10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

___________________________________________

FORM 10-Q

___________________________________________

(Mark One)

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

For the quarterly period ended June 30, 2013

OR

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

For the transition period from              to             

Commission file number: 001-34962

___________________________________________

Zogenix, Inc.

(Exact Name of Registrant as Specified in its Charter)

____________________________________________

Delaware	20-5300780
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
12400 High Bluff Drive, Suite 650 San Diego, California	92130
(Address of Principal Executive Offices)	(Zip Code)

858-259-1165

(Registrant’s Telephone Number, Including Area Code)

____________________________________________

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

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

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

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of August 1, 2013 was 102,354,402.

ZOGENIX, INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2013

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1	Consolidated Financial Statements:
	Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012	3
	Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2013 and 2012 (unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited)	5
	Notes to the Consolidated Financial Statements (unaudited)	6
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3	Quantitative and Qualitative Disclosures about Market Risk	27
Item 4	Controls and Procedures	27
PART II. OTHER INFORMATION
Item 1	Legal Proceedings	28
Item 1A	Risk Factors	28
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3	Defaults Upon Senior Securities	45
Item 4	Mine Safety Disclosures	45
Item 5	Other Information	45
Item 6	Exhibits	46

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Zogenix, Inc.

Consolidated Balance Sheets

(In Thousands)

	June 30, 2013			December 31, 2012
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	16,121		$	41,228
Trade accounts receivable, net	4,138			5,643
Inventory, net	13,185			12,886
Prepaid expenses and other current assets	2,044			2,254
Total current assets	35,488			62,011
Property and equipment, net	13,414			13,561
Other assets	4,496			5,114
Total assets	$	53,398		$	80,686
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	6,337		$	4,592
Accrued expenses	12,052			14,343
Common stock warrant liabilities	12,488			9,493
Accrued compensation	2,518			4,226
Total current liabilities	33,395			32,654
Long-term debt, less current portion	28,638			28,481
Other long-term liabilities	7,452			5,078
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock	101			101
Additional paid-in capital	347,592			343,763
Accumulated deficit	(363,780		)	(329,391		)
Total stockholders’ equity (deficit)	(16,087		)	14,473
Total liabilities and stockholders’ equity (deficit)	$	53,398		$	80,686

See accompanying notes.

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Zogenix, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In Thousands, except Per Share Amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenue:
Net product revenue	$	8,942		$	8,030		$	15,924		$	17,915
Contract revenue	—			—			—			8,462
Total revenue	8,942			8,030			15,924			26,377
Operating expenses:
Cost of sales	4,630			4,167			8,789			9,229
Royalty expense	338			315			620			672
Research and development	3,577			6,381			6,814			12,345
Selling, general and administrative	12,000			12,068			26,482			26,717
Restructuring	876			—			876			—
Total operating expenses	21,421			22,931			43,581			48,963
Loss from operations	(12,479		)	(14,901		)	(27,657		)	(22,586		)
Other income (expense):
Interest income	3			10			11			29
Interest expense	(1,595		)	(2,589		)	(3,208		)	(5,267		)
Change in fair value of warrant liabilities	1,264			(91		)	(2,995		)	(42		)
Change in fair value of embedded derivatives	(480		)	330			(562		)	368
Other income (expense)	(45		)	72			22			42
Total other income (expense)	(853		)	(2,268		)	(6,732		)	(4,870		)
Net loss before income taxes	(13,332		)	(17,169		)	(34,389		)	(27,456		)
Provision for income taxes	—			—			—			(5		)
Net loss	$	(13,332	)	$	(17,169	)	$	(34,389	)	$	(27,461	)
Net loss per share, basic and diluted	$	(0.13	)	$	(0.26	)	$	(0.34	)	$	(0.42	)
Weighted average shares outstanding, basic and diluted	100,876			65,449			100,843			65,409
Comprehensive loss	$	(13,332	)	$	(17,169	)	$	(34,389	)	$	(27,461	)

See accompanying notes.

4

Zogenix, Inc.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

	Six Months Ended June 30,
	2013			2012
Operating activities:
Net loss	$	(34,389	)	$	(27,461	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	3,364			2,794
Stock-based compensation, restructuring	201			—
Depreciation and amortization	945			790
Amortization of debt issuance costs and non-cash interest	276			797
Change in fair value of warrant liabilities	2,995			42
Change in fair value of embedded derivatives	562			(368		)
Changes in operating assets and liabilities:
Trade accounts receivable	1,505			19
Inventory, net	(299		)	1,237
Prepaid expenses and other current assets	210			(260		)
Other assets	498			(426		)
Accounts payable and accrued expenses	(584		)	1,832
Restructuring liabilities	146			—
Deferred revenue	—			(8,462		)
Net cash used in operating activities	(24,570		)	(29,466		)
Investing activities:
Purchases of property and equipment	(798		)	(291		)
Net cash used in investing activities	(798		)	(291		)
Financing activities:
Proceeds from revolving credit facility	—			9,899
Payments on borrowings of debt	—			(15,040		)
Proceeds from exercise of common stock options	—			2
Proceeds from issuance of common stock and common stock warrants	261			345
Net cash provided by (used in) financing activities	261			(4,794		)
Net decrease in cash and cash equivalents	(25,107		)	(34,551		)
Cash and cash equivalents at beginning of period	41,228			56,525
Cash and cash equivalents at end of period	$	16,121		$	21,974

See accompanying notes.

5

Zogenix, Inc.

Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

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

The Company was incorporated in the state of Delaware on May 11, 2006 as SJ2Therapeutics, Inc. and commenced operations on August 25, 2006. On August 28, 2006, the Company changed its name to Zogenix, Inc.

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through equity financings, debt financings, revenues from the sale of its product Sumavel DosePro and proceeds from business collaborations. As the Company continues to incur losses, successful transition to profitability is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. This may not occur and, unless and until it does, the Company will continue to need to raise additional cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

Management expects operating losses and negative cash flows to continue for at least the next several years as the Company continues to incur costs related to the continued development of its product candidates and commercialization of its approved product. Management may pursue additional opportunities to raise additional capital through public or private equity offerings, including through a controlled equity offering program, debt financings, receivables financings or through collaborations or partnerships with other companies to further support its planned operations. There can be no assurance that the Company will be able to obtain any source of financing on acceptable terms, or at all. If the Company is unsuccessful in raising additional required funds, it may be required to significantly delay, reduce the scope of or eliminate one or more of its development programs or its commercialization efforts, or cease operating as a going concern. The Company also may be required to relinquish, license or otherwise dispose of rights to product candidates or products that it would otherwise seek to develop or commercialize itself on terms that are less favorable than might otherwise be available.

On March 27, 2013, the Company entered into a controlled equity offering sales agreement, or the sales agreement, with Cantor Fitzgerald & Co., or Cantor, as sales agent, under which the Company can issue and sell shares of its common stock having an aggregate offering price of up to $25.0 million from time to time through Cantor. The sales of common stock made under the controlled equity offering sales agreement will be made in “at-the-market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended, or the Securities Act. The Company did not complete the issuance of any shares of its common stock pursuant to the sales agreement during the three months ended June 30, 2013. Subsequent to June 30, 2013, and through August 7, 2013, the Company agreed to issue 3.0 million shares of its common stock pursuant to the sales agreement at an average stock issuance price of $1.66 per share, resulting in net proceeds of approximately $4.9 million. As of August 7, 2013, the Company had the capacity to issue up to $20.0 million in shares of its common stock under the sales agreement. However, there can be no assurance that Cantor will be successful in consummating further sales based on prevailing market conditions or in the quantities or at the prices that management deems appropriate.

2. Summary of Significant Accounting Policies

Financial Statement Preparation and Use of Estimates

The unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared by Zogenix, Inc. according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted.

In the opinion of management, the accompanying unaudited consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited consolidated financial statements should be read in conjunction with the audited financial

6

statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on March 15, 2013.

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

The Company has monitored actual product return history for Sumavel DosePro since product launch. Based on the Company's product returns analysis, which considers actual product returns on an individual product lot basis, and factors such as the dating of the Company's product at the time of shipment into the distribution channel, prescription trends and changes in the estimated levels of inventory within the distribution channel, the Company increased its estimate for product returns, resulting in an adjustment of $1,226,000, which decreased net product sales in the first quarter of 2013.

Principles of Consolidation

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

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and accrued compensation included in the Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value. The liability for the annual tail payments due to Astellas Pharma US, Inc. (Astellas) (see Note 4) for the termination of the Company’s co-promotion agreement was measured at fair value in December 2011 using a present value technique, which incorporated the Company’s own credit risk as measured by the most recent round of debt financing with Healthcare Royalty Partners (Healthcare Royalty) (formerly Cowen Healthcare Royalty Partners II, L.P.).

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

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company classifies its cash equivalents within Level 1 of the fair value hierarchy because it values our cash equivalents using quoted market prices. The Company classifies its common stock warrant liabilities and embedded derivative liabilities within Level 3 of the fair value hierarchy because they are valued using valuation models with significant unobservable inputs. Assets and liabilities measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012 are as follows (in thousands):

7

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
At June 30, 2013
Assets
Cash equivalents(1)	$	13,415	—	—	$	13,415
Liabilities
Common stock warrant liabilities(2)	$	—	—	12,488	$	12,488
Embedded derivative liabilities(3)	$	—	—	1,554	$	1,554
At December 31, 2012
Assets
Cash equivalents(1)	$	37,605	—	—	$	37,605
Liabilities
Common stock warrant liabilities(2)	$	—	—	9,493	$	9,493
Embedded derivative liabilities(3)	$	—	—	992	$	992

(1) Cash equivalents are comprised of money market fund shares and are included as a component of cash and cash equivalents on the consolidated balance sheets.

(2) Common stock warrant liabilities include liabilities associated with warrants issued in connection with the Company's July 2012 public offering of common stock and warrants (see Note 6) and warrants issued in connection with the Healthcare Royalty financing agreement (see Note 4), which are measured at fair value using the Black-Scholes option pricing valuation model. The assumptions used in the Black-Scholes option pricing valuation model for both common stock warrant liabilities were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; and (d) given the Company’s lack of relevant historical data due to the Company’s limited historical experience, an expected volatility based upon the Company's historical volatility, supplemented with historical volatility of comparable companies whose share prices have been publicly available for a sufficient period of time. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the Healthcare Royalty financing agreement is the expected volatility. Significant increases in volatility would result in a higher fair value measurement. The following additional assumptions were used in the Black-Scholes option pricing valuation model to measure the fair value of the warrants sold in the July 2012 public offering: (a) management’s projections regarding the probability of the occurrence of an extraordinary event that would require cash settlement of the warrants; and for the valuation scenario in which an extraordinary event occurs, (b) a volatility rate equal to the lesser of 40% and the 180-day volatility rate obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of an extraordinary transaction. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering is the expected volatility and probability of the occurrence of an extraordinary event. Significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement.

(3) Embedded derivative liabilities measured at fair value using various discounted cash flow valuation models are included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models include: (a) management’s revenue projections and a revenue sensitivity analysis based on possible future outcomes; (b) probability weighted net cash flows based on the likelihood of Healthcare Royalty receiving revenue interest payments over the term of the financing agreement; (c) probability of bankruptcy; (d) weighted average cost of capital that included the addition of a company specific risk premium to account for uncertainty associated with the Company achieving future cash flows; (e) the probability of a change in control occurring during the term of the Healthcare Royalty financing agreement; and (f) the probability of an exercise of the embedded derivative instruments. The significant unobservable inputs used in measuring the fair value of the embedded derivatives are management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement.

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The following table provides a reconciliation of liabilities measured at fair value using significant observable inputs (Level 3) for the six months ended June 30, 2013 (in thousands):

	Common Stock Warrant Liabilities		Embedded Derivative Liabilities
Balance at December 31, 2012	$	9,493	$	992
Changes in fair value	2,995		562
Balance at June 30, 2013	$	12,488	$	1,554

Changes in fair value of the liabilities shown in the table above are recorded through change in fair value of warrant liabilities and change in fair value of embedded derivatives in other income (expense) in the consolidated statements of operations and comprehensive loss.

Net Loss per Share

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

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Numerator
Net loss	$	(13,332	)	$	(17,169	)	$	(34,389	)	$	(27,461	)
Denominator
Weighted average common shares outstanding, basic and diluted	100,876			65,449			100,843			65,409
Basic and diluted net loss per share	$	(0.13	)	$	(0.26	)	$	(0.34	)	$	(0.42	)

The following table presents potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive (in thousands, of common equivalent shares):

	Three and Six Months Ended June 30,
	2013	2012
Common stock options and restricted stock units	1,710	6,171
	1,710	6,171

Segment Reporting

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

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued an Accounting Standards Update which requires entities to separately present amounts reclassified out of accumulated other comprehensive income (AOCI) for each component of AOCI and to disclose, for each affected line item in the income statement, the amount of AOCI that has been reclassified into that line item. For AOCI reclassification items that are not reclassified in their entirety into net income, it is acceptable to cross reference that amount to another footnote that provides the required disclosure. The updated guidance became effective for

9

fiscal and interim periods beginning after December 15, 2012. The Company adopted this guidance on January 1, 2013 and it did not have a material impact on the Company's results of operations.

3. Inventory, net (in thousands)

	June 30, 2013		December 31, 2012
Raw materials	$	3,517	$	4,867
Work in process	6,606		6,134
Finished goods	3,062		1,885
	$	13,185	$	12,886

4. Collaboration and Financing Agreements

Mallinckrodt LLC Co-Promotion Agreement

On June 6, 2012, the Company and Mallinckrodt LLC (Mallinckrodt) entered into a co-promotion agreement (the Co-Promotion Agreement). Under the terms of the Co-Promotion Agreement, Mallinckrodt was granted a co-exclusive right (with the Company) to promote Sumavel DosePro to a mutually agreed prescriber audience in the United States. Mallinckrodt’s sales team began selling Sumavel DosePro to its customer base of prescribers in August 2012. Mallinckrodt has committed to a minimum number of sales representatives for the initial term of the Co-Promotion Agreement, which runs through June 30, 2014, and can be extended by mutual agreement of the parties in additional six month increments. The Company remains responsible for the manufacture, supply and distribution of commercial product for sale in the United States. In addition, the Company will supply product samples to Mallinckrodt at an agreed upon transfer price and Mallinckrodt will reimburse the Company for all other promotional materials used.

In partial consideration of Mallinckrodt’s sales efforts, the Company pays Mallinckrodt a service fee on a quarterly basis that represents a specified fixed percentage of net sales of prescriptions generated from Mallinckrodt’s prescriber audience over a baseline amount of net sales to the same prescriber audience (the Baseline Net Sales). In addition, upon completion of the co-promotion term in June 30, 2014 (unless otherwise extended), and only if the Co-Promotion Agreement is not terminated as a result of certain circumstances, the Company will be required to pay Mallinckrodt an additional tail payment calculated as a fixed percentage of the Mallinckrodt net sales over the Baseline Net Sales during the first full 12 months following the last day of the term.

Mallinckrodt may terminate the Co-Promotion Agreement with sixty days’ notice in the event a material change is made to the net sales price of Sumavel DosePro that would result in a material adverse effect to Mallinckrodt’s financial return (as defined in the Co-Promotion Agreement). Mallinckrodt may also terminate the Co-Promotion Agreement if its request for the inclusion on its call list of a certain number of additional prescribers is not mutually agreed upon. Lastly, Mallinckrodt may terminate the Co-Promotion Agreement if a governmental authority takes action or raises an objection that prevents or would reasonably be expected to make it unlawful for Mallinckrodt to perform, or subject Mallinckrodt to any penalty or claim, investigation or similar action related to, its obligations under the Co-Promotion Agreement, in the event of Company’s inability to meet trade demand for commercial product or where a third party files an action alleging that the making or selling of Sumavel DosePro infringes the intellectual property rights of such third party.

The Company may terminate the Co-Promotion Agreement with sixty days’ notice if Mallinckrodt does not achieve an agreed-upon minimum sales effort. Either party may terminate the Co-Promotion Agreement if certain minimum net sales thresholds are not met for any quarter ending after December 31, 2012 or certain levels of prescriptions are not met in a specified period. In addition, either party may terminate the Co-Promotion Agreement related to safety concerns, in the event of a change of control of itself or the other party (excluding with respect to Mallinckrodt, any public spin-off of Mallinckrodt from its corporate parent Covidien plc), upon the introduction of a generic product, in connection with the material breach of the other party’s obligations or if a bankruptcy event occurs under certain circumstances.

Amounts payable to Mallinckrodt for service fees are reflected as selling, general and administrative expenses. For the three and six months ended June 30, 2013, the Company incurred $226,000 and $369,000, respectively, in service fee expenses under the Co-Promotion Agreement. The Company did not incur any service fee expenses under the Co-Promotion Agreement during the three and six months ended June 30, 2012.

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Astellas Pharma US, Inc. Co-Promotion Agreement

In July 2009, the Company entered into the co-promotion agreement with Astellas (Astellas Co-Promotion Agreement). Under the terms of the agreement, the Company granted Astellas the co-exclusive right (with the Company) to market and sell Sumavel DosePro in the United States until June 30, 2013. Under the Astellas Co-Promotion Agreement, both Astellas and the Company were obligated to collaborate and fund the marketing of Sumavel DosePro and to provide annual minimum levels of sales effort directed at Sumavel DosePro during the term. In December 2011, the Company entered into an amendment to the Astellas Co-Promotion Agreement, or the amended Astellas Co-Promotion Agreement, whereby the agreement terminated on March 31, 2012.

In connection with the execution of the Astellas Co-Promotion Agreement, Astellas made a non-refundable up-front payment of $2,000,000 and made an additional $18,000,000 of payments to the Company upon the achievement of a series of milestones. In consideration for Astellas’ performance of its commercial efforts, the Company paid Astellas a service fee on a quarterly basis that represents a fixed percentage of between 45% and 55% of Sumavel DosePro net sales to primary care physicians, OB/GYNs, emergency medicine physicians, and urologists in the United States (Astellas Segment).

In accordance with accounting guidance for revenue arrangements with multiple deliverables, the Company initially recorded the $20,000,000 in upfront and milestone payments received from Astellas as deferred revenue. Beginning with the launch of Sumavel DosePro in January 2010, the Company began amortizing the upfront and milestone payments as contract

revenue in the consolidated statement of operations and comprehensive loss over the term of the Astellas Co-Promotion Agreement. Upon termination of the Astellas Co-Promotion Agreement, the Company concluded that the remaining deferred revenue balance should be recognized ratably through the amended term of the agreement, and consequently, the remaining $8,462,000 of these deferred contract revenues as of December 31, 2011 was recognized as contract revenue during the three months ended March 31, 2012.

The Company is required to make two annual tail payments to Astellas, calculated as decreasing fixed percentages of net sales in the Astellas Segment in the last 12 months of its active promotion. The value of such tail payments was estimated at a total of $5,291,000 based upon the agreement termination date of March 31, 2012, and recorded as a long-term liability on the amendment date of December 20, 2011. The fair value of the tail payments is being accreted through interest expense through the dates of payment in July 2013 and July 2014. As of June 30, 2013 and December 31, 2012, the tail payment liability was $3,082,000 and $2,795,000 (including the service fee reduction discussed below), respectively. The first tail payment of $2,032,000, which was made in July 2013, was included in accounts payable as of June 30, 2013. During the three months ended June 30, 2013 and 2012, $146,000 and $164,000 of related interest expense was recognized, respectively, and $287,000 and $321,000 of related interest expense was recognized during the six months ended June 30, 2013 and 2012, respectively.

Further, under the terms of the amended Astellas Co-Promotion Agreement, Astellas contributed its agreed upon portion of marketing expenses through March 31, 2012, and continued to earn a service fee based on product sales to the Astellas Segment during that period. As of April 1, 2012, the Company was no longer required to pay service fees to Astellas for sales of Sumavel DosePro. Additionally, beginning in the second quarter of 2012, the Company’s sales force assumed full responsibility for the commercialization and the continued marketing of Sumavel DosePro, expanding their focus to include headache specialists, neurologists and primary care physicians in the United States. Amounts received from Astellas for shared marketing costs and sample product are reflected as a reduction of selling, general and administrative expenses, and amounts payable to Astellas for shared marketing expenses and service fees are reflected as selling, general and administrative expenses, inclusive of the estimated cost of the tail payments owed upon the termination of the agreement.

In August 2012, the Company and Astellas completed a final reconciliation under the terms of the Astellas Co-Promotion Agreement and agreed to adjust the service fees paid to Astellas over the term of the Astellas Co-Promotion Agreement, resulting in a service fee reduction of $1,500,000, which offsets the two annual tail payments, and a reduction to the annual tail payment liability of $742,000. The present value of the service fee receivable and tail payment reduction of $1,924,000 was recorded as a reduction in selling, general and administrative expenses during the twelve months ended December 31, 2012, and an offset to the tail payment liability. The fair value of the service fee receivable and tail payment reduction for each of the tail payments will be accreted through interest expense through the dates of the two tail payments in July 2013 and July 2014.

For the three and six months ended June 30, 2013 and 2012, the Company recognized shared marketing expense of $0 and $56,000, and $0 and $253,000, respectively, under the Astellas Co-Promotion Agreement.

For the three and six months ended June 30, 2013 and 2012, and prior to the final reconciliation of service fees, the Company incurred $0 and $58,000, and $0 and $1,757,000, respectively, in service fee expenses.

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Valeant Pharmaceuticals North America LLC Co-Promotion Agreement

On June 27, 2013, the Company entered into a co-promotion agreement (the Valeant Agreement) with Valeant Pharmaceuticals North America LLC (Valeant). Under the terms of the Valeant Agreement, the Company was granted the exclusive right (with Valeant or any of its affiliates) to promote Migranal® (dihydroergotamine mesylate) Nasal Spray (Migranal) to a prescriber audience of physicians and other health care practitioners in the United States. Under the Valeant Agreement, the Company's sales team will begin selling Migranal to prescribers no later than August 26, 2013. The term of the Valeant Agreement will run through December 31, 2015 (unless otherwise terminated), and can be extended by mutual agreement of the parties in additional twelve month increments. Valeant remains responsible for the manufacture, supply and distribution of Migranal for sale in the United States. In addition, Valeant will supply the Company with a specified amount of product samples every six months, and the Company will reimburse Valeant for the cost of additional samples and any promotional materials ordered by the Company.

In partial consideration of the Company's sales efforts, Valeant will pay the Company a co-promotion fee on a quarterly basis that represents specified percentages of net sales generated by the Company over defined baseline amounts of net sales (Baseline Forecast or Adjusted Baseline Forecast). In addition, upon completion of the co-promotion term, and only if the Valeant Agreement is not terminated by Valeant due to a bankruptcy event (as defined in the Valeant Agreement) or a material failure by the Company to comply with its material obligations under the Valeant Agreement, Valeant will be required to pay the Company an additional tail payment calculated as a fixed percentage of the Company's net sales over the Baseline Forecast (or Adjusted Baseline Forecast) during the first full six months following the last day of the term.

The Company may terminate the Valeant Agreement in the event of a Valeant supply failure (as defined in the Valeant Agreement) or material product recall, or if the net sales price in a fiscal quarter is less than a specified percentage of the net sales price in the immediately preceding quarter, if the reduction in such net sales price would have a material adverse effect on the Company's financial return as a result of performance of its obligation under the Valeant Agreement.

Either party may terminate the Valeant Agreement with six months' notice, provided that neither party may provide notice of termination before January 1, 2014. Either party may terminate the Valeant Agreement with 30 days' prior notice if the Company's net sales within a fiscal quarter fall below the Baseline Forecast (or Adjusted Baseline Forecast) for one or more fiscal quarters, or following the commercial introduction of a generic product to Migranal promoted or otherwise commercialized by a third party in the United States. In addition, either party may terminate the Valeant Agreement in the event of a change of control of itself or the other party (upon 90 days' prior written notice), upon any action taken or objection raised by governmental authority that prevents either party from performing its obligations under the Valeant Agreement, upon the filing of an action alleging patent infringement, in connection with the material breach of the other party's material obligations, or if a bankruptcy event of the other party occurs.

Healthcare Royalty Financing Agreement

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

In addition, upon the closing of and in connection with the Financing Agreement, the Company issued and sold to Healthcare Royalty $1,500,000 of the Company’s common stock, or 388,601 shares, at a price of $3.86 per share. The Company also issued to Healthcare Royalty a warrant exercisable for up to 225,000 shares of the Company’s common stock. The warrant is exercisable at $9.00 per share and has a term of 10 years. As the warrant contains covenants where compliance with such covenants may be outside the control of the Company, the warrant was recorded as a current liability and marked to market at each reporting date using the Black-Scholes option pricing valuation model (see Note 2).

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

• 5% to 5.75% of the first $75,000,000 of Revenue Interest recorded (in the case of net product sales) or received (in the case of co-promotion revenues and license fees) by the Company in a calendar year (initially 5% and then 5.75% after the co-promotion agreement with Astellas terminated on March 31, 2012);

• 2.5% of the next $75,000,000 of Revenue Interest recorded (in the case of net product sales) or received (in the case of co-promotion revenues and license fees) by the Company in a calendar year; and

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• 0.5% of Revenue Interest over and above $150,000,000 recorded (in the case of net product sales) or received (in the case of co-promotion revenues and license fees) by the Company in a calendar year.

Net sales of Sumavel DosePro outside the United States are only included in the Revenue Interest if such net sales exceed $10,000,000. Once the aggregate payments, including the fixed payments described below, made by the Company to Healthcare Royalty equal $75,000,000, the percentage of Revenue Interest owed to Healthcare Royalty is reduced to 0.5% for the remainder of the term of the Financing Agreement, with only Sumavel DosePro and Zohydro ER subject to the Revenue Interest payments thereafter. The Company is also obligated to make three fixed payments of $10,000,000 on (or before at the option of the Company) each of January 31, 2015, January 31, 2016 and January 31, 2017. Unless terminated as discussed below, the Financing Agreement terminates on March 31, 2018.

As security for the payment of the Company's obligations under the Financing Agreement, the Company also entered into a security agreement whereby the Company granted to Healthcare Royalty a security interest in all assets of the Company, including intellectual property and other rights of the Company to the extent necessary or used to commercialize the Company products. Healthcare Royalty entered into an intercreditor agreement under which its security interest was junior to the security interest of the lenders under the Company’s $25.0 million loan and security agreement. The intercreditor agreement terminated on July 30, 2012 when the Company terminated its $25.0 million loan and security agreement. Healthcare Royalty’s security interest will be extinguished at the end of the term or once the aggregate payments made by the Company to Healthcare Royalty equal to $75,000,000, whichever is sooner. The Company has agreed to specified positive and negative covenants in connection with the Financing Agreement.

The Company has the option to terminate the Financing Agreement at the Company’s election in connection with a change of control of the Company, upon the payment of a base amount of $52,500,000, or, if higher, an amount that generates a 19% internal rate of return on the Borrowed Amount as of the date of prepayment, in each case reduced by the Revenue Interest and principal payments received by Healthcare Royalty up to the date of prepayment.

Healthcare Royalty has the option to terminate the Financing Agreement at its election in connection with a change of control of the Company (which includes the sale, transfer, assignment or licensing of the Company’s rights in the United States to either Sumavel DosePro or Zohydro ER), or an event of default (which includes the occurrence of a bankruptcy event or other material adverse change in the Company’s business), as defined in the Financing Agreement. Upon such a termination by Healthcare Royalty, the Company is obligated to make a payment of a base amount of $45,000,000, or, if higher, an amount that generates a 17% internal rate of return on the Borrowed Amount as of the date of prepayment, in each case reduced by the Revenue Interest and principal payments received by Healthcare Royalty up to the date of prepayment.

The rights of the Company and Healthcare Royalty to terminate the Financing Agreement early, as well as the change in the Revenue Interest rate from 5% to 5.75% in connection with the early termination of the Astellas Co-Promotion Agreement, meet the definition of an embedded derivative. As a result, the Company carved out these embedded derivatives from the Financing Agreement and determined the fair value of each derivative using various discounted cash flow valuation models taking into account the probability of these events occurring and various scenarios surrounding the potential Revenue Interest payments that would be made if these events occurred (see Note 2). The aggregate fair value of the embedded derivatives as of June 30, 2013 and December 31, 2012 was $1,554,000 and $992,000, respectively, and is included in other long-term liabilities.

The Company received aggregate net proceeds of $29,485,000 from the Financing Agreement (including the purchase of common stock). The discounts, which are being amortized using the effective interest method over the term of the arrangement within interest expense, include the fair value of the common stock warrants issued to Healthcare Royalty of $790,000 upon the closing of the Financing Agreement, fees payable to Healthcare Royalty in connection with the execution of the arrangement of $476,000 and the fair value of embedded derivatives of $605,000 upon the closing of the Financing Agreement. The Company has recognized other income (expense) in relation to the change in the fair value of the Healthcare Royalty common stock warrant of $41,000 and $(91,000) for the three months ended June 30, 2013 and 2012, respectively, and $(35,000) and $(42,000) for the six months ended June 30, 2013 and 2012, respectively, in the statement of operations and comprehensive loss. The Company has recognized other (expense) income in relation to the change in the fair value of the Healthcare Royalty embedded derivatives of $(480,000) and $330,000 for the three months ended June 30, 2013 and 2012, respectively, and $(562,000) and $368,000 for the six months ended June 30, 2013 and 2012, respectively, in the statement of operations and comprehensive loss.

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Term Debt

In June 2008, the Company entered into a Loan and Security Agreement with Oxford and CIT Healthcare LLC (the Oxford Agreement) under which it borrowed $18,000,000. The obligations under the Oxford Agreement were collateralized by personal property excluding certain intellectual property and all equipment pledged to secure an equipment financing. In July and October 2010, the Company amended and restated the Oxford Agreement, and Oxford and Silicon Valley Bank (SVB) became party to the amended agreement. In June 2011, the Company again amended and restated the amended Oxford/SVB agreement (the Amended Oxford/SVB Agreement), which provided among other things, the addition of intellectual property to the collateral securing the Oxford/SVB loan and the deferral of principal repayment to commence on February 1, 2012.

The Amended Oxford/SVB Agreement consisted of a $25,000,000 term loan and a $10,000,000 revolving credit facility. The obligations under the Amended Oxford/SVB Agreement were collateralized by the Company’s intellectual property (including among other things, copyrights, patents, patent applications, trademarks, service marks and trade secret rights) and personal property (including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and cash). The $25,000,000 term loan bore an interest rate of 12.06% per annum. Under the terms of the revolving credit facility, $10,000,000 was available to be borrowed within a specified percentage of the Company’s eligible accounts receivable and inventory balances (as defined in the agreement). Amounts outstanding under the revolving credit facility accrued interest payable monthly at a floating rate per annum equal to the greater of 3.29% above SVB’s prime rate or 7.29%. In addition, the Company paid a monthly fee equal to 0.5% per annum of the average unused portion of the revolving credit facility.

On July 30, 2012, the Company exercised its right to terminate the Amended Oxford/SVB Agreement prior to the loan maturity date of January 2, 2014 and repaid $19,492,000 of outstanding principal and interest under the agreement. In addition to the repayment of all principal and interest outstanding, the Company was also required to make a final payment of $1,200,000 and a prepayment premium of $400,000, or 2% of the then outstanding principal. The Company also paid a $100,000 prepayment premium to terminate the revolving credit facility. As a result of the termination of the Amended Oxford/SVB Agreement, the lenders no longer have a security interest in the Company’s intellectual property and personal property.

5. Restructuring

In May 2013, the Company commenced a restructuring of its workforce, resulting in a reduction in force of 55 employees across all functional areas of the Company. During the three months ended June 30, 2013, the Company recorded restructuring charges of $876,000 consisting primarily of employee-related compensation charges. The following table summarizes the components of the restructuring charges for the three and six months ended June 30, 2013 (in thousands):

	Three and Six Months Ended June 30, 2013
	Accruals		Non-cash items		Total
Employee-related charges	$	663	$	201	$	864
Other restructuring charges	12		—		12
	675		201		$	876

The following table sets forth activity in the restructuring liability for the six months ended June 30, 2013, which is primarily comprised of employee severance costs (in thousands):

	Employee severance costs				Other restructuring charges			Total
Balance at December 31, 2012	$	—		—	$	—		$	—
Accruals	663				12			675
Payments	(519		)		(10		)	(529		)
Balance at June 30, 2013	144				2			$	146

The balance of the restructuring liability at June 30, 2013 is anticipated to be fully distributed by the end of 2013.

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6. Common Stock Warrants

In July 2012, in connection with a public offering of common stock and warrants, the Company sold warrants to purchase 15,784,200 shares of common stock (including over-allotment purchase). The warrants will be exercisable beginning on July 27, 2013 at an exercise price of $2.50 per share and will expire on July 27, 2017, which is 5 years from the date of issuance. As the warrants contain a cash settlement feature upon the occurrence of certain events that may be outside of the Company’s control, the warrants are recorded as a current liability and are marked to market at each reporting period (see Note 2). The fair value of the warrants was approximately $12,268,000 and $9,308,000 as of June 30, 2013 and December 31, 2012, respectively.

In July 2011, upon the closing of and in connection with the Financing Agreement (see Note 4), the Company issued to Healthcare Royalty a warrant exercisable into 225,000 shares of common stock. The warrant is exercisable at $9.00 per share of common stock and has a term of 10 years. As the warrant contains covenants where compliance with such covenants may be outside of the Company’s control, the warrant was recorded as a current liability and is marked to market at each reporting date (see Note 2). The fair value of the warrant was approximately $220,000 as of June 30, 2013 and $185,000 as of December 31, 2012.

In June 2011, and in connection with entering into the Amended Oxford/SVB Agreement (see Note 4), the Company issued to Oxford and SVB warrants exercisable into an aggregate of 26,455 shares of common stock. The warrants are exercisable at $3.78 per share of common stock and have a term of 7 years. The value of the warrants of approximately $76,000 was recorded as debt discount and additional paid in capital in the consolidated balance sheet as of December 31, 2011.

7. Stock-Based Compensation

The Company uses the Black-Scholes option-pricing model for determining the estimated fair value of stock-based compensation for stock-based awards to employees and the board of directors. The assumptions used in the Black-Scholes option-pricing model for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Risk free interest rate	1.2%		0.7% to 1.0%		0.8% to 1.2%		0.2% to 1.2%
Expected term	5.1 to 6.0 years		5.0 to 6.1 years		5.0 to 6.1 years		5.0 to 6.1 years
Expected volatility	84.5% to 85.6%		81.5% to 82.8%		84.5% to 87.9%		80.6% to 82.8%
Expected dividend yield	—	%	—	%	—	%	—	%

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

The Company recognized stock-based compensation expense as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of sales	$	63	$	47	$	108	$	76
Research and development	250		236		466		431
Selling, general and administrative	1,465		1,255		2,790		2,287
Restructuring	201		—		201		—
Total	$	1,979	$	1,538	$	3,565	$	2,794

As of June 30, 2013, there was approximately $15,029,000 of total unrecognized compensation costs related to outstanding options, which is expected to be recognized over a weighted average period of 2.9 years.

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

Forward-Looking Statements

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

• our ability to maintain and increase market demand for, and sales of, Sumavel DosePro;

• our ability to successfully execute our sales and marketing strategy for the commercialization of Sumavel DosePro;

• the progress and timing of clinical trials for Relday and our other product candidates;

• the potential for the FDA to approve the NDA for Zohydro ER despite the advisory committee's recommendation against approval;

• the 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 Zohydro ER or any other product candidates to the satisfaction of the FDA and such other agencies;

• adverse side effects or inadequate therapeutic efficacy of Sumavel DosePro that could result in product recalls, market withdrawals or product liability claims;

• the safety and efficacy of Zohydro ER and our other product candidates;

• the market potential for migraine treatments, and our ability to compete within that market;

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

• estimates of the capacity of manufacturing and other facilities to support our product and product candidates;

• our ability to ensure adequate and continued supply of Sumavel DosePro to successfully meet anticipated market demand;

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

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

• the impact of healthcare reform legislation; and

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

The forward-looking statements are contained principally in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Quarterly Report on Form 10-Q in greater detail under the heading “Item 1A – Risk Factors.”

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

DosePro^®, Intraject^®, Relday™, Sumavel^®, Zogenix™ and Zohydro™ ER are our trademarks. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Use or display by us of other parties’ trademarks, trade dress or products is not intended to and does not imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owner.

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

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The interim consolidated financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2012 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2012.

Overview

Background

We are a pharmaceutical company commercializing and developing products for the treatment of central nervous system disorders and pain. Our first commercial product, Sumavel^® DosePro^® (sumatriptan injection) Needle-free Delivery System, was launched in January 2010. Sumavel DosePro offers fast-acting, easy-to-use, needle-free subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache in a pre-filled, single-use delivery system. Sumavel DosePro is the first drug product approved by the U.S. Food and Drug Administration, or FDA, that allows for the needle-free, subcutaneous delivery of medication. We commercialize Sumavel DosePro through our internal sales and marketing organization and in collaboration with Mallinckrodt LLC, our co-promotion partner.

Our lead product candidate, Zohydro™ER (hydrocodone bitartrate, formerly ZX002) is a 12-hour extended-release formulation of hydrocodone without acetaminophen for the treatment of moderate to severe chronic pain requiring around-the-clock opioid therapy. We completed Phase 3 development of Zohydro ER in 2011, and we submitted the New Drug Application, or NDA, for Zohydro ER to the FDA in May 2012. In July 2012, the FDA accepted our NDA as being sufficiently complete for a full review and assigned a Prescription Drug User Fee Act, or PDUFA, target action date of March 1, 2013. In December 2012, an advisory committee convened by the FDA voted 11-2 (with 1 abstention) against the approval of Zohydro ER. The advisory committee provides the FDA with independent expert advice and recommendations; however, the final decision regarding approval is made by the FDA. In February 2013, the FDA informed us that we were unlikely to receive an action letter for our NDA for Zohydro ER by the PDUFA target action date of March 1, 2013. In the beginning of May 2013, the FDA informed us that they are preparing to take action on the Zohydro ER NDA in the summer of 2013. The FDA has not provided a reason for the delay and we have not been informed of any deficiencies in the NDA for Zohydro ER during the review process.

Sumavel DosePro and Zohydro ER, if approved, each have the potential to address significant unmet medical needs and become important and widely-used additions to the treatment options available to patients and physicians in the United States’ multi-billion dollar migraine and chronic pain markets, respectively.

We are also developing Relday™, a proprietary, long-acting injectable formulation of risperidone using Durect Corporation's SABER™ controlled-release formulation technology through a development and license agreement with Durect, or the Durect License Agreement. Risperidone is used to treat the symptoms of schizophrenia and bipolar disorder in adults and teenagers 13 years of age and older. If successfully developed and approved, we believe Relday may be the first once-monthly, subcutaneous antipsychotic product. In May 2012, we filed an investigational new drug, or IND, application with the FDA. In July 2012, we initiated our first IND clinical trial for Relday. This Phase 1 clinical trial was a single-center, open-label, safety and pharmacokinetic trial of 30 patients with chronic, stable schizophrenia or schizoaffective disorder. We announced positive single-dose pharmacokinetic results from the Phase 1 clinical trial on January 3, 2013. Based on the favorable safety and pharmacokinetic profile demonstrated with the 25 mg and 50 mg once-monthly doses tested in the Phase 1 trial, we extended the study to include an additional cohort of 10 patients at a 100 mg dose of the same formulation. We announced positive top-line results from the extended Phase 1 clinical trial on May 2, 2013. The results for the extended Phase 1 clinical trial showed risperidone blood concentrations in the therapeutic range were achieved on the first day of dosing and maintained throughout the one-month period. In addition, dose proportionality has now been established across the full dose range that would be anticipated to be used in clinical practice (50 to 100 mg). The positive results from this study extension position us to begin a multi-dose clinical trial, which would provide the required steady-state pharmacokinetic and safety data prior to initiating Phase 3 development studies, subject to our ability to secure a development and commercialization partner prior to initiation of the multi-dose trial.

The development of Relday will first focus on its delivery by conventional needle and syringe in order to allow the administration of different volumes of the same formulation of Relday by a healthcare professional. We anticipate that the introduction of our DosePro needle-free technology for administration of Relday can occur later in development or as part of life cycle management after further work involving formulation development, technology enhancements, and applicable regulatory approvals.

We have experienced net losses and negative cash flow from operating activities since inception, and as of June 30, 2013, had an accumulated deficit of $363.8 million. We expect to continue to incur net losses and negative cash flow from operating activities for at least the next several years primarily as a result of the expenses incurred in connection with our efforts in

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seeking marketing approval for Zohydro ER, any additional required clinical testing for Zohydro ER, the clinical development for Relday and the cost of the sales and marketing expense associated with Sumavel DosePro, and, if approved, Zohydro ER. As of June 30, 2013, we had cash and cash equivalents of $16.1 million.

On March 27, 2013, we entered into a controlled equity offering sales agreement with Cantor Fitzgerald & Co., or Cantor, as sales agent, under which we can issue and sell shares of our common stock having an aggregate offering price of up to $25.0 million from time to time through Cantor. The sales of common stock made under the controlled equity offering sales agreement will be made in “at-the-market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended, or the Securities Act. We did not complete the issuance of any shares of our common stock pursuant to the sales agreement during the three months ended June 30, 2013. Subsequent to June 30, 2013, and through August 7, 2013, we agreed to issue 3.0 million shares of our common stock pursuant to the sales agreement at an average stock issuance price of $1.66 per share, resulting in net proceeds of approximately $4.9 million. As of August 7, 2013, we had the capacity to issue up to $20.0 million in shares of our common stock under the sales agreement. However, there can be no assurance that Cantor will be successful in consummating further sales based on prevailing market conditions or in the quantities or at the prices that we deem appropriate.

Although it is difficult to predict future liquidity requirements, we believe that our cash and cash equivalents as of June 30, 2013, and our projected product revenues from Sumavel DosePro, will be sufficient to fund our operations into the first quarter of 2014. We will need to obtain additional capital to finance our operations beyond that point, or possibly earlier. Further, if we receive FDA approval of Zohydro ER, we may need to obtain additional capital to finance the commercial launch of Zohydro ER, possibly prior to the first quarter of 2014. We intend to raise additional capital, if necessary, through public or private equity offerings, including through our controlled equity offering program, debt financings, receivables financings or through collaborations or partnerships with other companies. If we are unsuccessful in raising additional required funds, we may be required to significantly delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts, or cease operating as a going concern. We also may be required to relinquish, license or otherwise dispose of rights to product candidates or products that we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available. In its report on our consolidated financial statements for the year ended December 31, 2012, our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding our ability to continue as a going concern.

Mallinckrodt Co-Promotion Agreement

In June 2012, we entered into a co-promotion agreement with Mallinckrodt. Under the terms of the co-promotion agreement Mallinckrodt has committed to a minimum number of sales representatives for the initial term of the agreement, which runs through June 30, 2014, and can be extended by mutual agreement of the parties in additional six month increments. We remain responsible for the manufacture, supply and distribution of commercial product for sale in the United States. In addition, we will supply product samples to Mallinckrodt at an agreed upon transfer price and Mallinckrodt will reimburse us for all other promotional materials used.

In partial consideration of Mallinckrodt’s sales efforts, we pay Mallinckrodt a service fee on a quarterly basis that represents a specified fixed percentage of net sales of prescriptions generated from Mallinckrodt’s prescriber audience over a baseline amount of net sales to the same prescriber audience, or baseline net sales. In addition, upon completion of the co-promotion term in June 30, 2014 (unless otherwise extended), and only if the co-promotion agreement is not terminated as a result of certain circumstances, we will be required to pay Mallinckrodt an additional tail payment calculated as a fixed percentage of the Mallinckrodt net sales over the baseline net sales during the first full twelve months following the last day of the term.

For the three and six months ended June 30, 2013, we incurred service fee expenses of $0.2 million and $0.4 million, respectively, under the co-promotion agreement. We did not incur any service fee expenses under the co-promotion agreement during the three and six months ended June 30, 2012.

Astellas Co-Promotion Agreement

We launched the commercial sale of Sumavel DosePro in the United States in January 2010 with our co-promotion partner, Astellas Pharma US, Inc., or Astellas. Under our co-promotion agreement with Astellas that we entered into in July 2009, or the Astellas co-promotion agreement, Astellas primarily promoted Sumavel DosePro to primary care physicians (including internal medicine, family practice and general practice), OB/GYNs, emergency medicine physicians and urologists, or collectively, the Astellas Segment, in the United States. Our sales force historically promoted Sumavel DosePro primarily to neurologists and other key prescribers of migraine medications, including headache clinics and headache specialists in the United States. We jointly shared in the cost of advertising, marketing and other promotional activities related to the Sumavel DosePro brand and were required to provide minimum levels of sales effort to promote Sumavel DosePro.

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In December 2011, we entered into an amendment to the Astellas co-promotion agreement, whereby the agreement terminated on March 31, 2012. As a result of the agreement termination, and pursuant to a promotion transition plan, beginning in the second quarter of 2012, our field sales force assumed full responsibility from the Astellas sales representatives for the continued marketing of Sumavel DosePro. This promotion transition expanded our focus to include a portion of the high-prescribing primary care physicians previously covered by Astellas under the Astellas co-promotion agreement.

At the inception of the Astellas co-promotion agreement and in exchange for the right to promote Sumavel DosePro, Astellas made a non-refundable up-front payment of $2.0 million to us and made aggregate additional payments of $18.0 million to us upon the achievement of a series of milestones. These proceeds were recorded as deferred revenues on our consolidated balance sheet at December 31, 2011, and beginning with the launch of Sumavel DosePro in January 2010, we began recognizing these proceeds as contract revenues over the term of the agreement. Upon amendment of the Astellas co-promotion agreement in December 2011, the remaining deferred proceeds were recognized as contract revenues on a ratable basis over the remaining term of the amended agreement. This acceleration in the recognition of the contract proceeds resulted in the recognition of $8.5 million of contract revenue during the three months ended March 31, 2012.

Under the terms of the amended Astellas co-promotion agreement, we are required to make two annual tail payments to Astellas, estimated as a total of $5.3 million, calculated as decreasing fixed percentages of net sales in the Astellas Segment in the last 12 months of its active promotion. The present value of such tail payments was recorded as a long-term liability on the amendment date. The first tail payment of $2.0 million was made in July 2013 and the second tail payment of $1.1 million as of June 30, 2013, which includes the service fee reduction discussed below, is payable in July 2014. The fair value of each of the tail payments is accreted through interest expense on a monthly basis through the date of payment. There was $0.1 million and $0.3 million of related interest expense recognized during the three and six months ended June 30, 2013, respectively.

In consideration for Astellas' performance of its commercial efforts, we were required to pay Astellas a service fee on a quarterly basis that represents a fixed percentage of between 45% and 55% of Sumavel DosePro net sales to the Astellas Segment through the date of termination. Astellas paid us a fixed fee for all sample units they ordered for distribution to their sales force. Amounts received from Astellas for shared marketing costs and sample product are reflected as a reduction of selling, general and administrative expenses, and amounts payable to Astellas for shared marketing expenses and service fees are reflected as selling, general and administrative expenses.

In August 2012, we and Astellas completed a final reconciliation under the terms of the co-promotion agreement and agreed to adjust the service fees paid to Astellas over the term of the co-promotion agreement, resulting in a service fee receivable of $1.5 million, which will offset the two annual tail payments, and a reduction to the annual tail payment liability of $0.7 million. The present value of the service fee receivable and tail payment reduction of $1.9 million was recorded as a reduction in selling, general and administrative expenses during the twelve months ended December 31, 2012, and an offset to the tail payment liability. The fair value of the service fee receivable and tail payment reduction will be accreted through interest expense through the dates of the two tail payments in July 2013 and July 2014.

For the three and six months ended June 30, 2013 and 2012, we recognized shared marketing expense of $0 and $0.1 million, and $0 and $0.3 million, respectively, under the Astellas co-promotion agreement.

For the three and six months ended June 30, 2013 and 2012, and prior to the final reconciliation of service fees, we incurred $0 and $0.1 million, and $0 and $1.8 million, respectively, in service fee expenses.

Valeant Co-Promotion Agreement

In June 2013, we entered into a co-promotion agreement, or the Valeant agreement, with Valeant Pharmaceuticals North America LLC, or Valeant. Under the terms of the Valeant agreement, we were granted the exclusive right (with Valeant or any of its affiliates) to promote Migranal® (dihydroergotamine mesylate) Nasal Spray, or Migranal, to a prescriber audience of physicians and other health care practitioners in the United States. Under the Valeant agreement, our sales team will begin selling Migranal to prescribers no later than August 26, 2013. The term of the Valeant agreement will run through December 31, 2015 (unless otherwise terminated), and can be extended by mutual agreement of the parties in additional twelve month increments. Valeant remains responsible for the manufacture, supply and distribution of Migranal for sale in the United States. In addition, Valeant will supply us with a specified amount of product samples every six months, and we will reimburse Valeant for the cost of additional samples and any promotional materials ordered by us.

In partial consideration of our sales efforts, Valeant will pay us a co-promotion fee on a quarterly basis that represents specified percentages of net sales generated by us over defined baseline amounts of net sales. In addition, upon completion of the co-promotion term, and only if the Valeant agreement is not terminated by Valeant due to a bankruptcy event (as defined in the Valeant agreement) or a material failure by us to comply with our material obligations under the Valeant agreement, Valeant

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will be required to pay us an additional tail payment calculated as a fixed percentage of our net sales over a baseline forecast during the first full six months following the last day of the term.

Critical Accounting Policies and Estimates

There have been no significant changes in critical accounting policies during the six months ended June 30, 2013, as compared to the critical accounting policies described in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2012.

Results of Operations

Comparison of the three and six months ended June 30, 2013 to the three and six months ended June 30, 2012

Revenue. We recognize net product sales upon the shipment of product to wholesale pharmaceutical distributors and retail pharmacies. Revenue for the three months ended June 30, 2013 and 2012 was $8.9 million and $8.0 million, respectively, and revenue for the six months ended June 30, 2013 and 2012 was $15.9 million and $26.4 million, respectively. Net product revenue for the three months ended June 30, 2013 and 2012 was $8.9 million and $8.0 million, respectively, and net product revenue for the six months ended June 30, 2013 and 2012 was $15.9 million and $17.9 million, respectively.

The aggregate $0.9 million, or 11.4%, increase in net product revenue during the three months ended June 30, 2013 compared to 2012 was primarily due to an increase in average net selling price of 21%, which was primarily driven by an increase in our whole acquisition cost (WAC) and an additional charge booked in the second quarter of 2012 related to estimated product returns, offset by a decrease in unit volume of 8%. The aggregate $2.0 million, or 11.1%, decrease in net product revenue during the six months ended June 30, 2013 compared to 2012 was primarily due to a decrease in unit volume of 14%, offset by an increase in our average net selling price of approximately 5%, which was primarily driven by an increase in our WAC. The primary driver of the decrease in unit volume during the six months ended June 30, 2013 compared to 2012 was the resetting of health insurance co-pays and co-insurance at the beginning of 2013, which slowed patient volumes in the first quarter of 2013 to a greater degree than in previous years.

There was no contract revenue recognized for the three months ended June 30, 2013 and 2012. Contract revenue for the six months ended June 30, 2013 and 2012 was $0 and $8.5 million, respectively. Contract revenue represents amortization of license fee payments and milestone payments we received in connection with the Astellas co-promotion agreement we entered into in July 2009 and which we began recognizing upon the commencement of sales of Sumavel DosePro in January 2010. In December 2011, we amended the Astellas co-promotion agreement whereby the agreement terminated on March 31, 2012, rather than the initial termination date of June 30, 2013. Based upon this revised termination date, all deferred contract revenue was recognized ratably on an accelerated basis, from the date of the amendment through March 31, 2012.

Cost of Sales. Cost of sales consists primarily of materials, third-party manufacturing costs, freight and indirect personnel and other overhead costs associated with sales of Sumavel DosePro based on units sold to wholesale pharmaceutical distributors and retail pharmacies, as well as reserves for excess, dated or obsolete commercial inventories and production manufacturing variances. It represents the cost of Sumavel DosePro units recognized as net product revenues in the period and the impact of underutilized production capacity and other manufacturing variances.

Cost of sales for the three months ended June 30, 2013 and 2012 was $4.6 million and $4.2 million, respectively. Cost of sales for the six months ended June 30, 2013 and 2012 was $8.8 million and $9.2 million, respectively. Product gross margin for the three months ended June 30, 2013 and 2012 was 48%, and product gross margin was 45% and 48% for the six months ended June 30, 2013 and 2012, respectively. The decrease in product gross margin for the six months ended June 30, 2013 compared to 2012 was primarily due to a higher cost per unit and a decrease in the volume of units sold.

Royalty Expense. Royalty expense consists of royalties payable to Aradigm Corporation based on net sales of Sumavel DosePro by us or one of our licensees and the amortization of the $4.0 million milestone payment paid by us to Aradigm upon the first commercial sale of Sumavel DosePro in the United States (which occurred in January 2010). We are not required to make any further milestone payments to Aradigm. We are required to pay to Aradigm a 3% royalty on global net sales of Sumavel DosePro, by us or one of our licensees, if any, until the expiration of the last valid claim of the transferred patents covering the manufacture, use, or sale of the product. During the three months ended June 30, 2013 and 2012, we recorded $0.3 million in royalty expense, and during the six months ended June 20, 2013 and 2012 we recorded $0.6 million and $0.7 million, respectively, in royalty expense.

Research and Development Expenses. Research and development expenses consist of expenses incurred in developing, testing and seeking marketing approval of our product candidates, including: license and milestone payments; payments made

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to third-party clinical research organizations, or CROs, and investigational sites, which conduct our trials on our behalf, and consultants; expenses associated with regulatory submissions, pre-clinical development and clinical trials; payments to third-party manufacturers, which produce our active pharmaceutical ingredient and finished product; personnel related expenses, such as salaries, benefits, travel and other related expenses, including stock-based compensation; and facility, maintenance, depreciation and other related expenses. We expense all research and development costs as incurred.

We utilize CROs, contract laboratories and independent contractors for the conduct of pre-clinical studies and clinical trials. We track third-party costs by type of study being conducted. We recognize the expenses associated with the services provided by CROs based on the percentage of each study completed at the end of each reporting period. We coordinate clinical trials through a number of contracted investigational sites and recognize the associated expense based on a number of factors, including actual and estimated subject enrollment and visits, direct pass-through costs and other clinical site fees.

The table below sets forth information regarding our research and development expenses for our major development programs. The period over period variances for our major development programs are explained in the narrative beneath the table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Research and development expenses (in thousands):
Zohydro	$	1,422	$	4,081	$	2,015	$	7,127
Relday	524		751		1,279		2,081
Sumavel DosePro	253		204		491		346
Other(1)	1,378		1,345		3,029		2,791
Total	$	3,577	$	6,381	$	6,814	$	12,345

(1) Other research and development expenses include development costs incurred for the DosePro technology sound enhancement and other product candidate development, as well as employee and infrastructure resources that are not tracked on a program-by-program basis.

Research and development expenses decreased by $2.8 million for the three months ended June 30, 2013 compared to 2012, and decreased by $5.5 million for the six months ended June 30, 2103 compared to 2012. These decreases were primarily due to a decrease in development expenses for Zohydro ER. Zohydro ER development expenses were greater during the first half of 2012 primarily due to expenses incurred for preparation of the Zohydro ER NDA that we submitted to the FDA in May 2012.

We use our employee and infrastructure resources across our product and product candidate development programs. Therefore, we have not tracked salaries, other personnel related expenses, facilities or other related costs to our product development activities on a program-by-program basis.

We expect our research and development expenses for the remainder of 2013 to continue to decrease over amounts incurred in 2012 as we incurred costs in 2012 related to our Zohydro ER NDA submission and costs related to preparation for and participation in the December 2012 FDA advisory committee meeting for Zohydro ER, which we do not expect to recur in 2013.

Selling, General and Administrative Expenses. Selling expenses, which include sales and marketing costs, consist primarily of salaries and benefits of sales and marketing management and sales representatives, shared marketing and advertising costs and service fees under our Astellas co-promotion agreement prior to its termination in March 2012, service fees under our Mallinckrodt co-promotion agreement, sample product costs, and consulting fees. General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, accounting, business development and internal support functions. In addition, general and administrative expenses include facility costs and professional fees for legal, consulting and accounting services.

Selling, general and administrative expenses decreased slightly to $12.0 million for the three months ended June 30, 2013 compared to $12.1 million for the three months ended June 30, 2012. Selling, general and administrative expenses decreased slightly to $26.5 million for the six months ended June 30, 2013 compared to $26.7 million for the six months ended June 30, 2012.

Selling expenses were $8.3 million and $18.6 million for the three and six months ended June 30, 2013, respectively, compared to $8.7 million and $20.1 million for the three and six months ended June 30, 2012, respectively. General and

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administrative expenses were $3.7 million and $7.9 million for the three and six months ended June 30, 2013, respectively, compared to $3.4 million and $6.6 million for the three and six months ended June 30, 2012, respectively.

The decrease in selling, general and administrative expenses for the three months ended June 30, 2013 compared to 2012 was due to a decrease of $0.4 million in sales and marketing expenses, offset by an increase of $0.3 million in general and administrative expenses.

• The decrease in sales and marketing expenses is primarily the result of a $0.7 million decrease in salary and bonus expense, offset by an increase in other marketing and promotional activities.

• The increase in general and administrative expenses is primarily the result of an increase in public relations costs and an increase in professional service related costs, such as legal and accounting and advisory services.

The decrease in selling, general and administrative expenses for the six months ended June 30, 2013 was due to a decrease of $1.5 million in sales and marketing expenses, offset by an increase of $1.3 million in general and administrative expenses.

• The decrease in sales and marketing expenses is primarily the result of a $1.8 million decrease in co-promote service fees resulting from the termination of the Astellas co-promotion agreement on March 31, 2012, offset by an increase in other marketing and promotional activities.

• The increase in general and administrative expenses is primarily the result of an increase in public relations costs and an increase in professional service related costs, such as legal and accounting and advisory services.

We do not expect a significant change in general and administrative expenses throughout the remainder of 2013 as compared to 2012 levels; however, our selling expenses may increase significantly at the end of 2013 if Zohydro ER is approved.

Restructuring Expenses. Restructuring expenses of $0.9 million were recorded during the three and six months ended June 30, 2013, and consist of the costs incurred in connection with the restructuring of our workforce, which commenced in May 2013. These restructuring expenses primarily consist of cash charges of $0.7 million in severance costs and $0.2 million in non-cash stock-based compensation charges.

Interest Income. During the three months ended June 30, 2013 and 2012, interest income was $3,000 and $10,000, respectively. During the six months ended June 30, 2013 and 2012, interest income was $11,000 and $29,000, respectively. The decrease in interest income during the first half of 2013 compared to the first half of 2012 was primarily due to a decrease in average cash and cash equivalent balances during the respective periods.

Interest Expense. Interest expense consists of interest expense incurred in connection with our financing agreements and certain other arrangements, including the following:

• our $30.0 million financing agreement, or the Healthcare Royalty financing agreement, with Healthcare Royalty Partners (formerly Cowen Healthcare Royalty Partners II, LP), or Healthcare Royalty;

• our $10.0 million revolving credit facility with Oxford Finance Corporation, or Oxford, and Silicon Valley Bank, or SVB (terminated in July 2012);

• our $25.0 million loan and security agreement with Oxford and SVB, or the amended Oxford/SVB loan agreement (terminated in July 2012); and

• imputed interest from the two annual tail payments to Astellas.

Interest expense was $1.6 million and $3.2 million for the three and six months ended June 30, 2013, respectively, compared to $2.6 million and $5.3 million for the three and six months ended June 30, 2012, respectively. The decrease in interest expense in the first half of 2013 compared to the first half of 2012 is primarily due to the termination of our amended Oxford/SVB loan agreement in July 2012.

We expect that interest expense throughout the remainder of 2013 will decrease from 2012 interest expense due to the repayment in full and termination of our revolving credit facility and amended Oxford/SVB loan agreement in July 2012.

Change in Fair Value of Warrant Liabilities. The change in fair value of warrant liabilities relates to a fair value adjustment recorded on the warrants to purchase common stock issued in connection with our July 2012 public offering and issued in connection with our Healthcare Royalty financing agreement. See Note 6 to our consolidated financial statements.

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Change in Fair Value of Embedded Derivatives. The change in fair value of embedded derivatives relates to a fair value adjustment recorded on the embedded derivatives associated with the Healthcare Royalty financing agreement. See Note 4 to our consolidated financial statements.

Other Income (Expense). Other income (expense) for the three and six months ended June 30, 2013 and 2012 consists primarily of foreign currency transaction gains and losses.

Provision for Income Tax Expense. Provision for income tax expense is primarily related to the taxable income generated by our wholly-owned subsidiary, Zogenix Europe Limited.

Liquidity and Capital Resources

We have experienced net losses and negative cash flow from operations since inception, and as of June 30, 2013, had an accumulated deficit of $363.8 million. We expect to continue to incur net losses and negative cash flow from operating activities for at least the next several years primarily as a result of the expenses incurred in connection with efforts in seeking marketing approval for Zohydro ER, the clinical development for Relday, any additional required testing for Zohydro ER, and the cost of the sales and marketing expense associated with Sumavel DosePro, and, if approved, Zohydro ER. As of June 30, 2013, we had cash and cash equivalents of $16.1 million.

In May 2013, we commenced a restructuring of our workforce, resulting in a reduction in force of approximately 37%, or 55 employees, across all functional areas of our company. We took this step as part of our initiative to extend our cash runway to reach key business milestones that may occur over the remainder of 2013, including gaining FDA approval for our NDA for Zohydro ER, securing a development partner for Relday, and out-licensing our proprietary DosePro needle-free delivery technology.

Although it is difficult to predict future liquidity requirements, we believe that our cash and cash equivalents as of June 30, 2013, and our projected product revenues from Sumavel DosePro, will be sufficient to fund our operations into the first quarter of 2014. We will need to obtain additional capital to finance our operations beyond that point, or possibly earlier. Further, if we receive FDA approval of Zohydro ER, we may need to obtain additional capital to finance the commercial launch of Zohydro ER, possibly prior to the first quarter of 2014. We intend to raise additional capital, if necessary, through public or private equity offerings, including through our controlled equity offering program, debt financings, receivables financings or through collaborations or partnerships with other companies. If we are unsuccessful in raising additional required funds, we may be required to significantly delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts, or cease operating as a going concern. We also may be required to relinquish, license or otherwise dispose of rights to product candidates or products that we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available.

In its report on our consolidated financial statements for the year ended December 31, 2012, our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding our ability to continue as a going concern. A “going concern” opinion means, in general, that our independent registered public accounting firm has substantial doubt about our ability to continue our operations without continuing infusions of capital from external sources and this opinion could impair our ability to finance our operations through the sale of debt or equity securities or commercial bank loans. Our ability to continue as a going concern depends, in large part, on our ability to generate positive cash flow from operations and obtain additional financing, neither of which is certain. If we are unable to achieve these goals, our business would be jeopardized and we may not be able to continue operations and have to liquidate our assets and may receive less than the value at which those assets were carried on our financial statements, and it is likely that investors will lose all or part of their investment.

Since inception, our operations have been financed primarily through equity and debt financings, the issuance of convertible notes and payments received from Astellas under our Astellas co-promotion agreement. Through June 30, 2013, we received aggregate net cash proceeds of approximately $341.1 million from the sale of shares of our preferred and common stock, including our financing in July 2012. In July 2012, we issued and sold a total of 35,058,300 shares of common stock and warrants to purchase 15,784,200 shares of common stock in a public offering, including the underwriters’ over-allotment purchase, for aggregate net proceeds of $65.4 million.

On July 30, 2012, we terminated our amended Oxford/SVB loan agreement. The amended Oxford/SVB Agreement consisted of a $25.0 million term loan and a $10.0 million revolving credit facility. The obligations under the amended Oxford/SVB loan agreement were collateralized by our intellectual property (including among other things, copyrights, patents, patent applications, trademarks, service marks and trade secret rights) and personal property (including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and

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cash). The $25.0 million term loan bore an interest rate of 12.06% per annum. Under the terms of the revolving credit facility, $10.0 million was available to be borrowed within a specified percentage of our eligible accounts receivable and inventory balances (as defined in the agreement). Amounts outstanding under the revolving credit facility accrued interest payable monthly at a floating rate per annum equal to the greater of 3.29% above SVB's prime rate or 7.29%. In addition, we paid a monthly fee equal to 0.5% per annum of the average unused portion of the revolving credit facility. As a result of the termination of the amended Oxford/SVB loan agreement, the lenders no longer have a security interest in our intellectual property and personal property (including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and cash).

On July 18, 2011, we closed the Healthcare Royalty financing agreement. Under the terms of the Healthcare Royalty Financing agreement, we borrowed $30.0 million and we are obligated to repay such borrowed amount together with a specified return to Healthcare Royalty, through the payment of tiered royalties ranging from .5% to 5% of our direct product sales, co-promotion revenues and out-license revenues, or collectively, revenue interest, that we may record or receive as a result of worldwide commercialization of our products including Sumavel DosePro, Zohydro ER and other future products. Pursuant to the terms of the Healthcare Royalty financing agreement, our royalty rate increased to 5.75% in April 2012 in connection with the early termination of the Astellas co-promotion agreement.

We are also obligated to make three fixed payments of $10.0 million on (or before at our option) each of January 31, 2015, January 31, 2016 and January 31, 2017.

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

Healthcare Royalty has the option to terminate the Healthcare Royalty financing agreement at its election in connection with a change of control of our company (which includes the sale, transfer, assignment or licensing of our rights in the United States to either Sumavel DosePro or Zohydro ER), or an event of default (which includes the occurrence of a bankruptcy event or other material adverse change in our business), as defined in the Healthcare Royalty financing agreement. Upon such a termination by Healthcare Royalty, we are obligated to make a payment of a base amount of $45.0 million, or, if higher, an amount that generates a 17% internal rate of return on the borrowed amount as of the date of prepayment, in each case reduced by the revenue interest and principal payments received by Healthcare Royalty up to the date of prepayment. Unless terminated earlier as discussed above, the Healthcare Royalty financing agreement terminates on March 31, 2018.

Any requirement that we repay the borrowed amount under the Healthcare Royalty financing agreement, whether as the result of our default under the applicable agreement or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

On March 27, 2013, we entered into a controlled equity offering sales agreement, or sales agreement, with Cantor, as sales agent, to create a controlled equity offering program under which we may, from time to time, sell shares of common stock up to an aggregate offering price of $25.0 million. Sales of the common stock made pursuant to the sales agreement will be made by methods deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act, including sales made directly on the Nasdaq Global Market, on any other existing trading market for the common stock or to or through a market marker under our currently-effective Registration Statement on Form S-3. In addition, Cantor may sell the common stock by any other method permitted by law, including in privately negotiated transactions. We pay Cantor a commission equal to 3% of the gross proceeds from the sale of shares of our common stock under the sales agreement and have agreed to provide Cantor with customary indemnification and contribution rights. We have also agreed to reimburse Cantor for certain specified expenses, including the fees and disbursements of its legal counsel, in an amount not to exceed $50,000. The offering of common stock pursuant to the sales agreement will terminate upon the earlier of (a) the sale of all of the shares of common stock under the sales agreement having an aggregate offering price of $25.0 million and (b) the termination of the sales agreement by us or Cantor as permitted therein. The sales agreement may be terminated by us or Cantor at any time upon 10 days' prior written notice to the other party, or by Cantor at any time in certain circumstances, including the occurrence of a material adverse change in our company. There can be no assurance that Cantor will be successful in consummating sales of our common stock based on prevailing market conditions or in the quantities or at the prices that we deem appropriate. As of August 7, 2013, we agreed to the issuance of 3.0 million shares of our common stock pursuant to the sales agreement at an average stock price of $1.66 per share, resulting in net proceeds of approximately $4.9 million.

Cash and Cash Equivalents. Cash and cash equivalents totaled $16.1 million and $41.2 million at June 30, 2013 and December 31, 2012, respectively.

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The following table summarizes our cash flows used in operating, investing and financing activities for the six months ended June 30, 2013 and 2012:

	Six Months Ended June 30,
	2013			2012
	(In Thousands)
Statement of Cash Flows Data
Total cash provided by (used in):
Operating activities	$	(24,570	)	$	(29,466	)
Investing activities	(798		)	(291		)
Financing activities	261			(4,794		)
Decrease in cash and cash equivalents	$	(25,107	)	$	(34,551	)

Operating Activities: Net cash used in operating activities was $24.6 million and $29.5 million for the six months ended June 30, 2013 and 2012, respectively. Net cash used for the six months ended June 30, 2013 primarily reflects the use of cash for operations, adjusted for non-cash charges including a $3.0 million change in fair value of warrant liabilities and $3.6 million in stock-based compensation (which includes $0.2 million in stock-based compensation from restructuring), offset by a reduction in accounts receivable of $1.5 million primarily due to a greater number of sales in December 2012 compared to June 2013. Significant working capital uses of cash for the six months ended June 30, 2013 includes personnel-related costs, research and development costs (primarily for employee and infrastructure resources), sales and marketing expenses for Sumavel DosePro, and other professional services. Net cash used for the six months ended June 30, 2012 primarily reflects the use of cash for operations, adjusted for non-cash charges including $2.8 million in stock-based compensation, offset by a reduction in commercial inventory of $1.2 million. Significant working capital uses of cash for the six months ended June 30, 2012 includes personnel related costs, research and development costs (primarily for Zohydro ER and Relday), sales and marketing expenses for Sumavel DosePro, and other professional services.

Investing Activities. Net cash used in investing activities was $0.8 million and $0.3 million for the six months ended June 30, 2013 and 2012, respectively. These amounts are the result of the purchase of property and equipment primarily for use in manufacturing Sumavel DosePro.

We expect to incur additional capital expenditures of approximately $0.3 million to $1.2 million in 2013. These planned capital expenditures primarily relate to further investments in our manufacturing operations for Sumavel DosePro and toward enhancing our existing manufacturing technology and equipment.

Financing Activities. Net cash provided by financing activities during the six months ended June 30, 2013 was $0.3 million, which is from the issuance of common stock under our employee stock purchase plan. Net cash used in financing activities was $4.8 million for the six months ended June 30, 2012, which relates to payments of $15.0 million on our borrowings of debt, offset by net proceeds of $9.9 million from our revolving credit facility.

Our sources of liquidity include our cash balances and cash receipts from the sale of Sumavel DosePro. Through June 30, 2013, we received aggregate net cash proceeds of approximately $341.1 million from the sale of shares of our preferred and common stock. As of June 30, 2013, we had $16.1 million in cash and cash equivalents. Other potential sources of near-term liquidity include (i) equity offerings, including through our controlled equity offering program, debt or other financing, (ii) entering into a commercialization agreement for Zohydro ER, if approved, or a licensing arrangement for Relday, or (iii) leveraging our sales force capacity to promote Migranal or another new product.

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

As described above, we have agreed to specified positive and negative covenants under the Healthcare Royalty financing agreement and upon a termination by Healthcare Royalty, we are obligated to make a payment of a base amount of $45.0 million, or, if higher, an amount that generates a 17% internal rate of return on the borrowed amount as of the date of prepayment, in each case reduced by the payments received by Healthcare Royalty up to the date of prepayment. If we were required to accelerate the payment of these amounts upon a default, we would be required to find an alternate source of capital from which to draw funds and there can be no assurances that we would be able to do so on terms acceptable to us, or at all.

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If we fail to pay amounts owing under the Healthcare Royalty financing agreement when due, if we breach our other covenants or obligations under the agreement, or if other events of default under the agreement occur, Healthcare Royalty would be entitled to demand immediate repayment of all borrowings and other obligations thereunder and to seize and sell the collateral pledged as security under the agreements to satisfy those obligations. If we were to breach our covenants and obligations and we were unable to obtain a waiver or amendment from the lender, we would be required to seek additional equity or debt financing to refinance our obligations under the agreement. Additional debt or equity financing may not be available to us in amounts or on terms we consider acceptable, or at all. In that regard, we have from time to time been required to obtain waivers and amendments under our debt instruments in order to avoid breaches or other defaults. For example, in each of 2012, 2011 and 2010 we were required to obtain amendments or waivers under our credit facilities.

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

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued an Accounting Standards Update which requires entities to separately present amounts reclassified out of accumulated other comprehensive income, or AOCI, for each component of AOCI and to disclose, for each affected line item in the income statement, the amount of AOCI that has been reclassified into that line item. For AOCI reclassification items that are not reclassified in their entirety into net income, it is acceptable to cross reference that amount to another footnote that provides the required disclosure. The updated guidance became effective for fiscal and interim periods beginning after December 15, 2012. We adopted this guidance on January 1, 2013 and it did not have a material impact on our results of operations.

Off-Balance Sheet Arrangements

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our cash and cash equivalents as of June 30, 2013 consisted 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. 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

All of the revenues we have generated to date have been paid in U.S. dollars and we expect that our revenues will continue to be generated primarily in U.S. dollars for at least the next several years. Payments to our material suppliers and contract manufacturers are denominated in the Euro and U.K. pounds sterling, thereby increasing our exposure to exchange rate gains and losses on non-U.S. currency transactions. Foreign currency gains and losses associated with these expenditures have not been significant to date. However, fluctuations in the rate of exchange between the U.S. dollar and these or other foreign currencies could adversely affect our financial results in the future, particularly to the extent we increase production to support Sumavel DosePro sales demands. For the six months ended June 30, 2013, approximately $9.8 million (based on exchange rates as of June 30, 2013) of our materials purchased and contract manufacturing costs were denominated in foreign currencies. We do not currently hedge our foreign currency exchange rate risk. As a result, we are exposed to gains and/or losses as the exchange rate of certain foreign currencies fluctuates. A 10% increase or decrease in the average rate of the Euro or the U.K. pound sterling during the six months ended June 30, 2013 would have resulted in approximately $0.4 million or $0.6 million in gains or losses, respectively. In addition, we maintain funds in foreign bank accounts denominated in the Euro and U.K. pounds sterling, thereby further increasing our exposure to exchange rate gains and losses. We intend to evaluate various options to mitigate the risk of financial exposure from transacting in foreign currencies in the future.

Item 4. Controls and Procedures

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

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

As required by Securities and Exchange Commission Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2013 at the reasonable assurance level.

Changes in Disclosure Controls and Procedures

There were no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any legal proceedings.

Item 1A. Risk Factors

There have been no material changes to the risk factors included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, other than those set forth below, which should be read in conjunction with the risk factors disclosed therein.

Risks Related to Our Business and Industry

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

We were organized in 2006 and are at an early stage of commercialization. Our business and prospects must be considered in light of the risks and uncertainties frequently encountered by pharmaceutical companies in the early stages of commercialization.

We have generated substantial net losses and negative cash flow from operations since our inception in 2006. For example, for the six months ended June 30, 2013 and the years ended December 31, 2012 and 2011, we incurred net losses of $34.4 million, $47.4 million and $83.9 million, respectively, our net cash used in operating activities was $24.6 million, $52.2 million and $80.5 million, respectively, and, at June 30, 2013, our accumulated deficit was $363.8 million. We expect to continue to incur net losses and negative cash flow from operating activities for at least the next several years primarily as a result of the expenses incurred in connection with our efforts in seeking marketing approval for Zohydro ER, the clinical development for Relday, any additional required testing for Zohydro ER, and the cost of the sales and marketing expense associated with Sumavel DosePro, and, if approved, Zohydro ER. Our ability to generate revenues from Sumavel DosePro or any of our product candidates will depend on a number of factors, including, in the case of Sumavel DosePro, the factors described in risk factors below and, in the case of our product candidates, our ability to successfully complete clinical trials, obtain necessary regulatory approvals and negotiate arrangements with third parties to help finance the development of, and market and distribute, any product candidates that receive regulatory approval. In addition, we will be subject to the risk that the marketplace will not accept our products.

Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable and it is possible we will never become profitable. If we do not increase sales of Sumavel DosePro or successfully commercialize any of our product candidates that may receive regulatory approval, a material adverse effect would likely impact our business, results of operations, financial condition and prospects and could result in our inability to continue operations.

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

Our operations have consumed substantial amounts of cash since inception. To date, our operations have been primarily financed through the proceeds from the issuance of our common and preferred stock, including the proceeds from our initial public offering completed in November 2010, our follow-on public offerings completed in September 2011 and July 2012, and borrowings under our loan and financing agreements with Healthcare Royalty Partners, or Healthcare Royalty, Oxford Finance LLC, as successor in interest to Oxford Finance Corporation, or Oxford, and Silicon Valley Bank, or SVB. In addition, we have funded our operations through the proceeds from the sales and issuances of our common stock pursuant to the controlled equity offering program that we established on March 27, 2013 with Cantor Fitzgerald & Co., or Cantor, as sales agent, under which we may, from time to time, sell shares of common stock up to an aggregate offering price of $25.0 million. As of August 7, 2013, we agreed to the issuance of 3.0 million shares of our common stock under the controller equity offering program at an average stock issuance price of $1.66 per share, resulting in net proceeds of approximately $4.9 million; however, there can be no assurance that Cantor will be successful in consummating further sales under the program based on prevailing market conditions or in the quantities or at the prices that we deem appropriate. Cantor or we are permitted to terminate the controlled equity offering sales agreement, or sales agreement, at any time upon 10 days' prior written notice, and Cantor is also permitted to terminate the sales agreement at any time in certain circumstances, including the occurrence of a material adverse change in our company.

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Although it is difficult to predict future liquidity requirements, we believe that our cash and cash equivalents as of June 30, 2013, and our projected product revenues from Sumavel DosePro, will be sufficient to fund our operations into the first quarter of 2014. We will need to obtain additional funds to finance our operations beyond that point, or possibly earlier, in order to:

• maintain our sales and marketing activities for Sumavel DosePro;

• qualify secondary sources for the manufacturing of Sumavel DosePro;

• fund our operations, fund further development of Zohydro ER, if required, Relday and any other product candidate to support potential regulatory approval of marketing applications; and

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

Further, if we receive FDA approval of Zohydro ER, we may need to obtain additional capital to finance the commercial launch of Zohydro ER, possibly prior to the first quarter of 2014.

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

• the commercial success of Sumavel DosePro;

• the timing of regulatory approval, if granted, of Zohydro ER or any other product candidates and the commercial success of any approved products;

• the rate of progress and cost of our clinical trials and other product development programs for Relday and our other product candidates 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 Sumavel DosePro, Zohydro ER, Relday and any of our other product candidates;

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

• the costs of maintaining and expanding our sales and marketing infrastructure or establishing distribution capabilities;

• the effect of competing technological and market developments; and

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

In its report on our consolidated financial statements for the year ended December 31, 2012, our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding our ability to continue as a going concern. A “going concern” opinion means, in general, that our independent registered public accounting firm has substantial doubt about our ability to continue our operations without continuing infusions of capital from external sources and this opinion could impair our ability to finance our operations through the sale of debt or equity securities or commercial bank loans.

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

We may not be successful in executing our sales and marketing strategy for the ongoing commercialization of Sumavel DosePro. As part of this strategy, we will be dependent on our collaboration with Mallinckrodt to promote Sumavel DosePro primarily to primary care physicians and physicians specializing in internal medicine. If we are unable to successfully execute such strategy, we may not be able to generate significant revenue.

Prior to the launch of Sumavel DosePro in January 2010, we built a commercial sales and marketing organization including sales, marketing, communications, managed markets, trade and distribution functions, which is focused on marketing and selling Sumavel DosePro primarily to physicians, nurses and other healthcare professionals in the United States. In May

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2013, we commenced a restructuring of our workforce, and our field sales force, which was comprised of approximately 80 field sales personnel as of March 31, 2013, was reduced to approximately 55 field sales personnel. Our current sales force will continue to promote Sumavel DosePro primarily to neurologists and other prescribers of migraine medications, including headache clinics and headache specialists in the United States.

To complement our sales force, we entered into a co-exclusive (with us) co-promotion agreement with Mallinckrodt in June 2012, or the Mallinckrodt co-promotion agreement, under which in August 2012 Mallinckrodt began promoting Sumavel DosePro to a mutually agreed prescriber audience in the United States. Mallinckrodt has committed to a minimum number of sales representatives for the initial term of the co-promotion agreement. Although the Mallinckrodt co-promotion agreement stipulates minimum levels of sales effort, we have limited control over the amount and timing of resources that Mallinckrodt dedicates to the promotion of Sumavel DosePro, and we do not hire or manage such resources. The ability to generate revenue from our arrangement with Mallinckrodt depends on Mallinckrodt's efforts in promoting Sumavel DosePro and its ability to achieve broad market acceptance and prescribing of Sumavel DosePro in its targeted physician segment.

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

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

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

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

Under the terms of the Mallinckrodt co-promotion agreement, Mallinckrodt may terminate the agreement with 60 days' written notice in the event a material change is made to the net sales price of Sumavel DosePro that would result in a material adverse effect to Mallinckrodt's financial return, as defined in the co-promotion agreement. Mallinckrodt may also terminate the co-promotion agreement if its request for the inclusion on its call list of a certain number of additional prescribers is not mutually agreed upon. Lastly, Mallinckrodt may terminate the co-promotion agreement if a governmental authority takes action or raises an objection that prevents or would reasonably be expected to make it unlawful for Mallinckrodt to perform, or subject Mallinckrodt to any penalty or claim, investigation or similar action related to, its obligations under the co-promotion agreement, in the event of our inability to meet trade demand for commercial product or where a third party files an action alleging that the making or selling of Sumavel DosePro infringes the intellectual property rights of such third party.

We may terminate the co-promotion agreement with 60 days' notice if Mallinckrodt does not achieve an agreed-upon minimums sales effort. Either party may terminate the agreement if certain minimum net sales thresholds are not met for any quarter ending after December 31, 2012 or certain levels of prescriptions are not met in a specified period. In addition, either party may terminate the co-promotion agreement related to safety concerns, in the event of a change of control of itself or the other party (excluding with respect to Mallinckrodt, any public spin-off of Mallinckrodt from its corporate parent Covidien plc), upon the introduction of a generic product, in connection with the material breach of the other party's obligations or if a bankruptcy event occurs under certain circumstances.

In addition, the initial term of our co-promotion agreement with Mallinckrodt expires on June 30, 2014, subject to extension of additional six month increments by mutual agreement of both parties. We cannot assure you that Mallinckrodt will enter into any extension of the co-promotion agreement or, if it does so, that it will not condition any such extension upon changes in the co-promotion agreement that could have a material adverse effect on us. If Mallinckrodt were to terminate the co-promotion agreement or elect not to extend the agreement upon its expiration, we would lose the efforts of their sales force, and we may be required to make arrangements with another third party to replace Mallinckrodt's sales force, or expand our sales and marketing organization. We may not be able to enter into such arrangements with third parties in a timely manner, on acceptable terms or at all. To the extent that we enter into another co-promotion or other licensing arrangement, our portion of retained product revenues is likely to be lower than if we directly marketed and sold Sumavel DosePro solely on our own, and a portion of those revenues generated will depend upon the efforts of such third parties similar to our dependence on Mallinckrodt, and these efforts may not be successful. If our co-promotion agreement with Mallinckrodt is terminated and we are unable to find another partner for the promotion of Sumavel DosePro in the primary care segment in the United States, we may not be able to expand our own sales and marketing capabilities or utilize our existing sales force effectively to cover this segment and any such expansion could, in any event, substantially increase our expenses and capital requirements that we might not be able to fund.

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

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

The majority of our sales of Sumavel DosePro are to wholesale pharmaceutical distributors who, in turn, sell the products to pharmacies, hospitals and other customers. Two wholesale pharmaceutical distributors, Cardinal Health, Inc. and McKesson Corporation, individually comprised 34% and 27%, respectively, of our total gross sales of Sumavel DosePro for the six months ended June 30, 2013, which may result in substantial fluctuations in our results of operations from period to period. The loss of any of these wholesale pharmaceutical distributors' accounts or a material reduction in their purchases could have a material adverse effect on our business, results of operations, financial condition and prospects.

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

Our sales can be greatly affected by the inventory levels our wholesalers carry. We monitor wholesaler inventory of Sumavel DosePro using a combination of methods. Pursuant to distribution service agreements with our three largest wholesale customers, we receive inventory level reports. For most other wholesalers where we do not receive inventory level reports, however, our estimates of wholesaler inventories may differ significantly from actual inventory levels. Significant differences between actual and estimated inventory levels may result in excessive production (requiring us to hold substantial quantities of unsold inventory), inadequate supplies of products in distribution channels, insufficient product available at the retail level, and unexpected increases or decreases in orders from our wholesalers. These changes may cause our revenues to fluctuate significantly from quarter to quarter, and in some cases may cause our operating results for a particular quarter to be below our expectations or the expectations of securities analysts or investors. If our financial results are below expectations for a particular period, the market price of our common stock may drop significantly.

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

While we own most of the specialized equipment used to manufacture critical components of Sumavel DosePro, we do not own or operate manufacturing facilities and currently lack the in-house capability to manufacture Sumavel DosePro, Zohydro ER, Relday or any other product candidates. Our DosePro device and Sumavel DosePro are manufactured by contract manufacturers, component fabricators and secondary service providers. Aseptic fill, finish, assembly and packaging of Sumavel DosePro are performed at Patheon UK Limited, Swindon, United Kingdom, or Patheon, a specialist in the aseptic fill/finish of injectables and other sterile pharmaceutical products. In May 2012, Patheon announced plans to wind down or transfer its commercial production capacity for a number of products at this facility over a period of 24 to 36 months. We have identified alternative suppliers for these services and are currently working on a plan to transfer the manufacturing processes that are presently handled by Patheon to a new supplier in advance of the expected closure date of the Swindon, United Kingdom facility. In addition, Nypro Limited, located in Bray, Ireland, manufactures the actuator assemblies and injection molded components for our DosePro device and Nipro Glass, Germany AG (formerly MGlas AG), located in Münnerstadt, Germany, manufactures the specialized glass capsule (cartridge) that houses the sumatriptan active pharmaceutical ingredient, or API, in our DosePro device. Each of these manufacturers and each other company that supplies, fabricates or manufactures any component used in our DosePro device is currently the only qualified source of their respective components. We currently rely on Dr. Reddy's Laboratories as the only supplier of sumatriptan API for use in Sumavel DosePro. We also outsource all manufacturing and packaging of the clinical trial materials for Zohydro ER and Relday to third parties. Although we plan to qualify additional manufacturers and suppliers of some of the components used in Sumavel DosePro, there can be no assurance that we will be able to do so and the current manufacturers and suppliers of these components will likely be single source suppliers to us for a significant period of time. Similarly, an affiliate of Alkermes is the exclusive manufacturer of Zohydro ER and Durect is the exclusive manufacturer of the risperidone formulation using Durect's SABER™ controlled-release technology for all Relday clinical trials through Phase 2 and has the option to supply the same formulation for Phase 3 clinical

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trials and, if approved, commercial production. We have restrictions on establishing a second source of supply under our agreement with an affiliate of Alkermes, and we may never be able to establish additional sources of supply for Zohydro ER or Relday's risperidone formulation.

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

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

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

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

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

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

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

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

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

We currently are developing Zohydro ER for the treatment of moderate to severe chronic pain and Relday for the treatment of the symptoms of schizophrenia. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products, among other things, are subject to extensive regulation by the FDA, the DEA (in the case of Zohydro ER) and other regulatory authorities in the United States. We are not permitted to market Zohydro ER, Relday or any of our other product candidates in the United States unless and until we receive regulatory approval from the FDA. We cannot

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provide any assurance that we will obtain regulatory approval for Zohydro ER, Relday or any of our other product candidates, or that any such product candidates will be successfully commercialized.

Under the policies agreed to by the FDA under The Prescription Drug User Fee Act, or PDUFA, as renewed by the Food and Drug Administration Safety and Innovation Act, or FDASIA, the FDA is subject to a two-tiered system of review times for new drugs - Standard Review and Priority Review. For certain drugs subject to standard review, such as Zohydro ER, the FDA has a goal to complete its review of the NDA and respond to the applicant within ten months from the date of receipt of an NDA. The FDA assigned a target action date of March 1, 2013 for the Zohydro ER NDA. The review process and the PDUFA target action date may be extended by three months if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the three months prior to the PDUFA target action date. The FDA's review goals are subject to change, and the duration of the FDA's review may depend on the number and type of other NDAs that are submitted with the FDA around the same time period. In February 2013, the FDA informed us that we were unlikely to receive an action letter for our NDA for Zohydro ER by the PDUFA target action date of March 1, 2013. In the beginning of May 2013, the FDA informed us that they are preparing to take action on the Zohydro ER NDA in the summer of 2013. The FDA has not provided a reason for the delay and we have not been informed of any deficiencies in the NDA for Zohydro ER during the review process.

The FDA may also refer applications for novel products or products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. In connection with the acceptance of our NDA for Zohydro ER, the FDA convened an advisory committee on December 7, 2012, which voted 11-2 (with 1 abstention) against the approval of Zohydro ER. The FDA is not bound by the recommendation of the advisory committee and the final decision regarding approval is made by the FDA. However, due to the advisory committee's recommendation against the approval of our NDA, we may not be able to succeed in securing approval for Zohydro ER. Even if we obtain regulatory approval for Zohydro ER, the matters discussed at the advisory committee meetings, and in particular any concerns regarding safety and abuse potential, could limit our ability to successfully commercialize the product candidate.

As part of its review of the NDA, the FDA may inspect the facility or the facilities where the drug is manufactured. If the FDA's evaluations of the NDA and the clinical and manufacturing procedures and facilities are favorable, the FDA will issue an action letter, which will be either an approval letter, authorizing commercial marketing of the drug for a specified indication, or a “Complete Response Letter, or CRL” containing the conditions that must be met in order to secure approval of the NDA. These conditions may include deficiencies identified in connection with the FDA's evaluation of the NDA submission or the

clinical and manufacturing procedures and facilities. Until any such conditions or deficiencies have been resolved, the FDA may refuse to approve the NDA. If and when those conditions have been met to the FDA's satisfaction, the FDA will issue an approval letter. The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example:

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

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

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

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

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

Zohydro ER has undergone Phase 1 pharmacokinetics studies, Phase 2 clinical trials, and a Phase 3 clinical development program. However, some of these studies and trials were conducted by a third party and, accordingly, we did not directly participate in their design or execution. We initiated the Phase 3 clinical development program for Zohydro ER in March 2010 and reported positive results from our pivotal Phase 3 efficacy trial, Study 801, in August 2011 and completed our Phase 3 safety trial, Study 802, in December 2011, which showed Zohydro ER to be safe and generally well tolerated. However, product candidates such as Zohydro ER may not be approved even if they achieve their specified endpoints in clinical trials. The FDA may disagree with our trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. The FDA may also approve a product candidate for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDA may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our product candidates. Approval may be contingent on a Risk Evaluation and Mitigation Strategy, or REMS, which limits the labeling, distribution or promotion of a drug product.

Relday and any of our other product candidates may not achieve their specified endpoints in clinical trials. We initiated a Phase 1 safety and pharmacokinetic clinical trial for Relday in July 2012 and announced positive single-dose pharmacokinetic results from this trial in January 2013. Based on the favorable safety and pharmacokinetic profile demonstrated with the 25 mg and 50 mg once-monthly doses tested in the Phase 1 trial, we extended the study to include an additional cohort of 10 patients

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at a 100 mg dose of the same formulation and announced positive top-line results from the extended Phase 1 clinical trial in May 2013. The positive results from this study extension position us to begin a multi-dose clinical trial, which would provide the required steady-state pharmacokinetic and safety data prior to initiating Phase 3 development studies, subject to our ability to secure a development and commercialization partner prior to initiation of the multi-dose trial.

We believe that we have planned, designed and completed an adequate Phase 3 clinical trial program for Zohydro ER, and we presented the trial design for our Phase 3 trials to the FDA at our End of Phase 2 meeting in June 2008. Although we believe the FDA has generally agreed with the design of our Phase 3 clinical trial program, the FDA could still determine that it is not satisfied with our plan, the details of our pivotal clinical trial protocols and designs or the results of our studies. In addition, we concluded our pre-NDA meetings with the FDA in December 2011 during which we discussed the non-clinical, clinical and chemistry, manufacturing and controls, or CMC, development of Zohydro ER, and agreed on the submission requirements for the NDA under 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FFDCA. While the FDA has provided us with a written record of our discussions and responses to our questions at our End of Phase 2 meeting and our pre-NDA meetings, such records and responses do not guarantee that the FDA will deem our trial design to be sufficient for the purpose of obtaining marketing approval for Zohydro ER. We did not seek a Special Protocol Assessment from the FDA for our pivotal Phase 3 efficacy study for Zohydro ER (Study 801).

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

Delays in the commencement or completion of any additional testing for Zohydro ER, if required, or clinical testing for Relday, or pre-clinical or clinical testing for any of our other product candidates could result in increased costs to us and delay or limit our ability to pursue regulatory approval for, or generate revenues from, such product candidates.

Clinical trials are very expensive, time consuming and difficult to design and implement. Delays in the commencement or completion of any additional testing for Zohydro ER, if required, or clinical testing for Relday, or pre-clinical or clinical testing for any of our other product candidates could significantly affect our product development costs and business plan. We initiated clinical testing for Relday in patients with schizophrenia in July 2012 and announced positive single-dose pharmacokinetic results from the Phase 1 clinical trial in January 2013. Based on the favorable safety and pharmacokinetic profile demonstrated in the Phase 1 trial, we extended the study to include an additional dose of the same formulation and announced positive top-line results in May 2013. The positive results from this study extension position us to begin a multi-dose clinical trial, which would provide the required steady-state pharmacokinetic and safety data prior to initiating Phase 3 development studies, subject to our ability to secure a development and commercialization partner prior to initiation of the multi-dose trial. We do not know whether any of our 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 authorization 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;

• 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.

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

• failure to design appropriate clinical trial protocols;

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

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

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

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

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

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

• 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; 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. All of the above risks will be applicable to Zohydro ER to the extent we are required by the FDA to conduct any additional clinical trials. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for Zohydro ER, Relday and our other product candidates may be harmed, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

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

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

In February 2009, the FDA informed opioid analgesic drug manufacturers that it will require a class-wide REMS for all long-acting and sustained-release opioid drug products. The FDA has since initiated efforts to develop a new standardized REMS for these opioid medications to ensure their safe use. In April 2011, the FDA announced that it had finalized the elements of a class-wide REMS for these products. The central component of the opioid REMS program is an education program for prescribers and patients. Specifically, the REMS for these products must include a Medication Guide available for distribution to patients who are dispensed the drug, as well as a number of elements to assure safe use. These elements include training for prescribers who prescribe the drug; information provided to prescribers that prescribers can use to educate patients in the safe use, storage, and disposal of opioids; and information provided to prescribers of the existence of the REMS and the need to successfully complete the necessary training. The FDA expects that the prescriber training required as part of the REMS is to be conducted by accredited, independent continuing education providers, without cost to the healthcare professionals, under unrestricted grants to accredited continuing education providers funded by the opioid analgesic sponsor. In November 2011, the FDA issued a draft blueprint for this prescriber education that outlines the core messages that the FDA believes should be conveyed to prescribers in a basic two to three hour educational module. This finalized and approved blueprint is available at www.ER-LA-opioidrems.com for use by continuing education providers in developing continuing education courses. Moreover, the extended-release/long-acting opioid analgesic REMS must include a timetable for submission of assessments that shall be no less frequent than 6 months, 12 months, and annually after the REMS is approved to assess the extent to which the elements to assure safe use are meeting the goals of the REMS and whether the goals or elements should be modified. The FDA expects that manufacturers of long-acting and extended-release opioids work together to provide educational materials as part of a class-wide single shared system to reduce the burden of the REMS on the healthcare system.

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

We may not successfully develop, obtain approval for or commercialize Sumavel DosePro in the European Union or other foreign territories, which may adversely affect our ability to commercialize Sumavel DosePro both inside and outside the United States.

In March 2008, we entered into a licensing and distribution agreement with Desitin pursuant to which we granted Desitin the exclusive right under our intellectual property rights related to Sumavel DosePro to develop, use, distribute, sell, offer for sale, and import Sumavel DosePro and any potential modified versions of Sumavel DosePro in the European Union, Norway, Switzerland and Turkey. In that regard, Desitin is not obligated under the agreement to pursue regulatory approval or commercialization of Sumavel DosePro in any of these countries except for Germany. Desitin submitted a Marketing Authorization Application for Sumavel DosePro to the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte (BfArM)) in Germany, the reference member state, through the Decentralized Procedure in October 2009, following completion of a European pivotal bioequivalence trial comparing needle-free Sumavel DosePro to a traditional needle-based autoinjector, Imigran-Inject, the European brand of Imitrex STATdose. In November 2010, Denmark became the first member of the European Union to approve marketing of Sumavel DosePro in that country. Subsequently, Sumavel DosePro has received marketing approval in Germany, Sweden, the United Kingdom, Norway and France. The marketing authorization for the United Kingdom and Sweden will expire in December of 2013 and the marketing authorization for Norway and France will expire in February 2014. In order to extend the marketing authorization in these countries, we or a commercialization partner, will be required to re-submit a Marketing Authorization Application, which will need to be re-approved. Any additional clinical studies we, or a commercialization partner, may be required to conduct as part of the regulatory approval process may not corroborate the results of the clinical studies we have conducted or may have adverse results or effects on our ability to maintain regulatory approvals in the United States or obtain them in other countries.

On August 5, 2013, we entered into an agreement with Desitin, whereby the licensing and distribution agreement will terminate effective October 1, 2013. Following the termination of the licensing and distribution agreement, we will assume the rights to exclusive development and commercialization of Sumavel DosePro for the European Union, Norway, Switzerland and Turkey. We may not have the internal resources to further develop and obtain regulatory approval for Sumavel DosePro in other foreign territories, or to find another commercialization partner for foreign territories, if deemed necessary. Although we believe that the U.S. market represents the largest commercial opportunity for Sumavel DosePro, we may not develop Sumavel DosePro as fast or generate as large of a market as we would like or as the market may expect which would limit our opportunity to receive revenue from foreign territories. Furthermore, negative developments occurring in foreign territories could have a negative impact on physician and patient impressions of our product in the United States and elsewhere.

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

Major pharmaceutical companies usually employ groups of sales representatives numbering in the thousands to call on the large number of primary care physicians. In connection with the launch of Sumavel DosePro in January 2010 we built a sales and marketing organization to promote Sumavel DosePro in the United States, including a focused sales force, which as of June 30, 2013 was comprised of approximately 55 field sales personnel, primarily targeting neurologists and other prescribers of migraine medications, including headache clinics and headache specialists. In June 2012, in order to maintain and expand the market opportunity for Sumavel DosePro into the broader primary care physician audiences, we entered into a co-exclusive (with us) co-promotion agreement with Mallinckrodt under which in August 2012 Mallinckrodt began promoting Sumavel DosePro to its customer base of prescribers.

In addition, in order to promote any additional product candidates that receive regulatory approval to these broader primary care physician audiences, we will need to expand our sales and marketing personnel and commercial infrastructure and/or establish partnerships with pharmaceutical companies or contract sales organizations to co-promote such additional products. We currently, and on an ongoing basis will have to, compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. We also face competition in our search for collaborators and potential co-promoters. To the extent we rely on additional third parties to co-promote or otherwise commercialize any product and/or product candidates that may receive regulatory approval, we are likely to receive less revenue than if we commercialized these products ourselves. Further, by entering into strategic partnerships or similar arrangements, we may rely in part on such third parties for financial and commercialization resources. Even if we are able to identify suitable partners to assist in the

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commercialization of our product and/or product candidates, they may be unable to devote the resources necessary to realize the full commercial potential of our products. In addition, we may lack the financial and managerial resources to increase the size of our sales and marketing organization to adequately promote and commercialize Sumavel DosePro and any product candidates that may be approved, and any increase in our sales force would result in an increase in our expenses, which could be significant before we generate revenues from any newly approved product candidate. If we are unable to expand our sales and marketing infrastructure or enter into a third-party arrangement, we would not be able to successfully commercialize any approved products. Even if we are able to expand our sales and marketing personnel or successfully establish partnership arrangements, such sales force and marketing teams may not be successful in commercializing our products, which would adversely affect our ability to generate revenue for such products, which will have a material adverse effect on our business, results of operations, financial condition and prospects.

We recently experienced a reduction in force and may need to increase the size of our organization in the near future, in which case we could experience difficulties in managing and financing such growth.

In May 2013, we commenced a restructuring of our workforce, resulting in a reduction in force of approximately 37%, or 55 employees, across all functional areas of our company. We took this step as part of our initiative to extend our cash runway to reach key business milestones that may occur over the remainder of 2013, including gaining FDA approval for our NDA for Zohydro ER, securing a development partner for Relday, and out-licensing our proprietary DosePro needle-free delivery technology.

We intend to increase our sales force if Zohydro ER is approved by the FDA. Any such increases in our sales force could substantially increase our expenses. We may need to expand our managerial, operational and other resources in order to grow, manage and fund our existing business. Our management and personnel, systems and facilities currently in place may not be adequate to support any future growth, and we may be unable to fund the costs and expenses required to increase our necessary headcount and infrastructure. Our need to effectively manage our operations, any future growth and various projects requires that we:

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

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

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

• attract and retain sufficient numbers of talented employees.

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

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

Our success depends on our continued ability to attract, retain and motivate highly qualified management and key clinical development, regulatory, sales and marketing and other personnel. In May 2013, we commenced a restructuring of our workforce, resulting in a reduction in force of approximately 37%, or 55 employees, across all functional areas of our company. We took this step as part of our initiative to extend our cash runway to reach key business milestones that may occur over the remainder of 2013. In June 2013, we implemented a company-wide retention program pursuant to which restricted stock units were granted to our executives and all other full time personnel; however, this new program may not be effective in retaining our personnel.

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

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of the services of any members of our senior management team, especially our Chief Executive Officer, Roger L. Hawley, and President and Chief Operating Officer, Stephen J. Farr, Ph.D., could negatively impact the commercialization of Sumavel DosePro and could delay or prevent the development and commercialization of any other product candidates, including Zohydro ER or Relday. Further, if we lose any members of our senior management team, we may not be able to find suitable replacements, and our business may be harmed as a result. In addition to the competition for personnel, our locations in California in particular are characterized by a high cost of living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts.

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

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

Payments to our material suppliers and contract manufacturers are denominated in the Euro and U.K. pound sterling. Our reporting currency is the U.S. dollar and to date all of the revenues generated by sales of Sumavel DosePro have been in U.S. dollars. For the six months ended June 30, 2013, $9.8 million (based on exchange rates as of June 30, 2013) of our materials purchased and contract manufacturing costs were denominated in foreign currencies. As a result, we are exposed to foreign exchange risk, and our results of operations may be negatively impacted by fluctuations in the exchange rate between the U.S. dollar and the Euro or U.K. pound sterling. A significant appreciation in the Euro or U.K. pound sterling relative to the U.S. dollar will result in higher expenses and cause increases in our net losses. Likewise, to the extent that we generate any revenues denominated in foreign currencies, or become required to make payments in other foreign currencies, fluctuations in the exchange rate between the U.S. dollar and those foreign currencies could also negatively impact our results of operations. We currently have not entered into any foreign currency hedging contracts to reduce the effect of changes in foreign currency exchange rates, and foreign currency hedging is inherently risky and may result in unanticipated losses.

Risks Related to Our Financial Position and Capital Requirements

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

We launched our only approved product, Sumavel DosePro, in January 2010. Without a long history of sales, we may not accurately predict future sales, and we may never be able to significantly increase these sales, especially in light of our reliance on our new co-promotion partner, Mallinckrodt. We have financed our operations almost exclusively through the proceeds from the issuance of our common and preferred stock, including the proceeds from our initial public offering completed in November 2010, our follow-on public offerings completed in September 2011 and July 2012, and debt, and have incurred losses and negative cash flow from operations in each year since our inception. For example, for the six months ending June 30, 2013 and the years ended December 31, 2012 and 2011, we incurred net losses of $34.4 million, $47.4 million and $83.9 million, respectively, our net cash used in operating activities was $24.6 million, $52.2 million and $80.5 million, respectively, and, at June 30, 2013, our accumulated deficit was $363.8 million. These losses and negative cash flow from operations have had a material adverse effect on our stockholders' equity and working capital. Further, despite the revenues from Sumavel DosePro, we expect our losses to continue for at least the next several years primarily as a result of the expenses incurred in connection with our efforts in seeking marketing approval for Zohydro ER, the potential additional clinical development of Relday, any additional required testing for Zohydro ER, and the cost of the sales and marketing expense associated with Sumavel DosePro, and, if approved, Zohydro ER. As a result, we may remain dependent upon external sources of financing to finance our business and the development and commercialization of our approved product and product candidates. To the extent we need to raise additional capital in the future, we cannot ensure that debt or equity financing will be available to us in amounts, at times or on terms that will be acceptable to us, or at all. Any shortfall in our cash resources could require that we delay or abandon certain development and commercialization activities and could otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

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

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As of June 30, 2013, we had $30.0 million of outstanding indebtedness under a financing agreement with Healthcare Royalty Partners, or the Healthcare Royalty financing agreement. Our outstanding debt and related debt service obligations could have important adverse consequences to us, including:

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

• requiring a significant amount of interest payments and fixed payments on our indebtedness, therefore reducing our ability to use our available cash to fund our operations, capital expenditures and future business opportunities;

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

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

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

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay product development, sales and marketing, capital and other expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

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 will need to raise additional funds through public or private equity offerings, debt financings, receivables financings or corporate collaboration and licensing arrangements. To the extent that we raise additional capital by issuing equity securities, including through our controlled equity offering program, or convertible debt, your ownership interest in us will be diluted. Debt financing typically contains covenants that restrict operating activities. Our obligations under the Healthcare Royalty financing agreement are secured by a security interest in substantially all of our personal property (including, among other things, accounts receivable, equipment, inventory, contract rights or rights to payment of money, license agreements, general intangibles, including all intellectual property, and cash). The security interest will be extinguished once the aggregate payments made by us to Healthcare Royalty equals $75.0 million.

The Healthcare Royalty financing agreement contains provisions which allows Healthcare Royalty to accelerate the debt and seize and sell the collateral if, among other things, we fail to pay interest payments and fixed payments when due or breach our obligations under the agreement or if a material adverse change in our business or any other event of default occurs. Any future debt financing we enter into may involve more onerous covenants that restrict our operations, may be secured by some or all of our assets, and will likely allow the lenders to accelerate the debt and seize and sell any collateral following a default. Our obligations under our outstanding Healthcare Royalty financing 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 or product candidates or proprietary technologies, or grant licenses on terms that are not favorable to us. If adequate funds are not available, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and we may be required to delay, significantly curtail or eliminate the commercialization and development of our product or product candidates.

We may not be able to sell shares of our common stock under our controlled equity offering program with Cantor at times, prices or quantities that we desire, and if such sales do occur, they may result in dilution to our existing stockholders.

On March 27, 2013, we entered into the sales agreement with Cantor. Under the terms of the sales agreement, Cantor will use its commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of the Nasdaq Global Market, to sell shares of our common stock designated by us. However, there can be no assurance that Cantor will be successful in consummating such sales based on prevailing market conditions or in the quantities or at the prices that we deem appropriate. In addition, we will not be able to make sales of our common stock pursuant to the sales agreement unless certain conditions are met, which include the accuracy of representations and warranties made to Cantor under the sales agreement; compliance with laws; and the continued listing of our stock on the Nasdaq Global Market. In addition, Cantor is permitted to terminate the sales agreement at any time. If we are unable to access funds through sales under the sales agreement, or it is terminated by Cantor, we may be unable to access capital on favorable terms or at all.

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As of August 7, 2013, we completed the issuance of 3.0 million shares of our common stock pursuant to the sales agreement, which had a dilutive effect on holdings of our existing stockholders as of August 7, 2013. Should we sell additional shares pursuant to the sales agreement, it will further dilute the holdings of our existing stockholders, and may result in downward pressure on the price of our common stock. If we sell shares under the sales agreement at a time when our share price is decreasing, we will need to issue more shares to raise the same amount than if our stock price was higher. Issuances in the face of a declining share price will have an even greater dilutive effect than if our share price were stable or increasing, and may further decrease our share price.

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

In March 2008, we established an exclusive commercial partnership for Sumavel DosePro with Desitin in the European Union, Norway, Switzerland and Turkey, in order to seek to accelerate the development and regulatory approvals in those territories. However, on August 5, 2013, we agreed with Desitin to terminate the licensing and distribution agreement effective October 1, 2013. Following the termination of the licensing and distribution agreement, we will assume the rights to exclusive development and commercialization of Sumavel DosePro for the European Union, Norway, Switzerland and Turkey. We may seek to establish commercial partnerships for Sumavel DosePro in other foreign countries, and we may also seek to establish a new commercial partnership in the European Union, Norway, Switzerland and Turkey. In order to market Sumavel DosePro or any other products outside of the United States, we, or any potential partner, must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our products. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed in these “Risk Factors,” and the "Risk Factors" set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, 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, or any potential partner, may be unable to obtain rights to the necessary clinical data and may be required to develop our own proprietary safety effectiveness dossiers. Desitin submitted a Marketing Authorization Application for Sumavel DosePro to the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte (BfArM)) in Germany, the reference member state, through the Decentralized Procedure in October 2009, following completion of a European pivotal bioequivalence trial comparing needle-free Sumavel DosePro to a traditional needle-based autoinjector, Imigran-Inject, the European brand of Imitrex STATdose. However, regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others.

Inability to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed in these “Risk Factors,” and the "Risk Factors" set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, regarding FDA approval in the United States. As described above, such effects include the risks that our product and product candidates may not be approved at all or for all requested indications, which could limit the uses of our product and product candidates and have an adverse effect on their commercial potential or require costly, post-marketing studies. In addition, we, or any potential partner, may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution if we are unable to comply with applicable foreign regulatory requirements.

Risks Related to Intellectual Property

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

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

We in-license certain intellectual property for Zohydro ER from Alkermes, and certain intellectual property for Relday from Durect. We rely on these licensors to file and prosecute patent applications and maintain patents and otherwise protect

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certain of the intellectual property we license from them. We have not had and do not have primary control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, with respect to our license agreements with Alkermes and Durect, we cannot be certain that such activities by Alkermes and Durect 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. Alkermes has retained the first right, but not the obligation, to initiate an infringement proceeding against a third-party infringer of the intellectual property rights that Alkermes has licensed to us, and enforcement of our licensed patents or defense of any claims asserting the invalidity or unenforceability of these patents would also be subject to the control or cooperation of Alkermes. Similarly, Durect has retained the first right, but not the obligation, to initiate an infringement proceeding against a third-party infringer of certain of the intellectual property rights that Durect has licensed to us, and enforcement of certain of our licensed patents or defense of any claims asserting the invalidity or unenforceability of these patents would also be subject to the control or cooperation of Durect. We are not entitled to control the manner in which Alkermes or Durect may defend certain of the intellectual property that is licensed to us and it is possible that their defense activities may be less vigorous than had we conducted the defense ourselves.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• the laws of foreign countries may not protect our or our licensors', as the case may be, proprietary rights to the same extent as the laws of the United States;

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

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

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

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

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

If any of our owned or in-licensed patents are found to be invalid or unenforceable, or if we are otherwise unable to adequately protect our rights, it could have a material adverse impact on our business and our ability to commercialize or license our technology and products. Likewise, our patents covering certain technology used in our DosePro device are expected to expire on various dates from 2014 through 2026 and the patents licensed to us by Alkermes are expected to expire in 2019. As of June 30, 2013, our patent portfolio included twelve issued U.S. patents, three pending U.S. patent applications, 36 issued foreign patents and two pending foreign patent applications relating to various aspects of Sumavel DosePro and our DosePro technology. Eleven of our U.S. patents relating to our DosePro technology, U.S. Patent Nos. 5,891,086, 5,957,886, 6,135,979, 7,776,007, 7,901,385, 8,267,903, 8,118,771, 8,241,243, 8,241,244, 8,287,489 and 8,343,130 are expected to expire in 2014, 2016, 2017, 2026, 2026, 2023, 2023, 2025, 2022, 2024, and 2022, respectively. U.S. Patent No. 5,891,086 covers a particular actuator mechanism forming a part of the needleless injector device; U.S. Patent No. 5,957,886 claims a needleless injector system using a viscous damping medium; U.S. Patent No. 6,135,979 covers the needleless injector with particular safety mechanisms; U.S. Patent Nos. 7,776,007 and 8,287,489 cover devices with a cap and latch mechanism; U.S. Patent Nos. 7,901,385 and 8,267,903 encompass various embodiments of the casing for enclosing the injection devices; U.S. Patent Nos. 8,118,771, 8,241,243 and 8,241,244 cover a method of reducing breakage of glass capsules; and 8,343,130 covers a method of reducing the propensity to create a shock wave on firing the device as used in the Sumavel DosePro device. Upon the expiration of these patents, we will lose the right to exclude others from practicing these inventions. Additionally, since these ten patents are the only patents currently listed in the FDA Orange Book for Sumavel DosePro, their expiration will mean that we lose certain advantages that come with Orange Book listing of patents. The expiration of these patents could also have a similar material adverse effect on our business, results of operations, financial condition and prospects. Moreover, if Alkermes or Durect decides not to commence or continue any action relating to the defense of the patents they have licensed to us, they are required to notify us and we have the right to initiate proceedings after receiving their notice. Such proceedings will require the assistance of Alkermes or Durect, as applicable, and we have limited control over the amount or timing of resources Alkermes or Durect devotes on our behalf or the priority they place on enforcing these patent rights.

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

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

The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has recently experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Since the commencement of trading in connection with our initial public offering in November 2010, the publicly traded shares of our common stock have themselves experienced significant price and volume fluctuations. During the quarter ended June 30, 2013, the price per share for our common stock on the Nasdaq Global Market has ranged from a low sale price of $1.25 to a high sale price of $1.84. This market volatility is likely to continue. These and

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other factors could reduce the market price of our common stock, regardless of our operating performance. In addition, the trading price of our common stock could change significantly, both over short periods of time and the longer term, due to many factors, including those described elsewhere in this “Risk Factors” section and the following:

• announcements concerning our and Mallinckrodt's commercial progress in promoting and selling Sumavel DosePro, including sales and revenue trends;

• announcements concerning our NDA for Zohydro ER;

• FDA or international regulatory actions, including results and announcements from FDA advisory committee meetings convened with respect to hydrocodone and whether and when we receive regulatory approval for Zohydro ER or any of our other product candidates;

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

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

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

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

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

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

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

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

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

• actual and anticipated fluctuations in our quarterly operating results;

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

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

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

• additions or departures of key personnel;

• third-party payor coverage and reimbursement policies;

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

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

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

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

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

• changes in accounting principles; and

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

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

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. As of June 30, 2013, we had research coverage by only four securities analysts. If these securities analysts cease coverage of our company, the trading price for our stock would be negatively impacted. 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.

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

Our executive officers and directors and their affiliates together control, as of June 30, 2013, approximately 17% of our outstanding common stock, assuming no exercise of outstanding options or warrants. Two of our non-employee directors are, or are representatives designated by, significant stockholders and two of our directors are executive officers. As a result, these stockholders will collectively be able to significantly influence and may be able to control all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions such as mergers, consolidations or the sale of all or substantially all of our assets. The concentration of ownership may delay, prevent or deter a change in control of our company even when such a change may be in the best interests of some stockholders, impede a merger, consolidation, takeover or other business combination involving us, or could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might adversely affect the prevailing market price of our common stock.

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

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

Persons who were our stockholders prior to the sale of shares in our initial public offering in November 2010 continue to hold a substantial number of shares of our common stock that they are able to sell in the public market, subject in some cases to certain legal restrictions. Significant portions of these shares are held by a small number of stockholders. If these stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. The perception in the market that these sales may occur could also cause the trading price of our common stock to decline. As of June 30, 2013, we had 101,013,904 shares of common stock outstanding. Of these shares, approximately 62,749,900 are freely tradeable, without restriction, in the public market.

In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans are eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities Act, and, in any event, we have filed a registration statement permitting shares of common stock issued on exercise of options to be freely sold in the public market. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

We have registered under the Securities Act 15,784,200 shares of our common stock issuable upon the exercise of the warrants we issued in July 2012, which warrants became exercisable on July 27, 2013 at an exercise price of $2.50 per share (subject to restrictions on exercise set forth in such warrants), which means that upon exercise of warrants, such shares will be freely tradeable without restriction under the Securities Act, except for shares held by our affiliates. Further, certain holders of shares of our common stock are entitled to rights with respect to the registration of their shares under the Securities Act, which, if registered, would also become freely tradeable without restriction under the Securities Act, except for shares held by our affiliates. In addition, our directors and executive officers may establish programmed selling plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for the purpose of effecting sales of our common stock. Any sales of securities by these stockholders, warrantholders or executive officers and directors, or the perception that those sales may occur, could have a material adverse effect on the trading price of our common stock.

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

Unregistered Sales of Equity Securities

Not applicable.

Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On August 5, 2013, we agreed with Desitin Arzneimittel GmbH, or Desitin, on termination of the licensing and distribution agreement dated March 14, 2008 between us, or the termination agreement, such termination to be effective October 1, 2013. Under the licensing and distribution agreement, we had licensed to Desitin the exclusive development and commercialization rights to Sumavel DosePro for the European Union, Norway, Switzerland and Turkey. Following the termination of the licensing and distribution agreement, we will assume the rights to exclusive development and commercialization of Sumavel DosePro for the European Union, Norway, Switzerland and Turkey.

A complete copy of the termination agreement is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and incorporated herein by reference. The foregoing description of the terms of the termination agreement is qualified in its entirety by reference to such exhibit.

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Item 6. Exhibits

EXHIBIT INDEX

Exhibit Number	Description
3.1(2)	Fifth Amended and Restated Certificate of Incorporation of the Registrant
3.2	Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant
3.3(2)	Amended and Restated Bylaws of the Registrant
4.1(3)	Form of the Registrant’s Common Stock Certificate
4.2(1)	Third Amended and Restated Investors’ Rights Agreement dated December 2, 2009
4.3(1)	Amendment to Third Amended and Restated Investors’ Rights Agreement dated as of July 1, 2010
4.4(4)	Second Amendment to Third Amended and Restated Investors’ Rights Agreement dated June 30, 2011
4.5(1)	Warrant dated March 5, 2007 issued by the Registrant to General Electric Capital Corporation
4.6(1)	Warrant dated June 30, 2008 issued by the Registrant to Oxford Finance Corporation
4.7(1)	Warrant dated June 30, 2008 issued by the Registrant to CIT Healthcare LLC (subsequently transferred to The CIT Group/Equity Investments, Inc.)
4.8(1)	Transfer of Warrant dated March 24, 2009 from CIT Healthcare LLC to The CIT Group/Equity Investments, Inc.
4.9(1)	Warrant dated July 1, 2010 issued by the Registrant to Oxford Finance Corporation
4.10(1)	Warrant dated July 1, 2010 issued by the Registrant to Silicon Valley Bank
4.11(4)	Warrant dated June 30, 2011 issued by the Registrant to Oxford Finance LLC
4.12(4)	Warrant dated June 30, 2011 issued by the Registrant to Silicon Valley Bank
4.13(4)	Warrant dated July 18, 2011 issued by the Registrant to Healthcare Royalty Partners (formerly Cowen Healthcare Royalty Partners II, L.P.)
10.1	Form of Restricted Stock Unit Award Agreement under the 2012 Equity Incentive Award Plan
10.2†	Co-promotion Agreement dated June 27, 2013, by and between the Registrant and Valeant Pharmaceuticals North America LLC

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10.3	Agreement to Termination of Agreements dated August 5, 2013, by and between the Registrant and Desitin Arzneimittel GmbH
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)
32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)
32.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted)
101	The following financial statements from the Registrant’s Quarterly Report on form 10-Q for the period ended June 30, 2013, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Loss, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements.

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

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

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

(4) Filed with the Registrant’s Quarterly Report on Form 10-Q on August 11, 2011.

† Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and filed separately with the Securities and Exchange Commission

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

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SIGNATURES

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

		ZOGENIX, INC.
Date: August 8, 2013	By:	/s/ Roger L. Hawley
		Chief Executive Officer
		(Principal Executive Officer)
Date: August 8, 2013	By:	/s/ Ann D. Rhoads
		Executive Vice President, Chief Financial Officer, Treasurer and Secretary
		(Principal Financial and Accounting Officer)

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EX-10.1

Exhibit 10.1

ZOGENIX, INC.

2010 EQUITY INCENTIVE AWARD PLAN
RESTRICTED STOCK UNIT AWARD GRANT NOTICE AND
RESTRICTED STOCK UNIT AWARD AGREEMENT

Zogenix, Inc., a Delaware corporation (the “Company”), pursuant to its 2010 Equity Incentive Award Plan (as amended, the “Plan”), hereby grants to the individual listed below (“Participant”), an award of restricted stock units (“Restricted Stock Units” or “RSUs”) with respect to the number of shares of the Company’s common stock (the “Shares”) listed below. This award for Restricted Stock Units (this “Award”) is subject to all of the terms and conditions as set forth herein and in the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Restricted Stock Unit 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 Restricted Stock Unit Agreement.

Participant:
Grant Date:	June 18, 2013
Total Number of RSUs:
Distribution Schedule:	Subject to the terms of the Restricted Stock Unit Agreement, the RSUs shall be distributable in accordance with Section 2.1 of the Restricted Stock Unit Agreement.
Vesting Schedule:	Subject to the terms of the Restricted Stock Unit Agreement, the Award shall vest on June 1, 2014, subject to Participant’s continued status as an Employee of or Consultant to the Company or any Subsidiary on the applicable vesting date. In addition, the RSUs shall vest upon the occurrence of a Change in Control.

By electronically accepting this document, Participant agrees to be bound by the terms and conditions of the Plan, the Restricted Stock Unit Agreement and this Grant Notice. Participant has reviewed the Restricted Stock Unit 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 Restricted Stock Unit Agreement and the Plan. Participant has been provided with a copy or electronic access to a copy of the prospectus for the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Restricted Stock Unit Agreement.

EXHIBIT A

TO RESTRICTED STOCK UNIT AWARD GRANT NOTICERESTRICTED STOCK UNIT AWARD AGREEMENT

Pursuant to the Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Restricted Stock Unit Award Agreement (this “Agreement”) is attached, the Company has granted to Participant the right to receive the number of RSUs set forth in the Grant Notice, subject to all of the terms and conditions set forth in this Agreement, the Grant Notice and the Plan.

ARTICLE I.
GENERAL

1.1Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.

1.2Incorporation of Terms of Plan. The Award is subject to the terms and conditions of the Plan which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

ARTICLE II.AWARD OF RESTRICTED STOCK UNITS

2.1Award of Restricted Stock Units.

(a)Award. In consideration of Participant’s continued employment with the Company or any Subsidiary thereof and for other good and valuable consideration, the Company hereby grants to Participant the right to receive the number of RSUs set forth in the Grant Notice, subject to all of the terms and conditions set forth in this Agreement, the Grant Notice and the Plan. Prior to actual issuance of any Shares, the RSUs and the Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.

(b)Vesting. The RSUs subject to the Award shall vest in accordance with the Vesting Schedule set forth in the Grant Notice. Unless and until the RSUs have vested in accordance with the vesting schedule set forth in the Grant Notice, Participant will have no right to any distribution with respect to such RSUs. In the event of Participant’s Termination of Service prior to the vesting of all of the RSUs, any unvested RSUs will terminate automatically without any further action by the Company and be forfeited without further notice and at no cost to the Company.

(c)Distribution of Shares.

(i)Shares of Stock shall be distributed to Participant (or in the event of Participant’s death, to his or her estate) with respect to such Participant’s vested RSUs within thirty (30) days following the vesting date of the RSUs as specified in the Vesting Schedule set forth in the Grant Notice, subject to the terms and provisions of the Plan and this Agreement.

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(ii)All distributions shall be made by the Company in the form of whole shares of Stock.

(iii)    Neither the time nor form of distribution of Stock with respect to the RSUs may be changed, except as may be permitted by the Administrator in accordance with the Plan and Section 409A of the Code and the Treasury Regulations thereunder.

(d)Generally. Shares issued under the Award shall be issued to Participant or Participant’s beneficiaries, as the case may be, at the sole discretion of the Administrator, in either (i) uncertificated form, with the Shares recorded in the name of Participant in the books and records of the Company’s transfer agent with appropriate notations regarding the restrictions on transfer imposed pursuant to this Agreement; or (ii) certificate form.

2.2Tax Withholding. Notwithstanding any other provision of this Agreement (including, without limitation, Section 2.1(b) hereof):

(a)    The Company shall not be obligated to deliver any certificate representing Shares issuable with respect to the RSUs to Participant or his or her legal representative unless and until Participant or his or her legal representative shall have paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect to the taxable income of Participant resulting from the grant or vesting of the RSUs, the distribution of the Shares issuable with respect thereto, or any other taxable event related to the RSUs (the “Tax Withholding Obligation”).

(b)    To the maximum extent permitted by applicable law, the Company has the authority to deduct or withhold, or require Participant to remit to the Company, an amount sufficient to satisfy the Tax Withholding Obligation with respect to any taxable event arising from the vesting of the RSUs or the receipt of the Shares upon settlement of the RSUs. In addition, Participant may satisfy the Tax Withholding Obligation by delivering to the Company an amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation in one or more of the forms specified below:

(i)     by cash or check made payable to the Company;

(ii)     by the deduction of such amount from other compensation payable to Participant;

(iii)     with the consent of the Administrator, by requesting that the Company withhold a net number of vested Shares otherwise issuable pursuant to the RSUs having a then current Fair Market Value not exceeding the amount necessary to satisfy the Tax Withholding Obligation of the Company and its Subsidiaries based on the minimum applicable statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes;

(iv)     with the consent of the Administrator, by tendering vested shares of Stock having a then current Fair Market Value not exceeding the amount necessary to satisfy the Tax Withholding Obligation of the Company and its Subsidiaries based on the minimum applicable statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes;

(v)    through the delivery of a notice that Participant has placed a market sell order with a broker acceptable to the Company with respect to the Shares issuable pursuant to the RSUs then vesting and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the

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Company or its Subsidiary with respect to which the Tax Withholding Obligation arises in satisfaction of such obligation; provided that payment of such proceeds is then made to the Company or the applicable Subsidiary at such time as may be required by the Administrator, but in any event not later than the settlement of such sale; or

(vi)     in any combination of the foregoing.

(c)     In the event Participant fails to elect to provide timely payment of all sums required pursuant to Section 2.2(a) prior to the time the Tax Withholding Obligation arises pursuant to one of the permitted payment forms specified in Section 2.2(b), the Company shall have the right and option, but not the obligation, to treat such failure as an election by Participant to satisfy all or any portion of Participant’s required payment obligation pursuant to Section 2.2(b)(ii) or Section 2.2(b)(iii) above, or any combination of the foregoing as the Company may determine to be appropriate.

(d)    In the event Participant’s Tax Withholding Obligation will be satisfied under Section 2.2(b)(iii) above, then the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on Participant’s behalf a whole number of shares from those Shares issuable to Participant upon settlement of the RSUs as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy Participant’s Tax Withholding Obligation. Participant’s acceptance of this Award constitutes Participant’s instruction and authorization to the Company and such brokerage firm to complete the transactions described above, including the transactions described in the previous sentence, as applicable. Any Shares to be sold at the Company’s direction through a broker-assisted sale will be sold on the day the Tax Withholding Obligation arises (i.e., the date Stock is delivered) or as soon thereafter as practicable. The Shares may be sold as part of a block trade with other participants of the Plan in which all participants receive an average price. Participant will be responsible for all broker’s fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed Participant’s Tax Withholding Obligation, the Company agrees to pay such excess in cash to Participant as soon as practicable. Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy Participant’s Tax Withholding Obligation.

2.3    Conditions to Issuance of Shares. The Company shall not be required to issue or deliver any Shares issuable upon the vesting of the RSUs prior to the fulfillment of all of the following conditions:

(a)the admission of the Shares to listing on all stock exchanges on which such Shares are then listed;

(b)the completion of any registration or other qualification of the Shares under any state or federal law or under rulings or regulations of the U.S. Securities and Exchange Commission or other governmental regulatory body, which the Administrator shall, in its sole and absolute discretion, deem necessary and advisable;

(c)the obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable;

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(d)the lapse of any such reasonable period of time following the date the RSUs vest as the Administrator may from time to time establish for reasons of administrative convenience, subject to Section 409A of the Code and the Treasury Regulations and other guidance issued thereunder; and

(e)the receipt by the Company of full payment of any applicable withholding tax in any manner permitted under Section 2.2 above.

ARTICLE III.

RESTRICTIONS

3.1Award and Interests Not Transferable. This Award, including the RSUs awarded hereunder, may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until the Shares issuable pursuant to the Award have been issued, and all restrictions applicable to such Shares have lapsed. This Award and the rights and privileges conferred hereby, including the RSUs awarded hereunder, shall not be liable for the debts, contracts or engagements of Participant or his or her successors in interest and shall not 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.

3.2Rights as Stockholder.

(a)Neither Participant nor any person claiming under or through Participant shall have any of the rights or privileges of a stockholder of the Company in respect of any Shares issuable hereunder unless and until certificates representing such Shares (which may be in uncertificated form) will have been issued and recorded on the books and records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, Participant shall have all the rights of a stockholder of the Company, including with respect to the right to vote the Shares and the right to receive any cash or share dividends or other distributions paid to or made with respect to the Shares.

(b)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 (as defined below) 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.

3.3Forfeiture Provisions. Participant hereby agrees that the Administrator may provide that the Award shall terminate and any unvested RSUs shall be forfeited, if the Participant at any time prior to the vesting of the Award engages in any activity which is inimical, contrary or harmful to the interests of the Company, as determined by the Administrator, including, without limitation, any violation of any written Company policy, or the Participant’s employment is terminated for cause.

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ARTICLE IV.
OTHER PROVISIONS

4.1Adjustments. Participant acknowledges that the Award, including the vesting of the Award and the number of Shares subject to the Award, is subject to adjustment in the discretion of the Administrator upon the occurrence of certain events as provided in this Agreement and Article 11 of the Plan.

4.2Not a Contract of Employment or other Service Relationship. Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue to serve as an employee or other service provider of the Company or any of its affiliates. Participant understands and agrees that this Award does not alter the at-will nature of his or her employment relationship with the Company and is not a promise of continued employment for the vesting period of the Award or any portion of it.

4.3Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are 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 thereunder by the U.S. Securities and Exchange Commission, including, without limitation, Rule 16b-3 under the Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Awards are granted, 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.

4.4Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely effect the RSU in any material way without the prior written consent of the Participant.

4.5Notices. 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 an authorized officer of the Company 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 4.5, either party may hereafter designate a different address for notices to be given to that party. 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.

4.6Successors 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.

4.7Section 409A.

(a)Notwithstanding any other provision of the Plan, this Agreement or the Grant Notice, the Plan, this Agreement and the Grant Notice shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Grant Date, “Section 409A”). The Administrator may, in its discretion, adopt such amendments to the Plan, this Agreement or the Grant Notice or adopt other

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policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate to comply with the requirements of Section 409A.

(b)    This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the Shares issuable pursuant to the RSUs hereunder shall be distributed to Participant no later than the later of: (i) the fifteenth (15^th) day of the third month following Participant’s first taxable year in which such RSUs are no longer subject to a substantial risk of forfeiture, and (ii) the fifteenth (15^th) day of the third month following first taxable year of the Company in which such RSUs are no longer subject to substantial risk of forfeiture, as determined in accordance with Section 409A and any Treasury Regulations and other guidance issued thereunder.

4.8Tax Representations. Participant has reviewed with Participant’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Grant Notice and this Agreement. Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Participant understands that Participant (and not the Company) shall be responsible for Participant’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

4.9Limitations 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 RSUs, the Plan 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.

4.10Paperless Administration. By accepting this Award, Participant hereby agrees to receive documentation related to the Award by electronic delivery, such as a system using an internet website or interactive voice response, maintained by the Company or a third party designated by the Company.

4.11Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

4.12Governing Law; Severability. The laws of the State of California shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

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EX-10.2

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.

Exhibit 10.2

CO-PROMOTION AGREEMENT

This Co-Promotion Agreement (this Agreement) is entered into this 27th day of June, 2013 (the “Effective Date”), by and between Valeant Pharmaceuticals North America LLC, a Delaware limited liability company (“Valeant”), and Zogenix, Inc., a Delaware corporation (“Zogenix”). Each of Valeant and Zogenix is referred to herein, individually, as a “Party” and collectively, as the “Parties.”

BACKGROUND

A.    Valeant or its Affiliates have exclusive marketing and distribution rights in the Territory to the Product (as hereinafter defined).

B.    Valeant and Zogenix desire to enhance the marketing of the Product in the Territory (as hereinafter defined) by enlisting the support and participation of Zogenix in the Product promotion and detailing effort.

AGREEMENT

Now, therefore, in consideration of the foregoing and the mutual promises herein contained, Valeant and Zogenix hereby agree as follows:

1. Definitions.

1.1“Act” shall mean the United States Federal Food, Drug, and Cosmetic Act, as it may be amended from time to time.

1.2“Affiliate” shall mean a corporation or business entity that, directly or indirectly, is controlled by, controls, or is under common control with any entity.  For this purpose, control means the direct or indirect ownership of more than [***] ([***]%) of the voting or income interest in such corporation or business entity, or such other relationship as, in fact, constitutes actual control.

1.3“Authorized Generic” shall mean any intranasal formulation of dihydroergotamine (other than Migranal) promoted or otherwise commercialized in the Territory by Valeant or its Affiliates, including without limitation, the intranasal dihydroergotamine mesylate product (4mg/mL nasal spray) promoted or otherwise commercialized in the Territory by Oceanside Pharmaceuticals, an Affiliate of Valeant.

1.4“Bankruptcy Event” shall mean, with respect to a Party, any of the following: (i) the entry of an order for relief under the United States Bankruptcy Code (or any corresponding remedy under successor laws); (ii) the filing of a petition by or against such Party under any bankruptcy, insolvency, or similar law (which petition is not dismissed within [***] ([***]) days after filing), except Chapter 11 of the United States Bankruptcy Code or any successor statute that permits a corporation to continue its operation while protecting it from creditors; (iii) the appointment of a receiver for such Party’s business or property; or (iv) such Party’s making of a general assignment for the benefit of its creditors.

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1.5"Change of Control", with respect to a Party, shall occur when: (i) any “person” or "group" (as such terms are defined below in this Section 1.5) is or becomes the "beneficial owner" (as defined below), directly or indirectly, of shares of capital stock or other equity interests of such Party then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of the directors, managers or similar supervisory positions ("Voting Stock") of such Party representing [***] percent ([***]%) or more of the total voting power of all outstanding classes of Voting Stock of such Party; (ii) such Party enters into a merger, consolidation or similar transaction with another Person (whether or not such Party is the surviving entity) and as a result of such merger, consolidation or similar transaction the Persons that beneficially owned, directly or indirectly, the shares of Voting Stock of such Party immediately prior to such transaction do not beneficially own, directly or indirectly, shares of Voting Stock of the surviving Person representing at least [***] of the total voting power of all outstanding classes of Voting Stock of the surviving Person; (iii) such Party sells or transfers to any third party, in one or more related transactions, properties or assets representing all or substantially all of such Party's assets; or (iv) the holders of capital stock or equity of such Party approve a plan or proposal for the liquidation or dissolution of such Party. For the purpose of this definition of Change of Control, (A) "person" and "group" have the meanings given such terms under Section 13(d) and 14(d) of the United States Securities Exchange Act of 1934 and the term "group" includes any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the United States Securities Exchange Act of 1934, (B) a "beneficial owner" shall be determined in accordance with Rule 13d-3 under the United States Securities Exchange Act of 1934, and (C) the term "beneficially owned" and "beneficially own" shall have meanings correlative to that of "beneficial owner."

1.6“Co-Promotion Fee” shall have the meaning set forth in Section 5.1.

1.7“Commercial Officer(s)” shall mean the commercial heads of the branded pharmaceutical businesses of Zogenix and Valeant (or their respective Affiliates), or the Chief Executive Officer of either Party (or such other executive or senior officer of the Party or an Affiliate designated in writing by the Chief Executive Officer of such Party to the other Party).

1.8“Current Good Manufacturing Practices” shall mean the current standards for manufacture, as set forth in the Act and applicable regulations and guidelines promulgated thereunder or successors thereto, as shall be in effect from time to time during the Term.

1.9“Direct Costs” shall mean, as to a Party, [***].

1.10“FDA” shall mean the United States Food and Drug Administration, or any successor agency in the Territory.

1.11“[***]” shall mean [***], except for the [***] hereof, which shall [***] on the [***] and [***] on the earliest to occur of the [***] in this sentence.  These [***] correspond to the [***], which ends on [***] of each [***].

1.12“GAAP” shall mean United States generally accepted accounting principles, as may be amended from time to time.

1.13“Joint Commercialization Committee” shall have the meaning set forth in Section 3.1.

1.14“Net Sales” shall mean the gross sales of the Product in the Territory during the applicable period ([***]) (collectively, “Deductions From Net Sales”): [***]. All such amounts and calculations will be determined from books and records maintained by Valeant in accordance with GAAP.

1.15“Net Sales Price” shall mean, with respect to each [***], the [***].

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1.16“Non-Serious Adverse Event” shall mean any adverse drug experience associated with the use of the Product in humans, whether or not considered drug-related, which is not a Serious Adverse Event.

1.17“Other DHE Product” shall mean an inhaled dihydroergotamine product [***] or any other AB/AN rated generic product to Migranal promoted or otherwise commercialized by a third party in the Territory.

1.18“Prescribers” shall mean physicians and other health care practitioners who are permitted by law to prescribe Product in the Territory.

1.19“Product” shall mean: (i) Migranal® (dihydroergotamine mesylate) Nasal Spray (“Migranal”), (ii) [***], and (iii) [***], in each of (i), (ii) and (iii) which are promoted or otherwise commercialized by Valeant or any of its Affiliates in the Territory during the Term.

1.20“Product Promotional Materials” shall have the meaning set forth in Section 4.2

1.21“Product Technical Complaint” shall mean: (i) any complaint that questions the purity, identity, potency or quality of the Product, its packaging or labeling or the compliance of the Product with applicable laws, rules and regulations, including the Act and Current Good Manufacturing Practices; (ii) any complaint that concerns any incident that causes the Product or its labeling to be mistaken for, or applied to, another article; (iii) any bacteriological contamination or significant chemical, physical or other change or deterioration in the Product; (iv) any failure of the Product to meet the specifications therefor in the NDA; or (v) any complaint or evidence of tampering with the Product.

1.22“Product Trademarks” mean the trademark Migranal® (US registration no. 2048040) associated with the Product, and any other related trademark or service mark containing the word "Migranal" or a close variant or derivative thereof and any other trademark or service mark (whether registered or unregistered) used on or with the Product or in any sales and marketing materials (other than Valeant Trademarks or the Zogenix Trademarks, as applicable) in the Territory during the Term. Product Trademarks shall also mean such other name or mark as may be used by or under authority of Valeant for any product in the Migranal® line.

1.23“Promotion Commencement Date” shall mean the first date upon which the Product is promoted within the Territory by the Zogenix Sales Force to Prescribers, which date shall be no later than [***] ([***]) [***] following the Effective Date.

1.24“Proprietary Information” shall mean any proprietary and/or confidential information communicated by or on behalf of one Party (or any of its Affiliates) to the other Party (or any of its Affiliates) in connection with or relating to this Agreement (including discussions and negotiations relating hereto), whether communicated prior to, on or following the Effective Date, including the financial, marketing, business, technical and scientific, clinical, regulatory information or data, information related to a Party's compensation of its Sales Force, and the information exchanged pursuant to this Agreement, whether communicated in writing, orally or electronically. For the avoidance of doubt, the commercial data and information generated by each Party in connection with its activities under this Agreement are the Proprietary Information of that Party, the terms of this Agreement are the Proprietary Information of both Parties, training materials provided by Valeant to Zogenix are the Proprietary Information of Valeant, Product Promotional Materials are the Proprietary Information of Valeant and compliance materials of either Party are the Proprietary Information of that Party (in each case, subject to the exceptions set forth below in this Section 1.24). Proprietary Information shall not include information that the receiving Party can show through written documentation: (i) at the time of disclosure, is publicly known; (ii) after the time of disclosure, becomes part of the public domain, except by breach of an

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agreement between the disclosing Party or any Affiliate thereof and the receiving Party or any Affiliate thereof; (iii) is or was in the possession of the receiving Party or any Affiliate thereof at the time of disclosure by the disclosing Party and was not acquired directly or indirectly from the disclosing Party or any Affiliate thereof or from any third party under an agreement of confidentiality to the disclosing Party or any Affiliate thereof; or (iv) is or was developed by the receiving Party or its Affiliates without use of or reference to the other Party's Proprietary Information.

1.25“Sales Force” shall mean the field-based sales representatives employed by or on behalf of Valeant or Zogenix, as the case may be, for the detailing of the Product in the Territory to Prescribers.  Zogenix’ Sales Force may include, without limitation, any sales representatives engaged through an arrangement with a contract sales organization.

1.26“Samples” shall mean free samples of the Product dispensed to a patient by a Prescriber.

1.27“Serious Adverse Event” shall mean any adverse drug experience occurring at any dose that results in any of the following outcomes: death, a life-threatening adverse drug experience, inpatient hospitalization or prolongation of existing hospitalization, a persistent or significant disability/incapacity, or a congenital anomaly/birth defect. Important medical events that may not result in death, be life-threatening, or require hospitalization may be considered a Serious Adverse Event when, based upon appropriate medical judgment, they may jeopardize the patient or subject and may require medical or surgical intervention to prevent one of the outcomes listed in this definition.

1.28“Tail Period” shall mean that period of time which is [***] ([***]) [***] immediately following the end of the Term.

1.29“Term” shall mean the period of time defined in Section 13.1.

1.30“Territory” shall mean the United States of America and its territories and possessions.

1.31“Third Party Audit” shall mean the third party audit known currently as [***] (or such other third party data source as the Parties may agree upon from time to time). [***].

1.32“TRx-Unit Conversion Rate” shall mean an amount equal to the [***].

1.33“Unit” shall mean [***].

1.34“Valeant Supply Failure” shall occur if, in any [***] ([***]) [***] period during the Term, Valeant fails to meet [***] ([***]%) of [***] the Product, where “Trade Demand” means with respect to any period, the [***].

1.35“Valeant Trademarks” shall mean the trademark Valeant®, the Valeant corporate logo and any other related domain name, trademark or service mark (whether registered or unregistered) containing the word “Valeant” or a close variant or derivative thereof.

1.36“Zogenix Target Physicians” shall mean Prescribers primarily practicing as neurologists or headache specialists and other Prescribers treating migraine.

1.37“Zogenix Trademarks” shall mean the trademark Zogenix®, the Zogenix corporate logo and any other related domain name, trademark or service mark (whether registered or unregistered) containing the word “Zogenix.”

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2. Grants and Obligations.

2.1Grant of Co-Promotion Right.  Valeant hereby grants to Zogenix, during the Term, the co-exclusiveright (solely with Valeant or any of its Affiliates) to promote and detail the Product in the Territory for its approved indications through the Zogenix Sales Force to Prescribers, subject to the terms and conditions of this Agreement.

2.2Zogenix Target Physicians.  Valeant may, from time to time, but no more frequently than [***], request that Zogenix provide a list of Prescribers, including the Zogenix Target Physicians, which the Zogenix Sales Force has called on in the [***]. Such call list shall be provided by Zogenix within [***] ([***]) days of Valeant’s request.

2.3Zogenix Detailing Obligation. 

(i)Zogenix shall use commercially reasonable efforts to have the Promotion Commencement Date occur as soon as reasonably practicable following the Effective Date, but no later than [***] ([***]) days thereafter.

(ii)During the Term, Zogenix shall use commercially reasonable efforts to promote and detail the Product in the Territory through the Zogenix Sales Force to Prescribers.

(iii)For the avoidance of doubt, subject to Zogenix’ obligations set forth in (i) and (ii) above, Zogenix shall have the sole responsibility and discretion with respect to determining the priority of the Product presentation among Zogenix’ other promoted pharmaceutical products and the deployment of the Zogenix Sales Force.

2.4Valeant Obligations. In addition to any other obligations set forth in this Agreement, during the Term, Valeant shall be obligated to use commercially reasonable efforts to: (i) maintain the authorization and/or ability to market the Product in the Territory to Prescribers; and (ii) ensure the consistent supply of the Product and Samples to meet market demand and Zogenix’ orders pursuant to Section 4.5 and in accordance with Current Good Manufacturing Practices and all other applicable laws. For the avoidance of doubt, subject to Valeant’s obligations set forth in this Agreement, Valeant shall have the sole responsibility and discretion with respect to the following: (a) establishing and setting the price of the Product in the Territory; (b) booking sales of the Product in the Territory; (c) distribution of the Product in the Territory; (d) manufacturing and supply of the Product (including Samples) for the Territory; and (e) maintaining the marketing authorization for the Product in the Territory.

3. Joint Commercialization Committee.

3.1Establishment of the Joint Commercialization Committee.  Within [***] ([***]) days following the Effective Date, Valeant and Zogenix shall form a Joint Commercialization Committee (the “Joint Commercialization Committee”), comprised of no more than [***] ([***]) individuals, [***] of whom shall be appointed by Valeant and [***] of whom shall be appointed by Zogenix and all of whom shall be qualified to appropriately represent such Party at the Joint Commercialization Committee level. Each Party may replace its representatives at any time, upon written notice to the other Party. Additional representatives from either Party may attend the Joint Commercialization Committee meetings as non-voting members on an ad hoc basis as deemed necessary or appropriate by such Party, with advance notice to the other Party. The Joint Commercialization Committee shall be chaired by one of the Valeant representatives. The Joint Commercialization Committee will be used as the forum to oversee and manage the relationship between the Parties solely with respect to the Product in the Territory. For the avoidance of doubt, the Joint Commercialization Committee shall not have any oversight or management

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responsibility or authority with respect to (i) the manufacturing or sourcing of any Product, (ii) the NDA for any Product or (iii) the marketing, distribution and sales of any Product by Valeant.

3.2Joint Commercialization Committee Meetings. The Joint Commercialization Committee will meet at least [***] and no less than [***] to review and discuss: (i) strategic issues related to the marketing and promotion of the Product in the Territory; (ii) any promotional plans and activities of Zogenix for the Product in the Territory; (iii) the need for reviewing and approving any Product Promotional Materials; (iv) updates regarding any product development, clinical, regulatory, manufacturing/supply and quality matters; and (v) any measures required to ensure the promotional plans comply with all applicable laws, restrictions and regulations as well as [***]. The Joint Commercialization Committee may perform such other functions as may be mutually agreed by Valeant and Zogenix.  The first meeting of the Joint Commercialization Committee shall be held as soon as practicable after the Effective Date. Meetings of the Joint Commercialization Committee need not take place face-to-face, but upon the agreement of both Parties, can be via other methods of communication, such as teleconferences or videoconferences. Notwithstanding the creation and role of the Joint Commercialization Committee, each Party shall retain the rights, powers and discretions granted to it hereunder. The Joint Commercialization Committee shall not be delegated or vested with any such rights, powers or discretions unless expressly provided for herein. Without limiting the generality of the foregoing, the Joint Commercialization Committee may not amend or modify this Agreement, which may be amended or modified only as provided in Section 15.3.

3.3Expenses.  Each Party shall bear its own costs associated with its participation in the Joint Commercialization Committee, including but not limited to the costs of travel and expenses directly associated with participation in the Joint Commercialization Committee.

3.4Decision-Making.

(i)Subject to this Section 3.4, decisions of the Joint Commercialization Committee shall be made by agreement between the representatives of Valeant, and the representatives of Zogenix, with each Party having one (1) vote. No decision of the Joint Commercialization Committee shall be valid unless each Party is represented by at least [***] ([***]) members at the meeting at which the decision is made. The Parties shall cause their respective representatives on the Joint Commercialization Committee to use their good faith efforts to resolve all matters appropriately presented to them in an expeditious manner.

(ii)In the event that the Joint Commercialization Committee is unable to resolve a dispute or make a decision due to a lack of required unanimity within [***] ([***]) days following consideration of the dispute or the decision by such committee, then either Party may submit the matter to the Commercial Officers for a joint decision. The Commercial Officers shall diligently and in good faith attempt to resolve the referred dispute expeditiously and, in any event, within [***] ([***]) days of receiving such written notification, or within such other time as mutually agreed upon in writing between such officers (and if the officers resolve the dispute, such resolution shall be deemed to be a decision of the Joint Commercialization Committee). In the event that the Commercial Officers are unable to reach a resolution of the dispute within such time period, then such disputes shall be resolved pursuant to Section 15.6 below.

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EXECUTION COPY

(iii)For clarity, any dispute with respect to whether a Party has breached its obligations under this Agreement is not subject to the escalation procedures set forth in this Section 3.4, but either Party may refer such a dispute for resolution pursuant to Section 15.6.

4.Product Promotion Matters.

4.1Detailing Costs.  Zogenix shall be responsible for all costs and expenses related to establishing, maintaining and training the Zogenix Sales Force and conducting Zogenix’ other activities under this Agreement, except as set forth in this Section 4. Valeant shall be responsible for all costs and expenses related to conducting Valeant’s activities under this Agreement.

4.2Product Promotional Materials. 

(i)Promptly following the Effective Date, Valeant shall provide to Zogenix any existing artwork or samples of training, sales and promotional materials relating to the Product in the Territory (including, without limitation, training manuals, sales detail aids, leave behinds, coupons and any premium branded items) (“Product Promotional Materials”).  Subject to this Section 4.2, Zogenix may create new Product Promotional Materials, based on the existing Valeant materials or otherwise.

(ii)All Product Promotional Materials to be used by Zogenix shall be reviewed and approved by Valeant’s promotional review committee and Zogenix’ promotional review committee prior to their use by Zogenix. Zogenix shall not be required to use any Product Promotional Materials that are not reviewed by and acceptable to Zogenix’ promotional review committee. If, after its review of any Product Promotional Materials (including any new materials introduced after the Effective Date or the Promotion Commencement Date), a Party believes that changes to any such Product Promotional Materials are required to meet applicable legal or regulatory requirements or applicable FDA requirements, such proposed changes shall be advanced for determination in accordance with procedures to be established by the Parties. Valeant shall be responsible for ensuring that all Product Promotional Materials are in compliance with applicable laws, rules and regulations.

(iii)Valeant shall provide to Zogenix such quantities of Product Promotional Materials as reasonably requested by Zogenix in writing and with delivery dates to be mutually agreed between the Parties on a request by request basis; Zogenix shall pay Valeant for any Product Promotional Materials delivered to Zogenix pursuant to its written request, within thirty (30) days of delivery, at [***]. In addition, Zogenix may produce approved Product Promotional Materials at its own cost. Zogenix shall be permitted to use in connection with the Promotion of the Product only (A) the Product Promotional Materials approved under this Agreement by each of Zogenix and Valeant and (B) the FDA-approved Product labels and inserts. Zogenix shall use such Product Promotional Materials only in the form so approved and consistent with the training provided pursuant to Section 4.3 and Zogenix shall not change such Product Promotional Materials in any way following such approval and training, without the express written consent of Valeant.

(iv)Valeant shall own all copyrights to all Product Promotional Materials (other than those items which are subject to third party copyrights). Valeant shall, and does hereby, grant to Zogenix a royalty-free, non-exclusive right and license to use, reproduce and distribute Product Promotional Materials or any other Product-related materials made available to Zogenix by Valeant hereunder, in each case solely in conjunction with the promotion and/or detailing of the Product and the performance of Zogenix’ obligations under this Agreement, which license shall not be sublicensable, assignable or transferable by Zogenix, except in accordance with the terms of Section 15.1. Zogenix shall not be

permitted or licensed to make derivative works with respect to, or otherwise modify, any Product Promotional Materials without the prior written consent of Valeant.

4.3Training. Promptly following the Effective Date, Valeant shall provide to Zogenix any existing training materials for the Product in the Territory at Valeant’s cost. Zogenix and Valeant shall consult and agree on the development and implementation of initial and refresher sales training for the Zogenix Sales Force. Such training materials and training assistance shall address the following matters: disease state, Product knowledge, competitive product knowledge, obligations under this Agreement, administration and other appropriate information. Zogenix [***] shall provide training to each member of its Sales Force, at Zogenix’ expense, prior to his or her commencement of promotion of the Product hereunder to ensure that he or she is properly trained with respect to the matters described in this Section 4.3 and able to satisfy his or her promotion and detailing responsibilities under this Agreement. Valeant shall have the right, but not the obligation, to participate in the sales training process, at Valeant’s expense as Valeant may reasonably deem necessary to comply with its code of conduct or any related policies or as required by applicable laws or by a government entity or regulatory agency.

4.4Compliance with Laws.  Each of Valeant’s and Zogenix’ detailing and promotional activities with respect to the Product shall be conducted (i) in a manner which is consistent with FDA and all other applicable regulatory approvals or requirements which are then in effect with respect to the Product and with the PhRMA Code on Interactions with Healthcare Professionals and applicable AMA guidelines; and (ii) in compliance with all applicable laws, restrictions and regulations of the FDA, the Department of Commerce, the Department of Health and Human Services and any other United States, state, local, or applicable agency or authority.  Each of Valeant and Zogenix shall limit its claims of efficacy and safety for the Product to those that are consistent with approved Product Promotional Materials and FDA-approved prescribing information for the Product in the Territory, and shall not add, delete or modify claims of efficacy and safety in the marketing of the Product under this Agreement from those claims of efficacy and safety that are consistent with the FDA-approved prescribing information and applicable law. Under no circumstance shall a Party engage expenses on behalf of the other Party that would be reportable for the other Party under the Physician Payments Sunshine Act.

4.5Samples. 

(i)Valeant will provide Zogenix with [***] ([***]) Samples every [***] (the “Baseline Sample Amount”), with the first shipment of the Baseline Sample Amount to be delivered to Zogenix’ Sample distribution vendor no later than [***], and the remaining shipments to occur on [***] during the remainder of the Term. The Baseline Sample Amount shall be delivered to Zogenix’ Sample distribution vendor at [***] (including [***]).

(ii)In the event that Zogenix determines it desires Samples in addition to the Baseline Sample Amount, Zogenix may order Samples from Valeant no more frequently than [***] by providing Valeant with a purchase order, setting forth the requested delivery date (which shall be at least [***] ([***]) days from Valeant’s receipt of the purchase order). Valeant shall use commercially reasonable efforts to provide Zogenix with the Samples within [***] ([***]) days of the requested delivery date.

(iii)The Parties will work to coordinate delivery of the Baseline Sample Amount and any additional Samples ordered by Zogenix pursuant to subsection (ii) so as to minimize delivery costs.

(iv)Zogenix shall pay Valeant for any Samples ordered by Zogenix pursuant to subsection (ii) above (Samples in excess of the Baseline Sample Amount) and delivered by Valeant to Zogenix (or its designee) an amount equal to [***] associated with the manufacture and supply of such additional Samples. Valeant shall invoice Zogenix for such additional Samples upon the date of receipt at

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the Sample distribution vendor center designated by Zogenix, with such invoice being due and payable within [***] ([***]) days following receipt.

(v)Each of Valeant and Zogenix shall maintain records concerning its distribution of Samples as required by the Prescription Drug Marketing Act of 1987, as amended (together with the implementing rules and regulations thereunder, the “PDMA”), and relevant state laws.  Each of Valeant and Zogenix shall take such steps as necessary to ensure that its representatives comply with all requirements of the PDMA and relevant state laws, including but not limited to obtaining requests and receipts signed by Prescribers for all Samples delivered.  Each Party shall maintain records of its sampling activities in accordance with and for the time periods required by the PDMA and relevant state laws. Zogenix shall deliver to Valeant records of its sampling as and when requested by Valeant in a machine readable format sufficient to allow Valeant to meet its obligations to report samples to the federal government.

(vi)Valeant shall promptly reimburse Zogenix for the cost of any Samples purchased by Zogenix during the Term that become obsolete or otherwise unusable by Zogenix as the result of manufacturing, quality, regulatory or legal circumstances (other than to the extent caused by Zogenix’ negligence).

4.6Trademarks. 

(i)Valeant hereby grants to Zogenix a non-exclusive, royalty-free license to use the Product Trademarks and Valeant Trademarks solely to promote the Product as permitted in Section 2.1 in the Territory during the Term, provided that such promotion is conducted in accordance with the terms of this Agreement.

(ii)Each Party acknowledges the validity of Zogenix’ right, title and interest in and to the Zogenix Trademarks and the validity of Valeant’s right, title and interest in and to the Valeant Trademarks and the Product Trademarks. The Parties shall not have, assert or acquire any right, title or interest in or to any of Zogenix Trademarks (in the case of Valeant), or the Valeant Trademarks or the Product Trademarks (in the case of Zogenix) or the goodwill pertaining thereto, except as otherwise explicitly provided in Section 4.6(i) of this Agreement.

4.7Non-Solicitation of Employees. The Parties hereby agree that, throughout the Term and for a period of [***] ([***]) [***] immediately thereafter, neither will, directly or indirectly, solicit for employment any employee of the other Party (or of the other Party’s designee); provided, however, that the hiring of employees who respond to general advertisements for employment (not targeted to employees of the other Party or their designee) shall not be deemed to violate the foregoing provision.

4.8Notices. In addition to any other specific notice requirements set forth herein, Valeant shall provide Zogenix with prompt written notice of any material developments or changes relating to the Product, which could reasonably be expected to have an effect on Zogenix’ rights and obligations under this Agreement. Notwithstanding the generality of the foregoing, Valeant shall provide prompt written notice of any of the following matters:

(i)any material manufacturing matters (including potential shortages, quality matters, significant Product Technical Complaints, voluntary or mandatory withdrawals or recalls, etc.);

(ii)any material change in new or existing litigation relating to the Product;

(iii)any material communications with regulatory authorities relating to the Product; and

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(iv)any changes to the availability of Other DHE Products.

5. Compensation.

5.1Compensation. During each [***] of the Term, Valeant shall pay Zogenix a “Co-Promotion Fee,” calculated on [***], as follows: (i) [***]; and (ii) [***].

For the purposes of this Section 5, the following definitions shall additionally apply:

(A)    “[***]” shall mean [***], multiplied by [***] multiplied by the applicable [***] and calculated on [***].

(B)    “[***]” shall mean the [***] in the Territory, as measured by the Third Party Audit, during the applicable [***].

(C)    The “Baseline Forecast” for purposes of determining Zogenix Net Sales shall mean the [***], provided that the Baseline Forecast shall be [***].

(D)    The “Baseline Period” shall mean that period of time from the Effective Date through the end of the [***] immediately prior to [***] (the “Adjustment Event”).

(E)    The “Adjusted Baseline Forecast” for the purposes of determining [***] shall be the [***]. The “Adjustment Factor” is set forth on attached Schedule A. The “Adjusted Baseline Period” shall mean that period of time beginning on the first day of the [***] in which the Adjustment Event occurs through the remainder of the Term (and, with respect to the Tail Payment, the [***] thereafter).

5.2Tail Payment. In addition to the Co-Promotion Fee, Valeant shall pay to Zogenix an amount equal to [***] ([***]%) of the [***] during the Tail Period (the “Tail Payment”).

5.3Reports; Method of Payments. 

(i)Within [***] ([***]) days after the end of the applicable [***], Valeant shall provide a written report to Zogenix, detailing for the applicable [***] period: (A) the Net Sales, including reasonably detailed descriptions of all itemized deductions from gross sales; (B) the Zogenix Net Sales, including [***], each calculated in a manner consistent with Schedule A; (C) the calculated amount of Co-Promotion Fee due Zogenix on account of such Zogenix Net Sales; and (D) the basis for calculation of the Co-Promotion Fee due Zogenix, including applicable deductions/adjustments. If no Co-Promotion Fee is due for a particular [***] period, Valeant shall so report to Zogenix. Valeant’s [***] reports under this Section 5.3(i) shall be transmitted to Zogenix by express mail or express delivery service and by email (to such email addresses as Zogenix may from time to time designate in writing).

(ii)Within [***] ([***]) days after the end of the applicable [***], Valeant shall pay the Co-Promotion Fee to Zogenix.

(iii)Within [***] ([***]) days after the end of the Tail Period, Valeant shall pay the Tail Payment to Zogenix.

(iv)Payment of the Co-Promotion Fee and the Tail Payment shall be made by wire transfer to an account designated by Zogenix. All payments under this Agreement shall be made in U.S. Dollars.

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5.4True-Up of Deductions from Net Sales. No earlier than the end of the second full [***] following [***] (or as otherwise agreed by the Parties), Valeant shall perform a true-up for all Net Sales with respect to each [***] in the prior [***]. Such true-up shall reconcile the actual Deductions from Net Sales with respect to such Net Sales with the Deductions from Net Sales that were accrued or estimated with respect thereto. Each Party shall make reconciling payments to the other as necessary to effect such true-up with respect to the Co-Promotion Fee paid for the prior [***]. Valeant shall provide to Zogenix such reconciliation no later than [***] ([***]) days after the end of the second full [***] following [***]. If Valeant is required to make a payment to Zogenix to effect such reconciliation, then Valeant shall provide such payment to Zogenix along with such reconciliation. If Zogenix is required to make a payment to Valeant to effect such reconciliation, Zogenix shall make such payment directly to Valeant within [***] ([***]) days following receipt of the reconciliation. If Zogenix fails to make such payment within [***] ([***]) days following receipt of the reconciliation, Valeant may set-off such amount from any amount it owes Zogenix on account of the Co-Promotion Fee then payable by Valeant to Zogenix. Valeant shall provide to Zogenix, along with the reconciliation, all documentation reasonably necessary to explain or support the reconciliation (as well as such other information as Zogenix shall reasonably request), in a form to be agreed by the Parties.

5.5Late Payments; Interest. All payments shall bear interest from the date due until paid (including any adjustments made as a consequence of audit in accordance with Section 12.2) at a rate equal to the prime rate effective for the date that payment was due plus three percent (3%), as quoted by the Wall Street Journal, New York Edition, on the date such payment was due, or, if less, the maximum rate permitted by applicable law.

6. Regulatory Affairs.

6.1Regulatory Affairs.  Valeant shall have the sole right and responsibility, and shall bear all costs related thereto, to take such actions as may be necessary, in accordance with accepted business practices and legal requirements, to maintain the authorization and/or ability to market the Product in the Territory to Prescribers. 

6.2Communications with Regulatory Authorities.  Valeant shall have the sole right and responsibility and shall bear all costs related to communications with any government agencies to satisfy their requirements regarding the authorization and/or continued authorization to market the Product in commercial quantities in the Territory to Prescribers.  Zogenix shall notify Valeant within [***] ([***]) business days via facsimile of any inquiry or other communication that it receives from the FDA concerning the Product.  Valeant shall handle all communications with the FDA concerning the Product, including but not limited to post-marketing reports of adverse drug experiences in compliance with 21 CFR §314.80, other post-marketing reports such as those described in 21 CFR §314.81, submission of advertising and promotional labeling to FDA’s Office of Prescription Drug Promotion (OPDP), and responding to any inquiries concerning post-marketing reports and advertising or promotional materials, and shall provide copies of all such communication to Zogenix within [***] ([***]) business days via facsimile.  Notwithstanding the foregoing, Zogenix shall be able to communicate with any such governmental agency regarding the Product, to the extent that such communication is necessary to comply with the terms of this Agreement or the requirements of any law, governmental order or regulation, provided that Zogenix shall disclose to Valeant the nature of any such communication to the extent Zogenix is legally permitted to make such a disclosure.

6.3Notice of Adverse Events. Each Party shall promptly notify the other Party of any event(s) that materially affect(s) or could materially affect the marketing of the Product, including without limitation Serious Adverse Events, Non-Serious Adverse Events, and governmental inquiries. As between the Parties, Valeant shall have the sole responsibility for reporting and responding to such events to

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applicable governmental or regulatory authorities; provided that Zogenix may take such actions (including issuing such reports) as it determines are required by applicable law, governmental order or regulation.

6.4Medical Inquiries.  For all medical inquiries, including those related to information outside of labeling or which Zogenix and its Sales Force are unable or not authorized under acceptable promotional guidelines to answer, Zogenix and its Sales Force shall direct such inquiries to Valeant’s Medical Affairs Department. As between the Parties, any responses to such inquiries from patients, medical professionals, or other third parties shall be provided solely by Valeant.

6.5Pharmacovigilance Responsibilities. The Parties shall enter into a mutually agreeable safety data exchange agreement no later than [***] ([***]) days following the Effective Date.

6.6Product Technical Complaints and Recalls.

(v)If Zogenix becomes aware of any Product Technical Complaint, Zogenix shall notify Valeant of such Product Technical Complaint promptly but not later than within [***] ([***]) business days.

(vi)As between the Parties, Valeant shall have the sole authority and responsibility to respond to any governmental or regulatory authorities, including without limitation the FDA, in connection with Product Technical Complaints and medical complaints, and to handle all returns, recalls or market withdrawals of the Product in accordance with applicable law, at Valeant’s cost and expense.

(vii)Each Party shall promptly (but in any case, not later than [***] ([***]) [***]) notify the other Party in writing via facsimile of any order, request or directive of a court or other governmental or regulatory authority to recall or withdraw the Product.

6.7Government Inspections and Inquiries. Upon being contacted by the FDA or any other governmental or regulatory authority for any regulatory purpose pertaining specifically to this Agreement or to the Product, Zogenix shall notify Valeant within [***] ([***]) business days. Zogenix agrees that it shall not respond to any such agency making an inquiry of it until and only as directed by Valeant; provided, however, that the foregoing shall not be construed to prevent Zogenix in any way from complying with any governmental or regulatory authority or applicable laws, rules or regulations. Zogenix may permit unannounced regulatory inspections and respond to the extent necessary to comply with its obligations under applicable laws, rules or regulations.

6.8Debarment, Etc. Neither Valeant nor Zogenix nor any of Valeant’s or Zogenix’ employees or agents who will be performing services under this Agreement or otherwise with respect to the Product (i) is under investigation by the FDA for debarment action or is presently debarred under the Act or pursuant to the Generic Drug Enforcement Act of 1992 (21 U.S.C. ‘301 et seq.) or (ii) has violated, or is under investigation for violating, any state or federal health care programs or any federal or state anti-kickback laws or regulations. Each of Valeant and Zogenix will notify the other Party in writing within [***] ([***]) business days upon any inquiry or the commencement of any of the foregoing proceedings concerning such Party or any of its employees or agents.

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7. Supply and Distribution.

7.1Supply. Valeant shall have sole responsibility and obligation for ensuring that the Product is manufactured, either directly or through a contractor, receiving and processing orders, distributing the Product to customers, and handling Product inventory and receivables, and Valeant shall bear all costs of such activities.  Valeant shall ensure that sufficient stock of the Product is available in its inventory to promptly fill orders throughout the Territory, including Zogenix orders for Samples pursuant to Section 4.5.  Valeant shall have FDA-approved manufacturing facilities available to it or its manufacturer (which facilities may be located outside of the Territory) that can produce an amount of the Product in any fiscal year that is equal to or greater than the amount of Product reasonably necessary to ensure the consistent availability of the Product throughout the Territory. Valeant shall manufacture or cause to be manufactured the Product and Samples in accordance with all applicable laws, including without limitation the Act and all applicable rules and regulations thereunder, the NDA and Current Good Manufacturing Practices.

7.2Distribution.  Valeant will supply and distribute the Product to customers in accordance with the specifications and requirements set forth in the NDA approved by the FDA for sale of the Product in the Territory and all applicable laws, including without limitation the Act and all applicable rules and regulations thereunder, the NDA and Current Good Manufacturing Practices.  Valeant will be responsible for supplying the Product in accordance with purchase orders received by Valeant from customers for the Product, which supply of the Product shall meet all legal requirements as set forth above.

7.3Orders Received by Zogenix.  If, for any reason, Zogenix should receive orders for the Product, Zogenix shall promptly forward such orders to Valeant.

8. Representations and Warranties.

8.1Representations and Warranties. Each Party hereby represents and warrants to the other Party as follows:

(vii)It is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.  It has all requisite power and authority to carry on its business and to own and operate its properties and assets.  The execution, delivery and performance of this Agreement have been duly authorized by all applicable corporate action of such Party.  Such Party has obtained all authorizations, consents and approvals, governmental or otherwise, necessary for the execution and delivery of this Agreement, and to otherwise perform such Party’s obligations under this Agreement.

(viii)There is no pending or, to its knowledge, threatened litigation involving it which would have any material adverse effect on this Agreement or on its ability to perform its obligations hereunder.

(ix)There is no indenture, contract, or agreement to which it is a party or by which it is bound which prohibits, conflicts with or would prohibit the execution and delivery by it of this Agreement or the performance or observance by it of any material term or condition of this Agreement.

8.2Additional Valeant Representations and Warranties. Valeant further hereby represents and warrants to Zogenix that (i) the data regarding the efficacy and safety of the Product that is contained in the NDA and other regulatory filings submitted to the FDA in support of marketing approval of the Product is complete and accurate in all materials respects, does not contain any misstatement of a material fact related to safety or efficacy nor omit to state any material fact in Valeant’s possession related to safety

or efficacy; (ii) as of the Effective Date, Valeant has received no notice of a third party claiming any ownership interest in the patent or trademark rights covering the Product; (iii) Valeant has the exclusive right to promote, market and sell the Product in the Territory and to perform its obligations under this Agreement; (iv) as of the Effective Date, Valeant is unaware of any third-party infringement of the Product intellectual property (including patent and trademark rights) which would have a material adverse effect on the rights granted to Zogenix hereunder; and (v) the Product’s label and labeling and the related Product Promotional Materials provided to Zogenix by Valeant shall comply with all applicable laws, rules and regulations.

8.3Valeant Product Warranty. Valeant warrants to Zogenix that:

(i)at the time of delivery of all Product (excluding Samples) by or on behalf of Valeant to a third party, (i) such Product will be in conformity with the applicable specifications therefor and the NDA, (ii) such Product will have been manufactured in compliance with Current Good Manufacturing Practices and all other applicable legal requirements, (iii) such Product will have been manufactured in facilities that are in compliance with all applicable legal requirements at the time of such manufacture (including applicable inspection requirements of FDA and other governmental authorities), (iv) such Product will not be adulterated or misbranded under the Act, (v) such Product may be introduced into interstate commerce pursuant to the Act and (vi) the expiration date of such Product shall be no earlier than [***] ([***]) [***] after the date of delivery thereof, and

(ii)at the time of delivery of all Samples to Zogenix hereunder, (i) such Samples will be in conformity with the applicable specifications therefor and the NDA, (ii) such Samples will have been manufactured in compliance with Current Good Manufacturing Practices and all other applicable legal requirements, (iii) such Samples will have been manufactured in facilities that are in compliance with all applicable legal requirements at the time of such manufacture (including applicable inspection requirements of FDA and other governmental authorities), (iv) such Samples will not be adulterated or misbranded under the Act, (v) such Samples may be introduced into interstate commerce pursuant to the Act and (vi) the expiration date of such Samples shall be no earlier than [***] ([***]) [***] after the date of delivery, unless otherwise agreed in writing by Zogenix .

9. Intellectual Property Matters.

9.1Intellectual Property Prosecution and Maintenance. Valeant shall, at its own expense, use commercially reasonable efforts to prosecute and maintain all Valeant intellectual property in the Territory (including patents, the Product Trademarks and any copyrights associated with the Product Promotional Materials) related to the Product or its manufacture, use, offer for sale or sale. Valeant shall keep Zogenix promptly informed regarding the ongoing prosecution and maintenance of Valeant patents to the extent they relate to the Product or its manufacture, use or sale in the Territory, including all office actions and notices of allowance.

9.2Ownership. Valeant shall own all intellectual property rights in and to the regulatory and clinical data (but not commercial data generated in the course of performance hereunder) or other inventions and improvements incorporated into the Product, in each case conceived or reduced to practice by either Party pursuant to this Agreement. Each Party shall own all intellectual property rights with respect to commercial data generated by or on behalf of it in the course of performance hereunder.

9.3Infringement.

(viii)If either Party shall learn of a claim or assertion that the manufacture, use or sale of the Product in the Territory infringes or otherwise violates the intellectual property rights of any third party or that any third party violates the intellectual property rights owned or Controlled by (i) Valeant in

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the Product or the Product Trademarks or Valeant Trademarks in the Territory or (ii) Zogenix in the Zogenix Trademarks, then the Party becoming so informed shall promptly, but in all events within [***] ([***]) days thereof, notify the other Party of the claim or assertion. In the event Valeant receives a notice under Paragraph IV of the U.S. Federal Drug Price Competition and Patent Term Restoration Act of 1984, as amended, also known as the Hatch-Waxman Act, with respect to the Product, Valeant shall provide Zogenix with written notice of such Paragraph IV notice within [***] ([***]) business days.

(ix)In the event of any infringement of Valeant patent rights related to the Product or its manufacture, use or sale, or the Product Trademarks or Valeant Trademarks in the Territory, which infringement involves a product that could or does compete with the Product or could adversely affect the Parties' interests in the Product under this Agreement, Valeant shall, in its sole discretion determine to take the appropriate legal action (as to any Party to redress a third party infringement, an "Enforcement Action"), if any. In the event such an Enforcement Action is initiated, Valeant shall use commercially reasonable efforts to prosecute such matter as it determines in its entire discretion and shall keep Zogenix reasonably informed regarding any such Enforcement Action. At Valeant’s reasonable request, Zogenix shall cooperate fully with Valeant with respect to any such Enforcement Action, and Valeant shall reimburse Zogenix for its reasonable out-of-pocket costs and expenses incurred in providing such cooperation. Any recovery received as a result of any Enforcement Action shall be used first to reimburse the Parties for their costs and expenses not previously reimbursed (including attorneys' and professional fees) incurred in connection with such Enforcement Action. If such recovery is not sufficient to fully reimburse the Parties for such costs and expenses, then the recovery will be paid to the Parties pro rata, in proportion to such costs and expenses incurred by each Party. Of any remaining amounts, the amount (if any) which is required to be paid to any licensors of the applicable patent rights or Product Trademarks or Valeant Trademarks under the terms of the respective in-license agreement, if any, shall then be paid to such licensor, if any, and any amounts remaining thereafter allocable as compensation for lost sales or profits of the Product during the Term shall be shared between the Parties [***] percent ([***]%) to Zogenix and [***] percent ([***]%) to Valeant.

(x)In the event of an Enforcement Action by Zogenix with respect to any Zogenix Trademark, at Zogenix’ reasonable request, Valeant shall cooperate fully with Zogenix with respect to any such Enforcement Action, and Zogenix shall reimburse Valeant for its reasonable out-of-pocket expenses incurred in providing such cooperation. Any recovery achieved by Zogenix with respect to such Enforcement Action shall be solely for the account of Zogenix.

10. Indemnification and Insurance.

10.1Indemnification. 

(iii)Each Party will defend, at its own expense, indemnify and hold harmless the other Party and its directors, officers, employees, agents and Affiliates from and against any and all damages, liabilities, losses, costs, and expenses, including attorney’s fees, arising out of any claim, suit or proceeding asserted against the other Party (each, a ”Claim” and collectively, “Claims”) to the extent such Claim arises out of or relates to (A) any breach or violation of, or failure to perform, any covenant or agreement made by such indemnifying Party in this Agreement, unless waived in writing by the indemnified Party; (B) any breach of the representations or warranties made by such indemnifying Party in this Agreement; or (C) the negligence or willful misconduct of the indemnifying Party, except (under any of (A) and (B)) to the extent arising out of the breach, violation, failure, negligence or willful misconduct of the indemnified Party. 

(iv)In addition, Valeant will defend, at its own expense, indemnify and hold harmless Zogenix and its directors, officers, employees, agents and Affiliates from and against any and all Claims

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15

to the extent such Claim arises out of or relates to: (A) any personal injury (including death) and/or property damage resulting from the handling, possession, sale or use of the Product; and (B) any other liability arising out of the manufacture, marketing, labeling, distribution, sale or use of the Product, including claims of infringement of third party intellectual property rights, except (under any of (A) and (B)) to the extent arising out of the breach, violation, failure, negligence or willful misconduct of Zogenix.

(v)Each Party agrees that it shall promptly notify the other in writing of any Claim and give the indemnifying Party full information and assistance in connection therewith.  The indemnifying Party shall have the sole right to control the defense if any Claim or action and the sole right to settle or compromise any such Claim, except that the prior written consent of the other Party shall be required in connection with any settlement or compromise which could (A) place any obligation on or require any action of such other Party; (B) admit or imply any liability or wrongdoing of such other Party; or (C) adversely affect the goodwill or public image of such other Party.  Notwithstanding the foregoing, the indemnified Party may participate therein through counsel of its choice, but the cost of such counsel shall be borne solely by the indemnified Party.

10.2Insurance. Each Party shall maintain insurance (either through purchase of a policy from a nationally recognized third party insurer or through maintenance of a self-insurance program) against such risks and upon such terms (including coverages, deductible limits and self-insured retentions) as is customary for the activities to be conducted by such Party under this Agreement and is appropriate to cover its indemnification obligations hereunder. Notwithstanding the generality of the foregoing, each Party shall maintain during the Term comprehensive general liability (CGL) insurance in an amount of at least [***] dollars ($[***]) and product liability insurance coverage in an amount of at least [***] dollars ($[***]). Zogenix shall be named as an additional insured under Valeant’s CGL and product liability insurance policies. Upon request, Valeant shall provide Zogenix with a certificate of insurance as evidence of the requested coverage and shall give Zogenix at least [***] ([***]) days’ notice of any cancellation or termination of such insurance.

10.3Survival.  The provisions of this Section 10 shall survive expiration or termination of this Agreement and shall remain in effect until a date [***] ([***]) [***] after the Term.

11. Confidentiality; Publicity.

11.1Confidentiality Obligation.  Except as specifically authorized by this Agreement, each Party shall, for the Term and for [***] ([***]) years after the expiration or termination of this Agreement, keep confidential, not disclose to third parties (other than consultants bound in writing, financial advisors and outside counsel who agree to protect the Proprietary Information no less stringently than herein) and use only for the purposes authorized herein all Proprietary Information provided by the other under this Agreement.  Notwithstanding the aforesaid, the recipient may disclose Proprietary Information to governmental agencies as required by law, provided that the other Party is provided with prior written notice and a reasonable opportunity to obtain confidential treatment or other protective order.

11.2Publicity. Neither Party will originate any publicity, news release, public comment or other public announcement, written or oral, whether to the press, to stockholders, or otherwise, relating to this Agreement, without the consent of the other Party, except for such announcements which, in accordance with the advice of legal counsel to the Party making such announcement, are required by law or for such announcements that contain the same disclosure as in prior permitted/approved public announcements. Except as otherwise permitted pursuant to the immediately preceding sentence, any Party making any announcement which is required by law will, unless prohibited by law, give the other Party an opportunity to review the form and content of such announcement and comment before it is

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16

made. Either Party shall have the right to make such filings with governmental agencies, including without limitation the United States Securities and Exchange Commission, as to the contents and existence of this Agreement as it shall reasonably deem necessary or appropriate (provided that the Parties will reasonably cooperate with respect to obtaining confidential treatment of sensitive information, as appropriate). The Parties have agreed upon the form and content of a joint press release to be issued by the Parties promptly following the execution of this Agreement.

11.3Survival.  The provisions of this Section 11 shall survive expiration or termination of this Agreement and shall remain in effect until a date [***] ([***]) [***] after the Term.

12. Maintenance of Books and Records; Audits.

12.1Maintenance of Books and Records. Each Party shall maintain complete and accurate books and records in sufficient detail, in accordance with GAAP and all applicable laws, rules, ordinances and regulations, to enable verification of the performance of such Party's obligations under this Agreement. Such records shall be maintained for a period of [***] ([***]) [***] after the end of the Term or longer if required by applicable law. 

12.2Payment Audits.  Zogenix shall have the right, upon [***] prior written notice, periodically but no more than [***] per calendar year and through the use of an independent accounting firm or other appropriate independent third party expert reasonably acceptable to Valeant (“Zogenix Auditor”) to review, examine and audit the appropriate books and records of Valeant solely related (i) to the [***], (ii) to the [***], (iii) to the [***], or (iv) [***]. Zogenix shall not audit any one period of time with respect to any particular subject(s) of any such audit on more than [***] or later than [***] following the applicable period of time and Zogenix shall maintain the confidentiality of all documents and records audited. The costs and expenses of any such audit, including the Zogenix Auditor, shall be the responsibility of Zogenix, except that if any audit discloses that an amount due to Zogenix or charged to Zogenix was in error for the audited period by more than [***]% in Valeant’s favor (after Valeant has had the opportunity to review and has not disputed the results of such audit) , the portion of any such direct costs and expenses of the Zogenix Auditor allocable to such audit shall be the responsibility of Valeant. Zogenix shall share the results of any audit with Valeant promptly and each Party shall, within [***] ([***]) days of any adjustment in the other Party’s favor, pay the appropriate amount to such other Party. In the event of a dispute over the results of any audit conducted pursuant to this Section 12.2, Zogenix and Valeant shall work in good faith to resolve such dispute. Notwithstanding Section 15.6, if the Parties are unable to reach a mutually acceptable resolution of any such dispute within [***] ([***]) days, the dispute shall be submitted for arbitration to a certified public accounting firm selected by the Parties or to such other Person as the Parties shall mutually agree (the “Accountant”). The decision of the Accountant shall be final and the costs of such arbitration as well as the initial audit shall be borne between the Parties in such manner as the Accountant shall determine.

12.3Other Audits. Upon reasonable prior written notice from the other Party and from time to time during the Term, but no more than [***] per calendar year, each Party shall afford to the other Party reasonable access during normal business hours (and at such other times as the Parties may mutually agree) to inspect and audit the relevant books, records, facilities (including third party manufacturing/warehousing facilities) and other information of such Party in order to monitor such Party's compliance with such Party's obligations under the terms of this Agreement and for the purposes of determining compliance with the applicable rules and regulations of governmental or regulatory authorities. Such access shall be available during normal business hours. Any inspection conducted by either Party pursuant to this Section 12.3 shall be at the sole cost and expense of such Party.

13. Term and Termination.

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13.1Term.  The “Term” of this Agreement shall commence on the Effective Date and shall continue, unless terminated sooner in accordance with the terms hereof, until December 31, 2015 (as the same may be extended or terminated as set forth in this Section 13). The Term may be renewed for additional [***] ([***]) month periods on mutual agreement of the Parties, following prior written notice from either Party of its desire to renew, given no less than [***] ([***]) days prior to the expiration of the then-current Term.

13.2Termination by Zogenix. Zogenix shall have the right to terminate this Agreement at any time upon written notice to Valeant in the event (i) of a Valeant Supply Failure or a material Product recall; or (ii) the Net Sales Price in a [***] is more than [***] percent ([***]%) less than the Net Sales Price for the immediately preceding [***] (other than a decrease resulting from one-time, non-recurring gross to Net Sales deductions) and in Zogenix’ reasonable judgment such reduction in Net Sales Price would have a material adverse effect on Zogenix’ financial return as a result of performance of its obligations hereunder and provided that Zogenix may only exercise such right within [***] following receipt of notice of any such decrease in Net Sales Price.

13.3Mutual Termination Rights. Either Party may terminate this Agreement, without cause, effective on [***] ([***]) months prior written notice, provided that neither Party may provide notice of termination before January 1, 2014. In addition, either Party in its sole discretion may terminate this Agreement following: (i) the commercial introduction of an Other DHE Product in the Territory other than an Authorized Generic, on [***] ([***]) days prior written notice; (ii) any action taken or objection raised by any governmental authority that prevents either Party from performing its obligations under this Agreement or otherwise makes or would reasonably be expected to make such activity unlawful or would reasonably be expected to subject the other Party to any penalty or any claim, investigation or other action, in each case by such government authority in the Territory, at any time; (iii) a third party files an action alleging that the use, making, having made, sale, offering for sale or importation of the Product in the Territory infringes an issued patent owned or controlled in the Territory by such third party, at any time; (iv) a Change of Control of either Party, on [***] ([***]) days prior written notice, which notice must be delivered to the other Party within [***] ([***]) days after the closing of the transaction constituting a Change of Control or neither Party shall have the right to terminate this Agreement as a result of the occurrence of such Change of Control; (v) on [***] ([***]) days prior written notice, if, other than during the first full [***] following the Promotion Commencement Date, Zogenix Net Sales within the Territory fall below [***] for [***] ([***]) or more [***]; (vi) at any time, on the occurrence of a Bankruptcy Event of the other Party; and (vii) a material failure of the other Party to comply with its material obligations contained in this Agreement (and such failure must be described with reasonable specificity in a notice); provided that such termination shall not become effective if the breaching Party cures such failure within such [***] ([***]) days of the notice.

13.4Remedies.  Except as indicated in Section 15.4, termination of this Agreement shall be without prejudice to (i) any remedies which any Party may then or thereafter have hereunder or at law; and (ii) a Party’s right to receive any payment accrued under the agreement prior to the termination date but which became payable thereafter; and (iii) either Party’s right to obtain performance of any obligations provided for in this Agreement which survive termination by their terms or by a fair interpretation of this Agreement.

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13.5Post-Termination Obligations. 

(i)Expiration or termination of this Agreement shall not relieve either Party of any obligations accruing prior to such expiration or termination. The following provisions of this Agreement by their terms continue after the expiration or termination of this Agreement: Sections 4.4, 4.5(iv), 4.5(v), 4.5(vi), 4.7, 5.2, 5.3, 5.4, 5.5, 6.2, 8, 9.2, 9.3, 10, 11, 12, 13.4, 13.5, 14, and 15. In addition, any other provisions required to interpret and enforce the Parties' rights and obligations under this Agreement shall also survive, but only to the extent required for the interpretation and performance of this Agreement. Upon the expiration or termination of this Agreement pursuant to this Section 13, each Party shall promptly transfer and return to the other Party or destroy all Proprietary Information of the other Party (provided that each Party may keep one copy of such Proprietary Information for archival purposes only).

(ii)Upon the expiration or termination of this Agreement, Zogenix shall immediately cease all promotion and detailing of the Product in the Territory and return all undistributed Samples and undistributed Product Promotional Materials. For clarity, the Joint Commercialization Committee shall immediately be disbanded and any and all grant of rights from Valeant to Zogenix shall immediately cease.

(iii)Valeant shall pay to Zogenix the Tail Payment as set forth in Sections 5.2 and 5.3(iii), unless Valeant has terminated this Agreement under Section 13.3(vi) or 13.3(vii) in which case no Tail Payment shall be made.

7. Notices.

Unless otherwise provided herein, all notifications, demands, approvals and communications required to be made under this Agreement shall be given in writing and shall be effective when either personally delivered or sent by facsimile if followed by prepaid air express addressed as set forth below.  The Parties hereto shall have the right to notify each other of changes of address during the Term. All notices shall be deemed made upon receipt by the addressee.

If to Zogenix, to:

ZOGENIX, INC.

12400 High Bluff Drive, Suite 650

San Diego, CA 92130

Attention: Chief Financial Officer

Facsimile: (858) 259-1166

With a copy to (which shall not constitute notice hereunder):

Latham & Watkins LLP

12636 High Bluff Drive, Suite 400

San Diego, CA 92130

Attention: Faye H. Russell

Fax No: (858) 523-5450

19

If to Valeant, to:

VALEANT PHARMACEUTICALS INTERNATIONAL, INC.

700 Route 202-206 North

Bridgewater, NJ 08807

Attention:  General Counsel

Facsimile: (949) 271-3796

8. Miscellaneous.

15.1Assignment.  This Agreement and the rights granted herein shall not be assignable (or otherwise transferred) by either Party hereto without the prior written consent of the other Party. Any attempted assignment without consent shall be void. Notwithstanding the foregoing, a Party may transfer, assign or delegate its rights and obligations under this Agreement without consent to (i) an Affiliate reasonably capable of performing such Party's obligations under this Agreement, or (ii) a successor to all or substantially all of its business or assets of the assigning Party to which this Agreement relates, whether by sale, merger, consolidation, acquisition, transfer, operation of law or otherwise. In addition, either Party may assign its right to receive proceeds under this Agreement or grant a security interest in such right to receive proceeds to one or more financial institutions providing financing to such Party pursuant to the terms of a security or other agreement related to such financing. For the avoidance of doubt, any such assignment in connection with a Change of Control, whether permitted or not hereunder, shall not affect the right of any Party to terminate this Agreement as a consequence of a Change of Control of either Party pursuant to and in accordance with Section 13.3. Any assignment of this Agreement not in compliance with this Section 15.1 shall be void.

15.2Independent Contractors.  Nothing herein contained shall be construed to constitute the Parties hereto as partners or as joint venturers, or either as agent for the other.  No employee or representative of a Party shall have any authority to bind or obligate the other Party to this Agreement for any sum in any manner whatsoever, or to create or impose any contractual or other liability on the other Party without said Party’s authorized written approval.  For all purposes, and notwithstanding any other provision of this Agreement to the contrary, Zogenix’ legal relationship under this Agreement to Valeant shall be that of independent contractor.

15.3Entire Agreement.  This Agreement represents the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior or contemporaneous oral or written agreements of the Parties.  This Agreement may be modified, amended or changed only by a written instrument signed and delivered by the Parties, with clear intent to modify, amend or change the provisions hereof.

15.4Limitation on Damages.  Neither Valeant nor Zogenix (which for the purposes of this Section 15.4 shall include their respective Affiliates, directors, officers, employees and agents) shall have any liability to the other for any punitive damages, special, incidental, consequential or indirect damages, relating to or arising from this Agreement, even if such damages may have been foreseeable. For the avoidance of doubt, nothing in this Section 15.4 shall be interpreted to limit the indemnification obligation of either Party in connection with the characterization of damages or losses claimed by a third party as being punitive, special, incidental, consequential or indirect or other like damages or losses.

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15.5Force Majeure. Neither Party shall be liable to the other Party for any failure to perform as required by this Agreement if the failure to perform is due to circumstances reasonably beyond such Party's control including, without limitation, any act of God, civil disorder or commotion, act of aggression, fire, explosion, flood, drought, war, sabotage, embargo, utility failure, material shortage, labor disturbance, national health emergency, or appropriation of property. A Party whose performance is affected by a force majeure event shall take prompt action using all commercially reasonable efforts to remedy the effects of the force majeure event.

15.6Dispute Resolution. The Parties hereby agree that they will attempt in good faith to resolve any controversy or claim arising out of or relating to this Agreement promptly by negotiations and, where specifically provided for, in accordance with any specific provisions for dispute resolution set forth elsewhere in this Agreement with respect to any particular matter or section hereof. If a controversy or claim should arise hereunder, and if a dispute resolution provision is not otherwise provided herein for settlement of such controversy or claim, appropriate representatives of the Parties will confer at least once and will attempt to resolve the matter. Except as specifically provided elsewhere in this Agreement, if the matter has not been resolved within [***] ([***]) days of their first meeting, the representatives shall refer the matter to appropriate Commercial Officers. If the matter has not been resolved within [***] ([***]) days after referral to the Parties' Commercial Officers, either Party may pursue such remedies as it may deem necessary or appropriate. For the avoidance of doubt, disputes arising on issues within the jurisdiction of a Committee shall be resolved in accordance with the procedures set forth in Section 3.4.

15.7Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed to be an original.

15.8Governing Law.  This Agreement will be construed under and in accordance with, and governed in all respects by, the laws of the State of New York, without regard to its conflicts of law principles.

15.9Waiver.  Except to the extent that a Party may have otherwise agreed in writing, no waiver by such Party of any breach by any other Party of any of the other Party’s obligations, agreements or covenants hereunder shall be deemed to be a waiver by such first Party of any subsequent or other breach of the same or any other obligation, agreement or covenant; nor shall any forbearance by a Party to seek a remedy for any breach by the other be deemed a waiver by said Party of its rights or remedies with respect to such breach or of any subsequent or other breach of the same or any other obligation, agreement or covenant.

15.10Binding Effect.  Except as provided in Section 15.1, this Agreement shall be binding upon and inure to the benefit of the Parties to this Agreement and their respective successors.

15.11Headings.  Headings as used in this Agreement are for convenience only and are not to be construed as having any substantive effect by way of limitation or otherwise.  References to Sections herein are, unless otherwise indicated, references to the designated Sections of this Agreement, unless the content requires otherwise.

15.12Severability.  If one or more of the provisions of this Agreement shall, by any court or under any provision of law, be found to be void or unenforceable, the agreement as a whole shall not be affected thereby, and the provisions in question shall be replaced by an interpretation in conformity with law which comes closer to effecting the Parties original intention.

[Signature Page Follows]

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21

EXECUTION COPY

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their undersigned duly authorized representatives as of the Effective Date.

ZOGENIX, INC. By:   /s/ Roger L. Hawley Name: Roger L. Hawley Title: Chief Executive Officer VALEANT PHARMACEUTICALS NORTH AMERICA LLC By:   /s/ Hemanth Varghese Name: Hemanth Varghese Title: Sr. Vice President Corporate Development

22

Schedule A

[***],[***] & [***]

Profit Share Calc	Month A	Defined Terms
TRx-Unit Conversion Rate	[***]
[***]	[***]
[***]	[***]
Total	[***]	[***]
Baseline	[***]	Baseline Forecast (Or Adjusted Baseline Forecast)
Above baseline	[***]
Threshold
[***]	[***]	[***]
[***]	[***]	[***]
Valeant Net Sales	$[***]	Net Sales
[***]	[***]	Units
[***]	$ [***]	[***]
Applicable Net Sales	$ [***]	Zogenix Net Sales
Zogenix	$ [***]	Zogenix Service Fee
[***]	$ [***]	[***]
[***]	$ [***]	[***]
Valeant	$ [***]

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[***]
[***]	[***]
Product	Form	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]

Adjustment Factor
[***] 1	[***]
[***] 2	[***]
[***] 3	[***]
[***] 4	[***]
[***] 5	[***]
[***] 6	[***]
[***] 7	[***]
[***] 8	[***]
[***] 9	[***]
[***] 10	[***]
[***] 11	[***]
[***] 12	[***]
[***] 13	[***]
[***] 14	[***]
[***] 15	[***]
[***] 16	[***]
[***] 17	[***]
[***] 18	[***]
[***] 19	[***]
[***] 20	[***]
[***] 21	[***]
[***] 22	[***]
[***] 23	[***]
[***] 24	[***]
[***]

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24

EX-10.3

Exhibit 10.3

AGREEMENT ON TERMINATION OF AGREEMENTS BETWEEN

DESITIN ARZNEIMITTEL GmbH and ZOGENIX, Inc.

BY AND BETWEEN

ZOGENIX, Inc., whose registered office is at 12400 High Bluff Drive, Suite 650, San Diego, CA 92130, USA (hereafter «ZOGENIX»)

AND

DESITIN ARZNEIMITTEL GmbH, whose registered office is at Weg beim Jäger 214, 22335 Hamburg, Germany (hereafter «DESITIN»)

Each also referred to as “Party” or together as “Parties”. Defined terms used in this agreement without definition shall have the meanings given them in the License Agreement (as defined below).

WHEREAS

- The Parties have entered into a Licensing and Distribution Agreement (the “License Agreement”) signed on March 14, 2008 covering the development and commercialization of the Product in the Territory.

- The Parties have entered into a Manufacturing Agreement (the “Manufacturing Agreement”) signed on January 21, 2011 covering the manufacturing and supply of the Product for commercialization in the Territory.

- DESITIN holds Marketing Authorisations for the Product in Germany, Denmark, UK, France, Norway and Sweden.

- DESITIN commercializes the Product in Germany and Denmark (as Sumavel® DosePro®). The Producthas never been launched in UK, France, Norway and Sweden.

- DESITIN will stop commercialization of the Productin Germany and Denmark on September 30, 2013.

page 1/1

AGREEMENT ON TERMINATION OF AGREEMENTS.

Now Therefore, the Parties hereby agree as follows:

1. The License Agreement between the Parties will terminate, effective October 1, 2013.

2. Following termination of the License Agreement, DESITIN will maintain each then-existing Marketing Authorisations of the Product in good standing until the earlier of the expiration of such Marketing Authorisation(s) or March 31, 2014. ZOGENIX acknowledges that the Marketing Authorisations for the United Kingdom and Sweden are expected to expire in December 2013, and for France and Norway in February 2014 unless the Product is commercialized by ZOGENIX (or a ZOGENIX Affiliate) or a Third Party prior to their expiry. All costs related for maintaining the Marketing Authorizations in 2014 will be borne by ZOGENIX.

3. Upon written request by ZOGENIX, DESITIN will transfer one or more of the Marketing Authorisations of the Product to ZOGENIX, a ZOGENIX Affiliate or a Third Party qualified to hold Marketing Authorizations in Europe as indicated by ZOGENIX.

4. If no company or other legal entity is indicated by ZOGENIX for transfer of a Marketing Authorisation, DESITIN will renounce the applicable Marketing Authorisation of the Product on March 31, 2014. DESITIN will promptly provide ZOGENIX with a copy of any documentation filed with the Regulatory Authorities in connection with any renouncing of the Marketing Authorisations.

5. Notwithstanding clause 6.1 of the Manufacturing Agreement, the Manufacturing Agreement between the Parties will terminate on October 1, 2013.

6. The agreement on pharmacovigilance (Drug Safety Agreement) between the Parties will be amended in order to reflect the termination of commercialization and transfer/renouncement of Marketing Authorisations.

7. For the avoidance of doubt, the “Consequences of Termination” described in clause21 of the License Agreement and the “Effect of Expiration and Termination” described in clause 6.2 of the Manufacturing Agreement will remain effective (including without limitation, DESITIN’s agreement to refrain from using the trademarks associated with the Product following termination of the License Agreement).

8. The Quality Agreement will terminate on December 31, 2014, which corresponds to the expiry date of the drug product batches recently released to the market in the territories by Desitin plus one additional year.

page 2/2

AGREEMENT ON TERMINATION OF AGREEMENTS.

ZOGENIX

Approved by:

Name            

/s/ Roger L. Hawley

Function        

Chief Executive Officer

DESITIN

Approved by:

Name            

/s/ Dieter Peitz

Function        

Managing Director

Name            

Harald Jainta, Ph.D.

Function        

Director Business Development

page 3/3

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY

ACT OF 2002

I, Roger L. Hawley, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Zogenix, Inc.;

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

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

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

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

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Roger L. Hawley

Roger L. Hawley

Chief Executive Officer

Date: August 8, 2013

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY

ACT OF 2002

I, Ann D. Rhoads, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Zogenix, Inc.;

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

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

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

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

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Ann D. Rhoads

Ann D. Rhoads

Chief Financial Officer

Date: August 8, 2013

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

In connection with the Quarterly Report on Form 10-Q of Zogenix, Inc. (the “Company”) for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Roger L. Hawley, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2013

/s/ Roger L. Hawley

Roger L. Hawley

Chief Executive Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

In connection with the Quarterly Report on Form 10-Q of Zogenix, Inc. (the “Company”) for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ann D. Rhoads, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2013

/s/ Ann D. Rhoads

Ann D. Rhoads

Chief Financial Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Organization and Basis of Presentation Narrative (Details) (USD $) In Millions, except Share data, unless otherwise specified		1 Months Ended
	Mar. 27, 2013	Aug. 07, 2013 Subsequent Event [Member]
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Common stock value authorized for controlled sale	$ 25.0
Subsequent Event [Line Items]
Common stock, shares issued		3,000,000
Common stock issued and sold, price per share		$ 1.66
Proceeds from Issuance of Common Stock		4.9
Common Stock, Capital Shares Reserved for Future Issuance, Value		$ 20.0

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Operating activities:
Net loss	$ (34,389)	$ (27,461)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	3,364	2,794
Restructuring	201	0
Depreciation and amortization	945	790
Amortization of debt issuance costs and non-cash interest	276	797
Change in fair value of warrant liabilities	2,995	42
Change in fair value of embedded derivatives	562	(368)
Changes in operating assets and liabilities:
Trade accounts receivable	1,505	19
Inventory, net	(299)	1,237
Prepaid expenses and other current assets	210	(260)
Other assets	498	(426)
Accounts payable and accrued expenses	(584)	1,832
Restructuring liabilities	146	0
Deferred revenue	0	(8,462)
Net cash used in operating activities	(24,570)	(29,466)
Investing activities:
Purchases of property and equipment	(798)	(291)
Net cash used in investing activities	(798)	(291)
Financing activities:
Proceeds from revolving credit facility	0	9,899
Payments on borrowings of debt	0	(15,040)
Proceeds from exercise of common stock options	0	2
Proceeds from issuance of common stock and common stock warrants	261	345
Net cash provided by (used in) financing activities	261	(4,794)
Net decrease in cash and cash equivalents	(25,107)	(34,551)
Cash and cash equivalents at beginning of period	41,228	56,525
Cash and cash equivalents at end of period	$ 16,121	$ 21,974

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Common Stock Warrants

6 Months Ended

Jun. 30, 2013

Disclosure Common Stock Warrants Additional Informational [Abstract]

Common Stock Warrants

Common Stock Warrants

In July 2012, in connection with a public offering of common stock and warrants, the Company sold warrants to purchase 15,784,200 shares of common stock (including over-allotment purchase). The warrants will be exercisable beginning on July 27, 2013 at an exercise price of $2.50 per share and will expire on July 27, 2017, which is 5 years from the date of issuance. As the warrants contain a cash settlement feature upon the occurrence of certain events that may be outside of the Company’s control, the warrants are recorded as a current liability and are marked to market at each reporting period (see Note 2). The fair value of the warrants was approximately $12,268,000 and $9,308,000 as of June 30, 2013 and December 31, 2012, respectively.

In July 2011, upon the closing of and in connection with the Financing Agreement (see Note 4), the Company issued to Healthcare Royalty a warrant exercisable into 225,000 shares of common stock. The warrant is exercisable at $9.00 per share of common stock and has a term of 10 years. As the warrant contains covenants where compliance with such covenants may be outside of the Company’s control, the warrant was recorded as a current liability and is marked to market at each reporting date (see Note 2). The fair value of the warrant was approximately $220,000 as of June 30, 2013 and $185,000 as of December 31, 2012.

In June 2011, and in connection with entering into the Amended Oxford/SVB Agreement (see Note 4), the Company issued to Oxford and SVB warrants exercisable into an aggregate of 26,455 shares of common stock. The warrants are exercisable at $3.78 per share of common stock and have a term of 7 years. The value of the warrants of approximately $76,000 was recorded as debt discount and additional paid in capital in the consolidated balance sheet as of December 31, 2011.

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Collaboration and Financing Agreements - Additional Information (Detail) (USD $)	0 Months Ended	3 Months Ended		6 Months Ended			0 Months Ended	49 Months Ended			0 Months Ended			6 Months Ended	0 Months Ended	3 Months Ended		6 Months Ended						3 Months Ended			6 Months Ended		6 Months Ended		6 Months Ended			6 Months Ended		0 Months Ended	3 Months Ended	6 Months Ended	1 Months Ended		3 Months Ended		6 Months Ended				1 Months Ended		0 Months Ended
	Jul. 18, 2011	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jul. 30, 2012 Oxford/SVB [Member]	Jul. 30, 2012 Oxford/SVB [Member]	Jun. 30, 2013 Oxford/SVB [Member]	Jun. 30, 2011 Oxford/SVB [Member]	Jul. 30, 2012 Oxford/SVB [Member] Revolving Credit Facility [Member]	Jun. 30, 2011 Oxford/SVB [Member] Revolving Credit Facility [Member]	Jun. 30, 2008 Loan And Security Agreement [Member]	Jun. 30, 2013 Embedded Derivative Liabilities [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member]	Jun. 30, 2012 Healthcare Royalty Financing Agreement [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member]	Jun. 30, 2012 Healthcare Royalty Financing Agreement [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Jun. 30, 2012 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Dec. 31, 2012 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member] Common Stock Warrant Liabilities [Member]	Jun. 30, 2012 Healthcare Royalty Financing Agreement [Member] Common Stock Warrant Liabilities [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member] Common Stock Warrant Liabilities [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member] Scenario 1 [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member] Scenario 1 [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member] Scenario 2 [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member] Scenario 2 [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member] Scenario 3 [Member]	Jun. 30, 2013 Minimum [Member] Oxford/SVB [Member]	Jul. 18, 2011 Minimum [Member] Healthcare Royalty Financing Agreement [Member] Scenario 1 [Member]	Jun. 30, 2013 Maximum [Member] Oxford/SVB [Member]	Jul. 18, 2011 Maximum [Member] Healthcare Royalty Financing Agreement [Member] Scenario 1 [Member]	Jun. 06, 2012 Mallinckrodt LLC Co-Promotion Agreement [Member]	Jun. 30, 2013 Mallinckrodt LLC Co-Promotion Agreement [Member]	Jun. 30, 2013 Mallinckrodt LLC Co-Promotion Agreement [Member]	Aug. 31, 2012 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Jul. 31, 2009 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Jun. 30, 2013 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Jun. 30, 2012 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Jun. 30, 2013 Astellas Pharma Us Inc Co Promotion Agreement [Member] tail_payments	Jun. 30, 2012 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Dec. 31, 2012 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Dec. 20, 2011 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Jul. 31, 2009 Astellas Pharma Us Inc Co Promotion Agreement [Member] Minimum [Member]	Jul. 31, 2009 Astellas Pharma Us Inc Co Promotion Agreement [Member] Maximum [Member]	Jun. 27, 2013 Valeant Pharmaceuticals North America LLC Co-Promotions Agreement [Member]
Debt Instrument [Line Items]
Company Entered Into Co Promotion Agreement																																											2009-07
Line of Credit Facility, Interest Rate During Period																																3.29%		7.29%
Co-Promotion Agreement, Renewal Period																																				6 months
Sales Period For Tail Payment																																				12 months
Co-promotion agreement termination notice period																																						60 days											6 months
Co-promotion agreement termination notice period for net sales contingency																																						60 days											30 days
Co-promotion agreement termination notice period for change of control contingency																																																	90 days
Incurred Service Fee Expenses																																					$ 226,000	$ 369,000			$ 0	$ 58,000	$ 0	$ 1,757,000
Additional term increments																																																	12 months
Non-refundable up-front payment																																								2,000,000
Milestone Payments																																								18,000,000
Service Fee Rate																																															45.00%	55.00%
Deferred Agreement Payments																																								20,000,000
Deferred contract revenues																																										8,462,000
Number Of Annual Tail Payments																																											2
Tail payment liability related interest expense																																									146,000	164,000	287,000	321,000
Service fee reduction																																							1,500,000
Tail payment liability																																									3,082,000	2,795,000	3,082,000	2,795,000		5,291,000
Tail payment liability, first payment																																									2,032,000		2,032,000
Reduction to tail payment liability																																							742,000
Present value of the service fee receivable and tail payment																																													1,924,000
Recognized shared marketing expense																																									0	56,000	0	253,000
Debt instrument, outstanding													18,000,000		30,000,000
Common stock issued and sold to Healthcare Royalty, amount		101,000		101,000		101,000									1,500,000
Common stock issued and sold to Healthcare Royalty, shares																388,601		388,601
Common stock issued and sold to Healthcare Royalty, price per share																$ 3.86		$ 3.86
Warrant exercisable to Healthcare Royalty, shares	225,000
Warrant exercisable to Healthcare Royalty, price per share (usd per share)	$ 9.00																	$ 9.00
Term of warrant exercisable																		10 years
Revenue Interest Rate																0.50%		0.50%										5.00%		2.50%	0.50%		5.00%		5.75%
Net product sales amount received																		10,000,000									75,000,000		75,000,000		150,000,000
Fixed Debt Repayment Dates																		January 31, 2015, January 31, 2016 and January 31, 2017
Fixed Payments for Jan 31,2015																10,000,000		10,000,000
Fixed Payments for Jan 31,2016																10,000,000		10,000,000
Fixed Payments for Jan 31,2017																10,000,000		10,000,000
Agreement Expiration Date																																						2014-06-30					2012-03-31
Agreement termination date															Mar. 31, 2018
Intercreditor loan		25,000,000		25,000,000						25,000,000		10,000,000
Terminate payment base amount																		75,000,000									52,500,000		45,000,000
Borrowed internal rate of return																											19.00%		17.00%
Fair value of embedded derivatives																				1,554,000		992,000
Aggregate net proceed from financing agreement															29,485,000
Financing discounts															476,000								605,000			790,000
Other Nonoperating Income (Expense)		45,000	(72,000)	(22,000)	(42,000)											(41,000)	(91,000)	(35,000)	(42,000)
Change in fair value														562,000						(562,000)	368,000			(480,000)	330,000
Revolving credit facility										10,000,000
Term loan, interest rate										12.06%
Revolving credit facility, interest rate								equal to the greater of 3.29% above SVB’s prime rate or 7.29%
Percentage paid for unused portion of revolving credit facility								0.50%
Principal and interest repaid				0	15,040,000		19,492,000
Final Payment to Terminate Debt							1,200,000
Prepayment Premium to Terminate Debt							$ 400,000				$ 100,000
Percentage of principal as per payment premium									2.00%
Financing Agreement Termination Date																																											2013-06

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Summary of Significant Accounting Policies - Additional Information (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013 segment
Accounting Policies [Abstract]
Increase in accrued product returns	$ 1,226
Number of business segments	1

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Restructuring - Reserve Rollfoward (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Restructuring Reserve [Roll Forward]
Balance at beginning of period		$ 0
Accruals	675	675
Payments		(529)
Balance at end of period	146	146
Employee-related charges [Member]
Restructuring Reserve [Roll Forward]
Balance at beginning of period		0
Accruals	663	663
Payments		(519)
Balance at end of period	144	144
Other restructuring charges [Member]
Restructuring Reserve [Roll Forward]
Balance at beginning of period		0
Accruals	12	12
Payments		(10)
Balance at end of period	$ 2	$ 2

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Restructuring - Components of Resctructuing (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Restructuring Cost and Reserve [Line Items]
Accruals	$ 675		$ 675
Non-cash items	201		201	0
Total	876	0	876	0
Employee-related charges [Member]
Restructuring Cost and Reserve [Line Items]
Accruals	663		663
Non-cash items	201		201
Total	864		864
Other restructuring charges [Member]
Restructuring Cost and Reserve [Line Items]
Accruals	12		12
Non-cash items	0		0
Total	$ 12		$ 12

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Stock-Based Compensation - Additional Information (Detail) (Stock Options [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation costs	$ 15,029
Recognition over weighted average periods	2 years 11 months 6 days

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Restructuring - Additional Information (Details) (USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended		6 Months Ended
	May 31, 2013 employee	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Restructuring and Related Activities [Abstract]
Employees reduced	55
Restructuring		$ 876	$ 0	$ 876	$ 0

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Financial Statement Preparation and Use of Estimates

The unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared by Zogenix, Inc. according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted.

In the opinion of management, the accompanying unaudited consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on March 15, 2013.

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

The Company has monitored actual product return history for Sumavel DosePro since product launch. Based on the Company's product returns analysis, which considers actual product returns on an individual product lot basis, and factors such as the dating of the Company's product at the time of shipment into the distribution channel, prescription trends and changes in the estimated levels of inventory within the distribution channel, the Company increased its estimate for product returns, resulting in an adjustment of $1,226,000, which decreased net product sales in the first quarter of 2013.

Principles of Consolidation

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

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and accrued compensation included in the Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value. The liability for the annual tail payments due to Astellas Pharma US, Inc. (Astellas) (see Note 4) for the termination of the Company’s co-promotion agreement was measured at fair value in December 2011 using a present value technique, which incorporated the Company’s own credit risk as measured by the most recent round of debt financing with Healthcare Royalty Partners (Healthcare Royalty) (formerly Cowen Healthcare Royalty Partners II, L.P.).

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

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company classifies its cash equivalents within Level 1 of the fair value hierarchy because it values our cash equivalents using quoted market prices. The Company classifies its common stock warrant liabilities and embedded derivative liabilities within Level 3 of the fair value hierarchy because they are valued using valuation models with significant unobservable inputs. Assets and liabilities measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012 are as follows (in thousands):

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
At June 30, 2013
Assets
Cash equivalents(1)	$	13,415	—	—	$	13,415
Liabilities
Common stock warrant liabilities(2)	$	—	—	12,488	$	12,488
Embedded derivative liabilities(3)	$	—	—	1,554	$	1,554
At December 31, 2012
Assets
Cash equivalents(1)	$	37,605	—	—	$	37,605
Liabilities
Common stock warrant liabilities(2)	$	—	—	9,493	$	9,493
Embedded derivative liabilities(3)	$	—	—	992	$	992

(1) Cash equivalents are comprised of money market fund shares and are included as a component of cash and cash equivalents on the consolidated balance sheets.

(2) Common stock warrant liabilities include liabilities associated with warrants issued in connection with the Company's July 2012 public offering of common stock and warrants (see Note 6) and warrants issued in connection with the Healthcare Royalty financing agreement (see Note 4), which are measured at fair value using the Black-Scholes option pricing valuation model. The assumptions used in the Black-Scholes option pricing valuation model for both common stock warrant liabilities were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; and (d) given the Company’s lack of relevant historical data due to the Company’s limited historical experience, an expected volatility based upon the Company's historical volatility, supplemented with historical volatility of comparable companies whose share prices have been publicly available for a sufficient period of time. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the Healthcare Royalty financing agreement is the expected volatility. Significant increases in volatility would result in a higher fair value measurement. The following additional assumptions were used in the Black-Scholes option pricing valuation model to measure the fair value of the warrants sold in the July 2012 public offering: (a) management’s projections regarding the probability of the occurrence of an extraordinary event that would require cash settlement of the warrants; and for the valuation scenario in which an extraordinary event occurs, (b) a volatility rate equal to the lesser of 40% and the 180-day volatility rate obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of an extraordinary transaction. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering is the expected volatility and probability of the occurrence of an extraordinary event. Significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement.

(3) Embedded derivative liabilities measured at fair value using various discounted cash flow valuation models are included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models include: (a) management’s revenue projections and a revenue sensitivity analysis based on possible future outcomes; (b) probability weighted net cash flows based on the likelihood of Healthcare Royalty receiving revenue interest payments over the term of the financing agreement; (c) probability of bankruptcy; (d) weighted average cost of capital that included the addition of a company specific risk premium to account for uncertainty associated with the Company achieving future cash flows; (e) the probability of a change in control occurring during the term of the Healthcare Royalty financing agreement; and (f) the probability of an exercise of the embedded derivative instruments. The significant unobservable inputs used in measuring the fair value of the embedded derivatives are management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement.

The following table provides a reconciliation of liabilities measured at fair value using significant observable inputs (Level 3) for the six months ended June 30, 2013 (in thousands):

	Common Stock Warrant Liabilities		Embedded Derivative Liabilities
Balance at December 31, 2012	$	9,493	$	992
Changes in fair value	2,995		562
Balance at June 30, 2013	$	12,488	$	1,554

Changes in fair value of the liabilities shown in the table above are recorded through change in fair value of warrant liabilities and change in fair value of embedded derivatives in other income (expense) in the consolidated statements of operations and comprehensive loss.

Net Loss per Share

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

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Numerator
Net loss	$	(13,332	)	$	(17,169	)	$	(34,389	)	$	(27,461	)
Denominator
Weighted average common shares outstanding, basic and diluted	100,876			65,449			100,843			65,409
Basic and diluted net loss per share	$	(0.13	)	$	(0.26	)	$	(0.34	)	$	(0.42	)

The following table presents potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive (in thousands, of common equivalent shares):

	Three and Six Months Ended June 30,
	2013	2012
Common stock options and restricted stock units	1,710	6,171
	1,710	6,171

Segment Reporting

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

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued an Accounting Standards Update which requires entities to separately present amounts reclassified out of accumulated other comprehensive income (AOCI) for each component of AOCI and to disclose, for each affected line item in the income statement, the amount of AOCI that has been reclassified into that line item. For AOCI reclassification items that are not reclassified in their entirety into net income, it is acceptable to cross reference that amount to another footnote that provides the required disclosure. The updated guidance became effective for fiscal and interim periods beginning after December 15, 2012. The Company adopted this guidance on January 1, 2013 and it did not have a material impact on the Company's results of operations.

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Collaboration and Financing Agreements

6 Months Ended

Jun. 30, 2013

Collaborative and Financing Agreements [Abstract]

Collaboration and Financing Agreements

Collaboration and Financing Agreements

Mallinckrodt LLC Co-Promotion Agreement

On June 6, 2012, the Company and Mallinckrodt LLC (Mallinckrodt) entered into a co-promotion agreement (the Co-Promotion Agreement). Under the terms of the Co-Promotion Agreement, Mallinckrodt was granted a co-exclusive right (with the Company) to promote Sumavel DosePro to a mutually agreed prescriber audience in the United States. Mallinckrodt’s sales team began selling Sumavel DosePro to its customer base of prescribers in August 2012. Mallinckrodt has committed to a minimum number of sales representatives for the initial term of the Co-Promotion Agreement, which runs through June 30, 2014, and can be extended by mutual agreement of the parties in additional six month increments. The Company remains responsible for the manufacture, supply and distribution of commercial product for sale in the United States. In addition, the Company will supply product samples to Mallinckrodt at an agreed upon transfer price and Mallinckrodt will reimburse the Company for all other promotional materials used.

In partial consideration of Mallinckrodt’s sales efforts, the Company pays Mallinckrodt a service fee on a quarterly basis that represents a specified fixed percentage of net sales of prescriptions generated from Mallinckrodt’s prescriber audience over a baseline amount of net sales to the same prescriber audience (the Baseline Net Sales). In addition, upon completion of the co-promotion term in June 30, 2014 (unless otherwise extended), and only if the Co-Promotion Agreement is not terminated as a result of certain circumstances, the Company will be required to pay Mallinckrodt an additional tail payment calculated as a fixed percentage of the Mallinckrodt net sales over the Baseline Net Sales during the first full 12 months following the last day of the term.

Mallinckrodt may terminate the Co-Promotion Agreement with sixty days’ notice in the event a material change is made to the net sales price of Sumavel DosePro that would result in a material adverse effect to Mallinckrodt’s financial return (as defined in the Co-Promotion Agreement). Mallinckrodt may also terminate the Co-Promotion Agreement if its request for the inclusion on its call list of a certain number of additional prescribers is not mutually agreed upon. Lastly, Mallinckrodt may terminate the Co-Promotion Agreement if a governmental authority takes action or raises an objection that prevents or would reasonably be expected to make it unlawful for Mallinckrodt to perform, or subject Mallinckrodt to any penalty or claim, investigation or similar action related to, its obligations under the Co-Promotion Agreement, in the event of Company’s inability to meet trade demand for commercial product or where a third party files an action alleging that the making or selling of Sumavel DosePro infringes the intellectual property rights of such third party.

The Company may terminate the Co-Promotion Agreement with sixty days’ notice if Mallinckrodt does not achieve an agreed-upon minimum sales effort. Either party may terminate the Co-Promotion Agreement if certain minimum net sales thresholds are not met for any quarter ending after December 31, 2012 or certain levels of prescriptions are not met in a specified period. In addition, either party may terminate the Co-Promotion Agreement related to safety concerns, in the event of a change of control of itself or the other party (excluding with respect to Mallinckrodt, any public spin-off of Mallinckrodt from its corporate parent Covidien plc), upon the introduction of a generic product, in connection with the material breach of the other party’s obligations or if a bankruptcy event occurs under certain circumstances.

Amounts payable to Mallinckrodt for service fees are reflected as selling, general and administrative expenses. For the three and six months ended June 30, 2013, the Company incurred $226,000 and $369,000, respectively, in service fee expenses under the Co-Promotion Agreement. The Company did not incur any service fee expenses under the Co-Promotion Agreement during the three and six months ended June 30, 2012.

Astellas Pharma US, Inc. Co-Promotion Agreement

In July 2009, the Company entered into the co-promotion agreement with Astellas (Astellas Co-Promotion Agreement). Under the terms of the agreement, the Company granted Astellas the co-exclusive right (with the Company) to market and sell Sumavel DosePro in the United States until June 30, 2013. Under the Astellas Co-Promotion Agreement, both Astellas and the Company were obligated to collaborate and fund the marketing of Sumavel DosePro and to provide annual minimum levels of sales effort directed at Sumavel DosePro during the term. In December 2011, the Company entered into an amendment to the Astellas Co-Promotion Agreement, or the amended Astellas Co-Promotion Agreement, whereby the agreement terminated on March 31, 2012.

In connection with the execution of the Astellas Co-Promotion Agreement, Astellas made a non-refundable up-front payment of $2,000,000 and made an additional $18,000,000 of payments to the Company upon the achievement of a series of milestones. In consideration for Astellas’ performance of its commercial efforts, the Company paid Astellas a service fee on a quarterly basis that represents a fixed percentage of between 45% and 55% of Sumavel DosePro net sales to primary care physicians, OB/GYNs, emergency medicine physicians, and urologists in the United States (Astellas Segment).

In accordance with accounting guidance for revenue arrangements with multiple deliverables, the Company initially recorded the $20,000,000 in upfront and milestone payments received from Astellas as deferred revenue. Beginning with the launch of Sumavel DosePro in January 2010, the Company began amortizing the upfront and milestone payments as contract

revenue in the consolidated statement of operations and comprehensive loss over the term of the Astellas Co-Promotion Agreement. Upon termination of the Astellas Co-Promotion Agreement, the Company concluded that the remaining deferred revenue balance should be recognized ratably through the amended term of the agreement, and consequently, the remaining $8,462,000 of these deferred contract revenues as of December 31, 2011 was recognized as contract revenue during the three months ended March 31, 2012.

The Company is required to make two annual tail payments to Astellas, calculated as decreasing fixed percentages of net sales in the Astellas Segment in the last 12 months of its active promotion. The value of such tail payments was estimated at a total of $5,291,000 based upon the agreement termination date of March 31, 2012, and recorded as a long-term liability on the amendment date of December 20, 2011. The fair value of the tail payments is being accreted through interest expense through the dates of payment in July 2013 and July 2014. As of June 30, 2013 and December 31, 2012, the tail payment liability was $3,082,000 and $2,795,000 (including the service fee reduction discussed below), respectively. The first tail payment of $2,032,000, which was made in July 2013, was included in accounts payable as of June 30, 2013. During the three months ended June 30, 2013 and 2012, $146,000 and $164,000 of related interest expense was recognized, respectively, and $287,000 and $321,000 of related interest expense was recognized during the six months ended June 30, 2013 and 2012, respectively.

Further, under the terms of the amended Astellas Co-Promotion Agreement, Astellas contributed its agreed upon portion of marketing expenses through March 31, 2012, and continued to earn a service fee based on product sales to the Astellas Segment during that period. As of April 1, 2012, the Company was no longer required to pay service fees to Astellas for sales of Sumavel DosePro. Additionally, beginning in the second quarter of 2012, the Company’s sales force assumed full responsibility for the commercialization and the continued marketing of Sumavel DosePro, expanding their focus to include headache specialists, neurologists and primary care physicians in the United States. Amounts received from Astellas for shared marketing costs and sample product are reflected as a reduction of selling, general and administrative expenses, and amounts payable to Astellas for shared marketing expenses and service fees are reflected as selling, general and administrative expenses, inclusive of the estimated cost of the tail payments owed upon the termination of the agreement.

In August 2012, the Company and Astellas completed a final reconciliation under the terms of the Astellas Co-Promotion Agreement and agreed to adjust the service fees paid to Astellas over the term of the Astellas Co-Promotion Agreement, resulting in a service fee reduction of $1,500,000, which offsets the two annual tail payments, and a reduction to the annual tail payment liability of $742,000. The present value of the service fee receivable and tail payment reduction of $1,924,000 was recorded as a reduction in selling, general and administrative expenses during the twelve months ended December 31, 2012, and an offset to the tail payment liability. The fair value of the service fee receivable and tail payment reduction for each of the tail payments will be accreted through interest expense through the dates of the two tail payments in July 2013 and July 2014.

For the three and six months ended June 30, 2013 and 2012, the Company recognized shared marketing expense of $0 and $56,000, and $0 and $253,000, respectively, under the Astellas Co-Promotion Agreement.

For the three and six months ended June 30, 2013 and 2012, and prior to the final reconciliation of service fees, the Company incurred $0 and $58,000, and $0 and $1,757,000, respectively, in service fee expenses.

Valeant Pharmaceuticals North America LLC Co-Promotion Agreement

On June 27, 2013, the Company entered into a co-promotion agreement (the Valeant Agreement) with Valeant Pharmaceuticals North America LLC (Valeant). Under the terms of the Valeant Agreement, the Company was granted the exclusive right (with Valeant or any of its affiliates) to promote Migranal® (dihydroergotamine mesylate) Nasal Spray (Migranal) to a prescriber audience of physicians and other health care practitioners in the United States. Under the Valeant Agreement, the Company's sales team will begin selling Migranal to prescribers no later than August 26, 2013. The term of the Valeant Agreement will run through December 31, 2015 (unless otherwise terminated), and can be extended by mutual agreement of the parties in additional twelve month increments. Valeant remains responsible for the manufacture, supply and distribution of Migranal for sale in the United States. In addition, Valeant will supply the Company with a specified amount of product samples every six months, and the Company will reimburse Valeant for the cost of additional samples and any promotional materials ordered by the Company.

In partial consideration of the Company's sales efforts, Valeant will pay the Company a co-promotion fee on a quarterly basis that represents specified percentages of net sales generated by the Company over defined baseline amounts of net sales (Baseline Forecast or Adjusted Baseline Forecast). In addition, upon completion of the co-promotion term, and only if the Valeant Agreement is not terminated by Valeant due to a bankruptcy event (as defined in the Valeant Agreement) or a material failure by the Company to comply with its material obligations under the Valeant Agreement, Valeant will be required to pay the Company an additional tail payment calculated as a fixed percentage of the Company's net sales over the Baseline Forecast (or Adjusted Baseline Forecast) during the first full six months following the last day of the term.

The Company may terminate the Valeant Agreement in the event of a Valeant supply failure (as defined in the Valeant Agreement) or material product recall, or if the net sales price in a fiscal quarter is less than a specified percentage of the net sales price in the immediately preceding quarter, if the reduction in such net sales price would have a material adverse effect on the Company's financial return as a result of performance of its obligation under the Valeant Agreement.

Either party may terminate the Valeant Agreement with six months' notice, provided that neither party may provide notice of termination before January 1, 2014. Either party may terminate the Valeant Agreement with 30 days' prior notice if the Company's net sales within a fiscal quarter fall below the Baseline Forecast (or Adjusted Baseline Forecast) for one or more fiscal quarters, or following the commercial introduction of a generic product to Migranal promoted or otherwise commercialized by a third party in the United States. In addition, either party may terminate the Valeant Agreement in the event of a change of control of itself or the other party (upon 90 days' prior written notice), upon any action taken or objection raised by governmental authority that prevents either party from performing its obligations under the Valeant Agreement, upon the filing of an action alleging patent infringement, in connection with the material breach of the other party's material obligations, or if a bankruptcy event of the other party occurs.

Healthcare Royalty Financing Agreement

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

In addition, upon the closing of and in connection with the Financing Agreement, the Company issued and sold to Healthcare Royalty $1,500,000 of the Company’s common stock, or 388,601 shares, at a price of $3.86 per share. The Company also issued to Healthcare Royalty a warrant exercisable for up to 225,000 shares of the Company’s common stock. The warrant is exercisable at $9.00 per share and has a term of 10 years. As the warrant contains covenants where compliance with such covenants may be outside the control of the Company, the warrant was recorded as a current liability and marked to market at each reporting date using the Black-Scholes option pricing valuation model (see Note 2).

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

• 5% to 5.75% of the first $75,000,000 of Revenue Interest recorded (in the case of net product sales) or received (in the case of co-promotion revenues and license fees) by the Company in a calendar year (initially 5% and then 5.75% after the co-promotion agreement with Astellas terminated on March 31, 2012);

• 2.5% of the next $75,000,000 of Revenue Interest recorded (in the case of net product sales) or received (in the case of co-promotion revenues and license fees) by the Company in a calendar year; and

• 0.5% of Revenue Interest over and above $150,000,000 recorded (in the case of net product sales) or received (in the case of co-promotion revenues and license fees) by the Company in a calendar year.

Net sales of Sumavel DosePro outside the United States are only included in the Revenue Interest if such net sales exceed $10,000,000. Once the aggregate payments, including the fixed payments described below, made by the Company to Healthcare Royalty equal $75,000,000, the percentage of Revenue Interest owed to Healthcare Royalty is reduced to 0.5% for the remainder of the term of the Financing Agreement, with only Sumavel DosePro and Zohydro ER subject to the Revenue Interest payments thereafter. The Company is also obligated to make three fixed payments of $10,000,000 on (or before at the option of the Company) each of January 31, 2015, January 31, 2016 and January 31, 2017. Unless terminated as discussed below, the Financing Agreement terminates on March 31, 2018.

As security for the payment of the Company's obligations under the Financing Agreement, the Company also entered into a security agreement whereby the Company granted to Healthcare Royalty a security interest in all assets of the Company, including intellectual property and other rights of the Company to the extent necessary or used to commercialize the Company products. Healthcare Royalty entered into an intercreditor agreement under which its security interest was junior to the security interest of the lenders under the Company’s $25.0 million loan and security agreement. The intercreditor agreement terminated on July 30, 2012 when the Company terminated its $25.0 million loan and security agreement. Healthcare Royalty’s security interest will be extinguished at the end of the term or once the aggregate payments made by the Company to Healthcare Royalty equal to $75,000,000, whichever is sooner. The Company has agreed to specified positive and negative covenants in connection with the Financing Agreement.

The Company has the option to terminate the Financing Agreement at the Company’s election in connection with a change of control of the Company, upon the payment of a base amount of $52,500,000, or, if higher, an amount that generates a 19% internal rate of return on the Borrowed Amount as of the date of prepayment, in each case reduced by the Revenue Interest and principal payments received by Healthcare Royalty up to the date of prepayment.

Healthcare Royalty has the option to terminate the Financing Agreement at its election in connection with a change of control of the Company (which includes the sale, transfer, assignment or licensing of the Company’s rights in the United States to either Sumavel DosePro or Zohydro ER), or an event of default (which includes the occurrence of a bankruptcy event or other material adverse change in the Company’s business), as defined in the Financing Agreement. Upon such a termination by Healthcare Royalty, the Company is obligated to make a payment of a base amount of $45,000,000, or, if higher, an amount that generates a 17% internal rate of return on the Borrowed Amount as of the date of prepayment, in each case reduced by the Revenue Interest and principal payments received by Healthcare Royalty up to the date of prepayment.

The rights of the Company and Healthcare Royalty to terminate the Financing Agreement early, as well as the change in the Revenue Interest rate from 5% to 5.75% in connection with the early termination of the Astellas Co-Promotion Agreement, meet the definition of an embedded derivative. As a result, the Company carved out these embedded derivatives from the Financing Agreement and determined the fair value of each derivative using various discounted cash flow valuation models taking into account the probability of these events occurring and various scenarios surrounding the potential Revenue Interest payments that would be made if these events occurred (see Note 2). The aggregate fair value of the embedded derivatives as of June 30, 2013 and December 31, 2012 was $1,554,000 and $992,000, respectively, and is included in other long-term liabilities.

The Company received aggregate net proceeds of $29,485,000 from the Financing Agreement (including the purchase of common stock). The discounts, which are being amortized using the effective interest method over the term of the arrangement within interest expense, include the fair value of the common stock warrants issued to Healthcare Royalty of $790,000 upon the closing of the Financing Agreement, fees payable to Healthcare Royalty in connection with the execution of the arrangement of $476,000 and the fair value of embedded derivatives of $605,000 upon the closing of the Financing Agreement. The Company has recognized other income (expense) in relation to the change in the fair value of the Healthcare Royalty common stock warrant of $41,000 and $(91,000) for the three months ended June 30, 2013 and 2012, respectively, and $(35,000) and $(42,000) for the six months ended June 30, 2013 and 2012, respectively, in the statement of operations and comprehensive loss. The Company has recognized other (expense) income in relation to the change in the fair value of the Healthcare Royalty embedded derivatives of $(480,000) and $330,000 for the three months ended June 30, 2013 and 2012, respectively, and $(562,000) and $368,000 for the six months ended June 30, 2013 and 2012, respectively, in the statement of operations and comprehensive loss.

Term Debt

In June 2008, the Company entered into a Loan and Security Agreement with Oxford and CIT Healthcare LLC (the Oxford Agreement) under which it borrowed $18,000,000. The obligations under the Oxford Agreement were collateralized by personal property excluding certain intellectual property and all equipment pledged to secure an equipment financing. In July and October 2010, the Company amended and restated the Oxford Agreement, and Oxford and Silicon Valley Bank (SVB) became party to the amended agreement. In June 2011, the Company again amended and restated the amended Oxford/SVB agreement (the Amended Oxford/SVB Agreement), which provided among other things, the addition of intellectual property to the collateral securing the Oxford/SVB loan and the deferral of principal repayment to commence on February 1, 2012.

The Amended Oxford/SVB Agreement consisted of a $25,000,000 term loan and a $10,000,000 revolving credit facility. The obligations under the Amended Oxford/SVB Agreement were collateralized by the Company’s intellectual property (including among other things, copyrights, patents, patent applications, trademarks, service marks and trade secret rights) and personal property (including, among other things, accounts receivable, equipment, inventory, contract rights, rights to payment of money, license agreements, general intangibles and cash). The $25,000,000 term loan bore an interest rate of 12.06% per annum. Under the terms of the revolving credit facility, $10,000,000 was available to be borrowed within a specified percentage of the Company’s eligible accounts receivable and inventory balances (as defined in the agreement). Amounts outstanding under the revolving credit facility accrued interest payable monthly at a floating rate per annum equal to the greater of 3.29% above SVB’s prime rate or 7.29%. In addition, the Company paid a monthly fee equal to 0.5% per annum of the average unused portion of the revolving credit facility.

On July 30, 2012, the Company exercised its right to terminate the Amended Oxford/SVB Agreement prior to the loan maturity date of January 2, 2014 and repaid $19,492,000 of outstanding principal and interest under the agreement. In addition to the repayment of all principal and interest outstanding, the Company was also required to make a final payment of $1,200,000 and a prepayment premium of $400,000, or 2% of the then outstanding principal. The Company also paid a $100,000 prepayment premium to terminate the revolving credit facility. As a result of the termination of the Amended Oxford/SVB Agreement, the lenders no longer have a security interest in the Company’s intellectual property and personal property.

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

The Company uses the Black-Scholes option-pricing model for determining the estimated fair value of stock-based compensation for stock-based awards to employees and the board of directors. The assumptions used in the Black-Scholes option-pricing model for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Risk free interest rate	1.2%		0.7% to 1.0%		0.8% to 1.2%		0.2% to 1.2%
Expected term	5.1 to 6.0 years		5.0 to 6.1 years		5.0 to 6.1 years		5.0 to 6.1 years
Expected volatility	84.5% to 85.6%		81.5% to 82.8%		84.5% to 87.9%		80.6% to 82.8%
Expected dividend yield	—	%	—	%	—	%	—	%

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

The Company recognized stock-based compensation expense as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of sales	$	63	$	47	$	108	$	76
Research and development	250		236		466		431
Selling, general and administrative	1,465		1,255		2,790		2,287
Restructuring	201		—		201		—
Total	$	1,979	$	1,538	$	3,565	$	2,794

As of June 30, 2013, there was approximately $15,029,000 of total unrecognized compensation costs related to outstanding options, which is expected to be recognized over a weighted average period of 2.9 years.

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Restructuring

6 Months Ended

Jun. 30, 2013

Restructuring and Related Activities [Abstract]

Restructuring

Restructuring

In May 2013, the Company commenced a restructuring of its workforce, resulting in a reduction in force of 55 employees across all functional areas of the Company. During the three months ended June 30, 2013, the Company recorded restructuring charges of $876,000 consisting primarily of employee-related compensation charges. The following table summarizes the components of the restructuring charges for the three and six months ended June 30, 2013 (in thousands):

	Three and Six Months Ended June 30, 2013
	Accruals		Non-cash items		Total
Employee-related charges	$	663	$	201	$	864
Other restructuring charges	12		—		12
	675		201		$	876

The following table sets forth activity in the restructuring liability for the six months ended June 30, 2013, which is primarily comprised of employee severance costs (in thousands):

	Employee severance costs				Other restructuring charges			Total
Balance at December 31, 2012	$	—		—	$	—		$	—
Accruals	663				12			675
Payments	(519		)		(10		)	(529		)
Balance at June 30, 2013	144				2			$	146

The balance of the restructuring liability at June 30, 2013 is anticipated to be fully distributed by the end of 2013.

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Common Stock Warrants - Additional Informational (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	0 Months Ended						1 Months Ended
	Jul. 27, 2012	Jul. 18, 2011	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Healthcare Royalty	Dec. 31, 2012 Healthcare Royalty	Jun. 30, 2011 Oxford/SVB [Member]	Dec. 31, 2011 Oxford/SVB [Member]
Schedule Of Common Stock [Line Items]
Shares of common stock exercisable through warrants	15,784,200						26,455
Warrants exercisable date	Jul. 27, 2013
Warrants exercise price per share	$ 2.50						$ 3.78
Warrants expiry date	July 27, 2017
Term of common stock warrant exercisable (years)	5 years	10 years					7 years
Fair value of warrant liabilities			$ 12,268	$ 9,308	$ 220	$ 185
Warrant exercisable to Healthcare Royalty, shares		225,000
Warrant exercisable to Healthcare Royalty, price per share (usd per share)		$ 9.00
Unamortized debt discount								$ 76

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Consolidated Statements of Operations and Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenue:
Net product revenue	$ 8,942	$ 8,030	$ 15,924	$ 17,915
Contract revenue	0	0	0	8,462
Total revenue	8,942	8,030	15,924	26,377
Operating expenses:
Cost of sales	4,630	4,167	8,789	9,229
Royalty expense	338	315	620	672
Research and development	3,577	6,381	6,814	12,345
Selling, general and administrative	12,000	12,068	26,482	26,717
Restructuring	876	0	876	0
Total operating expenses	21,421	22,931	43,581	48,963
Loss from operations	(12,479)	(14,901)	(27,657)	(22,586)
Other income (expense):
Interest income	3	10	11	29
Interest expense	(1,595)	(2,589)	(3,208)	(5,267)
Change in fair value of warrant liabilities	1,264	(91)	(2,995)	(42)
Change in fair value of embedded derivatives	(480)	330	(562)	368
Other income (expense)	(45)	72	22	42
Total other income (expense)	(853)	(2,268)	(6,732)	(4,870)
Net loss before income taxes	(13,332)	(17,169)	(34,389)	(27,456)
Provision for income taxes	0	0	0	(5)
Net loss	(13,332)	(17,169)	(34,389)	(27,461)
Net loss per share, basic and diluted (usd per share)	$ (0.13)	$ (0.26)	$ (0.34)	$ (0.42)
Weighted average shares outstanding, basic and diluted	100,876	65,449	100,843	65,409
Comprehensive loss	$ (13,332)	$ (17,169)	$ (34,389)	$ (27,461)

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Inventory, net (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure Inventory Net [Abstract]

Inventory, Net

	June 30, 2013		December 31, 2012
Raw materials	$	3,517	$	4,867
Work in process	6,606		6,134
Finished goods	3,062		1,885
	$	13,185	$	12,886

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Organization and Basis of Presentation

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Basis of Presentation

Organization and Basis of Presentation

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

The Company was incorporated in the state of Delaware on May 11, 2006 as SJ2Therapeutics, Inc. and commenced operations on August 25, 2006. On August 28, 2006, the Company changed its name to Zogenix, Inc.

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through equity financings, debt financings, revenues from the sale of its product Sumavel DosePro and proceeds from business collaborations. As the Company continues to incur losses, successful transition to profitability is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. This may not occur and, unless and until it does, the Company will continue to need to raise additional cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

Management expects operating losses and negative cash flows to continue for at least the next several years as the Company continues to incur costs related to the continued development of its product candidates and commercialization of its approved product. Management may pursue additional opportunities to raise additional capital through public or private equity offerings, including through a controlled equity offering program, debt financings, receivables financings or through collaborations or partnerships with other companies to further support its planned operations. There can be no assurance that the Company will be able to obtain any source of financing on acceptable terms, or at all. If the Company is unsuccessful in raising additional required funds, it may be required to significantly delay, reduce the scope of or eliminate one or more of its development programs or its commercialization efforts, or cease operating as a going concern. The Company also may be required to relinquish, license or otherwise dispose of rights to product candidates or products that it would otherwise seek to develop or commercialize itself on terms that are less favorable than might otherwise be available.

On March 27, 2013, the Company entered into a controlled equity offering sales agreement, or the sales agreement, with Cantor Fitzgerald & Co., or Cantor, as sales agent, under which the Company can issue and sell shares of its common stock having an aggregate offering price of up to $25.0 million from time to time through Cantor. The sales of common stock made under the controlled equity offering sales agreement will be made in “at-the-market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended, or the Securities Act. The Company did not complete the issuance of any shares of its common stock pursuant to the sales agreement during the three months ended June 30, 2013. Subsequent to June 30, 2013, and through August 7, 2013, the Company agreed to issue 3.0 million shares of its common stock pursuant to the sales agreement at an average stock issuance price of $1.66 per share, resulting in net proceeds of approximately $4.9 million. As of August 7, 2013, the Company had the capacity to issue up to $20.0 million in shares of its common stock under the sales agreement. However, there can be no assurance that Cantor will be successful in consummating further sales based on prevailing market conditions or in the quantities or at the prices that management deems appropriate.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 16,121	$ 41,228
Trade accounts receivable, net	4,138	5,643
Inventory, net	13,185	12,886
Prepaid expenses and other current assets	2,044	2,254
Total current assets	35,488	62,011
Property and equipment, net	13,414	13,561
Other assets	4,496	5,114
Total assets	53,398	80,686
Current liabilities:
Accounts payable	6,337	4,592
Accrued expenses	12,052	14,343
Common stock warrant liabilities	12,488	9,493
Accrued compensation	2,518	4,226
Total current liabilities	33,395	32,654
Long-term debt, less current portion	28,638	28,481
Other long-term liabilities	7,452	5,078
Commitments and contingencies
Stockholders' equity:
Common stock	101	101
Additional paid-in capital	347,592	343,763
Accumulated deficit	(363,780)	(329,391)
Total stockholders’ equity (deficit)	(16,087)	14,473
Total liabilities and stockholders’ equity (deficit)	$ 53,398	$ 80,686

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Stock-Based Compensation - Assumptions used in Black-Scholes Option-Pricing Model (Detail) (Stock Options [Member])	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate	1.20%
Risk free interest rate , minimum		0.70%	0.80%	0.20%
Risk free interest rate, maximum		1.00%	1.20%	1.20%
Expected volatility, minimum	84.50%	81.50%	84.50%	80.60%
Expected volatility, maximum	85.60%	82.80%	87.90%	82.80%
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	5 years 1 month 6 days	5 years	5 years	5 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	6 years	6 years 1 month 6 days	6 years 1 month 6 days	6 years 1 month 6 days

XML

Inventory, Net (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Disclosure Inventory Net [Abstract]
Raw materials	$ 3,517	$ 4,867
Work in process	6,606	6,134
Finished goods	3,062	1,885
Inventory, net	$ 13,185	$ 12,886

XML

Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012 are as follows (in thousands):

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
At June 30, 2013
Assets
Cash equivalents(1)	$	13,415	—	—	$	13,415
Liabilities
Common stock warrant liabilities(2)	$	—	—	12,488	$	12,488
Embedded derivative liabilities(3)	$	—	—	1,554	$	1,554
At December 31, 2012
Assets
Cash equivalents(1)	$	37,605	—	—	$	37,605
Liabilities
Common stock warrant liabilities(2)	$	—	—	9,493	$	9,493
Embedded derivative liabilities(3)	$	—	—	992	$	992

(1) Cash equivalents are comprised of money market fund shares and are included as a component of cash and cash equivalents on the consolidated balance sheets.

(2) Common stock warrant liabilities include liabilities associated with warrants issued in connection with the Company's July 2012 public offering of common stock and warrants (see Note 6) and warrants issued in connection with the Healthcare Royalty financing agreement (see Note 4), which are measured at fair value using the Black-Scholes option pricing valuation model. The assumptions used in the Black-Scholes option pricing valuation model for both common stock warrant liabilities were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; and (d) given the Company’s lack of relevant historical data due to the Company’s limited historical experience, an expected volatility based upon the Company's historical volatility, supplemented with historical volatility of comparable companies whose share prices have been publicly available for a sufficient period of time. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the Healthcare Royalty financing agreement is the expected volatility. Significant increases in volatility would result in a higher fair value measurement. The following additional assumptions were used in the Black-Scholes option pricing valuation model to measure the fair value of the warrants sold in the July 2012 public offering: (a) management’s projections regarding the probability of the occurrence of an extraordinary event that would require cash settlement of the warrants; and for the valuation scenario in which an extraordinary event occurs, (b) a volatility rate equal to the lesser of 40% and the 180-day volatility rate obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of an extraordinary transaction. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering is the expected volatility and probability of the occurrence of an extraordinary event. Significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement.

(3) Embedded derivative liabilities measured at fair value using various discounted cash flow valuation models are included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models include: (a) management’s revenue projections and a revenue sensitivity analysis based on possible future outcomes; (b) probability weighted net cash flows based on the likelihood of Healthcare Royalty receiving revenue interest payments over the term of the financing agreement; (c) probability of bankruptcy; (d) weighted average cost of capital that included the addition of a company specific risk premium to account for uncertainty associated with the Company achieving future cash flows; (e) the probability of a change in control occurring during the term of the Healthcare Royalty financing agreement; and (f) the probability of an exercise of the embedded derivative instruments. The significant unobservable inputs used in measuring the fair value of the embedded derivatives are management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement.

Reconciliation of Liabilities Measured at Fair Value Using Significant Observable Inputs (Level 3)

The following table provides a reconciliation of liabilities measured at fair value using significant observable inputs (Level 3) for the six months ended June 30, 2013 (in thousands):

	Common Stock Warrant Liabilities		Embedded Derivative Liabilities
Balance at December 31, 2012	$	9,493	$	992
Changes in fair value	2,995		562
Balance at June 30, 2013	$	12,488	$	1,554

Basic and Diluted Net Loss Per Share

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Numerator
Net loss	$	(13,332	)	$	(17,169	)	$	(34,389	)	$	(27,461	)
Denominator
Weighted average common shares outstanding, basic and diluted	100,876			65,449			100,843			65,409
Basic and diluted net loss per share	$	(0.13	)	$	(0.26	)	$	(0.34	)	$	(0.42	)

Schedule of Calculation of Diluted Net Loss Per Share

The following table presents potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive (in thousands, of common equivalent shares):

	Three and Six Months Ended June 30,
	2013	2012
Common stock options and restricted stock units	1,710	6,171
	1,710	6,171

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Stock-Based Compensation - Expense (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 1,979	$ 1,538	$ 3,565	$ 2,794
Cost of sales
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	63	47	108	76
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	250	236	466	431
Selling, general and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	1,465	1,255	2,790	2,287
Restructuring
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 201	$ 0	$ 201	$ 0

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Assumptions used in the Black-Scholes Option-Pricing Model

The assumptions used in the Black-Scholes option-pricing model for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Risk free interest rate	1.2%		0.7% to 1.0%		0.8% to 1.2%		0.2% to 1.2%
Expected term	5.1 to 6.0 years		5.0 to 6.1 years		5.0 to 6.1 years		5.0 to 6.1 years
Expected volatility	84.5% to 85.6%		81.5% to 82.8%		84.5% to 87.9%		80.6% to 82.8%
Expected dividend yield	—	%	—	%	—	%	—	%

Stock-Based Compensation Expense

The Company recognized stock-based compensation expense as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of sales	$	63	$	47	$	108	$	76
Research and development	250		236		466		431
Selling, general and administrative	1,465		1,255		2,790		2,287
Restructuring	201		—		201		—
Total	$	1,979	$	1,538	$	3,565	$	2,794

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Financial Statement Preparation and Use of Estimates

Financial Statement Preparation and Use of Estimates

The unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared by Zogenix, Inc. according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted.

In the opinion of management, the accompanying unaudited consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on March 15, 2013.

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

The Company has monitored actual product return history for Sumavel DosePro since product launch. Based on the Company's product returns analysis, which considers actual product returns on an individual product lot basis, and factors such as the dating of the Company's product at the time of shipment into the distribution channel, prescription trends and changes in the estimated levels of inventory within the distribution channel, the Company increased its estimate for product returns, resulting in an adjustment of $1,226,000, which decreased net product sales in the first quarter of 2013.

Principles of Consolidation

Principles of Consolidation

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

Fair Value Measurements

Changes in fair value of the liabilities shown in the table above are recorded through change in fair value of warrant liabilities and change in fair value of embedded derivatives in other income (expense) in the consolidated statements of operations and comprehensive loss.

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and accrued compensation included in the Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value. The liability for the annual tail payments due to Astellas Pharma US, Inc. (Astellas) (see Note 4) for the termination of the Company’s co-promotion agreement was measured at fair value in December 2011 using a present value technique, which incorporated the Company’s own credit risk as measured by the most recent round of debt financing with Healthcare Royalty Partners (Healthcare Royalty) (formerly Cowen Healthcare Royalty Partners II, L.P.).

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

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company classifies its cash equivalents within Level 1 of the fair value hierarchy because it values our cash equivalents using quoted market prices. The Company classifies its common stock warrant liabilities and embedded derivative liabilities within Level 3 of the fair value hierarchy because they are valued using valuation models with significant unobservable inputs.

Net Loss per Share

Net Loss per Share

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

Segment Reporting

Segment Reporting

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued an Accounting Standards Update which requires entities to separately present amounts reclassified out of accumulated other comprehensive income (AOCI) for each component of AOCI and to disclose, for each affected line item in the income statement, the amount of AOCI that has been reclassified into that line item. For AOCI reclassification items that are not reclassified in their entirety into net income, it is acceptable to cross reference that amount to another footnote that provides the required disclosure. The updated guidance became effective for fiscal and interim periods beginning after December 15, 2012. The Company adopted this guidance on January 1, 2013 and it did not have a material impact on the Company's results of operations.

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Inventory, net

6 Months Ended

Jun. 30, 2013

Disclosure Inventory Net [Abstract]

Inventory, net

Inventory, net (in thousands)

	June 30, 2013		December 31, 2012
Raw materials	$	3,517	$	4,867
Work in process	6,606		6,134
Finished goods	3,062		1,885
	$	13,185	$	12,886

XML

Summary of Significant Accounting Policies - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified																																																	6 Months Ended
	Jun. 30, 2013 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Common Stock Warrant Liabilities [Member]		Jun. 30, 2013 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Embedded Derivative Liabilities [Member]		Dec. 31, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Embedded Derivative Liabilities [Member]		Jun. 30, 2013 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Money market fund shares [Member]		Dec. 31, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Money market fund shares [Member]		Jun. 30, 2013 Significant Other Observable Inputs (Level 2) [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2012 Significant Other Observable Inputs (Level 2) [Member] Common Stock Warrant Liabilities [Member]		Jun. 30, 2013 Significant Other Observable Inputs (Level 2) [Member] Embedded Derivative Liabilities [Member]		Dec. 31, 2012 Significant Other Observable Inputs (Level 2) [Member] Embedded Derivative Liabilities [Member]		Jun. 30, 2013 Significant Other Observable Inputs (Level 2) [Member] Money market fund shares [Member]		Dec. 31, 2012 Significant Other Observable Inputs (Level 2) [Member] Money market fund shares [Member]		Jun. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2012 Significant Unobservable Inputs (Level 3) [Member] Common Stock Warrant Liabilities [Member]		Jun. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Embedded Derivative Liabilities [Member]		Dec. 31, 2012 Significant Unobservable Inputs (Level 3) [Member] Embedded Derivative Liabilities [Member]		Jun. 30, 2013 Significant Unobservable Inputs (Level 3) [Member] Money market fund shares [Member]		Dec. 31, 2012 Significant Unobservable Inputs (Level 3) [Member] Money market fund shares [Member]		Jun. 30, 2013 Estimate of Fair Value, Fair Value Disclosure [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2012 Estimate of Fair Value, Fair Value Disclosure [Member] Common Stock Warrant Liabilities [Member]		Jun. 30, 2013 Estimate of Fair Value, Fair Value Disclosure [Member] Embedded Derivative Liabilities [Member]		Dec. 31, 2012 Estimate of Fair Value, Fair Value Disclosure [Member] Embedded Derivative Liabilities [Member]		Jun. 30, 2013 Estimate of Fair Value, Fair Value Disclosure [Member] Money market fund shares [Member]		Dec. 31, 2012 Estimate of Fair Value, Fair Value Disclosure [Member] Money market fund shares [Member]		Jun. 30, 2013 Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Maximum volatility rate																																																	40.00%
Assets
Assets measured at fair value on a recurring basis									$ 13,415	[1]	$ 37,605	[1]									$ 0	[1]	$ 0	[1]									$ 0	[1]	$ 0	[1]									$ 13,415	[1]	$ 37,605	[1]
Liabilities
Liabilities measured at fair value on a recurring basis	$ 0	[2]	$ 0	[2]	$ 0	[3]	$ 0	[3]					$ 0	[2]	$ 0	[2]	$ 0	[3]	$ 0	[3]					$ 12,488	[2]	$ 9,493	[2]	$ 1,554	[3]	$ 992	[3]					$ 12,488	[2]	$ 9,493	[2]	$ 1,554	[3]	$ 992	[3]

[1] Cash equivalents are comprised of money market fund shares and are included as a component of cash and cash equivalents on the consolidated balance sheets.

[2] Common stock warrant liabilities include liabilities associated with warrants issued in connection with the Company's July 2012 public offering of common stock and warrants (see Note 6) and warrants issued in connection with the Healthcare Royalty financing agreement (see Note 4), which are measured at fair value using the Black-Scholes option pricing valuation model. The assumptions used in the Black-Scholes option pricing valuation model for both common stock warrant liabilities were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; and (d) given the Company’s lack of relevant historical data due to the Company’s limited historical experience, an expected volatility based upon the Company's historical volatility, supplemented with historical volatility of comparable companies whose share prices have been publicly available for a sufficient period of time. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the Healthcare Royalty financing agreement is the expected volatility. Significant increases in volatility would result in a higher fair value measurement. The following additional assumptions were used in the Black-Scholes option pricing valuation model to measure the fair value of the warrants sold in the July 2012 public offering: (a) management’s projections regarding the probability of the occurrence of an extraordinary event that would require cash settlement of the warrants; and for the valuation scenario in which an extraordinary event occurs, (b) a volatility rate equal to the lesser of 40% and the 180-day volatility rate obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of an extraordinary transaction. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering is the expected volatility and probability of the occurrence of an extraordinary event. Significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement.

[3] Embedded derivative liabilities measured at fair value using various discounted cash flow valuation models are included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models include: (a) management’s revenue projections and a revenue sensitivity analysis based on possible future outcomes; (b) probability weighted net cash flows based on the likelihood of Healthcare Royalty receiving revenue interest payments over the term of the financing agreement; (c) probability of bankruptcy; (d) weighted average cost of capital that included the addition of a company specific risk premium to account for uncertainty associated with the Company achieving future cash flows; (e) the probability of a change in control occurring during the term of the Healthcare Royalty financing agreement; and (f) the probability of an exercise of the embedded derivative instruments. The significant unobservable inputs used in measuring the fair value of the embedded derivatives are management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement.

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Restructuring (Tables)

6 Months Ended

Jun. 30, 2013

Restructuring and Related Activities [Abstract]

Summary of Components of Restructuring Charges

The following table summarizes the components of the restructuring charges for the three and six months ended June 30, 2013 (in thousands):

	Three and Six Months Ended June 30, 2013
	Accruals		Non-cash items		Total
Employee-related charges	$	663	$	201	$	864
Other restructuring charges	12		—		12
	675		201		$	876

Schedule of Activity of Restructuring Charges

The following table sets forth activity in the restructuring liability for the six months ended June 30, 2013, which is primarily comprised of employee severance costs (in thousands):

	Employee severance costs				Other restructuring charges			Total
Balance at December 31, 2012	$	—		—	$	—		$	—
Accruals	663				12			675
Payments	(519		)		(10		)	(529		)
Balance at June 30, 2013	144				2			$	146

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Summary of Significant Accounting Policies - Schedule of Calculation of Diluted Net Loss Per Share (Detail) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share amount	1,710	6,171
Common stock options and restricted stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share amount	1,710	6,171

XML

Summary of Significant Accounting Policies - Reconciliation of Liabilities Measured at Fair Value Using Significant Observable Inputs Level 3 (Detail) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Warrants and Rights Outstanding [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	$ 9,493
Changes in fair value	2,995
Ending Balance	12,488
Embedded Derivative Liabilities [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	992
Changes in fair value	562
Ending Balance	$ 1,554

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 01, 2013
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Trading Symbol	ZGNX
Entity Registrant Name	ZOGENIX, INC.
Entity Central Index Key	0001375151
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		102,354,402

XML

Summary of Significant Accounting Policies - Basic and Diluted Net Loss Per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Numerator
Net loss	$ (13,332)	$ (17,169)	$ (34,389)	$ (27,461)
Denominator
Weighted average shares outstanding, basic and diluted	100,876	65,449	100,843	65,409
Basic and diluted net loss per share (usd per share)	$ (0.13)	$ (0.26)	$ (0.34)	$ (0.42)