	15,331		$	41,508		$	33,046
	Investment securities, available for sale		6,772			1,747			—
	Prepaid expenses and other current assets		340			1,410			1,389
	Total current assets		22,443			44,665			34,435
Property and equipment, net			4,320			7,931			8,763
Other assets			179			411			1,377
Total assets		$	26,942		$	53,007		$	44,575
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Accounts payable	$	2,216		$	3,867		$	4,655
	Accrued expenses		192			1,041			901
	Long-term debt, current portion		—			921			964
	Total current liabilities		2,408			5,829			6,520
Long-term debt, less current portion			—			2,870			2,619
Deferred rent			—			20			33
Preferred stock call right			2,809			—			—
Convertible preferred stock warrant			—			259			316		$	—
Commitments and contingencies
Series A-1, A-2 and A-3 convertible preferred stock, $0.001 par value; 62,000 shares authorized and 30,775 shares issued and outstanding at December 31, 2006; 83,000 shares authorized and 77,891 shares issued and outstanding at December 31, 2007 and March 31, 2008 (unaudited); aggregate liquidation preference of $30,775 at December 31, 2006 and $78,800 at December 31, 2007 and March 31, 2008 (unaudited)			27,110			76,955			76,955			—
Stockholders' equity (deficit):
	Common stock, $0.001 par value; 90,000 shares authorized and 11,385 shares issued and outstanding at December 31, 2006; 111,000 shares authorized and 13,457 shares issued and outstanding at December 31, 2007 and March 31, 2008 (unaudited); and 91,348 shares issued and outstanding at March 31, 2008 pro forma (unaudited)		11			13			13			91
	Additional paid-in capital		—			138			207			77,400
	Accumulated other comprehensive income		3			2			—			—
	Deficit accumulated during the development stage		(5,399	)		(33,079	)		(42,088	)		(42,088	)
	Total stockholders' equity (deficit)		(5,385	)		(32,926	)		(41,868	)	$	35,403
Total liabilities and stockholders' equity (deficit)		$	26,942		$	53,007		$	44,575

See accompanying notes

F-3

ZOGENIX, INC.
(a development stage enterprise)

BALANCE SHEETS

(in thousands, except par value)

ZOGENIX, INC.

(a development stage enterprise)

STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

									Three Months ended March 31,
			Period from August 25, 2006 (Inception) to December 31, 2006			Year ended December 31, 2007									Period from August 25, 2006 (Inception) to March 31, 2008
									2007			2008
									(Unaudited)						(Unaudited)
Operating expenses:
	Research and development		$	4,902		$	24,323		$	3,632		$	7,485		$	36,710
	Selling, general and administrative			1,474			4,702			969			1,631			7,807
		Total operating expenses		6,376			29,025			4,601			9,116			44,517
Loss from operations				(6,376	)		(29,025	)		(4,601	)		(9,116	)		(44,517	)
Other income (expense):
	Interest income			395			927			261			345			1,667
	Interest expense			—			(484	)		(32	)		(187	)		(671	)
	Other financing income			582			906			228			—			1,488
	Other expense			—			(4	)		—			(51	)		(55	)
Total other income (expense)				977			1,345			457			107			2,429
Net loss				(5,399	)		(27,680	)		(4,144	)		(9,009	)		(42,088	)
Deemed dividend for the beneficial conversion feature on the issuance of Series A-1 and Series A-2 convertible preferred stock				—			(18,360	)		—			—			(18,360	)
Net loss attributable to common stockholders			$	(5,399	)	$	(46,040	)	$	(4,144	)	$	(9,009	)	$	(60,448	)
Basic and diluted net loss attributable to common stockholders			$	(1.36	)	$	(8.08	)	$	(0.88	)	$	(1.22	)
Shares used to calculate net loss attributable to common stockholders				3,970			5,701			4,716			7,407
Pro forma basic and diluted net loss per share				—			(0.65	)		—			(0.11	)
Shares used to calculate pro forma basic and diluted net loss per share				—			42,827			—			85,298

See accompanying notes

F-4

ZOGENIX, INC.
(a development stage enterprise)

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands, except per share amounts)

			Series A convertible preferred stock													Deficit accumulated during the development stage
						Common stock							Accumulated other comprehensive income
										Additional paid-in capital									Total stockholders' equity (deficit)
			Shares	Amount		Shares		Amount
Balance at August 25, 2006 (inception)			—	$	—	—		$	—	$	—		$	—		$	—		$	—
	Issuance of common stock to founders for cash at inception		—		—	11,385			11		—			—			—			11
	Issuance of Series A-1 convertible preferred stock for cash at $0.89 per share, net of issuance costs of $274 and estimated fair value of call right of $0.11 per share in August 2006		30,775		27,110	—			—		—			—			—			—
	Comprehensive loss:
		Unrealized gain (loss) on investments	—		—	—			—		—			3			—			3
		Net loss	—		—	—			—		—			—			(5,399	)		(5,399	)
	Comprehensive loss		—		—	—			—		—			—			—			(5,396	)
Balance at December 31, 2006			30,775		27,110	11,385			11		—			3			(5,399	)		(5,385	)
	Issuance of Series A-1 convertible preferred stock for cash at $1.00 per share, net of issuance costs of $20 in September 2007		15,000		14,980	—			—		—			—			—			—
	Issuance of Series A-1 convertible preferred stock for cash at $1.00 per share in December 2007		23,025		23,025	—			—		—			—			—			—
	Issuance of Series A-2 convertible preferred stock for cash at $1.10 per share, net of issuance costs of $63 in December 2007		9,091		9,937	—			—		—			—			—			—
	Adjustment to the estimated fair value of call right		—		1,903	—			—		—			—			—			—
	Beneficial conversion feature—deemed dividend on the issuance of Series A-1 and Series A-2 convertible preferred stock		—		—	—			—		18,360			—			—			18,360
	Reduction of additional paid-in capital for the deemed dividend since the Company has an accumulated deficit		—		—	—			—		(18,360	)		—			—			(18,360	)
	Issuance of common stock in conjunction with the exercise of stock options in February, May, August and November 2007		—		—	2,130			2		7			—			—			9
	Repurchase of founder's common stock		—		—	(58	)		—		—			—			—			—
	Employee stock-based compensation expense recognized under SFAS No. 123(R)		—		—	—			—		130			—			—			130
	Stock-based compensation expense from vesting of consultant service award		—		—	—			—		1			—			—			1
	Comprehensive loss:
		Unrealized gain (loss) on investments	—		—	—			—		—			(1	)		—			(1	)
		Net loss	—		—	—			—		—			—			(27,680	)		(27,680	)
	Comprehensive loss		—		—	—			—		—			—			—			(27,681	)
Balance at December 31, 2007			77,891	$	76,955	13,457		$	13	$	138		$	2		$	(33,079	)	$	(32,926	)
	Employee stock-based compensation expense recognized under SFAS No. 123(R) (unaudited)		—		—	—			—		69			—			—			69
	Comprehensive loss:
		Unrealized gain (loss) on investments (unaudited)	—		—	—			—		—			(2	)		—			(2	)
		Net loss (unaudited)	—		—	—			—		—			—			(9,009	)		(9,009	)
	Comprehensive loss (unaudited)		—		—	—			—		—			—			—			(9,011	)
Balance at March 31, 2008 (unaudited)			77,891	$	76,955	13,457		$	13	$	207		$	—		$	(42,088	)	$	(41,868	)

See accompanying notes

F-5

ZOGENIX, INC.
(a development stage enterprise)

STATEMENTS OF CASH FLOWS

(in thousands)

			Period from August 25, 2006 (Inception) to December 31, 2006						Three Months ended March 31,						Period from August 25, 2006 (Inception) to March 31, 2008
						Year ended December 31, 2007
									2007			2008
									(Unaudited)						(Unaudited)
Operating activities:
Net loss			$	(5,399	)	$	(27,680	)	$	(4,144	)	$	(9,009	)	$	(42,088	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			15			407			76			138			560
	Amortization of debt issuance costs			—			98			7			31			129
	Preferred stock warrant liability			—			107			—			57			164
	Stock-based compensation			—			131			2			69			201
	Other financing income			(582	)		(906	)		(228	)		—			(1,488	)
	Changes in operating assets and liabilities:
		Prepaid expenses and other current assets		(340	)		(1,045	)		(36	)		21			(1,364	)
		Accounts payable and accrued expenses		2,407			2,380			183			648			5,435
		Other assets		(179	)		(312	)		(109	)		(977	)		(1,468	)
		Deferred rent		—			20			3			13			33
Net cash used in operating activities				(4,078	)		(26,800	)		(4,246	)		(9,009	)		(39,886	)
Investing activities:
	Purchase of property and equipment			(4,335	)		(4,018	)		(1,448	)		(971	)		(9,324	)
	Purchases of short-term investments			(6,768	)		(9,798	)		(6,930	)		(5	)		(16,572	)
	Sales and maturities of short-term investments			—			14,821			—			1,752			16,573
Net cash provided by (used in) investing activities				(11,103	)		1,005			(8,378	)		776			(9,323	)
Financing activities:
	Proceeds from the issuance of convertible preferred stock for cash, net of issuance costs			30,501			47,942			—			—			78,443
	Proceeds from borrowings of long-term debt			—			4,383			3,379			—			4,383
	Payments on borrowings of long-term debt			—			(483	)		—			(229	)		(712	)
	Proceeds from the issuance of common stock			11			130			18			—			141
Net cash provided by (used in) financing activities				30,512			51,972			3,397			(229	)		82,255
Net increase in cash and cash equivalents				15,331			26,177			(9,227	)		(8,462	)		33,046
Cash and cash equivalents at beginning of period				—			15,331			15,331			41,508			—
Cash and cash equivalents at end of period			$	15,331		$	41,508		$	6,104		$	33,046		$	33,046
Supplemental disclosure of cash flow information:
	Cash paid for interest		$	—		$	251		$	8		$	92		$	343
Non cash investing and financing activities:
	Warrants issued in connection with debt		$	—		$	259		$	—		$	—		$	151
	Deemed dividend for the beneficial conversion feature on the issuance of Series A-1 and Series A-2 convertible preferred stock		$	—		$	(18,360	)	$	—		$	—		$	(18,360	)

See accompanying notes

F-6

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

        Zogenix, Inc. (the "Company"), was incorporated in the state of Delaware on May 11, 2006 as SJ2 Therapeutics, Inc. The Company commenced operations on August 25, 2006 and changed its name to Zogenix, Inc. on August 28, 2006. The Company is a specialty pharmaceutical company dedicated to the development and commercialization of medicines for the treatment of central nervous system disorders and pain. The Company's primary activities since incorporation have been organizational activities, the acquisition of a drug delivery technology (DosePro), completing the development of sumatriptan DosePro, acquiring from Elan PLC the rights to an oral product in development for the treatment of chronic pain, recruiting personnel and raising capital.

        In December 2007, the Company submitted a New Drug Application ("NDA") to the U.S. Food and Drug Administration (the "FDA") for the approval of sumatriptan DosePro. Until sumatriptan DosePro is approved and the Company begins commercial operations, the Company will be considered to be in the development stage. In addition, the Company has experienced losses since its inception, and as of December 31, 2007, had an accumulated deficit of $33.1 million. The Company expects to continue to incur losses for the next several years, even if it obtains approval of sumatriptan DosePro and commercializes that product. Successful transition to profitability is dependent upon achieving a level of revenues adequate to support the Company's cost structure. Until that time, the Company will continue to need to raise additional debt or equity financing. Management believes that it has sufficient capital to fund operations through at least December 31, 2008.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

        The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

        The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.

Investment Securities, Available-for Sale

        The Company classifies all investment securities as available-for-sale, as the sale of such securities may be required prior to maturity to implement management strategies. These investment securities are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income (loss) until realized. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, as well as interest and dividends, are included in interest income. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis and are also included in interest income.

        Investments in marketable securities were $6.8 million and $1.7 million at December 31, 2006 and 2007, respectively. The estimated fair value approximates the amortized cost as of December 31, 2006

F-7

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

and 2007. There were no realized gains or losses for the period August 25, 2006 (inception) to December 31, 2006 and for the year ended December 31, 2007.

Fair Value of Financial Instruments

        The carrying amount of financial instruments consisting of cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued liabilities and current portion of debt included in the Company's financial statements are reasonable estimates of fair value due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of the notes approximate fair value. Estimated fair values for marketable securities, which are separately disclosed elsewhere, are based on quoted market prices for the same or similar instruments. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value.

Concentration of Credit Risk

        Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and investment securities, available-for-sale. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held. Additionally, the Company has established guidelines regarding the diversification of its investments and their maturities, which are designed to maintain safety and liquidity.

Property and Equipment, Net

        Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three years for computer equipment and software, seven years for furniture and fixtures and 10 to 15 years for manufacturing equipment. Leasehold improvements are recorded at cost and amortized over the term of the lease or their estimated useful life, whichever is shorter.

Impairment of Long-Lived Assets

        In accordance with Statement of Financial Accounting Standards No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company also periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of all of its long-lived assets, including property and equipment. The determinants used for this evaluation include management's estimate of the asset's ability to generate positive income from operations and positive cash flow in future periods.

Research and Development Expenses

        Research and development expenses are expensed as incurred. These expenses include pre-clinical and clinical testing of the Company's products, the cost of supplies for testing and related services for

F-8

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

manufacturing the supplies. Further, commercial inventory that is manufactured in advance of a product's approval by the FDA will also be expensed as research and development.

Income Taxes

        The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates which will be in effect when the differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax asset will be realized.

Stock-Based Compensation

        The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment ("SFAS No. 123(R)"). SFAS No. 123(R) requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments, including stock options. SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. All option grants are expensed on a straight-line basis.

        The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123(R) and Emerging Issues Task Force ("EITF") No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. Equity instruments issued to non-employees are recorded at their fair value on the measurement date and are subject to periodic adjustment as the underlying equity instruments vest.

Comprehensive Income

        The Company has applied Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, which requires that all components of comprehensive income, including net income, be reported in the financial statements in the period in which they are recognized. Comprehensive income represents all changes in stockholders' equity except those resulting from investments or contributions by stockholders. The Company's unrealized gains and losses on available-for-sale securities represent the component of comprehensive income excluded from the Company's net loss.

Net Loss Per Share

        Basic net loss per share is computed by dividing the net loss attributed to common stockholders by the weighted average number of common shares outstanding during the period less the weighted average number of shares subject to repurchase. The Company's potential dilutive shares, which include outstanding common stock options, unvested common shares subject to repurchase, convertible preferred stock and warrants, have not been included in the computation of diluted net loss per share for all of the periods as the result would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be anti-dilutive.

F-9

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows (in thousands, except for per share amounts):

		Period from August 25, 2006 (Inception) to December 31, 2006			Year ended December 31, 2007
Historical
Numerator:
	Net loss attributable to common stockholders	$	(5,399	)	$	(46,040	)
Denominator:
	Weighted average common shares		11,385			12,284
	Weighted average unvested common shares subject to repurchase		(7,415	)		(6,583	)
	Denominator for basic and diluted net loss per share		3,970			5,701
Basic and diluted net loss per share attributable to common stockholders		$	(1.36	)	$	(8.08	)

        The following outstanding options, common stock subject to repurchase, convertible preferred stock and warrants to purchase convertible preferred stock were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect (in thousands):

	Period from August 25, 2006 (Inception) to December 31, 2006	Year ended December 31, 2007
Common stock options outstanding	—	2,940
Convertible preferred stock (on an as if converted basis)	30,775	77,891
Warrant to purchase convertible preferred stock	—	200
Unvested common shares subject to repurchase	6,878	6,266
Total anti-dilutive securities not included in diluted net loss per share	37,653	87,297

F-10

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Pro Forma Net Loss Per Share

        Upon completion of the Company's planned initial public offering, all outstanding convertible preferred stock will be converted, at the applicable conversion ratio, into shares of common stock. The unaudited pro forma basic and diluted net loss per share for the year ended December 31, 2007 reflects the conversion of all outstanding shares of convertible preferred stock. The unaudited pro forma stockholders' equity and pro forma basic and diluted net loss per share do not give effect to the issuance of shares in the planned initial public offering.

        A reconciliation of the numerator and denominator used in the calculation of pro forma basic and diluted net loss per share follows (in thousands, except for per share amounts):

		Year ended December 31, 2007
Numerator:
	Net loss attributable to common stockholders	$	(46,040	)
	Adjustment to eliminate the beneficial conversion feature related to the convertible preferred stock		18,360
	Pro forma net loss	$	(27,680	)
Denominator:
	Weighted average common shares		5,701
	Pro forma adjustment to reflect assumed conversion of all outstanding shares of convertible preferred stock (unaudited)		37,126
	Denominator for pro forma basic and diluted net loss per share (unaudited)		42,827
	Pro forma basic and diluted net loss per share (unaudited)	$	(0.65	)

Recent Accounting Pronouncements

        In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value under Generally Accepted Accounting Principles ("GAAP"), and expands disclosures about fair value measurements. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007, which is the Company's fiscal year 2008. Because SFAS No. 157 does not require any new fair value measurements or re-measurements of previously computed fair values, the Company does not believe the impact of adopting SFAS No. 157 on its financial statements will be material.

        In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS No. 159"), which permits entities the option to measure certain financial assets and liabilities at fair value. SFAS No. 159 will be effective for fiscal years beginning after November 15, 2007, which is the Company's fiscal year 2008. The Company

F-11

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

is in the process of evaluating the potential impact of adopting SFAS No. 159 on its financial statements.

NOTE 3. BALANCE SHEET COMPONENTS

Prepaid Expenses and Other Current Assets (in thousands)		December 31,
		2006		2007
Prepaid services		$	—	$	490
Value Added Tax receivable			—		550
Investment interest receivable			35		109
Prepaid insurance			138		119
Other current assets			167		142
	Total prepaid expenses and other current assets	$	340	$	1,410

Property and Equipment, net (in thousands)		December 31,
		2006			2007
Furniture and fixtures		$	20		$	119
Computer equipment and software			234			368
Machinery and equipment			3,978			4,800
Construction in progress			—			2,925
Leasehold improvements			103			141
Property and equipment, at cost			4,335			8,353
Less: accumulated depreciation and amortization			(15	)		(422	)
	Total property and equipment, net	$	4,320		$	7,931

        Depreciation and amortization expense for the year ended December 31, 2007, the period August 25, 2006 (inception) to December 31, 2006 and for the cumulative period from August 25, 2006 (inception) to December 31, 2007 was $407,000, $15,000, and $422,000, respectively.

Accrued Expenses (in thousands)		December 31,
		2006		2007
Accrued compensation and benefits		$	192	$	895
Other accrued liabilities			—		146
	Total accrued expenses	$	192	$	1,041

F-12

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 4. COLLABORATIONS, LICENSE, SERVICE AND PURCHASE AGREEMENTS

Aradigm Corporation Asset Purchase Agreement

        On August 25, 2006, the Company completed the acquisition agreement with Aradigm Corporation ("Aradigm"). Under the terms of the agreement, Aradigm assigned and transferred to the Company all of its right, title and interest to tangible assets and intellectual property related to the DosePro (formerly known as Intraject) needle-free drug delivery system. Aradigm also granted to the Company a non-exclusive, fully paid, worldwide, perpetual, irrevocable, transferable, sublicensable license under all other intellectual property of Aradigm that is necessary or useful to the development, manufacture or commercialization of the DosePro delivery system. Aradigm also retained a worldwide, royalty-free, non-exclusive license, with a right to sublicense, under all transferred intellectual property rights solely for purposes of the pulmonary field, and the Company granted Aradigm a license under other intellectual property rights solely for use in the pulmonary field.

        The Company paid Aradigm $4.0 million at the closing of the asset purchase and is required to make an additional $4.0 million milestone payment to Aradigm upon the U.S. commercialization of sumatriptan DosePro. The Company is also required to pay a specified royalty based on global net sales of sumatriptan DosePro, by one of the future licensees, if any, for the longer of the ten year anniversary of the first commercial sale of the product in the United States, but no more than 20 years after the closing date of the asset purchase, or the expiration of the last valid claim of the transferred patents covering the manufacture, use, or sale of the product.

        The Company submitted the NDA for sumatriptan DosePro to the FDA in 2007 but does not expect to receive final approval from the FDA prior to the first quarter of 2009.

        The total cost to acquire the assets from Aradigm was $5.0 million, including legal fees and other costs directly related to completing the transaction. The asset purchase price was then allocated on a relative fair value basis to the tangible and intangible assets acquired based on their fair values as follows (in thousands):

Machinery and equipment		$	3,709
Purchased in-process research and development			1,320
	Total	$	5,029

        The Company conducted a valuation of the acquired assets and assumed liabilities in order to allocate the purchase price. The cost allocated to the machinery and equipment was capitalized as these assets did not require additional development and as the Company intends to use these assets to develop other products to be used with the DosePro technology. Accordingly, these assets are considered to have an alternative future use.

        Since sumatriptan DosePro required further clinical trials and FDA approval, it was considered to be in-process research and development, and accordingly, the technology had not reached technological feasibility and had no alternative future uses. In accordance with SFAS No. 2, Accounting for Research and Development Costs, as clarified by the FASB Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method, an Interpretation of FASB Statement No. 2, the amount allocated to in-process research and development ("IPR&D") was expensed upon acquisition.

F-13

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 4. COLLABORATIONS, LICENSE, SERVICE AND PURCHASE AGREEMENTS (Continued)

        The fair value of the IPR&D was determined using the income approach. Under the income approach, the expected future cash flows from each project under development were estimated and discounted to their net present values at an appropriate risk-adjusted rate of return. Significant factors considered in the calculation of the rate of return were the weighted average cost of capital and return on assets, as well as the risks inherent in the development process, including the likelihood of achieving technological success and market acceptance. Each project was analyzed to determine technological innovations that were unique, the existence and reliance on core technology, the existence of any alternative future use or current technological feasibility, and the complexity, cost and time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account product life cycles, and market penetration and growth rates.

        The IPR&D expense includes only the fair value of IPR&D performed as of the respective acquisition date. The Company believes the amounts recorded as IPR&D expense, as well as machinery and equipment, represented the fair values and approximated the amounts an independent party would pay for these projects at the time of the respective acquisition date.

        In addition, in the event the Company or one of its licensees, if any, commercializes a non-sumatriptan product in the DosePro delivery system, the Company will be required to pay Aradigm, at its election, either a specified royalty on net sales of each non-sumatriptan product commercialized, or a fixed percentage of the royalty revenues received by the Company from the licensee. Royalty revenues under this agreement include, if applicable, running royalties on the net sales of non-sumatriptan products, license or milestone fees not allocable to development or other related costs incurred by the Company, payments in consideration of goods or products in excess of their cost, or payments in consideration for equity in excess of the then fair market value of the equity.

Elan Pharma International Limited License Agreement

        In November 2007, the Company entered into a license agreement with Elan Pharma International Ltd. ("Elan"). Under the terms of this license agreement, Elan granted to the Company an exclusive license in the United States and its possessions and territories, with defined sub-license rights to third parties other than certain technological competitors of Elan, to certain Elan intellectual property rights. The Agreement grants the Company the exclusive right under certain Elan patents and patent applications to import, use, offer for sale and sell oral controlled release capsule or tablet formulations of a specific opiate, where the specific opiate is the sole active ingredient, for oral prescriptions in the treatment or relief of pain, pain syndromes or pain associated with medical conditions or procedures in the United States. Elan has the exclusive right to take action in the event of infringement or threatened infringement by a third party of Elan's intellectual property rights. The Company has the right to pursue an infringement claim against the alleged infringer should Elan decline to take or continue an action.

        Under the terms of the agreement, the parties agreed that, subject to the future negotiation of a commercial manufacture and supply agreement, Elan, or an affiliate of Elan, will have the sole and exclusive right to manufacture and supply finished commercial product to the Company under agreed upon financial terms.

        Elan also granted to the Company, in the event that Elan is unwilling or unable to manufacture or supply commercial product to the Company, a non-exclusive license to make product under Elan's

F-14

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 4. COLLABORATIONS, LICENSE, SERVICE AND PURCHASE AGREEMENTS (Continued)

intellectual property rights. This non-exclusive license also includes the right to sublicense product manufacturing to a third party, other than certain technology competitors of Elan.

        Under the license agreement, the Company paid an upfront fee of $500,000 and is required to make payments to Elan based upon achievement of certain development and sales milestones. As of December 31, 2007, the Company may be obligated to pay Elan up to $4.5 million in total future milestone payments with respect to ZX002 depending upon the achievement of various development and commercial events. The Company is also required to pay specified royalties based on net sales of the product for an initial royalty term equal to the longer of the expiration of Elan's patents covering the product in the United States, or 15 years after commercial launch, if Elan does not have patents covering the product in such country. After the initial royalty term, the license agreement will continue automatically for three-year rolling periods where the Company will continue to pay royalties on product sales to Elan at reduced rates.

        Either party may terminate the agreement upon a material, uncured default of the other party or upon 12 months' written notice prior to the end of the initial royalty term or any additional three-year rolling period. Elan may terminate the agreement in the event that the Company fails to meet specified development and commercialization milestones within specified time periods. The Company may terminate the agreement, with or without cause, at any time upon six months' written notice prior to NDA approval for ZX002 and at any time upon 12 months' prior written notice after NDA approval for ZX002.

NOTE 5. COMMITMENTS AND CONTINGENCIES

Operating Leases

        In March 2007, the Company entered into a non-cancelable operating lease that expires on May 31, 2010 for its San Diego, California office which houses the general and administrative and sales and marketing operations and personnel. In addition, the Company leases office space for its research and product development operations in Emeryville, California, under a non-cancelable operating lease that expires November 2011. Both the San Diego and Emeryville facility base rents are subject to a 3.0% increase each year for the duration of the lease. In addition, the San Diego office lease gives the Company the ability to extend the lease for an additional 17 months upon six months' prior written notice and an option to expand into additional space.

        The Company recognizes rent expense on a straight-line basis over the non-cancelable term of its operating leases. Rent expense was $38,000, $316,000 and $354,000 for the period from August 25, 2006 (inception) to December 31, 2006, for the year ended December 31, 2007 and for the cumulative period from August 25, 2006 (inception) to December 31, 2007, respectively.

F-15

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 5. COMMITMENTS AND CONTINGENCIES (Continued)

        The aggregate future minimum lease facility payments as of December 31, 2007 are as follows (in thousands):

2008		$	433
2009			465
2010			368
2011			263
	Total	$	1,529

Contingencies

        The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company's management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company's business, financial condition or results of operation.

Indemnification

        In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company's exposure under these agreements is unknown because it involves future claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

        In accordance with its amended and restated certificate of incorporation and bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company's request in such capacity. Further, the Company has entered into indemnification agreements with each of its directors and officers, and it has purchased a policy of directors' and officers' liability insurance that insures its directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. There have been no claims to date and the Company has a director and officer insurance policy that enables it to recover a portion of any amounts paid for future potential claims.

NOTE 6. DEBT

Long-term Debt

        In March 2007, the Company entered into a $10.0 million master loan and security agreement ("GE Agreement") with GE Capital Corporation ("GE Capital") for the purpose of financing capital equipment purchases. The first drawdown of $3.5 million was made on March 5, 2007. Each drawdown is under a note with the note for the first drawdown repayable in 47 equal monthly installments based on a monthly repayment schedule bearing interest at an annual rate of 10.08% maturing on April 1, 2011. In December 2007, the Company made a second drawdown of $1.0 million repayable in 47 equal installments bearing interest at an annual rate of 9.91%. The Company's ability to make further draw

F-16

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 6. DEBT (Continued)

downs under the GE Agreement expired on December 31, 2007. The loan amounts are collateralized by specific manufacturing equipment owned by the Company.

        The future minimum payments as of December 31, 2007 are as follows (in thousands):

2008		$	1,360
2009			1,387
2010			1,387
2011			675
2012			26
	Sub total		4,835
	Less amount representing interest		(772	)
	Less unamortized discount		(272	)
	Less current portion		(921	)
Long-term portion		$	2,870

        Included in other assets at December 31, 2007 is $156,000 representing unamortized debt issuance costs incurred in connection with the GE Agreement. This amount includes $50,000 earned by GE Capital at the closing of the GE Agreement and can be used to offset principal and interest payments ratably during the period under which the loan is available along with $159,000 of legal fees paid to the Company's corporate counsel. The legal fees are being amortized to interest expense over the term of the GE Agreement and such amortization totaled $30,000 for the year ended December 31, 2007. For the year ended December 31, 2007, principal and interest payments in the amount of $23,000 were applied against the $50,000 lender fee.

Convertible Preferred Stock Warrant

        In connection with the execution of the GE Agreement, the Company issued a warrant to GE Capital in March 2007 to purchase 200,000 shares of Series A-1 convertible preferred stock. The warrant has an exercise price of $1.00 per share and expires in March 2014. In the event of the completion of an initial public offering, the warrant, if not previously exercised, will be converted into a warrant to purchase 200,000 shares of common stock. The fair value of the warrant was estimated at an aggregate of $151,000 using the Black-Scholes valuation model with the following assumptions at the date of issuance: expected volatility of 80.72%, risk-free interest rate of 4.46%, contractual life of seven years and no dividends. The warrant was recorded as debt issuance costs and is being amortized to interest expense over the term of the loan. A total of $68,000 was recorded as interest expense during the year ended December 31, 2007.

        In June 2005, a FASB Staff Position was issued, Issuer's Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable ("FSP No. 150-5"), addressing the application of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS No. 150"). FSP No. 150-5 was effective for all periods presented after July 1, 2005 and concluded that warrants for shares in redeemable instruments should be accounted for as liabilities under SFAS No. 150. In accordance with FSP No. 150-5, the Company adjusts the carrying value of such redeemable warrants to their estimated fair value at each

F-17

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 6. DEBT (Continued)

reporting date. Pursuant to SFAS No. 150, increases or decreases in the fair value of such warrants are recorded as interest expense in the statement of operations. At December 31, 2007, the estimated fair value of the warrant was calculated using the Black-Scholes valuation model resulting in a carrying value of $259,000 and was based on the estimated fair value of the preferred stock. The estimated fair value of preferred stock was based on the estimated fair value of the underlying common stock, which was $1.60 per share, as of December 31, 2007. For the year ended December 31, 2007, interest expense in the amount of $107,000 was recorded in connection with the increase in fair value of the warrant.

NOTE 7. STOCKHOLDERS' EQUITY

Convertible Preferred Stock

        Under the Company's amended and restated certificate of incorporation, the Company's convertible preferred stock is issuable in series. The Company's board of directors is authorized to determine the rights, preferences and terms of each series.

        During August 2006, the Company entered into agreements with several investors who collectively purchased 30,775,000 shares of Series A-1 convertible preferred stock ("Series A-1") at $1.00 per share for net cash proceeds of $30.0 million in cash and the conversion of $500,000 in bridge financing. In September and December 2007, the Company sold an additional 38,025,000 shares of Series A-1 to the same group of investors, resulting in net cash proceeds of $38.0 million. In December 2007, the Company sold 9,090,909 shares of Series A-2 convertible preferred stock ("Series A-2") at $1.10 per share to a new investor, resulting in net cash proceeds of approximately $9.9 million. The new investor also entered into an agreement whereby the investor would be required to purchase up to 4,000,000 shares of Series A-3 convertible preferred stock ("Series A-3") at $1.25 per share. The Company is only able to require the investors to purchase the Series A-3 shares under certain conditions, principally the Company's receipt of tentative approval from the FDA for the NDA of sumatriptan DosePro.

        The December 2007 sale of Series A-1 and Series A-2 was issued at prices per share below the estimated fair value of the underlying common stock. Accordingly, pursuant to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features, the Company recorded a deemed dividend on the Series A-1 and Series A-2 of $18.4 million which is equal to the number of shares of Series A-1 and Series A-2 sold multiplied by the difference between the estimated fair value of the underlying common stock and the Series A-1 and Series A-2 conversion price per share.

Right Issued with Series A Convertible Preferred Stock

        Included in the terms of the Series A-1 and Series A-2 shares are certain rights granted to the holders which obligate the Company to deliver additional shares of convertible preferred stock at a specified price in the future based on the achievement of a milestone or at the option of the investors in the series of convertible preferred shares (the "Right"). In addition, the convertible preferred stock, based on its liquidation terms, is classified outside of stockholders' equity (deficit) in accordance with EITF Topic No. D-98: Classification and Measurement of Redeemable Securities. Accordingly, the rights to purchase additional shares are recorded as a liability in accordance with FSP 150-5 at the estimated fair value of the obligation on the date of issuance and the carrying value is adjusted at each reporting date for any changes in its estimated fair value. The change in carrying value is recorded as other financing income or loss in the statement of operations. The estimated fair value is determined using a

F-18

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 7. STOCKHOLDERS' EQUITY (Continued)

valuation model which considers the probability of achieving a milestone, if any, the entity's cost of capital, the estimated time period the Right will be outstanding, consideration received for the instrument with the Right, the number of shares to be issued to satisfy the Right and at what price and any changes in the fair value of the underlying instrument to the Right.

        In connection with the issuance of the Series A-1, the following summarizes the terms of the Rights granted and the impact on the accompanying financial statements.

		Series A-1
Date of issuance			8/24/2006
Number of shares originally purchased			30,775,000
Additional number of shares which can be purchased			30,000,000
Price at which the additional shares can be purchased		$	1.00
Estimated fair value per share at:
	Date of issuance	$	0.11
	December 31, 2006	$	0.09
	December 31, 2007		N/A
Other financing income in:
	2006	$	582,000
	2007	$	906,000

        As of December 31, 2007, the Right related to the Series A-1 has been exercised. As of December 31, 2007, the Right related to the Series A-2 has not been exercised.

        The Company can require the Series A-2 investor to acquire up to 4,000,000 shares of Series A-3 at $1.25 per share. The Right can be exercised at any time after the Company has received a PDUFA response which to the reasonable satisfaction of the Series A-2 investor, indicates tentative FDA approval for sumatriptan DosePro. This Right related to Series A-2 terminates upon the earliest of (i) the closing of an effective initial public offering, (ii) a Material Adverse Change (as defined), or (iii) February 1, 2009. The Company believes that the Right related to A-2 has minimal value as it terminates upon the closing of an initial public offering which the Company considers highly probable to occur prior to receiving FDA approval for sumatriptan DosePro.

        The rights, preferences and privileges of Series A-1, Series A-2 and Series A-3 (collectively referred to as "convertible preferred stock") are as follows:

Dividends

        The holders of Series A-1, Series A-2 and Series A-3 are entitled to receive noncumulative dividends at a rate of 8.0%, 8.8% and 10.0%, respectively, per annum and are payable only when and if declared by the board of directors. Through December 31, 2007, the board of directors has not declared any dividends. Convertible preferred stock dividends are payable in preference and in priority to any dividends on common stock.

F-19

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 7. STOCKHOLDERS' EQUITY (Continued)

Liquidation Preference

        In the event of liquidation, dissolution, or winding up of the Company, the holders of the Series A-1, Series A-2 and Series A-3 shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of shares of common stock, an amount per share equal to $1.00, $1.10 and $1.25, respectively, for each outstanding share of convertible preferred stock (as adjusted for stock splits, stock dividends, combinations or other recapitalizations). Thereafter, if assets remain in the Company, the holders of common stock and convertible preferred stock shall receive all remaining assets pro rata based on the number of common stock (calculated on an as-converted basis) held by each holder. If available assets are insufficient to pay the full liquidation preference, the available assets will be distributed ratably to the holders in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full. The aggregate distributions made to the preferred shareholders in a liquidation cannot exceed an amount equal to 2.5 times the liquidation preference plus any declared but unpaid dividends.

Conversion Rights

        Each share of convertible preferred stock is convertible at the option of the holder into an equal number of shares of common stock based on the original issue price, subject to certain anti-dilutive adjustments. Each share of convertible preferred stock will automatically convert into shares of common stock at the effective conversion price for each such share immediately upon the earlier of (i) the Company's sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, in which the per share price is at least $3.00 (as adjusted for recapitalizations), and the gross proceeds are at least $40.0 million or (ii) upon receipt by the Company of a written request of such conversion from the holders of 67% of the then outstanding shares of convertible preferred stock.

Voting Rights

        The holders of convertible preferred stock are entitled to one vote for each share of common stock into which such convertible preferred stock could then be converted; and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.

        The Company initially recorded the Series A-1 and Series A-2 at their fair values on the date of issuance, net of issuance costs. A redemption event will only occur upon the liquidation or winding up of the Company, a greater than 50% change of control or sale of substantially all of the assets of the Company. As the redemption event is outside the control of the Company, all shares of preferred stock have been presented outside of permanent equity in accordance with EITF Topic D-98, Classification and Measurement of Redeemable Securities. Further, the Company has also elected not to adjust the carrying values of the Series A-1 and Series A-2 preferred stock to the redemption value of such shares, since it is uncertain whether or when a redemption event will occur. Subsequent adjustments to increase the carrying values will be made when it becomes probably that such redemption will occur.

F-20

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 7. STOCKHOLDERS' EQUITY (Continued)

Common Stock

        Under the Company's amended and restated certificate of incorporation, the Company is authorized to issue 111,000,000 shares of common stock as of December 31, 2007 with a $0.001 par value. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of convertible preferred stock.

        In May and August 2006, in conjunction with the founding of the Company, 11,385,000 shares of common stock were issued to the founders ("Founder's Stock") at a price of $0.001 per share for total proceeds of $11,385. Of the total Founder's Stock issued, 11,200,000 shares vest over periods between two and four years and the Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. During 2007, 2,055,000 shares of common stock were issued to employees of the Company in connection with the early exercise of stock option grants. All of the common shares issued in 2007 vest over a period of four years and the Company has the option to repurchase any of the unvested shares at the original purchase price upon any voluntary or involuntary termination. There were 6,878,000 and 6,266,000 unvested shares of common stock at December 31, 2006 and 2007, respectively.

        Common stock reserved for future issuance consists of the following at December 31, 2007 (in thousands):

Conversion of convertible preferred stock	77,891
Stock options outstanding	2,940
Warrant to purchase Series A-1 (as if converted)	200
Shares authorized for future issuance under the 2006 Plan	1,470
	82,501

NOTE 8. STOCK OPTION PLAN

        During 2006, the Company adopted the 2006 Stock Plan (as amended, the "2006 Plan") under which 1,000,000 shares of common stock were reserved for issuance to employees, directors and consultants of the Company at December 31, 2006. In May 2007 and June 2007, the board of directors and the stockholders, respectively, approved an increase to the number of common shares reserved for issuance under the 2006 Plan by 5,540,000, resulting in the total number of shares authorized under the 2006 Plan of 6,540,000 at December 31, 2007. The 2006 Plan provides for the grant of incentive stock options, non-statutory stock options and rights to purchase restricted stock to eligible recipients. Recipients of incentive stock options shall be eligible to purchase shares of the Company's common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2006 Plan is ten years. The options generally vest over four years, and some are immediately exercisable. At December 31, 2007, 2,940,000 shares of common stock were reserved for future issuance upon the exercise of outstanding options under the 2006 Plan.

        The 2006 Plan is intended to encourage ownership of stock by employees and consultants of the Company and to provide additional incentives for them to promote the success of the Company's

F-21

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8. STOCK OPTION PLAN (Continued)

business. The board of directors is responsible for determining the individuals to receive option grants, the number of options each individual will receive, the option price per share and the exercise period of each option. Options granted pursuant to the 2006 Plan generally vest over four years and vest at a rate of 25% upon the first anniversary of the vesting commencement date and ¹/48th per month thereafter. The 2006 Plan allows the option holders to exercise their options early, and acquire option shares which are then subject to repurchase by the Company at the original exercise price of such options. No stock options were granted during the year ended December 31, 2006.

        Information with respect to the number and weighted average exercise price of stock options under the 2006 Plan is summarized as follows (number of shares in thousands):

		Shares		Weighted Average Exercise Price per Share
Outstanding at December 31, 2006		—		$	—
	Granted	5,087			0.09
	Exercised	(2,130	)		0.06
	Forfeited	(17	)		0.05
Outstanding at December 31, 2007		2,940		$	0.11

        The weighted average grant date fair value of options granted during 2007 was $0.25 per share.

        The following table summarizes information about stock options outstanding and vested segregated by exercise price ranges at December 31, 2007 (number of shares in thousands):

Options outstanding							Options exercisable
Range of Exercise Prices	Number of Shares Outstanding	Weighted Average Remaining Life (in years)	Weighted Average Exercise Price		Intrinsic Value of Shares Outstanding		Number of Shares Vested	Weighted Average Remaining Life (in years)	Weighted Average Exercise Price		Intrinsic Value of Shares Exercisable
$0.05	1,870	9.4	$	0.05			330	9.3	$	0.05
$0.21	1,070	9.9		0.21			50	9.9		0.21
	2,940	9.5	$	0.11	$	4,386,000	380	9.4	$	0.07	$	580,000

        The intrinsic values above represent the aggregate value of the total pre-tax intrinsic value, based upon a common stock price of $1.60 at December 31, 2007, and the contractual exercise prices.

F-22

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8. STOCK OPTION PLAN (Continued)

        The following table summarizes information concerning unvested options during the year ended December 31, 2007 (number of shares in thousands):

		Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2006		—		$	—
	Granted	5,087			0.25
	Vested	(455	)		0.18
	Exercised	(2,055	)		0.09
	Forfeited	(17	)		0.04
Unvested at December 31, 2007		2,560		$	0.39

Stock-based Compensation

        Upon adoption of SFAS No. 123(R), the Company selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value and stock-based compensation for stock-based awards to employees and to the board of directors. The assumptions used in the Black-Scholes option-pricing model are as follows:

	2007
Risk free interest rate	4.62%
Expected term	5.96 years
Expected volatility	77.04%
Expected dividend yield	0%
Fair value of underlying stock	$0.05 - $1.60

        The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company's expectation of not paying dividends in the foreseeable future. The weighted average expected life of options was calculated using the simplified method as prescribed by the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 107 ("SAB No. 107"). This decision was based on the lack of relevant historical data due to the Company's limited historical experience. In addition, due to the Company's limited historical data, the estimated volatility also reflects the application of SAB No. 107, incorporating the historical volatility of comparable companies whose share prices are publicly available.

        The stock-based compensation expense recognized during the year ended December 31, 2007 for employees and directors was $130,000, of which $85,000 was included in general and administrative expense and $45,000 was included in research and development expense.

        The Company received cash from the exercise of stock options of $130,000 for the year ended December 31, 2007 and did not recognize any related tax benefits in the period. The aggregate intrinsic value of options exercised during the year ended December 31, 2007 was approximately $3.3 million. As of December 31, 2007, there was approximately $1.0 million of total unrecognized compensation

F-23

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8. STOCK OPTION PLAN (Continued)

costs related to outstanding options granted after the adoption of SFAS No. 123(R), which is expected to be recognized over a weighted average period of 3.5 years.

        At December 31, 2007, all of the 10,000 consultant stock options outstanding were vested. In accordance with EITF Issue No. 96-18 Accounting for Equity Investments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling Goods or Services, the Company periodically re-measures the fair value of stock option grants to non-employees and recognizes the related income or expense during their vesting period. Expense recognized for consultant stock options granted was $1,000 for the year ended December 31, 2007. Consultant stock option expense is included within research and development expense. There were no grants, exercises, or forfeitures of stock options for consultants during the year ended December 31, 2006.

        In connection with the preparation of the Company's financial statements necessary for the planned initial public offering and based on the preliminary valuation information presented by the underwriters of the initial public offering, the Company retrospectively reassessed the estimated fair value of its common stock in light of the potential completion of the initial public offering.

        The exercise prices for stock options granted to employees to purchase the Company's common stock were originally established by the board of directors based on their estimate of fair value. In addition, prior to issuing any stock options, management performed a contemporaneous valuation of the Company's common stock as of December 31, 2006. The valuation was prepared using the guidance in the American Institute Certified Public Accountants (AICPA's) Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation.

        Based upon the reassessment discussed above, the Company determined that the reassessed fair value of the options granted through August 2007 to purchase an aggregate of 3,872,500 shares of common stock was $0.05, or equal to the exercise price; that the reassessed fair value of options to purchase 985,000 shares of common stock granted to employees on November 1, 2007 was $0.91 per share and that the reassessed fair value of options granted on November 27, 2007 to purchase 230,000 shares of common stock was $1.60 per share. Prior to September 2007, when the Company completed the sale of its second tranche of Series A-1 convertible preferred stock, the Company was thinly capitalized and had not yet achieved any major milestones. Accordingly, the Company believes that the estimated fair value as determined by the board of directors to price stock options granted to employees through August 2007 was appropriate.

        Information on employee stock options granted during 2007 is summarized as follows (number of shares in thousands):

	Number of Options Granted	Exercise Price		Reassessed Fair Value		Intrinsic Value per Option Share
February 2007	827	$	0.05	$	0.05	$	—
May 2007	2,785		0.05		0.05		—
August 2007	260		0.05		0.05		—
November 1, 2007	985		0.21		0.91		0.70
November 27, 2007	230		0.21		1.60		1.39
Total	5,087

F-24

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 10. EMPLOYEE BENEFIT PLAN

        Effective February 1, 2007, the Company has established a defined contribution 401(k) plan (the "Plan") for all employees who are at least 21 years of age. Employees are eligible to participate in the Plan beginning on the first day of the month following date of hire. Under the terms of the Plan, employees may make voluntary contributions as a percent of compensation. The Company's contributions to the Plan are discretionary and no contributions have been made by the Company to date.

NOTE 11. INCOME TAXES

        On July 13, 2006, the FASB issued Financial Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN No. 48, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN No. 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006.

        The Company adopted the provisions of FIN No. 48 on January 1, 2007. There were no unrecognized tax benefits as of the date of adoption and there are no unrecognized tax benefits included in the balance sheet at December 31, 2007, that would, if recognized, affect the effective tax rate.

        The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrued interest or penalties on the balance sheets at December 31, 2006 and 2007 and has recognized no interest and/or penalties in the statements of operations through the year ended December 31, 2007.

        The Company is subject to taxation in the U.S. and California jurisdictions. The Company's tax years for 2006 and forward are subject to examination by the Federal and California tax authorities.

        The Company has not yet completed an analysis to determine whether or not ownership changes within the meaning of Internal Revenue Code Sections 382 and 383 have occurred in the current or prior years. Therefore, until this analysis is completed the Company has removed the deferred tax assets for net operating losses of $12.8 million and research and development credits of $455,800 generated through 2007 from its deferred tax asset schedule and has recorded a corresponding decrease to its valuation allowance. Once such an analysis is completed, the Company plans to update its deferred tax assets, valuation allowance and unrecognized tax benefits under FIN 48. At this time, management cannot estimate how much the unrecognized tax benefits may change, if any, within 12 months of the reporting date. Due to the existence of the valuation allowance, future changes in unrecognized tax benefits will not impact the Company's effective tax rate.

        At December 31, 2007, the Company had Federal and California income tax net operating loss carryforwards of approximately $32.2 million. The Federal tax loss carryforwards will begin expiring in

F-25

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 11. INCOME TAXES (Continued)

2026 unless previously utilized and the California tax loss carryforwards will begin expiring in 2016, unless previously utilized. In addition, the Company has Federal and California research credit carryforwards of $269,000 and $283,000, respectively. The Federal research and development credit carryforwards will begin to expire in 2026 unless previously utilized. The California research and development credit carryforwards will carry forward indefinitely until utilized.

        Significant components of the Company's deferred tax assets as of December 31, 2006 and 2007 are listed below. A valuation allowance of $2.4 million and $828,000 at December 31, 2006 and 2007, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain. Amounts are shown as of December 31, of the respective years:

		December 31,
		2006			2007
Deferred Tax Assets:
	Net operating loss carryforwards	$	1,663		$	—
	Research and development credits		30			—
	Depreciation and amortization		507			561
	Start-up/organization costs		196			182
	Accrued vacation		14			71
	Deferred rent		—			8
	Stock based compensation		—			6
Total deferred tax assets			2,410			828
Valuation allowance			(2,410	)		(828	)
Net deferred tax assets		$	—		$	—

NOTE 12. INTERIM FINANCIAL STATEMENTS (UNAUDITED)

        The accompanying interim balance sheet as of March 31, 2008, the statements of operations and cash flows for the three months ended March 31, 2007 and 2008 and the statement of convertible preferred stock and stockholders' equity (deficit) for the three months ended March 31, 2008 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position as of March 31, 2008 and results of operations and cash flows for the three months ended March 31, 2007 and 2008. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the year ending December 31, 2008 or for any other interim period or for any other future year.

        The unaudited pro forma balance sheet as of March 31, 2008 assumes (i) the automatic conversion of all the outstanding shares of convertible preferred stock at March 31, 2008 into 77,890,909 shares of common stock and (ii) the conversion of the convertible preferred stock warrant into a warrant to purchase 200,000 shares of common stock. The pro forma information excludes the common stock that would be issued in any such public offering and any related net proceeds therefrom.

F-26

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 12. INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Net Loss Per Share

        Basic net loss per share is computed by dividing the net loss attributed to common stockholders by the weighted average number of common shares outstanding during the period less the weighted average number of shares subject to repurchase. The Company's potential dilutive shares, which include outstanding common stock options, unvested common shares subject to repurchase, convertible preferred stock and warrants, have not been included in the computation of diluted net loss per share for all of the periods as the result would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be anti-dilutive.

        A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows (in thousands, except for per share amounts):

		Three Months ended March 31,
		2007			2008
Historical
Numerator:
	Net loss attributable to common stockholders	$	(4,144	)	$	(9,009	)
Denominator:
	Weighted average common shares		11,437			13,457
	Weighted average unvested common shares subject to repurchase		(6,721	)		(6,050	)
	Denominator for basic and diluted net loss per share		4,716			7,407
Basic and diluted net loss per share attributable to common stockholders		$	(0.88	)	$	(1.22	)

        The following outstanding options, common stock subject to repurchase, convertible preferred stock and warrants to purchase convertible preferred stock were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect (in thousands):

	Three Months ended March 31,
	2007	2008
Common stock options outstanding	463	2,920
Convertible preferred stock (on an as if converted basis)	30,775	77,891
Warrant to purchase convertible preferred stock	200	200
Unvested common shares subject to repurchase	6,615	5,620
Total anti-dilutive securities not included in diluted net loss per share	38,053	86,631

Pro Forma Net Loss Per Share

        Upon completion of the Company's planned initial public offering, all outstanding convertible preferred stock will be converted, at the applicable conversion ratio, into shares of common stock. The unaudited pro forma basic and diluted net loss per share for the three months ended March 31, 2008 reflects the conversion of all outstanding shares of convertible preferred stock.

F-27

ZOGENIX, INC.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 12. INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

        A reconciliation of the numerator and denominator used in the calculation of pro forma basic and diluted net loss per share follows (in thousands, except for per share amounts):

Numerator:
	Net loss attributable to common stockholders	$	(9,009	)
Denominator:
	Weighted average common shares		7,407
	Pro forma adjustment to reflect assumed conversion of all outstanding shares of convertible preferred stock		77,891
	Denominator for pro forma basic and diluted net loss per share		85,298
	Pro forma basic and diluted net loss per share	$	(0.11	)

Convertible Preferred Stock Warrant

        In accordance with FSP No. 150-5, the Company periodically adjusts the carrying value of the warrant issued to GE Capital in March 2007 to purchase 200,000 shares of Series A-1 convertible preferred stock. As of March 31, 2008, the carrying value of such warrant was adjusted to the estimated fair value of $316,000 using the Black-Scholes valuation model with the following assumptions: expected volatility of 80.72%, risk-free interest rate of 3.74%, contractual life of seven years, no dividends and was based on the estimated fair value of the preferred stock. The estimated fair value of the convertible preferred stock was based on the estimated fair value of the underlying common stock, which was $1.91 per share, as of March 31, 2008. The resulting increase in fair value of $57,000 for the three month period ended March 31, 2008 was recorded as interest expense.

Stock Based Compensation

        Total stock-based compensation expense recognized during the three months ended March 31, 2007 and 2008 was comprised of the following:

						Period from August 25, 2006 (Inception) to March 31, 2008
		Three Months ended March 31,
		2007		2008
General and administrative		$	1,300	$	26,000	$	111,000
Research and development			300		43,000		89,000
	Total	$	1,600	$	69,000	$	200,000

        There were 20,000 shares of unvested stock options cancelled and no new stock option grants or exercises for the three months ended March 31, 2008. Accordingly, stock-based compensation for the three months ended March 31, 2008 pertains to those options which vested during the period but were granted prior to January 1, 2008.

Subsequent Event

        On May 20, 2008, the board of directors and stockholders approved an increase to the number of common shares reserved for issuance under the 2006 Plan by 4,800,000, resulting in the total number of shares authorized under the 2006 Plan of 11,340,000 at May 31, 2008.

F-28

             Shares

Zogenix, Inc.

Common Stock

Prospectus
                        , 2008

Banc of America Securities LLC
Leerink Swann
Thomas Weisel Partners LLC
Susquehanna Financial Group, LLLP

        Until                        , 2008, all dealers that buy, sell or trade the common stock may be required to deliver a prospectus, regardless of whether they participated in this offering. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution

        The following table sets forth the fees and expenses, other than underwriting discounts and commissions, payable by us in connection with the offering described in this Registration Statement. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the Nasdaq Global Market listing fee.

Item		Amount to be paid
SEC Registration Fee		$	3,390
FINRA Filing Fee			9,125
Nasdaq Global Market Listing Fee			100,000
Legal Fees and Expenses			*
Accounting Fees and Expenses			*
Printing and Engraving Expenses			*
Blue Sky, Qualification Fees and Expenses			*
Transfer Agent and Registrar Fees			*
Miscellaneous Expenses			*
	Total	$	*

*

To be completed by amendment.

Item 14.   Indemnification of Directors and Officers

        Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law.

        Our amended and restated certificate of incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware law.

        Our bylaws provide for the indemnification of officers, directors and third parties acting on our behalf if such persons act in good faith and in a manner reasonably believed to be in and not opposed to our best interest, and, with respect to any criminal action or proceeding, such indemnified party had no reason to believe his or her conduct was unlawful.

        We are entering into indemnification agreements with each of our directors and executive officers, in addition to the indemnification provisions provided for in our charter documents, and we intend to enter into indemnification agreements with any new directors and executive officers in the future.

        The underwriting agreement (to be filed as Exhibit 1.1 hereto) will provide for indemnification by the underwriters of us, our executive officers and directors, and indemnification of the underwriters by us for certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, in connection with matters specifically provided in writing by the underwriters for inclusion in the registration statement.

        We intend to purchase and maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in that capacity, subject to certain exclusions and limits of the amount of coverage.

II-1

Item 15.    Recent Sales of Unregistered Securities

        Since inception, we have issued and sold the following unregistered securities:

1.

In May and August 2006, we issued and sold 12,225,000 shares of common stock to our co-founders and individual investors for aggregate consideration of $7,905.



2.

In August and September 2006 and September and December 2007, we issued and sold an aggregate of 68,800,000 shares of Series A-1 preferred stock to certain venture capital funds, one of our co-founders and individual investors at a per share price of $1.00, for aggregate consideration of $68,800,000. Upon completion of this offering, these shares of Series A-1 preferred will convert into 68,800,000 shares of our common stock.



3.

In March 2007, in connection with a loan and security agreement, we issued a warrant to a lender to purchase 200,000 shares of Series A-1 preferred stock, at an initial exercise price of $1.00 per share, subject to adjustment. The warrant is exercisable through the March 2014. This warrant will be exercisable for 200,000 shares of common stock at an exercise price of $1.00 per share upon the completion of this offering.



4.

In December 2007, we issued and sold an aggregate of 9,090,909 shares of Series A-2 preferred stock to certain venture capital funds and individual investors at a per share price of $1.10, for aggregate consideration of approximately $10,000,000. Upon completion of this offering, these shares of Series A-2 preferred will convert into 9,090,909 shares of our common stock.



5.

Since our inception through March 31, 2008, we granted stock options to purchase 5,087,000 shares of our common stock at a weighted average exercise price of $0.09 per share to our employees, consultants and directors under our 2006 equity incentive plan. Since our inception through March 31, 2008, we issued and sold an aggregate of 2,130,000 shares of our common stock to our employees, consultants, and directors at a weighted average exercise price of $0.06 per share pursuant to exercises of options granted under our 2006 equity incentive plan.

        The issuance of securities described above in paragraphs (1) through (4) were exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder, as transactions by an issuer not involving any public offering. The purchasers of the securities in these transactions represented that they were accredited investors or qualified institutional buyers and they were acquiring the securities for investment only and not with a view toward the public sale or distribution thereof. Such purchasers received written disclosures that the securities had not been registered under the Securities Act of 1933, as amended, and that any resale must be made pursuant to a registration statement or an available exemption from registration. All purchasers either received adequate financial statement or non-financial statement information about the registrant or had adequate access, through their relationship with the registrant, to financial statement or non-financial statement information about the registrant. The sale of these securities was made without general solicitation or advertising.

        The issuance of securities described above in paragraph (5) was exempt from registration under the Securities Act of 1933, as amended, in reliance on Rule 701 of the Securities Act of 1933, as amended, pursuant to compensatory benefit plans approved by the registrant's board of directors.

        All certificates representing the securities issued in these transactions described in this Item 15 included appropriate legends setting forth that the securities had not been offered or sold pursuant to a registration statement and describing the applicable restrictions on transfer of the securities. There were no underwriters employed in connection with any of the transactions set forth in this Item 15.

II-2

Item 16.    Exhibits and Financial Statement Schedules

(a)

Exhibits

Exhibit Number	Description
1.1*	Form of Underwriting Agreement
3.1(1)	Third Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect
3.2	Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of the Registrant
3.3*	Form of Fourth Amended and Restated Certificate of Incorporation of the Registrant, to be in effect upon completion of the offering
3.4(1)	Bylaws of the Registrant, as currently in effect
3.5*	Form of Amended and Restated Bylaws of the Registrant, to be in effect upon completion of the offering
4.1*	Form of the Registrant's Common Stock Certificate
4.2(1)	Amended and Restated Investors' Rights Agreement dated December 13, 2007
4.3(1)	Warrant dated March 5, 2007 issued by Registrant to General Electric Capital Corporation
5.1*	Opinion of Latham & Watkins LLP
10.1*	Form of Director and Executive Officer Indemnification Agreement
10.2	Form of Executive Officer Employment Agreement
10.3#	2006 Equity Incentive Plan, as amended, and forms of option agreements thereunder
10.4#*	Independent Director Compensation Policy
10.5#*	2008 Equity Incentive Award Plan and forms of option and restricted stock agreements thereunder
10.6#*	2008 Employee Stock Purchase Plan and form of Offering document thereunder
10.7†	Asset Purchase Agreement dated August 25, 2006 by and between the Registrant and Aradigm Corporation
10.8(1)	Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.9(1)	First Amendment to Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.10(1)	Master Lease Agreement dated March 20, 2007 by and between Registrant and TBA Entertainment Corporation
10.11†	Master Loan and Security Agreement dated March 5, 2007 by and between the Registrant and General Electric Capital Corporation

II-3

10.12†	License Agreement dated November 27, 2007 by and between the Registrant and Elan Pharma International Limited
10.13†	Supply Agreement dated September 29, 2004 by and between the Registrant and Dr. Reddy's Laboratories, Inc.
10.14†	Licensing and Distribution Agreement dated March 14, 2008 by and between the Registrant and Desitin Arzneimittel GmbH
23.1	Consent of Ernst & Young LLP, independent registered public accounting firm
23.2*	Consent of Latham & Watkins LLP (included in Exhibit 5.1)
24.1(1)	Power of Attorney
24.2	Power of Attorney

*

To be filed by amendment.

(1)

Filed with the Registrant's Registration Statement on Form S-1 on March 20, 2008.

†

Confidential treatment has been requested for portions of this exhibit. These portions have been omitted from the Registration Statement and submitted separately to the Securities and Exchange Commission.

#

Indicates management contract or compensatory plan.

(b)

Financial Statement Schedules

        Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 17.    Undertakings

        Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.

        We hereby undertake that:

        (a)   We will provide to the underwriters at the closing as specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        (b)   For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from a form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this registration statement as of the time it was declared effective.

II-4

        (c)   For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, Zogenix, Inc. has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in San Diego, California on the 18th day of June, 2008.

ZOGENIX, INC.
By:	/s/  ROGER L. HAWLEY Roger L. Hawley Chief Executive Officer

        Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 to Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/  ROGER L. HAWLEY Roger L. Hawley	Chief Executive Officer and Director (Principal Executive Officer)	June 18, 2008
/s/  DAVID W. NASSIF David W. Nassif	Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer)	June 18, 2008
* Cam L. Garner	Chairman of the Board	June 18, 2008
* James C. Blair, Ph.D.	Director	June 18, 2008
* Louis C. Bock	Director	June 18, 2008
* Stephen J. Farr, Ph.D.	President, Chief Operating Officer and Director	June 18, 2008
* Erle T. Mast	Director	June 18, 2008

II-6

* Kurt C. Wheeler	Director	June 18, 2008
* Alex Zisson	Director	June 18, 2008

*By:
/s/  ROGER L. HAWLEY Roger L. Hawley
Attorney-in-Fact

II-7

EXHIBIT INDEX

Exhibit Number	Description
1.1*	Form of Underwriting Agreement
3.1(1)	Third Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect
3.2	Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of the Registrant
3.3*	Form of Fourth Amended and Restated Certificate of Incorporation of the Registrant, to be in effect upon completion of the offering
3.4(1)	Bylaws of the Registrant, as currently in effect
3.5*	Form of Amended and Restated Bylaws of the Registrant, to be in effect upon completion of the offering
4.1*	Form of the Registrant's Common Stock Certificate
4.2(1)	Amended and Restated Investors' Rights Agreement dated December 13, 2007
4.3(1)	Warrant dated March 5, 2007 issued by Registrant to General Electric Capital Corporation
5.1*	Opinion of Latham & Watkins LLP
10.1*	Form of Director and Executive Officer Indemnification Agreement
10.2	Form of Executive Officer Employment Agreement
10.3#	2006 Equity Incentive Plan, as amended, and forms of option agreements thereunder
10.4#*	Independent Director Compensation Policy
10.5#*	2008 Equity Incentive Award Plan and forms of option and restricted stock agreements thereunder
10.6#*	2008 Employee Stock Purchase Plan and form of Offering document thereunder
10.7†	Asset Purchase Agreement dated August 25, 2006 by and between the Registrant and Aradigm Corporation
10.8(1)	Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.9(1)	First Amendment to Lease dated October 31, 2006 by and between the Registrant and Emery Station Joint Venture, LLC
10.10(1)	Master Lease Agreement dated March 20, 2007 by and between Registrant and TBA Entertainment Corporation
10.11†	Master Loan and Security Agreement dated March 5, 2007 by and between the Registrant and General Electric Capital Corporation
10.12†	License Agreement dated November 27, 2007 by and between the Registrant and Elan Pharma International Limited
10.13†	Supply Agreement dated September 29, 2004 by and between the Registrant and Dr. Reddy's Laboratories, Inc.
10.14†	Licensing and Distribution Agreement dated March 14, 2008 by and between the Registrant and Desitin Arzneimittel GmbH

23.1	Consent of Ernst & Young LLP, independent registered public accounting firm
23.2*	Consent of Latham & Watkins LLP (included in Exhibit 5.1)
24.1(1)	Power of Attorney
24.2	Power of Attorney

*

To be filed by amendment.

(1)

Filed with the Registrant's Registration Statement on Form S-1 on March 20, 2008.

†

Confidential treatment has been requested for portions of this exhibit. These portions have been omitted from the Registration Statement and submitted separately to the Securities and Exchange Commission.

#

Indicates management contract or compensatory plan.

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TABLE OF CONTENTS
SUMMARY
THE OFFERING
SUMMARY FINANCIAL DATA
RISK FACTORS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
EXECUTIVE COMPENSATION
PRINCIPAL STOCKHOLDERS
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
DESCRIPTION OF CAPITAL STOCK
SHARES ELIGIBLE FOR FUTURE SALE
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Zogenix, Inc. INDEX TO FINANCIAL STATEMENTS SELECTED FINANCIAL DATA
Report of Independent Registered Public Accounting Firm
ZOGENIX, INC. (a development stage enterprise) BALANCE SHEETS (in thousands, except par value)
ZOGENIX, INC. (a development stage enterprise) STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
ZOGENIX, INC. (a development stage enterprise) STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (in thousands, except per share amounts)
ZOGENIX, INC. (a development stage enterprise) STATEMENTS OF CASH FLOWS (in thousands)
ZOGENIX, INC. (a development stage enterprise) NOTES TO FINANCIAL STATEMENTS
PART II INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution
Item 14. Indemnification of Directors and Officers
Item 15. Recent Sales of Unregistered Securities
Item 16. Exhibits and Financial Statement Schedules
Item 17. Undertakings

SIGNATURES
EXHIBIT INDEX

EX-3.2

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Exhibit 3.2

CERTIFICATE OF AMENDMENT
OF
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ZOGENIX, INC.

        Zogenix, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY:

1.

The Corporation, which was originally known as SJ2 Therapeutics, Inc., originally filed its Certificate of Incorporation on May 11, 2006.



2.

That by action taken by the Board of Directors at a meeting held on May 20, 2008, resolutions were duly adopted setting forth a proposed amendment of the Third Amended and Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and directing its officers to submit said amendment to the stockholders of the Corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:

        THEREFORE, BE IT RESOLVED, that the Third Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by striking the first sentence of Section 5(d) of Article V thereof and by substituting in lieu of said sentence the following:

        "The Board of Directors shall consist of eight (8) members."

3.

That the aforesaid amendment has been consented to and authorized by the holders of a majority of the issued and outstanding stock entitled to vote in accordance with the provisions of Section 228 of the DGCL.



4.

That said Third Amended and Restated Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 242 of the DGCL.

        IN WITNESS WHEREOF, Zogenix, Inc. has caused this Certificate to be signed by Roger L. Hawley, its Chief Executive Officer, this 23rd day of May, 2008.

Zogenix, Inc., a Delaware corporation
By:	/s/  ROGER L. HAWLEY
Name: Roger L. Hawley Title: Chief Executive Officer

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Exhibit 3.2

CERTIFICATE OF AMENDMENT OF THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ZOGENIX, INC.

EX-10.2

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Exhibit 10.2

EMPLOYMENT AGREEMENT

        THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into by and between Zogenix, Inc., a Delaware corporation (the "Company"), and                                    ("Executive"), and shall be effective as of                                     (the "Effective Date").

        WHEREAS, the Company desires to continue to employ Executive, and Executive desires to continue employment with the Company, on the terms and conditions set forth in this Agreement.

        NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows:

        1.     Definitions.    As used in this Agreement, the following terms shall have the following meanings:

        (a)   Board.    "Board" means the Board of Directors of the Company.

        (b)   Bonus.    "Bonus" means an amount equal to the average of the bonuses awarded to Executive for each of the three (3) fiscal years prior to the date of Executive's termination of employment, or such lesser number of years as may be applicable if Executive has not been employed for three (3) full years on the date of Executive's termination of employment; provided, that to the extent Executive has not received any bonus prior to the date of his or her termination of employment due to the fact that his or her employment commenced during the fiscal year in which his or her termination of employment occurs, his or her "Bonus" for purposes of Section 4 shall be equal to his or her target bonus for the fiscal year in which such termination occurs (calculated by reference to the target bonus level in effect on the date of termination) multiplied by the corporate performance achievement percentage approved by the Board or its designee with respect to the payment of executive bonuses for the preceding fiscal year, which bonus shall be annualized. For purposes of determining Executive's "Bonus," (i) to the extent Executive received no bonus in a year due to a failure to meet the applicable performance objectives, such year will still be taken into account (using zero (0) as the applicable bonus) in determining Executive's "Bonus," and (ii) to the extent Executive was not employed for an entire fiscal year, the bonus received by Executive for such fiscal year shall be annualized for purposes of the preceding calculation. If any portion of the bonuses awarded to Executive consisted of securities or other property, the fair market value thereof shall be determined in good faith by the Board.

        (c)   California WARN Act.    "California WARN Act" means California Labor Code Sections 1400 et seq.

        (d)   Cause.    "Cause" means any of the following:

        (i)    the commission of an act of fraud, embezzlement or dishonesty by Executive, or the commission of some other illegal act by Executive, that has a material adverse impact on the Company or any successor or affiliate thereof;

        (ii)   a conviction of, or plea of "guilty" or "no contest" to, a felony by Executive;

        (iii)  any unauthorized use or disclosure by Executive of confidential information or trade secrets of the Company or any successor or affiliate thereof that has, or may reasonably be expected to have, a material adverse impact on any such entity;

        (iv)  Executive's gross negligence, insubordination or material violation of any duty of loyalty to the Company or any successor or affiliate thereof, or any other material misconduct on the part of Executive;

        (v)   Executive's ongoing and repeated failure or refusal to perform or neglect of Executive's duties as required by this Agreement, which failure, refusal or neglect continues for fifteen (15) days following Executive's receipt of written notice from the Board [FOR

CEO DIRECT REPORTS: or the Company's Chief Executive Officer (the "CEO")][FOR NON-CEO DIRECT REPORTS: , the Company's Chief Executive Officer (the "CEO") or the Supervising Officer (as defined in Section 2(a) below)] stating with specificity the nature of such failure, refusal or neglect; or

        (vi)  Executive's breach of any Company policy or any material provision of this Agreement;

provided, however, that prior to the determination that "Cause" under this Section 1(d) has occurred, the Company shall (A) provide to Executive in writing, in reasonable detail, the reasons for the determination that such "Cause" exists, (B) other than with respect to clause (v) above which specifies the applicable period of time for Executive to remedy his or her breach, afford Executive a reasonable opportunity to remedy any such breach, (C) provide the Executive an opportunity to be heard prior to the final decision to terminate the Executive's employment hereunder for such "Cause" and (D) make any decision that such "Cause" exists in good faith.

        The foregoing definition shall not in any way preclude or restrict the right of the Company or any successor or affiliate thereof to discharge or dismiss Executive for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of this Agreement, to constitute grounds for termination for Cause.

        (e)   Change in Control.    "Change in Control" means and includes each of the following:

        (i)    a transaction or series of transactions (other than an offering of the Company's common stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any "person" or related "group" of "persons" (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a "person" that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act), of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company's securities outstanding immediately after such acquisition; or

        (ii)   the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (A) a merger, consolidation, reorganization, or business combination or (B) a sale or other disposition of all or substantially all of the Company's assets in any single transaction or series of related transactions or (C) the acquisition of assets or stock of another entity, in each case other than a transaction:

        (1)   which results in the Company's voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company's assets or otherwise succeeds to the business of the Company (the Company or such person, the "Successor Entity") directly or indirectly, at least a majority of the combined voting power of the Successor Entity's outstanding voting securities immediately after the transaction, and

        (2)   after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (2) as beneficially owning fifty percent (50%) or more of combined voting power of the

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Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

        Notwithstanding the foregoing, a transaction shall not constitute a "Change in Control" if: (i) its sole purpose is to change the state of the Company's incorporation; (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transaction; (iii) it constitutes the Company's initial public offering of its securities; or (iv) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise). The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters thereto.

        (f)    Code.    "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations and other interpretive guidance issued thereunder.

        (g)   Good Reason.    "Good Reason" means the occurrence of any of the following events or conditions without Executive's written consent:

        (i)    a material diminution in Executive's authority, duties or responsibilities;

        (ii)   a material diminution in Executive's base compensation, unless such a reduction is imposed across-the-board to senior management of the Company;

        (iii)  a material change in the geographic location at which Executive must perform his or her duties; or

        (iv)  any other action or inaction that constitutes a material breach by the Company or any successor or affiliate of its obligations to Executive under this Agreement.

        Executive must provide written notice to the Company of the occurrence of any of the foregoing events or conditions without Executive's written consent within ninety (90) days of the occurrence of such event. The Company or any successor or affiliate shall have a period of thirty (30) days to cure such event or condition after receipt of written notice of such event from Executive.

        (h)   Involuntary Termination.    "Involuntary Termination" means (i) the Executive's Separation from Service by reason of Executive's discharge by the Company other than for Cause, or (ii) the Executive's Separation from Service by reason of Executive's resignation of employment with the Company for Good Reason. Executive's Separation from Service by reason of Executive's death or discharge by the Company following Executive's Permanent Disability shall not constitute an Involuntary Termination. The Executive's Separation from Service by reason of resignation from employment with the Company for Good Reason shall be an "Involuntary Termination" only if such Separation from Service occurs within two (2) years following the initial existence of the act or failure to act constituting Good Reason. The Executive's Separation from Service by reason of resignation from employment with the Company for Good Reason shall be treated as involuntary.

        (i)    Permanent Disability.    Executive's "Permanent Disability" shall be deemed to have occurred if Executive shall become physically or mentally incapacitated or disabled or otherwise unable fully to discharge his or her duties hereunder for a period of ninety (90) consecutive calendar days or for one hundred twenty (120) calendar days in any one hundred eighty (180) calendar-day period. The existence of Executive's Permanent Disability shall be determined by the Company on the advice of a physician chosen by the Company and the Company reserves

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the right to have the Executive examined by a physician chosen by the Company at the Company's expense.

        (j)    Separation from Service.    "Separation from Service," with respect to the Executive, means the Executive's "separation from service," as defined in Treasury Regulation Section 1.409A-1(h).

        (k)   Stock Awards.    "Stock Awards" means all stock options, restricted stock and such other awards granted pursuant to the Company's stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof.

        (l)    WARN Act.    "WARN Act" shall mean the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Sections 2101 et seq., and the Department of Labor regulations thereunder.

        2.     Services to Be Rendered.

        (a)   Duties and Responsibilities.    Executive shall serve as                                    of the Company. In the performance of such duties, Executive shall report directly to the [FOR MR. HAWLEY: Board] [FOR CEO DIRECT REPORTS: CEO] [FOR NON-CEO DIRECT REPORTS: Company's                                    (the "Supervising Officer")] and shall be subject to the direction of the [Board] [CEO] [Supervising Officer and the CEO] and to such limits upon Executive's authority as the [Board] [CEO] [Supervising Officer and/or CEO] may from time to time impose. [In the event of the Supervising Officer's and CEO's incapacity or unavailability, Executive shall be subject to the direction of the Board.] Executive hereby consents to serve as an officer and/or director of the Company or any subsidiary or affiliate thereof without any additional salary or compensation, if so requested by the [Board] [CEO] [Supervising Officer or CEO]. Executive shall be employed by the Company on a full time basis. Executive's primary place of work shall be the Company's facility in [San Diego] [Emeryville], California, or such other location within [San Diego] [Alameda] County as may be designated by the [Board] [CEO] [Supervising Officer or CEO] from time to time. Executive shall also render services at such other places within or outside the United States as the [Board] [CEO] [Supervising Officer or CEO] may direct from time to time. Executive shall be subject to and comply with the policies and procedures generally applicable to senior executives of the Company to the extent the same are not inconsistent with any term of this Agreement.

        (b)   Exclusive Services.    Executive shall at all times faithfully, industriously and to the best of his or her ability, experience and talent perform to the satisfaction of the [Board] [Board and the CEO] [Board, the Supervising Officer and the CEO] all of the duties that may be assigned to Executive hereunder and shall devote substantially all of his or her productive time and efforts to the performance of such duties. Subject to the terms of the Employee Proprietary Information and Inventions Agreement referred to in Section 5(b), this shall not preclude Executive from devoting time to personal and family investments or serving on community and civic boards, or participating in industry associations, provided such activities do not interfere with his or her duties to the Company, as determined in good faith by the [Board] [CEO] [Supervising Officer or CEO]. Executive agrees that he or she will not join any boards, other than community and civic boards (which do not interfere with his or her duties to the Company), without the prior approval of the [Board] [CEO] [Supervising Officer or CEO].

        3.     Compensation and Benefits.    The Company shall pay or provide, as the case may be, to Executive the compensation and other benefits and rights set forth in this Section 3.

        (a)   Base Salary.    The Company shall pay to Executive a base salary of $                        per year [FOR CYNTHIA ROBINSON: (for an 80% time commitment)], payable in accordance with the Company's usual pay practices (and in any event no less frequently than monthly). Executive's base salary shall be subject to review annually by and at the sole discretion of the [FOR ALL

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OFFICERS OTHER THAN MR. HAWLEY: Compensation Committee of the] Board or its designee.

        (b)   Bonus.    Executive shall participate in any bonus plan that the Board or its designee may approve for the senior executives of the Company.

        (c)   Benefits.    Executive shall be entitled to participate in benefits under the Company's benefit plans and arrangements, including, without limitation, any employee benefit plan or arrangement made available in the future by the Company to its senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall have the right to amend or delete any such benefit plan or arrangement made available by the Company to its senior executives and not otherwise specifically provided for herein; provided, that any reduction of Executive's benefits such that Executive's benefits are, in the aggregate, materially less favorable to Executive than those benefits offered to Executive as of the Effective Date shall be considered a material breach of this Agreement by the Company.

        (d)   Expenses.    The Company shall reimburse Executive for reasonable out-of-pocket business expenses incurred in connection with the performance of his or her duties hereunder, subject to (i) such policies as the Company may from time to time establish, [and] (ii) Executive furnishing the Company with evidence in the form of receipts satisfactory to the Company substantiating the claimed expenditures[, (iii) Executive receiving advance approval from the Supervising Officer or CEO in the case of expenses for travel outside of North America, and (iv) Executive receiving advance approval from the Supervising Officer or CEO in the case of expenses (or a series of related expenses) in excess of $5,000]. Any amounts payable under this Section 3(d) shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Executive's taxable year following the taxable year in which Executive incurred the expenses. The amounts provided under this Section 3(d) during any taxable year of Executive's will not affect such amounts provided in any other taxable year of Executive's, and Executive's right to reimbursement for such amounts shall not be subject to liquidation or exchange for any other benefit.

        (e)   Paid Time Off.    Executive shall be entitled to such periods of paid time off ("PTO") each year as provided from time to time under the Company's PTO policy and as otherwise provided for senior executive officers.

        (f)    Equity Plans.    Executive shall be entitled to participate in any equity or other employee benefit plan that is generally available to senior executive officers, as distinguished from general management, of the Company. Except as otherwise provided in this Agreement, Executive's participation in and benefits under any such plan shall be on the terms and subject to the conditions specified in the governing document of the particular plan.

        (g)   Stock Award Acceleration.

        (i)    In the event of a Change in Control, the vesting and exercisability of fifty percent (50%) of Executive's outstanding unvested Stock Awards shall be automatically accelerated effective immediately prior to the consummation of such Change in Control.

        (ii)   In the event of Executive's Involuntary Termination or Executive's Separation from Service by reason of Executive's death or discharge by the Company following Executive's Permanent Disability, the vesting and/or exercisability of each of Executive's outstanding unvested Stock Awards shall be automatically accelerated on the date of Executive's Separation from Service as to the number of Stock Awards that would vest over the twelve (12) month period following the date of Executive's Separation from Service had Executive remained continuously employed by the Company during such period.

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        (iii)  In the event of Executive's Involuntary Termination within three (3) months prior to or twelve (12) months following a Change in Control, the vesting and/or exercisability of any outstanding unvested portions of such Stock Awards shall be automatically accelerated on the later of (A) the date of Executive's Separation from Service and (B) the date of the Change in Control. In addition, with respect to Stock Awards granted to Executive on or after the Effective Date, such Stock Awards may be exercised by Executive (or Executive's legal guardian or legal representative) until the latest of (A) three (3) months after the date of Executive's Separation from Service, (B) with respect to any portion of the Stock Awards that become exercisable on the date of a Change in Control pursuant to this Section 3(g)(iii), three (3) months after the date of the Change in Control, or (C) such longer period as may be specified in the applicable Stock Award agreement; provided, however, that in no event shall any Stock Award remain exercisable beyond the original outside expiration date of such Stock Award.

        (iv)  The vesting pursuant to clauses (i), (ii) and (iii) of this Section 3(g) shall be cumulative. The foregoing provisions are hereby deemed to be a part of each Stock Award and to supersede any less favorable provision in any agreement or plan regarding such Stock Award.

        4.     Severance.    Executive shall be entitled to receive benefits upon a Separation from Service only as set forth in this Section 4:

        (a)   At-Will Employment; Termination.    The Company and Executive acknowledge that Executive's employment is and shall continue to be at-will, as defined under applicable law, and that Executive's employment with the Company may be terminated by either party at any time for any or no reason, with or without notice. If Executive's employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided in this Agreement. Executive's employment under this Agreement shall be terminated immediately on the death of Executive.

        (b)   Separation from Service by Death or Following Permanent Disability.    Subject to Sections 4(e) and 9(o) and Executive's continued compliance with Section 5, in the event of Executive's Separation from Service as a result of Executive's death or discharge by the Company following Executive's Permanent Disability, Executive or Executive's estate, as applicable, shall be entitled to receive, in lieu of any severance benefits to which Executive or Executive's estate may otherwise be entitled under any severance plan or program of the Company, the benefits provided below, which, with respect to clause (ii) and the last sentence of clause (iii) below, will be payable in a lump sum within ten (10) days following the effective date of Executive's Release (or, in the event of Executive's death, within ten (10) days following the date of Executive's death):

        (i)    the Company shall pay to Executive or Executive's estate, as applicable, Executive's fully earned but unpaid base salary, when due, through the date of Executive's Separation from Service at the rate then in effect, plus all other benefits, if any, under any Company group retirement plan, nonqualified deferred compensation plan, equity award plan or agreement (other than any such plan or agreement pertaining to Stock Awards whose treatment is prescribed by Section 3(g) above), health benefits plan or other Company group benefit plan to which Executive or Executive's estate may be entitled pursuant to the terms of such plans or agreements at the time of Executive's Separation from Service;

        (ii)   Executive or Executive's estate, as applicable, shall be entitled to receive severance pay in an amount equal to twelve (12) multiplied by Executive's monthly base salary as in effect immediately prior to the date of Executive's Separation from Service; and

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        (iii)  for the period beginning on the date of Executive's Separation from Service and ending on the date which is twelve (12) full months following the date of Executive's Separation from Service (or, if earlier, the date on which the applicable continuation period under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") expires), the Company shall arrange to provide Executive (in the case of Executive's Separation of Service as a result of discharge by the Company following Executive's Permanent Disability) and/or his or her eligible dependents who were covered under the Company's health insurance plans as of the date of Executive's Separation from Service with health (including medical and dental) insurance benefits substantially similar to those provided to Executive and his or her dependents immediately prior to the date of such Separation from Service. If any of the Company's health benefits are self-funded as of the date of Executive's Separation from Service, instead of providing continued health insurance benefits as set forth above, the Company shall instead pay to Executive or Executive's estate, as applicable, an amount equal to twelve (12) multiplied by the monthly premium Executive or his or her dependents would be required to pay for continuation coverage pursuant to COBRA for Executive (if applicable) and his or her eligible dependents who were covered under the Company's health plans as of the date of Executive's Separation from Service (calculated by reference to the premium as of the date of Executive's Separation from Service).

        (c)   Severance Upon Involuntary Termination.    Subject to Sections 4(e) and 9(o) and Executive's continued compliance with Section 5, if Executive's employment is Involuntarily Terminated, Executive shall be entitled to receive, in lieu of any severance benefits to which Executive may otherwise be entitled under any severance plan or program of the Company, the benefits provided below, which, with respect to clause (ii) and the last sentence of clause (iii) (if applicable) will be payable in a lump sum within ten (10) days following the effective date of Executive's Release:

        (i)    the Company shall pay to Executive his or her fully earned but unpaid base salary, when due, through the date of Executive's Involuntary Termination at the rate then in effect, plus all other benefits, if any, under any Company group retirement plan, nonqualified deferred compensation plan, equity award plan or agreement (other than any such plan or agreement pertaining to Stock Awards whose treatment is prescribed by Section 3(g) above), health benefits plan or other Company group benefit plan to which Executive may be entitled pursuant to the terms of such plans or agreements at the time of Executive's Involuntary Termination;

        (ii)   Executive shall be entitled to receive severance pay in an amount equal to twelve (12) multiplied by Executive's monthly base salary as in effect immediately prior to the date of Executive's Involuntary Termination; and

        (iii)  for the period beginning on the date of Executive's Involuntary Termination and ending on the date which is twelve (12) full months following the date of Executive's Involuntary Termination (or, if earlier, the date on which the applicable continuation period under COBRA expires), the Company shall arrange to provide Executive and his or her eligible dependents who were covered under the Company's health insurance plans as of the date of Executive's Involuntary Termination with health (including medical and dental) insurance benefits substantially similar to those provided to Executive and his or her dependents immediately prior to the date of such Involuntary Termination. If any of the Company's health benefits are self-funded as of the date of Executive's Involuntary Termination, instead of providing continued health insurance benefits as set forth above, the Company shall instead pay to Executive an amount equal to twelve (12) multiplied by the monthly premium Executive would be required to pay for continuation coverage pursuant to COBRA for Executive and his or her eligible dependents who were covered under the

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Company's health plans as of the date of Executive's Involuntary Termination (calculated by reference to the premium as of the date of Involuntary Termination).

        (iv)  Notwithstanding anything to the contrary in this Section 4(c), and subject to Sections 4(e) and 9(o) and Executive's continued compliance with Section 5, in the event of Executive's Involuntary Termination during the period commencing sixty (60) days prior to a Change in Control or twelve (12) months following a Change in Control, Executive shall be entitled to receive, in addition to the severance benefits described in clauses (i), (ii) and (iii) above, an amount equal to [FOR MR. HAWLEY: the sum of (A) six (6) multiplied by Executive's monthly base salary as in effect immediately prior to the date of Executive's Involuntary Termination plus (B)] Executive's Bonus for the year in which Executive's Involuntary Termination occurs, which amount shall be payable in a lump sum within ten (10) days following the later of (A) the effective date of Executive's Release and (B) the date of the Change in Control.

        (d)   Termination for Cause or Voluntary Resignation Without Good Reason.    In the event of Executive's termination of employment as a result of Executive's discharge by the Company for Cause or Executive's resignation without Good Reason (other than as a result of Executive's death or Separation of Service by reason of discharge by the Company following Executive's Permanent Disability), the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive (i) Executive's fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (ii) all other amounts or benefits to which Executive is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by COBRA or applicable law. In addition, in the event of Executive's Separation from Service as a result of Executive's discharge by the Company for Cause or Executive's resignation without Good Reason (other than as a result of Executive's death or Separation of Service by reason of discharge by the Company following Executive's Permanent Disability), all vesting of Executive's unvested Stock Awards previously granted to him or her by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination. The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.

        (e)   Release.    As a condition to Executive's receipt of any post-termination benefits pursuant to Sections 4(b) and (c) above, Executive shall execute and not revoke a general release of all claims in favor of the Company (the "Release") in the form attached hereto as Exhibit A. In the event Executive's Release does not become effective within the fifty-five (55) day period following the date of Executive's Separation from Service, Executive shall not be entitled to the aforesaid payments and benefits.

        (f)    Exclusive Remedy.    Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive's rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Executive's employment shall cease upon such termination. In the event of Executive's termination of employment with the Company, Executive's sole remedy shall be to receive the payments and benefits described in this Section 4. In addition, Executive acknowledges and agrees that he or she is not entitled to any reimbursement by the Company for any taxes payable by Executive as a result of the payments and benefits received by Executive pursuant to this Section 4, including, without limitation, any excise tax imposed by Section 4999 of the Code. Any payments made to Executive under this Section 4 shall be inclusive of any amounts or benefits to which Executive may be entitled pursuant to the WARN Act or the California WARN Act.

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        (g)   No Mitigation.    Except as otherwise provided in Section 4(b)(iii) or 4(c)(iii) above, Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by Executive as the result of employment by another employer or self-employment or by retirement benefits; provided, however, that loans, advances or other amounts owed by Executive to the Company may be offset by the Company against amounts payable to Executive under this Section 4.

        (h)   Return of the Company's Property.    In the event of Executive's termination of employment for any reason, the Company shall have the right, at its option, to require Executive to vacate his or her offices prior to or on the effective date of separation and to cease all activities on the Company's behalf. Upon Executive's termination of employment in any manner, as a condition to the Executive's receipt of any severance benefits described in this Agreement, Executive shall immediately surrender to the Company all lists, books and records of, or in connection with, the Company's business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company. Executive shall deliver to the Company a signed statement certifying compliance with this Section 4(h) prior to the receipt of any severance benefits described in this Agreement.

        (i)    Waiver of the Company's Liability.    Executive recognizes that his or her employment is subject to termination with or without Cause for any reason and therefore Executive agrees that Executive shall hold the Company harmless from and against any and all liabilities, losses, damages, costs and expenses, including but not limited to, court costs and reasonable attorneys' fees, which Executive may incur as a result of Executive's termination of employment. Executive further agrees that Executive shall bring no claim or cause of action against the Company for damages or injunctive relief based on a wrongful termination of employment. Executive agrees that the sole liability of the Company to Executive upon termination of this Agreement shall be that determined by this Section 4. In the event this covenant is more restrictive than permitted by laws of the jurisdiction in which the Company seeks enforcement thereof, this covenant shall be limited to the extent permitted by law.

        5.     Certain Covenants.

        (a)   Noncompetition.    Except as may otherwise be approved by the Board, during the term of Executive's employment, Executive shall not have any ownership interest (of record or beneficial) in, or have any interest as an employee, salesman, consultant, officer or director in, or otherwise aid or assist in any manner, any firm, corporation, partnership, proprietorship or other business that engages in any county, city or part thereof in the United States and/or any foreign country in a business which competes directly or indirectly (as determined by the Board) with the Company's business in such county, city or part thereof, so long as the Company, or any successor in interest of the Company to the business and goodwill of the Company, remains engaged in such business in such county, city or part thereof or continues to solicit customers or potential customers therein; provided, however, that Executive may own, directly or indirectly, solely as an investment, securities of any entity which are traded on any national securities exchange if Executive (i) is not a controlling person of, or a member of a group which controls, such entity; or (ii) does not, directly or indirectly, own one percent (1%) or more of any class of securities of any such entity.

        (b)   Confidential Information.    Executive and the Company have entered into the Company's standard employee proprietary information and inventions agreement (the "Employee Proprietary Information and Inventions Agreement"). Executive agrees to perform each and every obligation of Executive therein contained.

        (c)   Solicitation of Employees.    Executive shall not during the term of Executive's employment and for the applicable severance period for which Executive receives severance benefits following

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any termination hereof pursuant to Section 4(b) or (c) above (regardless of whether Executive receives payment of severance amounts payable thereunder in a lump sum) (the "Restricted Period"), directly or indirectly, solicit or encourage to leave the employment of the Company or any of its affiliates, any employee of the Company or any of its affiliates.

        (d)   Solicitation of Consultants.    Executive shall not during the term of Executive's employment and for the Restricted Period, directly or indirectly, hire, solicit or encourage to cease work with the Company or any of its affiliates any consultant then under contract with the Company or any of its affiliates within one year of the termination of such consultant's engagement by the Company or any of its affiliates.

        (e)   Rights and Remedies Upon Breach.    If Executive breaches or threatens to commit a breach of any of the provisions of this Section 5 (the "Restrictive Covenants"), the Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity:

        (i)    Specific Performance.    The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, all without the need to post a bond or any other security or to prove any amount of actual damage or that money damages would not provide an adequate remedy, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide adequate remedy to the Company; and

        (ii)   Accounting and Indemnification.    The right and remedy to require Executive (A) to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive or any associated party deriving such benefits as a result of any such breach of the Restrictive Covenants; and (B) to indemnify the Company against any other losses, damages (including special and consequential damages), costs and expenses, including actual attorneys' fees and court costs, which may be incurred by them and which result from or arise out of any such breach or threatened breach of the Restrictive Covenants.

        (f)    Severability of Covenants/Blue Pencilling.    If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Executive hereby waives any and all right to attack the validity of the Restrictive Covenants on the grounds of the breadth of their geographic scope or the length of their term.

        (g)   Enforceability in Jurisdictions.    The Company and Executive intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and Executive that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.

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        (h)   Definitions.    For purposes of this Section 5, the term "Company" means not only Zogenix, Inc., but also any company, partnership or entity which, directly or indirectly, controls, is controlled by or is under common control with Zogenix, Inc.

        6.     Insurance; Indemnification.

        (a)   Insurance.    The Company shall have the right to take out life, health, accident, "key-man" or other insurance covering Executive, in the name of the Company and at the Company's expense in any amount deemed appropriate by the Company. Executive shall assist the Company in obtaining such insurance, including, without limitation, submitting to any required examinations and providing information and data required by insurance companies.

        (b)   Indemnification.    Executive will be provided with indemnification against third party claims related to his or her work for the Company as required by Delaware law. The Company shall provide Executive with directors and officers liability insurance coverage at least as favorable as that which the Company may maintain from time to time for members of the Board and other executive officers.

        7.     Arbitration.    Any dispute, claim or controversy based on, arising out of or relating to Executive's employment or this Agreement shall be settled by final and binding arbitration in San Diego, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the "Rules") of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.). If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules. Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his or her discretion, award reasonable attorneys' fees to the prevailing party; provided, further, that the prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days following any such award, but in no event later than the last day of the Executive's taxable year following the taxable year in which the fees, costs and expenses were incurred; provided, further, that the parties' obligations pursuant to this sentence shall terminate on the tenth (10^th) anniversary of the date of Executive's termination of employment. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAA's administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 7 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive's employment; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties' right to seek provisional relief, including without limitation injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such party's right to compel arbitration. Both Executive and the Company expressly waive their right to a jury trial.

        8.     General Relationship.    Executive shall be considered an employee of the Company within the meaning of all federal, state and local laws and regulations including, but not limited to, laws and regulations governing unemployment insurance, workers' compensation, industrial accident, labor and taxes.

        9.     Miscellaneous.

        (a)   Modification; Prior Claims.    This Agreement and the Employee Proprietary Information and Inventions Agreement set forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject

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matter, including that certain offer letter dated                        ,                         , between the Company and Executive. This Agreement may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

        (b)   Assignment; Assumption by Successor.    The rights of the Company under this Agreement may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used in this Agreement, the "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

        (c)   Survival.    The covenants, agreements, representations and warranties contained in or made in Sections 3(g), 4, 5, 6, 7 and 9 of this Agreement shall survive any Executive's termination of employment.

        (d)   Third-Party Beneficiaries.    This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement.

        (e)   Waiver.    The failure of either party hereto at any time to enforce performance by the other party of any provision of this Agreement shall in no way affect such party's rights thereafter to enforce the same, nor shall the waiver by either party of any breach of any provision hereof be deemed to be a waiver by such party of any other breach of the same or any other provision hereof.

        (f)    Section Headings.    The headings of the several sections in this Agreement are inserted solely for the convenience of the parties and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.

        (g)   Notices.    Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by email, telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to Executive at the address listed on the Company's personnel records and to the Company at its principal place of business, or such other address as either party may specify in writing.

        (h)   Severability.    All Sections, clauses and covenants contained in this Agreement are severable, and in the event any of them shall be held to be invalid by any court, this Agreement shall be interpreted as if such invalid Sections, clauses or covenants were not contained herein.

        (i)    Governing Law and Venue.    This Agreement is to be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Except as provided in Sections 5 and 7, any suit brought hereon shall be brought in the state or federal courts sitting in San Diego, California, the parties hereto hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court

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shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

        (j)    Non-transferability of Interest.    None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Executive. Any attempted assignment, transfer, conveyance, or other disposition (other than as aforesaid) of any interest in the rights of Executive to receive any form of compensation to be made by the Company pursuant to this Agreement shall be void.

        (k)   Gender.    Where the context so requires, the use of the masculine gender shall include the feminine and/or neuter genders and the singular shall include the plural, and vice versa, and the word "person" shall include any corporation, firm, partnership or other form of association.

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

        (m)  Construction.    The language in all parts of this Agreement shall in all cases be construed simply, according to its fair meaning, and not strictly for or against any of the parties hereto. Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Agreement or any part thereof.

        (n)   Withholding and other Deductions.    All compensation payable to Executive hereunder shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order.

        (o)   Code Section 409A Exempt.

        (i)    This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the severance payments payable under Sections 4(b) and 4(c) shall be paid no later than the later of: (A) the fifteenth (15th) day of the third month following Executive's first taxable year in which such severance benefit is no longer subject to a substantial risk of forfeiture, and (B) the fifteenth (15th) day of the third month following first taxable year of the Company in which such severance benefit is no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder. To the extent applicable, this Agreement shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder.

        (ii)   If the Executive is a "specified employee" (as defined in Section 409A of the Code), as determined by the Company in accordance with Section 409A of the Code, on the date of the Executive's Separation from Service, to the extent that the payments or benefits under this Agreement are subject to Section 409A of the Code and the delayed payment or distribution of all or any portion of such amounts to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, then such portion deferred pursuant to this Section 9(o)(ii) shall be paid or distributed to Executive in a lump sum on the earlier of (A) the date that is six (6)-months following Executive's Separation from Service, (B) the date of Executive's death or (C) the earliest date as is permitted under Section 409A of the Code. Any remaining payments due under the Agreement shall be paid as otherwise provided herein.

        (iii)  To the extent applicable, this Agreement shall be interpreted in accordance with the applicable exemptions from Section 409A of the Code. If Executive and the Company determine that any payments or benefits payable under this Agreement intended to comply

13

with Sections 409A(a)(2), (3) and (4) of the Code do not comply with Section 409A of the Code, Executive and the Company agree to amend this Agreement, or take such other actions as Executive and the Company deem reasonably necessary or appropriate, to comply with the requirements of Section 409A of the Code and the Treasury Regulations thereunder (and any applicable transition relief) while preserving the economic agreement of the parties. If any provision of the Agreement would cause such payments or benefits to fail to so comply, such provision shall not be effective and shall be null and void with respect to such payments or benefits, and such provision shall otherwise remain in full force and effect.

        (iv)  As provided in Internal Revenue Service Notice 2007-86, notwithstanding any other provision of this Agreement, with respect to an election or amendment to change a time and form of payment under this Agreement that is subject to Section 409A made on or after January 1, 2008 and on or before December 31, 2008, the election or amendment may apply only to amounts that would not otherwise be payable in 2008 and may not cause an amount to be paid in 2008 that would not otherwise be payable in 2008.

(Signature Page Follows)

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        IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

ZOGENIX, INC.

By:

Name:

Title:

EXECUTIVE

[Name of Executive]

SIGNATURE PAGE TO EMPLOYMENT AGREEMENT

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EXHIBIT A

GENERAL RELEASE OF CLAIMS

[The language in this Release may change based on legal developments and evolving best practices; this form is provided as an example of what will be included in the final Release document.]

        This General Release of Claims ("Release") is entered into as of this                        day of                        ,                         , between                         ("Executive"), and Zogenix, Inc., a Delaware corporation (the "Company") (collectively referred to herein as the "Parties").

        WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated as of (the "Agreement");

        WHEREAS, the Parties agree that Executive is entitled to certain severance benefits under the Agreement, subject to Executive's execution of this Release; and

        WHEREAS, the Company and Executive now wish to fully and finally to resolve all matters between them.

        NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to Executive pursuant to the Agreement, the adequacy of which is hereby acknowledged by Executive, and which Executive acknowledges that he or she would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:

        1.     General Release of Claims by Executive.

        (a)   Executive, on behalf of himself or herself and his or her executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of his or her employment with or service to the Company (collectively, the "Company Releasees"), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys' fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, "Claims"), which Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executive's employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, and claims of any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, et seq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, et seq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq. (the "ADEA"); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, et seq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 et seq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, et seq.

        Notwithstanding the generality of the foregoing, Executive does not release the following claims:

        (i)    Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

        (ii)   Claims for workers' compensation insurance benefits under the terms of any worker's compensation insurance policy or fund of the Company;

        (iii)  Claims pursuant to the terms and conditions of the federal law known as COBRA;

        (iv)  Claims for indemnity under the bylaws of the Company, as provided for by California law or under any applicable insurance policy with respect to Executive's liability as an employee, director or officer of the Company;

        (v)   Claims based on any right Executive may have to enforce the Company's executory obligations under the Agreement; and

        (vi)  Claims Executive may have to vested or earned compensation and benefits.

        (b)   EXECUTIVE ACKNOWLEDGES THAT HE OR SHE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR."

BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS HE OR SHE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

[Note: Clauses (c), (d) and (e) apply only if Executive is age 40 or older at time of termination]

        (c)   Executive acknowledges that this Release was presented to him or her on the date indicated above and that Executive is entitled to have [twenty-one (21)][forty-five (45)] days' time in which to consider it. Executive further acknowledges that the Company has advised him or her that he or she is waiving his or her rights under the ADEA, and that Executive should consult with an attorney of his or her choice before signing this Release, and Executive has had sufficient time to consider the terms of this Release. Executive represents and acknowledges that if Executive executes this Release before [twenty-one (21)][forty-five (45)] days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executive's legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.

        (d)   Executive understands that after executing this Release, Executive has the right to revoke it within seven (7) days after his or her execution of it. Executive understands that this Release will not become effective and enforceable unless the seven (7) day revocation period passes and Executive does not revoke the Release in writing. Executive understands that this Release may not be revoked after the seven (7) day revocation period has passed. Executive also understands that any revocation of this Release must be made in writing and delivered to the Company at its principal place of business within the seven (7) day period.

        (e)   Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth (8^th) day after his or her execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above.

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        (f)    Executive further understands that Executive will not be given any severance benefits under the Agreement unless this Release is effective on or before the date that is fifty-five (55) days following the date of Executive's termination of employment.

        2.     No Assignment.    Executive represents and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim that Executive may have against the Company Releasees. Executive agrees to indemnify and hold harmless the Company Releasees from any liability, claims, demands, damages, costs, expenses and attorneys' fees incurred as a result of any such assignment or transfer from Executive.

        3.     Severability.    In the event any provision of this Release is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

        4.     Interpretation; Construction.    The headings set forth in this Release are for convenience only and shall not be used in interpreting this Agreement. This Release has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Release and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Release. Either party's failure to enforce any provision of this Release shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Release.

        5.     Governing Law and Venue.    This Release will be governed by and construed in accordance with the laws of the United States of America and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Any suit brought hereon shall be brought in the state or federal courts sitting in San Diego County, California, the Parties hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

        6.     Entire Agreement.    This Release and the Agreement constitute the entire agreement of the Parties in respect of the subject matter contained herein and therein and supersede all prior or simultaneous representations, discussions, negotiations and agreements, whether written or oral. This Release may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

        7.     Counterparts.    This Release may be executed in multiple counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

(Signature Page Follows)

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        IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing Release as of the date first written above.

EXECUTIVE	ZOGENIX, INC.
	By:
Print Name:	Print Name:
	Title:

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Schedule to Exhibit 10.2: The Form of Employment Agreement was entered into with the following employees with their respective titles and annual base salaries listed below and effective as of the date listed below:

Name	Title	Effective Date	Base Salary
Roger L. Hawley	Chief Executive Officer	05/20/2008	$400,000
Stephen J. Farr, Ph.D.	President and Chief Operating Officer	05/07/2008	$325,000
David W. Nassif, J.D.	Executive Vice President, Chief Financial Officer, Secretary and Treasurer	05/07/2008	$260,000
Stephen J. Peroutka, M.D., Ph.D.	Chief Medical Officer	05/07/2008	$270,000
Cynthia Y. Robinson, Ph.D.	Chief Development Officer	05/07/2008	$210,000
J.D. Haldeman	Chief Commercial Officer	05/07/2008	$245,000 (effective June 1, 2008 $255,000)
Bret E. Megargel	Vice President, Corporate Development	05/07/2008	$230,000
Jonathan M. Rigby	Vice President, Business Development	05/07/2008	$210,000
Mark R. Thompson	Vice President, Sales & Managed Markets	05/07/2008	$230,000
John J. Turanin	Vice President, Operations	05/07/2008	$227,000

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Exhibit 10.2

EMPLOYMENT AGREEMENT
EXHIBIT A
GENERAL RELEASE OF CLAIMS

EX-10.3

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Exhibit 10.3

ZOGENIX, INC.

2006 EQUITY INCENTIVE PLAN

(as amended through May 20, 2008)

ARTICLE 1
PURPOSE

        1.1    General.    The purpose of the Zogenix, Inc. 2006 Equity Incentive Plan (the "Plan") is to promote the success and enhance the value of Zogenix, Inc., a Delaware corporation (the "Company"), by linking the personal interests of the members of the Board, Employees and Consultants of the Company and any Parent or Subsidiary, to those of Company stockholders and by providing such individuals with an incentive for performance to generate returns to Company stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees and Consultants of the Company and any Parent or Subsidiary upon whose judgment, interest, and special effort the successful conduct of the Company's operation is largely dependent.

ARTICLE 2
DEFINITIONS AND CONSTRUCTION

        2.1    Definitions.    The following words and phrases shall have the following meanings:

        (a)   "Administrator" means the Board or a committee of the Board as described in Article 12.

        (b)   "Award" means an Option, a Restricted Stock award, a Stock Appreciation Right award, a Dividend Equivalents award, a Stock Payment award, or a Restricted Stock Unit award granted to a Participant pursuant to the Plan.

        (c)   "Award Agreement" means any written or electronic agreement, contract, or other instrument or document evidencing an Award.

        (d)   "Board" means the Board of Directors of the Company.

        (e)   "Cause," unless otherwise defined in an employment or services agreement between the Participant and the Company or any Parent or Subsidiary, means (i) a Participant's breach of any confidentiality or proprietary information agreement between the Participant and the Company or any Parent or Subsidiary; (ii) a Participant's conviction by, or entry of a plea of guilty or nolo contendere in, a court of competent and final jurisdiction for any crime involving moral turpitude or punishable by imprisonment in the jurisdiction involved; (iii) a Participant's commission of an act of fraud, whether prior to or subsequent to the date hereof upon the Company or any Parent or Subsidiary; (iv) a Participant's continuing repeated willful failure or refusal to perform his or her duties (including, without limitation, a Participant's inability to perform his or her duties as a result of chronic alcoholism or drug addiction and/or as a result of any failure to comply with any laws, rules or regulations of any governmental entity with respect to a Participant's employment by the Company or any Parent or Subsidiary); (v) a Participant's gross negligence, insubordination or material violation of any duty of loyalty to the Company or any Parent or Subsidiary or any other material misconduct on the part of a Participant; (vi) a Participant's intentional commission of any act which he or she knows (or reasonably should know) is likely to be materially detrimental to the Company's or any Parent's or Subsidiary's business or goodwill; or (vii) a Participant's material breach of any other provision of any agreement between the Participant and the Company or any

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Parent or Subsidiary, provided that termination of a Participant's employment pursuant to this subsection (vii) shall not constitute valid termination for good cause unless such Participant shall have first received written notice from the Board or its designee stating with specificity the nature of such breach and affording the Participant at least fifteen days to correct the breach alleged.

The foregoing definition shall not in any way preclude or restrict the right of the Company or any successor or Parent or Subsidiary thereof to discharge or dismiss any Participant in the service of such entity for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of this Plan, to constitute grounds for termination for Cause.

        (f)    "Change in Control" means and includes each of the following:

        (i)    the acquisition, directly or indirectly, by any "person" or "group" (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) of the Exchange Act and the rules thereunder) of "beneficial ownership" (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors ("voting securities") of the Company that represent 50% or more of the combined voting power of the Company's then outstanding voting securities, other than:

        (A)  an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or

        (B)  an acquisition of voting securities by the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company, or

        (C)  an acquisition of voting securities pursuant to a transaction described in subsection (iii) below that would not be a Change in Control under subsection (iii);

Notwithstanding the foregoing, the following event shall not constitute an "acquisition" by any person or group for purposes of this Section 2.1(e): an acquisition of the Company's securities by the Company which causes the Company's voting securities beneficially owned by a person or group to represent 50% or more of the combined voting power of the Company's then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of 50% or more of the combined voting power of the Company's then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change in Control; or

        (ii)   during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c) of this Section 2.1(e)) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

        (iii)  the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of a merger, consolidation, reorganization, or business combination, a sale or other disposition of all or substantially all of the Company's assets, or the acquisition of assets or stock of another entity, in each case, other than a transaction

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        (A)  which results in the Company's voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company's assets or otherwise succeeds to the business of the Company (the Company or such person, the "Successor Entity")) directly or indirectly, at least 50% of the combined voting power of the Successor Entity's outstanding voting securities immediately after the transaction, and

        (B)  after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this paragraph (iii) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

        (iv)  the Company's stockholders approve a liquidation or dissolution of the Company.

For purposes of subsection (i) above, the calculation of voting power shall be made as if the date of the acquisition were a record date for a vote of the Company's stockholders, and for purposes of subsection (iii) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Company's stockholders.

Notwithstanding the foregoing, a transaction shall not constitute a "Change of Control" if: (i) its sole purpose is to change the state of the Company's incorporation; (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transaction; (iii) it constitutes the Company's initial public offering of its securities; or (iv) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Administrator in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise).

The Administrator shall have full and final authority, which shall be exercised in its sole discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters relating thereto.

        (g)   "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations issued thereunder.

        (h)   "Committee" means a committee of the Board described in Article 12.

        (i)    "Consultant" means any consultant or adviser if:

        (i)    The consultant or adviser renders bona fide services to the Company or any Parent or Subsidiary;

        (ii)   The services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities; and

        (iii)  The consultant or adviser is a natural person who has contracted directly with the Company or any Parent or Subsidiary to render such services.

        (j)    "Disability" means a permanent and total disability within the meaning of Section 22(e)(3) of the Code, as it may be amended from time to time.

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        (k)   "Dividend Equivalents" means a right granted to a Participant pursuant to Article 8 to receive the equivalent value (in cash or Stock) of dividends paid on Stock.

        (l)    "Eligible Individual" means any person who is a member of the Board, a Consultant or an Employee, as determined by the Administrator.

        (m)  "Employee" means any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Parent or Subsidiary.

        (n)   "Equity Restructuring" means a non-reciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the shares of Stock (or other securities of the Company) or the share price of Stock (or other securities) and causes a change in the per share value of the Stock underlying outstanding Awards.

        (o)   "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time.

        (p)   "Fair Market Value" means, as of any date, the value of Stock determined as follows:

        (i)    If the Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such Stock as quoted on such exchange or system for the last market trading day prior to the date of determination for which a closing sales price is reported, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

        (ii)   If the Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Stock on the date prior to the date of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

        (iii)  In the absence of an established market for the Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.

        (q)   "Good Reason" means a Participant's voluntary resignation following any one or more of the following that is effected without the Participant's written consent: (i) a change in his or her position following the Change in Control that materially reduces his or her duties or responsibilities, (ii) a reduction in his or her base salary following a Change in Control, unless the base salaries of all similarly situated individuals are similarly reduced, or (iii) a relocation of such Participant's place of employment of more than fifty miles following a Change in Control. However, if the term or concept of "Good Reason" has been defined in an agreement between a Participant and the Company or any successor or parent or Subsidiary thereof, then "Good Reason" shall have the definition set forth in such agreement.

        (r)   "Incentive Stock Option" means an Option that is intended to be an incentive stock option and meets the requirements of Section 422 of the Code or any successor provision thereto.

        (s)   "Misconduct" means the commission of any commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Company (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Company (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Company (or any Parent or Subsidiary) to discharge or dismiss any Participant or other person in the service of the Company (or any Parent or

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Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan, to constitute grounds for termination for Misconduct.

        (t)    "Non-Employee Director" means a member of the Board who is not an Employee.

        (u)   "Non-Qualified Stock Option" means an Option that is not intended to be or otherwise does not qualify as an Incentive Stock Option.

        (v)   "Option" means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.

        (w)  "Parent" means any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain at the relevant time, including after the Effective Date (as defined in Section 13.1).

        (x)   "Participant" means any Eligible Individual who, as a member of the Board, an Employee or a Consultant, has been granted an Award pursuant to the Plan.

        (y)   "Plan" means this Zogenix, Inc. 2006 Equity Incentive Plan, as it may be amended from time to time.

        (z)   "Public Trading Date" means the first date upon which the issuer is subject to the reporting requirements of Section 13 or 15(d)(2) of the Exchange Act.

        (aa) "Restricted Stock" means Stock awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture or repurchase.

        (bb) "Restricted Stock Unit" means a right to receive a share of Stock during specified time periods granted pursuant to Section 8.3.

        (cc) "Securities Act" means the Securities Act of 1933, as amended from time to time.

        (dd) "Section 409A Award" has the meaning set forth in Section 9.1.

        (ee) "Stock" means the common stock of the Company and such other securities of the Company that may be substituted for Stock pursuant to Article 11.

        (ff)  "Stock Appreciation Right" or "SAR" means a right granted pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Stock on the date the SAR is exercised over the Fair Market Value of such number of shares of Stock on the date the SAR was granted as set forth in the applicable Award Agreement.

        (gg) "Stock Payment" means (a) a payment in the form of shares of Stock, or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to Section 8.2.

        (hh) "Subsidiary" means any corporation or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company at the relevant time, including after the Effective Date (as defined in Section 13.1).

        (ii)   "Successor Entity" has the meaning set forth in Section 2.1(f)(iii).

        (jj)   "Termination of Consultancy" means the time when the engagement of a Participant as a Consultant to the Company or a Parent or Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement, but excluding terminations where there is a simultaneous commencement of employment with the

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Company or any Parent or Subsidiary. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Consultancy, including, but not by way of limitation, the question of whether a Termination of Consultancy resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Consultancy. Notwithstanding any other provision of the Plan, the Company or any Parent or Subsidiary has an absolute and unrestricted right to terminate a Consultant's service at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing.

        (kk) "Termination of Directorship" shall mean the time when a Participant who is a Non-Employee Director ceases to be a member of the Board for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Board, in its sole and absolute discretion, shall determine the effect of all matters and questions relating to Termination of Directorship with respect to Non-Employee Directors.

        (ll)   "Termination of Employment" shall mean the time when the employee-employer relationship between a Participant and the Company or any Parent or Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding: (a) terminations where there is a simultaneous reemployment or continuing employment of a Participant by the Company or any Parent or Subsidiary, (b) at the discretion of the Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (c) terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Parent or Subsidiary with the former employee. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment.

        (ii)   "Termination of Service" shall mean the last to occur of a Participant's Termination of Employment, Termination of Directorship or Termination of Consultancy. A Participant shall not be deemed to have a Termination of Service merely because of a change in the capacity in which the Participant renders service to the Company or any Parent or Subsidiary (i.e., a Participant who is an Employee becomes a Consultant) or a change in the entity for which the Participant renders such service (i.e., an Employee of the Company becomes an Employee of a Subsidiary), unless following such change in capacity or service the Participant is no longer serving as an Employee, Non-Employee Director or Consultant of the Company or any Parent or Subsidiary.

ARTICLE 3
SHARES SUBJECT TO THE PLAN

        3.1    Number of Shares.    

        (a)   Subject to Article 11, the aggregate number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan shall be 11,340,000 shares.

        (b)   To the extent that an Award terminates, expires, or lapses for any reason, any shares of Stock subject to the Award shall again be available for the grant of an Award pursuant to the Plan. Additionally, any shares of Stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any Award shall again be available for the grant of an Award pursuant to the Plan. If shares of Stock issued pursuant to Awards are forfeited by a Participant or repurchased by the Company pursuant to Section 6.3 hereof, such shares of Stock shall become available for future grant under the Plan (unless the Plan has terminated). The

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payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan.

        (c)   Notwithstanding the provisions of this Section 3.1, no shares of Stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an Incentive Stock Option under Section 422 of the Code.

        3.2    Stock Distributed.    Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or, on and after the Public Trading Date, Stock purchased on the open market.

ARTICLE 4
ELIGIBILITY AND PARTICIPATION

        4.1    Eligibility.    Persons eligible to participate in this Plan include all Employees, Consultants and all members of the Board, as determined by the Administrator.

        4.2    Actual Participation.    Subject to the provisions of the Plan, the Administrator may, from time to time, select from among all Eligible Individuals those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any right to be granted an Award pursuant to this Plan.

        4.3    Foreign Participants.    Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Parents or Subsidiaries operate or have Eligible Individuals, the Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Parents or Subsidiaries shall be covered by the Plan; (ii) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitation contained in Section 3.1 of the Plan; and (v) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act, the Code, any securities law or governing statute or any other applicable law.

ARTICLE 5
STOCK OPTIONS

        5.1    General.    The Administrator is authorized to grant Options to Eligible Individuals on the following terms and conditions:

        (a)   Exercise Price.    The exercise price per share of Stock subject to an Option shall be determined by the Administrator and set forth in the Award Agreement; provided that the exercise price per share for any Option shall not be less than 100% of the Fair Market Value per share of the Stock on the date of the grant.

        (b)   Time and Conditions of Exercise.    The Administrator shall determine the time or times at which an Option may be exercised in whole or in part; provided that the term of any Option granted under the Plan shall not exceed ten years. The Administrator shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. The Administrator may extend the term of any outstanding Option in connection with any Termination of Employment, Termination of Directorship or Termination of Consultancy

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of the Participant holding such Option, or amend any other term or condition of such Option relating to such a Termination of Employment, Termination of Directorship or Termination of Consultancy.

        (c)   Payment.    The Administrator shall determine the methods, terms and conditions by which the exercise price of an Option may be paid, and the form and manner of payment, including, without limitation, payment in the form of cash, a promissory note bearing interest at no less than such rate as shall then preclude the imputation of interest under the Code, shares of Stock previously owned by the Participant or otherwise issuable upon exercise of the Option, or other property acceptable to the Administrator and payment through the delivery of a notice that the Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale, and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an "executive officer" of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option, or continue any extension of credit with respect to the exercise price of an Option with a loan from the Company or a loan arranged by the Company, in any method which would violate Section 13(k) of the Exchange Act.

        (d)   Evidence of Grant.    All Options shall be evidenced by an Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Administrator.

        5.2    Incentive Stock Options.    Incentive Stock Options may be granted only to employees (as defined in accordance with Section 3401(c) of the Code) of the Company or a Subsidiary which constitutes a "subsidiary corporation" of the Company within Section 424(f) of the Code or a Parent which constitutes a "parent corporation" of the Company within the meaning of Section 424(e) of the Code and the terms of any Incentive Stock Options granted pursuant to the Plan must comply with the following additional provisions of this Section 5.2 in addition to the requirements of Section 5.1:

        (a)   Ten Percent Owners.    An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any "subsidiary corporation" of the Company or "parent corporation" of the Company (each within the meaning of Section 424 of the Code) only if such Option is granted at an exercise price per share that is not less than 110% of the Fair Market Value per share of the Stock on the date of the grant and the Option is exercisable for no more than five years from the date of grant.

        (b)   Transfer Restriction.    An Incentive Stock Option shall not be transferable by the Participant other than by will or by the laws of descent or distribution.

        (c)   Right to Exercise.    During a Participant's lifetime, an Incentive Stock Option may be exercised only by the Participant.

        (d)   Failure to Meet Requirements.    Any Option (or portion thereof) purported to be an Incentive Stock Option which, for any reason, fails to meet the requirements of Section 422 of the Code shall be considered a Non-Qualified Stock Option.

        5.3    Early Exercisability.    The Administrator may provide in the terms of a Participant's Award Agreement that the Participant may, at any time before the Participant's status as an Employee, member of the Board or Consultant terminates, exercise the Option(s) granted to such Participant in whole or in part prior to the full vesting of the Option(s); provided, however, shares of Stock acquired

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upon exercise of an Option which has not fully vested may be subject to any forfeiture, transfer or other restrictions as the Administrator may determine in its sole discretion.

        5.4    Paperless Exercise.    In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Options by a Participant may be permitted through the use of such an automated system.

ARTICLE 6
RESTRICTED STOCK AWARDS

        6.1    Grant of Restricted Stock.    The Administrator is authorized to make Awards of Restricted Stock to any Eligible Individual selected by the Administrator in such amounts and subject to such terms and conditions as determined by the Administrator. All Awards of Restricted Stock shall be evidenced by an Award Agreement.

        6.2    Issuance and Restrictions.    Restricted Stock shall be subject to such repurchase restrictions, forfeiture restrictions, restrictions on transferability and other restrictions as the Administrator may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances or in such installments or otherwise as the Administrator determines at the time of the grant of the Award or thereafter.

        6.3    Repurchase or Forfeiture.    Except as otherwise determined by the Administrator at the time of the grant of the Award or thereafter, upon a Participant's Termination of Service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited or subject to repurchase by the Company (or its assignee) under such terms as the Administrator shall determine; provided, however, that the Administrator may (a) provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of a Participant's Termination of Service, and (b) in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.

        6.4    Certificates for Restricted Stock.    Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse or the Award Agreement may provide that the shares shall be held in escrow by an escrow agent designated by the Company.

ARTICLE 7
STOCK APPRECIATION RIGHTS

        7.1    Grant of Stock Appreciation Rights.    A Stock Appreciation Right may be granted to any Eligible Individual selected by the Administrator. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Administrator shall impose and shall be evidenced by an Award Agreement.

        7.2    Terms of Stock Appreciation Rights.    

        (a)   A Stock Appreciation Right shall have a term set by the Administrator. A Stock Appreciation Right shall be exercisable in such installments as the Administrator may determine. A Stock Appreciation Right shall cover such number of shares of Stock as the Administrator may determine. The exercise price per share of Stock subject to each Stock Appreciation Right shall be set by the Administrator.

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        (b)   A Stock Appreciation Right shall entitle the Participant (or other person entitled to exercise the Stock Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying (i) the amount (if any) by which the Fair Market Value of a share of Stock on the date of exercise of the Stock Appreciation Right exceeds the exercise price per share of the Stock Appreciation Right, by (ii) the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised, subject to any limitations the Administrator may impose.

        7.3    Payment and Limitations on Exercise.    

        (a)   Subject to Sections 7.3(b) and (c), payment of the amounts determined under Section 7.2(b) above shall be in cash, in Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Administrator.

        (b)   To the extent payment for a Stock Appreciation Right is to be made in cash, the Award Agreement shall, to the extent necessary to comply with the requirements of Section 409A of the Code, specify the date of payment, which may be different than the date of exercise of the Stock Appreciation Right. If the date of payment for a Stock Appreciation Right is later than the date of exercise, the Award Agreement may specify that the Participant be entitled to earnings on such amount until paid.

        (c)   To the extent any payment under Section 7.2(b) is effected in Stock, it shall be made subject to satisfaction of all provisions of Article 5 above pertaining to Options.

ARTICLE 8
OTHER TYPES OF AWARDS

        8.1    Dividend Equivalents.    Any Eligible Individual selected by the Administrator may be granted Dividend Equivalents based on the dividends declared on the shares of Stock that are subject to any Award, to be credited as of dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator.

        8.2    Stock Payments.    Any Eligible Individual selected by the Administrator may receive Stock Payments in the manner determined from time to time by the Administrator; provided that, unless otherwise determined by the Administrator, such Stock Payments shall be made in lieu of base salary, bonus or other cash compensation otherwise payable to such Eligible Individual. The number of shares shall be determined by the Administrator and may be based upon the Performance Goals or other specific performance goals determined appropriate by the Administrator.

        8.3    Restricted Stock Units.    The Administrator is authorized to make Awards of Restricted Stock Units to any Eligible Individual selected by the Administrator in such amounts and subject to such terms and conditions as determined by the Administrator. At the time of grant, the Administrator shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate. Alternatively, Restricted Stock Units may become fully vested and nonforfeitable pursuant to the satisfaction of one or more Performance Goals or other specific performance goals as the Administrator determines to be appropriate at the time of the grant of the Restricted Stock Units or thereafter, in each case on a specified date or dates or over any period or periods determined by the Administrator. At the time of grant, the Administrator shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and, to the extent

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permitted by the Administrator, may be determined at the election of the Eligible Individual to whom the Award is granted. On the maturity date, the Company shall transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted Stock Unit that is vested and scheduled to be distributed on such date and not previously forfeited. The Administrator shall specify the purchase price, if any, to be paid by the Participant to the Company for such shares of Stock.

        8.4    Term.    Except as otherwise provided herein, the term of any Award of Performance Shares, Dividend Equivalents, Stock Payments or Restricted Stock Units shall be set by the Administrator in its discretion.

        8.5    Exercise or Purchase Price.    The Administrator may establish the exercise or purchase price, if any, of any Award of Restricted Stock Units or Stock Payments; provided, however, that such price shall not be less than the par value of a share of Stock on the date of grant, unless otherwise permitted by applicable state law.

        8.6    Form of Payment.    Payments with respect to any Awards granted under Sections 8.1, 8.2 or 8.3 shall be made in cash, in Stock or a combination of both, as determined by the Administrator.

        8.7    Award Agreement.    All Awards under this Article 8 shall be subject to such additional terms and conditions as determined by the Administrator and shall be evidenced by a written Award Agreement.

ARTICLE 9
COMPLIANCE WITH SECTION 409A OF THE CODE

        9.1    Awards subject to Code Section 409A.    Any Award that constitutes, or provides for, a deferral of compensation subject to Section 409A of the Code (a "Section 409A Award") shall satisfy the requirements of Section 409A of the Code and this Article 9, to the extent applicable. The Award Agreement with respect to a Section 409A Award shall incorporate the terms and conditions required by Section 409A of the Code and this Article 9.

        9.2    Distributions under a Section 409A Award.    

        (a)   Subject to subsection (b), any shares of Stock or other property or amounts to be paid or distributed upon the grant, issuance, vesting, exercise or payment of a Section 409A Award shall be distributed in accordance with the requirements of Section 409A(a)(2) of the Code, and shall not be distributed earlier than:

        (i)    the Participant's separation from service, as determined by the Secretary of the Treasury;

        (ii)   the date the Participant becomes disabled;

        (iii)  the Participant's death;

        (iv)  a specified time (or pursuant to a fixed schedule) specified under the Award Agreement at the date of the deferral compensation;

        (v)   to the extent provided by the Secretary of the Treasury, a change in the ownership or effective control of the Company or a Parent or Subsidiary, or in the ownership of a substantial portion of the assets of the Company or a Parent or Subsidiary; or

        (vi)  the occurrence of an unforeseeable emergency with respect to the Participant.

        (b)   In the case of a Participant who is a "specified employee," the requirement of paragraph (a)(i) shall be met only if the distributions with respect to the Section 409A Award may not be made before the date which is six months after the Participant's separation from service (or,

11

if earlier, the date of the Participant's death). For purposes of this subsection (b), a Participant shall be a "specified employee" if such Participant is a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of a corporation any stock of which is publicly traded on an established securities market or otherwise, as determined under Section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations thereunder.

        (c)   The requirement of paragraph (a)(vi) shall be met only if, as determined under Treasury Regulations under Section 409A(a)(2)(B)(ii) of the Code, the amounts distributed with respect to the unforeseeable emergency do not exceed the amounts necessary to satisfy such unforeseeable emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such unforeseeable emergency is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant's assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

        (d)   For purposes of this Section, the terms specified therein shall have the respective meanings ascribed thereto under Section 409A of the Code and the Treasury Regulations thereunder.

        9.3    Prohibition on Acceleration of Benefits.    The time or schedule of any distribution or payment of any shares of Stock or other property or amounts under a Section 409A Award shall not be accelerated, except as otherwise permitted under Section 409A(a)(3) of the Code and the Treasury Regulations thereunder.

        9.4    Elections under Section 409A Awards.    

        (a)   Any deferral election provided under or with respect to an Award to any Eligible Individual, or to the Participant holding a Section 409A Award, shall satisfy the requirements of Section 409A(a)(4)(B) of the Code, to the extent applicable, and, except as otherwise permitted under paragraph (i) or (ii) below, any such deferral election with respect to compensation for services performed during a taxable year shall be made not later than the close of the preceding taxable year, or at such other time as provided in Treasury Regulations.

        (i)    In the case of the first year in which an Eligible Individual or a Participant holding a Section 409A Award, becomes eligible to participate in the Plan, any such deferral election may be made with respect to services to be performed subsequent to the election with thirty days after the date the Eligible Individual, or the Participant holding a Section 409A Award, becomes eligible to participate in the Plan, as provided under Section 409A(a)(4)(B)(ii) of the Code.

        (ii)   In the case of any performance-based compensation based on services performed by an Eligible Individual, or the Participant holding a Section 409A Award, over a period of at least twelve months, any such deferral election may be made no later than six months before the end of the period, as provided under Section 409A(a)(4)(B)(iii) of the Code.

        (b)   In the event that a Section 409A Award permits, under a subsequent election by the Participant holding such Section 409A Award, a delay in a distribution or payment of any shares of Stock or other property or amounts under such Section 409A Award, or a change in the form of distribution or payment, such subsequent election shall satisfy the requirements of Section 409A(a)(4)(C) of the Code, and:

        (i)    such subsequent election may not take effect until at least twelve months after the date on which the election is made,

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        (ii)   in the case such subsequent election relates to a distribution or payment not described in Section 9.2(a)(ii), (iii) or (vi), the first payment with respect to such election may be deferred for a period of not less than five years from the date such distribution or payment otherwise would have been made, and

        (iii)  in the case such subsequent election relates to a distribution or payment described in Section 9.2(a)(iv), such election may not be made less than twelve months prior to the date of the first scheduled distribution or payment under Section 9.2(a)(iv).

        9.5    Compliance in Form and Operation.    A Section 409A Award, and any election under or with respect to such Section 409A Award, shall comply in form and operation with the requirements of Section 409A of the Code and the Treasury Regulations thereunder.

ARTICLE 10
PROVISIONS APPLICABLE TO AWARDS

        10.1    Stand-Alone and Tandem Awards.    Awards granted pursuant to the Plan may, in the discretion of the Administrator, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

        10.2    Award Agreement.    Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event of the Participant's Termination of Service, and the Company's authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.

        10.3    Limits on Transfer.    

        (a)   Except as otherwise provided by the Administrator pursuant to Section 10.3(b), no right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Parent or Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Parent or Subsidiary. Except as otherwise provided by the Administrator pursuant to Section 10.3(b), no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution, unless and until such Award has been exercised, or the shares underlying such Award have been issued, and all restrictions applicable to such shares have lapsed.

        (b)   Notwithstanding Section 10.3(a), the Administrator, in its sole discretion, may permit an Award (other than an Incentive Stock Option) to be transferred to, exercised by and paid to any one or more Permitted Transferees (as defined below), subject to the following terms and conditions: (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than by will or the laws of descent and distribution; (ii) any Award which is transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Participant (other than the ability to further transfer the Award); and (iii) the Participant and the Permitted Transferee shall execute any and all documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal and state securities laws and (C) evidence the transfer. For purposes of this Section 10.3(b), "Permitted Transferee" shall mean, with respect to a Participant, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Participant's household (other than a tenant or employee), a trust in which these persons (or the

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Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests, or any other transferee specifically approved by the Administrator.

        10.4    Beneficiaries.    Notwithstanding Section 10.3, a Participant may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator. If the Participant is married and resides in a community property state, a designation of a person other than the Participant's spouse as his or her beneficiary with respect to more than 50% of the Participant's interest in the Award shall not be effective without the prior written consent of the Participant's spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant's will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Administrator.

        10.5    Stock Certificates; Book Entry Procedures.    

        (a)   Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise or purchase of any Award, unless and until the Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Administrator may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that a Participant make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.

        (b)   Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by applicable law, rule or regulation, the Company shall not deliver to any Participant certificates evidencing shares of Stock issued in connection with any Award or exercise of any Award and instead such shares of Stock will be recorded in the books of the Company (or as applicable, its transfer agent or stock plan administrator).

ARTICLE 11
CHANGES IN CAPITAL STRUCTURE

        11.1    Adjustments.    

        (a)   In the event of any combination or exchange of shares, merger, consolidation, distribution of Company assets to stockholders (other than normal cash dividends), or any other corporate event affecting the Stock or the share price of the Stock, other than an Equity Restructuring, the Administrator shall make such proportionate adjustments to reflect such change with respect to

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(i) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitation in Section 3.1); (ii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (iii) the grant or exercise price per share for any outstanding Awards under the Plan.

        (b)   In the event of any transaction or event described in Section 11.1(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate (including without limitation any Change in Control), other than an Equity Restructuring, or of changes in applicable laws, regulations or accounting principles, and whenever the Administrator determines that such action is appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles, the Administrator, in its sole discretion and on such terms and conditions as it deems appropriate, either by amendment of the terms of any outstanding Awards or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant's request, is hereby authorized to take any one or more of the following actions:

        (i)    To provide for either (A) termination of any such Award in exchange for an amount of cash and/or other property, if any, equal to the amount that would have been received upon the exercise of such Award or realization of the Participant's rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 11.1(b) the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant's rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion;

        (ii)   To provide that such Award be assumed by the successor or survivor entity, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

        (iii)  To make adjustments in the number and type of shares of Stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Restricted Stock Units and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards, and options, rights and awards which may be granted in the future;

        (iv)  To provide that such Award shall be exercisable or payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Award Agreement; and

        (v)   To provide that the Award cannot vest, be exercised or become payable after such event.

        (c)   In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 11.1(a) and 11.1(b):

        (i)    The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, will be proportionately adjusted by the Administrator as the Administrator deems appropriate to reflect such Equity Restructuring. The adjustments provided under this Section 11(c)(i) shall be

15

nondiscretionary and shall be final and binding on the affected Participant and the Company.

        (ii)   The Administrator shall make such proportionate adjustments, if any, as the Administrator in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Article 3).

        11.2    Acceleration Upon a Change in Control.    

        (a)   Notwithstanding anything to the contrary contained in Section 11.1, and except as may otherwise be provided in any applicable Award Agreement or other written agreement entered into between the Company and a Participant, if a Change in Control occurs and a Participant's Awards are not continued, converted, assumed or replaced by (i) the Company or a Parent or Subsidiary, or (ii) a Successor Entity, such Awards shall become fully exercisable and/or payable, as applicable, and all forfeiture, repurchase and other restrictions on such Awards shall lapse immediately prior to such Change in Control. Upon, or in anticipation of, a Change in Control, the Administrator may cause any and all Awards outstanding hereunder to terminate at a specific time in the future, including without limitation, the date of such Change in Control, and shall give each Participant the right to exercise such Awards during a period of time as the Administrator, in its sole and absolute discretion, shall determine. The Administrator shall have sole discretion to determine whether an Award has been continued, converted, assumed or replaced in connection with a Change in Control.

        (b)   Except as otherwise provided in the Agreement evidencing the Award, any such Awards that are continued, converted, assumed, or replaced by (i) the Company or a Parent or Subsidiary of the Company, or (ii) a Successor Entity, in a Change in Control and do not otherwise accelerate at that time shall become fully exercisable and/or payable, as applicable, and all forfeiture, repurchase and other restrictions on such Awards shall lapse in the event that the Participant has a Termination of Employment, Termination of Directorship or Termination of Consultancy (i) in connection with the Change in Control or (ii) subsequently within twelve months following such Change in Control, unless such termination is by reason of the Participant's discharge by the Company or a Parent or Subsidiary or a Successor Entity for Cause or by reason of the Participant's voluntary resignation without Good Reason.

        11.3    No Other Rights.    Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Award or the grant or exercise price of any Award.

ARTICLE 12
ADMINISTRATION

        12.1    Administrator.    The Plan shall be administered by the Board. The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term "Administrator" shall apply to any person or persons who at the time have the authority to administer the Plan. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is

16

authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Notwithstanding the foregoing, however, from and after the Public Trading Date, a Committee of the Board shall administer the Plan and such Committee shall consist solely of two or more members of the Board each of whom is an "outside director," within the meaning of Section 162(m) of the Code and a Non-Employee Director. Notwithstanding the foregoing: (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to all Awards granted to Non-Employee Directors and for purposes of such Awards the term "Administrator" as used in this Plan shall be deemed to refer to the Board, and (b) the Board or the Committee may delegate its authority hereunder to the extent permitted by Section 12.5. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan except with respect to matters which, following the Public Trading Date, are required to be determined in the sole discretion of the Committee under Rule 16b-3 under the Exchange Act or Section 162(m) of the Code, or any regulations or rules issued thereunder. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may only be filled by the Board.

        12.2    Action by the Administrator.    A majority of the members of the Administrator shall constitute a quorum. The acts of a majority of the members of the Administrator present at any meeting at which a quorum is present, and, subject to applicable law, acts approved in writing by a majority of the members of the Administrator in lieu of a meeting, shall be deemed the acts of the Administrator. Each member of the Administrator is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Parent or Subsidiary, the Company's independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

        12.3    Authority of Administrator.    Subject to any specific designation in the Plan, the Administrator has the exclusive power, authority and discretion to:

        (a)   Designate Eligible Individuals to receive Awards;

        (b)   Determine the type or types of Awards to be granted to each Eligible Individual;

        (c)   Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate;

        (d)   Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any reload provision, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines;

        (e)   Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

        (f)    Prescribe the form of each Award Agreement, which need not be identical for each Participant;

        (g)   Decide all other matters that must be determined in connection with an Award;

        (h)   Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

17

        (i)    Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and

        (j)    Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.

        11.4    Decisions Binding.    The Administrator's interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.

        11.5    Delegation of Authority.    Within the scope of such authority, the Board or the Committee may delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards to Participants other than Eligible Individuals who are either (a) "covered employees" at the time of recognition of income resulting from such Awards, and/or (b) persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (c) subject to Section 16 of the Exchange Act and/or (d) officers of the Company or members of the Board to whom authority to grant or amend Awards has been delegated pursuant to this Section 12.5. At all times, the delegate(s) appointed under this Section 12.5 shall serve in such capacity at the pleasure of the Board or the Committee.

ARTICLE 13
EFFECTIVE AND EXPIRATION DATE

        13.1    Effective Date.    The Plan will be effective on the date of the Board's initial adoption of the Plan (the "Effective Date"). The Plan will be submitted for the approval of the Company's stockholders within twelve months after the Effective Date. Awards may be granted or awarded prior to such stockholder approval, provided that such Awards shall not be exercisable, shall not vest and the restrictions thereon shall not lapse prior to the time when the Plan is approved by the stockholders, and provided further that if such approval has not been obtained at the end of said twelve-month period, all Awards previously granted or awarded under the Plan shall thereupon be canceled and become null and void.

        13.2    Expiration Date.    The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary of the earlier of (i) the Effective Date or (ii) the date this Plan is approved by the Company's stockholders. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

ARTICLE 14
AMENDMENT, MODIFICATION, AND TERMINATION

        14.1    Amendment, Modification, and Termination.    The Board may terminate, amend or modify the Plan at any time and from time to time; provided, however, that to the extent necessary to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. The Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Option holders, the cancellation of any or all outstanding Awards under the Plan and to grant in substitution therefor new Awards covering the same or different number of shares of Stock and with a different or no exercise price per share.

        14.2    Awards Previously Granted.    No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.

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ARTICLE 15
GENERAL PROVISIONS

        15.1    No Rights to Awards.    No Participant, Employee, or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrator is obligated to treat Participants, Employees, and other persons uniformly.

        15.2    No Stockholder Rights.    Except as otherwise provided herein, a Participant shall have none of the rights of a stockholder with respect to shares of Stock covered by any Award until the Participant becomes the record owner of such shares of Stock.

        15.3    Withholding.    The Company or any Parent or Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant's employment tax obligations) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Administrator may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company or a Parent or Subsidiary, as applicable, withhold shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award within six months (or such other period as may be determined by the Administrator) after such shares of Stock were acquired by the Participant from the Company) in order to satisfy the Participant's federal, state, local and foreign tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and employment tax purposes that are applicable to such supplemental taxable income.

        15.4    No Right to Employment or Services.    Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Parent or Subsidiary to terminate any Participant's employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Parent or Subsidiary.

        15.5    Unfunded Status of Awards.    The Plan is intended to be an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Parent or Subsidiary.

        15.6    Indemnification.    To the extent allowable pursuant to applicable law, the Administrator (and each member thereof) shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

        15.7    Relationship to Other Benefits.    No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group

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insurance, welfare or other benefit plan of the Company or any Parent or Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

        15.8    Expenses.    The expenses of administering the Plan shall be borne by the Company and its Parents and Subsidiaries.

        15.9    Titles and Headings.    The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

        15.10    Fractional Shares.    No fractional shares of Stock shall be issued and the Administrator shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.

        15.11    Limitations Applicable to Section 16 Persons.    Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 under the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

        15.12    Government and Other Regulations.    The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant to the Securities Act any of the shares of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.

        15.13    Governing Law.    The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of California, without regard to the conflicts of law principles thereof.

        15.14    Compliance with California Securities Laws.    Unless determined otherwise by the Administrator, prior to the Public Trading Date, this Plan is intended to comply with Section 25102(o) of the California Corporations Code and the regulations issued thereunder. Appendix I to the Plan sets forth the requirements under Section 25102(o) of the California Corporations Code and the regulations issued thereunder and is incorporated herein by reference. If any of the provisions contained in this Plan are inconsistent with such requirements or Appendix I, such provisions shall be deemed null and void. The invalidity of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect.

        15.15    Appendices.    The Board may approve such supplements to, or amendments, or appendices to, the Plan as it may consider necessary or appropriate for purposes of compliance with applicable laws or otherwise and such supplements, amendments or appendices shall be considered a part of the Plan; provided, however, that no such supplements, amendments or appendices shall increase the share limitation contained in Section 3.1 of the Plan.

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APPENDIX I

TO

ZOGENIX, INC.

2006 EQUITY INCENTIVE PLAN

California State Securities Law Compliance

        Notwithstanding anything to the contrary contained in the Plan and except as otherwise determined by the Administrator, the provisions set forth in this Appendix shall apply to all Awards granted under the Zogenix, Inc. 2006 Equity Incentive Plan (the "Plan") prior to the Public Trading Date. This Appendix shall be of no further force and effect on or after the Public Trading Date. Definitions as set out in Article 2 of the Plan are applicable to this Appendix.

        The purpose of this Appendix is to set forth those provisions of the Plan necessary to comply with Section 25102(o) of the California Corporations Code and the regulations issued thereunder. If any of the provisions contained in this Appendix are inconsistent with such requirements, such provisions shall be deemed null and void. The invalidity of any provision of this Appendix shall not affect the validity or enforceability of any other provision of this Appendix, which shall remain in full force and effect.

        References to Articles and Sections set forth in this Appendix are to those Articles and Sections of the Plan.

        1.1    Term of Awards.    The term of each Award shall be no more than ten years from the date of grant thereof.

        2.1    Award Exercise or Purchase Price.    Except as provided in Article 11, the per share exercise or purchase price for the Stock to be issued upon exercise of an Award shall be such price as is determined by the Administrator, but in the case of an Award granted to a Participant who, at the time of grant of such Award, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent (as defined in Section 175 of the California Corporations Code) or Subsidiary, the per share exercise or purchase price shall be no less than 110% of the Fair Market Value per share on the date of the grant (100% in the case of an Award other than an Option). Notwithstanding the foregoing, Awards may be granted with a per share exercise or purchase price other than as required above pursuant to a merger or other corporate transaction.

        3.1    Exercisability.    Except with regard to Awards granted to officers, members of the Board, managers or consultants, in no event shall an Award granted hereunder become vested and exercisable at a rate of less than 20% per year over five years from the date the Award is granted, subject to reasonable conditions, such as continuing to be a member of the Board, Employee or Consultant.

        4.1    Exercisability Following Termination.    

        (a)   Termination Other Than Death or Disability.    If a Participant has a Termination of Service for any reason other than by reason of the Participant's Disability or death, such Participant may exercise his or her Award within such period of time as is specified in the Award Agreement to the extent that the Award is vested on the date of termination; provided, however, that prior to the Public Trading Date, such period of time shall not be less than thirty days (but in no event later than the expiration of the term of the Award as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for three months following the Participant's Termination of Service for any reason other than death or Disability.

        (b)   Death.    If a Participant has a Termination of Service as a result of the Participant's death, the Award may be exercised within such period of time as is specified in the Award

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Agreement; provided, however, that prior to the Public Trading Date, such period of time shall not be less than six months (but in no event later than the expiration of the term of such Award as set forth in the Notice of Grant), by the Participant's estate or by a person who acquires the right to exercise the Award by bequest or inheritance, but only to the extent that the Award is vested on the date of death. In the absence of a specified time in the Award Agreement, the Award shall remain exercisable for twelve months following the Participant's Termination of Service for death.

        (c)   Disability of Participant.    If a Participant has a Termination of Service as a result of the Participant's Disability, the Participant may exercise his or her Award within such period of time as is specified in the Award Agreement to the extent the Award is vested on the date of termination; provided, however, that prior to the Public Trading Date, such period of time shall not be less than six months (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Award shall remain exercisable for twelve months following the Participant's Termination of Service for Disability.

        (d)   Misconduct of Participant.    If a Participant has a Termination of Service as a result of the Participant's Misconduct, the Award shall terminate immediately and cease to remain outstanding.

        5.1    Repurchase Provisions.    In the event the Administrator provides that the Company may repurchase Stock acquired upon exercise of an Award upon the occurrence of certain specified events, including, without limitation, a Participant's Termination of Service, divorce, bankruptcy or insolvency, then any such repurchase right shall be set forth in the applicable Award Agreement or in another agreement referred to in such agreement and, to the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations (or any successor regulation), any such repurchase right set forth in an Award granted prior to the Public Trading Date to a person who is not an officer, member of the Board, manager or consultant shall be upon the following terms: (i) if the repurchase option gives the Company the right to repurchase the shares upon the Participant's Termination of Service at not less than the Fair Market Value of the shares to be purchased on the date of termination of employment or service, then (A) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety days of termination (or in the case of shares issued upon exercise of Awards after such date of termination, within ninety days after the date of the exercise) or such longer period as may be agreed to by the Administrator and the Participant and (B) the right terminates on the Public Trading Date; and (ii) if the repurchase option gives the Company the right to repurchase the Stock upon the Participant's Termination of Service at the original purchase price for such Stock, then (A) the right to repurchase at the original purchase price shall lapse at the rate of at least 20% of the shares per year over five (5) years from the date the Award is granted (without respect to the date the Award was exercised or became exercisable) and (B) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety days of termination (or, in the case of shares issued upon exercise of Awards, after such date of termination, within ninety days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant.

        6.1    Information Rights.    Prior to the Public Trading Date and to the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall provide to each Participant and to each individual who acquires Stock pursuant to the Plan, not less frequently than annually during the period such Participant has one or more Awards outstanding, and, in the case of an individual who acquires Stock pursuant to the Plan, during the period such individual owns such Stock, copies of annual financial statements. Notwithstanding the preceding sentence, the Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.

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        7.1    Transferability.    Prior to the Public Trading Date, no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution or, with respect to Awards other than Incentive Stock Options, as permitted by Rule 701 of the Securities Act.

        8.1    Limitation on Number of Shares.    Prior to the Public Trading Date, at no time shall the total number of shares of Stock issuable upon exercise of all outstanding Options under the Plan and any shares of Stock provided for under any bonus or similar plan or agreement of the Company exceed 30% of the then-outstanding shares of Stock of the Company, as calculated pursuant to Section 260.140.45 of Title 10 of the California Code of Regulations (or any successor regulation), unless a percentage higher than 30% is approved by at least two-thirds of the outstanding securities of the Company entitled to vote. The number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan shall be reduced to the extent necessary to comply with this provision.

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ZOGENIX, INC.

2006 EQUITY INCENTIVE PLAN

STOCK OPTION GRANT NOTICE AND
STOCK OPTION AGREEMENT

        Zogenix, Inc. (the "Company"), pursuant to its 2006 Equity Incentive Plan (the "Plan"), hereby grants to the holder listed below ("Participant"), an option to purchase the number of shares of the Company's Stock set forth below (the "Option"). This Option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement attached hereto as Exhibit A (the "Stock Option Agreement") and the Plan, each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the Stock Option Agreement.

Participant:
Grant Date:
Vesting Commencement Date:
Exercise Price per Share:	$
Total Exercise Price:	$
Total Number of Shares Subject to the Option:
Expiration Date:

Type of Option:	o Incentive Stock Option        o Non-Qualified Stock Option
Vesting Schedule:	[To be specified in individual agreements.]

        By his or her signature and the Company's signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Stock Option Agreement and this Grant Notice. Participant has reviewed the Stock Option Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Stock Option Agreement and the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator of the Plan upon any questions arising under the Plan or the Option.

ZOGENIX, INC.	PARTICIPANT:
By:	By:
Print Name:	Print Name:
Title:
Address:	Address:

EXHIBIT A

TO STOCK OPTION GRANT NOTICE

STOCK OPTION AGREEMENT

        Pursuant to the Stock Option Grant Notice ("Grant Notice") to which this Stock Option Agreement (this "Agreement") is attached, Zogenix, Inc. (the "Company") has granted to Participant an option under the Company's 2006 Equity Incentive Plan (the "Plan") to purchase the number of shares of Stock indicated in the Grant Notice.

ARTICLE I

GENERAL

        1.1    Defined Terms.    Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.

        1.2    Incorporation of Terms of Plan.    The Option is subject to the terms and conditions of the Plan which are incorporated herein by reference.

ARTICLE II

GRANT OF OPTION

        2.1    Grant of Option.    In consideration of Participant's past and/or continued employment with or service to the Company or a Parent or Subsidiary and for other good and valuable consideration, effective as of the Grant Date set forth in the Grant Notice (the "Grant Date"), the Company irrevocably grants to Participant the Option to purchase any part or all of an aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and conditions set forth in the Plan and this Agreement. Unless designated as a Non-Qualified Stock Option in the Grant Notice, the Option shall be an Incentive Stock Option to the maximum extent permitted by law.

        2.2    Exercise Price.    The exercise price of the shares of Stock subject to the Option shall be as set forth in the Grant Notice, without commission or other charge; provided, however, that if this Option is designated as an Incentive Stock Option, the price per share of the shares subject to the Option shall not be less than the greater of (i) 100% of the Fair Market Value of a share of Stock on the Grant Date, or (ii) 110% of the Fair Market Value of a share of Stock on the Grant Date in the case of a Participant then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any "subsidiary corporation" of the Company or any "parent corporation" of the Company (each within the meaning of Section 424 of the Code).

ARTICLE III

PERIOD OF EXERCISABILITY

        3.1    Commencement of Exercisability.    

        (a)   Subject to Sections 3.3 and 5.8, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice.

        (b)   No portion of the Option which has not become vested and exercisable at the date of Participant's Termination of Service shall thereafter become vested and exercisable, except as may be otherwise provided by the Administrator or as set forth in a written agreement between the Company and Participant.

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        3.2    Duration of Exercisability.    The installments provided for in the vesting schedule set forth in the Grant Notice are cumulative. Each such installment which becomes vested and exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and exercisable until it becomes unexercisable under Section 3.3.

        3.3    Expiration of Option.    The Option may not be exercised to any extent by anyone after the first to occur of the following events:

        (a)   The expiration of ten years from the Grant Date;

        (b)   If this Option is designated as an Incentive Stock Option and Participant owned (within the meaning of Section 424(d) of the Code), at the time the Option was granted, more than 10% of the total combined voting power of all classes of stock of the Company or any "subsidiary corporation" of the Company or "parent corporation" of the Company (each within the meaning of Section 424 of the Code), the expiration of five years from the date the Option was granted; or

        (c)   The expiration of three months following the date of Participant's Termination of Service, unless such termination occurs by reason of Participant's death, Disability or Misconduct;

        (d)   The expiration of one year following the date of Participant's Termination of Service by reason of Participant's death or Disability; or

        (e)   The date of Participant's Termination of Service as a result of Participant's Misconduct.

        Participant acknowledges that an Incentive Stock Option exercised more than three months after Participant's termination of status as an Employee, other than by reason of death or Disability, will be taxed as a Non-Qualified Stock Option.

        3.4    Special Tax Consequences.    Participant acknowledges that, to the extent that the aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options, including the Option, are first exercisable for the first time by Participant in any calendar year exceeds $100,000 (or such other limitation as imposed by Section 422(d) of the Code), the Option and such other options shall be treated as not qualifying under Section 422 of the Code but rather shall be considered Non-Qualified Stock Options. Participant further acknowledges that the rule set forth in the preceding sentence shall be applied by taking Options and other "incentive stock options" into account in the order in which they were granted.

ARTICLE IV

EXERCISE OF OPTION

        4.1    Person Eligible to Exercise.    Except as provided in Sections 5.2(b) and 5.2(c), during the lifetime of Participant, only Participant may exercise the Option or any portion thereof. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by Participant's personal representative or by any person empowered to do so under the deceased Participant's will or under the then applicable laws of descent and distribution.

        4.2    Partial Exercise.    Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3.

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        4.3    Manner of Exercise.    The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary of the Company or the Secretary's office of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3:

        (a)   An Exercise Notice in writing signed by Participant or any other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Administrator. Such notice shall be substantially in the form attached as Exhibit B to the Grant Notice (or such other form as is prescribed by the Administrator); and

        (b)   Subject to Section 5.1(c) of the Plan:

        (i)    Full payment (in cash or by check) for the shares with respect to which the Option or portion thereof is exercised; or

        (ii)   With the consent of the Administrator, by delivery of a full recourse promissory note on such terms and conditions as may be approved by the Administrator; or

        (iii)  With the consent of the Administrator, by delivery of shares of Stock then issuable upon exercise of the Option having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or

        (iv)  On and after the Public Trading Date, such payment may be made, in whole or in part, through the delivery of shares of Stock which have been owned by Participant for at least six months, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or

        (v)   On and after the Public Trading Date, through the delivery of a notice that Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided, that payment of such proceeds is made to the Company upon settlement of such sale; or

        (vi)  Subject to any applicable laws, any combination of the consideration provided in the foregoing paragraphs (i), (ii) and (iii); and

        (c)   A bona fide written representation and agreement, in such form as is prescribed by the Administrator, signed by Participant or the other person then entitled to exercise such Option or portion thereof, stating that the shares of Stock are being acquired for Participant's own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that Participant or other person then entitled to exercise such Option or portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above. The Administrator may, in its absolute discretion, take whatever additional actions it deems appropriate to ensure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Administrator may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on an Option exercise does not violate the Securities Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing Stock issued on exercise of the Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c)

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shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and

        (d)   The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which may be in the form of consideration used by Participant to pay for such shares under Section 4.3(b), subject to Section 15.3 of the Plan; and

        (e)   In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than Participant, appropriate proof of the right of such person or persons to exercise the Option.

        4.4    Conditions to Issuance of Stock Certificates.    The shares of Stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:

        (a)   The admission of such shares to listing on all stock exchanges on which such Stock is then listed; and

        (b)   The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; and

        (c)   The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and

        (d)   The lapse of such reasonable period of time following the exercise of the Option as the Administrator may from time to time establish for reasons of administrative convenience; and

        (e)   The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which may be in the form of consideration used by Participant to pay for such shares under Section 4.3(b), subject to Section 15.3 of the Plan.

        4.5    Rights as Stockholder.    The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until such shares shall have been issued by the Company to such holder.

ARTICLE V

OTHER PROVISIONS

        5.1    Administration.    The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon Participant, the Company and all other interested persons. No member of the Administrator shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the Option. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan and this Agreement.

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        5.2    Option Not Transferable.    

        (a)   Subject to Section 5.2(b), the Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares underlying the Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right therein shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

        (b)   Notwithstanding any other provision in this Agreement, with the consent of the Administrator and to the extent the Option is designated as a Non-Qualified Stock Option, the Option may be transferred to, exercised by and paid to one or more Permitted Transferees, subject to the terms and conditions set forth in Section 10.3 of the Plan.

        (c)   Unless transferred to a Permitted Transferee in accordance with Section 5.2(b), during the lifetime of Participant, only Participant may exercise the Option or any portion thereof. Subject to such conditions and procedures as the Administrator may require, a Permitted Transferee may exercise the Option or any portion thereof during Participant's lifetime. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by Participant's personal representative or by any person empowered to do so under the deceased Participant's will or under the then applicable laws of descent and distribution.

        5.3    Lock-Up Period.    Participant hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Participant shall not sell or otherwise transfer any shares of Stock or other securities of the Company during such period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company (which period shall not be longer than one hundred eighty days) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act.

        5.4    Restrictive Legends and Stop-Transfer Orders.    

        (a)   The share certificate or certificates evidencing the shares of Stock purchased hereunder shall be endorsed with any legends that may be required by state or federal securities laws.

        (b)   Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

        (c)   The Company shall not be required: (i) to transfer on its books any shares of Stock that have been sold or otherwise transferred in violation of any of the provisions of this Agreement, or (ii) to treat as owner of such shares of Stock or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such shares shall have been so transferred.

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        5.5    Shares to Be Reserved.    The Company shall at all times during the term of the Option reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Agreement.

        5.6    Notices.    Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the address given beneath the signature of the Company's authorized officer on the Grant Notice, and any notice to be given to Participant shall be addressed to Participant at the address given beneath Participant's signature on the Grant Notice. By a notice given pursuant to this Section 5.6, either party may hereafter designate a different address for notices to be given to that party. Any notice which is required to be given to Participant shall, if Participant is then deceased, be given to the person entitled to exercise his or her Option pursuant to Section 4.1 by written notice under this Section 5.6. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

        5.7    Titles.    Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

        5.8    Stockholder Approval.    The Plan will be submitted for approval by the Company's stockholders within twelve months after the date the Plan was initially adopted by the Board. The Option may not be exercised to any extent by anyone prior to the time when the Plan is approved by the stockholders, and if such approval has not been obtained by the end of said twelve month period, the Option shall thereupon be canceled and become null and void.

        5.9    Governing Law; Severability.    This Agreement shall be administered, interpreted and enforced under the laws of the State of California, without regard to the conflicts of law principles thereof. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

        5.10    Conformity to Securities Laws.    Participant acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

        5.11    Amendments.    This Agreement may not be modified, amended or terminated except by an instrument in writing, signed by Participant or such other person as may be permitted to exercise the Option pursuant to Section 4.1 and by a duly authorized representative of the Company.

        5.12    No Employment Rights.    If Participant is an Employee, nothing in the Plan or this Agreement shall confer upon Participant any right to continue in the employ of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are expressly reserved, to discharge Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company and Participant.

        5.13    Successors and Assigns.    The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.

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        5.13    Notification of Disposition.    If this Option is designated as an Incentive Stock Option, Participant shall give prompt notice to the Company of any disposition or other transfer of any shares of Stock acquired under this Agreement if such disposition or transfer is made (a) within two years from the Grant Date with respect to such shares or (b) within one year after the transfer of such shares to him. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.

        5.14    Limitations Applicable to Section 16 Persons.    Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Option and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

        5.15    Entire Agreement.    The Plan and this Agreement (including all Exhibits hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.

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EXHIBIT B

TO STOCK OPTION GRANT NOTICE

FORM OF EXERCISE NOTICE

        Effective as of today,                                     ,                                     the undersigned ("Participant") hereby elects to exercise Participant's option to purchase                                    shares of the Stock (the "Shares") of Zogenix, Inc. (the "Company") under and pursuant to the Zogenix, Inc. 2006 Equity Incentive Plan (the "Plan") and the Stock Option Grant Notice and Stock Option Agreement dated                                    ,                         (the "Option Agreement"). Capitalized terms used herein without definition shall have the meanings given in the Option Agreement.

Grant Date:
Number of Shares as to which Option is Exercised:
Exercise Price per Share:	$
Total Exercise Price:	$
Certificate to be issued in name of:
Cash Payment delivered herewith:	$                                      (Representing the full Exercise Price for the Shares, as well as any applicable withholding tax)

        Type of Option:    o Incentive Stock Option             o Non-Qualified Stock Option

        1.    Representations of Participant.    Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement. Participant agrees to abide by and be bound by their terms and conditions.

        2.    Rights as Stockholder.    Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to the Option, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article 10 of the Plan.

        Participant shall enjoy rights as a stockholder until such time as Participant disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Participant shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Participant shall forthwith cause the certificate(s), if any issued, evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation.

        3.    Participant's Rights to Transfer Shares.    

        (a)   Before any Shares held by Participant or any permitted transferee (each, a "Holder") may be sold, pledged, assigned, hypothecated, transferred, or otherwise disposed of (each, a "Transfer"), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares proposed to be Transferred on the terms and conditions set forth in this Section (the "Right of First Refusal"). In the event that the Company's Bylaws contain a right of first refusal with respect to the Shares, such right of first refusal shall apply to the Shares to the extent such provisions are more restrictive than the Right of First Refusal set forth in this Section and the Right of First Refusal set forth in this Section shall not in any way restrict the operation of the Company's Bylaws.

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        (b)   In the event any Holder desires to Transfer any Shares, the Holder shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise Transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be Transferred to each Proposed Transferee; and (iv) the price for which the Holder proposes to Transfer the Shares (the "Offered Price"), and the Holder shall offer such Shares at the Offered Price to the Company or its assignee(s).

        (c)   Within twenty-five days after receipt of the Notice, the Company and/or its assignee(s) may elect in writing to purchase all, but not less than all, of the Shares proposed to be Transferred to any one or more of the Proposed Transferees by delivery of a written exercise notice to the Holder (a "Company Notice"). The purchase price will be determined in accordance with subsection (d) below.

        (d)   The purchase price ("Purchase Price") for the Shares repurchased under this Section shall be the Offered Price.

        (e)   Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within five days after delivery of the Company Notice or in the manner and at the times mutually agreed to by the Company and the Holder. Should the Offered Price specified in the Notice be payable in property other than cash, the Company shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If the Holder and the Company cannot agree on such cash value within ten days after the Company's receipt of the Notice, the valuation shall be made by the Board. The payment of the purchase price shall then be held on the later of (i) five days following delivery of the Company Notice or (ii) five days after such valuation shall have been made.

        (f)    If all or a portion of the Shares proposed in the Notice to be Transferred are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise Transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other Transfer is consummated within sixty days after the date of the Notice and provided further that any such sale or other Transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not Transferred to the Proposed Transferee within such sixty-day period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal as provided herein before any Shares held by the Holder may be sold or otherwise Transferred.

        (g)   Anything to the contrary contained in this Section notwithstanding, the Transfer of any or all of the Shares during Participant's lifetime or upon Participant's death by will or intestacy to Participant's Immediate Family or a trust for the benefit of Participant's Immediate Family shall be exempt from the Right of First Refusal. As used herein, "Immediate Family" shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister or stepchild (whether or not adopted). In such case, the transferee or other recipient shall receive and hold the Shares so Transferred subject to the provisions of this Section (including the Right of First Refusal) and the Restricted Stock Purchase Agreement, if applicable, and there shall be no further Transfer of such Shares except in accordance with the terms of this Section.

        (h)   The Right of First Refusal shall terminate as to all Shares upon the Public Trading Date.

        (i)    Any transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any Transfer or attempted Transfer of any of the

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Shares not in accordance with the terms of this Agreement shall be void and the Company may enforce the terms of this Agreement by stop transfer instructions or similar actions by the Company and its agents or designees.

        4.    Tax Consultation.    Participant understands that Participant may suffer adverse tax consequences as a result of Participant's purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice.

        5.    Restrictive Legends and Stop-Transfer Orders.    

        (a)   Legends.    Participant understands and agrees that the Company shall cause any certificates issued evidencing the Shares shall have the legends set forth below or legends substantially equivalent thereto, together with any other legends that may be required by state or federal securities laws:

THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH APPLICABLE STATE SECURITIES LAWS.

THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.

        (b)   Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

        (c)   The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

        6.    Participant Representations.    Participant hereby makes the following certifications and representations with respect to the Shares listed above:

        (a)   Participant is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Participant is acquiring these Shares for investment for Participant's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act.

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        (b)   Participant acknowledges and understands that the Shares constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Participant's investment intent as expressed herein. Participant understands that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the Company is under no obligation to register the Shares. Participant understands that the certificate evidencing the Shares will be imprinted with a legend which prohibits the transfer of the Shares unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and any other legend required under applicable state securities laws.

        (c)   Participant is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to Participant, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, ninety days thereafter (or such longer period as any market stand-off agreement may require) the securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (i) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Exchange Act); and, in the case of an affiliate, (ii) the availability of certain public information about the Company, (iii) the amount of securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (iv) the timely filing of a Form 144, if applicable.

        (d)   In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the securities were sold by the Company or the date the securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the securities by an affiliate, or by a non-affiliate who subsequently holds the securities less than two years, the satisfaction of the conditions set forth in sections (i), (ii), (iii) and (iv) of paragraph (c) above.

        (e)   Participant further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Participant understands that no assurances can be given that any such other registration exemption will be available in such event.

        7.    Successors and Assigns.    The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.

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        8.    Interpretation.    Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or by the Company forthwith to the Administrator, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on the Company and on Participant.

        9.    Governing Law; Severability.    This Agreement shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

        10.    Notices.    Any notice required or permitted hereunder shall be given in accordance with the provisions set forth in Section 5.6 of the Option Agreement.

        11.    Further Instruments.    The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.

        12.    Entire Agreement.    The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.

ACCEPTED BY: ZOGENIX, INC.	SUBMITTED BY PARTICIPANT:
By:	By:
Print Name:	Print Name:
Title:	Address:

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CONSENT OF SPOUSE

        I,                                     , spouse of                                    , have read and approve the Option Agreement and this Exercise Notice between my spouse and Zogenix, Inc. In consideration of granting of the right to my spouse to purchase shares of Zogenix, Inc. set forth in the Option Agreement and this Exercise Notice, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Option Agreement and this Exercise Notice and agree to be bound by the provisions of the Plan, the Option Agreement and this Exercise Notice insofar as I may have any rights in said agreements or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Exercise Notice.

Dated:	,
		Signature of Spouse

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ZOGENIX, INC.

2006 EQUITY INCENTIVE PLAN

STOCK OPTION GRANT NOTICE AND
STOCK OPTION AGREEMENT

        Zogenix, Inc. (the "Company"), pursuant to its 2006 Equity Incentive Plan (the "Plan"), hereby grants to the holder listed below ("Participant"), an option to purchase the number of shares of the Company's Stock set forth below (the "Option"). This Option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement attached hereto as Exhibit A (the "Stock Option Agreement") and the Plan, each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the Stock Option Agreement.

Participant:
Grant Date:
Vesting Commencement Date:
Exercise Price per Share:	$
Total Exercise Price:	$
Total Number of Shares Subject to the Option:
Expiration Date:

Type of Option:	o Incentive Stock Option        o Non-Qualified Stock Option
Exercise Schedule:	ý Early Exercise Permitted
Vesting Schedule:	This Option is exercisable immediately, in whole or in part, at such times as are established by the Administrator, conditioned upon Participant entering into a Restricted Stock Purchase Agreement with respect to any unvested shares of Stock. The shares subject to this Option shall vest and/or be released from the Company's Repurchase Option, as set forth in the Restricted Stock Purchase Agreement attached hereto as Exhibit C (the "Restricted Stock Purchase Agreement"), according to the following schedule:
	[To be specified in individual agreements.]

        By his or her signature and the Company's signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Stock Option Agreement and this Grant Notice. Participant has reviewed the Stock Option Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Stock Option Agreement and the Plan. Participant hereby

agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator of the Plan upon any questions arising under the Plan or the Option.

ZOGENIX, INC.	PARTICIPANT:
By:	By:
Print Name:	Print Name:
Title:
Address:	Address:

EXHIBIT A

TO STOCK OPTION GRANT NOTICE

STOCK OPTION AGREEMENT

        Pursuant to the Stock Option Grant Notice ("Grant Notice") to which this Stock Option Agreement (this "Agreement") is attached, Zogenix, Inc. (the "Company") has granted to Participant an option under the Company's 2006 Equity Incentive Plan (the "Plan") to purchase the number of shares of Stock indicated in the Grant Notice.

ARTICLE I
GENERAL

        1.1    Defined Terms.    Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.

        1.2    Incorporation of Terms of Plan.    The Option is subject to the terms and conditions of the Plan which are incorporated herein by reference.

ARTICLE II
GRANT OF OPTION

        2.1    Grant of Option.    In consideration of Participant's past and/or continued employment with or service to the Company or a Parent or Subsidiary and for other good and valuable consideration, effective as of the Grant Date set forth in the Grant Notice (the "Grant Date"), the Company irrevocably grants to Participant the Option to purchase any part or all of an aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and conditions set forth in the Plan and this Agreement. Unless designated as a Non-Qualified Stock Option in the Grant Notice, the Option shall be an Incentive Stock Option to the maximum extent permitted by law.

        2.2    Exercise Price.    The exercise price of the shares of Stock subject to the Option shall be as set forth in the Grant Notice, without commission or other charge; provided, however, that if this Option is designated as an Incentive Stock Option, the price per share of the shares subject to the Option shall not be less than the greater of (i) 100% of the Fair Market Value of a share of Stock on the Grant Date, or (ii) 110% of the Fair Market Value of a share of Stock on the Grant Date in the case of a Participant then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any "subsidiary corporation" of the Company or any "parent corporation" of the Company (each within the meaning of Section 424 of the Code).

ARTICLE III
PERIOD OF EXERCISABILITY

        3.1    Commencement of Exercisability.    

        (a)   Subject to Sections 3.3 and 5.8, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice. Alternatively, at the election of the Participant, this Option may be exercised in whole or in part at such times as are established by the Administrator as to shares of Stock which have not yet vested. Vested shares shall not be subject to the Company's Repurchase Option (as set forth in the Restricted Stock Purchase Agreement). As a condition to exercising this Option for unvested shares of Stock, the Participant shall execute the Restricted Stock Purchase Agreement.

        (b)   No portion of the Option which has not become vested and exercisable at the date of Participant's Termination of Service shall thereafter become vested and exercisable, except as may

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be otherwise provided by the Administrator or as set forth in a written agreement between the Company and Participant.

        3.2    Duration of Exercisability.    The installments provided for in the vesting schedule set forth in the Grant Notice are cumulative. Each such installment which becomes vested and exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and exercisable until it becomes unexercisable under Section 3.3.

        3.3    Expiration of Option.    The Option may not be exercised to any extent by anyone after the first to occur of the following events:

        (a)   The expiration of ten years from the Grant Date;

        (b)   If this Option is designated as an Incentive Stock Option and Participant owned (within the meaning of Section 424(d) of the Code), at the time the Option was granted, more than 10% of the total combined voting power of all classes of stock of the Company or any "subsidiary corporation" of the Company or "parent corporation" of the Company (each within the meaning of Section 424 of the Code), the expiration of five years from the date the Option was granted; or

        (c)   The expiration of three months following the date of Participant's Termination of Service, unless such termination occurs by reason of Participant's death, Disability or Misconduct;

        (d)   The expiration of one year following the date of Participant's Termination of Service by reason of Participant's death or Disability; or

        (e)   The date of Participant's Termination of Service as a result of Participant's Misconduct.

        Participant acknowledges that an Incentive Stock Option exercised more than three months after Participant's termination of status as an Employee, other than by reason of death or Disability, will be taxed as a Non-Qualified Stock Option.

        3.4    Special Tax Consequences.    Participant acknowledges that, to the extent that the aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options, including the Option, are first exercisable for the first time by Participant in any calendar year exceeds $100,000 (or such other limitation as imposed by Section 422(d) of the Code), the Option and such other options shall be treated as not qualifying under Section 422 of the Code but rather shall be considered Non-Qualified Stock Options. Participant further acknowledges that the rule set forth in the preceding sentence shall be applied by taking Options and other "incentive stock options" into account in the order in which they were granted.

ARTICLE IV
EXERCISE OF OPTION

        4.1    Person Eligible to Exercise.    Except as provided in Sections 5.2(b) and 5.2(c), during the lifetime of Participant, only Participant may exercise the Option or any portion thereof. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by Participant's personal representative or by any person empowered to do so under the deceased Participant's will or under the then applicable laws of descent and distribution.

        4.2    Partial Exercise.    Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3.

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        4.3    Manner of Exercise.    The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary of the Company or the Secretary's office of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3:

        (a)   An Exercise Notice in writing signed by Participant or any other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Administrator. Such notice shall be substantially in the form attached as Exhibit B to the Grant Notice (or such other form as is prescribed by the Administrator); and

        (b)   A Restricted Stock Purchase Agreement, if applicable, substantially in the form attached as Exhibit C to the Grant Notice;

        (c)   Subject to Section 5.1(c) of the Plan:

        (i)    Full payment (in cash or by check) for the shares with respect to which the Option or portion thereof is exercised; or

        (ii)   With the consent of the Administrator, by delivery of a full recourse promissory note on such terms and conditions as may be approved by the Administrator; or

        (iii)  With the consent of the Administrator, by delivery of shares of Stock then issuable upon exercise of the Option having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or

        (iv)  On and after the Public Trading Date, such payment may be made, in whole or in part, through the delivery of shares of Stock which have been owned by Participant for at least six months, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or

        (v)   On and after the Public Trading Date, through the delivery of a notice that Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided, that payment of such proceeds is made to the Company upon settlement of such sale; or

        (vi)  Subject to the consent of the Administrator and subject to any applicable laws, any combination of the consideration provided in the foregoing paragraphs (i), (ii) and (iii); and

        (d)   A bona fide written representation and agreement, in such form as is prescribed by the Administrator, signed by Participant or the other person then entitled to exercise such Option or portion thereof, stating that the shares of Stock are being acquired for Participant's own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that Participant or other person then entitled to exercise such Option or portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above. The Administrator may, in its absolute discretion, take whatever additional actions it deems appropriate to ensure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Administrator may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on an Option exercise does not violate the Securities Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing Stock issued on exercise of the Option shall bear an

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appropriate legend referring to the provisions of this subsection (d) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (d) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and

        (e)   The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which may be in the form of consideration used by Participant to pay for such shares under Section 4.3(b), subject to Section 15.3 of the Plan; and

        (f)    In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than Participant, appropriate proof of the right of such person or persons to exercise the Option.

        4.4    Conditions to Issuance of Stock Certificates.    The shares of Stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:

        (a)   The admission of such shares to listing on all stock exchanges on which such Stock is then listed; and

        (b)   The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; and

        (c)   The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and

        (d)   The lapse of such reasonable period of time following the exercise of the Option as the Administrator may from time to time establish for reasons of administrative convenience; and

        (e)   The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which may be in the form of consideration used by Participant to pay for such shares under Section 4.3(b), subject to Section 15.3 of the Plan.

        4.5    Rights as Stockholder.    The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until such shares shall have been issued by the Company to such holder.

ARTICLE V
OTHER PROVISIONS

        5.1    Administration.    The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon Participant, the Company and all other interested persons. No member of the Administrator shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the Option. In its absolute discretion, the Board may at any time and from

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time to time exercise any and all rights and duties of the Administrator under the Plan and this Agreement.

        5.2    Option Not Transferable.    

        (a)   Subject to Section 5.2(b), the Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares underlying the Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right therein shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

        (b)   Notwithstanding any other provision in this Agreement, with the consent of the Administrator and to the extent the Option is designated as a Non-Qualified Stock Option, the Option may be transferred to, exercised by and paid to one or more Permitted Transferees, subject to the terms and conditions set forth in Section 10.3 of the Plan.

        (c)   Unless transferred to a Permitted Transferee in accordance with Section 5.2(b), during the lifetime of Participant, only Participant may exercise the Option or any portion thereof. Subject to such conditions and procedures as the Administrator may require, a Permitted Transferee may exercise the Option or any portion thereof during Participant's lifetime. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by Participant's personal representative or by any person empowered to do so under the deceased Participant's will or under the then applicable laws of descent and distribution.

        5.3    Lock-Up Period.    Participant hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Participant shall not sell or otherwise transfer any shares of Stock or other securities of the Company during such period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company (which period shall not be longer than one hundred eighty days) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act.

        5.4    Restrictive Legends and Stop-Transfer Orders.    

        (a)   The share certificate or certificates evidencing the shares of Stock purchased hereunder shall be endorsed with any legends that may be required by state or federal securities laws.

        (b)   Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

        (c)   The Company shall not be required: (i) to transfer on its books any shares of Stock that have been sold or otherwise transferred in violation of any of the provisions of this Agreement, or (ii) to treat as owner of such shares of Stock or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such shares shall have been so transferred.

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        5.5    Shares to Be Reserved.    The Company shall at all times during the term of the Option reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Agreement.

        5.6    Notices.    Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the address given beneath the signature of the Company's authorized officer on the Grant Notice, and any notice to be given to Participant shall be addressed to Participant at the address given beneath Participant's signature on the Grant Notice. By a notice given pursuant to this Section 5.6, either party may hereafter designate a different address for notices to be given to that party. Any notice which is required to be given to Participant shall, if Participant is then deceased, be given to the person entitled to exercise his or her Option pursuant to Section 4.1 by written notice under this Section 5.6. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

        5.7    Titles.    Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

        5.8    Stockholder Approval.    The Plan will be submitted for approval by the Company's stockholders within twelve months after the date the Plan was initially adopted by the Board. The Option may not be exercised to any extent by anyone prior to the time when the Plan is approved by the stockholders, and if such approval has not been obtained by the end of said twelve month period, the Option shall thereupon be canceled and become null and void.

        5.9    Governing Law; Severability.    This Agreement shall be administered, interpreted and enforced under the laws of the State of California, without regard to the conflicts of law principles thereof. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

        5.10    Conformity to Securities Laws.    Participant acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

        5.11    Amendments.    This Agreement may not be modified, amended or terminated except by an instrument in writing, signed by Participant or such other person as may be permitted to exercise the Option pursuant to Section 4.1 and by a duly authorized representative of the Company.

        5.12    No Employment Rights.    If Participant is an Employee, nothing in the Plan or this Agreement shall confer upon Participant any right to continue in the employ of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are expressly reserved, to discharge Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company and Participant.

        5.13    Successors and Assigns.    The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.

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        5.13    Notification of Disposition.    If this Option is designated as an Incentive Stock Option, Participant shall give prompt notice to the Company of any disposition or other transfer of any shares of Stock acquired under this Agreement if such disposition or transfer is made (a) within two years from the Grant Date with respect to such shares or (b) within one year after the transfer of such shares to him. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.

        5.14    Limitations Applicable to Section 16 Persons.    Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Shares and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

        5.15    Entire Agreement.    The Plan and this Agreement (including all Exhibits hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.

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EXHIBIT B

TO STOCK OPTION GRANT NOTICE

FORM OF EXERCISE NOTICE

        Effective as of today,                                     ,                                      the undersigned ("Participant") hereby elects to exercise Participant's option to purchase                                      shares of the Stock (the "Shares") of Zogenix, Inc. (the "Company") under and pursuant to Zogenix, Inc. 2006 Equity Incentive Plan (the "Plan") and the Stock Option Grant Notice and Stock Option Agreement dated                                     ,                          (the "Option Agreement"). Capitalized terms used herein without definition shall have the meanings given in the Option Agreement.

Grant Date:
Number of Shares as to which Option is Exercised:
Exercise Price per Share:	$
Total Exercise Price:	$
Certificate to be issued in name of:
Cash Payment delivered herewith:	$                                      (Representing the full Exercise Price for the Shares, as well as any applicable withholding tax)

        Type of Option:    o Incentive Stock Option             o Non-Qualified Stock Option

        1.    Representations of Participant.    Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement. Participant agrees to abide by and be bound by their terms and conditions.    

        2.    Rights as Stockholder.    Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to the Option, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article 10 of the Plan.    

        Participant shall enjoy rights as a stockholder until such time as Participant disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Participant shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Participant shall forthwith cause the certificate(s), if any issued, evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation.

        3.    Participant's Rights to Transfer Shares.    

        (a)   Before any Shares held by Participant or any permitted transferee (each, a "Holder") may be sold, pledged, assigned, hypothecated, transferred, or otherwise disposed of (each, a "Transfer"), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares proposed to be Transferred on the terms and conditions set forth in this Section (the "Right of First Refusal"). In the event that the Company's Bylaws contain a right of first refusal with respect to the Shares, such right of first refusal shall apply to the Shares to the extent such provisions are more restrictive than the Right of First Refusal set forth in this Section and the Right of First Refusal set forth in this Section shall not in any way restrict the operation of the Company's Bylaws.

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        (b)   In the event any Holder desires to Transfer any Shares, the Holder shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise Transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be Transferred to each Proposed Transferee; and (iv) the price for which the Holder proposes to Transfer the Shares (the "Offered Price"), and the Holder shall offer such Shares at the Offered Price to the Company or its assignee(s).

        (c)   Within twenty-five days after receipt of the Notice, the Company and/or its assignee(s) may elect in writing to purchase all, but not less than all, of the Shares proposed to be Transferred to any one or more of the Proposed Transferees by delivery of a written exercise notice to the Holder (a "Company Notice"). The purchase price will be determined in accordance with subsection (d) below.

        (d)   The purchase price ("Purchase Price") for the Shares repurchased under this Section shall be the Offered Price.

        (e)   Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within five days after delivery of the Company Notice or in the manner and at the times mutually agreed to by the Company and the Holder. Should the Offered Price specified in the Notice be payable in property other than cash, the Company shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If the Holder and the Company cannot agree on such cash value within ten days after the Company's receipt of the Notice, the valuation shall be made by the Board. The payment of the purchase price shall then be held on the later of (i) five days following delivery of the Company Notice or (ii) five days after such valuation shall have been made.

        (f)    If all or a portion of the Shares proposed in the Notice to be Transferred are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise Transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other Transfer is consummated within sixty days after the date of the Notice and provided further that any such sale or other Transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section and the Restricted Stock Purchase Agreement, if applicable, shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not Transferred to the Proposed Transferee within such sixty-day period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal as provided herein before any Shares held by the Holder may be sold or otherwise Transferred.

        (g)   Anything to the contrary contained in this Section notwithstanding, the Transfer of any or all of the Shares during Participant's lifetime or upon Participant's death by will or intestacy to Participant's Immediate Family or a trust for the benefit of Participant's Immediate Family shall be exempt from the Right of First Refusal. As used herein, "Immediate Family" shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister or stepchild (whether or not adopted). In such case, the transferee or other recipient shall receive and hold the Shares so Transferred subject to the provisions of this Section (including the Right of First Refusal) and the Restricted Stock Purchase Agreement, if applicable, and there shall be no further Transfer of such Shares except in accordance with the terms of this Section.

        (h)   The Right of First Refusal shall terminate as to all Shares upon the Public Trading Date.

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        (i)    Any transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any Transfer or attempted Transfer of any of the Shares not in accordance with the terms of this Agreement shall be void and the Company may enforce the terms of this Agreement by stop transfer instructions or similar actions by the Company and its agents or designees.

        4.    Tax Consultation.    Participant understands that Participant may suffer adverse tax consequences as a result of Participant's purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice.    

        5.    Restrictive Legends and Stop-Transfer Orders.    

        (a)   Legends.    Participant understands and agrees that the Company shall cause any certificates issued evidencing the Shares shall have the legends set forth below or legends substantially equivalent thereto, together with any other legends that may be required by state or federal securities laws:

THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH APPLICABLE STATE SECURITIES LAWS.

THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.

        (b)   Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

        (c)   The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

        6.    Participant Representations.    Participant hereby makes the following certifications and representations with respect to the Shares listed above:    

        (a)   Participant is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Participant is acquiring these Shares for investment for Participant's

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own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act.

        (b)   Participant acknowledges and understands that the Shares constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Participant's investment intent as expressed herein. Participant understands that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the Company is under no obligation to register the Shares. Participant understands that the certificate evidencing the Shares will be imprinted with a legend which prohibits the transfer of the Shares unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and any other legend required under applicable state securities laws.

        (c)   Participant is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to Participant, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, ninety days thereafter (or such longer period as any market stand-off agreement may require) the securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (i) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Exchange Act); and, in the case of an affiliate, (ii) the availability of certain public information about the Company, (iii) the amount of securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (iv) the timely filing of a Form 144, if applicable.

        (d)   In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the securities were sold by the Company or the date the securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the securities by an affiliate, or by a non-affiliate who subsequently holds the securities less than two years, the satisfaction of the conditions set forth in sections (i), (ii), (iii) and (iv) of paragraph (c) above.

        (e)   Participant further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Participant understands that no assurances can be given that any such other registration exemption will be available in such event.

        7.    Successors and Assigns.    The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns

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of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.    

        8.    Interpretation.    Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or by the Company forthwith to the Administrator, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on the Company and on Participant.    

        9.    Governing Law; Severability.    This Agreement shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.    

        10.    Notices.    Any notice required or permitted hereunder shall be given in accordance with the provisions set forth in Section 5.6 of the Option Agreement.    

        11.    Further Instruments.    The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.    

        12.    Entire Agreement.    The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement, and the Restricted Stock Purchase Agreement, if applicable, constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.    

ACCEPTED BY: ZOGENIX, INC.	SUBMITTED BY PARTICIPANT:
By:	By:
Print Name:	Print Name:
Title:	Address:

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CONSENT OF SPOUSE

        I,                                     , spouse of                                    , have read and approve the Option Agreement and this Exercise Notice between my spouse and Zogenix, Inc. In consideration of granting of the right to my spouse to purchase shares of Zogenix, Inc. set forth in the Option Agreement and this Exercise Notice, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Option Agreement and this Exercise Notice and agree to be bound by the provisions of the Plan, the Option Agreement and this Exercise Notice insofar as I may have any rights in said agreements or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Exercise Notice.

Dated:	,
		Signature of Spouse

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EXHIBIT C

TO STOCK OPTION GRANT NOTICE

RESTRICTED STOCK PURCHASE AGREEMENT

        THIS RESTRICTED STOCK PURCHASE AGREEMENT is made between                                      (the "Purchaser") and Zogenix, Inc. (the "Company"), as of                                     ,                         .

RECITALS

        (1)   Pursuant to the exercise of the Option granted to Purchaser under the Company's 2006 Equity Incentive Plan (the "Plan") and pursuant to the Stock Option Agreement (the "Option Agreement") dated                                     ,                         , by and between the Company and Purchaser with respect to such grant, which Option Agreement is hereby incorporated by reference, Purchaser has elected to purchase                                      of those shares which have not become vested under the vesting schedule set forth in the Option Agreement ("Unvested Shares"). The Unvested Shares and the shares subject to the Option Agreement which have become vested are sometimes collectively referred to herein as the "Shares".

        (2)   As required by the Option Agreement, as a condition to Purchaser's election to exercise the option, Purchaser must execute this Restricted Stock Purchase Agreement, which sets forth the rights and obligations of the parties with respect to Shares acquired upon exercise of the Option.

        1.    Repurchase Option.    

        (a)   In the event of Purchaser's Termination of Service (as defined in the Option Agreement), for any reason, including for cause, death, Disability or Misconduct, the Company shall have the right and option to purchase from Purchaser, or Purchaser's personal representative, as the case may be, all of Purchaser's Unvested Shares as of the date of the Purchaser's Termination of Service at the exercise price paid by Purchaser for such Shares in connection with the exercise of the Option (the "Repurchase Option").

        (b)   The Company may exercise its Repurchase Option by delivering, personally or by registered mail, to Purchaser (or his or her transferee or legal representative, as the case may be), within ninety days of the date of the Purchaser's Termination of Service, a notice in writing indicating the Company's intention to exercise the Repurchase Option and setting forth a date for closing not later than thirty days from the mailing of such notice. The closing shall take place at the Company's office. At the closing, the holder of the certificates for the Unvested Shares being transferred shall deliver the stock certificate or certificates evidencing the Unvested Shares, and the Company shall deliver the purchase price therefor.

        (c)   At its option, the Company may elect to make payment for the Unvested Shares to a bank selected by the Company. The Company shall avail itself of this option by a notice in writing to Purchaser stating the name and address of the bank, date of closing, and waiving the closing at the Company's office.

        (d)   If the Company does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within ninety days following the date of Purchaser's Termination of Service, the Repurchase Option shall terminate.

        (e)   100% of the Unvested Shares shall initially be subject to the Repurchase Option. The Unvested Shares shall be released from the Repurchase Option in accordance with the Vesting Schedule set forth in the Option Agreement until all Shares are released from the Repurchase Option. Fractional Shares shall be rounded down to the nearest whole share.

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        2.    Transferability of the Shares; Escrow.    

        (a)   Purchaser hereby authorizes and directs the secretary of the Company, or such other person designated by the Company from time to time, to transfer the Unvested Shares as to which the Repurchase Option has been exercised from Purchaser to the Company.

        (b)   To insure the availability for delivery of Purchaser's Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option under Section 1, Purchaser hereby appoints the assistant secretary, or any other person designated by the Company from time to time as escrow agent, as its attorney-in-fact to sell, assign and transfer unto the Company, such Unvested Shares, if any, repurchased by the Company pursuant to the Repurchase Option. If certificates for the Shares are issued, then Purchaser shall, upon execution of this Agreement, deliver and deposit with the assistant secretary of the Company, or such other person designated by the Company from time to time, any share certificate(s) issued representing the Unvested Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit C-1. The Unvested Shares and stock assignment shall be held by the assistant secretary in escrow, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as Exhibit C-2 hereto, until the Company exercises its Repurchase Option as provided in Section 1, until such Unvested Shares are vested, or until such time as this Agreement no longer is in effect. As a further condition to the Company's obligations under this Agreement, the spouse of Purchaser, if any, shall execute and deliver to the Company the Consent of Spouse set forth on the signature page hereto. Upon vesting of the Unvested Shares, the escrow agent shall promptly deliver to Purchaser the certificate or certificates representing such Shares in the escrow agent's possession belonging to Purchaser, and the escrow agent shall be discharged of all further obligations hereunder; provided, however, that the escrow agent shall nevertheless retain such certificate or certificates as escrow agent if so required pursuant to other restrictions imposed pursuant to this Agreement. If the Shares are held in book entry form, then such entry will reflect that the Shares are subject to the restrictions of this Agreement.

        (c)   The Company, or its designee, shall not be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of its judgment.

        (d)   Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all the provisions hereof and the Exercise Notice executed by Purchaser with respect to any Unvested Shares purchased by Purchaser and shall acknowledge the same by signing a copy of this Agreement. Any transfer or attempted transfer of any of the Shares not in accordance with the terms of this Agreement shall be void and the Company may enforce the terms of this Agreement by stop transfer instructions or similar actions by the Company and its agents or designees.

        3.    Ownership, Voting Rights, Duties.    This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of Purchaser, except as specifically provided herein.

        4.    Legends.    Any share certificate evidencing the Shares issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable securities laws):

THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

        5.    Adjustment for Stock Split.    In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, the Administrator shall make appropriate and equitable adjustments in the Unreleased Shares subject

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to the Repurchase Option and the number of Shares, consistent with any adjustment under Section 11.1 of the Plan. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Shares, to any and all shares of capital stock or other securities or other property or cash which may be issued in respect of, in exchange for, or in substitution of the Shares, and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof.

        6.    Notices.    Notices required hereunder shall be given in person or by registered mail to the address of Purchaser shown on the records of the Company, and to the Company at its principal executive office.

        7.    Survival of Terms.    This Agreement shall apply to and bind Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.

        8.    Section 83(b) Elections.    

        (a)   Election for Unvested Shares Purchased Pursuant to a Non-Qualified Stock Option. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of a Non-Qualified Stock Option for Unvested Shares, that unless an election is filed by Purchaser with the Internal Revenue Service and, if necessary, the proper state taxing authorities, within thirty days of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of taxable income to the Purchaser, measured by the excess, if any, of the fair market value of the Shares, at the time the Company's Repurchase Option lapses over the purchase price for the Shares. Purchaser represents that Purchaser has consulted any tax consultant(s) Purchaser deems advisable in connection with the purchase of the Shares or the filing of the election under Section 83(b) and similar tax provisions.

        (b)   Election for Unvested Shares Purchased Pursuant to an Incentive Stock Option. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of an Incentive Stock Option for Unvested Shares, that unless an election is filed by Purchaser with the Internal Revenue Service and, if necessary, the proper state taxing authorities, within thirty days of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of income to the Purchaser, for alternative minimum tax purposes measured by the excess, if any, of the fair market value of the Shares at the time the Company's Repurchase Option lapses over the purchase price for the Shares. Purchaser further acknowledges that if an election is filed under Section 83(b) of the Code for the Unvested Shares and such shares are sold or transferred prior to the date two years following the Grant Date and one year following the purchase date of such shares, there will be a recognition of income to the Purchaser, for ordinary income, measured by the excess, if any, of the fair market value of the Shares at the time the Company's Repurchase Option lapses over the purchase price for the Shares. Purchaser represents that Purchaser has consulted any tax consultant(s) Purchaser deems advisable in connection with the purchase of the Shares or the filing of the election under Section 83(b) and similar tax provisions.

PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S BEHALF.

C-3

        9.    Representations.    Purchaser has reviewed with his or her own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that Purchaser (and not the Company) shall be responsible for his or her own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

        10.    Governing Law; Severability.    This Agreement shall be governed by and construed in accordance with the laws of the State of California excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

        Purchaser represents that he or she has read this Agreement and is familiar with its terms and provisions. Purchaser hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under this Agreement.

(Signature Page Follows)

C-4

IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set forth above.

ZOGENIX, INC.

By:

Title:

PURCHASER

By:

Name:

Address:

C-5

CONSENT OF SPOUSE

        I,                                     , spouse of                                    , have read and approve this Agreement between my spouse and Zogenix, Inc. In consideration of granting of the right to my spouse to purchase shares of Zogenix, Inc. set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Plan, the Option Agreement and this Agreement insofar as I may have any rights in said agreements or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement.

Signature of Spouse

C-6

EXHIBIT C-1

TO RESTRICTED STOCK PURCHASE AGREEMENT

ASSIGNMENT SEPARATE FROM CERTIFICATE

        FOR VALUE RECEIVED, the undersigned,                                     , hereby sells, assigns and transfers unto Zogenix, Inc., a Delaware corporation (the "Company"),                        shares of the common stock of the Company standing in its name of the books of said corporation represented by Certificate No.                         herewith and do hereby irrevocably constitute and appoint                                    to transfer the said stock on the books of the within named corporation with full power of substitution in the premises.

        This Stock Assignment may be used only in accordance with the Restricted Stock Award Agreement between the Company and the undersigned dated                                    ,                         .

Dated:
	,
		Print Name:

        INSTRUCTIONS:    Please do not fill in the blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its "Repurchase Option," as set forth in the Restricted Stock Award Agreement, without requiring additional signatures on the part of Purchaser.

C-1-1

EXHIBIT C-2

TO RESTRICTED STOCK PURCHASE AGREEMENT

JOINT ESCROW INSTRUCTIONS

,

Secretary
Zogenix, Inc.
12760 High Bluff Drive, Suite 130
San Diego, CA 92130

        As Escrow Agent for both Zogenix, Inc. (the "Company") and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions:

        1.     In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's Repurchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.

        2.     At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver the same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or a combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company's Repurchase Option.

        3.     Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute, with respect to such securities, all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you.

        4.     Upon written request of Purchaser, but no more than once per calendar year, unless the Company's Repurchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing the number of shares of stock as are not then subject to the Company's Repurchase Option. Within one hundred twenty days after the date of the Purchaser's Termination of Service, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company's Repurchase Option.

C-2-1

        5.     If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder.

        6.     Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.

        7.     You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.

        8.     You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

        9.     You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.

        10.   You shall not be liable for the expiration of any rights under any applicable state, federal or local statute of limitations or similar statute or regulation with respect to these Joint Escrow Instructions or any documents deposited with you.

        11.   You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefore.

        12.   Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent.

        13.   If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

        14.   It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.

        15.   Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at such addresses as a party may designate by written notice to each of the other parties hereto.

C-2-2

        16.   By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.

        17.   This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.

        18.   These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding that body of law pertaining to conflicts of law.

(Signature Page Follows)

C-2-3

        IN WITNESS WHEREOF, these Joint Escrow Instructions shall be effective as of the date first set forth above.

Very truly yours,
ZOGENIX, INC.
By:
	Name:   Title:
Address:
PARTICIPANT:

Print
Name:

Address:

ESCROW AGENT:
By:
	Secretary, Zogenix, Inc.
Address:

C-2-4

QuickLinks

Exhibit 10.3

ZOGENIX, INC. 2006 EQUITY INCENTIVE PLAN (as amended through May 20, 2008)
ARTICLE 1 PURPOSE
ARTICLE 2 DEFINITIONS AND CONSTRUCTION
ARTICLE 3 SHARES SUBJECT TO THE PLAN
ARTICLE 4 ELIGIBILITY AND PARTICIPATION
ARTICLE 5 STOCK OPTIONS
ARTICLE 6 RESTRICTED STOCK AWARDS
ARTICLE 7 STOCK APPRECIATION RIGHTS
ARTICLE 8 OTHER TYPES OF AWARDS
ARTICLE 9 COMPLIANCE WITH SECTION 409A OF THE CODE
ARTICLE 10 PROVISIONS APPLICABLE TO AWARDS
ARTICLE 11 CHANGES IN CAPITAL STRUCTURE
ARTICLE 12 ADMINISTRATION
ARTICLE 13 EFFECTIVE AND EXPIRATION DATE
ARTICLE 14 AMENDMENT, MODIFICATION, AND TERMINATION
ARTICLE 15 GENERAL PROVISIONS
APPENDIX I TO ZOGENIX, INC. 2006 EQUITY INCENTIVE PLAN California State Securities Law Compliance
ZOGENIX, INC. 2006 EQUITY INCENTIVE PLAN STOCK OPTION GRANT NOTICE AND STOCK OPTION AGREEMENT
EXHIBIT A TO STOCK OPTION GRANT NOTICE STOCK OPTION AGREEMENT
ARTICLE I GENERAL
ARTICLE II GRANT OF OPTION
ARTICLE III PERIOD OF EXERCISABILITY
ARTICLE IV EXERCISE OF OPTION
ARTICLE V OTHER PROVISIONS
EXHIBIT B TO STOCK OPTION GRANT NOTICE FORM OF EXERCISE NOTICE
CONSENT OF SPOUSE
ZOGENIX, INC. 2006 EQUITY INCENTIVE PLAN STOCK OPTION GRANT NOTICE AND STOCK OPTION AGREEMENT
EXHIBIT A TO STOCK OPTION GRANT NOTICE STOCK OPTION AGREEMENT
ARTICLE I GENERAL
ARTICLE II GRANT OF OPTION
ARTICLE III PERIOD OF EXERCISABILITY
ARTICLE IV EXERCISE OF OPTION
ARTICLE V OTHER PROVISIONS
EXHIBIT B TO STOCK OPTION GRANT NOTICE FORM OF EXERCISE NOTICE
CONSENT OF SPOUSE
EXHIBIT C TO STOCK OPTION GRANT NOTICE RESTRICTED STOCK PURCHASE AGREEMENT
CONSENT OF SPOUSE
EXHIBIT C-1 TO RESTRICTED STOCK PURCHASE AGREEMENT ASSIGNMENT SEPARATE FROM CERTIFICATE
EXHIBIT C-2 TO RESTRICTED STOCK PURCHASE AGREEMENT JOINT ESCROW INSTRUCTIONS

EX-10.7

Exhibit 10.7

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

ASSET PURCHASE AGREEMENT

BY AND BETWEEN

ARADIGM CORPORATION.

AND

SJ2 THERAPEUTICS, INC.

Dated as of August 25, 2006

TABLE OF CONTENTS

			Page
ARTICLE I	DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
Section 1.01		Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Section 1.02		Additional Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
ARTICLE II	ASSIGNMENT TRANSFER AND LICENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			6
Section 2.01		Assignment of Assigned Assets to Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Section 2.02		Asset Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Section 2.03		Coordination Leads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Section 2.04		Transitional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Section 2.05		Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Section 2.06		Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Section 2.07		Closing, Closing Place, Time and Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		9
Section 2.08		Nontransferable Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		10
Section 2.09		FTO Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		11
Section 2.10		Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		11
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF ARADIGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			11
Section 3.01		Organization, Qualification, and Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.02		Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.03		Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.04		Transferred Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.05		Transferred Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
Section 3.06		Transferred Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		13
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			15
Section 4.01		Organization, Qualification, and Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 4.02		Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
ARTICLE V	OTHER AGREEMENTS AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			15
Section 5.01		Additional Documents and Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 5.02		Reasonable Cooperation of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 5.03		Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 5.04		Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		15
Section 5.05		Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		16
ARTICLE VI	MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			17
Section 6.01		Press Releases and Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		17
Section 6.02		No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		17

Section 6.03	Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Section 6.04	Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Section 6.05	Entire Agreement and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.06	Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.07	Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.08	Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.09	Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.10	Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Section 6.11	Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Section 6.12	Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Section 6.13	Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Section 6.14	Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Section 6.15	Attorneys’ Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Section 6.16	Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20

EXHIBITS

EXHIBIT A	Transferred Assets (including Transferred Technology)
EXHIBIT B	Transferred Books and Records
EXHIBIT C	Transferred Contracts
EXHIBIT D	Transferred Intellectual Property
EXHIBIT E	General Assignment and Bill of Sale
EXHIBIT F	Assumed Liabilities
EXHIBIT G	Transfer Plan
EXHIBIT H	Transitional Services Agreement
EXHIBIT I	Intraject Delivery System
EXHIBIT J	Nontransferable Assets

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of August 25, 2006 by and between Aradigm Corporation, a California corporation (“Aradigm”), and SJ2 Therapeutics, Inc., a Delaware corporation (“Purchaser”). Aradigm and Purchaser are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

A.Aradigm desires to assign and transfer to Purchaser, and Purchaser desires to accept assignment and transfer from Aradigm, on the terms and subject to the conditions set forth herein, those certain assets of Aradigm related to the Intraject Delivery System.

B.Furthermore, Aradigm and Purchaser desire to make certain representations, warranties, covenants and other agreements in connection with the transactions contemplated hereby.

NOW, THEREFORE, in consideration of the covenants and representations set forth herein, and for other good and valuable consideration, the parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01Certain Definitions.  As used in this Agreement, the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa). Certain other terms are defined in the text of this Agreement.

(a)“Affiliate” means a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated Party, but only for so long as such control exists. As used in this definition only, “control” shall mean ownership of shares of stock having at least 50% of the voting power entitled to vote for the election of directors in the case of a corporation (or, in the case of an entity that is not a corporation, in the election of the corresponding managing authority), or otherwise having the power to directly or indirectly control the management of such entity.

(b)“Assigned Assets” shall mean any and all of Aradigm’s right, title and interest in and to the following:

(i)any and all tangible assets owned or otherwise transferable by Aradigm as of the Closing Date, in each case to the extent exclusively used or held for use in the Business, including those assets listed on Exhibit A (collectively, “Transferred Assets”);

(ii)the Books and Records listed on Exhibit B (collectively, “Transferred Books and Records”);

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(iii)all agreements listed on Exhibit C (collectively, “Transferred Contracts”);

(iv)all Patents (including in each case all rights to Prosecute and Enforce the same) listed on Exhibit D (collectively, “Transferred Patents”);

(v)all Trademarks (including in each case all rights to Prosecute and Enforce the same) listed on Exhibit D (collectively, “Transferred Trademarks”);

(vi)any and all Technology owned or otherwise transferable by Aradigm as of the Closing Date, other than the Transferred Patents and Transferred Trademarks, in each case to the extent exclusively used or held for use in the Business, including that Technology listed on Exhibit A (collectively, “Transferred Technology”); and

(vii)any and all right to recover past, present and future damages for the breach, infringement or misappropriation, as the case may be, of any of the foregoing.

(c)“Books and Records” shall mean all papers and records (in any format including paper or electronic) kept or maintained including any and all laboratory notebooks, invention disclosures, purchasing and sales records, all data and communications relating to ongoing business development activities, preclinical and clinical data, all Regulatory Documents, vendor lists, accounting and financial records, product documentation, product specifications, marketing documents and the like, in each case pertaining to the Business or the Assigned Assets.

(d)“Business” shall mean the research, development, commercialization, manufacture, marketing, distribution, sale, support and other use and commercial exploitation of the Intraject Delivery System.

(e)“Business Intellectual Property” shall mean any and all Technology and any and all Intellectual Property Rights, including Registered Intellectual Property Rights, that is or are owned (in whole or in part) by or exclusively licensed to Aradigm, as of the Closing Date, in each case that are used in or necessary to the Business.

(f)“Dollars” shall refer to United States currency unless expressly specified otherwise.

(g)“Governmental Body” shall mean any: (i) nation, province, state, county, city, town, village, district, or other jurisdiction of any nature; (ii) federal, provincial, state, local, municipal, foreign, or other government; (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (iv) multi-national organization or body; or (v) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

(h)“Intraject Delivery System” shall mean Aradigm’s Intraject® needle-free injection delivery system as more fully described in Exhibit I (the “Existing Delivery System”)

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or any modified, improved or derivative version thereof, in each case that includes one or more material elements of the Existing Delivery System.

(i)“Intellectual Property Rights” shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States and foreign patents and utility models and applications therefor and all reissues, divisionals, re examinations, renewals, extensions, provisionals, supplementary protection certificates, continuations and continuations in-part thereof, and equivalent or similar registered rights anywhere in the world (“Patents”); (ii) all trade secrets and other rights in know-how and confidential or proprietary information, inventions and discoveries, including without limitation invention disclosures; (iii) all copyrights, works of authorship, copyright registrations and applications therefor and all other rights corresponding thereto throughout the world (“Copyrights”); (iv) all rights in Uniform Resource Locators, World Wide Web addresses and domain names and applications and registrations therefor (“Internet Property Rights”); (v) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world (“Trademarks”); and (vi) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world, including, without limitation, moral rights.

(j)“Licensee” shall mean a Person other than an Affiliate to whom Purchaser or its Affiliate has granted the right, or to whom such a Person has sublicensed the right, to (i) make and sell any Product or (ii) sell any Product, provided that distributors, wholesalers and resellers as to which Purchaser does not receive compensation on resales of Products by such entity shall not be considered Licensees.

(k)“Lien” shall mean any mortgage, pledge, lien, charge, claim, security interest, adverse claims of ownership or use, restrictions on transfer, defect of title or other encumbrance of any sort, other than (i) mechanic’s, materialmen’s, and similar liens with respect to any amounts not yet due and payable, and (ii) liens for taxes not yet due and payable.

(l)“Net Sales” shall mean the amounts actually received by Purchaser, its Affiliates, or Licensees, in consideration of their sales of Product to Third Party customers, less: (i) normal and customary trade, cash and other discounts; (ii) credits or allowances for damaged goods, returns, rejections or recalls of Product; (iii) sales taxes, value added taxes, withholding, import/export taxes or other similar taxes (excluding taxes on the income of the selling entity) actually paid; (iv) normal and customary charge back payments or rebates; and (v) packaging, handling fees, prepaid freight, insurance and the like to the extent separately identified on the invoice. Sales between or among Purchaser, its Affiliates or Licensees for resale shall be excluded from the computation of Net Sales, but the subsequent re sale of such Products by Purchaser, its Affiliates or Licensees to an end user shall be included within the computation of Net Sales. Net Sales shall not include amounts in respect of Product sold or used for development applications (including for clinical trials) or commercial samples (i.e., items provided for free or at or below cost plus a nominal profit for promotional purposes).

(m)“Nontransferable Asset” shall have the meaning ascribed to the term in Section 9.

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(n)“Non-Sumatriptan Product” shall mean any Product comprising the Intraject Delivery System combined with an applicable drug formulation, other than Sumatriptan.

(o)“Person” shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, Governmental Body or other entity.

(p)“Product” shall mean any pharmaceutical product comprising the Intraject Delivery System combined with Sumatriptan or other applicable drug formulation.

(q)“Prosecution and Enforcement” shall mean (i) the preparation, filing for, prosecution, maintenance of registrations thereof and applications for any such registration (ii) the conduct of interferences, re examinations, reissues, oppositions or requests for term extensions with respect thereto and (iii) the conduct of any enforcement proceeding with respect thereto (whether infringement, misuse, misappropriation or otherwise) or any declaratory judgment proceeding with respect thereto; and “Prosecute and Enforce” shall have the correlative meaning.

(r)“Pulmonary Field” shall mean the delivery of one or more aerosolized active pharmaceutical ingredients directly into the bronchia or lungs.

(s)“Registered Intellectual Property Rights” shall mean all United States, international and foreign: (i) Patents, including applications therefor (each a “Registered Patent”); (ii) registered Trademarks, applications to register Trademarks, including intent-to use applications, or other registrations or applications related to Trademarks; (iii) Copyright registrations and applications to register Copyrights; and (iv) any other Technology or Intellectual Property Rights that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public or private legal authority at any time.

(t)“Regulatory Documents” shall mean any and all regulatory submissions (whether completed or in process) to any Governmental Body anywhere in the world submitted by or on behalf of Aradigm relating to the Business (including any product developed in connection therewith), including all annual reports, adverse event reports, and other adverse event submission tracking information, and amendments and supplements to any of the foregoing. For purposes of clarity, “Regulatory Documents” shall not include any filing or other submission made to the United States Securities and Exchange Commission, the National Association of Securities Dealers, the Nasdaq Stock Exchange or any similar entity.

(u)“Representatives” shall mean, with respect to a Person, that Person’s officers, directors, employees, accountants, counsel, investment bankers, financial advisors, agents and other representatives.

(v)“Royalty Revenue” shall mean running royalties actually received by Purchaser from a Licensee for sales of Non-Sumatriptan Products by or under authority of such Licensee, plus any license fees or milestone or other payments receive by Purchaser from a Licensee to the extent not allocable to recovery of development or other costs incurred by Purchaser specific to

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the applicable Product. For clarity, Royalty Revenue shall exclude: (i) payments in consideration of goods (including Products) or services at Purchaser’s fully-burdened cost therefor (any amounts in excess of the fully-burdened cost shall be included in Royalty Revenue), (ii) payments in consideration for equity at the fair market value therefor (any amounts in excess of the fair market value shall be included in Royalty Revenue) and (iii) amounts received by Purchaser in consideration for a sale of all, or substantially all, of the business or assets of Purchaser (whether by way of merger, sale of stock, sale of assets or otherwise), if the successor to such business or assets has assumed the obligations under Section 2.06(a) of this Agreement.

(w)“Royalty Term” shall mean, for a given Product, the period commencing on the Closing Date and continuing until the later of (i) the ten-year anniversary of the first commercial sale of such Product in the United States, but no more than twenty years after the Closing Date cand (ii) the later of expiration or abandonment of the last Valid Claim of the Transferred Patents covering the manufacture, use or sale of such Product.

(x)“Sumatriptan Product” shall mean any Product comprising the Intraject Delivery System combined with Sumatriptan.

(y)“Technology” shall mean any or all of the following: (i) works of authorship including, without limitation, computer programs, source code and executable code, whether embodied in software, firmware or otherwise, documentation, designs, files, net lists, records, data and mask works; (ii) inventions (whether or not patentable), improvements, and technology; (iii) proprietary and confidential information, including technical data and customer and supplier lists, trade secrets and know how; (iv) databases, data compilations and collections and technical data; (v) logos, trade names, trade dress, trademarks, service marks; (vi) World Wide Web addresses, domain names and sites; (vii) protocols, methods and processes; and (viii) all instantiations of the foregoing in any form and embodied in any media.

(z)“Territory” shall mean the entire world.

(aa)“Third Party” shall mean any Person other than Purchaser or Aradigm, or their respective Affiliates.

(bb)“Transfer Plan” shall mean the plan for the transfer of the Assigned Assets attached hereto as Exhibit G.

(cc)“Valid Claim” shall mean (i) a claim of an issued and unexpired patent, which has not been held unenforceable, unpatentable or invalid by a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise, or (ii) a claim in a pending patent application being prosecuted in good faith that has not been abandoned or finally rejected and that has been pending for fewer than five years after the earliest priority date to which it is entitled.

Section 1.02Additional Definitions.  Each of the following definitions shall have the meanings defined in the corresponding sections of this Agreement indicated below:

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Definition	Section
Agreement	Preamble
Aradigm Indemnities	Section 6.04(b)
Assumed Liabilities	Section 2.05(b)
Claim	Section 6.04(a)
Closing Date	Section 2.07
Coordination Lead	Section 2.03
Excluded Liabilities	Section 2.05(c)
Indemnitee	Section 6.04(c)
Indemnitor	Section 6.04(c)
Party	Preamble
PTO	Section 4.06(a)
Purchaser Indemnities	Section 6.04(a)

ARTICLE II

ASSIGNMENT, TRANSFER AND LICENSE

Section 2.01Assignment of Assigned Assets to Purchaser.  Upon the terms and subject to the conditions set forth herein, Aradigm hereby assigns, conveys and transfers to Purchaser, at the Closing, all of Aradigm’s right, title and interest in and to the Assigned Assets, subject to the reservation on behalf of Aradigm of a perpetual, worldwide, royalty-free, non-exclusive license, under the Transferred Patents and Transferred Technology solely for purposes of the Pulmonary Field, which retained license shall include the right to grant sublicenses to Persons solely within the scope of such retained license in connection with the grant to such Persons of licenses under other Patents owned or controlled by Aradigm.

Section 2.02Asset Transfer.  Subject to the terms and conditions set forth in this Agreement, on the Closing Date, Aradigm shall transfer all Assigned Assets, in the shape, manner and form of their existence as of the date such Assigned Assets are transferred to Purchaser, in accordance with the Transfer Plan. Without limiting the specifics of the Transfer Plan, Aradigm shall promptly transfer those assets (to the extent not previously transferred to the Transferee hereunder) to Purchaser as required in the Transfer Plan and this Section 2.02. Unless otherwise specified in the Transfer Plan, the mode of such transfer shall be determined by the Coordination Leads with the goal of efficiency and cost-effectiveness. Without limiting the foregoing and in connection with such transfers of assets pursuant to this Section 2.02, Aradigm shall make available such personnel reasonably familiar with the Assigned Assets to consult with and assist Purchaser in implementing such assets at mutually agreeable times.

Section 2.03Coordination Leads.  In order to facilitate the transfer of assets pursuant to Section 2.02, each Party shall appoint, from time to time, by written notice to the other Party, one of its personnel as its coordination lead (each, a “Coordination Lead”). The Coordination Leads shall be responsible for oversight and coordination of the transfer of assets in accordance with Section 2.02 and the Transfer Plan. The Coordination Leads shall carry out their responsibilities by any reasonable means or practices as the Parties may mutually agree.

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Section 2.04           Transitional Services.  Aradigm shall provide all reasonable transitional services to Purchaser, including facilities, furnishings, access to systems, document control, quality systems, IT support, accounting, payroll, administration and other such services as the Parties may mutually agree, until December 31, 2006 or until such later date as mutually agreed to by the Parties, as more fully described in Exhibit H, and Purchaser shall pay the fees therefor set forth in Exhibit H in accordance with the schedule set forth therein.

Section 2.05           Assumption of Liabilities.

(a)           Assumption.  Upon the terms and subject to the conditions set forth herein, at the Closing, Purchaser shall assume from Aradigm, and Aradigm shall irrevocably convey, transfer and assign to Purchaser, all of the Assumed Liabilities (as defined in Section 2.05(b) hereof).  Purchaser shall not assume any liabilities of Aradigm pursuant hereto, other than the Assumed Liabilities.

(b)           Definition of Assumed Liabilities.  For all purposes of and under this Agreement, the term “Assumed Liabilities” shall mean, refer to and include only those liabilities listed on Exhibit F.

(c)           Definition of Excluded Liabilities.  Except for the Assumed Liabilities, Purchaser does not assume and is not assuming any debt, liability, duty or other obligation (of any kind) of Aradigm, whether known or unknown, fixed or contingent, and regardless of when such liabilities or obligations may arise or may have arisen or when asserted, including any liabilities, or obligations related to the Assigned Assets which are outstanding or unpaid as of the Closing (the “Excluded Liabilities”), and Aradigm shall remain responsible for the Excluded Liabilities.

Section 2.06           Consideration.  On the terms and subject to the conditions set forth in this Agreement, in addition to the payments contemplated by Section 2.07(a), the consideration for the Assigned Assets shall be the following:

(a)           Royalties.

(i)            In consideration for the assignment and transfer of the Assigned Assets, with respect to Net Sales Purchaser shall pay to Aradigm, during the Royalty Term:

(1)           For each Non-Sumatriptan Product, [***] percent ([***]%) of Net Sales of such Non-Sumatriptan Product, provided that in the event and to the extent such Non-Sumatriptan Product is commercialized by a Licensee Purchaser may at its election pay to Aradigm either [***] percent ([***]%) of such Licensee’s Net Sales of such Non-Sumatriptan Product or [***] percent ([***]%) of Purchaser’s Royalty Revenues from such Licensee in respect of such Non-Sumatriptan Product.  Purchaser shall make its election with respect to each such Non-Sumatriptan Product by written notice to Aradigm of its election on or before the date its first payment would be due under Section 2.06(a)(vi) in respect of such Non-Sumatriptan Product under either of the foregoing alternatives.

(2)           For Sumatriptan Products, [***] percent ([***]%) of Net Sales of Sumatriptan Products.

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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(ii)           Combination Products.  In the event that a Product is sold in the form of a combination product (a “Combination Product”) containing both (1) such Product and (2) another product or service for which no royalty would be due hereunder if sold separately, the Net Sales from such combination sales for purposes of calculating the amounts due under this Section 2.06(a) shall be calculated by multiplying Net Sales of the Combination Product by a fraction that reasonably reflects the fair value of the contribution of the Product in the Combination Product to the total market value of such Combination Product, which fraction shall be established by the Purchaser and Aradigm through good faith negotiations and mutual agreement, on a Combination Product-by-Combination Product basis.

(iii)          Single Royalty.  Only one royalty shall be paid with respect to each unit of Product that is subject to royalties under this Section 2.06(a), without regard to the number of transfers or otherwise.  In no event shall more than one royalty be due under this Section 2.06(a) with respect to any Product unit.

(iv)          Milestone Payment.  Purchaser shall pay Aradigm $4,000,000 within 30 days of the first U.S. commercial sale of the Sumatriptan Product.

(v)           Records.  During the term of this Agreement and for a period of three years thereafter, Purchaser and its Affiliates shall keep, and shall cause its licensees and sublicensees to keep, complete and accurate records of their Net Sales in sufficient detail to enable the amounts payable under this Section 2.06(a) to be determined.  Upon Aradigm’s written request, but not more frequently than once per calendar year, Purchaser shall permit representatives or agents of Aradigm, at Aradigm’s expense, to examine such records during Purchaser’s regular business hours for the purpose of and to the extent necessary to verify any report required under this Agreement with respect to Net Sales received not more than three years prior to the date of Aradigm’s request.  In the event that the amounts due to Aradigm are determined to have been underpaid, Purchaser shall promptly pay to Aradigm any amount due and unpaid.  In the event that it is determined, as a result of such examination, that the amount underpaid with respect to a given payment is in excess of 5% of the total amount of such payment, then Purchaser shall reimburse Aradigm for all costs incurred by Aradigm in conducting such examination.

(vi)          Reports.  Beginning with the first accrual of royalties or other payments due hereunder, Purchaser shall provide to Aradigm a quarterly royalty report as follows: Within 60 days after the end of each quarterly period, Purchaser shall deliver to Aradigm a true and accurate report, giving such particulars of the business conducted by Purchaser, its Affiliates and Licensees, during such quarterly period as are pertinent to account for payments due under this Section 2.06(a).  Such report shall include, as applicable, at least (A) the total of Net Sales during such quarterly period; (B) the calculation of royalties; (C) the calculation of Royalty Revenue for each applicable Non-Sumatriptan Product and (D) the total royalties and other payments due Aradigm.  Simultaneously with the delivery of each such report, Purchaser shall pay to Aradigm the total amount, if any, due to Aradigm for the period of such report.  If no payment is due, Purchaser shall so report.  Aradigm shall not provide to Third Parties any information contained

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in reports provided to Aradigm under this Section 2.06(a)(v), or learned by Aradigm under Section 2.06(a)(iii) above.

(vii)         Payments.  All amounts payable hereunder by Purchaser shall be payable in Dollars to Aradigm.  If any currency conversion shall be required in connection with the payment of royalties hereunder, such conversion shall be made by using the exchange rates reported in the Wall Street Journal on the last business day of the quarter in respect of which such payment is made.

(viii)        Taxes.  Any withholding or other tax that is required by law to be withheld on behalf of Aradigm with respect to payments owed by Purchaser pursuant to this Agreement shall be deducted by Purchaser from such payment prior to remittance.  Purchaser shall promptly furnish Aradigm evidence of any such taxes withheld.

(ix)           Without limiting Section 2.06(a)(v) above, Purchaser shall take reasonable measures to keep Aradigm informed as to the progress of the development and commercialization of the Intraject Delivery System and Products arising therefrom until such time as Purchaser has fulfilled its royalty obligations to Aradigm pursuant to Section 2.06(a).

Section 2.07           Closing, Closing Place, Time and Date.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall be held at the offices of Cooley Godward llp, 3175 Hanover Street, Palo Alto, California, at 10:00 a.m. on the date of the Agreement (the actual date on which the Closing shall occur being referred to herein as the “Closing Date”).

(a)           Closing Deliveries.

(i)            At the Closing, Purchaser shall deliver, or cause to be delivered, to Aradigm the following, dated as of the date of this Agreement and, where relevant, executed for and on behalf of Purchaser by a duly authorized officer thereof:

(1)           any and all instruments, certificates and agreements as Aradigm may reasonably request in order to effectively make Purchaser responsible for all Assumed Liabilities pursuant hereto to the fullest extent permitted by applicable law;

(2)           Purchaser shall have provided Aradigm with evidence demonstrating that Purchaser has obtained at least $15 million in equity financing;

(3)           Purchaser shall have paid to Aradigm, by wire transfer, $4,000,000 in cash;

(4)           Purchaser shall have reimbursed Aradigm for all documented expenses actually incurred by Aradigm from July 1, 2006 through the Closing Date, that were pre-approved in writing by Purchaser, up to $515,036;

(5)           Each of Steve Farr and John Turanin shall have provided Aradigm with a release of all claims over or rights to any severance payments relating to their cessation of services to Aradigm, in a form that is reasonably acceptable to Aradigm and including mutually agreed consideration for such releases; and

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(6)           the Transitional Services Agreement.

(ii)           At the Closing, Aradigm shall deliver, or cause to be delivered, to Purchaser the following, dated as of the date of this Agreement and executed for and on behalf of Aradigm by a duly authorized officer thereof:

(1)           a general assignment and bill of sale with respect to the Assigned Assets in the form attached hereto as Exhibit F;

(2)           one or more instruments of assignment and assumption, in customary form and substance reasonably satisfactory to Purchaser and Aradigm and their respective counsel;

(3)           an instrument of assignment of the Transferred Patents, the Transferred Trademarks, and any other Registered Intellectual Property Rights included in the Assigned Assets, in customary form and substance reasonably satisfactory to Purchaser and Aradigm and their respective counsel;

(4)           any and all required third party consents including those consents necessary for the valid assignment and transfer of the Transferred Contracts;

(5)           any and all other instruments, certificates and agreements as Purchaser may reasonably request in order to effectively transfer to Purchaser all of the Assigned Assets pursuant hereto and to the Transfer Plan to the fullest extent permitted by applicable law; and

(6)           the Transitional Services Agreement.

(b)           Closing.  From and after the Closing, the Assigned Assets shall be held for the account and benefit, and at the risk, of Purchaser.

Section 2.08           Nontransferable Assets.  To the extent that any Assigned Asset or Assumed Liability to be sold, conveyed, assigned, transferred, delivered or assumed to or by Purchaser pursuant hereto, or any claim, right or benefit arising thereunder or resulting therefrom, is not capable of being sold, conveyed, assigned, transferred or delivered without the approval, consent or waiver of the issuer thereof or the other Party thereto, or any third Person (including a Governmental Body), or if such sale, conveyance, assignment, transfer or delivery or attempted sale, conveyance, assignment, transfer or delivery would constitute a breach (or give rise to a termination right) thereof or a violation of any law, decree, order, regulation or other governmental edict (collectively, with respect to such Assigned Assets, as set forth on Exhibit J, the “Nontransferable Assets”), except as expressly otherwise provided herein, this Agreement shall not constitute a sale, conveyance, assignment, transfer or delivery thereof, or an attempted sale, conveyance, assignment, transfer or delivery thereof absent such approvals, consents or waivers.  If any such approval, consent or waiver shall not be obtained, or if an attempted assignment of any such Assigned Asset or the assumption of any Assumed Liability by Purchaser would be ineffective so that Purchaser would not in fact receive all the Nontransferable Assets or assume all such Assumed Liabilities pursuant hereto, Aradigm and

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Purchaser shall cooperate in a mutually agreeable arrangement under which Purchaser would obtain the benefits and assume the obligations of such Assigned Assets and Assumed Liabilities, respectively, in accordance with this Agreement, including subcontracting, sub-licensing, or sub-leasing to Purchaser, or under which Aradigm, at Purchaser’s expense, would enforce for the benefit of Purchaser, with Purchaser assuming all of Aradigm’s obligations thereunder, any and all rights of Aradigm against a Third Party thereto.

Section 2.09           FTO Licenses.

(a)           To Purchaser. Aradigm hereby grants to Purchaser a non-exclusive, fully-paid, world-wide, perpetual, irrevocable, transferable, sublicensable license to fully exercise any Intellectual Property Rights that are (i) owned, controlled or employed by Aradigm at any time prior to the Closing (or that arises thereafter to the extent covering Technology created, owned, controlled or employed by Aradigm prior to the Closing), (ii) necessary or useful for the operation of the Business and (iii) not included in the Assigned Assets that are actually assigned to Purchaser.

(b)           To Aradigm. Purchaser hereby grants to Aradigm a non-exclusive, fully-paid, world-wide, perpetual, irrevocable, transferable, sublicensable license to fully exercise any Intellectual Property Rights that are (i) owned, controlled or employed by Purchaser as of the Closing (or that arises thereafter to the extent covering Technology created, owned, controlled or employed by Aradigm as of the Closing) and (ii) solely for use in the Pulmonary Field.

Section 2.10           Taking of Necessary Action; Further Action.  From time to time after the Closing, at the request of either Party, the Parties hereto shall execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation and take such action as the Parties may reasonably determine is necessary to transfer, convey and assign to Purchaser, and to confirm Purchaser’s title to or interest in the Assigned Assets, to put Purchaser in actual possession and operating control thereof and to assist Purchaser in exercising all rights with respect thereto.  Aradigm hereby constitutes and appoints Purchaser and its successors and assigns as its true and lawful attorney in fact in connection with the transactions contemplated by this Agreement, with full power of substitution, in the name and stead of Aradigm but on behalf of and for the benefit of Purchaser and its successors and assigns, to demand and receive any and all of the Assigned Assets and to give receipt and releases for and in respect of the same and any part thereof, and from time to time to institute and prosecute, in the name of Aradigm or otherwise, for the benefit of Purchaser or its successors and assigns, proceedings at law, in equity, or otherwise, which Purchaser or its successors or assigns reasonably deem proper in order to collect or reduce to possession or endorse any of the Assigned Assets and to do all acts and things in relation to the Assigned Assets which Purchaser or its successors or assigns reasonably deem desirable.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ARADIGM

Aradigm hereby represents and warrants to Purchaser as follows:

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Section 3.01           Organization, Qualification, and Corporate Power.  Aradigm (a) is a corporation duly organized, validly existing, and in good standing under the laws of the State of California, (b) has obtained all necessary corporate approvals to enter into and execute this Agreement and (c) has the full right, power and authority to enter into this Agreement.

Section 3.02           Authorization.  Aradigm has full power and authority to execute and deliver this Agreement, and to consummate the transactions contemplated hereunder and to perform its obligations hereunder, and no other proceedings on the part of Aradigm are necessary to authorize the execution, delivery and performance of this Agreement.  This Agreement constitutes the valid and legally binding obligations of Aradigm, enforceable against Aradigm in accordance with its terms and conditions, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

Section 3.03           Assets.  The Assigned Assets include all assets of Aradigm and its Affiliates that are used or held for use by Aradigm and its Affiliates primarily in the operation or conduct of the Business.

(a)           The Assigned Assets include all assets of Aradigm and its Affiliates that are used or held for use by Aradigm and its Affiliates primarily in the operation or conduct of the Business.

(b)           Following the consummation of the transactions contemplated by this Agreement and the related agreements, and the execution of the instruments of transfer contemplated hereby and thereby, Purchaser will own, with good, valid and marketable title, or lease, under valid and subsisting leases, or otherwise acquire the interests of Aradigm in the Assigned Assets, free and clear of any Liens, and without incurring any penalty or similar transfer fee.

Section 3.04           Transferred Books and Records.  The Transferred Books and Records listed on Exhibit B are all of the Books and Records maintained by Aradigm that pertain to the Business and the Assigned Assets.

Section 3.05           Transferred Contracts.  The Transferred Contracts listed on Exhibit C are all of the contracts between Aradigm and any Third Party currently necessary for or primarily related to, the operation of the Business, and true and complete copies of all such Transferred Contracts have been delivered or made available to Purchaser or its representatives.  Each Transferred Contract is in full force and effect and, to Aradigm’s knowledge, Aradigm is not subject to any default thereunder, nor, to Aradigm’s knowledge, is any party obligated to Aradigm pursuant to any such Transferred Contract subject to any default thereunder.  Aradigm has neither breached, violated or defaulted under, nor received notice that Aradigm has breached, violated or defaulted under, any of the terms or conditions of any Transferred Contract.  Aradigm has obtained, or will obtain prior to the Closing, all necessary consents, waivers and approvals of parties to any Transferred Contract as are required thereunder in connection with the Closing, or for any such Transferred Contract to be transferred to Purchaser, and to remain in full force and effect without limitation, modification or alteration after the Closing.  Following the Closing, Purchaser will be permitted to exercise all of the rights Aradigm had under the Transferred

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Contracts without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which Aradigm would otherwise be required to pay pursuant to the terms of such Transferred Contracts had the transactions contemplated by this Agreement not occurred.

Section 3.06           Transferred Intellectual Property.

(a)           The Exhibits listing the Transferred Patents and the Transferred Trademarks are, to Aradigm’s knowledge, complete and accurate.  With respect to Transferred Patents, those Transferred Patents that are Registered Patents are currently in compliance with formal legal requirements (including payment of filing, examination and maintenance fees and proofs of use),  and are not subject to any unpaid maintenance fees or taxes falling due within 90 days after the Closing Date.  There are no proceedings or actions known to Aradigm before any court, tribunal (including the United States Patent and Trademark Office (the “PTO”) or equivalent authority anywhere in the world) related to any such Registered Patent.

(b)           To Aradigm’s knowledge, each Registered Patent that is a Transferred Patent is properly filed and is currently pending or issued, and all necessary registration, maintenance and renewal fees in connection with such Registered Patent that is a Transferred Patent have been paid and all necessary documents and certificates in connection with such Registered Patent have been filed with the relevant patent authorities in the United States or foreign jurisdictions in which Aradigm has elected to pursue such Registered Patent, as the case may be, for the purposes of maintaining such Registered Patent.  There are, to Aradigm’s knowledge, no actions that must be taken by Aradigm within 90 days after the Closing Date, including the payment of any registration, maintenance or renewal fees or the filing of any responses to PTO office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting or preserving or renewing any such Registered Patent.  To the extent Aradigm has acquired from any Person any Technology or Intellectual Property Right, in each case that are included in the Assigned Assets, Aradigm has obtained a valid and enforceable assignment sufficient to irrevocably transfer all rights in such Technology and Intellectual Property Rights (including the right to seek past and future damages with respect thereto) to Aradigm.  To the maximum extent provided for by, and in accordance with, applicable laws and regulations, Aradigm has recorded each such assignment of a Registered Intellectual Property Right assigned to Aradigm with the relevant Governmental Body, including the PTO, the U.S. Copyright Office, or their respective equivalents in any relevant foreign jurisdiction, as the case may be.  Aradigm has not claimed a particular status, including “Small Entity Status,” in the application for any Registered Patent that is a Transferred Patent, which claim of status was not at the time made, or which has since become, inaccurate or false or that will no longer be true and accurate as of the Closing Date.

(c)           Aradigm has no knowledge of any misrepresentation regarding, or failure to disclose, any fact or circumstances in any application for any Registered Patent that is a Transferred Patent that would materially and adversely affect the validity or enforceability of such Registered Patent that is a Transferred Patent.

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(d)           All Registered Intellectual Property Rights included in the Assigned Assets are free and clear of any Liens.  Immediately prior to the Closing, Aradigm is the exclusive owner or exclusive licensee of all Business Intellectual Property.

(e)           Schedule 3.06(e) sets forth a list of all Regulatory Documents.

(f)            All Assigned Assets will be fully transferable, alienable or licensable by Purchaser without restriction and without payment of any kind to any Third Party, including royalty obligations, other than those restrictions and payments Aradigm would be subject to as of the Closing Date with respect to such Assigned Assets had the transactions contemplated by this Agreement not occurred.

(g)           Each material item of Technology used in the conduct of the Business by Aradigm was (i) written and created by then-current employees of Aradigm acting within the scope of their employment or (ii) acquired or licensed by Aradigm from Third Parties who have validly and irrevocably assigned such item to Aradigm, or granted Aradigm a license to use such item of a sufficient scope to cover Aradigm’s use or prior use of thereof in the Business.

(h)           To Aradigm’s knowledge, the conduct of the Business by Aradigm as it was previously conducted does not, infringe or misappropriate any Intellectual Property Right of any person, or constitute unfair competition or trade practices under the laws of any jurisdiction, and Aradigm has not received notice from any person claiming that such conduct by Aradigm infringes or misappropriates any Intellectual Property Right of any person or constitutes unfair competition or trade practices under the laws of any jurisdiction.

(i)            Each employee and consultant of Aradigm that provides services to Aradigm in connection with the Business has entered into a valid and binding written agreement with Aradigm sufficient to vest title in Aradigm of all Technology and Intellectual Property Rights included in the Assigned Assets and created by such employee or consultant in the scope of his or her services or employment for Aradigm.

(j)            Aradigm has not transferred ownership of, nor granted any exclusive license of or exclusive right to use, or authorized the retention of any exclusive rights to use or joint ownership of, any Technology or Intellectual Property Right that is or was used in connection with the Business, to any other person.

(k)           To Aradigm’s knowledge, no person is infringing or misappropriating any Intellectual Property Right included in the Assigned Assets.

(l)            No Business Intellectual Property is subject to any proceeding or outstanding decree, order, judgment or settlement agreement or stipulation against Aradigm or, to Aradigm’s knowledge, against any Third Parties from whom Aradigm acquired or licensed Business Intellectual Property that restricts in any material way the use, transfer or licensing of such Business Intellectual Property by Aradigm or is reasonably likely to affect the validity, use or enforceability of such Business Intellectual Property.

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Aradigm as follows:

Section 4.01Organization, Qualification, and Corporate Power.  Purchaser (a) is a corporation duly organized, validly existing, and in good standing under the laws of the State of [Delaware], (b) has obtained all necessary corporate approvals to enter into and execute this Agreement and (c) has the full right, power and authority to enter into this Agreement.

Section 4.02Authorization.  Purchaser has full power and authority to execute and deliver this Agreement, and to consummate the transactions contemplated hereunder and to perform its obligations hereunder, and no other proceedings on the part of Purchaser are necessary to authorize the execution, delivery and performance of this Agreement.  This Agreement constitutes the valid and legally binding obligations of Purchaser, enforceable against Purchaser in accordance with its terms and conditions, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

ARTICLE V
OTHER AGREEMENTS AND COVENANTS

Section 5.01Additional Documents and Further Assurances.  Each Party hereto, at the request of another Party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be reasonably requested for effecting completely the consummation of the transactions contemplated hereby.

Section 5.02Reasonable Cooperation of Purchaser.  Purchaser shall cooperate, to the extent reasonable, with Aradigm’s efforts to obtain any Third Party consents; provided, however, that this Section 6.02 shall not obligate Purchaser to incur any additional expense or liability.

Section 5.03Reasonable Efforts.  Each of the Parties will use their reasonable efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement.

Section 5.04Indemnification.

(a)Indemnification of Purchaser.

(i)Aradigm shall indemnify and hold harmless each of Purchaser and its Affiliates, and the directors, officers, and employees of Purchaser and of such Affiliates, and the successors and assigns of any of the foregoing (collectively, the “Purchaser Indemnitees”), from and against any and all liabilities, damages, settlements, claims, actions, suits, penalties, fines, costs and expenses (including, without limitation, reasonable attorneys’ fees and other expenses of settlement) (any of the foregoing, a “Claim”) incurred by any Purchaser Indemnitee, based upon a Claim of a Third Party, to the extent resulting from the breach of any of Aradigm’s

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express representations and warranties set forth in Article III of this Agreement.  Aradigm’s obligations to the Purchaser Indemnitees pursuant to this Section 5.04(a)(i) shall be limited, in the aggregate, to amounts actually received by Aradigm by operation of Section 2.06(a)(i).  Notwithstanding the foregoing, Aradigm shall not have any obligation to the Purchaser Indemnitees in respect of any breach of representations and warranties as to which Purchaser has actual knowledge (including for this purpose the actual knowledge of Steve Farr, John Turanin or Jonathan Rigby) prior to the Closing.

(b)           Aradigm shall indemnify and hold harmless the Purchaser Indemnitees from and against all Claims arising from the Excluded Liabilities.

(c)           Indemnification of Aradigm.  Purchaser shall indemnify and hold harmless each of Aradigm and its Affiliates, and the directors, officers, and employees of Aradigm and of such Affiliates, and the successors and assigns of any of the foregoing (collectively, the “Aradigm Indemnitees”), from and against any and all liabilities, damages, settlements, claims, actions, suits, penalties, fines, costs and expenses (including, without limitation, reasonable attorneys’ fees and other expenses of settlement) incurred by any Aradigm Indemnitee, based upon (i) a Claim of a Third Party, to the extent resulting from the breach of any of Purchaser’s express representations and warranties set forth in Article IV of this Agreement, (ii) a Claim relating to product liability concerning any of the Assigned Assets or (iii) a Claim relating to the Assumed Liabilities.

(d)           Procedure.  A Party that intends to claim indemnification under this Section 5.04 (the “Indemnitee”) shall promptly notify the other Party (the “Indemnitor”) in writing of any Claim in respect of which the Indemnitee intends to require such indemnification, and the Indemnitor shall have sole control of the defense and/or settlement thereof; provided that the Indemnitee shall have the right to participate, at its own expense, with counsel of its own choosing in the defense and/or settlement of such Claim.  The indemnification obligations of the Parties in this Section 5.04 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed.  The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such Claim, if prejudicial to Indemnitor’s ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Section 5.04, but the omission to so deliver written notice to the Indemnitor shall not relieve the Indemnitor of any liability to any Indemnitee otherwise than under this Section 5.04.  The Indemnitee under this Section 5.04 and its directors, officers and employees shall cooperate fully with the Indemnitor and its legal representatives and provide full information in the investigation of any Claim covered by this indemnification.

(e)           Sole Remedy.  The indemnification rights provided for in this Article V shall constitute the sole and exclusive remedy and the sole basis and means of recourse among the Aradigm Indemnities and the Purchaser Indemnities with respect to Claims arising out of or in connection with any breach of or inaccuracy in any representation, warranty, covenant or agreement contained in this Agreement.

Section 5.05           Covenant Not to Compete.  Aradigm and its Affiliates agree for a period of four (4) years after the Closing Date (the “Initial Period”) not to (i) conduct, participate in or

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sponsor, directly or indirectly, any activities directed toward the research, development of technologies or products for the delivery of one or more active pharmaceutical ingredients via needle free injection or the manufacture, marketing or distribution of such products (each, a “Competing Activity”) or (ii) appoint, license or otherwise authorize any Third Party, whether pursuant to such license, appointment, or authorization or otherwise to perform any Competing Activities; provided that during the Initial Period, Purchaser (itself or through one or more Third Parties) is diligently pursuing the development (including preclinical development) or commercialization of one or more Products.  Thereafter during the Royalty Term, Aradigm and its Affiliates agree not to develop or commercialize any product for needle free injection of any active pharmaceutical ingredient for which Purchaser (itself or through one or more Third Parties) is then actively developing or commercializing a Product incorporating such active pharmaceutical ingredient (or any prodrug, metabolite, degradant, intermediate, salt form, hydrate, ester, isomer thereof).

ARTICLE VI
MISCELLANEOUS

Section 6.01           Press Releases and Public Announcements.  No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that (a) either Party may make any public disclosure it believes in good faith is required by applicable law and (b) Aradigm may correspond with Third Parties in writings in form and substance reasonably satisfactory to Purchaser with respect to obtaining consents from such Third Parties.  In furtherance of the foregoing sentence, the Parties agree and acknowledge that either party may issue a press release regarding this Agreement and the transactions contemplated herein at a time to be mutually agreed after the Closing Date, which press release shall not provide the financial terms of the Agreement.  The Parties will provide to each other a copy of such press release at least five business days prior to its release and such press release shall be subject to written approval of the receiving Party, which approval shall not be unreasonably withheld or delayed.

Section 6.02           No Third-Party Beneficiaries.  This Agreement shall not confer any rights or remedies upon any Person other than the Parties, and their respective successors and permitted assigns.

Section 6.03           Force Majeure.  Except with respect to the payment of money, in the event either Party hereto is prevented from or delayed in the performance of any of its obligations hereunder by reason of acts of God, terrorism, war, invasion, strikes, riots, earthquakes, storms, fires, energy shortage, acts of government or governmental agencies, or any other cause whatsoever beyond the reasonable control of the Party, the Party so prevented or delayed shall be excused from the performance of any such obligation to the extent and during the period of such prevention or delay.

Section 6.04           Limitation of Liability.  NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING LOST OR ANTICIPATED REVENUES OR PROFITS RELATING TO THE SAME), ARISING FROM ANY CLAIM RELATING TO THIS AGREEMENT, WHETHER SUCH CLAIM IS BASED ON

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CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EVEN IF AN AUTHORIZED REPRESENTATIVE OF SUCH PARTY IS ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SAME.

Section 6.05Entire Agreement and Modification.  This Agreement (including the exhibits hereto) constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof.  This Agreement may not be amended except by a written agreement executed by all Parties.

Section 6.06Amendment.  This Agreement may be amended by Purchaser and Aradigm or any successor thereto by execution by each Party (or their successors) of an instrument in writing.

Section 6.07Waivers.  The rights and remedies of the Parties to this Agreement are cumulative and not alternative.  Neither the failure nor any delay by any Party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege.  To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other Party, (b) no waiver that may be given by a Party will be applicable except in the specific instance for which it is given and (c) no notice to or demand on one Party will be deemed to be a waiver of any obligation of such Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

Section 6.08Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns.  This Agreement shall not be assigned by either Party without the prior written consent of the other Party, except that either Party may assign this Agreement, in whole or in part, to an Affiliate of such Party or to the successor (including the surviving company in any consolidation, reorganization or merger) or assignee of all or substantially all of its business pertaining hereto.  This Agreement will be binding upon any permitted assignee of either Party.  No assignment shall have the effect of relieving any Party to this Agreement of any of its obligations hereunder.

Section 6.09Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.

Section 6.10Interpretation.  The captions and headings to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement.  Unless specified to the contrary, references to Articles, Sections or Exhibits mean the particular Articles, Sections and Exhibits to this Agreement and references to this Agreement include all such subparts.  Unless context otherwise clearly requires, whenever

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used in this Agreement:  (a) the words “include” or “including” shall be construed as incorporating, also, “but not limited to” or “without limitation”; (b) the word “day” or “year” means a calendar day or year unless otherwise specified; (c) the word “notice” means notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other written communications contemplated under this Agreement; (d) the words “hereof,” “herein,” “hereby” and derivative or similar words refer to this Agreement (including any and all subparts); (e) the word “or” shall be construed as the inclusive meaning identified with the phrase “and/or”; (f) provisions that require that a Party, the Parties or any committee hereunder “agree,” “consent” or “approve” or the like shall require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter, approved minutes or otherwise; (g) words of any gender include the other gender; (h) words using the singular or plural number also include the plural or singular number, respectively; and (i) references to any specific Law or article, section or other division thereof shall be deemed to include the then-current amendments thereto or any replacement Law thereof.

Section 6.11           Notices.  All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by certified or registered first class mail, postage prepaid, return receipt requested, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by certified or registered first class mail, postage prepaid, return receipt requested and shall be addressed to the intended recipient as set forth below:

If to Purchaser:
Addressed to:	SJ2 Therapeutics, Inc.
	3929 Point Eden Way
	Hayward, California 94545
	Attention: President
	Facsimile: (510) 265 0277
With a copy to:	Wilson, Sonsini, Goodrich & Rosati
	650 Page Mill Rd
	Palo Alto, California 94304-1050
	Attn: J. Casey McGlynn, Esq.
	Facsimile: (650) 493-6811
If to Aradigm:
Addressed to:	Aradigm Corporation.
	3929 Point Eden Way
	Hayward, California 94545
	Attention: Chief Financial Officer
	Facsimile: (510) 265 0277
With a copy to:	Cooley Godward LLP

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3175 Hanover Street

Palo Alto, CA 94304-1130

Attn: James Kitch, Esq.

Facsimile: (650) 843-5027

Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party ten days’ advance written notice to the other Party pursuant to the provisions above.

Section 6.12           Governing Law.  This Agreement shall be governed by and construed in accordance with the domestic laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California.

Section 6.13           Severability.  Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

Section 6.14           Construction.  The Parties have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.  Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.

Section 6.15           Attorneys’ Fees.  If any legal proceeding or other action relating to this Agreement is brought or otherwise initiated, the prevailing Party shall be entitled to recover reasonable attorney’s fees, costs and disbursements (in addition to any other relief to which the prevailing Party may be entitled).

Section 6.16           Further Assurances.  The Parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents and (c) to do such other acts and things, all as the other Party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.

[The remainder of this page left intentionally blank; signature page follows]

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on of the date first above written.

ARADIGM CORPORATION
By:	/s/ Tom Chesterman
Name:  Tom Chesterman
Title:  Senior Vice President and Chief Financial Officer
SJ2 THERAPEUTICS, INC.
By:	/s/ Steven J. Farr
Name:  Steven J. Farr
Title:  President

Schedule 3.06(e)

Regulatory Documents

[***]

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT A

Transferred Assets (including Transferred Technology)

[***]

Seven (7) pages have been omitted pursuant to a request for confidential treatment.

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT B

Transferred Books and Records

[***]

Three hundred twenty four (324) pages have been omitted pursuant to a request for confidential treatment.

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT C

Transferred Contracts

[***]

Two (2) pages have been omitted pursuant to a request for confidential treatment.

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT D

Transferred Intellectual Property

[***]

Twenty-three (23) pages have been omitted pursuant to a request for confidential treatment.

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT E

General Assignment and Bill of Sale

[Attached]

FORM OF BILL OF SALE AND ASSIGNMENT AGREEMENT

This Bill of Sale and Assignment Agreement is made effective as of August 25, 2006, by and between SJ2 Therapeutics, Inc., a Delaware corporation (“Purchaser”), and Aradigm Corporation, a California corporation (“Aradigm”).  All capitalized words and terms used in this Agreement and not defined herein shall have the respective meanings ascribed to them in the Asset Purchase Agreement dated August 25, 2006 between Aradigm and the Purchaser (the “Asset Purchase Agreement”).

BACKGROUND

WHEREAS, Aradigm and Purchaser have entered into the Asset Purchase Agreement, under which Aradigm has agreed to sell, convey, assign, transfer and deliver the Assigned Assets to Purchaser or its assigns.

AGREEMENT

1.Sale.  Aradigm does hereby sell, convey, assign, transfer and deliver to Purchaser, and Purchaser does hereby purchase, acquire and accept from Aradigm, all of Aradigm’s right, title and interest in and to the Assigned Assets, subject to the licensed reserved on behalf of Aradigm pursuant to Section 2.01 of the Asset Purchase Agreement.

2.Representations.  All representations, warranties, agreements and indemnities of Aradigm with respect to the Assigned Assets set forth in the Asset Purchase Agreement will continue in effect as provided therein and will not be deemed to be amended, modified, terminated or superseded by or merged with this Bill of Sale and Assignment Agreement.

3.Miscellaneous Provisions.

3.1.Amendments; Waiver.  The terms, provisions and conditions of this Bill of Sale and Assignment Agreement may be amended only by agreement in writing of all parties.  No waiver of any provision nor consent to any exception to the terms of this Bill of Sale and Assignment Agreement or any agreement contemplated hereby will be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided.

3.2.Further Assurances.  Each party will execute and deliver, both before and after the Closing Date, such further certificates, agreements and other documents and take such other actions as the other party may reasonably request or as may be necessary or appropriate to consummate or implement the Transactions, including to more effectively transfer the Assigned Assets, or to evidence such events or matters.

3.3.Assignment.  Neither this Bill of Sale and Assignment Agreement nor any rights or obligations under it are assignable by one party without the prior written consent of the other party.

3.4.Descriptive Headings.  The descriptive headings of the sections and subsections of this Bill of Sale and Assignment Agreement are for convenience only and do not constitute a part of this Bill of Sale and Assignment Agreement.

3.5.Counterparts.  This Bill of Sale and Assignment Agreement and any amendment hereto or any other agreement delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts.  All counterparts will constitute one and the same agreement and will become effective when one or more counterparts have been signed by each party and delivered to the other party.  A facsimile signature page will be deemed an original.

3.6.Governing Laws.  This Bill of Sale and Assignment Agreement and the legal relations between the parties will be governed by and construed in accordance with the laws of the State of California applicable to contracts made and performed in such State and without regard to conflicts of law doctrines unless certain matters are preempted by federal law.

3.7.Waiver.  No failure on the part of any party to exercise or delay in exercising any right hereunder will be deemed a waiver thereof, nor will any single or partial exercise preclude any further or other exercise of such or any other right.

3.8.Representation By Counsel; Interpretation.  The parties each acknowledge that each has been represented by counsel in connection with this Bill of Sale and Assignment Agreement and the transactions contemplated by the Asset Purchase Agreement.  Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Bill of Sale and Assignment Agreement against the party that drafted it has no application and is expressly waived.  The provisions of this Agreement will be interpreted in a reasonable manner to effect the intent of the parties hereto.

3.9.Severability.  If any provision of this Bill of Sale and Assignment Agreement is held to be unenforceable for any reason, it will be adjusted rather than voided, if possible, to achieve the intent of the parties.  All other provisions of this Bill of Sale and Assignment Agreement will be deemed valid and enforceable to the extent possible.

[signature page to follow]

2

IN WITNESS WHEREOF, Aradigm and Purchaser have caused this Bill of Sale and Assignment Agreement to be duly executed as of the day and year first above written.

PURCHASER:				ARADIGM:
SJ2 THERAPEUTICS, INC.				ARADIGM CORPORATION
By:	/s/			By:	/s/
Name:			Stephen J. Farr	Name:			T.C. Chesterman
Title:		President		Title:		SVP & CFO

IN WITNESS WHEREOF, Aradigm and Purchaser have caused this Bill of Sale and Assignment Agreement to be duly executed as of the day and year first above written.

PURCHASER:				ARADIGM:
SJ2 THERAPEUTICS, INC.				ARADIGM CORPORATION
By:	/s/			By:
Name:			Stephen J. Farr	Name:
Title:		President		Title:

EXHIBIT F

Assumed Liabilities

1.All obligations under Assumed Contracts, other than obligations due and owing as of the date of the Agreement to Third Parties that are parties to such Assumed Contracts.

2.Liabilities (other than Excluded Liabilities) incurred in the use of the Assigned Assets following the Closing Date.

3.See attached list for additional items.

[***]

Twenty-two (22) pages have been omitted pursuant to a request for confidential treatment.

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT G

Transfer Plan

[***]

Six (6) pages have been omitted pursuant to a request for confidential treatment.

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT H

Transitional Services Agreement

[Attached]

[ARADIGM LETTERHEAD]

August 25,  2006

SJ2 Therapeutics, Inc.

Re:Transition Services

Ladies and Gentlemen:

SJ2 Therapeutics, Inc. (“SJ2”) and Aradigm Corporation (“Aradigm”) are entering into an Asset Purchase Agreement (the “APA”) dated as of the date of this letter (the “Effective Date”), which, among other things, provides for the sale to SJ2 of certain Aradigm assets related to the development, manufacture, and commercialization of Aradigm’s Intraject Delivery System.

1.Services.  On the terms and subject to the conditions contained herein, Aradigm shall provide, or shall cause third parties designated or hired by it (such designated third parties, together with Aradigm, the “Service Providers”) to provide to SJ2 the following services (collectively, the “Services”) for the time period through December 31, 2006 (“Expiration Date”):

(a)General information technology services and support (e.g., e-mail access, computer equipment and software support, network access and support to SJ2’s server only, and other general computer technologies support) within Aradigm’s current systems and procedures until SJ2 vacates Aradigm’s facilities or the Expiration date, which ever is earlier,

(b)Telephone and fax services and support,

(c)Aradigm will provide SJ2 with document control support for the activities documented in Aradigm’s current document control processes, using Aradigm’s Document Control System (DCS) database.  Aradigm has assumed that SJ2 will purchase the DCS on or shortly after the Effective Date.  It is Aradigm’s intention to hire a temporary senior level Document Control Specialist, on or shortly after the Effective Date, who will be fully funded by SJ2, to allow Aradigm’s current document control personnel to provide document control support to SJ2 consistent with Aradigm’s current Document Control processes.  If Aradigm is unable to hire a temporary senior level Document Control Specialist, or should the temporary employee hired leave Aradigm for any reason, Aradigm will not be able to provide the services described in this section 1(c).

(d)Human resources services and support for Aradigm consultants transferring to SJ2,

(e)Payment for individual Aradigm consultants transferring to SJ2,

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(f)Technical consulting as available and approved in writing by both parties,

(g)Office facilities, furnishings, and services (e.g., utilities, maintenance, mail, etc.), and

(h)Such other services as Aradigm and SJ2 may agree to as set forth in paragraph 4.

2.Current Invoices.  Exhibit A to this letter contains an invoice for transitional services provided by Aradigm to SJ2 through the months of July and August 2006.  The parties acknowledge that a secondary invoice will be provided to SJ2 relating to transitional service provided at the time of closing Aradigm’s August accounting records.  As Aradigm’s August accounting records have not been closed as of the Effective Date,

3.Term of Agreement.  Except for the services performed prior to the Effective Date as referenced in paragraph 2, all services to be provided under this Agreement shall begin as of the Effective Date and shall terminate on the Expiration Date.  Aradigm and SJ2 will negotiate in good faith if SJ2 needs to extend the term of this letter and/or any provision of any Service beyond the Expiration Date (and the parties hereby acknowledge that the negotiation of any such extension may involve a renegotiation of the charges with respect to any such Services).  This letter may be extended upon the mutual agreement of the parties hereto in writing, either in whole or with respect to one or more of the Services; provided that, such extension shall only apply to the specific Services for which this letter was extended.  Services shall be provided up to and including the applicable Expiration Date, subject to earlier termination as provided in this letter.

4.Additional Services.  From time to time after the Effective Date, Aradigm and SJ2 may identify and mutually agree upon additional services to be provided to SJ2 in accordance with the terms of this letter (the “Additional Services”).  At such times, the parties shall execute an addendum to this Agreement setting forth a description of any Additional Service, the time period during which such Additional Service will be provided, the charge for such Additional Service and any other terms applicable.  Aradigm and SJ2 acknowledge that charges for Additional Services will include a profit margin consistent with industry standards for the provision of similar services.  Additional Services may include, but shall not be limited to, regulatory consulting for the Intraject Sumatriptan NDA, clinical training of the CRO selected to conduct the Intraject bioequivalence study, submission of the Intraject Sumatriptan IND on behalf of SJ2 and assistance with R&D efforts.

5.Provision of Services.  Aradigm will use commercially reasonable efforts to ensure that employees and Service Providers are available to perform its obligations hereunder.  Aradigm shall provide the Services in accordance with the policies, procedures and practices in effect as of immediately prior to the Effective Date.  Aradigm and SJ2 will use their commercially reasonable efforts to promote a smooth and efficient transition of operations.

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6.No Warranties.  ARADIGM WILL USE COMMERCIALLY REASONABLE EFFORTS TO CAUSE THE SERVICES TO BE PERFORMED IN A PROFESSIONAL AND COMPETENT MANNER; HOWEVER, ARADIGM DOES NOT MAKE ANY WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, BUSINESS CONTINUITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES, MATERIALS OR OTHER DELIVERABLES PROVIDED, OR CAUSED TO BE PROVIDED, BY IT UNDER THIS LETTER.

7.Transition to SJ2 Systems and Personnel.  During the term of this letter, Aradigm will use reasonable efforts to provide to SJ2, at SJ2’s expense, consultation, assistance and information as reasonably requested by SJ2, and will otherwise perform the Services, so as to effect a smooth transition from SJ2’s utilization of Aradigm’s systems and personnel to SJ2’s utilization of its own systems and personnel in connection with the development of the Intraject Delivery System prior to the termination or expiration of this letter.

8.Payments.  SJ2 shall pay Aradigm on a monthly basis for documented actual charges for the performance of the Services.  Aradigm will invoice SJ2 for its representatives’ activities using an hourly rate based on salary, benefits and overhead of the Aradigm representatives performing the Services.  Aradigm will not apply a profit to its representatives’ hourly rates through the Expiration Date.

9.Discontinuation of Services.  If SJ2 chooses to discontinue any Service prior to the Expiration Date, SJ2 shall give at least 30 days prior written notice, of its intent to terminate this letter as to that particular Service, which termination as to that particular service shall be effective on the last day of the month on which the 30 days prior written notice lapses.  SJ2 will pay Aradigm hereto the fees and costs of any terminated Service up until the effective date of termination of such Service.

10.Termination.  Notwithstanding anything to the contrary contained in this letter, this letter may be terminated, in whole or in part, at any time:  (a) by the mutual consent of SJ2 and Aradigm; or (b) by either SJ2 or Aradigm in the event of any material breach or default by the other party of any of its obligations under this letter and the failure of such defaulting party to cure, or to take substantial steps towards the curing of, such breach or default within 14 days after receipt of written notice from the non-defaulting party requesting such breach or default to be cured.

11.No Implied Responsibilities or Obligations.  NO PARTY HERETO ASSUMES ANY RESPONSIBILITY OR OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS EXPRESSLY SET FORTH IN THIS LETTER OR A SEPARATE WRITTEN AGREEMENT BETWEEN THE PARTIES.  NOTWITHSTANDING ANYTHING CONTAINED IN THIS LETTER TO THE CONTRARY, IN NO EVENT SHALL ANY PARTY BE LIABLE TO ANY OTHER PARTY FOR ANY LOST PROFITS, LOSS OF DATA, LOSS OF USE,

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BUSINESS INTERRUPTION OR OTHER SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES.

12.Independent Contractors.  The relationship between SJ2 and Aradigm established under this letter is that of independent contractors and no party shall be deemed an employee, agent, partner, or joint venturer of or with the other.  Each Service Provider will be solely responsible for any employment-related taxes, insurance premiums or other employment benefits respecting its personnel’s performance of any Services.  SJ2 agrees to grant to any applicable Service Provider’s personnel reasonable access to sites, systems and information as necessary for the Service Provider to perform its obligations under this letter.  The personnel of SJ2 and Aradigm shall agree to obey any and all security regulations and other published policies of the other party relevant to the provision or receipt of any Services.

13.Confidentiality.  Any information from time to time communicated or delivered by SJ2 or Aradigm to the other party, including without limitation trade secrets, business methods, and cost, supplier, manufacturing and customer information, shall be treated by SJ2 and Aradigm, respectively, as confidential information of the other party, and shall not be disclosed or revealed to any third party whatsoever or used in any manner except as expressly provided for in this letter; provided, however that such confidential information shall not be subject to the restrictions and prohibitions set forth in this paragraph 13 to the extent that such confidential information:  (a) is available to the public in public literature or otherwise, or after disclosure by one party to the other becomes public knowledge through no default of the party receiving such confidential information; or (b) was known to the party (as demonstrated by the written records of such party) receiving such confidential information with no obligation to maintain confidentiality prior to the receipt of such confidential information by such party, whether received before or after the date of this letter; or (c) is obtained by the party receiving such confidential information from a third party not subject to a requirement of confidentiality with respect to such confidential information.  For the avoidance of doubt, information will not be considered to be available to the public, in the public literature, or in the prior possession of the receiving party merely because individual elements thereof are available to the public, in the public literature, or in the prior possession of the receiving party, unless the combination of such elements is available to the public, in the public literature, or in the prior possession of the receiving party.  SJ2 and Aradigm shall take all such precautions as it normally takes with its own confidential information to prevent any improper disclosure of such confidential information to any third party; provided that, such confidential information may be disclosed:  (x) pursuant to any order of a court or government entity having jurisdiction and power to order such information to be released or made public; (y) within the limits required to obtain any authorization from any governmental or regulatory agency; or (z) with the prior written consent of the other party, which shall not be unreasonably withheld, as may otherwise be required in connection with the purposes of this letter.

14.Access to Aradigm Computer Systems.  If SJ2 is given access to any computer equipment, computer, software, network, electronic files, or electronic data storage system owned or controlled by Aradigm (“Aradigm Computer Systems”), then

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SJ2 shall limit access and use of such Aradigm Computer Systems solely to receive Services under this letter and shall not access, attempt to access or use any Aradigm Computer Systems, other than those specifically required to receive the Services.  All user identification numbers and passwords disclosed to SJ2 and any of Aradigm’s confidential information obtained by SJ2 as a result of its access to and use of any such Aradigm Computer Systems shall be deemed to be, and shall be treated as, Aradigm’s confidential information under applicable provisions of this letter.  SJ2 agrees to cooperate with Aradigm in the investigation of any apparent unauthorized access by SJ2 or its representatives to any Aradigm Computer Systems, or any apparent unauthorized release of Aradigm’s confidential information by the employees, contractors or advisers of SJ2.

15.Indemnification.  SJ2 indemnifies Aradigm and its affiliates against, and agrees to hold each of them harmless from, any and all damage, loss, liability and expense (including reasonable expenses of investigation and reasonable attorneys’ fees and any incidental, indirect or consequential damages, losses, liabilities or expenses) (“Damages”) incurred or suffered by Aradigm or any of its affiliates (other than Damages incurred or suffered by Aradigm or any of its affiliates arising from any claims made by employees of Aradigm) that arise from any third-party claim for personal injury or damage to property based upon the performance of the Services by any of Aradigm’s employees, except to the extent such third-party claim arises out of such employee’s negligence, willful misconduct or breach of obligations under this letter.  Aradigm indemnifies SJ2 and its affiliates against, and agrees to hold each of them harmless from, any and all Damages incurred or suffered by SJ2 or any of its affiliates (other than Damages incurred or suffered by SJ2 or any of its affiliates arising from any claims made by employees of SJ2) that arise from any third-party claim for personal injury or damage to property based upon actions by any of SJ2’s employees under the terms of this letter, except to the extent such third-party claim arises out of such employee’s negligence, willful misconduct or breach of obligations under this letter.

16.Existing Ownership Rights Unaffected.  Neither SJ2 nor Aradigm will gain, by virtue of this letter, any rights or ownership of copyrights, patents, know-how, trade secrets, trademarks or any other intellectual property rights owned by the other party.

17.Dispute Resolution.  All disputes arising out of this letter shall be settled as far as possible by negotiations between SJ2 and Aradigm.  If SJ2 and Aradigm cannot agree on an amicable settlement within 30 days from written submission of the matter by one party to the other, the matter shall be shall be settled by binding arbitration in the County of Hayward in the State of California in accordance with the Commercial Arbitration Rules then in effect of JAMS/Endispute.  Arbitration will be conducted by one arbitrator, mutually selected by SJ2 and Aradigm.  If Aradigm and SJ2 fail to mutually select an arbitrator within 15 days following the submission of the matter to JAMS/Endispute, then arbitration will be conducted by three arbitrators:  one selected by Aradigm; one selected by SJ2; and the third selected by the first two arbitrators.  If SJ2 or Aradigm fails to select an arbitrator within ten days following the expiration of the initial 15 day period, then the other shall be entitled to select the second arbitrator.  SJ2 and

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Aradigm agree to use all reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the mutually selected arbitrator or the last of the three arbitrators, as the case may be, and to use all reasonable efforts to cause the decision of the arbitrators to be furnished within 95 days after the appointment of the mutually selected arbitrator or the last of the three arbitrators, as the case may be.  SJ2 and Aradigm further agree that discovery shall be completed at least 10 days prior to the date of the arbitration hearing.  The final decision of the arbitrators shall be furnished to SJ2 and Aradigm in writing and shall constitute a conclusive determination of the issues in question, binding upon SJ2 and Aradigm and shall not be contested by any of them.  The non-prevailing party in any arbitration shall pay the reasonable expenses (including attorneys’ fees) of the prevailing party and the fees and expenses associated with the arbitration (including the arbitrators’ fees and expenses).  For purposes of this paragraph 17, the non-prevailing party shall be determined solely by the arbitrators.

18.No Third Party Beneficiaries.  This letter shall not confer any rights or remedies upon any person or entity other than SJ2 or Aradigm and their respective successors and permitted assigns.

19.Counterparts and Facsimile Signature.  This letter may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  This letter may be executed by facsimile signature.

20.Notices.  All notices and other communications under this letter will be in writing and deemed to have been duly given if given in accordance with Section 6.11 of the APA.

21.Successors and Assigns.  The provisions of this letter shall be binding upon and inure to the benefit of SJ2 and Aradigm and their respective successors and assigns; provided, however, that except as expressly provided in this letter, no party may assign, delegate or otherwise transfer any of its rights or obligations under this letter without the consent of each other party.

[The remainder of this page is left intentionally blank; signature page follows]

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If you are in agreement with the terms of this letter, please execute this letter where indicated below and return a copy of the signed letter to Aradigm.

			ARADIGM CORPORATION
			By:	/s/
			Name:		T.C. Chesterman
			Title:		SVP & CEO
ACCEPTED AND AGREED TO:
SJ2 THERAPEUTICS, INC.
By:	/s/
Name:		Stephen J. Farr
Title:		President

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CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.  THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXHIBIT I

Intraject Delivery System

EXHIBIT I

Technical Description of the Intraject System

Intraject is a pre-filled, disposable, sterile delivery device, which is designed to deliver up to 0.5mL into the subcutaneous tissue.  Intraject demonstrably delivers the injectate into the subcutaneous tissue similar to needle injection.  Intraject works by using a small canister of nitrogen gas, under pressure, to accelerate a metal rod towards a modified-PTFE piston.  This piston is in contact with the liquid drug formulation, and the impact of the metal rod generates pressure in the drug formulation.  The other end of the drug container has a small orifice, which is held in contact with the skin.  The initial high pressure is sufficient to cause the liquid to be ejected through the orifice and to pierce the skin.  The bulk of the liquid is subsequently delivered at a lower pressure into the subcutaneous tissue where it is available for systemic absorption.

The Intraject System consists of the following components:

1.             The Capsule sub-assembly, which stores the pre-filled sterile injection solution.

2.             The Actuator sub-assembly, which is the mechanism that expels the injection solution when actuated.

3.             The Setting Mechanism, which provides a convenient means for the user to set the actuator triggering mechanism

Appropriate materials that are compatible with the formulation, device capabilities and sterilization methods have been chosen as a result of the development program for the Intraject System.

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Components of the Capsule sub-assembly

The primary packaging component of the Intraject® sumatriptan drug product is the Capsule sub-assembly.  The formulation contact materials of the capsule sub-assembly are typical of those used in the manufacture of pharmaceutical products.

The Capsule sub-assembly has five components (Figure P.2-1).

The material, function and design rationale for use of each primary packaging component is described below:

I.              Glass capsule:  The glass capsule material is a USP Type 1 borosilicate glass capsule, strengthened via an ion exchange surface treatment process, which stores the injection solution.  The material was chosen for its known compatibility with drug formulations, for its clear appearance which allows observation of the formulation solution, and because it is resistant to chemical degradation, impermeable to solvent transport, and easy to sterilize.  This material is widely used within the pharmaceutical industry as a formulation contact material.

II.            Piston:  Modified PTFE piston ([***]):  The piston seals one end of the capsule and expels the injection solution when the device is actuated.  The material was chosen to ensure appropriate amounts of friction between the piston and capsule during actuation, to provide sufficient transfer of energy between the ram and formulation solution during actuation, to ensure limited solvent transport out of the capsule, to ensure acceptable seal integrity across an appropriate temperature range, and to be easy to sterilize.  The material was also chosen for its non-reactivity and compatibility with drug formulations.  This material is used in medical implants and pharmaceutical processing.

III.           Stopper:  Chlorobutyl rubber stopper, which seals the other end of the capsule.  The material was chosen because of its known compatibility with drug formulations, its elasticity which provides acceptable seal integrity across an appropriate temperature range, because it has low solvent transport properties, and is easy to sterilize.  It is one of the most widely used elastomeric container-closure materials in the pharmaceutical industry.

IV.           Interface seal:  Chlorobutyl rubber interface seal that allows sterile filling under vacuum.  The material is the same as that used for the stopper, and was chosen for the same reasons.

V.            Capsule sleeve:  Polyurethane capsule sleeve, which protects the capsule and couples the capsule sub-assembly to the actuator.  The material was chosen to be sterilizable, to provide visibility into the glass capsule, and to enable removal of the “snap-off’ end of the capsule sleeve by the user with an appropriate force.  This material is medical-grade, and has very limited exposure to the formulation solution.

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Figure 2-1:  Schematic of Capsule Sub-Assembly Components

Components of Actuator Sub-Assembly

As shown in Figure P.2-2, the Actuator sub-assembly has twelve functional components.  The actuator components have no drug formulation contact.

I.	An actuator sleeve that restrains the latch until the device is actuated.
II.	A chamber that stores the pressurized gas for expelling the injection solution.
III.	Two-O-rings that seal between the ram and the chamber to prevent gas loss.
IV.	A ram that drives the piston down the capsule when the device is actuated, thus expelling the injection solution through the drilled orifice.
V.	A latch, which restrains the ram from moving until the time of injection.
VI.	A coupling to join the actuator to the capsule sub-assembly.
VII.	An outer ring to strengthen the actuator sleeve where the latch pushes against it.
VIII.	A coupling clip to join the chamber to the coupling.
IX.	A shock absorber that controls the rise of pressure in the fluid and prevents shock waves.
X.	[***]

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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XI.	[***]
XII.	[***]
XIII.	[***]
XIV.	[***]
XV.	[***]

Figure P.2-2:  Schematic of Actuator Sub-Assembly Components

[***]

Table P.2-1 provides information on the materials used to manufacture the individual actuator components.

[***]

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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Components of Setting Mechanism

The presentation of the Intraject System consists of a Setting Mechanism, which encases the filled and assembled Actuator and Capsule sub-assemblies for the convenience of the user.  The Setting Mechanism does not alter the drug delivery from the device and the components have no drug formulation contact.

The Setting Mechanism has been developed as a result of risk analysis and human factors evaluations and addresses issues identified during these assessments.  The specific patient-device factors the Setting Mechanism addresses are:

·It provides a convenient means for the user to set the actuator triggering mechanism.

·It improves the intuitiveness of use of the device by providing visual cues to the preparation steps and also forces the user to prepare the Intraject System for injection in the correct order.

·It improves the ergonomics of the device by aiding removal of the capsule snap-off tip and provides the user with a grip to hold the device during snap-off, priming and injection.

The Setting Mechanism consists of three functional parts as shown in Figure P.2-3:

Figure P.2-3:  Setting Mechanism

I.	A snap-off cap, made up of two identical halves, which encloses the snap-off portion of the capsule sleeve. It provides an extended lever-arm to assist the user in breaking the snap-off while also releasing the setting lever (thereby forcing the correct sequence during use).
II.	A setting lever that can only be operated when the snap-off cap is removed. When rotated and placed into the groove in the cover, the setting lever both sets the actuator triggering mechanism whilst also removing a block from between the actuator and

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capsule sub-assemblies (to facilitate subsequent actuation, only when pressed against the skin).

III.

A grip, made up of the collar and cover components.  The grip supports the actuator sub-assembly and the lever and is held by the patient during use.  A pin on the collar component drives into and sets the actuator triggering mechanism as the user rotates the lever into the cover.  At the same time, a block on the cover component is removed from between the two Intraject sub-assemblies to facilitate subsequent injection when pressed against the skin by the user.

Table P.2-8 provides information on the materials used to manufacture the setting mechanism.

Table P.2-8:  Components of the Setting Mechanism

[***]

Table P.2-9 provides information on the actuator and setting mechanism materials, and rationale for their selection.

[***]

Figure P.2-4 shows the three basic steps to using the Intraject® System with Setting Mechanism.

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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Figure P.2-4:  Three Basic Steps for Using the Intraject System

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EXHIBIT J

Nontransferable Assets

None.

EX-10.11

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Exhibit 10.11

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

MASTER LOAN AND SECURITY AGREEMENT

THIS MASTER LOAN AND SECURITY AGREEMENT, dated as of March 5, 2007, (this "Agreement"), between General Electric Capital Corporation (together with its successors and assigns, if any, "Secured Party") and ZOGENIX, INC. ("Debtor"). Secured Party has an office at 83 Wooster Heights Road, Danbury, CT 06810. Debtor is a corporation organized and existing under the laws of the State of Delaware (the "State"). Debtor's mailing address and chief place of business is 12760 High Bluff Drive, Suite 130, San Diego, CA 92130.

1.     LOANS, TERMS OF PAYMENT AND CONDITIONS PRECEDENT.

(a)   The Loan and Terms of Payment

        (i)    The Loan.    Subject to the terms and conditions of this Agreement, Secured Party hereby agrees to make one or more term loans (each, a "Credit Extension") to Debtor in the aggregate principal amount not to exceed TEN MILLION DOLLARS and NO/100 ($10,000,000.00) (the "Term Loan Commitment"), which Term Loan Commitment shall terminate on December 21, 2007 (the "Term Loan Commitment Termination Date"), after which the Secured Party shall have no further obligation to make any additional Credit Extensions; provided, however, (x) on or after a date that is 30 days prior to the Term Loan Commitment Termination Date, Debtor may request that the Term Loan Commitment Termination Date be extended for an additional six (6) month period, in which case, if such extension is granted, the Term Loan Commitment shall terminate on June 21, 2008 (the "Extended Commitment Termination Date"), and (y) on or after a date that is 30 days prior to the Extended Commitment Termination Date, Debtor may request that the Extended Commitment Termination Date be extended for an additional six (6) month period, in which case, if granted, the Term Loan Commitment shall terminate on December 21, 2008. In the case of clauses (x) and (y) above, such extensions shall be granted by the Secured Party in its reasonable discretion. Each Credit Extension hereunder shall be evidenced by a Note (as defined below), which Notes are deemed incorporated into and made a part of this Agreement by this reference.

        (ii)   Borrowing Mechanics.    When Debtor desires a Credit Extension, Debtor will notify Secured Party by facsimile or electronic mail (or by telephone, provided that such telephonic notice shall be promptly confirmed in writing). Each Credit Extension shall be in an amount greater than or equal to $250,000 or such lesser amount as may be agreed to by Secured Party in its sole discretion. Secured Party shall make Credit Extensions for costs associated with the purchase of the equipment listed on Schedule 1 attached hereto and incorporated herein or other equipment identified by Debtor from time to time by wire transfer to such account as specified by Debtor at such time as Debtor has complied to the satisfaction of the Secured Party with the conditions precedent set forth in Section 1(b) below.

        (iii)  Repayment.    Debtor unconditionally promises to pay Secured Party the aggregate unpaid principal amount of each Credit Extension, together with interest on the unpaid principal amount of such Credit Extensions from the date of such Credit Extension until repaid at a rate per annum (on the basis of the actual number of days elapsed over a year of 360 days) at a fixed rate equal to the Treasury Rate (as defined below) and as set forth in the respective promissory note, the form of which is attached hereto as Exhibit A (as each may be amended, modified, increased, restated or replaced from time to time, collectively, the "Notes" and each a "Note"); provided, however, after the occurrence and during the continuance of an Event of Default (as defined below), at the option of the Secured Party, such rate shall be equal to the default rate set forth in each Note. For each Credit Extension, Debtor shall make monthly payments of principal and accrued interest in

the amounts provided by Secured Party and set forth in the respective Note. Once a Credit Extension is prepaid, it cannot be reborrowed. Each Note shall have a term of forty-eight (48) months.

        "Treasury Rate" means a rate per annum equal to the Treasury Index plus five and 43/100 percent (5.43%).

        "Treasury Index" means the greater of (i) four and 48/100 percent (4.48%) and (ii) the Treasury Constant Maturities Rate, as published by the United States Federal Reserve in Statistical Release H.15(519) entitled "Selected Interest Rates" for a term equal to the term of the Note evidencing such Credit Extension (and if there is no Treasury Constant Maturities Rate published for such term, the rate resulting from the interpolation between the Treasury Constant Maturities Rate published for the next shorter term and the next longer term), two (2) days prior to the funding of such Credit Extension, including the initial Credit Extension. If any such date is not a business day, then the quote shall be obtained on the business day immediately preceding such date. If the United States Treasury (a) quotes more than one such rate, then the highest of such quotes shall apply, or (b) ceases to quote such rate, then the Treasury Index shall be determined from such substitute financial reporting service or source as the Secured Party in its reasonable discretion shall determine.

        (iv)  Prepayment.    Debtor may voluntarily prepay, in full, the outstanding amount of any Credit Extension subject to the prepayment premium set forth in the respective Note.

(b)   Conditions of Credit Extensions

        (i)    Conditions Precedent to Initial Credit Extension.    On or before the initial Credit Extension Debtor shall deliver, or ensure delivery of, the following to Secured Party:

        (A)  a counterpart of this Agreement;

        (B)  a Note evidencing the initial Credit Extension;

        (C)  the Security Transfer Agreement, dated as of even date herewith, between Debtor and Secured Party (as it may be amended, restated, supplemented or otherwise modified from time to time, the "German Security Agreement");

        (D)  the Chattel Mortgage, dated as of even date herewith, between Debtor and Secured Party (as it may be amended, restated, supplemented or otherwise modified from time to time, the "UK Security Agreement");

        (E)  the Warrant to Purchase 200,000 Shares of Series A Preferred Stock, dated March 5, 2007, made by Debtor in favor of Secured Party (as it may be amended, restated, supplemented or otherwise modified from time to time, the "Warrant");

        (F)  a certificate of the Secretary of Debtor, the form of which is attached hereto as Exhibit B (the "Secretary's Certificate"), providing verification of incumbency and attaching Debtor's board resolutions approving the transactions contemplated by this Agreement and the other Debt Documents and Debtor's governing documents;

        (G)  collateral assignments, as Secured Party shall request in its reasonable discretion;

        (H)  certificates of insurance evidencing the insurance coverage required pursuant to Section 5 below;

        (I)   current UCC lien, judgment, bankruptcy and tax lien search results demonstrating that there are no other security interests or liens on the Collateral, other than Permitted Liens (as defined below), as Secured Party shall request in its reasonable discretion;

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        (J)   a certificate of good standing of Debtor as of a date acceptable to Secured Party from the jurisdiction of Debtor's organization;

        (K)  the Subordination and Waiver Agreement among MGlas AG, Debtor and Secured Party, the Deed of Subordination and Waiver among Patheon UK Limited, the Debtor and the Secured Party, the Deed of Subordination and Waiver among Bespak Europe Limited, the Debtor and the Secured Party, and the Deed of Subordination and Waiver among Dawson Shanahan Limited, the Debtor and the Secured Party, each dated on or about the date hereof (as each may be amended, restated, supplemented or otherwise modified from time to time, collectively, the "Initial Landlord Consents");

        (L)  legal opinions of counsel for Debtor located in the United States, England and Germany, each in form and substance reasonably satisfactory to Secured Party;

        (M) one or more schedules of equipment and personal property related thereto listing in detail sufficient to specifically identify the Collateral and its location (as each may be amended, restated, supplemented or otherwise modified from time to time the "Collateral Schedules"), which Collateral Schedules shall be annexed to and made a part hereof, the UK Security Agreement and/or the German Security Agreement and the respective Initial Landlord Consents, as applicable;

        (N)  UCC financing statements (and to the extent any such Collateral is to be located in a country other than the United States, such other documents, forms and schedules necessary to perfect Secured Party's interest in such other jurisdiction in the Collateral) in the correct form for filing in the necessary filing office; and

        (O)  all other documents, agreements, opinions, filings and instruments as Secured Party may reasonably deem necessary or appropriate to effectuate the intent and purpose of this Agreement (together with this Agreement, Note, the German Security Agreement, the UK Security Agreement, the Warrant, the Initial Landlord Consents, Landlord Consents, the Collateral Schedules and the Secretary's Certificate, as each may be amended, restated, supplemented or otherwise modified from time to time, collectively, the "Debt Documents").

        (ii)   Conditions Precedent to Subsequent Credit Extensions.    Upon each subsequent Credit Extension, Debtor shall deliver, or ensure delivery of, the following to Secured Party:

        (A)  a certificate by an officer of Debtor confirming that (1) all representations and warranties in Section 3 below shall be true as of the date of such Credit Extension, (2) no Event of Default or any other event, which with the giving of notice or the passage of time, or both, would constitute an Event of Default (such event, a "Default") has occurred and is continuing or will result from the making of any Credit Extension and (3) there shall not have occurred one or more events, acts, conditions or occurrences of whatever nature, whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, which gives rise to a material adverse change in, or a material adverse effect upon, any of (I) the condition (financial or otherwise), operations, business, prospects or properties of Debtor, (II) the rights and remedies of Secured Party under any Debt Document, or the ability of Debtor to perform any of its obligations under any Debt Document, (III) the legality, validity or enforceability of any Debt Document, or (IV) the existence, perfection or priority of any security interest granted in any Debt Document or the value of any Collateral (a "Material Adverse Change");

        (B)  amendment, restatement or other modification to, or redelivery or supplemental delivery of, the items set forth in the following sections to the extent circumstances have changed since the initial Credit Extension: Sections 1(b)(i)(C), (D), (E), (F), (G), (H), (I), (J), (M), (N) and (O);

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        (C)  a Note evidencing such Credit Extension;

        (D)  a landlord consent and waiver or similar document in favor of Secured Party executed by Debtor, the Secured Party and landlord or contract manufacturer, as the case may be, for each third party location where Collateral is located, that is not covered by the Initial Landlord Consents, or amendments, restatements, supplements or other modifications to any Initial Landlord Consent to identify such new equipment if not already identified therein, as the case may be, each satisfactory to Secured Party in its sole discretion (as each may be amended, restated, supplemented or otherwise modified from time to time, collectively, the "Landlord Consents");

        (E)  if Collateral is located in a jurisdiction other than England, Germany or the United States, a security agreement or similar document pursuant to which the Debtor grants in favor of the Secured Party a security interest in and to, and a lien upon, the Collateral located in such jurisdiction, which document shall be governed and construed by the laws of such jurisdiction;

        (F)  evidence satisfactory to Secured Party in its sole discretion of payment in full of the purchase price of new equipment that is to become Collateral and the related soft expenses directly related to the purchase of such equipment including leasehold improvements, software, taxes and freight costs (collectively, "Soft Costs") and evidence that at least 80% of such purchase price is attributable to the actual hard cost of such equipment and the remaining 20% or less is attributable to the related Soft Costs; and

        (G)  a responsible officer of the Debtor certifies in writing to the Secured Party that such new equipment is to be used in the ordinary course of the Debtor's business and has been delivered and installed and is fully operable, all to the satisfaction of the Debtor.

(c)   Fees and Deposits

        As an inducement to Secured Party to make the Credit Extensions hereunder, Debtor has paid to Secured Party a good faith deposit equal to one percent (1%) of the amount of the Term Loan Commitment (the "Commitment Fee"). Debtor and Secured Party agree that the one-half of the Commitment Fee (an amount equal to $50,000.00) has been credited to the account of the Secured Party as a fully earned, non-refundable up-front fee and that the remaining portion of the Commitment Fee shall be applied to the initial payment of each such Credit Extension (including the initial advance) as follows: (i) an amount equal to (A) the amount of such Credit Extension (B) divided by the Term Loan Commitment and (C) multiplied by $50,000, shall be applied to Debtor's first scheduled payment of such Credit Extension and (ii) any amount of the Commitment Fee not applied on or before the Term Loan Commitment Termination Date shall be retained by Secured Party as a non-utilization fee.

2.     CREATION OF SECURITY INTEREST.

        Debtor grants to Secured Party, its successors and assigns, a security interest in and against all of the right, title and interest of Debtor in and to property listed on any Collateral Schedule now or in the future signed by Debtor and in and against all additions, attachments, accessories and accessions to such property, all substitutions, replacements or exchanges therefor, and all insurance and/or other proceeds thereof (all such property is individually and collectively called the "Collateral"). This security interest is given to secure the prompt payment and performance, whether at the stated maturity, by acceleration or otherwise, of all and any debts, monies, obligations and liabilities, of any kind whatsoever, now or in the future due or owing by Debtor to Secured Party in whatever currency denominated, whether actually or contingently, alone or jointly with any other person, as principal or surety, and whether on any current or other account or otherwise including, without limitation, any such debts, monies, obligations and liabilities of Debtor to Secured Party under or in respect of the

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Debt Documents any other document executed in connection with or pursuant to the foregoing, and together with all interest, commissions, fees and legal and other costs charges and expenses which Secured Party may charge Debtor or incur in relation to Debtor or this Agreement or the Collateral on a full indemnity basis, and any renewals, extensions and modifications of such debts, monies, obligations and liabilities (collectively, the "Obligations").

3.     REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.

        Debtor represents and warrants, as of the date of this Agreement and as of the date of each Collateral Schedule, and covenants for the duration of this Agreement that:

        (a)   Debtor's exact legal name is as set forth in the preamble of this Agreement and Debtor is, and will remain, duly organized, existing and in good standing under the laws of the State set forth in the preamble of this Agreement, has its chief executive offices at the location specified in the preamble, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations;

        (b)   Debtor has adequate power and capacity to enter into, and to perform its obligations under each and every Debt Document;

        (c)   This Agreement and the other Debt Documents have been duly authorized, executed and delivered by Debtor and constitute legal, valid and binding agreements enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws;

        (d)   No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by Debtor of, any of the Debt Documents, except any already obtained;

        (e)   The entry into, and performance by, Debtor of the Debt Documents will not (i) violate any of the organizational documents of Debtor or any judgment, order, law or regulation applicable to Debtor, or (ii) result in any breach of or constitute a default under any contract to which Debtor is a party, or result in the creation of any lien, claim or encumbrance on any of Debtor's property (except for liens in favor of Secured Party) pursuant to any indenture, mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor is a party;

        (f)    There are no suits or proceedings pending in court or before any commission, board or other administrative agency against or affecting Debtor which could reasonably be expected to, in the aggregate, have a material adverse effect on Debtor, its business or operations, or its ability to perform its obligations under the Debt Documents, nor does Debtor have reason to believe that any such suits or proceedings are threatened;

        (g)   All financial statements delivered to Secured Party in connection with the Obligations have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change in Debtor's financial condition;

        (h)   The Collateral is not, and will not be, used by Debtor for personal, family or household purposes;

        (i)    The Collateral is, and will remain, in good condition and repair, ordinary wear and tear and damage by casualty excepted, and Debtor will not be negligent in its care and use;

        (j)    Debtor is, and will remain, the sole and lawful owner of the Collateral, and has the sole right and lawful authority to grant the security interest described in this Agreement, the German Security Agreement and the UK Security Agreement;

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        (k)   The Collateral is, and will remain, free and clear of all mortgages, charges, liens, claims and encumbrances of any kind whatsoever, except for (i) liens in favor of Secured Party, (ii) liens for taxes not yet due or for taxes being contested in good faith and which do not involve, in the judgment of Secured Party, any risk of the sale, forfeiture or loss of any of the Collateral and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP, and (iii) inchoate materialmen's, mechanic's, repairmen's and similar liens arising by operation of law in the normal course of business for amounts which are not delinquent (all of such liens are called "Permitted Liens"); and

        (l)    Debtor is and will remain in full compliance with all laws and regulations applicable to it including, without limitation, (i) ensuring that no person who owns a controlling interest in or otherwise controls Debtor is or shall be (Y) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control ("OFAC"), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (Z) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders, and (ii) compliance with all applicable Bank Secrecy Act ("BSA") laws, regulations and government guidance on BSA compliance and on the prevention and detection of money laundering violations.

4.     COLLATERAL.

        (a)   Debtor shall not move the Collateral from its current location, except that Secured Party shall have the right to possess (i) any chattel paper or instrument that constitutes a part of the Collateral, and (ii) any other Collateral in which Secured Party's security interest may be perfected only by possession. Secured Party may inspect any of the Collateral during normal business hours after giving Debtor reasonable prior notice and otherwise complying with the provisions of any estoppel, consent or similar agreement between Secured Party and any third parties pertaining to the applicable Collateral to be inspected. If Secured Party asks, Debtor will promptly notify Secured Party in writing of the location of any Collateral.

        (b)   Debtor shall, or shall cause other parties to, (i) use the Collateral only in its trade or business, (ii) maintain all of the Collateral in good operating order and repair, normal wear and tear excepted, (iii) use and maintain the Collateral only in compliance with manufacturers recommendations and all applicable laws, and (iv) keep all of the Collateral free and clear of all liens, claims and encumbrances (except for Permitted Liens).

        (c)   Secured Party does not authorize and Debtor agrees it shall not (i) part with possession of any of the Collateral (except to Secured Party or for maintenance and repair), (ii) remove any of the Collateral from the country in which it is located, or (iii) sell, rent, lease, mortgage, license, grant a security interest in or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral.

        (d)   Debtor shall pay promptly, or cause to be promptly paid, when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral, on its use, or on this Agreement or any of the other Debt Documents. At its option, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral and effect compliance with the terms of this Agreement or any of the other Debt Documents. Debtor agrees to reimburse Secured Party, on demand, all costs and expenses incurred by Secured Party in connection with such payment or performance and agrees that such reimbursement obligation shall be part of the Obligations.

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        (e)   Debtor shall, at all times, keep accurate and complete records of the Collateral, and Secured Party shall have the right to inspect and make copies of all of Debtor's books and records relating to the Collateral during normal business hours, after giving Debtor reasonable prior notice.

        (f)    Debtor agrees and acknowledges that any third person who may at any time possess all or any portion of the Collateral shall be deemed to hold, and shall hold, the Collateral as the agent of, and as pledge holder for, Secured Party. Secured Party may at any time give notice to any third person described in the preceding sentence that such third person is holding the Collateral as the agent of, and as pledge holder for, Secured Party.

5.     INSURANCE.

        (a)   Debtor shall at all times bear the entire risk of any loss, theft, damage to, or destruction of, any of the Collateral from any cause whatsoever.

        (b)   Debtor agrees to keep the Collateral insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral which are vehicles, for risk of loss by collision, and if requested by Secured Party, against such other risks as Secured Party may reasonably require. The insurance coverage shall be in an amount no less than the full replacement value of the Collateral, and deductible amounts, insurers and policies shall be acceptable to Secured Party. Debtor shall deliver to Secured Party policies or certificates of insurance evidencing such coverage. Each policy shall name Secured Party as additional insured and Secured Party's loss payee, shall provide for coverage to Secured Party regardless of the breach by Debtor of any warranty or representation made therein, shall not be subject to co-insurance, and shall provide that coverage may not be canceled or altered by the insurer except upon thirty (30) days prior written notice to Secured Party. Debtor hereby irrevocably authorizes and instructs any insurer (to whom this authority and instruction may be disclosed) to disclose all relevant information to Secured Party and appoints Secured Party as its attorney-in-fact to make proof of loss, claim for insurance and adjustments with insurers, and to receive payment of and execute or endorse all documents, checks or drafts in connection with insurance payments. Secured Party shall not act as Debtor's attorney-in-fact unless an Event of Default shall have occurred and is continuing. Proceeds of insurance shall be applied, at the option of Secured Party, to repair or replace the Collateral or to reduce any of the Obligations. To the extent such proceeds of insurance are applied to reduce any of the Obligations, such payment shall not be subject to the prepayment premium set forth in the Notes.

6.     REPORTS.

        (a)   Debtor shall promptly notify Secured Party of (i) any change in the name of Debtor, (ii) any change in the state of its incorporation, organization or registration, (iii) any relocation of its chief executive offices, (iv) any relocation of any of the Collateral, (v) any of the Collateral being lost, stolen, missing, destroyed, materially damaged or worn out, or (vi) any lien, claim or encumbrance other than Permitted Liens attaching to or being made against any of the Collateral.

        (b)   Debtor will deliver to Secured Party financial statements as follows. If Debtor is a privately held company, then Debtor agrees to provide monthly financial statements, certified by Debtor's president or chief financial officer including a balance sheet, statement of operations and cash flow statement within 30 days of each month end and its complete audited annual financial statements, certified by a recognized firm of certified public accountants, within 120 days of fiscal year end or at such time as Debtor's Board of Directors receives the audit. If Debtor is a publicly held company, then Debtor agrees to provide quarterly unaudited statements and annual audited statements, certified by a recognized firm of certified public accountants, within 10 days after the statements are provided to the Securities and Exchange Commission ("SEC"). All such statements are to be prepared using generally

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accepted accounting principles ("GAAP") and, if Debtor is a publicly held company, are to be in compliance with SEC requirements.

7.     FURTHER ASSURANCES.

        (a)   Debtor shall, upon request of Secured Party, furnish to Secured Party such further information, execute and deliver to Secured Party such documents and instruments (including, without limitation, Uniform Commercial Code financing statements) and shall do such other acts and things as Secured Party may at any time reasonably request relating to the perfection or protection of the security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement. Without limiting the foregoing, Debtor shall cooperate and do all acts deemed necessary or advisable by Secured Party to continue in Secured Party a perfected first security interest in the Collateral, and shall use its best efforts to obtain and furnish to Secured Party any subordinations, releases, landlord waivers, lessor waivers, mortgagee waivers, or control agreements, and similar documents as may be from time to time reasonably requested by, and in form and substance reasonably satisfactory to, Secured Party; provided, however, in the event of any sale of the premises in which any Collateral is located by the contract manufacturer or landlord party to the Initial Landlord Consent, Debtor shall obtain and furnish to Secured Party any subordinations, releases, landlord waivers, lessor waivers, mortgagee waivers, or control agreements, or similar documents as may be reasonably requested by, and in form and substance reasonably satisfactory to, Secured Party; provided, further, that the foregoing shall not apply, and Debtor shall not be required to obtain any such subordinations, releases, landlord waivers, lessor waivers, mortgagee waivers, control agreements or similar documents, if following such sale (i) the party to the Initial Landlord Consent pertaining to such premises remains in possession and control of that portion of the premises where the respective Collateral is located, and (ii) each provision of the Initial Landlord Consent remains enforceable against such party to the same extent that such Initial Landlord Consent was enforceable immediately prior to such sale.

        (b)   Debtor authorizes Secured Party to file a financing statement and amendments thereto describing the Collateral and containing any other information required by the applicable Uniform Commercial Code. Debtor irrevocably grants to Secured Party the power, exercisable by Secured Party only while an Event of Default has occurred and is continuing, to sign Debtor's name and generally to act on behalf of Debtor to execute and file applications for title, transfers of title, financing statements, notices of lien and other documents pertaining to any or all of the Collateral; this power is coupled with Secured Party's interest in the Collateral. Debtor shall, if any certificate of title be required or permitted by law for any of the Collateral, obtain and promptly deliver to Secured Party such certificate showing the lien of this Agreement with respect to the Collateral. Debtor ratifies its prior authorization for Secured Party to file financing statements and amendments thereto describing the Collateral and containing any other information required by the Uniform Commercial Code if filed prior to the date hereof.

        (c)   Debtor shall indemnify and defend Secured Party, its successors and assigns, and their respective directors, officers and employees, from and against all claims, actions and suits (including, without limitation, related attorneys' fees) of any kind whatsoever arising, directly or indirectly, in connection with any of the Collateral, this Agreement, any other Debt Document, and the transactions contemplated hereby or thereby, except for claims, actions or suits arising from the gross negligence or willful misconduct of Secured Party or its successors or assigns and their respective directors, officers and employees as determined by final judgment of a court of competent jurisdiction.

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8.     DEFAULT AND REMEDIES.

        (a)   The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Agreement and each of the other Debt Documents:

        (i)    Debtor breaches its obligation to pay when due any installment or other amount due or coming due under any of the Debt Documents and fails to cure the breach within ten (10) days;

        (ii)   Debtor, without the prior written consent of Secured Party, attempts to or does relocate, move, sell, rent, lease, license, mortgage, grant a security interest in, or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral;

        (iii)  Debtor breaches any of its insurance obligations under Section 5;

        (iv)  Debtor breaches any of its other obligations under any of the Debt Documents and fails to cure that breach within thirty (30) days after written notice from Secured Party;

        (v)   Any warranty, representation or statement made by Debtor in any of the Debt Documents or otherwise in connection with any of the Obligations shall be false or misleading in any material respect as of the date made;

        (vi)  Any of the Collateral is subjected to attachment, execution, levy, seizure or confiscation in any legal proceeding or otherwise, or if any legal or administrative proceeding is commenced against Debtor or any of the Collateral, which in the good faith judgment of Secured Party subjects any of the Collateral to a material risk of attachment, execution, levy, seizure or confiscation and no bond is posted or protective order obtained to negate such risk;

        (vii) Debtor breaches or is in default under any other agreement between Debtor and Secured Party;

        (viii)  Debtor or any guarantor or other obligor for any of the Obligations (collectively "Guarantor") dissolves, terminates its existence, becomes insolvent or ceases to do business as a going concern;

        (ix)  If Debtor or any Guarantor is a natural person, Debtor or any such Guarantor dies or becomes incompetent;

        (x)   A receiver is appointed for all or of any part of the property of Debtor or any Guarantor, or Debtor or any Guarantor makes any assignment for the benefit of creditors;

        (xi)  Debtor or any Guarantor files a petition under any bankruptcy, insolvency or similar law, or any such petition is filed against Debtor or any Guarantor and is not dismissed within forty-five (45) days;

        (xii) Debtor's improper filing of an amendment or termination statement relating to a filed financing statement describing the Collateral;

        (xiii)  Any Material Adverse Change has occurred, as determined solely by Secured Party;

        (xiv) Any Guarantor revokes or attempts to revoke its guaranty of any of the Obligations or fails to observe or perform any covenant, condition or agreement to be performed under any guaranty or other related document to which it is a party;

        (xv) Debtor defaults under any other material obligation for (A) borrowed money, (B) the deferred purchase price of property or (C) payments due under any lease agreement; or

        (xvi) At any time during the term of this Agreement Debtor experiences a change of control such that any person or entity acquires either more than 50% of the voting stock of Debtor or all or substantially all of Debtor's assets, in either case, without Secured Party's prior written consent.

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        (b)   Upon the occurrence and during the continuance of an Event of Default, Secured Party, at its option, may declare any or all of the Obligations to be immediately due and payable, without demand or notice to Debtor or any Guarantor. The accelerated obligations and liabilities shall bear interest (both before and after any judgment) until paid in full at the lower of eighteen percent (18%) per annum or the maximum rate not prohibited by applicable law.

        (c)   Upon the occurrence and during the continuance of an Event of Default, Secured Party shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code, and under any other applicable law. Without limiting the foregoing, Secured Party shall have the right to (i) notify any account debtor of Debtor or any obligor on any instrument which constitutes part of the Collateral to make payment to Secured Party, (ii) with or without legal process, enter any premises where the Collateral may be and take possession of and remove the Collateral from the premises or store it on the premises (provided, however, that any such action by Secured Party shall be carried out in a manner that complies with the provisions of any estoppel, consent or similar agreement between Secured Party and any third parties pertaining to the Collateral), (iii) sell the Collateral at public or private sale, in whole or in part, and have the right to bid and purchase at said sale, or (iv) lease or otherwise dispose of all or part of the Collateral, applying proceeds from such disposition to the Obligations. If requested by Secured Party, Debtor shall promptly assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Secured Party may also render any or all of the Collateral unusable at Debtor's premises and may dispose of such Collateral on such premises without liability for rent or costs. Any notice that Secured Party is required to give to Debtor under the Uniform Commercial Code of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of Debtor at least five (5) days prior to such action.

        (d)   Proceeds from any sale or lease or other disposition shall be applied: first, to all costs of repossession, storage, and disposition including without limitation attorneys', appraisers', and auctioneers' fees; second, to discharge the Obligations; third, to discharge any other obligation or indebtedness of Debtor to Secured Party, whether as obligor, endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in paying or settling liens and claims against the Collateral; and lastly, to Debtor, if there exists any surplus. Debtor shall remain fully liable for any deficiency.

        (e)   Debtor agrees to pay all reasonable attorneys' fees and other fees, costs and expenses incurred by Secured Party (including, without limitation, the allocated cost of in-house legal counsel) in connection with the enforcement, assertion, defense or preservation of Secured Party's rights and remedies under this Agreement, or if prohibited by law, such lesser sum as may be permitted. Debtor further agrees that such fees and costs shall be part of the Obligations.

        (f)    Secured Party's rights and remedies under this Agreement or otherwise arising are cumulative and may be exercised singularly or concurrently. Neither the failure nor any delay on the part of Secured Party to exercise any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise of that or any other right, power or privilege. SECURED PARTY SHALL NOT BE DEEMED TO HAVE WAIVED ANY OF ITS RIGHTS UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT, INSTRUMENT OR PAPER SIGNED BY DEBTOR UNLESS SUCH WAIVER IS EXPRESSED IN WRITING AND SIGNED BY SECURED PARTY. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion.

        (g)   DEBTOR AND SECURED PARTY UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE

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OBLIGATIONS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

        FOR THE PURPOSE OF ANY ENFORCEMENT BY SECURED PARTY OF ANY OR ALL OF ITS RIGHTS UNDER THIS AGREEMENT IN THE UNITED STATES, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO ANY DEBT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, DEBTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH JURISDICTIONS.

        EACH DEBTOR (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND OTHER DOCUMENTS AND OTHER SERVICE OF PROCESS OF ANY KIND AND CONSENTS TO SUCH SERVICE IN ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE UNITED STATES OF AMERICA WITH RESPECT TO OR OTHERWISE ARISING OUT OF OR IN CONNECTION WITH ANY DEBT DOCUMENT BY ANY MEANS PERMITTED BY APPLICABLE REQUIREMENTS OF LAW, INCLUDING BY THE MAILING THEREOF (BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID) TO THE ADDRESS OF THE DEBTOR SPECIFIED IN PREAMBLE HERETO (AND SHALL BE EFFECTIVE WHEN SUCH MAILING SHALL BE EFFECTIVE, AS PROVIDED THEREIN). EACH DEBTOR (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

        FOR THE PURPOSE OF ANY ENFORCEMENT BY SECURED PARTY OF ANY OR ALL OF ITS RIGHTS UNDER THIS AGREEMENT, (i) IN THE UNITED KINGDOM DEBTOR HEREBY UNCONDITIONALLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE ENGLISH COURTS AND HEREBY APPOINTS LAW DEBENTURE CORPORATE SERVICES LIMITED WHOSE ADDRESS IS FIFTH FLOOR, 100 WOOD STREET, LONDON, EC2V 7EX AS ITS AGENT FOR SERVICE OF ANY LEGAL PROCEEDINGS IN THE ENGLISH COURTS AND (ii) IN GERMANY, DEBTOR HEREBY UNCONDITIONALLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE GERMAN COURTS AND HEREBY APPOINTS MR. TIM SCHWARZBURG, NEUHAUS MASSENKEIL

11

ZELLER & PARTNER, SCHLOßSTRAßE 1, 56068 KOBLENZS ITS AGENT FOR SERVICE OF ANY LEGAL PROCEEDINGS IN THE GERMAN COURTS. DEBTOR WILL MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN EACH OF ENGLAND AND GERMANY.

9.     MISCELLANEOUS.

        (a)   This Agreement, any Note and/or any of the other Debt Documents may be assigned, in whole or in part, by Secured Party without notice to Debtor, and Debtor agrees not to assert against any such assignee, or assignee's assigns, any defense, set-off, recoupment claim or counterclaim which Debtor has or may at any time have against Secured Party for any reason whatsoever. Debtor agrees that if Debtor receives written notice of an assignment from Secured Party, Debtor will pay all amounts payable under any assigned Debt Documents to such assignee or as instructed by Secured Party. Debtor also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by Secured Party or assignee.

        (b)   All notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth in this Agreement (unless and until a different address may be specified in a written notice to the other party and, with respect to any notice given to Secured Party, with a copy to Hogan & Hartson LLP, 555 Thirteenth Street, N.W. Washington, D.C. 20004, attention Deborah K. Staudinger), and shall be deemed given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth business day after being sent by regular, registered or certified mail. As used herein, the term "business day" shall mean and include any day other than Saturdays, Sundays, or other days on which commercial banks in New York, New York are required or authorized to be closed.

        (c)   Debtor agrees to pay all reasonable attorneys' fees and all other fees, costs and expenses incurred by Secured Party (including, without limitation, the allocated cost of in-house legal counsel) in connection with the preparation, negotiation and closing of the transactions contemplated in this Agreement and all related documents and schedules and in connection with the continued administration thereof, including, without limitation, any amendments, modifications, consents or waivers thereof and in connection with the protection, monitoring or preservation of the Collateral. Debtor further agrees that such fees and costs shall part of the Obligations.

        (d)   Secured Party may correct patent errors and fill in all blanks in this Agreement or in any Collateral Schedule consistent with the agreement of the parties.

        (e)   Time is of the essence of this Agreement. This Agreement shall be binding, jointly and severally, upon all parties described as the "Debtor" and their respective heirs, executors, representatives, successors and assigns, and shall inure to the benefit of Secured Party, its successors and assigns.

        (f)    This Agreement, its Collateral Schedules and any additional security interest given by Debtor to Secured Party under security agreements and other documents and agreements related thereto with respect to the Collateral located abroad, and its Collateral Schedules constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior understandings (whether written, verbal or implied) with respect to such subject matter. THIS AGREEMENT AND ITS COLLATERAL SCHEDULES SHALL NOT BE CHANGED OR TERMINATED ORALLY OR BY COURSE OF CONDUCT, BUT ONLY BY A WRITING SIGNED BY BOTH PARTIES. Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation of this Agreement.

        (g)   This Agreement shall continue in full force and effect until all of the Obligations has been indefeasibly paid in full to Secured Party or its assignee. The surrender, upon payment or otherwise, of

12

any Note or any of the other documents evidencing any of the Obligations shall not affect the right of Secured Party to retain the Collateral for such other Obligations as may then exist or as it may be reasonably contemplated will exist in the future. This Agreement shall automatically be reinstated if Secured Party is ever required to return or restore the payment of all or any portion of the Obligations (all as though such payment had never been made).

        (h)   Debtor authorizes Secured Party to use its name, logo and/or trademark without notice to or consent by Debtor, in connection with certain promotional materials that Secured Party may disseminate to the public. The promotional materials may include, but are not limited to, brochures, video tape, internet website, press releases, advertising in newspaper and/or other periodicals, lucites, and any other materials relating the fact that Secured Party has a financing relationship with Debtor and such materials may be developed, disseminated and used without Debtor's review. Nothing herein obligates Secured Party to use Debtor's name, logo and/or trademark, in any promotional materials of Secured Party.

        (i)    THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE COLLATERAL.

        (j)    Secured Party shall have no obligation to marshal any assets in favor of Debtor, or against or in payment of any obligations owed to Secured Party by Debtor.

13

IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound hereby, have duly executed this Agreement in one or more counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid.

SECURED PARTY:		DEBTOR:
General Electric Capital Corporation		Zogenix, Inc.
By:	Diane Earle	By:	Roger L. Hawley
Name:	Diane Earle	Name:	Roger L. Hawley
Title:	Duly Authorized Signatory	Title:	CEO

S-1

Exhibit A

Form of Note

$                                     [DATE]

        FOR VALUE RECEIVED, Zogenix, Inc., a Delaware corporation located at the address stated below ("Maker") promises to pay to the order of General Electric Capital Corporation or any subsequent holder hereof (each, a "Payee") at its office located at 83 Wooster Heights Road, Danbury, CT 06810 or at such other place as Payee may designate by written notice to Maker, the principal sum of                        DOLLARS ($            ), with interest on the unpaid principal balance, from the date hereof through and including the dates of payment, at a fixed interest rate of                         percent (            %) per annum (the "Contract Rate") in installments consisting of [(i) FORTY SEVEN (47) consecutive monthly installments of principal and interest (each, a "Periodic Installment") and (ii) a final installment which shall be in the amount of the total outstanding and unpaid principal, accrued interest and any and all amounts due hereunder and under the other Debt Documents (as defined below)], all as set forth on Schedule 1, attached hereto. The first Periodic Installment shall be due and payable on                        , and the subsequent Periodic Installments and the final installment shall be due and payable on the same day of each succeeding period (each, a "Payment Date"). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of Payee, be calculated and applied on an assumption that such payment would be made on its due date.

        All payments shall be applied: first, to interest due and unpaid hereunder and under the other Debt Documents; second, to all other amounts due and unpaid hereunder and under the other Debt Documents, and then to principal due hereunder and under the other Debt Documents. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in full at such time or at any prior or subsequent time. The payment of any Periodic Installment prior to its due date shall result in a corresponding increase in the portion of the Periodic Installment credited to the remaining unpaid principal balance.

        All amounts due hereunder and under the other Debt Documents are payable in the lawful currency of the United States of America. Maker hereby expressly authorizes Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto.

        This Note is one of the "Notes" as defined in that certain Master Loan and Security Agreement, dated as of March 5, 2007, between Maker and Payee (as it may be amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement") and may be further secured by security agreements, chattel mortgages, pledge agreements or like instruments. Capitalized terms used, but not otherwise defined herein shall have the meaning given such terms in the Loan Agreement.

        Time is of the essence hereof, If Payee does not receive from Maker payment in full of any Periodic Installment or any other sum due under this Note or any other Debt Document is not received within ten (10) days after its due date, Maker agrees to pay a late fee equal to five percent (5%) on such late Periodic Installment or other sum, but not exceeding any lawful maximum. Such late fee will be immediately due and payable, and is in addition to any other costs, fees and expenses that Maker may owe as a result of such late payment. Additionally, if (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in default under, or fails to perform under any term or condition contained in any Debt Document, in each case beyond all applicable notice and cure periods, then (x) the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any other Debt Document, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of eighteen percent (18%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any

judgment) and/or (y) Payee may enforce its rights under any or all Debt Documents. The application of such 18% interest rate shall not be interpreted or deemed to extend any cure period set forth in this Note or any other Debt Document, cure any default or otherwise limit Payee's right or remedies hereunder or under any Debt Document.

        The Maker may prepay in full, but not in part, its entire indebtedness hereunder upon payment of the entire indebtedness, interest costs and fees due and owing hereunder plus an additional sum as a premium equal to the following percentages of the outstanding principal balance for the indicated period:

Period		Prepayment Premium
On or before the first annual anniversary of this Note		4	%
After the first anniversary but prior to the second annual anniversary		3	%
After the second anniversary but prior to the third annual anniversary		2	%
After the third anniversary but prior to the fourth annual anniversary		1	%
	Thereafter	0	%

        It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any other Debt Document, in no event shall this Note or any other Debt Document require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any other Debt Document, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any other Debt Document on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event: (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Debt Document which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for Payee to receive a greater interest per annum rate than is presently allowed, Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America.

        Maker hereby consents to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any other Debt Document or any term and provision of either, which may be made, granted or consented to by Payee, and agrees that suit may be brought and maintained against Maker and/or any and all sureties, endorsers, guarantors or any others who may at any time become liable for payments and performance under this Note and any other Debt Documents (each such person, other than Maker, an "Obligor"), at the election of Payee without joinder of any other as a party thereto, and that

Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. Maker hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee's actual attorneys' fees.

        THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

        MAKER AND PAYEE UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE OBLIGATIONS SECURED HEREBY, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR NOTES RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY TILE COURT.

        FOR THE PURPOSE OF ANY ENFORCEMENT BY PAYEE OF ANY OR ALL OF ITS RIGHTS UNDER THIS NOTE IN THE UNITED STATES, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO ANY DEBT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS NOTE, MAKER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH JURISDICTIONS.

        EACH MAKER (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND OTHER DOCUMENTS AND OTHER SERVICE OF PROCESS OF ANY KIND AND CONSENTS TO SUCH SERVICE IN ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE UNITED STATES OF AMERICA WITH RESPECT TO OR OTHERWISE ARISING OUT OF OR IN CONNECTION WITH ANY DEBT DOCUMENT BY ANY MEANS PERMITTED BY APPLICABLE REQUIREMENTS OF LAW, INCLUDING BY THE MAILING THEREOF (BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID) TO THE ADDRESS OF THE MAKER SPECIFIED IN PREAMBLE HERETO (AND SHALL BE EFFECTIVE WHEN SUCH MAILING SHALL BE EFFECTIVE, AS PROVIDED THEREIN). EACH MAKER (AND, TO THE EXTENT SET FORTH IN ANY OTHER DEBT DOCUMENT, EACH OTHER PARTY) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON TILE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

        This Note and the other Debt Documents constitute the entire agreement of Maker and Payee with respect to the subject matter hereof and supersede all prior understandings, agreements and representations, express or implied.

        No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given.

        Any provision in this Note or any of the other Debt Documents which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.

Payment Authorization

        Payee is hereby directed and authorized by Maker to advance and/or apply the proceeds of the loan as evidenced by this Note to the following parties in the stipulated amounts as set forth below:

Comp any Name	Amount
Maker	$
Legal Fees	$
Total	$

*

Funds from your Commitment Fee have been applied as follows: $                        towards balance of interim interest due                        .

        Any provision in this Note or any of the other Debt Documents which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.

Exhibit B

Form of Secretary's Certificate

        Reference is made to the Master Loan and Security Agreement, dated as of the date hereof, between [Customer Name] (the "Agreement"), a [corporation/limited liability company/limited liability partnership/limited partnership] organized and existing under the laws of the State of [                        ] (the "Debtor") and General Electric Capital Corporation (the "Secured Party"). Capitalized terms used but not defined herein are used with the meanings assigned to such terms in the Agreement.

        I,                                     , do hereby certify that:

          (i)  I am the duly elected, qualified and acting [Assistant] Secretary of Debtor;

         (ii)  attached hereto as Exhibit A is a true, complete and correct copies of Debtor's [Certificate/Articles of Incorporation or Articles of Organization/Certificate of Formation] and the [Bylaws/LLC Agreement/Partnership Agreement] (collectively, the "Governing Documents"), each of which is in full force and effect on and as of the date hereof;

        (iii)  each of the following named individuals is a duly elected or appointed, qualified and acting officer of Debtor who holds the offices set opposite such individual's name, and the signature written opposite the name and title of such officer is such officer's genuine signature:

Name
Title Signature

        (iv)  attached hereto as Exhibit B are true, complete and correct copies of resolutions adopted by the Board of Directors/Members of Debtor (the "Board") authorizing the execution, delivery and performance of the Debt Documents to which Debtor is a party, which resolutions were duly adopted by the Board on [DATE] and all such resolutions are in full force and effect on the date hereof in the form in which adopted without amendment, modification, rescission or revocation;

        (iv)  the execution and delivery of the Debt Documents is not prohibited by or in any manner restricted by the terms of (i) Debtor's Governing Documents, (ii) any loan agreement, indenture or contract to which Debtor is a party or under which it is bound or (iii) federal or state statute, rule, regulation or court order applicable to Debtor;

         (v)  the foregoing authority shall remain in full force and effect, and Secured Party shall be entitled to rely upon same, until written notice of the modification, rescission or revocation of same, in whole or in part, has been delivered to Secured Party, but no such modification, rescission or revocation shall, in any event, be effective with respect to any documents executed or actions taken in reliance upon the foregoing authority before said written notice is delivered to Secured Party; and

        (vi)  there are no actions, suits, proceedings or investigations pending or threatened against or affecting Debtor before any court, federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any basis therefor, which involves the possibility of any judgment or liability not covered in full by insurance which could result in any material adverse effect, or materially impair the right or ability of Debtor to carry on its operations substantially as now conducted or anticipated to be conducted in the future, or which questions the validity of the Debt Documents, or the other documents required thereby or any action to be taken to be taken pursuant to any of the foregoing.

IN WITNESS WHEREOF, I have hereunto set my hand as of the first date written above

Name: Title: [Assistant] Secretary

[Following signature block required if signatory above will be signing Debt Documents]

        The undersigned does hereby certify on behalf of Debtor that he is the duly elected or appointed, qualified and acting [TITLE] of Debtor and that [NAME FROM ABOVE] is the duly elected or appointed, qualified and acting [Assistant] Secretary of Debtor, and that the signature set forth immediately above is his genuine signature.

Name: Title:

Schedule 1
Equipment

[***]

Twelve (12) pages have been omitted pursuant to a request for confidential treatment.

***

Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

QuickLinks

Exhibit 10.11

MASTER LOAN AND SECURITY AGREEMENT
Exhibit A

EX-10.12

Exhibit 10.12

Execution Copy

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

ELAN PHARMA INTERNATIONAL LIMITED

AND

ZOGENIX, INC.

LICENSE AGREEMENT

Execution Copy

INDEX

1.	Definitions and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
2.	The License. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
3.	Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
4.	Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
5.	Product Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
6.	Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
7.	Registration, Marketing and the Promotion of the Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
8.	Manufacture and Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
9.	Manufacturing License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
10.	Financial Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
11.	Payments, Reports and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
12.	Duration and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
13.	Consequences of Expiration or Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
14.	Warranties, Indemnification and Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
15.	Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
16.	Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36

Execution Copy

Schedule 1	Technological Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
Schedule 2	key terms for commercial manufacture and supply agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
Schedule 3	manufacturing cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39

Execution Copy

THIS AGREEMENT is dated November      , 2007

PARTIES:

(1)ELAN PHARMA INTERNATIONAL LIMITED, a limited liability company incorporated under the laws of Ireland, having its registered office at Monksland, Athlone, Co Westmeath, Ireland (“Elan”); and

(2)ZOGENIX, INC., a Delaware corporation, having its principal place of business at 11682 El Camino Real, Ste. 320, San Diego, California, USA 92130 (“Zogenix”).

BACKGROUND:

(A)Elan possesses certain proprietary oral controlled release technology as well as proprietary know-how and confidential information used or useful in the manufacture and use of pharmaceutical products.

(B)Elan has also developed a Product (as defined below) containing Compound (as defined below) which utilizes certain Elan oral controlled release technology.

(C)Zogenix wishes to enter into this Agreement to obtain the right to utilize Elan Intellectual Property (as defined below) to (i) import, use, offer for sale, sell the Product in the Field (as defined below) in the Territory (as defined below) and (ii) make and have made the Product in the Field in the Territory, in each case in accordance with the terms and conditions set out below.

TERMS:

The Parties agree as follows:

1.DEFINITIONS AND INTERPRETATION

1.1.Definitions.  In this Agreement:

“Affiliate” means any corporation or entity controlling, controlled or under common control with Elan or Zogenix, as the case may be.  For the purposes of this Agreement, “control” means the direct or indirect ownership of more than 50% of the issued voting shares or other voting rights of the subject entity to elect directors, or if not meeting the preceding criteria, any entity owned or controlled by or owning or controlling at the maximum control or ownership right permitted in the country where such entity exists.

“Agreement” means this license agreement (which expression shall be deemed to include its Recitals and Schedules), as amended or supplemented pursuant to the terms hereof.

“Bottled Product” shall mean Product that is packed in bottles in a packaging configuration approved by the FDA under a Regulatory Application that is ready for commercial distribution in the Field in the Territory or, alternatively, Product that is packed in bulk form in drums.

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“Business Days” means Monday to Friday inclusive, excluding any days on which the clearing banks are generally closed in Dublin, Ireland and/or New York, New York.

“cGMP” means then-current Good Manufacturing Practice, as defined in the US Federal Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, as may be amended from time to time.

“Claims” means all and any claims (whether successful or otherwise), loss, liability, damages and expenses, including reasonable attorneys’ fees and expenses and legal costs.

“CMC Section” means the chemistry, manufacturing, and controls section of the Regulatory Application in the Territory as defined in 21 C.F.R. Section 314.50 (1), as may be amended from time to time.

“Commercial Manufacture and Supply Agreement” means the agreement to be negotiated in good faith and entered into between Zogenix and Elan Holdings regarding the commercial supply of Product for Zogenix by Elan Holdings, as set forth in Clause 8.

“Commercially Reasonable Efforts” means those efforts of a Party which are consistent with those utilised by such Party for its own internally developed or in-licensed pharmaceutical products, taking into account all factors that impact the manufacturing, development, regulatory approval, marketing,  and sales of such products, as applicable.

“Competitive Product” means any [***] (other than the Product itself) whose [***] is [***] which has [***] and which is [***].

“Compound” means the active drug substance hydrocodone bitartrate and other pharmaceutically acceptable salts of hydrocodone.

“Controlled Substances” has the same meaning as in the US Controlled Substances Act (21 U.S.C. 801-904), as may be amended from time to time.

“DMF” means the Drug Master File, as defined in the 21 C.F.R., Section 314.420, which DMF contains the CMC Section.

“EDDI” means Elan Drug Delivery, Inc., a Delaware corporation, having a place of business at 1300 Gould Drive, Gainesville, Georgia, USA 30504.  As of the Effective Date, EDDI is an Affiliate of Elan.

“Effective Date” means the date of this Agreement as set forth in the header on page 1 herein.

“Elan Holdings” means Elan Holdings, Inc., a Massachusetts corporation having a place of business at 1300 Gould Drive, Gainesville, Georgia USA 30504.  As of the Effective Date, Elan Holdings is an Affiliate of Elan.

“Elan IND” means the Investigational New Drug Application No. 65,111 that has been filed by Elan or an Affiliate with the FDA.

“Elan Intellectual Property” means the Elan Know-How and Elan Patents.

“Elan Know-How” means any and all rights owned, licensed or controlled by Elan as of the Effective Date or during the Term to any scientific, pharmaceutical or technical information,

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data, discovery, invention (whether patentable or not), know-how, show-how, substances, techniques, processes, systems, formulations, designs and expertise which is not generally known to the public and is exclusively related to (a) the Product or (b) the manufacturing processes used in making the Product.  It is expressly acknowledged by the Parties that Elan Know-How shall not include Zogenix Patents or Zogenix Know-How.

“Elan Oral Controlled Release Patents” means any and all rights under any and all Patents relating to oral controlled release dosage forms, filed by, now existing, currently pending or hereafter filed, licensed or controlled by Elan or its Affiliates in the Territory, excluding (a) the Elan Patents and (b) any and all Patents the ownership or control of which are acquired by Elan or its Affiliates after the Effective Date (including by acquisition of the assets and/or shares in an entity which owns, controls or licenses them), or are as at the time of such acquisition owned, controlled or licensed by an entity which acquires control of Elan, together with Patents arising from technology so acquired by Elan or its Affiliates, or owned, licensed or controlled by such an acquiring entity as of the date of such acquisition.

“Elan Patents” means any and all Patents and any and all rights owned, licensed or controlled by Elan under

(a)	U.S. Patent No. 6,902,742,
(b)	U.S. Published Patent Application Number 2006/024015,
(c)	any U.S. Patents that claim priority to the Patents described in clauses (a) or (b) hereof and relate exclusively to the formulation, use, sale or offer for sale of the Product or the manufacturing processes used in making the Product, and
(d)	any U.S. Patents, other than Zogenix Patents, claiming subject matter that
	(i)	are directly related to the formulation, use, sale or offer for sale of the Product, or the manufacturing processes used in making the Product, and
	(ii)	were developed solely by or on behalf of Elan or Zogenix and/or jointly by Zogenix and Elan as a result of that Party (or its Affiliate) fulfilling obligations under this Agreement or Related Agreements.

For the avoidance of doubt, the Elan Patents do not include [***].

“Elan Trademark” means Elan’s trademark “SODAS®” (U.S. Registration No. 2794607) or such other trade marks as Elan may from time to time reasonably specify.

“EXW” (ex works) has the same meaning as in the ICC Incoterms 2000, International Rules for the Interpretation of Trade Terms, ICC Publication No. 560.

“Failure to Supply” means that for reasons other than (i) Force Majeure, (ii) a default by Zogenix (including but not limited to a failure to provide forecasts and orders in accordance with the Commercial Manufacture and Supply Agreement), or (iii) events or Third Party actions that are beyond Elan’s or its Affiliate’s control so long as Elan or its Affiliate has used and is continuing to use Commercially Reasonable Efforts to minimize such action (such as DEA quota changes or issues relating to the manufacture or supply of API), Elan or its Affiliate anticipates that it will fail to supply or fails to supply Zogenix’s properly forecasted and ordered requirements for Bottled Product in accordance with the terms set out in the

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Commercial Manufacture and Supply Agreement, such that Zogenix will become unable or is unable to satisfy all customer orders for the Product (after exhaustion of the agreed level of safety stock) and will remain unable to do so for at least [***] thereafter.

“FDA” means the United States Food and Drug Administration or any other successor agency whose approval is necessary to market the Product in the USA.

“Field” means any oral prescription only medicine in humans for the treatment or relief of pain, pain syndromes or pain associated with medical conditions or procedures.

“Force Majeure” means any cause or condition beyond the reasonable control of the Party (or its Affiliate) obliged to perform, including acts of God, acts of government (in particular with respect to obtain quotas or the refusal to issue necessary import or export licenses so long as the responsible Party (or its Affiliate) has used Commercially Reasonable Efforts to obtain such quotas and licenses), fire, flood, earthquake, war, riots or embargoes or strikes or other labour difficulties affecting a Party or either Party’s ability to obtain supplies howsoever arising.

“Governmental Authority” means all governmental and regulatory bodies, agencies, departments or entities, whether or not located in the Territory, which regulate, direct or control commercial and other related activities in or with the Territory.

“IND” means Investigational New Drug Application as set forth in the 21 C.F.R. Section 312.

“In Market” means the sale of the Product in the Territory by Zogenix, a Zogenix Affiliate or where applicable, by a permitted sub-licensee or subcontractor, to an unaffiliated Third Party, such as a wholesaler, distributor, managed care organisation, hospital or pharmacy which effects the final commercial sale to the end-user consumer of the Product, and shall exclude (a) the transfer of the Product by one Zogenix Affiliate to another Zogenix Affiliate or a permitted sub-licensee or subcontractor, and (b) the transfer of the Product in connection with the R&D Program or other clinical studies conducted by Zogenix, a Zogenix Affiliate or permitted sublicensee.

“Manufacturing Cost” means those costs set out in Schedule 3.

“NDA” means a New Drug Application filed with the FDA in reference to the Product, including any supplements or amendments thereto which may be filed in the Territory.

“NDA Approval” means the final approval of an NDA by the FDA to market the Product in the Territory.

“Net Sales” means, subject to the provisions of Clause 10.4, the aggregate gross In Market sales amounts billed for the Product in accordance with Zogenix’s standard accounting principles that is in accordance with US GAAP, less a maximum deduction of [***]% (subject to any adjustments that may be discussed and mutually agreed to in writing by the Parties pursuant to Clause 10.3) to cover the following:

(i)	trade, cash or quantity discounts, patient discount programs, rebates to wholesalers for inventory management programs or distribution agreements, allowances, adjustments and rejections;
(ii)	rebates, recalls (other than where the Product is replaced without charge) and returns;

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(iii)	price reductions or rebates imposed by Governmental Authorities;
(iv)	transportation, importation, shipping, insurance and other handling expenses directly chargeable to the royalty-bearing sale of the Product, but only to the extent that such expenses are separately delineated in the applicable invoices; and
(v)	chargebacks granted to drug wholesalers or their customers in cases where there are not direct shipments to such customers by Zogenix, a Zogenix Affiliate or its permitted sublicense.

“Net Selling Price” or “NSP” shall mean the total Net Sales for a given strength of the Product divided by the number of units of such Product sold for the given period.

“Notional NSP” shall mean the estimated NSP of a given strength of the Product at the applicable time, which shall be provided by Zogenix to Elan within ninety (90) days prior to commencement of each calendar year (or, for the launch year, within ninety (90) days prior to the estimated date of first commercial sale in the territory).

“Orange Book” means the FDA’s Approved Drug Product List with Therapeutic Equivalence Evaluations, which lists all products, and the patents that cover the products, that have been approved by the FDA for safety and effectiveness, and explains the therapeutic equivalence code for multi-source products.

“Party” or “Parties” means Elan and Zogenix, individually or collectively, as referred to herein.

“Patent(s)” means all U.S. patents and patent applications, including all provisionals, continuations, RCEs, continuations-in-part, divisionals and any patents issuing thereon, and re-issues or re-examinations of such patents and extensions and term adjustments of any patents, including extension of patents under the U.S. Patent Term Restoration Act.

“Phase II Trial” means a human clinical trial of a Product, the principal purpose of which is a determination of safety and efficacy in the target patient population or a similar clinical study prescribed by the Governmental Authorities, from time to time, pursuant to applicable law or otherwise, including the trials referred to in 21 C.F.R. §312.21(b), as amended from time to time.

“Phase IIb Trial” means a well-controlled, closely monitored, human clinical trial conducted to evaluate the dose-dependent effectiveness of a Product for a particular indication or indications in patients with the disease or condition under study and to determine the common short-term side effects and risks associated with the Product as more fully defined in 21 CFR Section 312.12(b), as amended from time to time.

“Phase III Trial” means a human clinical trial of a Product on a sufficient number of subjects that is designated to establish that such Product is safe and efficacious for its intended use, and to determine warnings, precautions, and adverse reactions that are associated with such Product in the dosage range to be prescribed, which trial is intended to support Regulatory Approval, including tests and studies that are required by the FDA, as described in 21 C.F.R. 312.21(c), as amended from time to time.

“Product” means the oral controlled release capsule or tablet formulation(s) incorporating Elan Intellectual Property and/or the technology of the Elan Oral Controlled Release Patents and Compound where Compound is the sole active ingredient in the formulation.

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“Product Data” means data relating to the Product generated by Zogenix or Elan in support of a Regulatory Application.

“Product Specifications” means the specifications for the Product as set forth in the NDA and such additional specifications for the Product as may be agreed by the Parties (or their Affiliates) in writing.

“Prosecute” means in relation to Elan Patents and Zogenix Patents:

(i) to secure the grant of any patent application within such Patents;

(ii) to file and prosecute patent applications on patentable inventions and discoveries relating to the subject matter of the Patents;

(iii) to defend all such Patents against Third Party oppositions, re-examinations, re-issues and similar or related actions; and

(iv) to maintain in force any issued letters patent relating to the same

and “Prosecution” has a corresponding meaning.

“R&D Program” means the research and development program related to the Product set out in the Services Agreement.

“Regulatory Application” means any regulatory application or any other application for Regulatory Approval, which Zogenix will file in the Territory, including any supplements or amendments thereto.

“Regulatory Approval” means the final approval to market the Product in the Territory, including any approval which is required to launch the Product in the normal course of business.

“Related Agreements” shall mean the Services Agreement and the Commercial Manufacture and Supply Agreement.

“Services Agreement” shall mean the services agreement that is negotiated and entered into between Elan or an Elan Affiliate and Zogenix, as the same may be amended by agreement of the parties thereto from time to time, setting forth the R&D Program and such other provisions related to Product development and regulatory work and the pre-clinical and clinical supply of Product by Elan or an Elan Affiliate for Zogenix.

“Technological Competitor” means a person or entity listed in Schedule 1, and, except as set forth in Schedule 1, any divisions, subsidiaries and successors thereof, and their respective Affiliates (as noted in Schedule 1) and such other person or corporate entity that, after the Effective Date and other than as a de minimis activity, develops oral drug delivery technology displaying a sustained release profile and/or manufacture products that display a sustained release profile that Elan may request be added to Schedule 1 from time to time, [***].

“Term” means the Initial Term and the Extended Term of this Agreement, as such terms are defined in Clause 12.

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“Territory” means the United States of America and its possessions and territories, including Puerto Rico.

“Third Party” means any individual or entity which is neither a Party or an Affiliate of a Party.

“US GAAP” means the set of generally accepted accounting principles that are used in the Territory.

“Valid Claim” means any claim of an issued or unexpired Patent included within Elan Patents which has not been revoked or held unenforceable, unpatentable or invalid by a decision of a court or government agency of competent jurisdiction, that is unappealable or unappealed within the time allowed for appeal, or which has not expressly been admitted by Elan or its Affiliates to be invalid or unenforceable.

“VAT” or “Value Added Tax” means (i) any tax imposed in compliance with the Sixth Directive of the Council of the European Communities (77/388/EEC) and (ii) any other tax of a similar fiscal nature, whether imposed in a member state of the European Union or anywhere else in the Territory.

“Zogenix Intellectual Property” means the Zogenix Know-How and the Zogenix Patents.

“Zogenix Know-How” means any and all rights owned, licensed or controlled by Zogenix  as of the Effective Date or during the Term to any scientific, pharmaceutical or technical information, data, discovery, invention (whether patentable or not), know-how, show-how, substances, techniques, processes, systems, formulations, designs and expertise which is not generally known to the public and is not exclusively related to (a) the Product, (b) the manufacturing processes used in making the Product or (c) Elan Oral Controlled Release Patents.  It is expressly acknowledged by the Parties that the Zogenix Know-How shall not include any Elan Patents, any Elan Know-How or any other license or other rights granted to Zogenix by Elan or its Affiliates under this Agreement or any Related Agreement.

“Zogenix Patents” means any Patents owned, licensed or controlled by Zogenix as of the Effective Date or during the Term claiming subject matter that is related to the sale or offer for sale of the Compound within the Field or methods of use of the Compound within the Field or packaging of the Product.  For the avoidance of doubt, Zogenix Patents do not include the Elan Patents or other patent rights granted to Zogenix by Elan or its Affiliates under this Agreement or any Related Agreement.  As of the Effective Date, there are no Zogenix Patents.

“$” and “US$” mean United States Dollars.

1.2.Further Definitions.  In addition, the following definitions have the meanings in the Clauses corresponding thereto, as set forth below:

Definition	Clause
“Confidential Information”	15.1
“Contained Within a Ring Fence”	16.3.2.1
“Designated Manufacturer”	9.1
“Disclosing Party”	15.13
“Due Date”	11.7
“Elan License”	2.1
“Elan Trademark License”	3.6.2.2
“Extended Term”	12.2
“Infringement Claim”	3.4.1

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“Initial Term”	12.1
“License Fee”	10.1.1
“License Milestone Payments”	10.1
“Manufacturing License”	9.1
“Notice”	16.14.1
“Notified Party”	3.5.1
“Notifying Party”	3.5.1
“Statement”	11.1
“Third Party License”	3.5.1

1.3.Interpretation.  In this Agreement:

1.3.1	the singular includes the plural and vice versa, and unless the context or subject otherwise requires, references to words in one gender include references to the other genders and references to natural persons include corporate bodies, partnerships and vice versa;
1.3.2	unless the context otherwise requires, reference to a recital, article, paragraph, provision, clause or schedule is to a recital, article, paragraph, provision, clause or schedule of or to this Agreement;
1.3.3	the headings in this Agreement are inserted for convenience only and do not affect its construction; and
1.3.4	the expressions “include”, “includes”, “including”, “in particular” and similar expressions shall be construed without limitation.

2.THE LICENSE

2.1.Elan License to Zogenix.  Subject to the terms of this Agreement, Elan hereby grants to Zogenix for the Term an exclusive license (the “Elan License”) to the Elan Intellectual Property to import, use, offer for sale and sell the Product in the Field in the Territory.  The Elan License does not include the right to perform any formulation, process development or manufacturing activities in relation to the Product, although the Parties confirm that Zogenix has been granted certain manufacturing license rights in this Agreement as set forth in Clause 9 which are subject to the terms and conditions set out therein.

2.2.Sub-licensing.  Zogenix shall be entitled to grant sub-licenses in respect of its rights to the Elan Intellectual Property granted pursuant to Clause 2.1, subject to the following conditions:

2.2.1	With respect to Technological Competitors, Zogenix must obtain Elan’s prior written consent, which may be withheld at Elan’s sole discretion. If consent is granted by Elan, Zogenix shall, amongst other matters, make Elan whole for any tax consequence associated with such sub-license;
2.2.2	With respect to all other entities, Zogenix must satisfy the following conditions:

2.2.2.1 Zogenix shall promptly provide Elan with written notice of each sub-license hereunder and shall provide Elan with a complete copy of the written agreement  entered into with any such sub-licensee (save for the financial or other confidential business terms which may be redacted);

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2.2.2.2	Zogenix shall make Elan whole for any tax consequence associated with each such sub-license;
2.2.2.3	Zogenix shall be liable to Elan for the acts and omissions of the sub-licensee;
2.2.2.4	Zogenix shall enter into a written agreement with each sub-licensee which:
2.2.2.5	is consistent with the terms of this Agreement insofar as they are applicable, mutatis mutandis, but excluding the right to grant a sublicense;
2.2.2.6	contains terms that are no less restrictive than those contained in this Agreement on audit, inspection, and confidentiality; and contains terms to ensure that the sublicense agreement terminates when this Agreement terminates or expires.
2.2.2.7	Zogenix shall also ensure that Elan Confidential Information is only disclosed to permitted sub-licensees to the extent that such sublicensee needs it to fulfil obligations and exercise rights under their sublicense agreement. Under no circumstances shall any permitted sub-licensee or any other Third Party be allowed access to CMC data without the prior written consent of Elan and Elan shall be entitled to require that there be a direct contractual relationship between the sub-licensee and Elan in such circumstances.

2.3.	Elan Covenant. Elan covenants for itself and its Affiliates not to assert any claim of Patent infringement (including direct infringement, contributory infringement and inducing infringement) in the Territory against Zogenix, any Affiliate of Zogenix or any permitted sublicensee under [***] as a result of Zogenix, any Affiliate of Zogenix, or any permitted sublicensee exercising the rights granted under this Agreement or any Related Agreement for so long as (i) Zogenix and its Affiliates, sublicensees and subcontractors are not in material breach of this Agreement or any Related Agreements and/or (ii) this Agreement has not been terminated.
2.4.	In addition, Elan covenants for itself and its Affiliates not to enter into an agreement granting rights to a Third Party that would enable said Third Party to assert [***] against Zogenix, any Affiliate of Zogenix, or any permitted sublicense as a result of Zogenix, any Affiliate of Zogenix or any permitted sublicensee exercising the rights granted under this Agreement or any Related Agreement for so long as (i) Zogenix and its Affiliates, sublicensees and subcontractors are not in material breach of this Agreement or any Related Agreements and/or (ii) this Agreement has not been terminated.
2.5.	Zogenix License to Elan. Subject to the terms of this Agreement, Zogenix hereby grants to Elan and its Affiliates for the Term a non-exclusive license to the Zogenix Intellectual Property solely to the extent necessary to perform Elan or Elan Affiliates’ obligations under this Agreement or the Related Agreements.

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3.INTELLECTUAL PROPERTY

3.1.Ownership of Intellectual Property. Elan is and shall remain the owner of the Elan Intellectual Property and Elan Oral Controlled Release Patents.  Zogenix is and shall remain the owner of the Zogenix Intellectual Property.

3.2.Patent Prosecution and Maintenance.

3.2.1	Elan, at its sole discretion and expense, will Prosecute and determine the strategy of Prosecution of the Elan Patents. Elan shall keep Zogenix promptly informed regarding the Prosecution of Elan Patents, including sufficient notice and opportunity to permit Zogenix to exercise its rights under Section 3.2.2, and shall provide Zogenix the opportunity to provide comments to any updated filings for the Elan Patents for Elan’s reasonable consideration . Zogenix shall treat such information as the Confidential Information of Elan in accordance with Clause 15.
3.2.2	In the event that Elan does not wish to Prosecute Elan Patents, Elan shall notify Zogenix prior to ceasing Prosecution to enable Zogenix to take action and avoid withdrawal, cancellation, expiration or abandonment of any such Elan Patent, and Zogenix shall then have the right to assume such further action at its own expense.
3.2.3	Each Party shall provide the other Party with reasonable support in the Prosecution of their respective Patents within the Elan Patents and the Zogenix Patents, as applicable, and shall execute and deliver all documents and instruments that are necessary to support such Prosecution by the other Party, including in accordance with Clause 3.2.2. In addition, Zogenix shall provide to Elan all information and/or data related to the Compound or Product Data in its possession that is necessary to support the Prosecution of the Elan Patents.
3.2.4	Each Party shall promptly notify the other Party of any developments by the first Party, its Affiliates, permitted sub-licensee(s) or any relevant Third Party subcontractors of scientific, pharmaceutical or technical information, data, discovery, invention (whether patentable or not), know-how, show-how, substances, techniques, processes, systems, formulations, designs and expertise which is related to, as to Elan, Elan Intellectual Property and as to Zogenix, Zogenix Intellectual Property.
3.2.5	The Parties acknowledge that Zogenix, as the holder of the NDA, may refer to applicable Elan Patents in the listing for the Product in the Orange Book. At Zogenix’s request, Elan shall support Zogenix in listing the applicable Elan Patents, such support not to be unreasonably withheld, conditioned or delayed. In the event that Elan Patents are listed in the Orange Book, Zogenix shall use Commercially Reasonable Efforts to ensure that Elan shall be listed as the assignee of the Elan Patents and both Zogenix and Elan shall be identified as the point of contact for any Paragraph IV notifications.

3.3.Enforcement.

3.3.1 Elan and Zogenix shall promptly inform each other in writing of any actual, threatened or alleged infringement of the Elan Patents or misappropriation of the Elan Know-How by a Third Party of which it becomes aware and shall provide the other Party with any available evidence of such infringement or misappropriation.  Neither Elan nor Zogenix shall contact a Third Party alleging actual or unauthorized use of Elan Patents or misappropriation of Elan Know-How without the written consent of the other Party.

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3.3.2	With respect to infringement of the Elan Patents by a Competitive Product of a Third Party, the Parties agree as follows:
	3.3.2.1	Subject to Clause 3.3.3, Elan shall have the first right to enforce Elan Patents or Elan Know-How against Third Parties. Elan shall keep Zogenix reasonably informed of and shall not settle any administrative proceedings or litigation relating to Elan Patents or Elan Know-How (the “Proceedings”) in a manner which would materially adversely affect the rights licensed to Zogenix under this Agreement without the prior consent of Zogenix, not to be unreasonably withheld, conditioned or delayed.
		Zogenix shall reasonably cooperate with Elan to enforce such rights, including initiation or maintenance as a party to the Proceedings to enforce such rights.
		(i)  If the settlement or damages awarded as a result of the Proceedings exceed each Party’s costs and expenses, including legal fees, associated with the Proceedings, the Parties agree that after payment of each Party’s costs and expenses associated with such Proceedings, Elan shall apportion all amounts determined to be compensation for lost sales or profits of the Product in the amounts of [***]% to Zogenix and [***]% to Elan.  All other amounts associated with enforcing Elan Patents related to a Competitive Product shall be paid [***]% to Elan and [***]% to Zogenix.  The compensation for lost sales or profits paid to Zogenix hereunder shall not be included in any calculation of Net Sales and Elan shall not be due a royalty thereon.
		(ii) If Elan is unsuccessful in the Proceedings or if a settlement or damages awarded as a result of the Proceedings are insufficient to cover each Party’s costs and expenses, including legal fees, associated with the Proceedings, such costs and expenses, including legal fees, shall be allocated between the Parties [***]% to Zogenix and [***]% to Elan.
	3.3.2.2	In circumstances where Elan decides not to enforce or does not wish to continue to enforce Elan Know-How or the Elan Patents against a Competitive Product as set forth in Clauses 3.3.2.1 or 3.3.3, Zogenix shall be granted step in rights to enforce.  In such circumstances:
		(i) Elan shall reasonably cooperate with Zogenix to enforce such rights, including consideration of initiation or maintenance as a party to the Proceedings to enforce such rights,
		(ii) Zogenix shall have sole control of the Proceedings and related strategy,
		(iii) Zogenix shall be responsible for paying [***]% of the costs of any such Proceedings, including Elan’s reasonable expenses and attorney’s fees incurred as a result of Elan’s cooperation as set forth in this Clause 3.3.2.2 (or, if Zogenix exercises step in rights in an active Proceedings,

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			Zogenix shall assume [***]% of the costs as of the date that such right is asserted by Zogenix, and any of Elan’s reasonable future expenses and attorney’s fees incurred as a result of Elan’s cooperation as set forth in this Clause 3.3.2.2), and
			(iv) Zogenix may only negotiate or settle the dispute by sublicensing Elan Patents in accordance with Clause 2.2 or otherwise with Elan’s prior written consent.
	3.3.3	Notwithstanding the terms and conditions as set forth in Clause 3.3.2.1, if a Paragraph IV Certification (as defined in CFR Title 21) is filed referencing the Product, Elan shall (provided that Elan believes it has a good faith basis to proceed with such suit) commence action within forty-five (45) days of the notice of Paragraph IV Certification and Zogenix shall reimburse Elan for [***] litigation and related costs, including attorneys fees. In circumstances where Elan decides not to commence such an action, Zogenix shall be granted step in rights according to the terms of Clause 3.3.2.2 herein.  In such circumstances where Elan decides not to commence such an action, it shall provide Zogenix with sufficient notice and time for Zogenix to exercise its step-in rights according to the terms of Clause 3.3.2.2 and commence action within forty-five (45) days of the notice of Paragraph IV Certification.
	3.3.4	For the avoidance of doubt, Zogenix has no step in rights relating to any infringement actions where the subject of the action is not a Competitive Product.  In turn, Zogenix shall have no liability for any costs or expenses associated with such infringement action, nor shall Zogenix receive any amounts recovered from such infringement action or settlement of such infringement action, with the exception that if the damages awarded to Elan by a court or administrative authority presiding over such infringement action exceed Elan’s costs and expenses, including Elan’s attorney fees, and the damages are apportioned in a manner such that a portion of the damages are lost sales or profits of the Product in the Territory, Elan shall distribute that portion of the lost sales damages between Elan and Zogenix in the amounts of [***]% to Zogenix and [***]% to Elan.
3.4.	Defence of and Liability for Infringement Claims.
	3.4.1	Each Party shall promptly notify the other Party in writing of any Claim made, threatened or brought against either of them alleging infringement or other unauthorised use of the intellectual property of a Third Party arising from the development, manufacture, importation, use, offer for sale, sale or other commercialization of the Product in the Territory (“Infringement Claim”).
	3.4.2	Subject to Clause 3.4.3, Zogenix shall indemnify and hold harmless Elan, its Affiliates and their respective officers, directors, employees and agents against all Infringement Claims where the subject matter of the Infringement Claim:
		3.4.2.1	would fall outside the scope of any Valid Claim, or
		3.4.2.2	is a result of a breach by Zogenix of its representations and warranties set forth in Clauses 14.2 or 14.3.

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3.4.3	Elan shall indemnify and hold harmless Zogenix, its Affiliates and their respective officers, directors, employees and agents against all Infringement Claims brought against Zogenix by a Third Party where the subject matter of such Infringement Claim is a valid claim of an [***] as a result of Zogenix, its Affiliates and their respective officers, directors, employees and agents exercising the rights granted under this Agreement or any Related Agreement forso long as (i) Zogenix, its Affiliates and their respective officers, directors, employees and agents are not in material breach of this Agreement or any Related Agreements and/or (ii) this Agreement has not been terminated.  For the avoidance of doubt, Elan shall be [***]% liable for such Infringement Claim as described herein in this Clause 3.4.3.
3.4.4	Subject to Clauses 3.4.5 and 3.4.6, Elan shall indemnify and hold harmless Zogenix, its Affiliates and their respective officers, directors, employees and agents against all Infringement Claims where the subject matter of the Infringement Claim:
	3.4.4.1	is directly related to the Product and falls within the scope of a Valid Claim,
	3.4.4.2	is directly related to the manufacture or a process of manufacturing of the Product by or on behalf of Elan or an Elan Affiliate, or
	3.4.4.3	is a result of a breach by Elan of its representations and warranties set forth in Clauses 14.1 or 14.3.
3.4.5	For the avoidance of doubt, the Parties agree that Zogenix shall indemnify and hold harmless Elan against all Claims that arise in connection with any Infringement Claim where the subject matter of such Infringement Claim is not included in Clauses 3.4.4.1 through 3.4.4.3 or Clause 3.4.3 herein.
3.4.6	Subject to Clause 3.4.6, Elan’s aggregate cumulative liability pursuant to Clause 3.4.4 in respect of those Infringement Claims for which Elan is liable under Clauses 3.4.4.1 through 3.4.4.3 shall not exceed certain limitations as follows:
	3.4.6.1	[***]% of any lump sum payment due to a Third Party as a result of a court order or settlement in respect of the Infringement Claim (including a claim for damages);
	3.4.6.2	[***]% of any license fees due to a Third Party under any license entered into as a result of a court order or settlement in respect of the Infringement Claim where the subject matter of the Infringement Claim is included in Clause 3.4.4.1; and
	3.4.6.3	[***]% of any license fees due to a Third Party under any license entered into as a result of a court order or settlement in respect of the Infringement Claim where the subject matter of the Infringement Claim is included in Clause 3.4.4.2.
3.4.7	Zogenix will be entitled to recover amounts due by Elan to Zogenix under Clause 3.4.5 solely as a credit against the royalties payable by Zogenix to Elan under the provisions of Clause 10.3, provided however that the maximum credit which may be claimed by Zogenix in any one such year will be [***]% of the royalty otherwise payable to Elan.

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			3.4.7.1	Any deficit remaining in Zogenix’s recovery of amounts due by Elan to Zogenix following recovery by Zogenix within the limitations set forth in this Clause 3.4.6 may be carried over from year to year and any deficit remaining thereafter shall be borne by Zogenix and Elan shall have no liability to Zogenix in relation thereto.
			3.4.7.2	For the avoidance of doubt, Zogenix shall indemnify and hold harmless Elan against all Infringement Claims where such Infringement Claims are included in Clauses 3.4.4.1 and 3.4.4.2 to the extent they are in excess of the limits set forth in this Clause 3.4.6.
	3.4.8		Save as specifically provided otherwise in this Clause 3.4, the provisions of Clause 14.8 shall apply to the conduct of any Infringement Claim. Further, Elan and Zogenix shall consult with respect to any actions Elan or Zogenix proposes to take in order to mitigate any loss or liability with respect to any Infringement Claim, such actions may include Zogenix ceasing to sell the Product, Elan ceasing to manufacture and supply Zogenix with Product, the Parties agreeing to modify the Product, or either or both of the Parties entering into a licensing or settlement negotiation with the Third Party as set forth in Clause 3.5.
			3.4.8.1	In the event that the Parties are unable to agree on a course of action under this Clause 3.4.7, Zogenix shall indemnify and hold Elan harmless against all Infringement Claims to the extent that they relate to the period after the date on which the Parties are unable to agree under this Clause 3.4.7.
3.5.	Third Party Licenses and Settlements.
		3.5.1	Notice. If during the Term either Party reasonably believes that the making, importation, use, offer for sale or sale of the Product in the Field in the Territory would infringe the intellectual property rights of a Third Party, and that such infringement arises from or relates to the subject matter described in Clauses 3.4.4.1 or 3.4.4.2 that Party (“the Notifying Party”) shall so inform the other Party (“Notified Party”), which notification shall include documents supporting the Notifying Party’s position. If the Notifying Party believes a license from such Third Party is necessary or advisable to exercise its rights and obligations under this Agreement, including to sell the Product and/or mitigate any potential liability therefore (a “Third Party License”), the notice shall include reference to such Third Party License.
		3.5.2	Counter-Notice. Notified Party shall have thirty (30) days to review the notice issued pursuant to 3.5.1 from the Notifying Party and to agree or disagree with the Notifying Party’s belief by counter-notice. If the Notified Party disagrees with the Notifying Party’s belief, then the Notified Party shall provide the Notifying Party with documents or other information supporting the Notified Party’s position. The Notifying Party shall have thirty (30) days from the date of receipt to review the documents or other information from the Notified Party. Failure by the Notified Party to respond to the Notifying Party’s notice, or by the Notifying Party to respond to the Notified Party’s counter-notice, shall be taken for the purposes of the decision as to whether to obtain a license under this Clause 3.5.2 (but for the avoidance of doubt, not for any other purpose whatsoever) as acceptance of the position of the other Party. The Parties agree that the time periods as set forth in this Clause 3.5.2 may be reasonably extended by the mutual written agreement of the Parties.

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	3.5.3	Use of Documents.  All documents exchanged by the Parties shall be maintained in confidence and shall not be used for any other purpose than the resolution of the scope of a Third Party’s intellectual property rights as it pertains to the sale of a Product as set forth in this Agreement.
	3.5.4	Resolution. If the Notified Party disagrees with the Notifying Party’s position pursuant to the terms as set forth in Clause 3.5.2 herein and if the Notifying Party maintains its original position after such review period, then the matter shall be referred first to the officers of Elan and Zogenix having responsibility for the subject matter of the dispute, or their designees. Such officers, or their designees, as the case may be, shall negotiate in good faith to resolve such dispute in a mutually satisfactory manner. If such efforts do not result in a mutually satisfactory resolution of the dispute within thirty (30) days of such referral, the matter shall be referred to the chief executive officer of each Party, or their respective designees.
	3.5.5	Final Resolution. If the Parties’ chief executive officers or their designees do not resolve the dispute within thirty (30) days of the matter being referred to them (or such longer time periods as may be mutually agreed in writing by the Parties) under Clause 3.5.4, an independent mutually acceptable Third Party law firm with suitable expertise in the field of intellectual property in pharmaceuticals (the “Firm”) shall be appointed to determine whether, in its opinion, the making, importation, use, offer for sale or sale of the Products in the Field and in the Territory would infringe such Third Party intellectual property as included in Clauses 3.4.4.1 or 3.4.4.2 in the Field and in the Territory. Once appointed, the Firm shall not be used by either Party (or their respective Affiliates) for matters pertaining to the Elan Intellectual Property, the Elan Oral Controlled Release Patents or the Zogenix Intellectual Property, other than subsequent disputes under this Clause 3.5. The costs of the Firm shall be borne by the Party with whom the Firm disagrees
	3.5.6	Disputes Not To Be Reopened. The procedure in Clauses 3.5.1 to 3.5.5 shall not be used more than once in relation to any particular Third Party intellectual property identified in a Third Party License of Clause 3.5.1 , absent new and relevant facts.
	3.5.7	Negotiation. If the Parties or the Firm determine that a Third Party License under Clause 3.5.1 should be obtained as a Final Resolution of Clause 3.5.5, Elan shall have the initial right to negotiate such license and shall not negotiate a license or settlement which exceeds an ongoing royalty of [***]% of Net Sales of the Product or a lump sum settlement payment of more than [***] dollars (US$[***]) related to the Product without Zogenix’s prior written consent. In the event that Elan is unsuccessful in obtaining such a license within [***] ([***]) days of its first meeting with such Third Party, then Zogenix shall have the right to negotiate such license, provided that Zogenix may offer or grant to a Third Party in negotiations or as part of any settlement arising from such a negotiation a sublicense to the Elan License granted to Zogenix under this Agreement in accordance with Clause 2.2 but shall not otherwise be entitled to offer or grant any right whatsoever to Elan Patents in such circumstances without Elan’s prior written consent.
	3.5.8	Unrelated Licenses. Nothing in this Clause 3.5 shall be construed as affecting Zogenix’s rights to obtain licenses wholly unrelated to the incorporation of the Elan Intellectual Property in the Product, at its own expense.
3.6.	Trademarks.

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3.6.1	Product Trademark.
	3.6.1.1	Zogenix shall market the Product in the Territory under a trademark or trademarks which Zogenix shall determine in its sole discretion (“Zogenix Trademark”).
	3.6.1.2	Zogenix shall, at its sole discretion and expense, file and prosecute applications to register and maintain registrations of such trademarks in the Territory. Zogenix shall not file or prosecute applications to register or maintain registrations where such trademark (A) might materially prejudice the distinctiveness, validity, or the goodwill of the Elan Trademark or (B) cause confusion or deception with a registered mark of Elan.
	3.6.1.3	Zogenix will be entitled to conduct all enforcement proceedings relating to such trademarks and shall at its sole discretion decide what action, if any, to take in respect of any infringement or alleged infringement of such trademarks or passing-off or any other claim or counter-claim brought or threatened in respect of the use or registration of such trademarks. Any such proceedings shall be conducted at Zogenix’s expense and for its own benefit.
	3.6.1.4	Except as set forth in Clause 13.2.4.4, Elan shall have the right to reference any Zogenix Trademark for purposes of promoting Elan’s role in the development and manufacturing of the Product or as promotional material of Elan Intellectual Property. In no event, shall Elan use (a) the Zogenix Trademark in any way that might materially prejudice its distinctiveness or validity or the goodwill of Zogenix therein or (b) cause confusion or deception with the Zogenix Trademark.
3.6.2	Elan Trademark.
	3.6.2.1	Zogenix shall prominently display the Elan Trademark on the packaging and labelling of the Product and on promotional materials in relation to the Product to acknowledge that the Elan Intellectual Property has been applied in developing and manufacturing the Product.
	3.6.2.2	Elan grants to Zogenix for the Term a paid-up, non-exclusive license within the Territory to use the Elan Trademark (“Elan Trademark License”), solely for the purpose of fulfilling Zogenix’s obligations under this Clause 3.6.2.
	3.6.2.3	Zogenix shall ensure that each reference to and use of the Elan Trademark by Zogenix is in a manner from time to time approved by Elan and accompanied by an acknowledgement, in a form approved by Elan, that the same is a trademark (or registered trademark) of Elan.
	3.6.2.4	Zogenix shall not use the Elan Trademark in any way which might materially prejudice its distinctiveness or validity or the goodwill of Elan therein.

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3.6.2.5	Zogenix shall not use in the Territory any trademarks or trade names so resembling the Elan Trademark as to be likely to cause confusion or deception.
3.6.2.6	Elan shall, at its sole discretion and expense, file and prosecute applications to register and maintain registrations of the Elan Trademark in the Territory.
3.6.2.7	Elan will be entitled to conduct all enforcement proceedings relating to the Elan Trademark and shall at its sole discretion decide what action, if any, to take in respect of any infringement or alleged infringement of the Elan Trademark or passing-off or any other claim or counter-claim brought or threatened in respect of the use or registration of the Elan Trademark. Any such proceedings shall be conducted at Elan’s expense and for its own benefit.
3.6.2.8	Any action, request or requirement by the FDA or other U.S. governmental agency or body contrary to the provisions of Clause 3.6.2.1 shall relieve Zogenix of any and all obligations under this Clause 3.6.2.

4.NON-COMPETITION

4.1.Zogenix Obligation.  Zogenix shall not, and shall ensure that its Affiliates and permitted sub-licensees do not license (except by way of settlement Proceedings in accordance with Section 3.3.2.2), market or sell any oral prescription only controlled release capsule or tablet formulation (other than the Product) whose sole active ingredient is the Compound in the Territory for use in the Field during the Term.

4.2.Elan Obligation.  Elan shall not, and shall ensure that its Affiliates do not license (except by way of settlement Proceedings in accordance with Section 3.3.2.1), manufacture for commercial sale in the Territory, market or sell any oral prescription only controlled release capsule or tablet formulation (other than the Product) whose sole active ingredient is the Compound in the Territory for use in the Field during the Term.  Provided that for the purpose of this Clause 4.2, “Affiliates” shall not include any entity which acquires or is acquired by Elan or its Affiliates after the Effective Date, or the subsidiaries of such entity.

5.PRODUCT DEVELOPMENT

5.1.Services Agreement.  The Parties agree that they, or their respective Affiliates, will negotiate in good faith a Services Agreement that contains an R&D Program setting out the development and regulatory services and pre-clinical and clinical supplies of Product required by Zogenix from Elan’s Affiliate, EDDI, to commercialize the Product. The Parties shall execute said agreement on or before December 31, 2007, or such later date as mutually agreed.

5.2.The Parties also agree that all services and supplies provided by Elan or its Affiliates to Zogenix for development work under the Services Agreement (or any development work conducted by Elan for Zogenix prior to the signing of the Services Agreement) shall be conducted under work plans which includes a mutually agreed budget and that Elan and its

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Affiliates shall be entitled (i) to charge Zogenix for such services and supplies at [***] rate ([***] US$[***]/hour) and (ii) to be fully reimbursed by Zogenix for all out-of-pocket expenses (including the cost of Compound) and for any agreed Third Party costs incurred by Elan or its Affiliate.

6.REGULATORY MATTERS

6.1.Elan.  Elan (or an Elan Affiliate) shall own, and shall be responsible at its own expense, for filing for and maintaining:

6.1.1	the DMF for the Product; and
6.1.2	all necessary manufacturing approvals to enable Elan (or its Affiliate) to manufacture and supply clinical supplies of Product pursuant to the Services Agreement and Bottled Product pursuant to the Commercial Manufacture and Supply Agreement;
6.1.3	all appropriate quotas from the US Drug Enforcement Agency to enable Elan to source and use the Compound to manufacture and supply clinical supplies of Product pursuant to the Services Agreement and Bottled Product pursuant to the Commercial Manufacture and Supply Agreement ; and
6.1.4	any necessary export or import licenses in relation to clinical supplies of Product manufactured and supplied by Elan pursuant to the Services Agreement and Bottled Product pursuant to the Commercial Manufacture and Supply Agreement (if Elan chooses to manufacture the Product outside the Territory).

6.2.Zogenix.  Except as provided in Clause 6.1, Zogenix shall own and shall be responsible for filing for and maintaining all necessary Regulatory Approvals (including the NDA), but not including any necessary export or import licenses in relation to the Product which shall be the sole responsibility of Elan.  For the avoidance of doubt, any data, filings or other information provided by Elan to Zogenix, a Zogenix Affiliate or permitted sub-licensee to support any regulatory filings shall be treated as Confidential Information belonging to Elan and its Affiliates in accordance with Clause 15.

6.3.Co-operation.  Elan and Zogenix will provide all reasonable co-operation with respect to the other’s regulatory filings in the Territory.

6.4.Keep Advised.  Zogenix shall keep Elan promptly and fully advised of Zogenix’s regulatory activities in respect of the Product.  Without prejudice to the generality of the foregoing, Zogenix shall notify Elan in writing upon:

6.4.1	the completion of the first Phase II Trial, Phase IIb Trial or Phase III Trial of the Product by or on behalf of Zogenix;
6.4.2	the date of submission and date of acceptance for filing (if different) of any Regulatory Application in the Territory; and
6.4.3	the date of issue of a Regulatory Approval.

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6.5.Right of Reference to DMF.  Elan (or its Affiliate) shall authorise Governmental Authorities to incorporate Elan’s DMF by reference into any IND for the Product or Regulatory Application as applicable,and shall use Commercially Reasonable Efforts to update and maintain such DMF.

6.6.Access.  Upon Elan’s prior written notice, Zogenix shall permit Elan to have access to and use of all Regulatory Applications, Regulatory Approvals, all supplements and related filings related thereto and all clinical trial data relating to the Product and to take photocopies of same as may be required by Elan (i) to fulfill reporting requirements or as otherwise may reasonably be required by Elan in connection with this Agreement and/or (ii) to support the registration, marketing and/or manufacture of the Product for sale outside the Territory. Zogenix shall also permit Elan to have access to and use of the Elan IND, all other INDs that may be filed in relation to the Product during the Term, and all pre-clinical data (including all carcinogenicity data created by or on behalf of Zogenix during the Term) relating to the Product for use in the development and commercialization of other products both within and outside the Territory.  For the avoidance of doubt, Elan’s exclusive right to use clinical trial data relating to the Product generated by or on behalf of Zogenix is as set forth in the first sentence of this Clause 6.6 and in Clauses 3.2.3 and 15.11 and any data, filings or other information provided by Zogenix to Elan under this Clause 6.6 shall be treated as Confidential Information belonging to Zogenix in accordance with Clause 15.

6.7.Elan IND.  Elan (or an Affiliate) shall transfer the Elan IND to Zogenix on or before 31 January 2008 by providing the FDA with written notification of such Elan IND transfer.  Zogenix hereby acknowledges that (i) it shall not acquire any rights or interest in the Elan IND until 31 January 2008 or, if earlier, the date that Elan provides its written notification of transfer of the Elan IND to the FDA; (ii) Elan (or an Affiliate) is entitled to remove all sections of the existing Elan IND that contain CMC Section data prior to the date Elan (or an Affiliate) submits its written transfer notification to the FDA; and (iii) the DMF containing such CMC Section data shall have been filed with the FDA on or prior to the date of transfer of such Elan IND hereunder.

6.7.1Zogenix further agrees that:

6.7.1.1	Elan shall continue to own all rights in the materials contained in the Elan IND as of the date of transfer (except as provided in Clause 6.7.2) and shall be entitled to use such materials for any other purpose;
6.7.1.2	Zogenix shall not use the Elan IND for any purpose other than to develop or commercialize Product in the Field in the Territory during the Term; and
6.7.1.3	neither Zogenix nor any other non-Elan entity to whom the Elan IND may be transferred during the Term, shall seek any information from the FDA or any other Governmental Authority relating to the CMC Section data removed from the IND by Elan prior to the transfer.

6.7.2Elan further agrees that it shall file any amendment to the Elan IND that may be requested by Zogenix prior to the transfer that facilitates development efforts of Product by Zogenix.  For the avoidance of doubt, any such information submitted by Elan to the FDA on behalf of Zogenix in this context shall continue to be owned by Zogenix, although Elan shall have access to utilize such filings in accordance with Clause 6.6.

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7.REGISTRATION, MARKETING AND THE PROMOTION OF THE PRODUCT

7.1.Diligent Efforts.  Zogenix shall use Commercially Reasonable Efforts:

7.1.1	to conduct toxicity, pre-clinical and clinical studies necessary for Regulatory Approval of the Product in the Territory;
7.1.2	submit all relevant regulatory filings relating to the Product in the Territory (other than the DMF);
7.1.3	to market and promote the Product throughout the Territory.

7.2.Promotional Campaign.  Zogenix shall control and be responsible for the content and format of each promotional campaign to be submitted to the relevant Governmental Authority, but shall inform Elan thereof and, upon reasonable request by Elan, provide to Elan a copy of such submissions;

7.3.Packaging, Labels and Promotional Materials.  Zogenix shall submit to Elan (for Elan’s information and to enable Elan to review any Elan Trademarks, references to Elan Intellectual Property, the CMC Section or data or any information and descriptors related to same), copies of all trade packaging and labels and other printed materials which Zogenix proposes at any time to use in relation to the sale of the Product.  For the avoidance of doubt, nothing in this Clause 7.3 affects any other obligation of Zogenix, and Zogenix shall indemnify and hold harmless Elan against all Claims which may arise relating to the activities described in this Clause 7.3.

7.4.Changes.  Zogenix shall be entitled to change such trade packaging and labels and other printed materials in compliance with applicable laws and regulations.  Such changes shall be at Zogenix’s sole expense and for the avoidance of doubt shall not constitute allowable deductions from Net Sales, unless such change is as a result of a change in the Elan Trademark in which case Elan shall reimburse Zogenix for its expenses in effecting such change.

7.5.Required Markings.  The package insert and all trade packaging for the Product in the Field and in the Territory shall:

7.5.1	to the extent permitted by law, include the Elan Trademark and due acknowledgement that the Product is developed and manufactured by Elan (or an Elan Affiliate); and
7.5.2	to the extent permitted by law, have marked all patent number(s), including that of the formulation patent, in respect of the Elan Patents on all Products, or otherwise reasonably communicate to the trade the existence of any Elan Patents within the Territory in such a manner as to ensure compliance with, and enforceability under, applicable laws. Upon the reasonable request of Zogenix, Elan shall provide a list of such Patent numbers for marking on Products in accordance with this Clause 7.5.2.
7.5.3	Zogenix shall use its Commercially Reasonable Efforts to comply with 7.5.1 and 7.5.2 with respect to all other marketing materials for the Product in the Field and in the Territory.

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7.6.Launch.  Zogenix shall effect the commercial launch of the Product in the Territory within [***] ([***]) days of the Regulatory Approval, provided sufficient quantities of commercial Product are available pursuant to the Commercial Manufacture and Supply Agreement.

7.7.Reports and Meetings.

7.7.1Reports.  During the Term, Zogenix shall submit to Elan the following reports:

7.7.1.1within 30 days of the end of each calendar quarter prior to the launch of the Product in the Territory, a report summarizing the regulatory status of the Product in the Territory during such calendar quarter;

7.7.1.2within 90 days after the filing of the first Regulatory Application for the Product and within 30 days of the end of each calendar quarter thereafter until Regulatory Approval, a report summarizing the primary promotional activities to be carried out by Zogenix for the period up to the first launch of the Product in the Territory and for a period of 1 year thereafter; and

7.7.1.3within 30 days of the end of each calendar quarter subsequent to the launch of the Product in the Territory, a report summarizing Zogenix’s objectives for and performance of the Product in the Territory.

7.7.2Meetings.  During the Term, the Parties (or their respective Affiliates) shall meet as often as reasonably requested by the other to discuss the status of all development, regulatory and commercialization activities.  Such meetings shall take place no less than once per calendar quarter prior to the filing of the first Regulatory Application and thereafter not more than once per calendar quarter.  Such meetings may be held by telephone or videoconference.  If held in person, each Party shall be responsible for its own costs in respect of travel and accommodation expenses in attending such meetings.

7.7.3For ([***]) days from the Effective Date of this Agreement, Zogenix shall have the exclusive right to negotiate a license to develop and commercialize Product outside the Territory.  After this time period, Elan shall be entitled to develop, obtain regulatory approval and market the Product outside the Territory, with the right to access and utilize Regulatory Applications, Regulatory Approvals and all supplements and related filings related thereto and all data relating to the Product as set forth in Clause 6.6 of this Agreement.

8.MANUFACTURE AND SUPPLY

8.1.Commercial Manufacture and Supply Agreement.  The Parties agree that they, or an Affiliate, will negotiate in good faith a Commercial Manufacture and Supply Agreement for the commercial supply of Product in the Territory.  The Parties (or their Affiliate) shall execute said agreement on or before the submission of the first NDA, provided that they do not otherwise mutually agree to extend this time period in writing.  The Parties further agree that the Commercial Manufacture and Supply Agreement shall incorporate the terms set out in Clause 9 and Schedule 2 of this Agreement, together with other customary terms for commercial supply of pharmaceutical products containing Controlled Substances.

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9.MANUFACTURING LICENSE

9.1.Right to Manufacturing License.  Subject to the terms of this Agreement and the terms of the Commercial Manufacture and Supply Agreement, Elan hereby grants to Zogenix a non-exclusive license under the Elan Intellectual Property to make or have made the Product in the Field in the Territory (the “Manufacturing License”), which Zogenix shall not be entitled to utilize except where there is a Failure to Supply.  Subject to the prior written consent of Elan which shall not be unreasonably withheld, conditioned or delayed, Zogenix shall have the right to grant a sublicense of the Manufacturing License to an Affiliate or Third Party, provided that the proposed sub-licensee is not a Technological Competitor and provided further that Zogenix takes steps in all instances to ensure that Technological Competitors do not gain access, directly or indirectly, to Elan Confidential Information.  Additionally, in the event that Zogenix, or as the case may be, the sub-licensee of the Manufacturing License entrusted with the manufacture of the Product (either, the “Designated Manufacturer”) becomes a Technological Competitor, or becomes an Affiliate of or merges with a Technological Competitor, the Designated Manufacturer shall be entitled to exercise manufacturing rights hereunder (or under the sub-license of the Manufacturing License, as applicable) for so long as such rights are Contained Within a Ring Fence.

9.2.Resumption.  Where Elan (or its Affiliate) remedies the cause of the Failure to Supply and is once again able to fulfil its obligations to supply the Product, Elan (or its Affiliate) shall so notify Zogenix and Zogenix shall cease manufacturing the Product and shall resume purchasing the Product exclusively from Elan pursuant to the terms of the Commercial Manufacture and Supply Agreement; provided that [***].

9.3.Responsibility.  In manufacturing the Product pursuant to any Manufacturing License, Zogenix and its Affiliates shall be responsible for all costs, quotas, licenses, process and equipment validation required by applicable law or regulations and shall take all steps reasonably necessary for any relevant manufacturing facility for the Product to pass inspection by the Governmental Authority.

9.4.Technology Transfer.  In the event of a Failure to Supply commercial Product or where Elan goes into liquidation or receivership and Zogenix does not terminate this Agreement and wishes to effectuate a technology transfer, Elan shall:

9.4.1provide Zogenix with any technical data incorporated in the Elan Know-How, including access to the CMC Section to give effect to the provisions of clause 9.1 and Elan shall promptly provide to Zogenix the documentation constituting the required material support, more particularly practical performance advice, shop practice, specifications as to materials to be used and control methods; and

9.4.2assist Zogenix for a period of no longer than ([***]) months with the working up and use of the technology and with the training of Zogenix personnel which may be reasonably necessary in relation to the exercise of the Manufacturing License, including receiving Zogenix representatives in its or its Affiliates’ premises for limited periods as may be agreed upon by the Parties.

9.4.3Zogenix shall reimburse Elan for any actual and reasonable costs incurred in connection with any transfer of technology pursuant to this Clause 9.4 within [***] ([***]) days of delivery of reasonably detailed invoices.  For the avoidance of doubt, although this Clause 9.4 permits Zogenix to effect a technology transfer if

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Elan goes into liquidation or receivership and Zogenix decides not terminate this Agreement, it does not entitle Zogenix to utilize such technology transfer or the Manufacturing License that has been granted herein under Clause 9.1 except where there has been a Failure to Supply and Elan shall be entitled to resume supplying the Product in such circumstances in accordance with Clause 9.2 of this Agreement.

10.FINANCIAL PROVISIONS

10.1.License Fee and Milestone Payments.  In consideration of the grant of the Elan License, Zogenix shall pay to Elan the following non-refundable amounts (for the purpose of clarity, the amounts as set forth in this Clause 10.1 shall be payable to Elan one time with respect to each specified milestone event):

10.1.1a license fee of five hundred thousand dollars (US$500,000.00) upon execution of this Agreement by both Parties (the “License Fee”);

10.1.2a milestone payment of [***] dollars (US$[***]) upon [***];

10.1.3a milestone payment of [***]dollars (US$[***]) upon [***];

10.1.4a milestone payment of [***] dollars (US$[***]) upon [***];

10.1.5a milestone payment of [***] dollars (US$[***]) upon [***];

(the payments described in this Clause 10.1.2 through 10.1.5 being “License Milestone Payments”).

In all cases, the sum of the milestone payments in Clauses 10.1.1, 10.1.2, and 10.1.4 shall have been paid or shall be paid upon [***].

10.2.Not Subject to Future Performance Obligations.  The License Fee and the License Milestone Payments shall not, once due and payable, be subject to future performance obligations of Elan to Zogenix and shall not be applicable against future services provided by Elan to Zogenix.

The terms of Clause 10.1 relating to the License Fee and License Milestone Payments are independent and distinct from the other terms of this Agreement.

10.3.Royalty on Sales.  In further consideration of the grant of the Elan License, Zogenix shall pay to Elan (i) a royalty of [***] percent ([***]%) of Net Sales for the Initial Term and (ii) a royalty of [***] percent ([***]%) of Net Sales for the Extended Term.  If requested by Zogenix during the Term, the Parties shall discuss in good faith the necessity of increasing the [***]% maximum limitation on deductions set forth in the Net Sales definition to take into account changes in government reimbursement and discounts customary in the Territory from and after the Effective Date.

10.3.1Bundling.  In the event that Zogenix (or Zogenix Affiliate or permitted sub-licensee) shall sell the Product together with other products of Zogenix (or any Zogenix Affiliate) or other products of any such permitted sub-licensee or permitted subcontractor, as the case may be, to Third Parties (by the method commonly known in the pharmaceutical industry as “bundling”) and the price attributable to

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the Product is less than the average price of “arms length” sales to similar customers for the reporting period in which sales occur (such sales to be excluded from the calculation of the average price of “arms length” sales), the sales price for any such sales used in calculating Net Sales shall be the average price of “arms length” sales by Zogenix or a Zogenix Affiliate or a permitted sub-licensee or a permitted subcontractor to similar customers during the reporting period in which such sales occur.

10.3.2Method of Calculation of Fees.  The Parties acknowledge and agree that the methods for calculating the royalties and fees under this Agreement are for the purposes of the convenience of the Parties, are freely chosen and not coerced.

11.PAYMENTS, REPORTS AND AUDITS

11.1.Records.  Zogenix shall keep true and accurate records of gross sales of the Product, the items deducted from the gross amount in calculating the Net Sales, the Net Sales and the royalties payable to Elan under Clause 10.3.  Zogenix shall deliver to Elan a written statement (the “Statement”) thereof within [***] days following the end of each calendar quarter, (or any part thereof in the first or last calendar quarter of this Agreement) for such calendar quarter.  The Statement shall outline the calculation of the Net Sales from gross revenues during that calendar quarter, the applicable percentage rate, and a computation of the sums due to Elan.  In addition to Zogenix providing Elan the Statement, Zogenix shall use its Commercially Reasonable Efforts to deliver to Elan a non-binding written sales estimate within [***] ([***]) days in advance of the start of each calendar year beginning with the calendar year in which Zogenix anticipates the commercial launch of the Product, setting forth its estimate of Product sales for such calendar year, which estimate shall be updated by Zogenix within [***] ([***]) days of [***] of each year thereafter.  The Parties’ financial officers shall agree upon the format of the Statement and the annual sales estimate.

11.2.VAT and Sales Taxes.  All payments to Elan are exclusive of any applicable value added, excise, sales or any other similar or substitute tax (“VAT”), for which Zogenix will be additionally liable if applicable; provided that Elan will issue an appropriate VAT invoice to support any such charge.  No later than thirty (30) days in advance of the anticipated commercial launch of the Product, Zogenix shall furnish Elan with valid blanket state resale exemption certificate.

11.3.Taxes.  If Zogenix is required by law to pay or withhold any income or other taxes on behalf of Elan with respect to any monies payable to Elan under this Agreement:

11.3.1Zogenix shall deduct them from the amount of such monies due;

11.3.2any such tax required to be paid or withheld shall be an expense of and borne solely by Elan;

11.3.3Zogenix shall promptly provide Elan with a certificate or other documentary evidence to enable Elan to support a claim for a refund or a foreign tax credit.

11.4.Double Tax Co-operation.  Elan and Zogenix agree to co-operate in all respects necessary to take advantage of any double taxation agreements or similar agreements as may, from time to time, be available in order to enable Zogenix to make such payments to Elan without any deduction or withholding.

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11.5.Timing.  Payments to Elan shall be made as follows:

11.5.1the License Fee shall be paid within ([***]) Business Days of the [***];

11.5.2each of the License Milestone Payments shall be paid within [***] days of the achievement of the relevant event to which they relate; and

11.5.3payment of royalties [***].

11.6.Manner of Payment.  All payments due hereunder shall be made in US$ to the designated bank account of Elan in accordance with such timely written instructions as Elan shall from time to time provide.

11.7.Interest.  Without prejudice to Elan’s other remedies hereunder, Zogenix shall pay interest to Elan on sums not paid to Elan on the date on which payment should have been made pursuant to the applicable provisions of this Agreement (“Due Date”) over the period from the Due Date until the date of actual payment (both before and after judgement) at [***] [***] on the Due Date (or next to occur Business Day, if such date is not a Business Day) plus [***] percent ([***]%).  Interest shall be payable both before and after judgment.

11.8.Audit.  For the [***] period following the close of each calendar year of the Agreement, Elan and Zogenix will, in the event that the other Party reasonably requests such access, provide each other’s independent certified accountants (reasonably acceptable to the other Party) with access, during regular business hours and subject to the confidentiality provisions as contained in this Agreement, to such Party’s books and records relating to the Product, solely for the purpose of verifying the accuracy and reasonable composition of the calculations under this Agreement for the calendar year then ended.

11.9.Correction of Discrepancies.  In the event of a discovery of a discrepancy, a correcting payment shall be made forthwith by Zogenix to Elan or Elan to Zogenix, as the case may be, together with interest at the rate specified in Clause 11.7.  If the discrepancy exceeds [***]% of the amount due or charged by a Party for any period, then additionally the cost of such accountants shall be borne by the audited Party.

12.DURATION AND TERMINATION

12.1.Initial Term.  This Agreement shall be deemed to have come into force on the Effective Date and, subject to the rights of termination outlined in this Clause 12 and the provisions of applicable laws, will expire:

12.1.1on the 15th anniversary of the date of the first In Market sale of the Product in the Territory; or

12.1.2upon the expiry of the last Valid Claim in the Territory—

whichever date is later to occur (the “Initial Term”).

12.2.Continuation.  At the end of the Initial Term, the Agreement shall continue automatically for rolling three (3) year periods thereafter (collectively referred to as the “Extended Term”), unless the Agreement has been terminated by either of the Parties by serving twelve (12)

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months’ written notice on the other Party immediately prior to the end of the Initial Term or any such additional three (3) year period.

12.3.Breach / Insolvency.  In addition to the rights of termination provided for elsewhere in this Agreement, either Party will be entitled forthwith to terminate this Agreement by written notice to the other Party if:

12.3.1that other Party commits a material breach of any of the provisions of this Agreement, and fails to cure the same within sixty (60) days after receipt of a written notice from a Party hereto giving full particulars of the breach and requiring it to be remedied; provided, that if the breaching Party has proposed a course of action to cure the breach and is acting in good faith to cure same but has not cured the breach by the 60th day, such period shall be extended by such period as is reasonably necessary to permit the breach to be cured, provided that such period shall not be extended by more than 90 days, unless otherwise agreed in writing by the Parties.  Notwithstanding the foregoing, if the alleged breaching Party disputes by written notice to the non-breaching Party such material breach in good faith within sixty (60) days of receipt of the notice described above, the non-breaching Party shall not have the right to terminate unless it has been determined in accordance with Clause 12.6.1 that the Agreement was materially breached and the breaching Party fails to thereafter cure such material breach within sixty (60) days of the decision of the arbitrator. The right to terminate shall be in addition to and not in substitution for any other available remedy at law or in equity;

12.3.2that other Party goes into liquidation under the laws of any applicable jurisdiction (except for the purposes of amalgamation or reconstruction and in such manner that the company resulting therefrom effectively agrees to be bound by or assume the obligations imposed on that other Party under this Agreement);

12.3.3a receiver, administrator, examiner, trustee or similar officer is appointed over all or substantially all of assets of that other Party under the laws of any applicable jurisdiction; or

12.3.4any proceedings are filed or commenced by that other Party under bankruptcy, insolvency or debtor relief laws, or anything analogous to any of the foregoing under the laws of any applicable jurisdiction occurs in relation to that other Party.

12.4.Additional Elan Termination Rights.  In further addition to the rights and termination provided for elsewhere in this Agreement, Elan shall be entitled to terminate this Agreement and all Related Agreements in the event that:

12.4.1Zogenix notifies Elan that it does not wish to commercialise the Product in the Territory in advance of the commercialization of the Product in the Territory; or

12.4.2Zogenix fails to [***]; or

12.4.3Zogenix fails to [***]; or

12.4.4Zogenix fails to [***]; or

12.4.5Zogenix fails to generate Net Sales of the Product of at least [***] dollars (US$[***]) per quarter in [***] consecutive calendar quarters beginning [***]

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([***]) months after the date of first commercial launch until the end of Term, provided sufficient quantities of commercial Product have been made available pursuant to the Commercial Manufacture and Supply Agreement.

12.4.6Zogenix, its Affiliates, permitted sub-licensees or subcontractors knowingly challenges the validity and/or ownership of any of the Elan Patents and/or the scope of any claims therein in a formal proceeding, mediation or binding arbitration.

12.5.Additional Zogenix Termination Rights.  In furtherance of and in addition to the rights and termination provided elsewhere in this Agreement:

12.5.1Zogenix shall be entitled to terminate this Agreement and all Related Agreements where:  the sale of the Product is prohibited by the Regulatory Authorities in the Territory; or

12.5.1.1despite having used Commercially Reasonable Efforts, Zogenix is unable to obtain Regulatory Approval for the Product in the Territory.

12.5.2Zogenix shall also be entitled to terminate this Agreement and all Related Agreements in their entirety at any time without cause upon (i) six (6) months written notice to Elan prior to the date of the NDA Approval and (ii) twelve (12) months written notice to Elan on or after the date of the NDA Approval.

12.6.Dispute Resolution.

12.6.1Arbitration. Except for disputes, controversies or claims relating to intellectual property rights or the scope of the license granted hereunder, any dispute, controversy or claim arising under, out of or in connection with this Agreement, including any subsequent amendments, or the validity, enforceability, construction, performance or breach thereof, shall be finally settled under the Rules for Commercial Dispute Resolution Procedures (“Rules”) of the American Arbitration Association (“AAA”) then in force on the date of commencement of the arbitration by three (3) arbitrators appointed in accordance with those Rules, provided that the arbitrators appointed have at least ten (10) years arbitration experience in the pharmaceutical industry. The award rendered shall be final and binding on the Parties. Judgment upon the award may be entered in any court having jurisdiction.  The Parties agree that they will not request, and the arbitrators shall have no authority to award, punitive or exemplary damages against either Party. The costs of any arbitration, including administrative fees and fees of the arbitrators, shall be shared equally by the Parties, unless otherwise specified by the arbitrators. Each Party shall bear the cost of its own attorneys’ and expert fees; provided that the arbitrators may in their discretion award to the prevailing Party the costs and expenses incurred by the prevailing Party in connection with the arbitration proceeding.

12.6.2Pre-Arbitration Dispute Resolution. No dispute under this Agreement shall be referred to arbitration under Clause 12.6.1 until the following procedures in this Clause 12.6.2 have been satisfied. The chief executive officers of Elan and Zogenix shall meet as soon as practicable, and as reasonably requested by either Party, to review any dispute with respect to the interpretation of any provision of this Agreement or with respect to the performance of either Party under this Agreement. If the dispute is not resolved by the chief executive officers by written mutual agreement within thirty (30) calendar days after meeting to discuss the dispute, either Party may at any time thereafter provide the other Party written notice specifying the terms of such dispute in reasonable detail and notifying the other

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Party of its decision to institute arbitration proceedings under Clause 12.6.1. Such arbitration shall be initiated within thirty (30) calendar days of either Party providing written notice to the other Party of its intent to institute arbitration proceedings, unless mutually agreed by the Parties to extend such time.

12.6.3Provisional Remedy. Nothing in this Agreement shall limit the right of either Party to seek to obtain in any court of competent jurisdiction any equitable or interim relief or provisional remedy, including injunctive relief. Seeking or obtaining such equitable or interim relief or provisional remedy in a court shall not be deemed a waiver of this Agreement to arbitrate. For clarity, any such equitable remedies shall be cumulative and not exclusive and are in addition to any other remedies that either Party may have under this Agreement or applicable law.

12.6.4Disputes Related to Intellectual Property Rights and License Grants.  Except as provided in Clause 3.5 in reference to Third Party Licenses, any and all disputes, controversies or claims relating to intellectual property rights or the scope of the licenses granted hereunder shall be subject to the exclusive venue and jurisdiction of the state and federal courts of competent jurisdiction as set forth in Clause 16.16 herein. The Parties hereby consent to the exclusive venue and jurisdiction of such courts for such disputes, controversies or claims.

13.CONSEQUENCES OF EXPIRATION OR TERMINATION

13.1.General Consequence.  Upon expiration of this Agreement or exercise of those rights of termination specified in Clause 12, this Agreement shall, subject to Clauses 13.2 and 13.3, automatically terminate forthwith and be of no further legal force or effect.

13.2.Specific Consequences.  Upon the expiration or the termination of the Agreement by either Party, the following shall be the consequences:

13.2.1any sums that were due from Zogenix to Elan under the provisions of this Agreement prior to its termination or expiry shall be paid in full within [***] ([***]) days of termination of this Agreement and Elan shall not be liable to repay to Zogenix any amount of money paid or payable by Zogenix to Elan up to the date of the termination of this Agreement (other than pursuant to Zogenix’s rights of audit under Clause 11.8);

13.2.2the following Clauses shall survive any expiration or termination of this Agreement: the definitions as set forth in Clause 1 to the extent that such definitions are contained within a surviving clause, Clauses 3.1, 3.2.3, 3.3 (to the extent it relates to infringements that occur during the Term), 3.4 (solely as it relates to Product sold during the Term), 6.6, 12.6, 14.4 through 14.13 and the entirety of Clauses 11, 13, 15 and 16 and any other provision of this Agreement which, by its nature, is intended to continue after termination, shall survive termination;

13.2.3any sub-licenses granted under Clause 2.2 or 9.1 shall automatically terminate except as otherwise provided in Clause 13.2.5.2;

13.2.4if termination is effected by Elan under Clauses 12.3 or 12.4 or by Zogenix under Clause 12.5:

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13.2.4.1Elan shall be entitled to research, develop and commercialise the Product for its own benefit in the Territory;

13.2.4.2Elan shall be entitled to file for Regulatory Approval for the Product in the Territory;

13.2.4.3Zogenix shall transfer or procure the transfer to Elan (or such other entity as Elan may specify) all relevant INDs (including the Elan IND), Regulatory Applications and Regulatory Approvals at no cost to Elan, insofar as such transfer is permitted by applicable laws, and permit Elan to access and/or reference such of its data (including but not limited to Product Data) as is necessary to enable Elan to market the Product in the Territory;

13.2.4.4Elan shall be granted an irrevocable, perpetual, royalty-free, exclusive license to use the Zogenix Intellectual Property (other than pursuant to a Third Party License which is addressed in Clause 13.2.4.5 hereunder) and the trademark Zogenix has used during the Term to commercialize the Product in the Territory in connection with any subsequent commercialization of the Product in the Territory;

13.2.4.5Zogenix shall assign Elan (to the extent contractually permitted by such Third Party Licenses) any Third Party Licenses granted to Zogenix in relation to the Product and Elan will be responsible for any payments thereunder in respect of activities related to the Product by Elan following termination or expiration; and

13.2.4.6Elan shall either:

13.2.4.7give notice to Zogenix that it wishes Zogenix to cease to commercialise the Product in the Territory, in which event Zogenix shall do so except for meeting any uncancellable orders which cannot be transferred to Elan and Elan shall purchase Zogenix’s saleable inventory of the Product at cost; or

13.2.4.8permit Zogenix for a period not exceeding [***] ([***]) months to exhaust its stocks of the
Product –

subject always to the relevant provisions of this Agreement including as to the use of trademarks and financial provisions.

13.2.5if termination is effected by Zogenix under Clause 12.3.1, at Zogenix’s option:

13.2.5.1all rights and licenses under this Agreement, including the Elan License and the Manufacturing License, shall terminate in their entirety and be of no further effect; or

13.2.5.2if the notice of termination so specifies, this Agreement shall continue in full force and effect, save that (a) the royalty payable under Clause 10.3 by Zogenix to Elan during the Initial Term shall be [***]% of Net Sales for any Product sold by Zogenix after termination is effected by Zogenix under Clause 12.3.1 and (b) the royalty payable under Clause 10.3 by Zogenix to Elan during the Extended Term for any Product

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sold by Zogenix after termination is effected by Zogenix under Clause 12.3.1 shall be [***]% of Net Sales, and, for the avoidance of doubt and without limiting the foregoing, the Elan License, the Manufacturing License, Zogenix’s obligations under Clause 7, and any sub-license duly granted under Clauses 2.2 or 9.1 shall continue in full force and effect.

13.3.Ancillary Rights.  If Elan should require a license from Zogenix in order to research, develop and/or commercialize the Product under Clause 13.2.4.1, Zogenix shall grant a non-exclusive license to Elan (subject to any Third Party royalties due or rights and/or obligations contained in any applicable Third Party agreement related to any Product that may be subsequently sold by Elan utilizing this license which shall be Elan’s responsibility) for any other rights or data owned or controlled by Zogenix or its Affiliates which may be necessary for Elan to research, develop and commercialize the Product in the Territory.

14.WARRANTIES, INDEMNIFICATION AND LIABILITY

14.1.Elan Warranties.  Elan represents and warrants to Zogenix as of the Effective Date:

14.1.1Elan has the right to enter into this Agreement and grant the Elan License and the Manufacturing License;

14.1.2There are no agreements between Elan and any Third Party that conflict with this Agreement, the Elan License or the Manufacturing License;

14.1.3No consent, approval, authorization or order of any court or governmental agency or body or Third Party is required for the execution and delivery by Elan of this Agreement or grant of the Elan License or the Manufacturing License;

14.1.4Elan is the sole owner of Elan Intellectual Property, free and clear of any liens, claims or encumbrances and is not in breach of any agreement with Third Parties relating to Elan Intellectual Property;

14.1.5U.S. Patent No. 6,902,742 is in full force and effect, contains Valid Claims having a scope that covers the Product, is not the subject of any litigation, ex parte, or inter partes administrative proceedings, including any reexamination, re-issue or opposition proceeding, all maintenance fees that were due before the Effective Date of this Agreement have been paid, and there are no outstanding actions before the US Patent and Trademark Office;

14.1.6The application of U.S. Published Patent Application Number 2006/024015 has not been abandoned and is pending;

14.1.7Neither Elan nor, to Elan’s knowledge, any of its Affiliates, has received written notice from a Third Party indicating that the use of Elan Intellectual Property infringes any Third Party patent rights, or offering a licence thereto, which would adversely effect the rights licensed to Zogenix hereunder and/or the commercializing of the Product in the Field in the Territory;

14.1.8Neither Elan nor any of its Affiliates has provided notice to Third Parties alleging interference, infringement, misappropriation or other conflict with or of the Elan Intellectual Property;

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	14.1.9	To Elan’s knowledge with no special search, no Third Party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any of the Elan Intellectual Property;
	14.1.10	In Elan’s opinion with no special search, no license from a Third Party is required to practice the rights granted to Zogenix by Elan under this Agreement;
	14.1.11	Other than the Elan Patents, there are no additional Patents issued to or filed by Elan or its Affiliates that are required to allow Zogenix to practice the rights granted to it by Elan under this Agreement;
	14.1.12	The Elan IND (i) has not been abandoned, (ii) is in good standing and (iii) all required notices, supplemental applications and annual or other reports with respect to the Elan IND have been filed with the FDA.
14.2.	Zogenix Warranties. Zogenix represents and warrants to Elan as of the Effective Date, as follows:
	14.2.1	Zogenix has the right to enter into this Agreement.
	14.2.2	There are no agreements between Zogenix and any of its Affiliates or any Third Party that conflict with this Agreement.
	14.2.3	No consent, approval, authorization or order of any court or governmental agency or body or Third Party is required for the execution and delivery by Zogenix of this Agreement or Zogenix’s acceptance of the Elan License or the Manufacturing License.
	14.2.4	Zogenix has performed the valuation required of Zogenix under the rules promulgated under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules promulgated thereunder (16 C.F.R. 801.1 et seq.) and concluded that the fair market value of the licenses Zogenix is acquiring hereunder is less than $59.8 million.
	14.2.5	Neither Zogenix nor any of its Affiliates own, control or have licensed any Patents having claims that cover the Product.
14.3.	Mutual Warranties. Each Party represents and warrants that:
	14.3.1	It is aware of and has received disclosure by the other Party regarding the content of this Agreement, its Appendix and Schedules;
	14.3.2	It requires no further disclosures from the other Party in order to execute this Agreement voluntarily, knowingly and intelligently;
	14.3.3	It has been advised by a counsel of its choice or has been provided sufficient time to obtain advice from counsel regarding the content of this Agreement;
	14.3.4	It acknowledges that in entering in to this Agreement, it has not relied upon the other Party’s representations without the advice of its counsel prior to the execution of this Agreement.
14.4.	Mutual Indemnification. Each of the Parties shall defend, indemnify and hold harmless the other Party against all Claims by a Third Party to the extent that they arise out of any material breach by the first Party of any of its representations, warranties or obligations under this

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	Agreement or from the first Party’s fraud or wilful misconduct (including such Party’s officers, directors, employees or agents).
14.5.	Infringement Claims. The Parties acknowledge that they have adequate knowledge or expertise, or has hired such experts, or has had adequate time to hire such experts, to conduct due diligence with respect to intellectual property by a Third Party. Clause 3.4 contains the Parties’ full agreement as regards liability for Infringement Claims, save to the extent that Clause 3.4 incorporates other provisions of this Agreement by specific cross-reference.
14.6.	Indemnification (Medical Claims). Zogenix shall indemnify Elan against all Claims made or brought against Elan by a Third Party seeking damages for personal injury (including death) and/or for the cost of medical treatment, caused by or attributed to the use of Product administered or sold by Zogenix, its Affiliates, a permitted sub-licensee or a permitted subcontractor in the Territory, but without prejudice to any right of indemnification Zogenix may have against Elan or an Elan Affiliate under the Services Agreement or Commercial Manufacture and Supply Agreement; provided however, Zogenix shall not so indemnify Elan or its Affiliates to the extent that Zogenix is entitled to be indemnified by Elan or an Elan Affiliate.
14.7.	Sub-licensees. With reference to Clause 2.2, Zogenix shall indemnify and hold harmless Elan to the extent that any Claims arise out of any acts or omissions of any permitted sub-licensee of Zogenix.
14.8.	Conduct of Claims. The Party seeking an indemnity shall:
	14.8.1	fully and promptly notify the other Party of any claim or proceedings, or threatened claim or proceedings;
	14.8.2	permit the indemnifying Party to take full control of such claim or proceedings, with counsel of the indemnifying Party’s choice, provided that the indemnifying Party shall reasonably and regularly consult with the indemnified Party in relation to the progress and status of such claim or proceedings;
	14.8.3	fully co-operate in the investigation and defense of such claim or proceedings at the indemnifying Party’s expense; and
	14.8.4	take all reasonable steps to mitigate any loss or liability in respect of any such claim or proceedings.
	The indemnifying Party may settle a Claim on terms which provide only for monetary relief and do not include any admission of liability. Save as aforesaid, neither the indemnifying Party nor the Party to be indemnified shall acknowledge the validity of, compromise or otherwise settle any Claim without the prior written consent of the other, which shall not be unreasonably withheld, conditioned or delayed.
14.9.	Exclusion of Implied Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ZOGENIX ACKNOWLEDGES THAT THE ELAN LICENSE AND THE MANUFACTURING LICENSE ARE GRANTED AND THAT THE ELAN IND SHALL BE TRANSFERRED ON AN “AS IS” BASIS, WITHOUT REPRESENTATION OR WARRANTY WHETHER EXPRESS OR IMPLIED INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR INFRINGEMENT OF THIRD PARTY RIGHTS, AND ALL SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAWS.

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14.10.	Exclusion of Consequential Loss. Without prejudice to the obligation of either party to indemnify the other in respect of Claims by a third party, notwithstanding anything to the contrary in this Agreement, Elan and Zogenix shall not be liable to the other by reason of any representation or warranty, condition or other term or any duty of common law, or under the express terms of this agreement, for any indirect, consequential, special, incidental or punitive loss or damage (whether for loss of current or future profits, loss of enterprise value or otherwise) and whether occasioned by the negligence of the respective parties, their employees or agents or otherwise.
14.11.	Extension of Indemnification. Where this Agreement provides for the indemnification of a Party or for the limitation of a Party’s liability, such indemnification and/or limitation (as the case may be) shall also apply for the benefit of such Party’s Affiliates and the employees, officers, directors and agents of any of them, acting in such capacity.
14.12.	Inherent Risk. It is hereby acknowledged that there are inherent uncertainties involved in the development and registration of pharmaceutical products and such uncertainties form part of the business risk involved in undertaking the form of commercial collaboration outlined in this Agreement. Accordingly, Elan and Zogenix shall have no liability to each other as a result of the failure of the Product to obtain Regulatory Approval, and, except as set forth in the Related Agreements, Elan will have no liability to Zogenix as a result of any failure or delay of the Product to achieve the Product Specifications or one or more of the milestones set out in the R&D Program and/or to obtain the Regulatory Approval in the Territory.
14.13.	Insurance. Zogenix shall maintain comprehensive general liability insurance in respect of all activities conducted by it with respect to the Product appropriate for a company of its size engaged in similar commercial activities, including product liability insurance on the Product. From the Effective Date of this Agreement but prior to commencement of any clinical trial programs for the Product, Zogenix shall maintain such general liability insurance in an amount of not less than US$[***]. Upon commencement of any clinical trial programs for the Product, Zogenix shall maintain such general liability insurance in an amount of not less than US$[***] per occurrence and in the aggregate. Prior to or upon commencing marketing Product, Zogenix shall maintain such general liability insurance in an amount of not less than US$[***] for the duration of this Agreement and for such period thereafter as necessary to cover the insured risks.
	Zogenix shall provide Elan with a certificate from the insurance company verifying the above and shall notify Elan in writing at least thirty (30) days prior to the expiration or termination of such coverage.
15.	CONFIDENTIALITY
15.1.	Confidential Information: The Parties agree that it will be necessary, from time to time, to disclose to each other confidential and proprietary information, including inventions, trade secrets, specifications, designs, data, know-how and other proprietary information relating to the Product, processes, services and business of the disclosing Party or its Affiliates.
	The foregoing shall be referred to collectively as “Confidential Information”.
15.2.	Exclusion. Confidential Information shall not include:

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	15.2.1	information which is properly in the public domain provided that information shall not be deemed to be in the public domain merely because it is embraced by more general information which is publicly known;
	15.2.2	information which is disclosed to the receiving Party or its Affiliates by a Third Party who may lawfully do so and is not under an obligation of confidentiality to the disclosing Party;
	15.2.3	information which is known prior to such disclosure or independently developed by a Party without the aid, application, reference to or use of the Confidential Information of the disclosing Party, as evidenced by such Party’s records;
	15.2.4	information which the disclosing Party has specifically agreed in writing that the receiving Party may disclose; or
	15.2.5	information that becomes available to a receiving Party on a non-confidential basis, whether directly or indirectly, from a source other than the other Party hereto, which source did not acquire this information on a confidential basis.
15.3.	Use of Confidential Information. Any Confidential Information disclosed by the disclosing Party shall be used by the receiving Party exclusively for the purposes of fulfilling the receiving Party’s obligations under this Agreement or a Related Agreement and for no other purpose save for those set out in Clause 6.6, and any consent that Elan may require from Zogenix to effectuate any purpose set out in Clause 6.6 shall not be unreasonably withheld, conditioned or delayed.
15.4.	Non-Disclosure. Except as otherwise specifically provided in this Agreement and subject to Clauses 15.12 and 15.13, each Party shall disclose Confidential Information of the other Party only to those employees, representatives and agents requiring knowledge thereof in connection with fulfilling the Party’s obligations under this Agreement or a Related Agreement, and not to any other Third Party.
15.5.	Obligation to Inform. Each Party further agrees to inform all such employees, representatives and agents of the terms and provisions of this Agreement relating to Confidential Information and their duties hereunder and to obtain or have obtained their agreement to keep the Confidential Information in confidence under terms and conditions at least as restrictive as those contained herein as a condition of receiving Confidential Information.
15.6.	Care. Each Party shall exercise the same standard of care as it would itself exercise in relation to its own confidential information (but in no event less than a reasonable standard of care) to protect and preserve the proprietary and confidential nature of the Confidential Information disclosed to it by the other Party.
15.7.	Return of Information. Upon termination or expiration of this Agreement, each Party shall promptly, upon request of the other Party, return or destroy (as requested by the disclosing Party) all documents and any copies thereof containing Confidential Information belonging to, or disclosed by, such other Party, save that it may retain one copy of the same solely for the purposes of ensuring compliance with this Clause 15.
15.8.	Attribution; Extension of Confidentiality. Any breach of this Clause 15 by any person informed by one of the Parties is considered a breach by the Party itself.

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15.9.	Term. The provisions relating to confidentiality in this Clause 15 shall remain in effect during the Term and for a period of [***] ([***]) years following the expiration or earlier termination of this Agreement.
15.10.	Acknowledgment. The Parties agree that the obligations of this Clause 15 are necessary and reasonable in order to protect the Parties’ respective businesses. The Parties further agree that monetary damages may be inadequate to compensate a Party for any breach by the other Party of its covenants and agreements with respect to confidentiality, and that each Party shall be entitled to seek injunctive or other equitable relief against the threatened or continued breach of those provisions, in addition to with any other remedy which may be available.
15.11.	Product Data. For the purpose of demonstrating to Third Parties the benefits of the Elan Patents, Elan shall be entitled, without the prior written consent of Zogenix, to disclose to Third Parties the numerical values underlying the Product Data provided that Elan does not disclose Zogenix’s name or the name of the Compound.
15.12.	Announcements. No announcement or public statement concerning the existence, subject matter or any term of this Agreement, or its performance, shall be made by or on behalf of any Party without the prior written approval of the other, such approval not to be unreasonably withheld, conditioned or delayed. The Parties agree to discuss the issue of a joint press release announcing the execution of this Agreement. If the Parties decide not to issue a joint press release regarding this event, then each Party shall be entitled to issue its own press release, but the wording of each such release shall be agreed to by the other Party in good faith in writing before publication. Following the publication of said initial press release(s), each Party shall be free to disclose, without the other Parties’ prior written consent, the existence of this Agreement, the identity of the other Party and the terms of the Agreement that have already been publicly disclosed in the initial press release(s) but in no circumstance may either Party disclose any other information regarding the existence, subject matter, or any term of this Agreement (such as confidential information or commercially sensitive information on financial terms) or its performance, without the prior written approval of the other, such approval not to be unreasonably withheld, conditioned or delayed.
15.13.	Required Disclosures. A Party (the “Disclosing Party”) will be entitled to make an announcement or public statement concerning the existence, subject matter or any term of this Agreement, or its performance, or to disclose Confidential Information that the Disclosing Party is required to make or disclose pursuant to:
	15.13.1	the filing of a Regulatory Application for the Product by Zogenix or the filing of a DMF by Elan; or
	15.13.2	a valid order of a court or Governmental Authority; or
	15.13.3	any other requirement of law or any securities or stock exchange;
	provided that if the Disclosing Party becomes legally required to make such announcement, public statement or disclosure hereunder, the Disclosing Party shall give the other Party prompt notice of such fact to enable the other Party to seek a protective order or other appropriate remedy concerning any such announcement, public statement or disclosure, including confidential treatment and/or appropriate redactions.
	The Disclosing Party shall fully co-operate with the other Party in connection with that other Party’s efforts to obtain any such order or other remedy. If any such order or other remedy

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	does not fully preclude announcement, public statement or disclosure, the Disclosing Party shall make such announcement, public statement or disclosure only to the extent that the same is legally required.
16.	MISCELLANEOUS PROVISIONS
16.1.	Force Majeure. Neither Party shall be liable for failure or delay in the performance of any of its obligations under this Agreement if such failure or delay results from Force Majeure, but any such failure or delay shall be remedied by such Party as soon as practicable.
16.2.	Subcontracting.
	16.2.1	Each Party shall be entitled without the consent of the other:
		16.2.1.1	to subcontract or delegate the whole or any part of its duties hereunder to its Affiliate(s) and Zogenix acknowledges that it is currently intended that certain development and commercial manufacturing activities under this Agreement and under Related Agreements will be conducted on behalf of Elan by Elan’s Affiliates, EDDI and Elan Holdings.
		16.2.1.2	To subcontract or delegate the whole or part of its duties hereunder to a Third Party, provided that in subcontracting or delegating any of its duties its duties and responsibilities under this Agreement Zogenix:
		16.2.1.3	shall not use or employ a Technological Competitor without the prior written consent of Elan;
		16.2.1.4	shall enter into written agreements with all such Third Parties which are consistent with and do not conflict with the terms of this Agreement and which prohibit the right to further subcontract;
		16.2.1.5	shall ensure that Elan Confidential Information is only used by such Third Parties in accordance with this Agreement and shall further ensure that under no circumstances shall such Third Parties be allowed access to the CMC data without the prior written consent of Elan and Elan shall be entitled to require that there be a direct contractual relationship between the Third Party and Elan in such circumstances;
		16.2.1.6	shall make Elan whole for any tax consequence associated with such subcontract or delegation; and
		16.2.1.7	shall remain liable to Elan for the acts and omissions of any such Third Party.
		16.2.1.8	Elan hereby acknowledges that it is currently intended that Zogenix will delegate to contract research organizations, contract sales organizations and other Third Parties in the performance of its duties hereunder and under the Services Agreement and Zogenix hereby acknowledges that in doing so it will comply with the requirements set out in Clause 16.2.1.2.

16.3. Assignment.

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16.3.1	Each Party shall be entitled without the consent of the other to assign this Agreement to its Affiliate, provided that such assignment has no material adverse tax implications for the other Party.
16.3.2	Zogenix may assign this Agreement to a Technological Competitor with Elan’s prior written consent, which may not be unreasonably withheld, conditioned or delayed. In circumstances where such consent is obtained:
	16.3.2.1	Zogenix and the assignee shall ensure that this Agreement, all Related Agreements and any existing and future work conducted thereunder is Contained Within a Ring Fence. “Contained Within a Ring Fence” means that (i) the assignee’s employees who perform activities and obligations under this Agreement or the Related Agreements must be identified by name and location by the assignee and must sign a confidentiality agreement, to be provided by Elan [***], prohibiting the disclosure of any Elan Intellectual Property and/or related Elan Confidential Information to the assignee’s employees who do not work on activities directly related to this Agreement or the Related Agreements (except and to the extent required of internal auditors, the legal department and other non-operational centralized services), (ii) to the extent permitted by applicable laws and regulations, any of the assignee’s employees who may be transferred to work on the activities and have access to and knowledge of Elan Intellectual Property and/or related Confidential Information may not subsequently be transferred to work on the assignee’s other technologies which compete with the subject matter of the Elan Patents for a period of [***] as from the date on which they cease to work on such activities under this Agreement or the Related Agreements without the prior consent of Elan, and (iii) Elan shall be entitled to reasonable site inspections and audits by Elan or its designee on terms to be agreed in advance between Elan and the assignee to ensure strict compliance with these terms and conditions; and
	16.3.2.2	Zogenix and the Technological Competitor shall also comply with the conditions and obligations set out in Clause 16.2.1.2.2 through 16.2.1.2.5.
16.3.3	Zogenix may assign this Agreement to a Third Party who is not a Technological Competitor without Elan’s prior written consent, subject to the conditions set out below:
	16.3.3.1	Zogenix must make Elan whole for any tax consequence associated with any such assignment;
	16.3.3.2	On or before the date of assignment, Elan shall receive all monies due and owing from Zogenix as of the assignment date;

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		16.3.3.3	Zogenix must identify all Elan Confidential Information in its possession, and either return to Elan or forward to its assignee, as directed by Elan; and
		16.3.3.4	Each Party must cooperate as required with the other Party and Zogenix’s assignee both before and after the assignment to ensure the smooth transition between Zogenix and assignee on all regulatory and operational matters relating to this Agreement and, if applicable, all Related Agreements.
	16.3.4	Elan may assign this Agreement along with each of the Related Agreements without Zogenix’s consent to any Third Party which (a) succeeds to the ownership of the Elan Patents in their entirety and (b) agrees to fulfil all of Elan’s responsibilities under this Agreement and each of the Related Agreements.
16.4.	Change of Control. Zogenix shall give prior written notice to Elan if Zogenix becomes a Technological Competitor or becomes an Affiliate of a Technological Competitor during the Term of this Agreement. Following such an event, Zogenix shall at all times be required to keep this Agreement, all Related Agreements and all associated activities Contained Within a Ring Fence.
16.5.	No Third Party Beneficiaries. Each Party is entering into this Agreement on its own behalf and not on behalf of any other person or entity.
16.6.	Parties Bound. This Agreement shall be binding upon the successors (including entities with which the Parties may merge) and permitted assigns of the Parties as of the effective date of such succession or assignment, and the name of a Party appearing herein shall be deemed to include the names of such Party’s successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Nothing in this Agreement, express or implied, is intended to, or shall confer upon, any Third Party, any legal or equitable right, benefit or remedy of any nature whatsoever.
16.7.	Relationship of the Parties. Nothing contained in this Agreement is intended or is to be construed to constitute either of the Parties hereto as partners or members of a joint venture or either Party as an employee of the other Party. No Party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Third Party.
16.8.	Entire Agreement. This Agreement, including the agreements between the Parties (or their Affiliates) referenced herein, constitutes the entire agreement and understanding between the Parties with respect to its subject matter, and except as expressly provided, supersedes all prior representations, writings, negotiations or understandings with respect to that subject matter.
	Nothing in this Clause 16.8 shall exclude any liability which any Party would otherwise have to the other Party or any right which either of them may have to rescind this Agreement in respect of any statements made fraudulently by the other prior to the execution of this Agreement or any rights which either of them may have in respect of fraudulent concealment by the other.
16.9.	Severability. If any provision in this Agreement is deemed to be, or becomes invalid, illegal, void or unenforceable under applicable laws, such provision will be deemed amended to conform to applicable laws so as to be valid and enforceable, or if it cannot be so amended without materially altering the intention of the Parties, it will be deleted, but the validity,

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	legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way.
16.10.	Further Assurance. Each Party shall do and execute, or arrange for the doing and executing of, each necessary act, document and thing reasonably within its power to implement this Agreement.
16.11.	Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement.
16.12.	Waivers. A failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not constitute a waiver of the right or remedy or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy. No waiver of any right under this Agreement shall be deemed effective unless contained in a written document signed by the Party charged with such waiver.
16.13.	Amendment. No amendment, modification or addition to this Agreement shall be effective unless it is made in writing and signed by each of the Parties.
16.14.	Notices.
	16.14.1	A notice under or in connection with this Agreement (a “Notice”):

	16.14.1.1		shall be in writing; and
	16.14.1.2		may be delivered personally or sent by internationally recognized overnight courier or by fax to the Party due to receive the Notice at its address set out below:
16.14.2	The address referred to in Clause 16.14.1.2 is:
	(a)	in the case of Elan:
			Address:	Elan Pharma International Limited
				c/o 102 St. James Court
				Flatts
				Smith FL04
				Bermuda
			Fax:	+(441) 292 2224
			Marked for the attention of:       Kevin Insley
	(b)	in the case of Zogenix:
			Address:	11682 El Camino Real, Ste. 320
				San Diego, California, 92130
				USA
			Fax:	+1 (858) 259-1166

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			Marked for the attention of:  Chief Financial Officer
			or to such other address(es) and fax numbers as may from time to time be notified by either Party to the other hereunder.
	16.14.3	Notice is deemed given:
		16.14.3.1	if delivered personally, when the person delivering the notice obtains the signature of a person at the address referred to in Clause 16.14.1.2;
		16.14.3.2	if sent by overnight courier, except air mail, two Business Days after posting it;
		16.14.3.3	if sent by fax, when confirmation of its transmission has been recorded by the sender’s fax machine.
16.15.	Set-off. Each of the Parties will be entitled but not obliged to set-off against any amount of money payable to it by the other Party under this Agreement, any amount of money payable by it to the other Party under this Agreement.
16.16.	Governing Law and Jurisdiction: This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws rules, and shall be subject to the exclusive jurisdiction of the State and Federal Courts located in New York, New York.

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SCHEDULE 1TECHNOLOGICAL COMPETITORS

[***]

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SCHEDULE 2 KEY TERMS FOR COMMERCIAL MANUFACTURE AND SUPPLY AGREEMENT

1.	Subject to Clause 9 of the Agreement, Elan (or an Elan Affiliate) to have the sole and exclusive right to manufacture, have manufactured, supply or have supplied commercial Product to Zogenix, its Affiliates and permitted sub-licensees in the Territory. Elan (or Affiliate) to use Commercially Reasonable Efforts to meet such supply requirements.
2.	Elan (or Affiliate) shall own and be responsible for (i) filing DMFs that Elan or Affiliate may wish to file in respect of Elan Intellectual Property and the application of Elan Intellectual Property as regards the Product and/or the manufacture of Product, and (ii) all necessary manufacturing approvals for the commercial manufacture of the Product. Zogenix to be responsible for filing for and maintaining all other necessary Regulatory Approvals (e.g., NDA) and other approvals needed to import, offer for sell or sell commercial Product in the Territory.
3.	Elan (or Affiliate) to supply Zogenix with Bottled Product that is manufactured in accordance with and conforms to Product Specifications and other mutually agreed specifications and to all applicable laws and regulations for supply and manufacturing commercial pharmaceutical products containing Controlled Substances, including cGMP. Bottled Product to be provided EXW. Product packaging to conform to written standards that are to be agreed by the Parties.
4.	Detailed forecasting, ordering and delivery provisions to be negotiated in good faith between the Parties, having regard inter alia to reasonable adjustments in respect of delivery problems arising from external causes, and to be fully set out in Commercial Manufacture and Supply Agreement.
5.	The Parties to establish a supply committee to deal with matters arising between the Parties over supply issues. The committee to discuss developments relating to forecasting, commercial and regulatory issues, scheduling and supply and other topics.
6.	The price per unit of Bottled Product shall be [***]% of NSP. Such price shall be paid in advance through applying a Notional NSP, together with a true up mechanism and in no circumstances shall Elan (or its Affiliate) be required to supply commercial Product for less than [***].
7.	Zogenix to have right to review and approve proposed changes in advance of their implementation specific to the Product manufacturing, testing, or controls documentation which require prior Regulatory Authority approval as well as any other changes that may be specified as requiring Zogenix approval in a quality agreement that shall be agreed between the Parties at the same time that the Commercial Manufacture and Supply Agreement is negotiated.
8.	Zogenix to be responsible for the costs associated with the process transfer of Product from Elan’s development facility to its primary manufacturing facility in anticipation of the commercial scale-up of the Product, including the costs associated with process transfer, validation and maintenance.
9.	If after receipt of the first NDA Approval and if requested by Zogenix, Elan (or Affiliate) shall [***].
10.	Zogenix shall maintain agreed upon levels of safety stock through agreed order and forecast procedures. If requested by Zogenix, Elan and Zogenix shall discuss the ability of Elan (or its Affiliate) to hold safety stock, at Zogenix’s cost and expense.
11.	Release and rejection provisions (e.g., defects and latent defects) reasonably acceptable to the Parties, with Elan (or Affiliate) to have a specified time (e.g., [***]) to rectify issues attributable to the negligent acts or omissions of Elan (or Affiliate). Zogenix to be refunded where such Product cannot be reworked or replaced within specified time.
12.	All remedies for failures, delays or defects in supply including defects in the Product to be negotiated in good faith by between the Parties and specifically set out in the Manufacturing and Supply Agreement, to the exclusion of any other remedy.

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13.	Zogenix to be responsible for coordinating any Product recall in the Field and in the Territory and for ensuring that recalls are conducted in a commercially reasonable manner. Costs of recall shall be borne by [***] unless [***].
14.	Elan (or Affiliate) to be responsible for manufacturing Product to meet Product Specifications and in compliance with cGMP and other applicable law. Zogenix to be responsible for marketing and promotion, and for recalls and indemnification otherwise arising.
15.	Representations, warranties and indemnification provisions shall correspond to the Parties’ responsibilities under the Commercial Manufacture and Supply Agreement.
16.	Term of the Commercial Manufacture and Supply Agreement will be the Term of the License Agreement.

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SCHEDULE 3MANUFACTURING COST

“Manufacturing Cost” is [***].

Such allocations shall be in a manner consistent with US GAAP and consistent with expenses and overhead allocated to other products manufactured by Elan or its Affiliates.

Where some part(s) of the manufacture or packaging are conducted by unaffiliated Third Party(ies), Manufacturing Cost shall be [***].

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[Signature Page to License Agreement]

SIGNED
/s/ Kevin Insley
Duly authorised for and on behalf of:
ELAN PHARMA INTERNATIONAL LIMITED
Name:	Kevin Insley
Title:	Authorised Signatory
Date:	November 27, 2007
SIGNED
/s/ Roger L. Hawley
Duly authorised for and on behalf of:
ZOGENIX, INC.
Name:	Roger L. Hawley
Title:	CEO
Date:	Nov. 27, 2007

EX-10.13

Exhibit 10.13

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CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

SUPPLY AGREEMENT

THIS SUPPLY AGREEMENT (the “Agreement”), is made and entered into effective as of this 29^th day of September, 2004, by and among Dr. Reddy’s Laboratories, Inc., a New Jersey corporation having its principal place of business at 200 Somerset Corporate Boulevard, 7^th Floor., Bridgewater, New Jersey 08807 and Dr. Reddy’s Laboratories Limited, a corporation organized under the laws of India, having its principal place of business at 7-1-27 Ameerpet, Hyderabad - 500 016, India (collectively “Reddy”, and Aradigm Corporation, a California corporation having its principal place of business at 3929 Point Eden Way, Hayward, CA 94545 (“Aradigm”).

W I T N E S S E T H:

WHEREAS, Reddy is engaged in the business of manufacturing and supplying various bulk drug substances to pharmaceutical companies; and

WHEREAS, Aradigm is engaged in, among other things, the preparation, manufacture, distribution and sale of drug products; and

WHEREAS, Aradigm desires to purchase the drug substance identified in Schedule 1 annexed hereto, as such Schedule may be amended or supplemented from time to time, from Reddy, and Reddy is willing to manufacture and sell the drug substance to Aradigm, upon the terms and conditions set forth herein.

NOW, THEREFORE, the parties hereto agree as follows:

1.             Definitions.  As used in this Agreement, the following definitions shall apply:

“Affiliate” means any entity controlling, controlled by or under the common control of Aradigm or Reddy, as the case may be.  For the purpose of this Agreement, “control” shall mean the direct or indirect ownership of at least fifty (50%) percent of the outstanding voting shares or other voting rights of the subject entity, or the ability, directly or indirectly, to direct or cause the direction of management and policies of such entity.

“ANDA” means any abbreviated new drug application required to manufacture, market and sell finished dosage forms of the Drag Product (as defined below) in the United States and its territories and possessions filed by or on behalf of Aradigm’s Designated Manufacturer with the FDA pursuant to 21 U.S.C. 355(j), and any amendments thereto which may be filed by Aradigm’s or its Designated Manufacturer from time to time, and any foreign equivalent of such application.

“cGMP” means current Good Manufacturing Practices, as established by the FDA or its foreign equivalent.

“Commercial Sale Date” means the date of the first commercial sale by Aradigm or its Affiliate of a Drug Product.

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“Designated Manufacturer” means a manufacturer of the Drug Product who is an Affiliate of Aradigm or with whom Aradigm has entered into a manufacturing agreement, as set forth on Exhibit A, as the same shall be supplemented by Aradigm from time to time.

“DMF” means the open and closed portions of the Drug Master File required to manufacture, market and sell Drug Substance in bulk form in the United States, filed with the FDA and to be maintained by Reddy with the FDA.

“Drug Produce” means any pharmaceutical product suitable for human use that contains Drug Substance.

“Drug Substance” means the drug substance identified in Schedule 1 annexed hereto, supplied in bulk form meeting the Specifications.  It is understood that such drug substance shall only be used by Aradigm in connection with research and development or commercialization of the Drug Product(s) identified in Schedule 1 in the Territory.

“FDA” means the United States Food and Drug Administration.

“Regulatory Approval” means the procurement of the registrations, permits and approvals required by applicable government authorities for the manufacture, importation into, marketing, sale and distribution of the Drug Substance or the Drug Product in the Territory, including, without limitation, the DMF and the ANDA.

“Specifications” means the specifications set forth in the applicable United States Pharmacopoeia monograph (should such a monograph be published), the applicable European Pharmacopoeia monograph (should such monograph be published), the DMF, the specifications set forth in this Agreement, including without limitation, those set forth on Exhibit B hereto which Exhibit B shall be supplemented from time to time as additional Drug Substances are added to this Agreement and as mutually agreed upon by the parties hereto.

“Term” shall have the meaning set forth in Section 3 below.

“Territory” means the United States, its commonwealths and possessions, Canada, EU and any other countries that the parties mutually agree shall be included in this Agreement.

2.Purchase and Side of Drug Substance.

(a)           Reddy agrees to sell to Aradigm not less than fifty percent (50%) of Aradigm’s quarterly requirements for the Drug Substance in the Territory, and Aradigm agrees to purchase, on a non-exclusive basis from Reddy, not less than fifty percent (50%) of Aradigm’s quarterly requirements for the Drug Substance in the Territory during the Term and upon the terms and conditions set forth herein.

(b)           Notwithstanding any other provision of this Agreement, if Reddy is unable (or anticipates an inability) to manufacture or deliver any Drug Substance to Aradigm in a particular Territory, Reddy shall promptly notify Aradigm in writing of the period for which such inability (or anticipated inability) to so manufacture or deliver is expected.  If Reddy is unable to meet, or does not meet, on a timely basis (according to Aradigm’s scheduled delivery

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dates for ordered Drug Substance) Aradigm’s forecasted requirements for, or ordered (subject to the terms of Section 5 below) amounts of the Drug Substance, anywhere in the Territory, then Aradigm’s obligation to purchase the Drug Substance from Reddy in accordance with Section 2(a) above shall automatically be suspended and Aradigm may purchase such additional needed Drug Substance from a third party for sale in such Territory; provided, that if Reddy has an inventory of such Drug Substance that it is ready, willing and able to deliver to Aradigm, Reddy shall use commercially reasonable efforts to supply the backlog of Drug Substance from such remaining inventory as soon as possible.  If at any time thereafter Reddy demonstrates to Aradigm’s reasonable satisfaction that Reddy is able to manufacture and deliver the Drug Substance to Aradigm in amounts sufficient to meet all of Aradigm’s requirements on a timely basis, then, subject to Aradigm’s contractual commitments with third parties (which Aradigm shall use commercially reasonable efforts to limit such contractual commitments to the quantity of the Drug Substance that Aradigm reasonably determines that Reddy will be unable to supply to Aradigm), Aradigm’s obligation to purchase the Drug Substance from Reddy as stated in Section 2(a) above shall resume.  If Reddy’s inability to manufacture or deliver on a timely basis sufficient amounts of the Drug Substance to cover all of Aradigm’s orders under this Section 2 continues for a period of [***] or more, or is repeated more that [***] ([***]) times in any [***] ([***]) month period, Aradigm may terminate this Agreement by notice in writing to Reddy.

3.Term.

(a)           Subject to Section 3(b) and Section 15 hereof, the term of this Agreement (the “Term”) shall commence on the signing date hereof, and shall for a period of ten (10) years following the Commercial Sale Date of a Drug Product in any country in the Territory.

(b)           The Term may be extended by Aradigm for successive one (1) year periods by written notice from Aradigm to Reddy provided at least six (6) months before the expiration of the then current term, unless Reddy gives written notice to Aradigm within thirty (30) days after receipt of such Aradigm extension notice that Reddy does not wish to extend the term of the Agreement.

4.Prices and Payments.

(a)           The price for the Drug Substance supplied by Reddy to Aradigm pursuant to this Agreement for commercial purposes shall be as set forth in Schedule 2 annexed hereto, which Schedule may be amended or supplemented by written agreement of the parties from time to time.  In addition, Aradigm shall pay for all costs related to shipping, insurance, bacterial endotoxin, microbial, and particulate matter tests and any additional tests Reddy may have to conduct to provide injectable grade Drug Substance to Aradigm.

(b)           Aradigm shall pay Reddy for the Drug Substance delivered hereunder within [***] ([***]) days of the date of Reddy’s invoice for the Drug Substance.  All payments shall be made by Aradigm to Reddy in United States dollars for the Drug Substance delivered to Aradigm.

***Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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5.Quantity.  During the Term, Reddy shall make available to Aradigm for purchase hereunder such quantities of the Drug Substance as Aradigm may from time to time order; provided, however, that in the event that Aradigm places orders at any time for more than [***]percent ([***]%) of the requirements stated in the forecast to be delivered by Aradigm to Reddy pursuant to Section 6 below, Reddy shall only be obligated to use commercially reasonable efforts to fill the amounts of such orders in excess of such one hundred fifty percent (150%) amount.

6.Forecasts.

(a)           During the Term of this Agreement, Aradigm shall provide Reddy with a [***] ([***]) month written forecast, which shall be updated no less frequently than every [***] on a rolling [***] basis, of Aradigm’s monthly anticipated requirements of the Drug Substance over the next [***] ([***]) months from the date of the forecast.  The first [***] ([***]) months of each such forecast shall represent a binding commitment to submit during such [***] ([***]) month period firm orders for the Drug Substance in the amounts set forth in such forecast, and the quantities indicated for the remaining [***] ([***]) months of such forecast shall be made to assist Reddy in planning its production and Aradigm in planning its sales, and shall be non-binding.  The minimum order quantity in a single purchase order for any quarterly forecast period shall be [***] ([***]) kilograms.

(b)           Reddy shall deliver the Drug Substance to Aradigm within [***] ([***]) days after receipt of Aradigm’s firm purchase order unless Aradigm specifies a later date in such order.  Reddy shall use commercially reasonable efforts to deliver Drug Substance in a shorter time if reasonably requested by Aradigm.  The failure to deliver the Drug Substance in a shorter time period shall not constitute a default under this Agreement.

7.Shipments.  The Drug Substance shall be shipped FOB, Hyderabad, India (INCOTERMS 2000) and the supply price shall not be inclusive of the costs of shipment and insurance.

8.Representations and Warranties.  Each of Reddy and Aradigm represents and warrants to the other as follows:

(a)           It has full corporate power and authority to enter into this Agreement and consummate the transactions contemplated hereby.

(b)           It has or will have such permits, licenses and authorizations of governmental or regulatory authorities as are necessary to own its respective properties, conduct its business and consummate the transactions contemplated hereby.

9.Quality; Manufacturing Practices.

(a)           Reddy hereby represents and warrants that all Drag Substance supplied by Reddy to Aradigm shall meet the Specifications and shall be free from adulteration or defects.  Any disputes between the parties regarding the failure of the Drug Substance supplied by Reddy

***Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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to Aradigm pursuant to this Agreement to meet the Specifications shall be submitted to a mutually agreed upon independent laboratory.  Aradigm shall initially bear the costs of such independent laboratory.  The findings of the independent laboratory shall be binding upon both parties.  The party against whose favor the independent laboratory resolves the dispute shall be responsible for the costs of the independent laboratory, and if such party is Reddy, Reddy shall promptly reimburse Aradigm for any costs advanced to the independent laboratory.

(b)           Reddy shall manufacture the Drug Substance in compliance with cGMP standards as the same are or from time to time shall be established by applicable statute and regulations of the FDA or its foreign equivalent (as applicable), and in accordance with this Agreement and a mutually agreed upon Quality Agreement.

(c)           Reddy shall retain such samples of the Drug Substance as are required and specified by Reddy’s standard operating procedures to comply with the general retention requirements as set forth in cGMP regulations, and shall perform stability testing as described and required to conform with the Drug Substance’s stability protocol.

(d)           In the event of a product recall that is determined to be caused by the deficiency or non-compliance of the Drug Substance as API (e.g., failure to comply with the Specifications or cGMP or existence of a latent defect), Reddy shall promptly replace the same amount of the Drug Substance as being recalled free of any charge, including without limitation the cost of transport.

10.Regulatory Approvals.

(a)           Reddy shall maintain compliance with the FDA or its foreign equivalents, as applicable, with respect to the Drug Substance that it provides to Aradigm.

(b)           Reddy shall provide Aradigm with the open sections of the DMF and basic technical files, working standards, impurity standards, if available, and other information pertaining to the Drug Substance that are necessary or useful for Aradigm to file an ANDA for any Thug Product in the United States or its foreign equivalents.

(c)           Reddy shall obtain and maintain all necessary or relevant licenses, approvals and certifications and other authorizations necessary to maintain and operate its Drug Substance production site.

(d)           Reddy shall successfully pass an FDA Pre-approval Inspection (PM) if such PAI is required for approval of Aradigm’s ANDA for delivery of the Drug Substance via Aradigm’s drug delivery system.

(e)           Reddy shall provide Aradigm with prompt notice of its receipt of any FDA notices (including 483 notices) of violation or deficiency letters relating solely to Aradigm’s application and file with respect to the Drug Substance, or equivalent foreign notices or letters.  Reddy shall deliver to Aradigm, as soon as commercially reasonable following receipt, copies of all reports, data, information and correspondence from the FDA, any state or local authorities, or their foreign equivalents with respect to Aradigm’s application and file as it relates to the Drug Substance.  Reddy shall deliver to Aradigm copies of any written response, information, data or

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correspondence delivered by Reddy to the FDA, any state or local authorities, or their foreign equivalents with respect to the Drug Substance and Aradigm’s application and file associated therewith.  Reddy shall use commercially reasonable efforts to cooperate with Aradigm in connection with any response required by Aradigm to any inquiry from the FDA, any state or local authorities, or their foreign equivalents with respect to the Drug Substance and Aradigm’s application and file associated therewith.

11.Audit Right.

(a)           Reddy shall have the right at any time and from time to time to nominate a firm of independent certified public accountants to have access to the applicable records of Aradigm during reasonable business hours solely for the purpose of verifying, at the auditing party’s expense, that Aradigm has purchased, during the applicable period subject of the audit, not less than fifty percent (50%) of Aradigm’s requirements for the Drug Substance as set forth in Section 2 above.  Such audit shall not cover any time periods more than [***] ([***]) years prior to the date of the audit, and may not be conducted more than [***] per year.  In the event that the auditing accountant finds that Aradigm has been purchasing less than fifty percent (50%) of Aradigm’s requirements for the Drug Substance as set forth in Section 2 above, Aradigm shall (a) pay the cost of that audit (within [***] ([***]) days of its receipt of notice of the results of the audit), (b) be subject (if so elected by Reddy) to [***] audits for the following [***] ([***]) years, and (c) [***] pay to Reddy the difference between the amount of its actual purchases and the aggregate purchase price for the amount of the Drug Substance representing such fifty percent (50%) of its requirements, together with interest at [***] percent ([***]%) per annum on such difference for the period of time that Aradigm did not purchase fifty percent (50%) of its requirements.

(b)           Reddy shall keep complete records for its manufacture of Drug Substance that is provided to Aradigm for at least [***] ([***]) years from the date such records are generated.  Aradigm shall have the right to audit such records at least [***] a year by giving Reddy [***] ([***]) days prior written notice.  Reddy shall permit any regulatory authority to inspect the Production site as permitted or required by applicable laws and regulation.

12.Review of Process.  Aradigm shall have the right, upon written notice to Reddy and following execution and delivery of a Common Interest, Non-Waiver of Privilege and Confidentiality Agreement, to review, from time to time, through independent United States patent counsel for each party, Reddy’s process for the manufacture of the bulk form of the Drug Substance to ensure that such process does not infringe the valid rights of any third parties.

13.Confidentiality.

(a)           Any information pertaining to the Drug Substance that has been or will be communicated by Reddy to Aradigm and/or the Designated Manufacturer under this Agreement and identified as “confidential,” and any information communicated by Aradigm and/or the Designated Manufacturer to Reddy under this Agreement and identified as “confidential,” which may include without limitation, trade secrets, business methods and plans, pricing, cost,

***Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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manufacturing and customer information, shall be referred to herein as the “Confidential Information” of the disclosing party.  All such Confidential Information received by Aradigm, the Designated Manufacturer or Reddy, respectively, shall be treated by the receiving party, and its respective affiliates, officers, directors, employees, agents and representatives, as Confidential Information and shall not be disclosed to any third parties or used for any purpose other than as contemplated under this Agreement; provided, however, that particular Confidential Information shall not be subject to the restrictions and prohibitions set forth in this section to the extent that the receiving party can demonstrate that such information:

(i)            is available to the public in public literature or otherwise, or after disclosure by one party to the other becomes public knowledge through no default of the party receiving such confidential information;

(ii)           was known to the receiving party prior to the receipt of such Confidential Information by such party, whether received before or after the date of this Agreement;

(iii)          is obtained by the receiving party from a source other than the party supplying such Confidential Information; or

(iv)          is developed independently by the receiving party without reference to any Confidential Information disclosed to it.

Notwithstanding the foregoing, a party may disclose the other party’s Confidential Information to the extent such disclosure is required pursuant to any order of a court having jurisdiction or any lawful action of a governmental or regulatory agency; provided that such party will promptly give notice to the disclosing party and make a reasonable effort to obtain, or cooperate in the disclosing party’s efforts to obtain, a protective order or confidential treatment covering such Confidential Information and limiting its disclosure and use solely for the purposes for which the order, law or regulation require disclosure.

(b)           Each party shall take all precautions as it normally takes with its own confidential information to prevent any improper disclosure of such confidential information to any independent third party; provided, however, that such confidential information may be disclosed within the limits required to obtain any authorization from the FDA or any other United States or other applicable governmental or regulatory agency or, with the prior written consent of the other party, which shall not be unreasonably withheld, as may otherwise be required in connection with the purpose of this Agreement.

(c)           Each party acknowledges that in the event of a breach of the provisions of this Section by such party, remedies that exist at law may be inadequate for the non-breaching, party and agrees that, in addition to any remedy available at law, the non-breaching party shall be entitled to seek injunctive relief to prevent the breach or threatened breach of any of the provisions of this Agreement.

(d)           Aradigm shall require any Designated Manufacturer who shall receive Confidential Information from Reddy to agree to be bound by the provisions of this Section.

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(e)           This Section 13 and the obligations contained herein shall survive expiration or termination of this Agreement for any reason whatsoever for a period of three (3) years.

14.Indemnification.

(a)           Reddy shall defend, indemnify and hold Aradigm, the Designated Manufacturer and their respective Affiliates, officers, directors, employees, agents, successors and assigns harmless from and against any and all loss, liability, damage, cost or expense (including, without limitation, reasonable attorneys’ fees) (collectively, “Losses”) arising out of any third party claim, allegation, action, suit, or proceeding directly or indirectly arising from or related to any breach of Reddy’s representations, warranties or covenants under the Agreement; provided, however, that Reddy shall not be required to indemnify Aradigm with respect to any such Losses directly or indirectly arising from or related to (i) any claim by any third party that the manufacture and sale of the Drug Substance or Drug Product infringes any patent held by such third party, (ii) Aradigm’s breach of its obligations, representations, warranties or covenants hereunder, (iii) from information supplied by Aradigm or contained in regulatory filings by Aradigm, or (iv) Aradigm’s negligence.

(b)           Aradigm shall defend, indemnify and hold Reddy harmless from and against any Losses arising out of any third party claim, allegation, action, suit, or proceeding directly or indirectly arising from or related to Aradigm’s manufacture, storage, use or sale of any Drug Product incorporating the Drug Substance manufactured by Reddy; provided that the foregoing obligation shall not apply with respect to Losses relating to or any such claim, action, suit, proceeding, loss, liability, damage or expense that is arising from or related to any breach of Reddy’s obligations, representations, warranties or covenants under the Agreement or Reddy’s negligence.

(c)           This Section 14 and the obligations contained herein shall survive expiration or termination of this Agreement for any reason whatsoever, to the extent such obligations arise during the Term of this Agreement.

15.Termination.

(a)           The Term of this Agreement may be terminated as to the Drug Substance in a particular country in the Territory immediately upon written notice of termination given by;

(i)            The non-defaulting party in the event that the other party shall; (A) commit a material breach or default under this Agreement, which breach or default shall not be remedied within sixty (60) days after the receipt of written notice thereof by the party in breach or default;

(ii)           Either Reddy or Aradigm if the other party becomes insolvent, makes or has made an assignment for the benefit of creditors, is the subject of proceedings in voluntary or involuntary bankruptcy instituted on behalf of or against such party (except for involuntary bankruptcies which are dismissed within ninety (90) days), or has a receiver or trustee appointed for substantially all of its property; or

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(iii)The performing party in the event described in Section 16.

(b)In the event that Aradigm is negotiating an agreement with a third party to commercialize such third party’s formulation of Drug Substance, and such agreement would preclude sourcing of Drug Substance from a party other than such third party, Aradigm may terminate this Agreement by providing Reddy with sixty (60) days’ advance written notice of such termination and by fulfilling Aradigm’s payment obligations related to all open purchase orders of Drug Substance that were placed with Reddy prior to the date that Reddy received such notice of termination.

(c)Termination of this Agreement (whether under this Section 15, on expiration of the Term or otherwise) shall be without prejudice to any rights of either party against the other that may have accrued up to the effective date of such termination.

16.Force Majeure.  If any of Reddy, Aradigm and the Designated Manufacturer shall be prevented by fire, strike, lockouts, war, civil disturbances, acts of God or other similar events beyond such party’s reasonable control from performing its respective obligations hereunder, such party shall not be liable to the other for damages pursuant to this Agreement for so long as the condition constituting Force Majeure continues and the nonperforming Party uses reasonable efforts to remove the condition.  The party being able to perform may, at its sole option, extend the duration of this Agreement by a term equal in length to the period during which the other party was unable to perform its obligations hereunder, or waive such obligations.  Notwithstanding the foregoing, if any Force Majeure continues for more than three (3) consecutive months, the performing party shall have the option to terminate this Agreement pursuant to Section 15(a)(iii).

17.Retention of Records.  Whenever applicable under cGMP, all documentation, records, raw data, and specimens pertaining to this Agreement will be held by each party for the length of time specified in such party’s standard operating procedure which meets cGMP guidelines.

18.          Insurance.  Aradigm and Reddy each agree to maintain in force, commencing on the Commercial Sale Date and continuing for a period of [***] ([***]) months following expiration or termination of this Agreement for any reason, product liability insurance coverage of not less than $[***] per occurrence and in the aggregate, naming the other party and its Affiliates as additional insureds.

19.          Independent Contractors.  Reddy and Aradigm are independent of each other and nothing contained herein shall be construed to create a joint venture, partnership or similar relationship.  Neither party is authorized to, nor shall it, incur any liability whatsoever for which the other may become directly, indirectly or contingently liable.

20.          Dispute Resolution; Consent to Jurisdiction.  In an effort to resolve informally and amicably any claim, controversy or dispute (whether such claim, sounds in contract, tort, or otherwise) arising out of or relating to this Agreement or the breach thereof (a “Dispute”), each

***Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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party shall notify the other in writing of a Dispute hereunder that requires resolution.  Such notice shall set forth the nature of the Dispute, the amount, if any, involved and the remedy sought.  Each party shall designate a representative who shall be empowered to investigate, discuss and seek to settle the Dispute.  If the two representatives are unable to settle the Dispute within thirty (30) days after proper notification, the Dispute shall be submitted to the President of each party for consideration for an additional thirty (30) days.  If the Dispute remains unresolved after said sixty (60) day period, either party shall have a right to commence any action, suit or proceeding with respect to such Dispute in the state or federal courts located in the State of New York.  Aradigm and Reddy each irrevocably consent that any legal action or proceeding against it may be brought in the state or federal courts located in the State of New York, and Aradigm and Reddy each submit to the personal jurisdiction of any such courts.  Aradigm and Reddy each further irrevocably consent to the service of any complaint, summons, notice or other process by delivery thereof to it by any manner in which notices may be given pursuant to this Agreement and .Aradigm and Reddy each submit to the personal jurisdiction of such court.  Aradigm and Reddy each further irrevocably consent to the service of any complaint, summons, notice or other process by delivery thereof to it by any manner in which notices may be given pursuant to this Agreement.

21.          Assignment.  This Agreement shall inure to the benefit of, and shall be binding upon each of, the parties hereto and their respective successors and assigns.  This Agreement cannot be assigned in whole or in part by either party without the prior written consent of the other party, except that a party may, without the prior written consent of the other party, assign this Agreement, in whole, to an Affiliate, provided that, Aradigm may not assign, without Reddy’s written consent, the Agreement to any third party successor in interest acquiring all or substantially all of the assets of Aradigm, through merger, acquisition or other transactions.

22.          Notices.  Any and all notices given pursuant to this Agreement shall be in writing, and shall be deemed to have been properly given when delivered personally or sent by facsimile or air courier with respect, confirmed by registered air mail, to the appropriate party at the address shown below, or such other address as shall be specified by the parties hereto by written notice given in accordance with this section and shall be effective upon receipt thereof.  Any notice shall be effective upon receipt, which shall be deemed to occur one (1) business day after the sending of the facsimile, four (4) business days after the sending by air courier, and seven (7) calendar days after the delivery of a confirmation letter to the postal authorities in the country of the party by which it is sent.

If to Aradigm to:	Aradigm Corporation
	3929 Point Eden Way
	Hayward, CA 94545
	Attn:
	Fax:
If to Reddy to:	Dr. Reddy’s Laboratories, Inc.
	200 Somerset Corporate Blvd.
	Bridgewater, New Jersey 08807
	Attn: Arun Sawhney, President, Global API
	Fax: 91-40-23558927

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And with a copy to:	Dr. Reddy’s Laboratories, Inc.
	200 Somerset Corporate Blvd.
	Bridgewater, New Jersey 08807
	Attn: General Counsel
	Fax: 908-203-4970

23.          Amendment and Waiver.  This Agreement (including the Exhibits and Schedules hereto) may be amended, modified, superseded or canceled, and any other of the terms or conditions hereof may be modified, only by a written instrument executed by all of the parties hereto or, in the case of a waiver, by the party waiving compliance.  Failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same, and no waiver of any nature, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or considered as a further or continuing waiver of any other provision of this Agreement.

24.          Severability.  In the event that any one or more of the agreements, Provisions or terms contained herein shall be declared invalid, illegal or unenforceable in any respect, the validity of the remaining agreements, provisions of terms contained herein shall in no way be affected, prejudiced or invalidated thereby.

25.          Public Announcements.  Reddy and Aradigm agree that neitherwill publicize or disclose the existence of this Agreement or the subject matter hereof in any way without the prior written consent of the other party, except as may be required to comply with the disclosure requirements of applicable laws and regulations.  The parties agree that in the event disclosure of the existence of this Agreement and/or any of the terms hereof or the subject matter hereof is required by either party by law or regulation, such party will seek the consent of the other party to make such disclosure, which consent shall not be unreasonably withheld or delayed; provided, however, that any such disclosure shall be limited to the minimum disclosure required.

26.          Entire Agreement.  This Agreement, together with the Exhibits and Schedules hereto, contains the entire agreement between the parties hereto and supersedes any agreements between Reddy and Aradigm with respect to the subject matter hereof.

27.          Section Headings.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

28.          Counterparts.  This Agreement may be executed in any number of separate counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same instrument.  Facsimile signatures shall be considered original signatures.

29.          Representations, Warranties, and Limitation of Liability.  Neither Reddy nor Aradigm makes any indemnity, representation, or warranty, either express or implied, with respect to the Drug Substance, except for indemnities, representations, and warranties expressly set forth in this Agreement.  In no event shall either party be liable to the other party under this Agreement for punitive, exemplary, consequential, or special damages including, without

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limitation, damages related to lost good will, lost customers, or lost profits, beyond those damages expressly provided herein, including without limitation as provided in Section 13(c).

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

DR. REDDY’S LABORATORIES, INC.
By:	/s/
	Name: Viswanatha R. Bonthu
	Title: Senior Vice President, Finance and
	Information Technology Services
DR. REDDY’S LABORATORIES LIMITED
By:	/s/
	Name: Arun Sawhney
	Title: President, Global API
ARADIGM CORPORATION
By:	/s/
	Name: Borba Venkatadri
	Title: Sr. V.P. Operations

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Exhibit A

Designated Manufacturer

Kingfisher Drive, Covingham, Swindon, Wiltshire, SN3 5BZ

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Exhibit B

Specifications

[***]

***Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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Schedule 1

Drug Substance

Drug Substances:	To be used to manufacture the following Drug Products:
Sumatriptan Succinate	Intraject sumatriptan (sumatriptan injection, 6mg/.05mL as the succinate salt)

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Schedule 2

Price For Drug Substance

Drug Substance	Price
Sumatriptan Succinate	$[***] per kilogram plus the costs of [***]

***Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

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EX-10.14

Exhibit 10.14

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.  THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Execution Copy

LICENSING and DISTRIBUTION AGREEMENT

by and between

ZOGENIX, Inc.

and

DESITIN ARZNEIMITTEL GmbH

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 2

TABLE OF CONTENTS

1.	DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2.	GRANT OF LICENSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . .	8
3.	TRADEMARK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
4.	PRODUCT STEERING COMMITTEE (“SC”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
5.	DEVELOPMENT AND COMMERCIALISATION OF THE PRODUCT . . . . . . . . . . . . . . . . . . . . . . .	11
6.	MANUFACTURE AND SUPPLY OF THE PRODUCT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
7.	MARKETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
8.	PRICING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
9.	ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
10.	PAYMENT TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
11.	RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
12.	INFRINGEMENT OF RIGHTS BY THIRD PARTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . .	17
13.	INFRINGEMENT OF THIRD PARTY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . .	18
14.	INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
15.	IMPROVEMENTS AND PATENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
16.	RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .	22
17.	REGULATORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
18.	PHARMACOVIGILANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
19.	EXCHANGE OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . .	23
21.	TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .	24
22.	CONSEQUENCES OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .	26
23.	CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . .	26
24.	REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . .	28
25.	FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
26.	NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . .	29
27.	ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
28.	GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30

LIST OF APPENDICES

Appendix 1	Product Specification
Appendix 2	Licensed Patents
Appendix 3	Clinical Supply Terms

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 3

LICENSING & DISTRIBUTION AGREEMENT

THIS LICENSING & DISTRIBUTION AGREEMENT is entered into on this 14 day of March, 2008,
by and between

1.	ZOGENIX, Inc. a company incorporated and existing under the laws of Delaware whose registered office is at 11682 El Camino Real, Suite 320, San Diego, CA 92130, U.S.A. (“ZOGENIX”);
	and
2.	DESITIN Arzneimittel GmbH, a company incorporated and existing under the laws of Germany whose registered office is at Weg beim Jaeger 214, 22335 Hamburg, Germany (“DESITIN”);
	Each also referred to as “Party” or together as “Parties”.
RECITALS
A.	ZOGENIX is, amongst others, active in the research and development of pharmaceuticals and medical devices and has developed Sumatriptan DoseProTM for migraine patients for which ZOGENIX intends to register the product in the U.S.A.
B.	DESITIN specialises in the manufacture, marketing and sale of branded pharmaceuticals, in particular CNS related products, in the Territory and desires to enter into a contractual relationship with ZOGENIX to develop, obtain regulatory approval and commercialise the Product in the Territory.
C.	The Parties hereby enter into the Agreement on the terms and conditions as stipulated herein below.
NOW THEREFORE, the Parties hereby agree as follows:

1.                         DEFINITIONS

As used in this Agreement, unless expressly otherwise stated or evident in the context, the following terms shall have the meanings defined below. The singular (where appropriate) shall include the plural and vice versa and references to Appendices and Clauses shall mean appendices and clauses of this Agreement.

1.1	Affiliate	shall mean any firm, person or company which controls, is controlled by or is under common control with a Party to this Agreement and, for the purpose of this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such firm, person or company, whether through the ownership of voting securities, by contract or otherwise, or the ownership either directly or indirectly of 50% or more of the voting securities of such firm, person or company;
1.2	Agreement	shall mean this licensing and distribution agreement and the appendices hereto;
1.3	BfArM	shall mean Bundesinstitut für Arzneimittel und Medizinprodukte (Federal Institute for Drugs and Medical Devices) in Germany, and any successor agency thereto;
1.4	Business Day	shall mean any day other than Saturday or Sunday on which the banks in London are open for business;
1.5	Clinical Trial Materials	shall mean the Product to be used by DESITIN in connection with the development and registration process in the Territory; for the avoidance of doubt Clinical Trial Materials shall exclude all packaging and blinding thereof;
1.6	Confidential Information	shall mean any scientific, technical, formulation, process, manufacturing, clinical, non-clinical, regulatory, marketing, financial or commercial information or data relating to the business, projects or products of either Party and provided by one Party to the other by written, oral, electronic or other means in connection with this Agreement;
1.7	cGMP	shall mean current good manufacturing practices as set out under the European Directive 2003/94/EC and promulgated by the International Conference on Harmonisation, as the same may be modified or amended from time to time;
1.8	“Cost of Goods Manufactured”	shall mean costs to produce Clinical Trial Materials and/or commercial supplies of Product to the extent that such costs would ordinarily be included as a Cost of Goods sold in accordance with U.S. generally accepted accounting principles, including: (a) the amounts paid by ZOGENIX or its Affiliates for (i)  manufacturing, filling and/or finishing Product, but excluding costs, charges and allocations related to or occasioned by unused manufacturing capacity, (ii) transporting, storing and insuring Product, and (iii) testing Product, including with respect to the foregoing subsections (i) - (iii), all taxes (other than income taxes) and customs duty charges imposed by governmental authorities with respect thereto; (b)  to the extent not included in subsection (a), the direct costs and charges incurred by ZOGENIX or its Affiliates in connection with the manufacture, filling, finishing, testing, storing, insuring and transportation of the Product, including direct internal costs with respect thereto; (c) to the extent not included in subsection (a), ZOGENIX’s or its Affiliate’s intellectual property acquisition and licensing costs (including royalties) paid to Third Parties (i) directly allocable to the applicable Product to the extent that such intellectual property is required for the manufacture of such Product in the country of manufacture and (ii) actually incurred by ZOGENIX or its Affiliates and not otherwise reimbursed by or paid for by any Third Parties; and (d) to the extent not included in subsection (a), allocable depreciation, amortization and facilities costs (e.g., sewer, water, property taxes), with any such allocations made on the basis of theoretical full capacity operation of the relevant facility, adjusted for changeovers in production runs, and excluding costs and charges related to or occasioned by (i) unused manufacturing capacity not reserved for the production of Product; (ii) the manufacture of other products at the manufacturing party’s facilities, and (iii) allocation of general corporate overhead;
1.9	Change of Control	shall have the meaning as given to it in Clause 2.3;
1.10	Committee Members	shall have the meaning as given to it in Clause 4.1;
1.11	Data	shall mean (a) written materials and information concerning the Product, including copies, or summaries, of materials prepared for submission to the Regulatory Authorities concerning the Product or its labeling; (b) such clinical data and documentation in respect of the Product generated by

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		research and trials funded by a Party or to which a Pary may have access with the right to disclose; and (c) safety information in respect of the Product generated by a Party.
1.12	DESITIN	shall have the meaning as given to it in Clause 2 of the recitals of this Agreement;
1.13	DESITIN`s Net Sales	shall mean the gross price billed by DESITIN or its Affiliates to independent parties for sales of the Product less (i) customary cash and credit discounts (other than mandatory rebates) provided that such deductions under this subsection (i) shall not exceed in average during a calendar year [***]% of the gross amount invoice of the Product in the Territory; (ii) allowances given the customers for normal returns and recalls; (iii) sales and similar taxes, and (iv) mandatory rebates or any other measures with like effect imposed by operation of law, by any Regulatory Authority; (v) rebates granted to managed healthcare organisations or to federal, state or local governments, their agencies, purchasers and reimbursers or to trade customer; (vi) tax, tariff or custom duties or other duties or governmental charges (except for income tax) levied on the sale, transportation, import or delivery of the Product; (vii) freight, shipping and insurance costs relating to the Product or retroactive price reductions, provided that such deductions under this subsection (vii) shall not exceed [***]% of gross amount invoice of the Product in the Territory during any calendar year, but in each case only if paid by DESITIN or actually charged against DESITIN and evidenced in DESITIN’s books and records of account and the reports provided to ZOGENIX pursuant to Clause 10.3 hereof;
1.14	DESITIN Parties	shall have the meaning as given to it in Clause 14.1;
1.15	Dossier	shall mean the dossier of information and data filed, or to be filed with BfArM in relation with the application for Marketing Authorisation in Germany and other countries in the European Union or with a comparable Regulatory Authority, including any amendments thereto;
1.16	Effective Date	shall mean the date of this Agreement;
1.17	Field	shall mean all therapeutic uses of the Product in humans;
1.18	First Commercial Sale	shall mean the date of first invoice of Desitin for deliveries to wholesalers, hospital pharmacies, pharmacies or other independent parties;
1.19	Force Majeure	shall mean in relation to either Party any circumstances beyond the reasonable control of that Party;
1.20	Improvement	shall mean any discovery, development, invention, enhancement or modification, patentable or otherwise, relating to the Product in the Territory owned or controlled by ZOGENIX or its Affiliates during the Term, including any modification or enhancement in the method of formulation, dosage strains, analytical methodology ingredients, preparation, presentation, means of delivery or administration, indication, use or packaging of the Product. For the avoidance of doubt, “Improvement” shall not include Intellectual Property Rights which relate to line extensions of the Product or indications which are in addition to those for which ZOGENIX has requested Marketing Authorisation in the United States on or before the Effective Date;
1.21	Initial Term	shall have the meaning as given to it in Clause 21.1;
1.22	Intellectual Property Rights	shall mean patents, trademarks, service marks, logos, trade names, rights and designs, copyright, utility models, rights and know how and other intellectual property rights, in each case whether registered or unregistered and including applications for registration and all rights or forms of protection having equivalent or similar effect anywhere in the world;
1.23	Key Facts	shall mean basic information used by DESITIN and its Affiliates in marketing or promoting the Product including but not limited to information on indications, dosage, side effects and selling points used for the positioning within current and future market environment;
1.24	Launch	means the commencement of commercial sale of the Product in the respective country of the Territory after receipt of Marketing Authorisation in that country of the Territory;

*** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 6

1.25	Licensed Know-how	shall mean all information, procedures, instructions, techniques, data, technical information, knowledge and experience (including toxicological, pharmaceutical, clinical, non-clinical and medical data, health registration data and marketing data), designs, sales and marketing materials and technology, including without limitation Data, owned or controlled by Zogenix during the Term and necessary to use, distribute, sell, or offer for sale the Product in the Territory whether in written electronic or other form, including the Dossier. Notwithstanding the foregoing, Licensed Know-How shall exclude any and all Manufacturing Know-How;
1.26	Licensed Patents	shall mean all Patent Rights owned or controlled by Zogenix during the Term and reasonably necessary to use, distribute, sell or offer for sale the Product in the Territory. As of the Effective Date, the Licensed Patents consist of those Patents set forth on Appendix 2 to this Agreement;
1.27	Licensed Technology	shall mean the Licensed Know How and the Licensed Patents and any Improvements thereto;
1.28	Manufacturing Agreement	Shall mean the agreement to be entered into by the Parties as set out in Clause 6.2 and pursuant to which ZOGENIX shall be the exclusive supplier of all of DESITIN’s, its Affiliates’ and its permitted sub-licensees’ requirements of Product for commercial use and/or sale in the Territory;
1.29	Manufacturing Know-How	shall mean any and all of the following, to the extent both (a) owned or controlled by Zogenix or any respective Affiliate of Zogenix (other than an Acquiror of Zogenix), as the case may be, and (b) related to Products: methods of manufacturing, production and test methods, procedures and batch records, manufacturing and testing summary data, process and assay validation information, and any other information, procedures, instructions, techniques, data, technical information, knowledge and experience (including regulatory) related to manufacturing, manufacturing process development and scale-up, manufacturing capacity, manufacturing facilities, product testing, product release, quality assurance activities, or stability tests;
1.30	Marketing Authorisation	shall mean the grant of all necessary permits, authorisations, licences and approvals (or waivers) from any Regulatory Authority required for the research, development, manufacture, promotion, storage, import, export, transport or use of the Product in the Territory;
1.31	MOH	shall mean the Ministry of Health or equivalent governmental body responsible for granting Marketing Authorisation in each respective country within the Territory;
1.32	Other Territories	shall mean the world except for the Territory;
1.33	Party	shall have the meaning as given to it in the Preamble;
1.34	Patent Rights	shall mean patents or patent applications; and any divisionals, continuations, substitutions, continuations-in-part, extensions, renewals, re-examinations or reissues of such patents or applications, as applicable, in each case in the Territory;
1.35	Pharmaco-vigilance Agreement	shall mean the agreement to be entered into by the Parties as set out in Clause 18.1 and pursuant to which the Parties shall fulfil the applicable pharmaceutical rules and regulations in the Territory and the Other Territories;

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 7

1.36	Product	shall mean the medical device DosePro with Sumatriptan as the sole active ingredient as specified in the Product Specification;
1.37	Product Specification	shall mean the specifications as defined for the Product in Appendix 1 to this Agreement;
1.38	Reasonable Commercial Efforts	shall mean commercial efforts consistent with normal business practices and effort used by a Party in connection with other products of similar market size or importance which such Party intends to launch or has launched and sold in the relevant Territory, or in the absence of any such similar products then such efforts shall be assessed by reference to good business practice in the light of all the circumstances;
1.39	Regulatory Authority	shall mean any and all governmental and regulatory bodies, agencies, departments or entities, whether or not located in the Territory, which regulate, direct or control commerce in or with the Territory, including any competent agency, body or entity from time to time responsible for granting Marketing Authorisations;
1.40	Remedies	shall have the meaning as given to it in Clause 12.1;
1.41	ROFR	shall have the meaning given to it in Clause 16;
1.42	Royalty	shall have the meaning as given to it in Clause 9.1;
1.43	Samples	shall mean certain quantities of the Product to be used in the Territory for advertising and marketing purposes only, any sale being strictly prohibited;
1.44	Term	shall mean the Initial Term as the same may be extended pursuant to Clause 21.2.
1.45	Territory	shall mean the countries of the European Union (defined below and thereafter as constituted from time to time) plus Norway, Switzerland and Turkey, to the extent not otherwise included in the European Union: The countries of the European Union as of the Effective Date are as follows: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom;
1.46	Third Party	shall mean any person or entity who or which are neither a Party nor an Affiliate of a Party;
1.47	Trademark	shall mean the trademark “DosePro” or any trademark containing “DosePro” or such other substitute trademark as Zogenix following consultation with DESITIN determines to use instead of “DosePro”. For the avoidance of doubt, “Trademark” does not include the trademark Zogenix™ and any other related trademark or service mark (whether registered or unregistered) containing the word “Zogenix”;
1.48	Transfer Price	shall have the meaning as given to it in Clause 8.3;
1.49	ZOGENIX	shall have the meaning as given to it in Clause 1 of the recitals to this Agreement;
1.50	ZOGENIX Parties	shall have the meaning as given to it in Clause 14.2.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 8

2.	GRANT OF LICENSE
2.1	Subject to the terms of this Agreement, ZOGENIX hereby grants to DESITIN an exclusive license under the Licensed Technology to develop, use, distribute, sell, offer for sale, and import the Product in the Field and in the Territory.
2.2	The term “exclusive” for the purposes of clause 2.1 means to the exclusion of all others, including ZOGENIX and its Affiliates, except to the extent necessary to enable ZOGENIX to perform its obligations under this Agreement.
2.3	DESITIN shall have the right to sub-license all or any of the rights licensed under this Agreement to its Affiliates and any Third Party, provided that DESITIN shall:
	(a)	provide ZOGENIX with a copy of such sub-license agreement promptly after the execution of any sub-license covering the Territory, which sub-license agreement is consistent with the terms of this Agreement insofar as they are applicable, but excluding the right to grant a sublicense, and contains terms that are no less restrictive than those contained in this Agreement on audit, inspection, and confidentiality;
	(b)	if the sub-licensee is not an Affiliate of DESITIN seek ZOGENIX’s prior written consent, which consent shall not be unreasonably withheld; provided that ZOGENIX may request adequate background and other information on the proposed sub-licensee and if DESITIN is unable to reasonably satisfy ZOGENIX as to such background and other information or that ZOGENIX will continue to receive the economic benefit of its bargain as if DESITIN were continuing to market and promote the Product under this Agreement, ZOGENIX may withhold its consent;
	(c)	if the sub-licensee is an Affiliate of DESITIN at the time of the sub-license hereunder and thereafter the sub-licensee ceases to be an Affiliate of DESITIN (a “Change of Control”), unless ZOGENIX grants its prior written consent (pursuant to the procedure set forth in Clause 2.3(b)) it is agreed that the sub-license granted to former Affiliates of DESITIN shall automatically terminate when the Change of Control becomes effective; and
	(d)	DESITIN shall be liable to ZOGENIX for acts or omissions of any Affiliate or permitted sub-licensee and shall solely be responsible for any claim made by any Affiliate or permitted sub-licensee against ZOGENIX; provided that in each case, such claims do not arise from any act or omission of the ZOGENIX Parties.
2.4	The license granted under Clause 2.1 includes sub-licenses under any Intellectual Property Rights included within the Licensed Technology which have, prior to the Effective Date, been licensed by ZOGENIX from any Third Party. Any royalties or other payments due to any Third Party pursuant to such a Third Party license shall be paid by ZOGENIX.
2.5	Each Party shall have access to the other Party’s Data and shall have a right to use such Data in their respective territories. For the avoidance of doubt, DESITIN’s right

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 9

	to use the Data shall be limited to its use in satisfying its obligations or pursuing its rights under this Agreement during the Term and ZOGENIX shall have a perpetual right to use the Data of DESITIN during the Term and following any expiration or termination of this Agreement.
2.6	Notwithstanding anything in this Agreement to the contrary, ZOGENIX shall, as between the Parties, retain: (a) the exclusive right to manufacture and supply Product for all fields of use; and (b) develop, register, import, export, use, and sell the Product outside the Territory.
2.7	ZOGENIX reserves the right to modify and/or to discontinue developing or producing the Product at its discretion at any time either (1) due to legal or regulatory requirements, administrative or court orders, or safety risks, or (2) so long as the Product in question is withdrawn from the market throughout the European Union for a justified and reasonable motive; provided, however, that ZOGENIX shall notify DESITIN as soon as practicable after any such modification or discontinuance and DESITIN shall be entitled to market any modified versions of Product pursuant to the terms of this Agreement. Nothing in this Agreement shall be deemed to restrict ZOGENIX from selling the Product or other products to Persons outside the Territory. ZOGENIX shall not authorize purchasers or distributors in Other Territories to sell the Product in the Territory. However, if by operation of law, the purchasers or distributors in Other Territories are permitted to sell the Product in the Territory, DESITIN shall receive no compensation.
3.	TRADEMARK
3.1	Subject to the terms of this Agreement, ZOGENIX hereby grants to DESITIN, its Affiliates and permitted sub-licensees a license to the Trademark for no additional consideration.
3.2	DESITIN will use the Trademark to identify the Product and in its development and commercialisation of the Product in the Territory. Therefore, DESITIN shall use the Trademark as part of the Product name along with such other words as ZOGENIX and DESITIN shall mutually agree are appropriate for the commercialisation of the Product in the Territory. The Trademark shall be owned and registered by ZOGENIX or its nominee and ZOGENIX or its nominee shall ensure that the registration of such Trademark is kept valid within the Territory, unless otherwise agreed upon between the Parties in writing.
3.3	The Trademark shall only be used in connection with sale and marketing of the Product within the Field and other activities pursuant to this Agreement in the Territory.
3.4	DESITIN shall ensure that each use by it, its Affiliates and permitted sub-licensees of the Trademark is accompanied by an acknowledgement that the Trademark is owned by ZOGENIX. DESITIN, its Affiliates and permitted sub-licensees shall not (A) use the Trademark in a way that might materially prejudice its distinctiveness or validity or

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	the goodwill of ZOGENIX therein, or (B) use any trademarks or trade names so resembling the Trademark as to be likely to cause confusion or deception.
3.5	DESITIN shall not have, assert or acquire any right, title or interest in or to the Trademark or the goodwill pertaining thereto, except as explicitly provided in Clause 3.1 of this Agreement.
3.6	DESITIN shall give ZOGENIX prompt notice of any infringement or threatened infringement of the Trademark. ZOGENIX shall determine in its sole discretion what action, if any, to take in response to the infringement or threatened infringement of the Trademark.
4.	PRODUCT STEERING COMMITTEE (“SC”)
4.1	The Parties shall establish a SC consisting of four (4) individuals (“Committee Members”); two of whom shall be nominated by ZOGENIX; and two of whom shall be nominated by DESITIN. The Committee Members may be replaced by written notice to the other Party and shall be appropriately qualified and experienced in order to make a meaningful contribution to SC meetings.
4.2	The purpose of the SC is to provide a forum for the Parties to share information on the ongoing research, development and commercialisation of the Product including monitoring progress of clinical studies, reviewing clinical trial programmes, considering proposed marketing and promotional plans, reviewing competitor activity and discussing any regulatory, technical, quality assurance or safety issues in relation to the Product.
4.3	The SC shall ensure the mutual exchange of Data, whether derived by Zogenix or DESITIN or their respective Affiliates or permitted sub-licensees. Each Party shall provide to the other Party such assistance as is reasonably necessary in respect of Regulatory Approvals in their respective territories, and in particular shall provide access to such Party’s Data, to the extent the Party providing such access is is legally and contractually permitted to do so, and, with respect to ZOGENIX providing DESITIN access, limited to DESITIN’s use in obtaining Regulatory Approvals in respect of the Product.
4.4	The SC shall meet as often as the Committee Members may determine, but in any event not less than twice per calendar year until approval of the first Marketing Authorisation and at least annually in the subsequent commercialisation period. Either Party may request additional SC meetings insofar it deems necessary for the development or commercialisation of the Product in the Territory. The Committee Members may invite individuals with special skills to attend meetings where it is considered to be relevant and appropriate. The quorum for SC meetings shall be two Committee Members, comprising one Committee Member from each Party. Each SC meeting shall be chaired by ZOGENIX. The Parties shall act in good faith and cooperate with one another in the development, marketing and commercialisation of the Product in the Territory.
4.5	The SC shall take its decisions unanimously. In the event the SC is unable to take a decision unanimously, ZOGENIX shall have the final say on development and

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	manufacturing matters related to the Product in the Territory and DESITIN shall have final say on commercialisation matters related to the Product in the Territory (provided that DESITIN shall consult with ZOGENIX and consider any input received from ZOGENIX with respect to any pricing discussions with Regulatory Authorities related to the Product in the Territory).
5.	DEVELOPMENT AND COMMERCIALISATION OF THE PRODUCT
5.1	ZOGENIX shall, within [***] days from the Effective Date, deliver to DESITIN (to the extent available) the Licensed Know-How as of the Effective Date, to the extent that ZOGENIX is legally and contractually permitted to do so, and as required for the development, regulatory approval, commercialisation or use of the Product in the Territory.
5.2	DESITIN shall, at its sole cost, use Reasonable Commercial and scientific Efforts (without being required to use all available resources) to develop, obtain Marketing Authorisation(s) and commercialise the Product in the Territory, including obtaining all required approvals to market the Product in the Territory. DESTIN shall conduct its activities hereunder in a lawful manner and in accordance with the well-established pharmaceutical product development and commercialisation practices and the competition law applicable in each respective country in the Territory, and shall cause its employees, Affiliates and permitted sub-licensees to do the same. In particular DESITIN shall take all necessary steps to obtain Marketing Authorisation and prepare the Launch of the Product in Germany. In exploring in which other countries of the Territory the obtaining of Marketing Authorisation and the subsequent marketing of the Product, whether by DESITIN or DESITIN’s Affiliates or by local distribution partners, is likely to be profitable and commercially feasible, DESITIN will focus on France, Italy, Spain, the United Kingdom, Denmark, Sweden and Finland. Launch of the Product in the remaining countries of the Territory will be considered at a later stage and shall be mutually agreed.
5.3	DESITIN shall not be required to conduct any clinical or non-clinical trials, except only for one (1) study regarding bioequivalence of the Product provided that such study is required by a competent Regulatory Authority.
5.4	The Parties shall consult on an ongoing basis as to the preparation, filing, pursuit and maintenance of regulatory submissions under this Clause 5 and no such submission shall be made by DESITIN without ZOGENIX’s prior written approval, not to be unreasonably withheld. DESITIN shall keep ZOGENIX informed, in writing, of the status of its applications for Marketing Authorisations on a regular basis, and in any event no less frequently than once every three months, and shall immediately notify ZOGENIX in writing of any substantial change in the status of any Marketing Authorisation or any substantive questions received from any Regulatory Authority in respect of such Marketing Authorisations. DESITIN shall provide copies of all Marketing Authorisations to ZOGENIX at its request.

*** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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5.5	Once Marketing Authorisation is granted in Germany without any qualifications, DESITIN hereby undertakes to ZOGENIX that it will Launch the Product in Germany no later than [***] ([***]) months after the date of the relevant Marketing Authorisation; provided that such time period shall be extended by the time period during which ZOGENIX fails to timely supply DESITIN with Product which has been properly ordered pursuant to the terms of the applicable supply agreement. Should DESITIN fail to Launch the Product in accordance with this Clause 5.5, DESITIN further undertakes to ZOGENIX that it will promptly notify ZOGENIX of such failure which shall be deemed a material breach of this Agreement
5.6	Once Marketing Authorisation is granted in any country of the Territory other than Germany without any qualifications, DESITIN shall (i) verify the profitability of a possible Launch of the Product in the respective country and (ii) subject to the verification of the profitability for such country in the Territory, Launch the Product as soon as reasonably practicable and commercially viable.
5.7	ZOGENIX shall use Reasonable Commercial Efforts to assist DESITIN to solve material issues which may arise after discussions with Regulatory Authorities on the Product.
5.8	ZOGENIX, to the extent it is legally and contractually permitted to so do, shall take all steps which may be required by law and shall sign all necessary documents and perform all commercially reasonable obligations which may be required in order to assure that DESITIN may market, sell and distribute the Product in the Territory under its own company name and in the manner it regards as appropriate subject to the terms of this Agreement and any possible restrictions caused by Marketing Authorisations.
5.9	The licences granted under Clauses 2.1 and 3.1 of this Agreement will become non-exclusive in the event that DESITIN (i) will not start the study regarding bioequivalence of the Product as referred to in Clause 5.3 within [***] ([***]) months following the receipt of the Licensed Know-How as of the Effective Date according to Clause 5.1 or (ii) has not filed a Marketing Authorisation for the Product in Germany within [***] ([***]) months after the completion of such bioequivalence study or (iii) otherwise adhere to a mutually agreed timeline for the execution of clinical trials and submissions of Marketing Authorisations throughout the Territory.
5.10	To the extent permissible by law, DESITIN is prohibited from advertising, circulating price lists or otherwise soliciting orders for the Product, and from establishing or maintaining branches, sales offices or distribution depots, outside the Territory for the distribution of the Product.
6.	MANUFACTURE AND SUPPLY OF THE PRODUCT
6.1	Clinical Supply. ZOGENIX shall be the exclusive supplier of all of DESITIN’s requirements for Clinical Trial Materials in the Territory at ZOGENIX’s Cost of Goods Manufactured. DESITIN shall purchase all of its requirements of Clinical Trial

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	Materials in the Territory from ZOGENIX. Additional terms under which ZOGENIX shall supply Clinical Trial Materials in the Territory are set forth on Appendix 3.
6.2	Commercial Supply. The Parties shall use Reasonable Commercial Efforts to sign the Manufacturing Agreement no later than [***] ([***]) months prior to the anticipated first Launch of the Product in the Territory. The Manufacturing Agreement shall contain the terms set forth in this Clause 6.2 through Clause 6.6 and such other commercially reasonable and customary terms and conditions to be mutually agreed by the Parties (including the right of DESITIN to audit ZOGENIX’s (or its Third Party contract manufacturer’s) manufacturing facilities and a forecasting mechanism which will permit ZOGENIX to properly manage its supply chain for the Product on a worldwide basis) and such other terms as are reasonable and customary in the commercial supply of pharmaceutical compounds; provided that the Manufacturing Agreement shall be subject to the terms of any manufacturing agreement which ZOGENIX puts into place with respect to the commercial supply of Product in the Other Territories
6.3	DESITIN acknowledges and agrees that ZOGENIX will manufacture the Product or will enter into a contractual relationship with one or several manufacturers of the Product. Such Third Party manufacturers shall be listed in the registration documentation and manufacture the Product on ZOGENIX’s behalf in accordance with applicable law in the Territory.
6.4	Any Products supplied by ZOGENIX hereunder shall be manufactured:
	(a)	in accordance with cGMP;
	(b)	in compliance with the Product Specification; and
	(c)	in compliance with all applicable and relevant national and local laws, rules and regulations, including those promulgated by any relevant Regulatory Authority.
6.5	The Product shall be supplied by ZOGENIX to DESITIN as finished products ready for final packing and labelling as required in each country of the Territory (DESITIN will be responsible for such items as set forth in Clause 7.3 as well as quality control, in each case at its own expense). Each shipment of the Product shall be accompanied by the corresponding analytical certificate attesting to the Product’s compliance with the specification approved by the Regulatory Authority in the Territory. The Product shallbe placed at DESITIN’s disposal EXW (Incoterms 2000) ZOGENIX’s manufacturing facility at such address as is notified to DESITIN from time to time in writing.
6.6	ZOGENIX shall deliver commercial supply of the Product to DESITIN in complete batch quantities whereby each batch shall have a minimum remaining shelf life of [***] percent ([***]%) of the shelf life approved by the United States Food and Drug

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	Administration in the Marketing Authorisation submitted by ZOGENIX on its own behalf.
7.	MARKETING
7.1	DESITIN shall inform ZOGENIX [***] ([***]) months before the anticipated date of the first Launch of the Product in the Territory of the Key Facts of its proposed promotion strategy regarding the Product. DESITIN shall provide ZOGENIX with copies of all promotional materials to be used in connection with the marketing and/or promotion of the Product in the Territory prior to their use. The materials shall be submitted in the language(s) of the country or countries where they are to be used. ZOGENIX shall use Reasonable Commercial Efforts to provide a written response, either approving or suggesting reasonable changes, within [***] ([***]) weeks of receipt of such Key Facts or promotional materials. If DESITIN does not receive a written response from ZOGENIX within this [***]-week period ZOGENIX shall be deemed to have given its approval. In case ZOGENIX does not agree with the provided Key Facts or other statements contained in any promotional materials, ZOGENIX and DESITIN agree to discuss the Key Facts or such other statements, as applicable, in good faith. After written approval by ZOGENIX which shall not be unduly withheld or delayed, DESITIN shall carry out marketing and promotional activities in relation to the Product in the Territory in compliance with the approved Key Facts, promotional materials and all applicable laws, rules and regulations.
7.2	During the Term, DESITIN shall not, and shall ensure that its Affiliates and permitted sub-licensees shall not, market, sell, promote or distribute the Product in the Other Territories.
7.3	DESITIN shall be responsible, at its cost, for final packaging and labelling of Product in accordance with the requirements for each country of the Territory.
7.4	DESITIN shall be free to set any price for the Product in the Territory subject to discussion by the SC as provided in Clause 4.4 and applicable pharmaceutical regulations.
7.5	Except to the extent permitted by law and as may be agreed in writing between the Parties, DESITIN shall not market, sell, promote or distribute the Product in the respective country in the Territory unless and until DESITIN obtains the appropriate Marketing Authorisations in respect of such Product in the respective country in the Territory.
8.	PRICING
8.1	DESITIN shall purchase the Product for commercial sale from ZOGENIX at the greater of (a) the agreed Transfer Price as defined in Clause 8.3 or (b) Cost of Goods Manufactured (collectively, the “Purchase Price”). In the event that Purchase Price is greater than the higher of [***]€ or US$[***], DESITIN shall have the right to terminate this Agreement as set forth in Section 21.7.

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8.2

Transfer Price shall be subject to adjustment on an annual basis beginning in 2009 based on data for the prior year (e.g., increases for information reported for 2008 shall apply to 2009 Transfer Prices) as of May 31 beginning with May 31, 2009, in accordance with the annual percentage change in the European pricing index of industrial products (“Erzeugerpreise industrieller Produkte auf dem Inlandsmarkt - Gesamte Industrie ohne Baugewerbe - Eurozone”; Source: EUROSTAT), except as otherwise mutually agreed by the Parties.

8.3

The Transfer Price (EXW (Incoterms 2000)) shall be calculated according to the following table and subject to adjustment as set forth in Clause 8.2:

Annual Units	Transfer Price (EUR)
[***]	[***]
[***]	[***]
[***]	[***]

	By way of example, if DESITIN or its Affiliates were to purchase an aggregate of [***] units in a calendar year 2008, the total Transfer Price for such calendar year would be calculated as follows: ([***] x [***]€) + ([***] x [***]€) + ([***] x [***]€) = [***]€.
9.	ROYALTIES
9.1	DESITIN shall pay ZOGENIX a royalty equal to [***]% of the DESITIN’s Net Sales (“Royalty”).
9.2	Royalties will not be payable on sales realised by regional distributors or Third Parties so long as such sales have been included in DESITIN’s Net Sales upon first sale or distribution to such regional distributors or Third Parties or are otherwise invoiced directly by DESITIN and as a result included in DESITIN’s Net Sales.
9.3	No Royalties shall accrue on the disposition of the Product as Samples (promotional or otherwise), donations or for clinical trials, provided that such level of sampling or donations are generally consistent with industry standards and in any event after expiry of [***] ([***]) months upon Launch does not exceed [***]% of the gross revenues of the Product in the Territory.
9.4	The obligation to pay a Royalty under Clause 9.1 for a Product shall continue throughout the Term.

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10.	PAYMENT TERMS
10.1	DESITIN shall make any other payments than Royalties due under this Agreement in United States Dollars within [***] ([***]) days of receipt of the invoice for Product (which date shall be no earlier than the date of delivery of the Product).Invoices shall be sent via fax and by internationally recognized overnight courier to DESITIN’s address for notices hereunder.
10.2	All right, title and risk in the Product passes to DESITIN upon delivery of Product to DESITIN in accordance with this Agreement.
10.3	DESITIN agrees to make payments and written reports to ZOGENIX within [***] ([***]) days after the end of each calendar quarter covering all sales of the Product in the Field in the Territory by DESITIN, its Affiliates or permitted sub-licensees for which invoices were sent during such calendar quarter, each such written report stating for the period in question: (i)  for Product disposed of in the Territory by sale, the quantity and description of Product, (ii)  for Product disposed of in the Territory other than by sale, the quantity, description, and nature of the disposition, (iii)  the calculation of DESITIN’s Net Sales for such quarter and year-to-date DESITIN’s Net Sales; and (iv)  the calculation of the amount due to ZOGENIX for such quarter pursuant to Clause 9 on account of such DESITIN’s Net Sales. The information contained in each report under this Clause 10.3 shall be considered Confidential Information of DESITIN. Concurrent with the delivery of each quarterly report, DESITIN shall make the payment due ZOGENIX hereunder in United States Dollars for the calendar quarter covered by such report.
10.4	All amounts not paid to the other Party when due shall accrue interest daily at the lesser of an annual rate of (a) [***] or (b) [***].
10.5	All sums payable hereunder are expressed to be exclusive of VAT or other similar tax. Notwithstanding the foregoing, any income or other taxes on any monies payable to ZOGENIX which DESITIN is required by law to pay or withhold on behalf of ZOGENIX, shall be deducted by ZOGENIX from such monies due. DESITIN shall furnish ZOGENIX with proof of such payments. Any such tax required to be paid or withheld shall be an expense borne solely by DESITIN, and ZOGENIX may request reimbursement from DESITIN for any such amounts. DESITIN shall promptly provide ZOGENIX with a certificate or other documentary evidence to enable ZOGENIX to support a claim for a refund or a foreign tax credit with respect to any such tax so withheld or deducted by DESITIN. At ZOGENIX’s request, DESITIN shall reasonably cooperate to support any claim by ZOGENIX for such a refund or credit. The Parties will reasonably cooperate in completing and filing documents under the provisions of any applicable tax treaty or under any other applicable law, in order to enable DESITIN to make such payments to ZOGENIX without any deduction for withholding.

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11.	RECORDS AND REPORTS
11.1	During the Term, DESITIN shall, and shall procure that its Affiliates shall, keep at its normal place of business full, complete, accurate and up to date records and books of account recording DESITIN’s Net Sales sufficient to ascertain the Royalties payable under this Agreement.
11.2	Upon no less than [***] ([***]) Business Days notice from ZOGENIX, DESITIN shall make such records and books of account available for audit during business hours to ZOGENIX or its nominee (but not more than [***] in any calendar year).
11.3	ZOGENIX shall be solely responsible for its costs and expenses in making any such audit and inspection unless ZOGENIX properly identifies a discrepancy in the Royalties paid in any calendar year from those properly payable under this Agreement for that calendar year of greater than [***]%, in which event DESITIN shall pay ZOGENIX’s reasonable cost incurred in connection with the audit and inspection, and promptly make good the deficit in the Royalty payments. Upon the expiration of [***] months from the end of any calendar year the calculation of Royalties payable with respect to such year shall be binding and conclusive, and DESITIN shall be released from any liability or accountability with respect to Royalties for such year.
11.4	All information disclosed by DESITIN, its Affiliates or its permitted sub-licensees pursuant to Clauses 11.1 through 11.3 shall be deemed Confidential Information of DESITIN, its Affiliates or its permitted sub-licenses, as the case may be.
11.5	DESITIN shall advise ZOGENIX of any legislation, rule, regulation or other law (including but not limited to any customs, tax, foreign exchange or foreign trade, antimonopoly, pharmaceutical products or intellectual property law) which is in effect or which may come into effect in the Territory after the date of this Agreement and which may affect the importation of the Products into the Territory or the use of the Products or the protection of the Licensed Technology as soon as DESITIN received notice thereof or would otherwise reasonably be expected to have notice thereof.
12.	INFRINGEMENT OF RIGHTS BY THIRD PARTY
12.1	ZOGENIX shall have the first right, but not the obligation, to take action in respect of any infringement of the Licensed Technology in the Territory, including but not limited to, commencing any claim or proceedings for injunctive, compensatory or other remedies or relief (collectively “Remedies”) as may be necessary or desirable to prevent such infringement and preserve the Licensed Technology. DESITIN shall permit any such Remedies to be brought in its name if permitted or required by law. ZOGENIX may compromise or settle any of the Remedies in its sole discretion, provided that, ZOGENIX shall not make any settlement or compromise that adversely affects the interests of DESITIN in respect of the Product in the Territory without the prior consent of DESITIN, such consent not to be unreasonably withheld or delayed.

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12.2	In the event that ZOGENIX elects not to pursue any Remedies with respect to the Licensed Technology in the Territory within [***] ([***]) days after notice in writing from DESITIN requesting ZOGENIX to do so, DESITIN shall have the right, but not the obligation, to pursue Remedies against such Third Party infringer, provided that:
	(a)	DESITIN does not make any settlement or compromise that affects the interests of ZOGENIX in the Product without the prior written consent of ZOGENIX, such consent not to be unreasonably withheld or delayed; and
	(b)	if ZOGENIX has commenced negotiations with such Third Party for discontinuance of the infringement within such [***] ([***]) day period, ZOGENIX shall have an additional [***] ([***]) day period to conclude its negotiations before DESITIN may pursue any Remedies under this Clause 12.2.
12.3	In the event that either Party pursues the Remedies under clauses 12.1 or 12.2:
	(a)	the other Party shall use all reasonable efforts to assist and cooperate with the Party pursuing such Remedies, including providing access to relevant materials, personnel, documents and other evidence; and
	(b)	each Party shall bear its own costs and expenses relating to its pursuit of Remedies or in providing assistance and cooperation; and
	(c)	any damages or other amounts awarded to either Party shall be distributed as follows:
		(i)	to the Party that pursued the Remedies, to cover its legal costs and expenses incurred; and then
		(ii)	to the other Party, to cover its legal costs and expenses, if any, relating to the pursuit of such Remedies; and then
		(iii)	any remaining amount, after the deductions set out above shall be retained by DESITIN, except that ZOGENIX shall receive a portion equivalent to the Royalties it would have received under this Agreement if such remaining amount were deemed DESITIN’s Net Sales.
13.	INFRINGEMENT OF THIRD PARTY RIGHTS
13.1	In the event that a Third Party institutes or threatens to institute a patent, trade secret or other infringement proceeding against either Party or its Affiliates during the Term, alleging that its or their manufacture, use or sale of the Product in the Territory infringes the Third Party’s Intellectual Property Rights (a “Third Party Action”), each Party shall promptly notify the other of the Third Party Action with such details as it

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	has in its possession and the Parties shall promptly convene a meeting of the SC to discuss the best way to respond.
13.2	Upon receipt of any such notice the SC shall discuss the potential infringement and to the extent necessary attempt to agree on a course of action. Such course of action may include:
	(a)	obtaining an appropriate license from the Third Party;
	(b)	contesting any claim or proceedings brought by the Third Party; or
	(c)	bringing a declaratory judgment action against such Third Party.
13.3	ZOGENIX shall have the first right but not the obligation, to take any action agreed upon by the Parties in respect of the Third Party Action.  If within [***] days the Parties fail to agree upon an appropriate course of action through discussions of the SC, ZOGENIX may decide upon the course of action with respect to any Third Party Action and may commence such action or negotiate a license with such infringed Third Party.
13.4	Neither Party shall settle any Third Party Action relating to the Product if such settlement admits the invalidity or unenforceability of any of the Licensed Technology, except as agreed in writing between the Parties.
13.5	In the event that the SC determines that DESITIN is best positioned to commence any action in relation to or defence of the Third Party Action, DESITIN shall be entitled to credit up to [***]% of its reasonable costs and expenses (including legal and expert fees) or any Third Party royalties incurred against any royalty payment otherwise payable to ZOGENIX under this Agreement. In the event that no such royalty payments are payable by DESITIN under this Agreement at the time of the Third Party Action, up to [***]% of any reasonable costs and expenses or Third Party royalties incurred by DESITIN in connection with the Third Party Action shall be reimbursed by ZOGENIX on a Quarterly basis. In addition, in any such action which DESITIN commences as permitted by this Clause 13, DESITIN shall seek ZOGENIX’s consent prior to concluding any settlement agreement, which consent can be withheld in its sole discretion.
13.6	In any such Third Party Action, the Parties shall cooperate with each other in connection with any such claim, suit or proceeding and shall keep each other reasonably informed of any material developments in connection with any such claim, suit or proceeding, including providing access to relevant documents, material, personnel or other evidence.
14.	INDEMNIFICATION AND INSURANCE
14.1	ZOGENIX shall defend, indemnify and hold harmless DESITIN, its Affiliates and its and their officers, directors, employees, agents and contractors (“DESITIN Parties”) from and against any and all claims, actions, demands, losses, damages, costs and

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	reasonable expenses (including reasonable legal and expert fees) made or brought by Third Parties (“Claims”) arising from or in connection with:
	(a)	the personal injury or death caused by the defective design and/or manufacture of the Product when supplied to DESITIN by ZOGENIX or its designee; or
	(b)	the breach of the warranties given by ZOGENIX under this Agreement, or
	(c)	the negligence of ZOGENIX Parties (as defined below) in the research, development, marketing, distribution, sale or use of the Product before the Effective Date both in or outside the Territory, or
	(d)	the negligence of ZOGENIX Parties in the research, development, marketing, distribution, sale or use of the Product following the Effective Date outside the Territory,
	provided that, in each case, such Claims do not arise from the negligence or wilful default of the DESITIN Parties.
14.2	DESITIN shall defend, indemnify and hold harmless ZOGENIX, its Affiliates and its and their officers, directors, employees, agents and contractors (the “ZOGENIX Parties”) from and against any and all Claims arising from or in connection with:
	(a)	the development, marketing, distribution, sale or use of the Product in the Territory after the Effective Date;
	(b)	the negligence by DESITIN Parties in relation to the development, marketing, distribution, sale or use of the Product in the Territory after the Effective Date; or
	(c)	the breach of the warranties given by DESITIN under this Agreement,
	provided that, in each case, such Claims do not arise from the negligence or wilful default of the ZOGENIX Parties. For the avoidance of doubt DESITIN shall in no event be liable for any claims arising from or in connection with the infringement of Third Party Rights, particularly patents and trademarks, caused by the manufacture or composition of the Product or the use of the Trademark.
14.3	Each Party shall promptly provide the other Party with copies of all papers and official documents received in respect of any Claims and shall cooperate as reasonably requested by the other Party in the defence of any Claims.  The Party which is indemnifying the other Party hereunder shall have control of, and discretion in, the handling of the defense and/or settlement of any such Claim, including, without limitation, the selection of defense counsel; provided, however, that the indemnified Party may take any appropriate action necessary to preserve or avoid prejudice to its interests, or the interests of the indemnifying Party, in the event that (1) notice to the indemnifying Party cannot be given in  sufficient time for such Party to take action, or (2) the indemnifying Party, after prompt notice and inquiry from the indemnified

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	Party, fails to acknowledge its  obligation to indemnify the indemnified Party under this Clause 14.
14.4	Each Party shall maintain, at its own cost, comprehensive product liability insurance and general commercial liability insurance adequate to cover their respective obligations under this Agreement in such amount as the Parties customarily maintain with respect to its other products and which is reasonable and customary in the pharmaceutical industry in their respective territories for companies of comparable size and activities. Each Party shall maintain such insurance policy for not less than [***] ([***]) years following the expiry or termination of this Agreement. A certificate of insurance and any other documentation necessary to prove compliance with this provision will be provided to the other Party upon request.
14.5	TO THE FULL EXTENT PERMITTED BY LAW, APART FROM THE FOREGOING WARRANTIES AND INDEMNITY OR SUCH WARRANTIES OR INDEMNITY AS MAY BE CONTAINED WITHIN THE MANUFACTURING AGREEMENT, NEITHER PARTY MAKES ANY ADDITIONAL REPRESENTATIONS OR WARRANTIES AND HEREBY DISCLAIMS ALL WARRANTIES, REPRESENTATIONS, AND LIABILITIES, WHETHER EXPRESS OR IMPLIED, ARISING FROM CONTRACT OR TORT (EXCEPT FRAUD), IMPOSED BY STATUTE OR OTHERWISE, RELATING TO THE PRODUCTS AND/OR ANY LICENSED TECHNOLOGY, INCLUDING ANY WARRANTIES AS TO MERCHANTABILITY, FITNESS FOR PURPOSE, CORRESPONDENCE WITH DESCRIPTION, OR NON-INFRINGEMENT.
14.6	IN NO EVENT WILL EITHER PARTY BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING ANY LOSS OF PROFITS, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
15.	IMPROVEMENTS AND PATENTS
15.1	All right, title and interest in any Intellectual Property Right created, generated or arising in connection with the Product and any Improvement thereof, whether invented solely by ZOGENIX, DESITIN or jointly by the Parties, shall be solely owned by ZOGENIX.
15.2	Each Party shall promptly disclose to the other any Improvements developed during the Term, and all such Improvements shall be deemed to the fullest extent possible to be works made for hire exclusively for ZOGENIX, with ZOGENIX having sole ownership of such Improvements and the sole right to obtain and to hold in its own name patents, copyrights, or such other protection as ZOGENIX may deem appropriate to the subject matter, and any extensions or renewals thereof (though ZOGENIX is under no obligation to file any patent application, secure or maintain any patent or register any copyright). To the extent DESITIN or its Affiliates nonetheless maintain any rights in and to any Improvements, DESITIN and its Affiliates hereby assign, cede and grant to ZOGENIX all rights to possession of, and

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	all right, title, and interest, including all patents and copyrights and the right to prepare and exploit derivative works, in such Improvements. DESITIN agrees to give ZOGENIX or any person designated by ZOGENIX at ZOGENIX’s expense, all assistance reasonably required to perfect the rights hereinabove defined, including the execution of documents and assistance or cooperation in legal proceedings.
15.3	In the event that either Party identifies any Third Party Intellectual Property Rights that in such Parties’ reasonably opinion would provide a commercial benefit to the Product, it shall promptly inform the Other Party of such Intellectual Property Rights through the SC and the Parties shall in good faith discuss whether they intend to license or acquire such Third Party rights. In the event a license in such Third Party Intellectual Property Right shall be taken, ZOGENIX shall negotiate and enter into such license including the right to sub-license its rights to DESITIN. Any sublicense of rights shall be set forth in a separate sub-license agreement to be entered into between DESITIN and ZOGENIX and shall include terms substantially similar to those contained in this Agreement; provided that DESITIN and ZOGENIX shall equally share all Third Party license fees incurred.
15.4	ZOGENIX shall, at its sole cost and expense, using patent attorneys of its choice, use Reasonable Commercial Efforts to file, prosecute and maintain the patents, patent obligations and other Intellectual Property Rights related to the Licensed Technology in the Territory. Any costs relating to the filing of these Intellectual Property Rights in the Territory shall be borne by ZOGENIX.
15.5	ZOGENIX shall, at its sole cost and expense, using trademark attorneys of its choice, use Reasonable Commercial Efforts to file, prosecute, maintain and enforce the Trademark in the Territory.
16.	RIGHT OF FIRST REFUSAL
16.1	ZOGENIX hereby grants to DESITIN for the Term the right of first refusal to in-license any Product line extensions (including new or additional therapeutic uses) which DESITIN desires to market in the Territory as set forth in this Clause 16 (the “ROFR”).
16.2	Following ZOGENIX’s decision to offer for license any Product line extension in the Territory, ZOGENIX shall promptly inform DESITIN in all relevant detail of any such Product line extensions, thus giving DESITIN a meaningful basis for taking a decision on whether or not to exercise the ROFR.
16.3	For a period of no more than [***] ([***]) months after ZOGENIX has supplied DESITIN with the information referred to in Clause 16.2 (the “Review Period”) DESITIN may exercise the ROFR by providing written notice to ZOGENIX within the Review Period of DESITIN’s desire to exercise the ROFR. The Parties shall thereafter negotiate in good faith for a period of no longer than [***] ([***]) additional months, the terms and conditions on which such Product line extension would be included within this Agreement, if at all. If the Parties are unable to reach agreement following the expiration of such additional [***] ([***])-month period, ZOGENIX

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	shall thereafter be permitted to license any such Product line extension to a Third Party on terms no more favourable to such Third Party than those most recently offered by DESITIN.
17.	REGULATORY
17.1	DESITIN shall, at its sole cost, use Reasonable Commercial Efforts (without being required to use all available resources) to prepare, file, prosecute and maintain the Marketing Authorisations and other permits required for the commercialisation of the Product in the Territory.
17.2	Each Marketing Authorisation will be registered in DESITIN’s name.
17.3	DESITIN shall act as ZOGENIX’s consultant and representative towards the MOH and the other relevant authorities or third parties in connection with obtaining and maintaining the Marketing Authorisation for the Product in the Territory.
17.4	ZOGENIX undertakes and covenants to DESITIN that it will not during the Term apply for an additional Marketing Authorisation relating to the Product in the Territory nor will ZOGENIX during the Term apply for or otherwise seek the benefit of any substitute of the Marketing Authorisation.
17.5	ZOGENIX shall keep DESITIN fully informed of any changes to the Product which it reasonably believes might be relevant in relation to the Marketing Authorisation. ZOGENIX shall not discontinue the supply of the Product containing the previous specifications unless all requirements set by a Regulatory Authority in the Territory for the maintenance or the renewal of the Marketing Authorisation issued by it have been complied with.
17.6	DESITIN shall be responsible, as the case may be, for obtaining reimbursement for the Product on behalf of ZOGENIX in the Territory. ZOGENIX shall assist DESITIN in obtaining reimbursement by providing all reasonable support and all Data as may be required by the relevant Regulatory Authority.
18.	PHARMACOVIGILANCE
18.1	The Parties shall use Reasonable Commercial Efforts to sign the Pharmacovigilance Agreement no later than [***] ([***]) months prior to the anticipated first Launch of the Product in the Territory.
18.2	If there is any inconsistency between this Agreement and the Pharmacovigilance Agreement the terms of this Agreement will prevail between the Parties to the extent of such inconsistency.
19.	EXCHANGE OF INFORMATION
19.1	DESITIN shall use the Dossier only during the Term and in furtherance of its rights and obligations under this Agreement.

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19.2	DESITIN undertakes to neither sell nor otherwise make available to any Third Party the Dossier or any part thereof without a previous written approval from ZOGENIX.
19.3	ZOGENIX will inform DESITIN promptly if the competent Regulatory Authority or any other competent authority gives notice to ZOGENIX or its Affiliates of any difficulties or delays regarding the grant of the Marketing Authorisation in the U.S.A. or of any further studies to be conducted by ZOGENIX to obtain Marketing Authorisation in the U.S.A.
20.	[Intentionally Omitted]
21.	TERM AND TERMINATION
21.1	The term of this Agreement will continue on a country-by-country basis until the greater of ten (10) years after the Launch or the expiration in such country of the last to expire Patent Right included in the Licensed Technology or Improvements licensed hereunder (the “Initial Term”).
21.2	After the Initial Term and only with respect to countries of the Territory where the Product has been successfully Launched, this Agreement shall be automatically renewed on a country-by-country basis by additional successive periods of [***] ([***]) years unless it is terminated by either Party giving [***] ([***]) month’s prior written notice.
21.3	Either Party shall be entitled to terminate the Agreement if:
	(a)	the other Party commits a material breach under this Agreement and in the case of a breach which is capable of remedy fails to remedy it within [***] ([***]) days of receipt of notice from the first Party of such breach and of its intention to exercise its rights under this Clause;
	(b)	the other Party enters into insolvency or bankruptcy or is unable to pay its debts as they fall due, or a trustee or receiver or the equivalent is appointed to the other Party, or proceedings are instituted against the other Party relating to dissolution, liquidation, winding up, bankruptcy, insolvency or the relief of creditors, if such proceedings are not terminated or discharged within [***] ([***]) days;
	(c)	any law, decree, or regulation is enacted within the Territory which would substantially impair or restrict (1) the terminating Party’s right to terminate or elect not to renew this Agreement as herein provided; (2) ZOGENIX’s right, title or interest in the Products or the Intellectual Property Rights therein; (3) as to DESITIN, DESITIN’s right to market and distribute the Products in accordance with this Agreement; or (4) as to ZOGENIX, ZOGENIX’s right to collect the Purchase Price or Royalties as set forth in this Agreement; or

*** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 25

	(d)	an adverse event occurs which has substantially impaired the other Party’s ability to continue to perform its obligations hereunder and the other Party is unable to provide the terminating Party with adequate assurance of future performance.
21.4	Either Party shall be entitled to terminate this Agreement with [***] ([***]) days written notice without any damage, legal redress or compensation due it if the continued development or marketing of the Product is no longer possible due to advice from a relevant Regulatory Authority or clinical review board in the Territory or due to serious adverse events caused by the Product anywhere in the world.
21.5	DESITIN shall be entitled to immediately terminate this Agreement with written notice and without any damage, legal redress or compensation due to ZOGENIX in case:
	(a)                   a competent Regulatory Authority imposes therapeutic indications in the Territory not acceptable to DESITIN or require the Product to be marketed as generic drug in the Territory; or
	(b)                   the Regulatory Authorities in the Territory require more than one study regarding bioequivalence of the Product to obtain Marketing Authorisation.
21.6	ZOGENIX shall be entitled to terminate this Agreement with thirty (30) days written notice without any damage, legal redress or compensation due to DESITIN in case:
	(a)                   DESITIN in each of [***] consecutive calendar years (other than any partial calendar year in which the Product is first Launched) fails to meet at least [***]% of the mutually agreed sales forecasts provided that such shortfall is caused by circumstances within DESITIN’s reasonable control;
	(b)                   DESITIN takes any act or step impairing the Intellectual Property Rights of ZOGENIX or does anything that might otherwise adversely affect the Intellectual Property rights of ZOGENIX (whether DESITIN’s act or challenge of ZOGENIX’s rights is in good faith) and, if the act or step is capable of remedy, fails to remedy it within thirty (30) days of receipt of notice from ZOGENIX of such act or step and of its intention to exercise its rights under this Clause 21.6; or
	(c)                   DESITIN ceases to carry on business in the marketing of pharmaceutical products in the Territory.
21.7	DESITIN shall be entitled to terminate this Agreement with [***] ([***]) days’ prior written notice under the conditions set forth in Section 8.1. Following the effective date of such termination, ZOGENIX shall reimburse DESITIN for [***] percent ([***]%) of the Third Party costs incurred by DESITIN in connection with clinical development and regulatory approval of the Product in the Territory under this Agreement, upon receipt of reasonably detailed documentation supporting such costs and such other supporting documentation as ZOGENIX may reasonably request. In no event shall the amounts reimbursed DESITIN pursuant to this Section 21.7 exceed US$[***].

*** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 26

22.	CONSEQUENCES OF TERMINATION
22.1	On expiration or termination of the Agreement for any reason whatsoever, the License granted under this Agreement shall cease and DESITIN shall, and shall procure that its Affiliates and permitted sub-licensees shall:
	(a)	Cease to carry out any of the activities permitted by this Agreement (or any relevant sub-license agreement) and cease to use or exploit in any way the Licensed Technology;
	(b)	Refrain from using the Trademark; and
	(c)	Continue to treat the Licensed Know-how and any other information provided by ZOGENIX as secret and confidential according to Clause 23 hereof.
	In addition, on expiration of the Agreement or termination of the Agreement by ZOGENIX pursuant to Clauses 21.3 or 21.6, DESITIN shall grant to ZOGENIX a perpetual, royalty free license to use any trademark which DESITIN used in the commercialization of the Product in the Territory in connection with subsequent commercialization of the Product in the Territory by or on behalf of ZOGENIX; provided, however, that such license shall not include a right for ZOGENIX to use the word DESITIN in any subsequent commercialization of the Product in the Territory.
22.2	DESITIN, its Affiliates and its permitted sub-licensees shall be entitled to continue to sell existing stocks of the Product in the Territory for a period of no longer than [***]([***]) months following the date of termination, provided that DESITIN pays ZOGENIX any Royalty payments due in respect of such sales in accordance with the provisions of this Agreement.
22.3	The termination or expiry of this Agreement shall not release either of the Parties from any liability which at the time of termination or expiry has already accrued to the other Party, nor affect in any way the survival of any other right, duty or obligation of the Parties which is expressly stated elsewhere in this Agreement to survive such termination or expiry.
23.	CONFIDENTIALITY
23.1	The Parties, their Affiliates and their respective employees, directors, officers, consultants and contractors shall keep and maintain as confidential any Confidential Information supplied by the other Party prior to the Effective Date or during the Term. The confidentiality and non-disclosure obligations contained in this Agreement shall not apply to the extent that such Confidential Information is:

*** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 27

	(a)	at the time of disclosure by one Party to the other, in the public domain or otherwise publicly known;
	(b)	after disclosure by one Party to the other becomes part of the public domain, other than by breach of any obligation of confidentiality;
	(c)	information which the receiving Party can establish by documentary evidence was already in its possession at the time of receipt or was independently developed by the receiving Party; or
	(d)	received from a Third Party who was lawfully entitled to disclose such information.
23.2	Notwithstanding clause 23.1, the Party receiving Confidential Information may disclose such Confidential Information:
	(a)	to governmental or other regulatory agencies in order to file patent applications or prosecute such applications to grant, provided that, the disclosure is limited to the extent reasonably required; provided that this sub-clause (a) shall only be applicable to Confidential Information of DESITIN received by ZOGENIX as it relates to Licensed Technology; or
	(b)	to government or other Regulatory Authorities in order to file or prosecute any applications for Marketing Authorisations or other permits reasonably required to research, develop, manufacture, use, distribution, sale or supply the Licensed Product, provided that the disclosure is limited to the extent reasonably required and is consistent with the rights of the Party under this Agreement; or
	(c)	to the extent that such disclosure has been ordered by a court of law or directed by a governmental body or authority in an enforceable decision, provided that, the Confidential Information may be disclosed only to the extent so ordered or directed and wherever practicable, the Party that owns the Confidential Information has been given sufficient written notice in advance to enable it to seek protection or confidential treatment of such Confidential Information.
23.3	Neither Party shall disclose any information about this Agreement without the prior written consent of the other. However, the Parties intend to announce the execution and delivery of this Agreement promptly following such execution and delivery pursuant to the form of press release attached to this Agreement as Exhibit 23.3. Consent shall not be required, however, for (a) disclosures to tax authorities or to bona fide potential sub-licensees, to the extent required or contemplated by this Agreement, provided, that in connection with such disclosure, each Party agrees to use its commercially reasonable efforts to secure confidential treatment of such information; (b) disclosures of information for which written consent has previously been obtained, or (c) information which had previously been publicly disclosed, including pursuant to the press release described above. Each Party shall have the further right to disclose the terms of this Agreement as required by applicable law, including the rules and

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 28

	regulations promulgated by the Securities and Exchange Commission and/or the regulatory bodies/authorities governing securities issues in foreign jurisdictions and to disclose such information to stockholders or potential investors as is customary, provided the disclosing Party provides to the other Party, to the extent practicable, a copy of the information to be disclosed and an opportunity to comment thereon prior to such disclosure, and, to the extent practicable, consults within a reasonable time in advance of the proposed disclosure with the other on the necessity for the disclosure and the text of the proposed release. Any copy of this Agreement to be filed with the Securities and Exchange Commission shall be redacted to the reasonable satisfaction of both Parties; provided, however, in the event that the Securities and Exchange Commission objects to the redaction of any portion of the Agreement after the initial submission, the filing Party shall inform the other Party of the objections and shall in good faith respond to the objections in an effort to limit the disclosure required by the Securities and Exchange Agreement, but in any event the filing Party shall be free to include any portions of the Agreement it deems necessary to respond to the objections in any future filings.
24.	REPRESENTATIONS AND WARRANTIES
24.1	ZOGENIX and DESITIN each warrant that, as of the Effective Date:
	(a)	it is a company duly organised and existing and has the power and authority to enter into this Agreement;
	(b)	it has obtained all corporate authorisations required to enter into and perform its obligations under this Agreement;
	(c)	there are no agreements between it and any Third Party that conflict with this Agreement;
	(d)	no consent, approval, authorization or order of any court or governmental agency or body or Third Party is required for the execution and delivery by it of this Agreement;
	(e)	it has all rights necessary to perform its obligations under this Agreement, including the grant of rights by ZOGENIX hereunder; and
	(f)	this Agreement is valid and binding obligation enforceable against it in accordance with its terms and conditions.
24.2	ZOGENIX warrants that, as of the Effective Date:
	(a)	to the best of ZOGENIX’s knowledge, the sale and use of the Product does not infringe the Intellectual Property Rights of any Third Parties in the Territory and no court proceedings or other proceeding for infringement of Intellectual Property rights have been brought against ZOGENIX with respect to the Product in the Territory;
	(b)	to the best of ZOGENIX’s knowledge, no Third Party is infringing or has infringed any of ZOGENIX’s Intellectual Property Rights in the Licensed Technology in the Territory or has misappropriated any of the Licensed Know How in the Territory.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 29

25.	FORCE MAJEURE
25.1	Neither Party shall be entitled to terminate this Agreement or shall be liable to the other under this Agreement for loss or damages attributable to any Force Majeure, provided the Party affected shall give prompt notice thereof to the other Party. The Party giving such notice shall be excused from such of its obligations hereunder for so long as it continues to be affected by Force Majeure.
25.2	If such Force Majeure continues unabated for a period of at least [***] ([***]) days, the Parties will meet to discuss in good faith what actions to take or what modifications should be made to this Agreement as a consequence of such Force Majeure in order to alleviate its consequences on the affected Party.
26.	NOTICES
26.1	Any notice or other document given under this Agreement shall be in writing in the English language and shall be given by hand or sent by internationally recognized overnight courier, by fax transmission to the address of the receiving Party as set out in Clause 26.3 below unless a different address or fax number has been notified to the other in writing for this purpose.
26.2	Each such notice or document shall:
	(a)	if given by hand, be deemed to have been given when delivered at the relevant address;
	(b)	if sent by internationally recognized overnight courier, be deemed to have been given two (2) Business Days following delivery to such overnight courier; and
	(b)	if sent by fax transmission, be deemed to have been given when transmitted provided that a confirmatory copy of such facsimile transmission shall have been given by hand or sent by internationally recognized overnight courier as set forth herein.
26.3	The address for services of notices and other documents on the Parties shall be:

To DESITIN		To ZOGENIX
Name:	Desitin Arzneimittel GmbH	Name:	Zogenix, Inc.
Attn.:	Dr. Martin Zentgraf	Attn.:	Chief Financial Officer
Address:	Weg beim Jänger 21422335 Hamburg, Germany	Address:	11682 El Camino Real Suite 320 San Diego, CA 92130, USA
Fax:	0049 40 59 101 366	Fax:	001 858 259 1166
E-Mail:	zentgraf@desitin.de	E-Mail:	dnassif@zogenix.com

*** Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 30

27.	ASSIGNMENT
27.1	Neither Party shall assign any of its rights or obligations under this Agreement to a Third Party without the prior written consent of the other, such consent not to be unreasonably withheld, conditioned or delayed. ZOGENIX may assign its rights and obligations under this Agreement, without the prior written consent of DESITIN, to any Third Party purchaser of all or substantially all of the assets or business to which this Agreement relates.
27.2	Either Party may at any time assign any of its rights under this Agreement to an Affiliate, provided however, that such Party remains fully liable for the performance of such Party’s obligations hereunder by such Affiliate; provided further that any rights assigned by DESITIN to an Affiliate shall be immediately reassigned to DESITIN or assigned to an Affiliate of DESITIN if the assignee ceases to be an Affiliate.
27.3	Either Party may at any time engage a contract research organisation to manage any non-clinical or clinical studies required under or in connection with the Marketing Authorisation process.
27.4	Any assignment in violation of this Clause 27 shall be null and void. This Agreement shall be binding on and shall inure to the benefit of the permitted successors and assigns of the Parties hereto.
28.	GENERAL PROVISIONS
28.1	The relationship of ZOGENIX and DESITIN established by this Agreement is of independent contractors, and nothing in this Agreement shall be construed: (1) to give either Party the power to direct or control the daily activities of the other Party, or (2) to constitute the Parties as principal and agent, partners, or otherwise as participants in a joint undertaking. ZOGENIX shall have no obligation or authority, express or implied, to exercise any control whatsoever over the employees or the business affairs of DESITIN. Except as specifically provided in this Agreement, DESITIN shall have no power or authority to make or give any representation or warranty or to incur any liability or obligation, or to waive any right, on ZOGENIX’s behalf.
28.2	Each of the Parties shall do execute and perform all such further acts, deeds documents and things as the other Party may reasonably require from time to time to give full effect to the terms of this Agreement.
28.3	Each Party shall pay its own costs, charges and expenses incurred in connection with the negotiation, preparation and completion of this Agreement.
28.4	This Agreement, its schedules and the agreements contemplated herein (particularly the Pharmacovigilance Agreement and the Manufacturing Agreement) set out the entire agreement and understanding between the Parties in respect of the subject matter of this Agreement and supersede any heads of agreement which shall cease to have any further force or effect.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 31

28.5	No variation of this Agreement, including this Clause 28.5, shall be valid unless it is in writing and signed by or on behalf of both Parties.
28.6	If and to the extent that any provision of this Agreement is held to be illegal, void or unenforceable, such provision shall be given no effect and shall be deemed not to be included in this Agreement but without invalidating any of the remaining provisions of this Agreement.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 32

28.7 This Agreement and the obligations of the Parties shall be governed by and construed in accordance with the substantive laws of England to the exclusion of the United Nations Convention on the International Sale of Goods.

SIGNED for and by behalf of
DESITIN Arzneimittel GmbH	_/s/	Dr. Martin Zentgraf	3/14/08
	Dr. Martin Zentgraf		Date
	General Manager
	_/s/	Dr. Harald Jainta	3/14/08
	Dr. Harald Jainta		Date
	Director Business Development
SIGNED for and by behalf of
ZOGENIX, INC.	/s/ Roger L. Hawley		3/14/08
	Roger L. Hawley		Date
	CEO

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 33

Appendix 1

PRODUCT SPECIFICATION

sumatriptan DosePro is a sterile, pre-filled, single-use, disposable, needle-free subcutaneous delivery system delivering sumatriptan injection.  sumatriptan DosePro consists of the following components: a gray plastic handle and snap-off tip, a green lever, and a glass medication chamber that is pre-filled with 6 mg/0.5 mL sumatriptan injection.  Utilizing pressure from a compressed nitrogen gas source in the handle, sumatriptan DosePro delivers the medication by pushing it through a small, precise hole in the glass medication chamber.  The resulting stream of medication is propelled through the skin and is delivered subcutaneously without a needle, following a unique biphasic pressure profile.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 34

Appendix 2

LICENSED PATENTS

[***]

Nine (9) pages have been omitted pursuant to a request for confidential treatment.

*** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 35

Appendix 3

Clinical Supply Terms

Pursuant to the terms of this Appendix 3, ZOGENIX shall supply DESITIN with its requirements for Clinical Trial Materials solely for use in clinical trial activities in the Territory in support of Marketing Authorisation for the Product in the Territory (“Development”).  Clinical Trial Materials supplied by ZOGENIX shall be provided at the prices set forth in Clause 8 of the Agreement or at such other transfer prices as the parties may mutually agree.

DESITIN shall place its first order for Clinical Trial Materials no later than [***] ([***]) months following the Effective Date, to be delivered no later than additional [***] ([***]) months thereafter.  DESITIN shall place subsequent orders for Clinical Trial Materials at least [***] ([***]) months prior to the desired delivery date.   ZOGENIX will use Reasonable Commercial Efforts to meet DESITIN’s requested quantities and delivery dates.  ZOGENIX shall notify DESITIN of the specific delivery date and quantity for each subsequent order no later than [***] ([***]) months following receipt of DESITIN’s order by ZOGENIX.

DESITIN acknowledges and agrees that ZOGENIX will manufacture Clinical Trial Materials or will enter into a contractual relationship with one or several manufacturers for the Clinical Trial Materials. Such Third Party manufacturers shall manufacture Clinical Trial Materials on ZOGENIX’s behalf in accordance with applicable law in the Territory.

Any Clinical Trial Materials supplied by ZOGENIX hereunder shall be manufactured:  (a) in accordance with cGMP; (b) in compliance with the Product Specification; and (c) in compliance with all applicable and relevant national and local laws, rules and regulations, including those promulgated by any relevant Regulatory Authority.

Clinical Trial Materials shall be supplied by ZOGENIX to DESITIN as finished products ready for final packing and labelling as required in each country of the Territory (DESITIN will be responsible for such items as set forth in Clause 7.3 of the Agreement as well as quality control, in each case at its own expense). Each shipment of Clinical Trial Materials shall be accompanied by the corresponding analytical certificate attesting to compliance with the Product Specification. Clinical Trial Materials shall be placed at DESITIN’s disposal EXW (Incoterms 2000) ZOGENIX’s manufacturing facility.

*** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Licensing & Distribution Agreement between Zogenix & Desitin as of March 14, 2008 Page 36

Exhibit 23.3

Form of Press Release

Zogenix Licenses European Development and Commercial Rights for

sumatriptan DosePro™ to Desitin Pharmaceuticals, GmbH

SAN DIEGO, CA (March XX, 2008):  Zogenix, Inc. (“Zogenix”), a private, specialty pharmaceutical company, today announced that it has entered into a license agreement to grant exclusive rights in the European Union to Desitin Pharmaceuticals, GmbH (“Desitin”) to develop and commercialize Zogenix’s late stage, single use, needle-free product candidate for migraine headache, sumatriptan DosePro. The product candidate, that incorporates the Zogenix DosePro needle-free drug delivery technology, has previously demonstrated bioequivalence to the Imitrex STATdose System® (sumatriptan injection, GlaxoSmithKline) in a U.S. pivotal clinical trial and compelling ease-of-use in a usability trial with migraine sufferers. 

Under the terms of the agreement, Desitin will oversee, and be responsible for the expenses related to, all clinical development, regulatory approvals and commercialization efforts required to market and sell sumatriptan DosePro across Europe.  Zogenix will be responsible for the manufacture and supply of commercial product, and will receive a transfer price payment on manufactured product and royalty payments based on sales of the product upon commercialization.  Zogenix retains full commercial rights to sumatriptan DosePro in the U.S., Canada, Asia and certain other countries.

Sales of triptans, the class of drugs in which sumatriptan DosePro is expected to compete, total approximately $550 million annually in the five major countries of Europe: Germany, France, Italy, Spain, and the UK, according to IMS Health MIDAS.  "Triptans remain the standard of care in migraine treatment,” commented Dr. Stephen Farr, President and Chief Operating Officer of Zogenix.  “However, there remains a significant unmet medical need for more effective, easy-to-use triptans that can deliver on the promise of providing faster onset and more complete pain relief without the use of a needle.  Sumatriptan DosePro is designed to meet these needs.”

“This license agreement expands the potential reach for sumatriptan DosePro beyond the U.S., where, subject to regulatory approval, Zogenix is preparing to commercialize sumatriptan DosePro ourselves,” said Roger Hawley, Chief Executive Officer of Zogenix.  “In Desitin, we have chosen a European partner that has a proven track record of successfully developing, registering and commercializing central nervous system (CNS) products.  We look forward to seeing sumatriptan DosePro advance through these steps and launch in the European marketplace.”

“This agreement reflects the unique and well respected position Desitin holds in the European CNS market.  We have the ability to both move this product candidate through the European regulatory process and to launch it with our CNS-focused sales representatives in more than nine countries,” commented Dr. Martin Zentgraf, Desitin’s General Manager.  “This product candidate fits with our ongoing commitment to develop improved products that address unmet medical needs in the CNS market.  We are delighted to be working with Zogenix and, subject to regulatory approval, look forward to bringing this important product candidate to the market for the benefit of patients.”

About Zogenix

Zogenix, Inc., with offices in Emeryville and San Diego, CA, is a private, specialty pharmaceutical company with two proprietary product candidates in late-stage development for the treatment of central nervous system disorders and pain. The company's lead product candidate, sumatriptan DosePro (previously Intraject®), enables needle-free subcutaneous delivery of sumatriptan for the treatment of acute migraine. In December 2007, Zogenix submitted a New Drug Application with the U.S. Food and Drug Administration for sumatriptan DosePro. Zogenix’s second product candidate, ZX002, is a novel controlled release formulation of hydrocodone for the treatment of chronic pain. This product candidate has completed Phase 2 clinical trials, and the company anticipates initiating the Phase 3 clinical program in the second half of 2008.  The company also plans to license the patented DosePro drug delivery system to other companies.  For additional information, visit www.zogenix.com.

About Desitin

Desitin Arzneimittel GmbH, based in Hamburg, Germany is an independent, private, fully integrated, German pharmaceutical company focused on the development, manufacturing and distribution of products for the treatment of central nervous system disorders.  Desitin, with turnover in 2005/2006 of over $100 million, is one of the leading European companies in the field of epilepsy with additional expertise in Parkinson’s disease and psychiatric disorders. With their pharmaceutical and clinical development capabilities, the company develops innovative products such as controlled-release and high-dose antiepileptics.  Desitin’s sales infrastructure offers comprehensive coverage in Germany, Northern and Eastern Europe. The company also has strategic partnerships with other companies covering nearly all of the remaining countries in Europe.  For additional information, visit  www.desitinpharma.com   

Bourne Partners, Charlotte N.C., acted as financial advisors to Desitin on this transaction.

Zogenix™, DosePro™ and INTRAJECT® are trademarks of Zogenix, Inc.

Imitrex STATdose System® is a registered trademark of GlaxoSmithKline. 

###

CONTACTS:

Zogenix, Inc.

J.D. Haldeman,

VP, Commercial Strategy &

Corporate Communications

858.436.8595

jdhaldeman@zogenix.com 

Desitin Pharmaceuticals GmbH

Dr. Harald Jainta,

Director Business Development

Jainta@desitin.de

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 3, 2008, in Amendment No. 2 to the Registration Statement (Form S-1 Registration No. 333-149846) and related Prospectus of Zogenix, Inc. to be filed with the Securities and Exchange Commission for the registration of its shares of common stock.

/s/ Ernst & Young LLP

San Diego, California
June 13, 2008

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Exhibit 23.1

EX-24.2

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Exhibit 24.2

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Roger L. Hawley and David W. Nassif, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the Registration Statement on Form S-1 (SEC File No. 333-149846), and to sign any registration statement for the same offering covered by such Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Signature	Title	Date
/s/ Erle T. Mast
	Director	June 18, 2008
Erle T. Mast

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Exhibit 24.2

POWER OF ATTORNEY