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, 2014

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, 2014 was 141,044,864.

ZOGENIX, INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2014

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1	Consolidated Financial Statements:
	Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013	3
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 214 and 2013 (unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)	5
	Notes to the Consolidated Financial Statements (unaudited)	6
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4	Controls and Procedures	33
PART II. OTHER INFORMATION
Item 1	Legal Proceedings	34
Item 1A	Risk Factors	34
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3	Defaults Upon Senior Securities	48
Item 4	Mine Safety Disclosures	48
Item 5	Other Information	48
Item 6	Exhibits	49

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Zogenix, Inc.

Consolidated Balance Sheets

(In Thousands)

	June 30, 2014			December 31, 2013
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	81,235		$	72,021
Restricted cash	8,500			—
Trade accounts receivable, net	5,920			6,665
Inventory	15,656			9,936
Prepaid expenses and other current assets	5,190			4,257
Total current assets	116,501			92,879
Property and equipment, net	10,960			13,011
Other assets	5,837			6,614
Total assets	$	133,298		$	112,504
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	13,546		$	4,622
Accrued expenses	14,467			18,865
Accrued compensation	6,399			3,952
Common stock warrant liabilities	11,955			31,341
Deferred revenue	8,424			—
Total current liabilities	54,791			58,780
Note payable	2,292			—
Long term debt	—			28,802
Deferred revenue, less current portion	7,566			—
Other long-term liabilities	331			6,496
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value; 200,000 shares authorized at June 30, 2014 and December 31, 2013; 141,045 and 138,927 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively.	141			139
Additional paid-in capital	436,491			428,534
Accumulated deficit	(368,314		)	(410,247		)
Total stockholders’ equity	68,318			18,426
Total liabilities and stockholders’ equity	$	133,298		$	112,504

See accompanying notes.

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Zogenix, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(In Thousands, except Per Share Amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenue:
Net product revenue	$	5,780		$	8,903		$	12,550		$	15,797
Contract manufacturing revenue	2,238			—			2,238			—
Service and other revenue	1,143			39			2,048			127
Total revenue	9,161			8,942			16,836			15,924
Operating (income) expense:
Cost of goods sold	2,375			4,630			5,756			8,789
Cost of contract manufacturing	1,935			—			1,935			—
Royalty expense	435			338			798			620
Research and development	4,120			3,577			7,657			6,814
Selling, general and administrative	24,490			12,000			52,143			26,482
Restructuring	—			876			—			876
Impairment of long-lived assets	838			—			838			—
Net gain on sale of business	(79,980		)	—			(79,980		)	—
Total operating (income) expense	(45,787		)	21,421			(10,853		)	43,581
Income (loss) from operations	54,948			(12,479		)	27,689			(27,657		)
Other income (expense):
Interest income	6			3			12			11
Interest expense	(1,029		)	(1,595		)	(2,915		)	(3,208		)
Loss on early extinguishment of debt	(1,254		)	—			(1,254		)	—
Change in fair value of warrant liabilities	10,201			1,264			18,470			(2,995		)
Change in fair value of embedded derivatives	—			(480		)	(14		)	(562		)
Other income (expense)	(7		)	(45		)	(55		)	22
Total other income (expense)	7,917			(853		)	14,244			(6,732		)
Net income (loss) before income taxes	62,865			(13,332		)	41,933			(34,389		)
Provision for income taxes	—			—			—			—
Net income (loss)	$	62,865		$	(13,332	)	$	41,933		$	(34,389	)
Common share data:
Net income (loss) per share, basic	$	0.45		$	(0.13	)	$	0.30		$	(0.34	)
Net income (loss) per share, diluted	$	0.45		$	(0.13	)	$	0.16		$	(0.34	)
Weighted average shares outstanding, basic	139,985			100,876			139,635			100,843
Weighted average shares outstanding, diluted	139,985			100,876			142,772			100,843
Comprehensive income (loss)	$	62,865		$	(13,332	)	$	41,933		$	(34,389	)

See accompanying notes.

4

Zogenix, Inc.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

	Six Months Ended June 30,
	2014			2013
Operating activities:
Net loss	$	41,933		$	(34,389	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	5,292			3,364
Stock-based compensation, restructuring	—			201
Depreciation and amortization	820			945
Amortization of debt issuance costs and non-cash interest	287			276
Loss on early extinguishment of debt	1,254			—
Net gain on sale of business	(79,980		)	—
Loss on impairment of long-lived assets	838			—
Change in fair value of warrant liabilities	(18,470		)	2,995
Change in fair value of embedded derivatives	14			562
Changes in operating assets and liabilities:
Trade accounts receivable	745			1,505
Inventory	(5,720		)	(299		)
Prepaid expenses and other current assets	(9,378		)	210
Other assets	(4,995		)	498
Accounts payable and accrued expenses	10,666			(584		)
Restructuring liabilities	—			146
Deferred revenue	15,990			—
Net cash used in operating activities	(40,704		)	(24,570		)
Investing activities:
Purchases of property and equipment	83			(798		)
Proceeds from sale of business	89,624			—
Restricted cash from sale of business	(8,500		)	—
Net cash provided by (used in) investing activities	81,207			(798		)
Financing activities:
Proceeds from note payable	7,000			—
Repayment of debt	(40,041		)	—
Proceeds from exercise of common stock options and warrants	1,508			—
Proceeds from issuance of common stock and common stock warrants	244			261
Net cash provided by (used in) financing activities	(31,289		)	261
Net increase (decrease) in cash and cash equivalents	9,214			(25,107		)
Cash and cash equivalents at beginning of period	72,021			41,228
Cash and cash equivalents at end of period	$	81,235		$	16,121

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 committed to developing and commercializing therapies that address specific clinical needs for people living with pain-related conditions and central nervous system disorders who need innovative treatment alternatives to help them return to normal daily functioning. On October 25, 2013, the Company received marketing approval from the U.S. Food and Drug Administration (FDA) for Zohydro™ ER (hydrocodone bitartrate) extended-release capsules, an opioid agonist, extended-release oral formulation of hydrocodone without acetaminophen, for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. Zohydro ER is the first extended-release oral formulation of hydrocodone without acetaminophen. The Company launched Zohydro ER in March 2014.

The Company’s 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 FDA that allows for the needle-free, subcutaneous delivery of medication. On April 23, 2014, the Company entered into an asset purchase agreement (Asset Purchase Agreement) with Endo Ventures Bermuda Limited (Endo Ventures Bermuda) and Endo Ventures Limited (Endo Ventures and, together with Endo Ventures Bermuda, Endo), pursuant to which, and on the terms and subject to the conditions thereof, among other things, the Company agreed to sell its Sumavel DosePro business to Endo, including the registered trademarks, certain contracts, the New Drug Application (NDA) and other regulatory approvals, the books and records, marketing materials and product data relating to Sumavel DosePro. The Asset Purchase Agreement closed on May 16, 2014 (the Closing) and in connection with the Closing, the Company and Endo Ventures also entered into a supply agreement (the Supply Agreement), pursuant to which the Company will retain the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied Sumavel DosePro to Endo Ventures, subject to Endo Venture’s right to qualify and maintain a back-up manufacturer. Further, under the Supply Agreement, Endo will support the Company’s Sumavel DosePro manufacturing operations with a working capital advance equivalent to the book value of the inventory of materials and unreleased finished goods held by the Company in connection with the manufacture of Sumavel DosePro minus the accounts payable associated with such materials and unreleased finished goods, capped initially at $7,000,000 and subject to annual adjustment. Upon the Closing, and in addition to the working capital advance, Endo paid the Company $85,000,000, $8,500,000 of which was deposited into escrow to fund potential indemnification claims for a period of 12 months, and $4,624,000 for finished goods inventory on hand at Closing. In addition to the upfront cash payment, the Company is eligible to receive additional cash payments of up to $20,000,000 based on the achievement of pre-determined sales and gross margin milestones (see Note 4).

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

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through equity financings, debt financings, revenues from the sale of product 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 year as the Company continues to incur costs related to the commercialization of Zohydro ER, required post-market testing for Zohydro ER, safe use initiatives for Zohydro ER and additional development activities with respect to Zohydro ER, including the development of abuse deterrent formulations, and the clinical development of Relday. Management may pursue additional opportunities to raise further capital, if required, through public or private equity offerings, including through 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.

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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 statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 7, 2014.

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.

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.

Restricted Cash

In connection with its sale of the Sumavel DosePro business in May 2014, the Company has $8,500,000 of cash in escrow as of June 30, 2014 to fund potential indemnification claims for a period of 12 months (see Note 4). The Company classifies the cash flow from this restricted cash as an investing activity in the consolidated statement of cash flows as the source of the restricted cash is related to the sale of the Sumavel DosePro business.

Further, in December 2009, the Company issued a line of credit for $200,000 in connection with an operating lease which was collateralized by a certificate of deposit in the same amount and recorded as restricted cash within other assets on the consolidated balance sheet as of December 31, 2013. This line of credit and certificate of deposit were terminated in February 2014 in connection with a renegotiation of the operating lease.

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, restricted 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 accrued liability for the annual tail payment due to Astellas Pharma US, Inc. (Astellas) (see Note 5) 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.

7

The Company classifies its cash equivalents within Level 1 of the fair value hierarchy because it values its 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, 2014 and December 31, 2013 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, 2014
Assets
Cash equivalents(1)	$	78,515	—	—	$	78,515
Liabilities
Common stock warrant liabilities(2)	$	—	—	11,955	$	11,955
At December 31, 2013
Assets
Cash equivalents(1)	$	69,120	—	—	$	69,120
Liabilities
Common stock warrant liabilities(2)	$	—	—	31,341	$	31,341
Embedded derivative liabilities(3)	$	—	—	233	$	233

(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 6), 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 and the timing of such event; and for the valuation scenario in which an extraordinary event occurs that is not an all cash transaction or an event whereby a public acquirer would assume the warrants, (b) an expected volatility rate using the Company's historical volatility, supplemented with historical volatility of comparable companies, through the projected date of public announcement of an extraordinary transaction, blended with a 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 inputs used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering are the expected volatility and the 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. The decrease in the fair value of the common stock warrant liabilities as of June 30, 2014 was primarily driven by the decrease in the Company's stock price at June 30, 2014 as compared against December 31, 2013 measurement dates.

8

(3) Embedded derivatives were measured at fair value using various discounted cash flow valuation models and were included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models included: (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 interest payments over the term of the Healthcare Royalty 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 were management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement of the liability. The embedded derivatives were derecognized in May 2014 as a result of the early extinguishment of the Healthcare Royalty Financing Agreement (see Note 5).

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, 2014 (in thousands):

	Common Stock Warrant Liabilities			Embedded Derivative Liabilities
Balance at December 31, 2013	$	31,341		$	233
Changes in fair value	(18,470		)	14
Derecognition of liability	—			(247		)
Exercises	$	(916	)	$	—
Balance at June 30, 2014	$	11,955		$	—

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 income (loss). The derecognition of the embedded derivative liabilities was included in the loss on early extinguishment of debt in non-operating expenses in the consolidated statements of operations and comprehensive income (loss).

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing the net income (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 income (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, restricted stock units 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.

9

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014			2013
Numerator
Net income (loss), basic	62,865		(13,332		)	41,933			(34,389		)
Effect of dilutive securities:
Common stock warrants	$	—	$	—		$	(18,470	)	$	—
Net income (loss), diluted	$	62,865	$	(13,332	)	$	23,463		$	(34,389	)
Denominator
Weighted average common shares outstanding, basic	139,985		100,876			139,635			100,843
Effect of dilutive securities:
Common stock warrants	—		—			3,137			—
Weighted average common shares outstanding, diluted	139,985		100,876			142,772			100,843
Basic net income (loss) per share	$	0.45	$	(0.13	)	$	0.30		$	(0.34	)
Diluted net income (loss) per share	$	0.45	$	(0.13	)	$	0.16		$	(0.34	)

There were 9,255,000 and 12,684,000 dilutive securities (in common stock equivalent shares), from common stock options excluded from the calculation of diluted net loss during the three and six months ended June 30, 2014, respectively, because to include them would be anti-dilutive. There were 1,710,000 dilutive securities (in common stock equivalent shares), from common stock options and restricted stock units, excluded from the calculation of diluted net loss during the three and six months ended June 30, 2013 because to include them would be anti-dilutive. All common stock warrants disclosed in Note 6 were excluded from the calculation of diluted net loss during the three months ended June 30, 2013 and 2014, and during the six months ended June 30, 2013, as the exercise price of the warrants was greater than the Company's average stock price during these periods.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. As a result of the sale of its Sumavel DosePro business in May 2014, the Company recorded an impairment charge of $838,000 in the consolidated statement of operations and comprehensive income (loss) during the three and six months ended June 30, 2014 related to the disposal of construction in progress that will no longer be placed into service.

Revenue Recognition

The Company recognizes revenue from the sale of Sumavel DosePro and Zohydro ER, and from contract manufacturing, license fees, milestones and service fees earned on collaborative arrangements. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the Company’s price to the buyer is substantially fixed or determinable at the date of sale, (b) the buyer has paid the Company, or the buyer is obligated to pay the Company and the obligation is not contingent on resale of the product, (c) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product, (d) the buyer acquiring the product for resale has economic substance apart from that provided by the Company, (e) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (f) the amount of future returns can be reasonably estimated. The Company currently defers recognition of revenue on product shipments of Zohydro ER until the right of return no longer exists, as the Company currently cannot reliably estimate expected returns of the product at the time of shipment given the limited sales history of Zohydro ER.

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Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The application of the multiple element guidance requires subjective determinations, and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company's control. In determining the units of accounting, the Company evaluates certain criteria, including whether the deliverables have stand-alone value, based on the consideration of the relevant facts and circumstances for each arrangement. In addition, the Company considers whether the buyer can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s).

Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria, as described above, are applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition. The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or management's best estimate of selling price (BESP) if neither VSOE nor TPE is available. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs.

Product Revenue, Net

The Company sells Zohydro ER, and sold Sumavel DosePro through May 2014, in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively the Company's customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. The Company recognized Sumavel DosePro product sales at the time title transfered to its customer, and reduced product sales for estimated future product returns and sales allowances in the same period the related revenue was recognized.

Given the limited sales history of Zohydro ER, the Company cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company defers recognition of revenue on Zohydro ER product shipments until the right of return no longer exists, which occurs at the earlier of the time Zohydro ER is dispensed through patient prescriptions or expiration of the right of return. The Company estimates Zohydro ER patient prescriptions dispensed using an analysis of third-party syndicated data. Zohydro ER was launched in March 2014 and, accordingly, the Company does not have significant history estimating the number of patient prescriptions dispensed. If the Company underestimates or overestimates patient prescriptions dispensed for a given period, adjustments to revenue may be necessary in future periods. The deferred revenue balance does not have a direct correlation with future revenue recognition as the Company will record sales deductions at the time the prescription unit is dispensed.

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

Product sales allowances for Zohydro ER and Sumavel DosePro include wholesaler and retail pharmacy distribution fees, prompt pay discounts, chargebacks, rebates and patient discount programs, and are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of the Company's agreements with its customers and third-party payors and the levels of inventory within the distribution and retail channels that may result in future rebates or discounts taken. In certain cases, such as patient support programs, the Company recognizes the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, the Company may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. The Company records product sales deductions in the statement of operations at the time product revenue is recognized.

In connection with the Closing of the Asset Purchase Agreement (APA) in May 2014, whereby Endo acquired the Company's Sumavel DosePro business, Endo purchased the Company's existing finished goods inventory of Sumavel DosePro at standard cost. The Company will be financially responsible for all returns of Sumavel DosePro product distributed by the Company prior to Closing of the APA up to a maximum per unit amount as specified in the agreements. The Company will also

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be financially responsible for payment of Sumavel DosePro product sales allowances on product distributed by the Company prior to Closing of the APA. Endo will be responsible for payment of all other Sumavel DosePro returns and sales allowances.

Contract Manufacturing Revenue

In connection with the Closing of the APA in May 2014, the Company and Endo Ventures entered into the Supply Agreement, pursuant to which the Company retains the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied Sumavel DosePro to Endo Ventures (see Note 4). The Company recognizes deferred revenue related to its supply of Sumavel DosePro as contract manufacturing revenue when earned on a "proportional performance" basis, as product is delivered. The Company recognizes revenue related to its sale of Sumavel DosePro product, equal to the cost of contract manufacturing plus a 2.5% mark-up, upon the transfer of title to Endo. The Company supplies Sumavel DosePro product based on non-cancellable purchase orders. The Company initially defers revenue for any consideration received in advance of services being performed and product being delivered, and recognizes revenue pursuant to the related pattern of performance, based on total product delivered relative to the total estimated product delivery over the minimum eight year term of the Supply Agreement. The Company continually evaluates the performance period and will adjust the period of revenue recognition if circumstances change.

In addition, the Company follows the authoritative accounting guidance when reporting revenue as gross when the Company acts as a principal versus reporting revenue as net when the Company acts as an agent. For transactions in which the Company acts as a principal, has discretion to choose suppliers, bears credit risk and performs a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services.

Segment Reporting

Management has determined that the Company operates in one business segment, which is the development and commercialization of pharmaceutical products for people living with pain-related conditions and central nervous system disorders.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued an accounting update that raises the threshold for disposals to qualify as discontinued operations and allows companies to have significant continuing involvement with and continuing cash flows from or to the discontinued operations. This accounting update also requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. This guidance will be effective for fiscal years beginning after December 15, 2014, with early adoption permitted. The Company does not expect that the adoption of the guidance will have a material impact on the Company's financial statements.

In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years beginning after December 16, 2016, including interim periods within that reporting period, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is prohibited. The Company is evaluating the impact of adopting this new accounting standard on its financial statements and related disclosures.

In June 2014, the FASB issued new accounting guidance related to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early adoption is permitted. The Company does not expect that the adoption of the guidance will have a material impact on the Company's financial statements.

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3. Inventory (in thousands)

	June 30, 2014		December 31, 2013
Raw materials	$	2,778	$	2,770
Work in process	7,087		6,054
Finished goods	4,874		1,112
Deferred cost of goods sold	917		—
	$	15,656	$	9,936

Deferred cost of goods sold consists of the costs of Zohydro ER associated with the deferred revenue, which are included in inventory, until such time the related deferred revenue is recognized.

4. Sale of Sumavel DosePro Business

Endo Ventures Bermuda Limited and Endo Ventures Limited Asset Purchase Agreement

On May 16, 2014, the Company closed the APA with Endo Ventures Bermuda and Endo Ventures, pursuant to which the Company sold its Sumavel DosePro business to Endo, including the registered trademarks, certain contracts, the NDA and other regulatory approvals, the books and records, marketing materials and product data relating to Sumavel DosePro. Upon Closing of the APA, Endo paid the Company $85,000,000 in cash, $8,500,000 of which was deposited into escrow to fund potential indemnification claims for a period of 12 months, and $4,624,000 in cash for the purchase of Sumavel DosePro finished goods inventory on hand at the Company's standard cost. In addition to the upfront cash payments, the Company is eligible to receive additional cash payments of up to $20,000,000 based on the achievement of pre-determined sales and gross margin milestones.

Furthermore, Endo Ventures assumed responsibility for the Company’s royalty obligation to Aradigm Corporation on sales of Sumavel DosePro.

At the Closing, the Company and Endo Ventures Bermuda entered into a license agreement (License Agreement), pursuant to which the Company granted Endo an exclusive, perpetual, sublicensable, irrevocable (unless terminated as set forth in the License Agreement), fully paid-up, royalty-free license to make and have made, use and research, develop and commercialize Sumavel DosePro throughout the world under a specified subset of the Company's technology patents. The Company retained all rights to the DosePro technology patents and know-how for use with other products. Either party may terminate the License Agreement in the event of the other party's uncured material breach.

At the Closing, the Company and Endo Ventures entered into the Supply Agreement, pursuant to which the Company will retain the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied Sumavel DosePro to Endo, subject to Endo’s right to qualify and maintain a back-up manufacturer. Endo will exclusively purchase all Sumavel DosePro supplied by the Company at the cost of goods sold plus a 2.5% mark-up. The Company will grant Endo a manufacturing license under certain circumstances outlined in the Supply Agreement, if Endo requires the use of a back-up supplier. Representatives from the Company and Endo will participate on a joint supply committee for general oversight and strategic functions regarding the Supply Agreement. Further, under the Supply Agreement, Endo will support the Company’s Sumavel DosePro manufacturing operations with an interest-free working capital advance equivalent to the book value of the inventory of materials and unreleased finished goods held by the Company in connection with the manufacture of the Sumavel DosePro minus the accounts payable associated with such materials and unreleased finished goods, capped initially at $7,000,000 and subject to annual adjustment. The working capital advance is evidenced by a promissory note (the Note) and is secured by liens on materials and unreleased finished Sumavel DosePro inventory.

The Supply Agreement may be terminated by either party upon three years' prior written notice, provided that the notice cannot be given prior to the fifth anniversary of the Closing date. Either party may also terminate the Supply Agreement in the following circumstances: (i) if the other party breaches any material term of the agreement and fails to cure such breach within a specified time period following written notice; or (ii) upon the occurrence of certain financial difficulties. Endo Ventures also may terminate the Supply Agreement in the following circumstances: (i) if Sumavel DosePro has been deemed ineffective or unsafe by the applicable governmental authorities; or (ii) if the Company fails to supply to Endo Ventures a minimum quantity of Sumavel DosePro over the course of a six month period which results in Endo Ventures being unable to supply Sumavel DosePro to its trade customers.

Further upon Closing, the Company and Endo Ventures entered into other ancillary agreements associated with the APA, pursuant to which the Company will help facilitate the transfer of the Sumavel DosePro business to Endo Ventures, which Endo

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Ventures assumed responsibility for as of the Closing date. The services to be provided by the Company include assistance with co-pay/voucher programs, continuation of Zogenix Product Express services, regulatory support and processing of all payment claims made under the Company's National Drug Code. Services provided by the Company will be provided over various time periods specified in the agreements.

The Company accounted for the agreement for the sale of the Sumavel DosePro business as a sale of a business and, as such, was required to estimate the fair value of the business, including the product rights under the APA, DosePro technology license and Sumavel DosePro finished goods inventory on hand at Closing. The Company estimated the fair value of the product rights using an income approach valuation technique through a discounted cash flow method. The assumptions used in the discounted cash flow method included estimated Sumavel DosePro units to be sold in the market based on current demand forecasts, net selling price of Sumavel DosePro based on current market price, working capital needs estimated by management and a discount rate based on a market participant weighted average cost of capital.

The Company estimated the fair value of the DosePro technology license using a relief from royalty valuation method, whereby the presumed royalty savings from owning the license was estimated. The valuation considered royalty rates involving other injection technologies in the current pharmaceutical space.

The Company estimated the fair value of the Sumavel DosePro finished goods inventory on hand at Closing (which was sold to Endo at standard cost) using a market approach reflecting the estimated costs incurred by the Company in performing monitoring and quality control services on inventory supplied to Endo.

The agreements entered into concurrently with the sale of the Sumavel DosePro business, including the License Agreement and Supply Agreement, contain various elements and, as such, are deemed to be an arrangement with multiple deliverables as defined under authoritative accounting guidance (see Note 2). Several non-contingent deliverables were identified within the agreements. The Company identified the contract manufacturing services, manufacturing license, transition services and performance on joint supply committee as separate non-contingent deliverables within the arrangement. The transition services and manufacturing license have standalone value and qualify as separate units of accounting. Performance on the joint supply committee does not have standalone value from the contract manufacturing services, and as such, these two deliverables qualify as one unit of accounting. The non-contingent consideration received from the Endo agreements was allocated to these separate units of accounting, including the sale of the Sumavel DosePro business, based on their respective fair values, using the relative selling price method.

The Company developed its BESP for each non-contingent deliverable, as VSOE and TPE was not available, in order to allocate the non-contingent arrangement consideration to the three undelivered units of accounting. The Company used a market valuation approach to develop the BESP for contract manufacturing services through the use of market rates available for comparable contract manufacturing services and consideration of internal costs of performing inventory monitoring and quality control services. Significant increases in the hours necessary to perform inventory monitoring and quality controls services would result in a significant increase in the fair value of the contract manufacturing services.

The Company developed the BESP for the manufacturing license by estimating the total number of hours required to qualify another manufacturer, the hourly rate of internal regulatory and manufacturing employees that are required to qualify another manufacturer and the market rate for estimated cost of travel required to qualify another manufacturer. The Company developed the BESP for the transition services through use of an estimate of the total number of hours required to complete the services and the hourly rate of an internal employee that performs the services, which was compared to hourly market rates for similar consulting services. The Company developed the BESP for performance on the joint supply committee through use of an estimate of the total number of participation hours required on the committee and the hourly rate of the internal employees that participate on the joint supply committee. Significant increases in the estimated number of hours required to qualify another manufacturer, required to perform transition services, or required for performance on the joint supply committee would significantly increase the fair value of these deliverables.

The Company allocated $9,100,000 of the upfront consideration to contract manufacturing services, which includes a discount valued at $4,748,000 related to the interest free working capital advance, and an immaterial amount of the upfront consideration was allocated to the manufacturing license, transition services and performance on the joint supply committee. Revenue associated with each of the undelivered elements will be recognized when the element is delivered.

As of June 30, 2014, the Company determined that the Sumavel DosePro business, which is comprised of the product rights under the APA, DosePro technology license and Sumavel DosePro finished goods inventory purchased at Closing, had been fully delivered, and, therefore representing control of the business obtained by Endo. As such, a gain on sale of business of $79,980,000, net of $660,000 in related transaction costs, was recognized for the sale of the Sumavel DosePro business in the consolidated statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2014.

Based on the Sumavel DosePro finished goods inventory delivered and the contract manufacturing services performed, as measured using a proportional performance method, during the three and six months ended June 30, 2014 a total of $2,238,000 was recognized as contract manufacturing revenue in the statement of operations and comprehensive income (loss). An immaterial amount of revenue was recognized for performance of transition services and performance on the joint supply committee during the three and six months ended June 30, 2014.

As of June 30, 2014, the Company had $9,005,000 remaining in deferred revenue attributed to the Endo arrangement.

The $79,980,000 gain on sale of Sumavel DosePro business was calculated as the difference between the allocated non-contingent consideration amount for the business and the net carrying amount of the assets transferred to Endo. The following sets forth the net assets and calculation of the gain on sale as of Closing (in thousands):

Non-contingent consideration received	$	89,624
Imputed interest on working capital advance	4,748
Carrying value of Sumavel DosePro inventory on hand at Closing	(4,624		)
Transaction costs	(660		)
Deferred revenue associated with undelivered elements	(9,108		)
Net gain on sale of business	$	79,980

The net gain on sale of business may be adjusted in future periods by the contingent consideration, of up to $20,000,000, based upon the achievement of pre-determined sales and gross margin milestones. Any future adjustment of the net gain on sale of business will be determined through use of the relative selling price method.

Further, as noted above, Endo Ventures provided the Company with an interest-free working capital advance upon Closing. The working capital advance of $7,000,000, which is evidenced by the Note, was recorded as a note payable on the consolidated balance sheet at Closing, net of a $4,748,000 debt discount. The fair value of the debt discount was established using a market approach, including an interest rate reflecting recent term sheets provided to the Company for offerings of debt instruments, interest rates on the Company's most recent debt instruments, and market interest rates on similar debt instruments. The debt discount will be amortized as interest expense using the effective interest method over the minimum eight year term of the Supply Agreement, as the working capital advance must be repaid upon termination of the Supply Agreement. The Company recognized $40,000 of interest expense during the three and six months ended June 30, 2014 related to the working capital advance from Endo.

The sale of the Sumavel DosePro business does not qualify as discontinued operations as the Company will have significant continuing involvement in the business as the exclusive supplier of Sumavel DosePro over the term of the Supply Agreement.

5. 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), which was originally scheduled to terminate on June 30, 2014. 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.

In partial consideration of Mallinckrodt’s sales efforts, the Company paid Mallinckrodt a service fee on a quarterly basis through January 31, 2014 that represented 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. Amounts payable to Mallinckrodt for service fees are reflected as selling, general and administrative expenses. For the three and six months ended June 30, 2014, the Company incurred $0 and $100,000, respectively, in service fee expenses under the Co-Promotion Agreement, excluding the tail-payment expense discussed below. 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

In January 2014, the Company entered into an amendment to the Co-Promotion Agreement, whereby the Co-Promotion Agreement terminated on January 31, 2014. The Company assumed full responsibility for the commercialization of Sumavel DosePro in February 2014. In connection with the termination of the Co-Promotion Agreement, the Company is required to make a one-time tail payment to Mallinckrodt, calculated as a fixed percentage of net sales from the Mallinckrodt targeted prescriber audience during the 12 month period ending on January 31, 2015. A liability of $491,000 for this estimated tail-

payment was recorded as service fee expense in selling, general and administrative expenses in the statement of operations during the six months ended June 30, 2014.

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. The Company's sales team began promoting Migranal to prescribers in August 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 12 month increments. Valeant remains responsible for the manufacture, supply and distribution of Migranal for sale in the United States. In addition, Valeant supplies 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. The cost of any additional samples and any promotional materials ordered by the Company will be recognized as selling, general and administrative expenses.

In partial consideration of the Company's sales efforts, Valeant pays 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 the inability of 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. 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.

The Company recognizes co-promotion fees received under the Valeant Agreement as service revenue in the period in which its promotional activities generate net sales over the Baseline Forecast or Adjusted Baseline Forecast. For the three and six months ended June 30, 2014, the Company recognized service revenue of $1,115,000 and $1,980,000, respectively, under the Valeant Agreement.

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.

Following completion of the co-promotion term in March 2012, the Company was required to pay Astellas one tail payment in July 2013 and is required to pay Astellas another tail payment in July 2014, calculated as decreasing fixed percentages (ranging from mid-twenties down to a mid-teen percentage) of net sales in the Astellas Segment during the 12 months ended March 31, 2012. The fair value of the tail payments is being accreted through interest expense through the dates of payment in July 2013 and July 2014. The first tail payment of $2,032,000 was made in July 2013. As of June 30, 2014, the tail payment liability of $1,218,000 was included in accounts payable on the consolidated balance sheet. The Company recognized $44,000 and $146,000 of related interest expense during the three months ended June 30, 2014 and 2013,

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respectively, and recognized $87,000 and $287,000 of related interest expense during the six months ended June 30, 2014 and 2013, respectively.

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. The Financing Agreement was originally scheduled to terminate on March 31, 2018, but Healthcare Royalty exercised its right to early terminate the Financing Agreement on May 16, 2014, as discussed below.

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 was 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 were only included in the Revenue Interest if such net sales exceeded $10,000,000. The Company was 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.

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’s security interest was extinguished upon early termination of the Financing Agreement on May 16, 2014.

The Company had 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 generated 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 had 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. Healthcare Royalty exercised its option to terminate the Financing Agreement in connection with the Company's sale of the Sumavel DosePro business to Endo on May 16, 2014. Upon termination of the Financing Agreement by Healthcare Royalty, the Company was obligated to make a final payment (Final Payment) of $40,041,000 to Healthcare Royalty, which was an amount that generated a 17% internal rate of return on the Borrowed Amount as of the date of prepayment, reduced by the Revenue Interest and principal payments received by Healthcare Royalty up to the date of Final Payment. The Company no longer has any further payment obligations under the Financing Agreement after the Final Payment was made.

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, met the definition of an embedded derivative. As a result, the Company carved out these embedded derivatives from the

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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 December 31, 2013 was $233,000 and is included in other long-term liabilities. The fair value of the embedded derivatives of $247,000 was derecognized upon termination of the Financing Agreement on May 16, 2014 and is included in the loss on early extinguishment of debt in the statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2104.

The Company received aggregate net proceeds of $29,485,000 from the Financing Agreement (including the purchase of common stock). The discounts, which were 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 $150,000 and $272,000 for the three and six months ended June 30, 2014, respectively, and $41,000 and $(35,000) for the three and six months ended June 30, 2013, respectively, in the statement of operations and comprehensive income (loss). The Company has recognized other expense in relation to the change in the fair value of the embedded derivatives of $0 and $14,000 for the three and six months ended June 30, 2014, respectively, and $480,000 and $562,000 for the three and six months ended June 30, 2013, respectively, in the statement of operations and comprehensive income (loss).

Upon early termination of the Financing Agreement on May 16, 2014, and the Company's Final Payment to Healthcare Royalty, the Company determined that the early termination resulted in an extinguishment of the outstanding debt and recognized a loss on early extinguishment of debt of $1,254,000 which was recorded as non-operating expenses in the statement of operations and comprehensive income (loss). The loss on early extinguishment of debt is related to the write-off of the unamortized balances of the debt discounts (which includes derecognition of the embedded derivative liabilities, as discussed above), debt acquisition costs, and accrued interest expenses related to the Financing Agreement.

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 are exercisable at an exercise price of $2.50 per share and will expire on July 27, 2017, which is five 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). During the three and six months ended June 30, 2014, warrants to purchase 465,250 shares of common stock were exercised, and during the year ended December 31, 2013, warrants to purchase 103,500 shares of common stock were exercised. The Company recognized $1,163,000 and $259,000 in proceeds from the exercise of warrants during the three and six months ended June 30, 2014 and during the year ended December 31, 2013, respectively. The fair value of the warrants outstanding was approximately $11,735,000 and $30,849,000 as of June 30, 2014 and December 31, 2013, respectively.

In July 2011, upon the closing of and in connection with the Financing Agreement (see Note 5), 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 ten 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 and $492,000 as of June 30, 2014 and December 31, 2013, respectively.

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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, 2014 and 2013 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014	2013
Risk free interest rate	1.6% to 1.9%		1.2	%	1.6% to 2.0%	0.8% to 1.2%
Expected term	5.1 to 6.1 years		5.1 to 6.0 years		5.1 to 6.1 years	5.0 to 6.1 years
Expected volatility	84.2% to 84.7%		84.5% to 85.6%		84.2% to 84.9%	84.5% to 87.9%
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,
	2014		2013		2014		2013
Cost of goods sold	$	141	$	63	$	268	$	108
Research and development	364		250		721		466
Selling, general and administrative	2,280		1,465		4,303		2,790
Restructuring	—		201		—		201
Total	$	2,785	$	1,979	$	5,292	$	3,565

As of June 30, 2014, there was approximately $18,781,000 of total unrecognized compensation costs related to outstanding employee and board of director stock options and restricted stock units, which is expected to be recognized over a weighted average period of 2.8 years.

As of June 30, 2014, there were 201,563 unvested stock options outstanding to consultants, with approximately $322,000 of related unrecognized compensation expense based on a June 30, 2014 measurement date. These unvested stock options outstanding to consultants are expected to vest over a weighted average period of 2.5 years. In accordance with accounting guidance for stock-based compensation, the Company re-measures the fair value of stock option grants to non-employees at each reporting date and recognizes the related income or expense during their vesting period. The income recognized from the valuation of stock options and restricted stock units to consultants was $109,000 and $150,000 for the three and six months ended June 30, 2014, respectively, and was immaterial for the three and six months ended June 30, 2013. Stock option expense for awards issued to consultants is included in the consolidated statement of operations and comprehensive income (loss) within selling, general and administrative expense.

8. Subsequent Event

On August 5, 2014, the Company entered into a new operating lease (the Lease) for approximately 17,361 rentable square feet of office space located in San Diego, California. The Company intends to use the leased premises as its corporate headquarters, and the new lease is expected to commence on December 1, 2014 upon expiration of the Company’s current San Diego office sublease of approximately 13,124 rentable square feet in the same location.

The Lease term will expire 64 months after the Lease commencement date with an option to renew the Lease for an additional five years. The initial base rent will be $73,784 per month, with 100% of rent being abated for the second, third, fourth and fifth months of the Lease term and 50% of rent being abated for the sixth month of the Lease term. The base rent will increase approximately 3.25% on a yearly basis throughout the Lease term. The Lease also requires the Company to pay additional rent consisting of a portion of common area and pass-through expenses in excess of base year amounts. The

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Company will begin to amortize rent expense related to this operating lease using a straight-line method when it gains access to the new leased space.

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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 successfully execute our sales and marketing strategy for the commercialization of Zohydro ER;

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

• our ability to receive contingent milestone payments from the sale of the Sumavel DosePro business to Endo Health Solutions, Inc.;

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

• the safety and efficacy of our product candidates;

• the market potential for extended-release/long-acting (ER/LA) opioid products, 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;

• the ability to develop an abuse deterrent formulation of Zohydro ER;

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

• our ability to ensure adequate and continued supply of Zohydro ER 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 Zohydro ER or any of our product candidates that may be approved for sale, the extent of such coverage and reimbursement and the willingness of third-party payors to pay for our products versus less expensive therapies;

• the impact of healthcare reform 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^®, Relday™, 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, its consolidated subsidiary.

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

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ended December 31, 2013 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, 2013.

Overview

Background

We are a pharmaceutical company committed to developing and commercializing therapies that address specific clinical needs for people living with pain-related conditions and central nervous system disorders who need innovative treatment alternatives to help them return to normal daily functioning. On October 25, 2013, we received marketing approval from the U.S. Food and Drug Administrations, or FDA, for Zohydro™ ER (hydrocodone bitartrate) extended-release capsules, an opioid agonist, extended-release oral formulation of hydrocodone without acetaminophen, for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. Zohydro ER is the first extended-release oral formulation of hydrocodone without acetaminophen. We launched Zohydro ER in March 2014. Zohydro ER has the potential to address significant unmet medical needs and become an important and widely-used addition to the treatment options available to patients and physicians in the United States’ multi-billion dollar chronic pain market.

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 FDA that allows for the needle-free, subcutaneous delivery of medication. On April 23, 2014, we entered into an asset purchase agreement, or the APA, with Endo Ventures Bermuda Limited, or Endo Ventures Bermuda, and Endo Ventures Limited, or Endo Ventures and, together with Endo Ventures Bermuda, Endo, pursuant to which, and on the terms and subject to the conditions thereof, among other things, we agreed to sell our Sumavel DosePro business to Endo, including the registered trademarks, certain contracts, the new drug application, or NDA, and other regulatory approvals, the books and records, marketing materials and product data relating to Sumavel DosePro. The APA closed on May 16, 2014 and, in connection with this closing, we and Endo Ventures also entered into a supply agreement pursuant to which we will retain the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied Sumavel DosePro to Endo Ventures, subject to Endo Venture’s right to qualify and maintain a back-up manufacturer.

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. 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 subcutaneous antipsychotic product that allows for once-monthly dosing. In May 2012, we filed an investigational new drug, or IND, application with the FDA. In July 2012, we initiated our first 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 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 at a 100 mg dose of the same formulation. We 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 we believe will provide the required steady-state pharmacokinetic and safety data prior to initiating Phase 3 development studies. We plan to commence this multi-dose clinical trial in the second half of 2014.

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, 2014, had an accumulated deficit of $368.3 million. We expect to continue to incur net losses and negative cash flow from operating activities for at least the next year primarily as a result of our efforts to commercialize Zohydro ER, the clinical development for Relday, required post-market testing for Zohydro ER, safe use initiatives for Zohydro ER and additional development activities with respect to Zohydro ER, including the development of abuse deterrent formulations. As of June 30, 2014, we had cash and cash equivalents of $81.2 million.

Although it is difficult to predict future liquidity requirements, we believe that our cash and cash equivalents as of June 30, 2014, which includes $81.1 million of the upfront cash payment from the sale of our Sumavel DosePro business in April 2014 (excluding $8.5 million of the upfront cash payment that is included in restricted cash), our projected product revenues

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from Zohydro ER and our projected contract manufacturing and other service revenues will be sufficient to fund our operations through at least the next 12 months. We may pursue additional opportunities to raise capital, if necessary, through public or private equity offerings, 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, 2013, our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding our ability to continue as a going concern.

Endo Ventures Bermuda Limited and Endo Ventures Limited Asset Purchase Agreement

On April 23, 2014, we entered into the APA with Endo, pursuant to which, and on the terms and subject to the conditions thereof, among other things, we agreed to sell our Sumavel DosePro business to Endo, including the registered trademarks, certain contracts, the NDA and other regulatory approvals, the books and records, marketing materials and product data relating to Sumavel DosePro. Under the terms of the APA, Endo paid us $85.0 million in cash upon closing on May 16, 2014, or the Closing, $8.5 million of which was deposited into escrow to fund potential indemnification claims for a period of 12 months. Further upon the Closing, Endo Ventures purchased from us our finished goods inventory of Sumavel DosePro for $4.6 million. In addition to the upfront cash payment, we are eligible to receive additional cash payments of up to $20.0 million based on the achievement of pre-determined sales and gross margin milestones. Furthermore, Endo Ventures will assume responsibility for our royalty obligation to Aradigm Corporation on sales of Sumavel DosePro and assume other liabilities relating to Sumavel DosePro after the Closing.

Upon the Closing, we and Endo Ventures Bermuda entered into a license agreement, pursuant to which we granted Endo Ventures an exclusive, worldwide, royalty-free license to make and have made, use and research, develop and commercialize Sumavel DosePro. Upon Closing we also entered into a supply agreement with Endo Ventures, pursuant to which we will continue to manufacture Sumavel DosePro, and Endo Ventures will support our Sumavel DosePro manufacturing operations with a working capital advance of $7.0 million. Lastly upon Closing, we entered into other ancillary agreements with Endo Ventures associated with the APA, pursuant to which we will help facilitate the transfer of the Sumavel DosePro business to Endo Ventures, which Endo Ventures will assume responsibility for as of the Closing date.

In connection with the Closing, we were required to extinguish all encumbrances on the assets to be sold to Endo, including those previously granted to Healthcare Royalty Partners, or Healthcare Royalty, pursuant to the financing agreement, dated June 30, 2011, with Healthcare Royalty, or the Healthcare Royalty financing agreement. We eliminated our existing debt obligation to Healthcare Royalty on May 16, 2014 by paying $40.0 million to Healthcare Royalty, consistent with the terms of the Healthcare Royalty financing agreement.

Mallinckrodt LLC Co-Promotion Agreement

In June 2012, we entered into a co-promotion agreement with Mallinckrodt LLC. Under the terms of the co-promotion agreement, Mallinckrodt was granted a co-exclusive right (with us) to promote Sumavel DosePro in the United States. Mallinckrodt's sales team began selling Sumavel DosePro in August 2012. The initial term of the agreement was to run through June 30, 2014. In January 2014, we entered into an amendment to the co-promotion agreement, whereby the agreement terminated on January 31, 2014. We assumed full responsibility for the commercialization of Sumavel DosePro in February 2014.

In partial consideration of Mallinckrodt's sales efforts, we paid Mallinckrodt a service fee on a quarterly basis through January 31, 2014 that represented a specified fixed percentage of net sales of prescriptions generated from Mallinckrodt's prescriber audience over a baseline amount of net sales. In addition, in connection with the termination of the co-promotion agreement, we are required to make a one-time tail payment to Mallinckrodt, calculated as a fixed percentage of net sales from the Mallinckrodt targeted prescriber audience during the 12-month period ending on January 31, 2015. A liability of $0.5 million for this estimated tail-payment was recorded as service fee expense during the six months ended June 30, 2014. For the three and six months ended June 30, 2014, we incurred service fee expenses of $0 and $0.1 million, respectively, excluding the tail-payment expense. For the three and six months ended June 30, 2013, we incurred service fee expenses of $0.2 and $0.4 million, respectively.

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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. Our sales team began promoting Migranal to prescribers in August 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 supplies 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. The cost of any additional samples and any promotional materials ordered by us will be recognized as selling, general and administrative expenses.

In partial consideration of our sales efforts, Valeant pays 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, or the Baseline Forecast and 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 our inability to comply with our material obligations under the Valeant agreement, Valeant will be required to pay us an additional tail payment calculated as a fixed percentage of our net sales over the Baseline Forecast (or Adjusted Baseline Forecast) during the first full six months following the last day of the term. For the three and six months ended June 30, 2014, we recognized service revenue of $1.1 million and $2.0 million, respectively, under the Valeant agreement.

Critical Accounting Policies and Estimates

Revenue Recognition

We recognize revenue from the sale of Sumavel DosePro, Zohydro ER and from contract manufacturing, license fees, milestones and service fees earned on collaborative arrangements. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (i) our price to the buyer is substantially fixed or determinable at the date of sale, (ii) the buyer has paid us, or the buyer is obligated to pay us and the obligation is not contingent on resale of the product, (iii) the buyer’s obligation to us would not be changed in the event of theft or physical destruction or damage of the product, (iv) the buyer acquiring the product for resale has economic substance apart from that provided by us, (v) we do not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (vi) the amount of future returns can be reasonably estimated. We currently defer recognition of revenue on product shipments of Zohydro ER until the right of return no longer exists, as we currently cannot reliably estimate expected returns of the product at the time of shipment given the limited sales history of Zohydro ER.

Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The application of the multiple element guidance requires subjective determinations, and requires us to make judgments about the individual deliverables, and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. In determining the units of accounting, we evaluate certain criteria, including whether the deliverables have stand-alone value, based on the consideration of the relevant facts and circumstances for each arrangement, such as the commercialization capabilities of the buyer and the availability of the associated expertise in the general marketplace. In addition, we consider whether the buyer can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s).

Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria, as described above, are applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition. We determine the estimated selling price for deliverables within each agreement using vendor-specific objective evidence, or VSOE, of selling price, if available, third-party evidence, or TPE, of selling price if VSOE is not available, or management's best estimate of selling price, or BESP, if neither VSOE nor TPE is available. Determining the BESP for a unit of accounting requires significant judgment. In

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developing the BESP for a unit of accounting, we consider applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs.

Product Revenue, Net

We sell Zohydro ER, and sold Sumavel DosePro through May 2014, in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively our customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. We recognized Sumavel DosePro product sales at the time title transferred to our customer, and reduced product sales for estimated future product returns and sales allowances in the same period the related revenue was recognized.

Given the limited sales history of Zohydro ER, we cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, we defer recognition of revenue on Zohydro ER product shipments until the right of return no longer exists, which occurs at the earlier of the time Zohydro ER is dispensed through patient prescriptions or expiration of the right of return. We estimate Zohydro ER patient prescriptions dispensed using an analysis of third-party syndicated data. Zohydro ER was launched in March 2014 and, accordingly, we do not have significant history estimating the number of patient prescriptions dispensed. If we underestimate or overestimate patient prescriptions dispensed for a given period, adjustments to revenue may be necessary in future periods. The deferred revenue balance does not have a direct correlation with future revenue recognition as the Company will record sales deductions at the time the prescription unit is dispensed.

We will continue to recognize Zohydro ER revenue upon the earlier to occur of prescription units dispensed or expiration of the right of return until we can reliably estimate product returns, at which time we will record a one-time increase in revenue related to the recognition of revenue previously deferred, net of estimated future product returns and sales allowances. In addition, the costs of Zohydro ER associated with the deferred revenue are recorded as deferred costs, which are included in inventory, until such time the related deferred revenue is recognized.

Product sales allowances for Zohydro ER and Sumavel DosePro include wholesaler and retail pharmacy distribution fees, prompt pay discounts, chargebacks, rebates and patient discount programs, and are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of the agreements with our customers and third-party payors and the levels of inventory within the distribution and retail channels that may result in future rebates or discounts taken. In certain cases, such as patient support programs, we recognize the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, we may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. We record product sales deductions in the statement of operations at the time product revenue is recognized.

In connection with the Closing of the APA in May 2014, whereby Endo acquired our Sumavel DosePro business, Endo purchased our existing finished goods inventory of Sumavel DosePro. We will be financially responsible for all returns of Sumavel DosePro product distributed by us prior to the Closing of the APA up to a maximum per unit amount as specified in the agreements. We will also be financially responsible for payment of Sumavel DosePro product sales allowances on product distributed by us prior to the Closing of the APA. Endo will be responsible for payment of all other Sumavel DosePro returns and sales allowances.

Contract Manufacturing Revenue

In connection with the Closing of the APA in May 2014, we and Endo Ventures entered into the Supply Agreement, pursuant to which we retained the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied Sumavel DosePro to Endo Ventures. We recognize deferred revenue related to our supply of Sumavel DosePro as contract manufacturing revenue when earned on a "proportional performance" basis, as product is delivered. We recognize revenue related to our sale of Sumavel DosePro product, equal to the cost of contract manufacturing plus a 2.5% mark-up, upon the transfer of title to Endo. We supply Sumavel DosePro product based on non-cancellable purchase orders. We initially defer revenue for any consideration received in advance of services being performed and product being delivered, and recognize revenue pursuant to the related pattern of performance, based on total product delivered relative to the total estimated product delivery over the minimum eight year term of the Supply Agreement. We continually evaluate the performance period and will adjust the period of revenue recognition if circumstances change.

In addition, we follow the authoritative accounting guidance when reporting revenue as gross when we act as a principal versus reporting revenue as net when we act as an agent. For transactions in which we act as a principal, have discretion to choose suppliers, bear credit risk and perform a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services.

There have been no other significant changes in critical accounting policies during the six months ended June 30, 2014, as compared to the critical accounting policies described in “Item 7 – Management’s Discussion and Analysis of Financial

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Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2013.

Results of Operations

Comparison of the three and six months ended June 30, 2014 and 2013

Revenue. Revenue for the three months ended June 30, 2014 and 2013 was $9.2 million and $8.9 million, respectively. Revenue for the six months ended June 30, 2014 and 2013 was $16.8 million and $15.9 million, respectively.

Net product revenue for the three months ended June 30, 2014 and 2013 was $5.8 million and $8.9 million, respectively. Net product revenue for the six months ended June 30, 2014 and 2013 was $12.6 million and $15.8 million, respectively. The aggregate $3.1 million, or 35%, decrease in net product revenue during the three months ended June 30, 2014 compared to 2013, and the aggregate $3.2 million, or 21%, decrease in net product revenue during the six months ended June 30, 2014 compared to 2013, was primarily due to the decline in Sumavel DosePro sales during the respective periods as we sold our Sumavel DosePro business to Endo in May 2014, offset by our Zohydro ER sales which we launched in March 2014. Further, as we are financially responsible for all returns of Sumavel DosePro product distributed by us prior to the Closing of the APA, up to a maximum per unit amount as specified in the agreements, we increased our product returns reserve by $0.5 million, up to the maximum per unit amount, during the three and six months ended June 30, 2014 to account for the increase in net selling price upon sale of the Sumavel DosePro business to Endo.

We currently defer recognition of revenue on product shipments of Zohydro ER to our customers until the right of return no longer exists, which occurs at the earlier of the time Zohydro ER is dispensed through patient prescriptions or expiration of the right of return. As a result of this policy, we had a deferred revenue balance of $7.0 million at June 30, 2014 for Zohydro ER product shipments, which is net of prompt pay discounts and wholesaler distribution fees.

Contract manufacturing revenue for the three and six months ended June 30, 2014 was $2.2 million. Contract manufacturing revenue is recognized for Sumavel DosePro finished goods inventory that has been delivered to Endo Ventures Bermuda under the May 2014 Supply Agreement, and includes a portion of deferred revenue recognized on a proportional performance method. Endo Ventures Bermuda pays us the cost to produce Sumavel DosePro plus a 2.5% mark-up for Sumavel DosePro product delivered.

Service and other revenue for the three months ended June 30, 2014 and 2013 was $1.1 million and $39,000, respectively. Service and other revenue for the six months ended June 30, 2014 and 2013 was $2.0 million and $0.1 million, respectively. Service and other revenue is primarily comprised of the co-promotion fee that is earned for our Migranal sales efforts under the Valeant Agreement.

Cost of Goods Sold and Cost of Contract Manufacturing. Cost of goods sold and cost of manufacturing services consists primarily of materials, third-party manufacturing costs, freight and indirect personnel and other overhead costs associated with product sales and contract manufacturing, as well as write downs for excess, dated or obsolete commercial inventories and production manufacturing variances. The product costs associated with the deferred Zohydro ER product revenues are recorded as deferred costs, which are included in inventory, until such time the deferred revenue is recognized. Deferred cost of goods sold totaled $0.9 million at June 30, 2014.

Cost of goods sold for the three months ended June 30, 2014 and 2013 was $2.4 million and $4.6 million, respectively, and was $5.8 million and $8.8 million for the six months ended June 30, 2014 and 2013, respectively. The decline in cost of goods sold over these periods is due to the decline in Sumavel DosePro product sold over the respective periods as a result of the sale of our Sumavel DosePro business to Endo in May 2014.

Product gross margin for the three months ended June 30, 2014 and 2013 was 59% and 48%, respectively. The increase in product gross margin for the three months ended June 30, 2014 compared to 2013 was primarily due to the addition of Zohydro ER sales after our March 2014 product launch and a lower cost per unit for Sumavel DosePro in 2014. Product gross margin for the six months ended June 30, 2014 and 2013 was 54% and 44%, respectively. The increase in product gross margin for the six months ended June 30, 2014 compared to 2013 was primarily due to the addition of Zohydro ER sales after our March 2014 product launch, a lower cost per Sumavel DosePro unit in 2014 and a lower net selling price in the first quarter of 2013 due to a $1.2 million adjustment for Sumavel DosePro product returns.

Cost of contract manufacturing for the three and six months ended June 30, 2014 was $1.9 million related to the Sumavel DosePro product sold to Endo under the May 2014 Supply Agreement. There was no cost of manufacturing revenue for the three and six months ended June 30, 2013.

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Royalty Expense. During the three months ended June 30, 2014 and 2013, we recorded $0.4 million and $0.3 million, respectively, in royalty expense. During the six months ended June 30, 2014 and 2013, we recorded $0.8 million and $0.6 million, respectively, in royalty expense. Royalty expense consists of (1) royalties payable to Aradigm based on net sales of Sumavel DosePro by us or one of our licensees through May 16, 2014 when we sold our Sumavel DosePro business, (2) 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), (3) royalties payable to Alkermes plc based on net sales of Zohydro ER by us, and (4) the amortization of the $2.8 million milestone payment paid by us to Alkermes upon FDA approval of Zohydro ER (which occurred in October 2013).

We are required to pay to Aradigm a low single-digit royalty on global net sales of Sumavel DosePro, by us or one of our licensees until the expiration of the last valid claim of the transferred patents covering the manufacture, use, or sale of the product. Endo assumed responsibility for our royalty obligation to Aradigm Corporation on sales of Sumavel DosePro upon the Closing of the APA on May 16, 2014.

Further, we are required to pay to Alkermes a mid single-digit percentage royalty on net sales of Zohydro ER for an initial royalty term equal to the longer of the expiration of Alkermes’ patents covering the product in the United States, or 15 years after commercial launch, if Alkermes does not have patents covering the product in the United States.

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 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 costs 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,
	2014		2013		2014		2013
Research and development expenses (in thousands):
Zohydro ER	$	956	$	1,422	$	1,943	$	2,015
Relday	1,558		524		2,595		1,279
DosePro	115		253		212		491
Other(1)	1,491		1,378		2,907		3,029
Total	$	4,120	$	3,577	$	7,657	$	6,814

(1) Other research and development expenses include development costs incurred for 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 slightly increased by $0.5 million for the three months ended June 30, 2014 compared 2013, and increased by $0.8 million for the six months ended June 30, 2014 compared to 2013, primarily due to increases in development expenses for Relday.

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 2014 to continue to increase over amounts incurred in the same period in 2013 as we prepare for our multi-dose clinical trial for Relday, which we plan to commence in the second half of 2014, and continue development of abuse deterrent formulations of Zohydro ER. The Company expects to

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file a supplemental NDA by October 2014 for a next-generation formulation of Zohydro ER designed to make it more difficult to abuse by injection or nasal administration.

Selling, General and Administrative Expenses. Selling expenses, which include sales and marketing costs, consists primarily of salaries and benefits of sales and marketing management and sales representatives, marketing and advertising costs, service fees under our co-promotion agreement and sample product costs. General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, accounting, business development, medical affairs and internal support functions. In addition, general and administrative expenses include professional fees for legal, consulting and accounting services.

Selling, general and administrative expenses increased to $24.5 million for the three months ended June 30, 2014 compared to $12.0 million for the three months ended June 30, 2013. Selling, general and administrative expenses increased to $52.1 million for the six months ended June 30, 2014 compared to $26.5 million for the six months ended June 30, 2013.

Selling expenses were $15.4 million and $8.3 million for the three months ended June 30, 2014 and 2013, respectively, and $35.7 million and $18.5 million for the six months ended June 30, 2014 and 2013, respectively. General and administrative expenses were $9.1 million and $3.7 million for the three months ended June 30, 2014 and 2013, respectively, and $16.4 million and $8.0 million for the six months ended June 30, 2014 and 2013, respectively.

The increase of $12.5 million in selling, general and administrative expenses for the three months ended June 30, 2014 compared to 2013 was due to an increase of $7.1 million in sales and marketing expenses, and an increase of $5.4 million in general and administrative expenses.

• The increase in sales and marketing expenses is primarily the result of an increase in advertising and promotion costs for Zohydro ER, which was launched in March 2014, and an increase in salaries and other benefits, as well as recruiting costs, due to an increase in headcount.

• The increase in general and administrative expenses is primarily the result of the addition of our medical affairs team and implementation of the FDA required ER/LA opioids Risk Evaluation and Mitigation Strategy, or REMS, program and our voluntary safe use initiatives for Zohydro ER, as well as an increase in legal and public relations costs.

The increase of $25.7 million in selling, general and administrative expenses for the six months ended June 30, 2014 compared to 2013 was due to an increase of $17.3 million in sales and marketing expenses, and an increase of $8.4 million in general and administrative expenses.

• The increase in sales and marketing expenses is primarily the result of an increase in advertising and promotion costs for Zohydro ER, which was launched in March 2014, and an increase in salaries and other benefits, as well as recruiting costs, due to an increase in headcount. The sales and marketing expenses for the six months ended March 31, 2014 also included the costs of a comprehensive training and certification program for our sales representatives in connection with the launch of Zohydro ER.

• The increase in general and administrative expenses is primarily the result of the addition of our medical affairs team and implementation of the FDA required ER/LA opioids Risk Evaluation and Mitigation Strategy, or REMS, program and our voluntary safe use initiatives for Zohydro ER, as well as an increase in legal and public relations costs.

We expect our sales and marketing expenses throughout the remainder of 2014 to be greater than the same period in 2013 due to the increase in our sales and marketing headcount, and we expect general administrative expenses throughout the remainder of 2014 to be greater than the same period in 2013 due to the addition of our medical affairs team, and increased activity related to the FDA required ER/LA opioids REMS program and our voluntary safe use initiatives for Zohydro ER.

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.

Impairment of Long-Lived Assets. Impairment expense of $0.8 million was recorded during the three and six months ended June 30, 2014, as the Company disposed of some construction in progress in connection with the sale of the Sumavel DosePro business to Endo in May 2014.

Gain on Sale of Business. A gain on sale of business of $80.0 million, net of $0.6 million in related transaction costs, was recorded during the three and six months ended June 30, 2014, in connection with the sale of the Sumavel DosePro business to Endo in May 2014. See Note 4 to our consolidated financial statements.

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Interest Income. During the three months ended June 30, 2014 and 2013, interest income was $6,000 and $3,000, respectively, and during the six months ended June 30, 2014 and 2013, interest income was $12,000 and $11,000, respectively. The increase in interest income was primarily driven by an increase in average cash and cash equivalent balances during the respective periods.

Interest Expense. During the three months ended June 30, 2014 and 2013, interest expense was $1.0 million and $1.6 million, respectively, and during the six months ended June 30, 2014 and 2013, interest expense was $2.9 million and $3.2 million, respectively. Interest expense primarily consists of interest expense incurred in connection with the Healthcare Royalty financing agreement, which was early terminated on May 16, 2014, and imputed interest from the two annual tail payments owed to Astellas Pharma US, Inc. related to the termination of our co-promotion agreement on March 31, 2012.

We expect interest expense to decrease over the remainder of 2014 compared to 2013 levels during the same period due to the early termination of the Healthcare Royalty financing agreement on May 16, 2014, offset by imputed interest expense recognized on the note payable to Endo.

Loss on Early Extinguishment of Debt. The loss on extinguishment of debt of $1.3 million recorded during the three and six months ended June 30, 2014 resulted from the early termination of the Healthcare Royalty financing agreement on May 16, 2014. The loss on early extinguishment of debt is related to the write-off of the unamortized balances of the debt discounts, including the derecognition of the embedded derivative liabilities, the debt acquisition costs, and accrued interest expenses related to the financing agreement.

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 the Healthcare Royalty financing agreement. See Note 5 to our consolidated financial statements. The income generated from the change in fair value of the common stock warrant liabilities during the three and six months ended June 30, 2014 was primarily driven by the decrease in our stock price at June 30, 2014 as compared against December 31, 2013 measurement dates.

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. These embedded derivatives were derecognized on May 16, 2014 in connection with the early termination of the Healthcare Royalty financing agreement. See Note 5 to our consolidated financial statements.

Other Income (Expense). Other income (expense) for the three and six months ended June 30, 2014 and 2013 consists primarily of foreign currency transaction gains and losses.

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Liquidity and Capital Resources

We have experienced net losses and negative cash flow from operations since inception, and as of June 30, 2014, had an accumulated deficit of $368.3 million. We expect to continue to incur net losses and negative cash flow from operating activities for at least the next year as the Company continues to incur costs related to the commercialization of Zohydro ER, the clinical development for Relday, required post-market testing for Zohydro ER, safe use initiatives for Zohydro ER and additional development activities with respect to Zohydro ER, including the development of abuse deterrent formulations. As of June 30, 2014, we had cash and cash equivalents of $81.2 million.

Although it is difficult to predict future liquidity requirements, we believe that our cash and cash equivalents as of June 30, 2014, which includes $81.1 million of the upfront cash payment from the sale of our Sumavel DosePro business in April 2014 (excluding $8.5 million of the upfront cash payment that is included in restricted cash), our projected product revenues from Zohydro ER and our projected manufacturing and other service revenues will be sufficient to fund our operations through at least the next 12 months. We may pursue additional opportunities to raise capital, if necessary, through public or private equity offerings, 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, 2013, 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, 2014, we received aggregate net cash proceeds of approximately $419.0 million from the sale of shares of our preferred and common stock, including the following recent financing transactions:

• 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;

• in 2013, we issued and sold a total of 6,753,104 shares of common stock under our controlled equity offering program (which was terminated in November 2013), resulting in aggregate net proceeds of $10.8 million; and

• in November 2013, we issued and sold a total of 30,666,667 shares of common stock, including shares issued upon the exercise of the underwriters' option to purchase over-allotment shares, in a follow-on public offering, for aggregate net proceeds of $64.5 million.

On July 18, 2011, we closed the financing agreement with Healthcare Royalty. Under the terms of the financing agreement, we borrowed $30.0 million and we were obligated to repay such borrowed amount together with a specified return to Healthcare Royalty, through the payment of tiered royalties ranging from 0.5% to 5% of our direct product sales, co-promotion revenues and out-license revenues, or collectively, revenue interest, that we recorded or received as a result of worldwide commercialization of our products including Sumavel DosePro and Zohydro ER. We were 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. The financing agreement was originally scheduled to terminate on March 31, 2018.

We had 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 had 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

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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. Healthcare Royalty exercised its option to terminate the financing agreement in connection with our sale of our Sumavel DosePro business to Endo on May 16, 2014. Upon termination of the financing agreement, we were obligated to make a final payment of $40.0 million to Healthcare Royalty, which was an amount that generated a 17% internal rate of return on the borrowed amount as of the date of final payment, reduced by the revenue interest and principal payments received by Healthcare Royalty up to the date of final payment.

Further, upon early termination of the financing agreement, we recognized a loss on early extinguishment of debt of $1.3 million which was recorded as non-operating expenses in our statement of operations and comprehensive income (loss). The loss on early extinguishment of debt is related to the write-off of the unamortized balances of the debt discounts, including the derecognition of the embedded derivative liabilities, debt acquisition costs, and accrued interest expenses related to the financing agreement. Healthcare Royalty’s security interest in all of our assets was extinguished upon early termination of the financing agreement.

Cash and Cash Equivalents. Cash and cash equivalents totaled $81.2 million and $72.0 million at June 30, 2014 and December 31, 2013, respectively.

The following table summarizes our cash flows used in operating, investing and financing activities for the six months ended June 30, 2014 and 2013:

	Six Months Ended June 30,
	2014			2013
	(In Thousands)
Statement of Cash Flows Data:
Total cash provided by (used in):
Operating activities	$	(40,704	)	(24,570		)
Investing activities	81,207			(798		)
Financing activities	(31,289		)	261
Increase (decrease) in cash and cash equivalents	$	9,214		$	(25,107	)

Operating Activities: Net cash used in operating activities was $40.7 million and $24.6 million for the six months ended June 30, 2014 and 2013, respectively. Net cash used for the six months ended June 30, 2014 primarily reflects the use of cash for operations, adjusted for non-cash charges including the $80.0 million gain on sale of our Sumavel DosePro business, an $18.5 million change in fair value of warrant liabilities and $5.3 million in stock-based compensation. Significant working capital uses of cash for the six months ended June 30, 2014 include personnel-related costs, research and development costs (primarily for Relday and employee and infrastructure resources), sales and marketing expenses for Zohydro ER and Sumavel DosePro, and other professional services, including legal services. 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 include personnel-related costs, research and development costs (primarily for employee and infrastructure resources), sales and marketing expenses for Sumavel DosePro, and other professional services.

Investing Activities. Net cash provided by investing activities for the six months ended June 30, 2014 was $81.2 million, which is primarily attributable to the proceeds from the sale of our Sumavel DosePro business, including the $85.0 million up front payment and $4.6 million payment for the Sumavel DosePro finished goods inventory on hand at Closing, offset by $8.5 million of the upfront payment that was deposited into escrow. Net cash used in investing activities for the six months ended June 30, 2013 was $0.8 million related to the purchase of property and equipment primarily for use in manufacturing DosePro.

We expect to incur capital expenditures of approximately $1.0 million in 2014. These planned capital expenditures primarily relate to further investments in our manufacturing operations for DosePro and toward enhancing our existing manufacturing technology and equipment to continue to support the manufacturing and supply agreement with Endo.

Financing Activities. Net cash used in financing activities was $31.3 million for the six months ended June 30, 2014, which relates to the $40.0 million repayment of debt for the early extinguishment of our financing agreement with Healthcare Royalty in May 2014, offset by a $7.0 million working capital advance from Endo Ventures pursuant to our May 2014 Supply Agreement, and proceeds from the exercise of stock options and warrants and the issuance of common stock under our

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employee stock purchase plan. Net cash provided by financing activities was $0.3 million for the six months ended June 30, 2013, which is from the issuance of common stock under our employee stock purchase plan.

Our sources of liquidity include our cash balances and cash receipts from the sale of Zohydro ER product and contract manufacturing for Sumavel DosePro. Through June 30, 2014, we received aggregate net cash proceeds of approximately $419.0 million from the sale of shares of our preferred and common stock. As of June 30, 2014, we had $81.2 million in cash and cash equivalents. Other potential sources of near-term liquidity include (i) equity, debt or other financing, (ii) entering into a commercialization agreement for Zohydro ER, or a licensing arrangement for Relday, or (iii) further 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 Zohydro ER 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.

We cannot be certain if, when and to what extent we will generate positive cash flow from operations from the commercialization of our products 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 Zohydro ER brand and as we potentially advance Relday through clinical development.

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, 2014 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 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 order demands from Endo Ventures Bermuda Limited. For the six months ended June 30, 2014, approximately $12.4 million (based on exchange rates as of June 30, 2014) 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 in our cash flows 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, 2014 would have resulted in approximately $0.5 million or $0.8 million in gains or losses, respectively. 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, 2014 at the reasonable assurance level.

Changes in Disclosure Controls and Procedures

In connection with entering the agreements with Endo Ventures Bermuda Limited and Endo Ventures Limited during the three months ended June 30, 2014, we have developed additional internal controls over our revenue recognition process and financial statement close process. Except for the additional internal controls over revenue recognition and financial statement close, there were no significant changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2014 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 material 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, 2013, 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 have a history of significant net losses and negative cash flow from operations. We cannot predict if or when we will become profitable and anticipate that our net losses and negative cash flow from operations will continue for at least the next year.

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

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, 2014 and the years ended December 31, 2013 and 2012, we incurred net income (loss) of $62.9 million, $(80.9) million and $(47.4) million, respectively, our net cash used in operating activities was $40.7 million, $44.9 million and $52.2 million, respectively, and, at June 30, 2014, our accumulated deficit was $368.3 million. We expect to continue to incur net losses and negative cash flow from operating activities for at least the next year primarily as a result of the expenses incurred in connection with the commercialization of Zohydro ER, the clinical development for Relday, required post-market testing for Zohydro ER, safe use initiatives for Zohydro ER and additional development activities with respect to Zohydro ER, including the development of abuse deterrent formulations. Our ability to generate revenues from sales of Zohydro ER, our Sumavel DosePro contract manufacturing services, or any of our product candidates will depend on a number of factors including, in the case of Zohydro ER and Sumavel DosePro contract manufacturing services, the factors described in risk factors below and, in the case of our product candidates, including Relday and abuse deterrent formulations of Zohydro ER, our ability to successfully complete clinical trials, obtain necessary regulatory approvals and negotiate arrangements with third parties to help finance the development of, and market and distribute, any product candidates that receive regulatory approval. In addition, we are subject to the risk that the marketplace will not accept our products.

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

We 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, July 2012 and November 2013, our controlled equity offering program, which was terminated in November 2013, and borrowings under financing agreements.

Although it is difficult to predict future liquidity requirements, we believe that our cash and cash equivalents as of June 30, 2014, which includes $81.1 million of the upfront cash payment from the sale of our Sumavel DosePro business in April 2014 (excluding $8.5 million of the upfront cash payment that is included in restricted cash), our projected revenues will be sufficient to fund our operations through at least the next 12 months. We may 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 Zohydro ER;

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• fund our operations and fund required post-market testing of Zohydro ER and additional development activities with respect to Zohydro ER, including the development of abuse deterrent formulations of Zohydro ER, as well as further development of Relday and development of any other product candidate to support potential regulatory approval; and

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

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

• the commercial success of Zohydro ER;

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

• the timing of regulatory approval, if granted, of any 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 receipt of contingent payments from the sale of our Sumavel DosePro business, which are based on the achievement of pre-determined sales and gross margin milestones by Endo Health Solutions Inc., or Endo;

• the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with Zohydro ER, our DosePro technology and 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 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, 2013, 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, 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 are largely dependent on the commercial success of Zohydro ER, and although we have generated revenue from sales of Zohydro ER, it is still early in the commercialization process and we may never significantly increase these sales or become profitable.

Our ability to generate revenues and become profitable will depend in large part on the commercial success of Zohydro ER. We launched the commercial sale of Zohydro ER in the United States in March 2014. The commercial success of Zohydro ER depends on several factors, including our ability to:

• successfully launch and educate prescribers on safe use initiatives for Zohydro ER through our own marketing and sales activities;

• create market demand for Zohydro ER through our own marketing and sales activities, and any other arrangements to promote this product that we may later establish;

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

• maintain compliance with regulatory requirements;

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

• maintain commercial manufacturing arrangements with third-party manufacturers as necessary to meet commercial demand for Zohydro ER and manufacture commercial quantities at acceptable cost levels; and

• successfully maintain intellectual property protection for Zohydro ER.

If we are unable to successfully commercialize Zohydro ER, we may be unable to generate sufficient revenues to grow or sustain our business and we may never become profitable, and our business, financial condition and results of operations will be materially adversely affected.

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

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

•our ability to provide acceptable evidence of safety and efficacy;

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

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

•the relative convenience and ease of administration;

•the prevalence and severity of adverse side effects;

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

•the clinical indications for which a product is approved;

• in the case of Zohydro ER and product candidates that are controlled substances, the U.S. Drug Enforcement Administration, or DEA, scheduling classification;

•availability and perceived advantages of alternative treatments;

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

•pricing and cost effectiveness;

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

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

For example, as part of its own initiatives to address the safety risks associated with opioid analgesics, in September 2013, the FDA announced class-wide safety labeling changes, including required new boxed warnings and new post-market study requirements for all extended-release, or ER, and long-acting, or LA, opioid analgesics intended to treat pain. Because of the risks of addiction, abuse, and misuse, even at recommended doses, and because of the greater risks of overdose and death, the FDA determined that these drugs should be reserved for management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. In addition, the FDA required the drug companies that make these drugs to conduct further studies and clinical trials to assess the known serious risks of misuse, abuse, increased sensitivity to pain (hyperalgesia), addiction, overdose and death. The scope and design of these required additional studies and clinical trials are under development and the related cost is currently unknown, which could negatively affect our business. The FDA recently announced that it will hold a public meeting to obtain stakeholder input on the design and conduct of the post-marketing requirements for ER/LA opioid analgesic drug products, and we cannot predict how this meeting may affect our post-marketing requirements for Zohydro ER.

Controlled substances are classified by the DEA as Schedule I through V substances, with Schedule I substances being prohibited for sale in the United States, Schedule II substances considered to present the highest risk of abuse and Schedule V substances being considered to present the lowest relative risk of abuse. Zohydro ER contains hydrocodone and is regulated as a Schedule II controlled substance, and despite the strict regulations on the marketing, prescribing and dispensing of such substances, illicit use and abuse of hydrocodone is well-documented. Thus, the marketing of Zohydro ER may generate public controversy that may adversely affect market acceptance of Zohydro ER. Due to the concerns regarding abuse of opioids like Zohydro ER, we are developing abuse deterrent formulations of Zohydro ER. We expect to file a supplemental NDA by October 2014 for a next-generation formulation of Zohydro ER that is designed to make it more difficult to abuse by injection or nasal administration. If approved, this new formulation could be available to prescribers in early 2015. Further, we are targeting an NDA submission for a proprietary tablet formulation of Zohydro ER during the first half of 2016 which incorporates multiple features to maintain the extended-release property of the medication when crushed or chewed, reducing one of the ways in which opioids are abused through oral ingestion, as well other features to address abuse by injection or nasal administration.

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

We may not realize the full economic benefit from the sale of our Sumavel DosePro business.

Pursuant to the asset purchase agreement with Endo that we entered into in April 2014, or the asset purchase agreement, in addition to the $89.6 million upfront cash payment, we may receive contingent payments, based on Endo’s achievement of pre-determined sales and gross margin milestones, in an amount up to $20.0 million. Our ability to receive these contingent payments under our supply agreement with Endo is dependent upon Endo successfully maintaining and increasing market demand for, and sales of, Sumavel DosePro.

In addition, we have agreed to indemnify Endo and its affiliates against losses suffered as a result of our material breach of representations and warranties and our other obligations in the asset purchase agreement, and $8.5 million of the upfront cash payment has been deposited into escrow to fund such potential indemnification claims for a period of 12 months following the closing of the sale. We cannot provide any assurance that we will receive all or any portion of the $8.5 million escrow amount or any of the contingent milestone payments.

Negative publicity and political action regarding Zohydro ER could delay or impair our ability to market this product, present significant distractions to our management and result in the incurrence of significant costs.

Products used to treat and manage pain, especially in the case of opioids like Zohydro ER, are from time to time subject to negative publicity, including political influences, illegal use, overdoses, abuse, diversion, serious injury and death. In November 2013, eight members of Congress submitted a letter to Department of Health and Human Services Secretary, Kathleen Sebelius, urging reconsideration of the FDA’s approval of Zohydro ER, and in December 2013, a bipartisan coalition of attorneys general from 29 states and territories submitted a letter to FDA Commissioner Margaret Hamburg with the same request. In April 2014, Purdue Pharma L.P. announced that it filed an NDA for its extended-release hydrocodone product candidate that is formulated to incorporate abuse deterrent properties, which was accepted by the FDA in July 2014 for a priority review. In addition, Teva Pharmaceutical Industries Limited recently announced that it plans to submit an NDA by the end of 2014 for its extended-release hydrocodone product candidate that is also formulated to incorporate abuse deterrent properties. Approval of these product candidates or any abuse-deterrent formulation of hydrocodone may drive further negative publicity and political action, or even result in the FDA revoking its approval of our NDA for Zohydro ER. While we do not believe that the FDA will revoke its Zohydro ER approval, and, in any event, the FDA would have to provide us with notice and opportunity for a hearing first, the related negative publicity, political influences and actions by our competitors could negatively affect our ability to market Zohydro ER and any opioid analgesic product candidates for which we may seek approval in the future. If the FDA did revoke its approval of Zohydro ER, our business, results of operations, financial condition and prospects would be materially and adversely affected.

In addition, in March 2014, the Governor of the Commonwealth of Massachusetts issued an executive order to ban Zohydro ER in Massachusetts. In response, in April 2014 we filed a lawsuit in the U.S. District Court in Massachusetts requesting the court to grant a temporary restraining order against implementation of Governor Patrick’s executive order prohibiting the prescribing and dispensing of Zohydro ER. The lawsuit asserted that the executive order was in direct conflict with the authority of the FDA to determine on behalf of the public whether a drug is safe and effective, and to impose the measures necessary to ensure that such drug will be used safely and appropriately. The U.S. District Court in Massachusetts entered a temporary restraining order preventing the implementation of the Governor’s order on constitutional grounds. On July 8, 2014, the U.S. District Court in Massachusetts issued an order upholding the temporary restraining order. While we believe the FDA has the authority to determine on behalf of the public whether a drug is safe and effective and to impose the measures necessary to ensure that such drug will be used safely and appropriately, and the U.S. District Court in Massachusetts has ruled in our favor, state officials in Massachusetts or elsewhere may nevertheless seek to place additional restrictions on the prescribing and use of Zohydro ER, which could negatively affect our ability to market Zohydro ER.

This negative publicity and political action could also cause a diversion of our management’s time and attention, cause us to incur additional significant costs with respect to litigation, marketing or otherwise, and could also result in an increased number of product liability claims, whether or not these claims have a valid basis.

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

We commenced our operations on August 25, 2006. Our operations to date have been limited to organizing and staffing our company, scaling up manufacturing operations with our third-party contract manufacturers, building a sales and marketing

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organization, conducting product development activities for our products and product candidates, in-licensing rights to Zohydro ER and Relday and commercializing Sumavel DosePro and Zohydro ER. In January 2010, we launched Sumavel DosePro and began generating revenues. We recently launched Zohydro ER in March 2014 and sold our Sumavel DosePro business in April 2014. Consequently, any predictions about our future performance may not be as accurate as they would be if we had a history of developing and commercializing pharmaceutical products.

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

The majority of our sales of Zohydro ER are to wholesale pharmaceutical distributors who, in turn, sell the products to pharmacies, hospitals and other customers. Three wholesale pharmaceutical distributors, AmerisourceBergen Corporation, McKesson Corporation and Cardinal Health, Inc., individually comprised 35.1%, 29.5% and 23.7%, respectively, of our total gross product sales for the six months ended June 30, 2014.

Sales to these wholesale pharmaceutical distributors may result in substantial fluctuations in our results of operations from period to period and 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 Zohydro ER 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 face intense competition, including from generic products, and if our competitors market and/or develop treatments for pain or psychotic disorders that are marketed more effectively, approved more quickly than our product candidates or demonstrated to be safer or more effective than our products, our commercial opportunities will be reduced or eliminated.

The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. We face competition from a number of sources, some of which may target the same indications as our products or product candidates, including large pharmaceutical companies, smaller pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions, many of which have greater financial resources, sales and marketing capabilities, including larger, well-established sales forces, manufacturing capabilities, experience in obtaining regulatory approvals for product candidates and other resources than us.

Zohydro ER competes against other marketed branded and generic pain therapeutics. Opioid therapeutics generally fall into two classes: codeines, which include oxycodones and hydrocodones, and morphines. Zohydro ER is a hydrocodone, the most commonly prescribed opioid in the United States, and Zohydro ER competes with therapeutics within both the codeine and morphine classes. These therapeutics include both Schedule II and Schedule III products (meaning that they are considered controlled substances by the DEA) being marketed by companies such as Endo Pharmaceuticals Holdings Inc., Johnson & Johnson, Mallinckrodt Inc., Pfizer, Purdue Pharma L.P., Teva Pharmaceutical Industries Limited and Actavis, Inc. On February 27, 2014, the DEA issued a notice of proposed rulemaking to reschedule hydrocodone combination products from Schedule III to Schedule II, but we cannot predict the timeframe in which the rule may become final and when, if ever, these products will be required to comply with Schedule II requirements. Zohydro ER is already a Schedule II product.

Zohydro ER will also compete with a significant number of opioid product candidates under development, including abuse deterrent and tamper resistant formulations of currently available opioids, novel opioids and alternative delivery forms of

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various opioids under development at other pharmaceutical companies, including single-entity extended-release hydrocodone product candidates, which include abuse deterrent and tamper resistant formulations, being developed by Egalet A/S, Pfizer, Purdue Pharma L.P. and Teva Pharmaceutical Industries Limited. In April 2014, Purdue Pharma L.P. announced that it filed an NDA for its extended-release hydrocodone product candidate that is formulated to incorporate abuse deterrent properties. Purdue’s NDA was accepted for priority review in July 2014. In addition, Teva Pharmaceutical Industries Limited recently announced that it plans to submit an NDA by the end of 2014 for its extended-release hydrocodone product candidate that is also formulated to incorporate abuse deterrent properties. These product candidates, if approved, may present enhanced competition for the current formulation of Zohydro ER.

Zohydro ER may also face competition from non-opioid product candidates including new chemical entities, as well as alternative delivery forms of non-steroidal anti-inflammatory drugs. These new opioid and non-opioid product candidates are being developed by companies such as Acura Pharmaceuticals, Inc., Collegium Pharmaceutical, Inc., Eli Lilly and Company, Elite Pharmaceuticals, Inc., Hospira Inc., Inspirion Delivery Technologies, LLC, Intellipharmaceutics International, Inc., Nektar Therapeutics, Pfizer and QRxPharma Ltd.

If approved for the treatment of schizophrenia, we anticipate that Relday will compete against other marketed, branded and generic, typical and atypical antipsychotics, including both long-acting injectable and oral products. Currently marketed long-acting injectable atypical antipsychotic products include Risperdal Consta and Invega Sustenna marketed by Johnson & Johnson, Zyprexa Relprevv marketed by Eli Lilly & Company, and Abilify Maintena (apripiprazole) marketed by Otsuka Pharmaceutical Co., Ltd. and H. Lundbeck A/S. Currently approved and marketed oral atypical antipsychotics include Risperdal (risperidone) and Invega (paliperidone) marketed by Johnson & Johnson, generic risperidone, Zyprexa (olanzapine) marketed by Eli Lilly and Company, Seroquel (quetiapine) marketed by AstraZeneca plc, Abilify (aripiprazole) marketed by BMS/Otsuka Pharmaceutical Co., Ltd., Geodon (ziprasidone) marketed by Pfizer, Fanapt (iloperidone) marketed by Novartis AG, Saphris (asenapine) marketed by Merck & Co., Latuda (lurasidone) marketed by Dainippon Sumitomo Pharma, and generic clozapine. Finally, in addition to these currently marketed products, we may also face competition from additional long-acting injectable product candidates that could be developed by the large companies listed above, as well and by other pharmaceutical companies such as Alkermes, Endo Health Solutions Inc., Laboratorios Farmaceuticos Rovi SA, Novartis AG, and Reckitt Benckiser Group plc, each of which has announced they are developing long-acting antipsychotic product candidates. In May 2014, Janssen Pharmaceuticals, Inc., announced the submission of supplemental NDAs for once-monthly atypical long-acting antipsychotic Invega Sustenna (paliperidone palmitate) to the FDA for approval to treat schizoaffective disorder as either monotherapy or adjunctive therapy.

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

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

• capital resources;

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

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

• sales and marketing resources and experience;

• manufacturing and distribution resources and experience;

• name recognition; and

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

As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that limit or block us from developing or

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commercializing our product candidates. Our competitors may also develop drugs that are more effective, more useful, better tolerated, subject to fewer or less severe side effects, more widely prescribed or accepted or less costly than ours and may also be more successful than us in manufacturing and marketing their products. If we are unable to compete effectively with the marketed therapeutics of our competitors or if such competitors are successful in developing products that compete with Zohydro ER or any of our product candidates that are approved, our business, results of operations, financial condition and prospects may be materially adversely affected.

Our inability to successfully establish new partnerships with pharmaceutical companies or contract sales organizations to co-promote Zohydro ER 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. Our sales and marketing organization, which as of June 30, 2014 was comprised of approximately 190 personnel, promotes Zohydro ER in the United States, primarily targeting pain specialists. We may seek a co-promotion or other partnering opportunity for Zohydro ER, or may further expand our sales force.

In addition, in order to promote any product candidates that receive regulatory approval, we may need to further 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 products 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 commercialization of our products and/or product candidates, they may be unable to devote the resources necessary to realize the full commercial potential of our products.

Further, we may lack the financial and managerial resources to maintain and potentially increase the size of our sales and marketing organization to adequately promote and commercialize Zohydro ER and any product candidates that may be approved. Any increase in our sales force will result in an increase in our expenses, which could be significant before we generate revenues from any newly approved product candidate. Even though we were able to recently expand our sales and marketing personnel, and may be successful in establishing future 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, and could have a material adverse effect on our business, results of operations, financial condition and prospects.

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

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

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 we have generated have been in U.S. dollars. For the six months ended June 30, 2014, $12.4 million (based on exchange rates as of June 30, 2014) of our materials, contract

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manufacturing costs and other manufacturing-related costs were denominated in foreign currencies. As a result, we are exposed to foreign exchange risk, and our results of operations may be negatively impacted by fluctuations in the exchange rate between the U.S. dollar and the Euro or U.K. pound sterling. A significant appreciation in the Euro or U.K. pound sterling relative to the U.S. dollar will result in higher expenses and cause increases in our net losses. Likewise, to the extent that we generate any revenues denominated in foreign currencies, or become required to make payments in other foreign currencies, fluctuations in the exchange rate between the U.S. dollar and those foreign currencies could also negatively impact our results of operations. We currently have not entered into any foreign currency hedging contracts to reduce the effect of changes in foreign currency exchange rates, and foreign currency hedging is inherently risky and may result in unanticipated losses.

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

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

In addition, the market for our products will depend significantly on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. For example, in August 2014, Express Scripts added Zohydro ER to its list of excluded drugs for their National Preferred Drug formulary for 2015. Express Scripts is the largest U.S. pharmacy benefit manager, and the inclusion of Zohydro ER on its list of excluded drugs for their National Preferred Drug formulary may have a negative impact on prescriptions and sales of Zohydro ER.

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

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

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

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 first approved product, Sumavel DosePro, in January 2010 and subsequently sold the business in April 2014. We launched our recently approved product, Zohydro ER, in March 2014. Given our limited sales history for Zohydro ER, we may not accurately predict future sales, and we may never be able to significantly increase sales. We have financed our operations primarily 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, July 2012 and November 2013, our controlled equity offering program, which was terminated in November 2013, and debt, and have incurred losses and negative cash flow from operations in each year since our inception. For the six months ended June

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30, 2014 and the years ended December 31, 2013 and 2012, we incurred net income (loss) of $62.9 million, $(80.9) million and $(47.4) million, respectively, and our cash used in operating activities was $40.7 million, $44.9 million and $52.2 million, respectively. As of June 30, 2014, we had an accumulated deficit of $368.3 million. These losses and negative cash flow from operations have had a material adverse effect on our stockholders' equity and working capital.

We expect to continue to incur net losses and negative cash flow from operating activities for at least the next year primarily as a result of the expenses incurred in connection with the commercialization of Zohydro ER, the clinical development of Relday, required post-market testing for Zohydro ER, safe use initiatives for Zohydro ER and additional development activities with respect to Zohydro ER, including the development of abuse deterrent formulations. As a result, we may remain dependent upon external sources of financing to finance our business and the development and commercialization of our approved products and product candidates. To the extent we need to raise additional capital in the future, we cannot ensure that debt or equity financing will be available to us in amounts, at times or on terms that will be acceptable to us, or at all. Any shortfall in our cash resources could require that we delay or abandon certain development and commercialization activities and could otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

Risks Related to Regulation of our Product and Product Candidates

Annual DEA quotas on the amount of hydrocodone allowed to be produced in the United States and our specific allocation of hydrocodone by the DEA could significantly limit the production or sale of Zohydro ER.

The DEA limits the production and availability of all Schedule II substances through a quota system which includes a national aggregate production quota and individual procurement quotas. Because hydrocodone is subject to the DEA's production and procurement quota scheme, the DEA establishes annually an aggregate production quota for how much hydrocodone may be produced in total in the United States based on the DEA's estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount of hydrocodone that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. The DEA may adjust individual procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. The DEA requires substantial evidence and documentation of expected legitimate medical and scientific needs before assigning procurement quotas to manufacturers and research organizations. Alkermes, which has licensed us the right to sell Zohydro ER in the United States, was granted sufficient procurement quota of hydrocodone to meet our planned launch requirements through the majority of 2014. Subsequently, a request was made for additional procurement quota to support expected growth through 2014, which was granted by the DEA in April 2014.

We do not know what amounts of hydrocodone other companies manufacturing or developing product candidates containing hydrocodone may request for future years. The DEA, in assessing factors such as medical need, abuse and diversion potential and other policy considerations, may choose to set the aggregate hydrocodone production quota lower than the total amount requested for procurement by the companies. Alkermes is permitted to petition the DEA to increase the annual procurement quota after it is initially established, but there is no guarantee that the DEA would act favorably upon such a petition. Alkermes procurement quota of hydrocodone may not be sufficient to meet any future clinical development needs or commercial demand for Zohydro ER. Any delay or refusal by the DEA in establishing the procurement quota or a reduction in Alkermes’ procurement quota for hydrocodone or the DEA's failure to increase it over time as we anticipate could delay or stop commercial sale of Zohydro ER or cause us not to achieve our expected operating results, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

If we do not comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

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

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

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

• the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its implementing regulations, which prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information; and

• federal “sunshine” requirements that require drug manufacturers to report and disclose any “transfer of value” made or distributed to physicians and teaching hospitals, and any investment or ownership interests held by such physicians and their immediate family members. The period between August 1, 2013 and December 31, 2013 was the first reporting period, and manufacturers were required to report aggregate payment data by March 31, 2014, and will be required to report detailed payment data and submit legal attestation to the accuracy of such data during Phase 2 of the program (which began in May 2014 and extends for at least 30 days). Thereafter, manufacturers must submit reports by the 90th day of each subsequent calendar year;

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

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians, including the tracking and reporting of gifts, compensation and other remuneration to physicians. Certain states mandate implementation of commercial compliance programs to ensure compliance with these laws and impose restrictions on drug manufacturer marketing practices and tracking and reporting of gifts, compensation and other remuneration to physicians. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may be found out of compliance of one or more of the requirements.

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

Risks Related to Intellectual Property

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

Our commercial success depends in large part on obtaining and maintaining patent, trademark and trade secret protection of our product, Zohydro ER, our current product candidate, Relday, and any future product candidates, their respective components, formulations, methods used to manufacture them and methods of treatment, as well as successfully defending these patents against third-party challenges. Our ability to stop unauthorized third parties from making, using, selling, offering

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to sell or importing Zohydro ER 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 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 non-infringement, 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 non-infringement, 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, who acquired those patents from a predecessor owner. Thus, most of our patents, as well as many of our pending patent applications, were not written by us or our attorneys, or our licensor or licensors' attorneys, and neither we nor our licensors had 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 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 wherein 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 U.S. Patent and Trademark Office, or PTO, and Congress have recently made significant 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 Zohydro ER and our product candidates but that are not covered by the claims of our patents or our in-licensed patents;

• the active pharmaceutical ingredients (APIs) in Zohydro ER and Relday 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;

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

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

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

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

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

• it is possible that there are dominating patents to Zohydro ER or Relday of which we are not aware;

• 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;

• it is possible that the U.S. government may exercise any of its statutory rights to our owned or in-licensed patents or applications that were developed with government funding;

• 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 system or products or our system 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 administrative challenges by third parties;

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

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

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

If any of our owned or in-licensed patents are found to be invalid or unenforceable, or if we are otherwise unable to adequately protect our rights, it could have a material adverse impact on our business and our ability to commercialize or license our technology and products. Likewise, our patents covering certain technology used in our DosePro system are expected to expire on various dates from 2015 through 2026 and the patents and patent applications licensed to us by Alkermes are expected to expire in 2019.

As of June 30, 2014, our patent portfolio included 24 issued U.S. patents, 3 pending U.S. patent applications, 41 issued foreign patents and 7 pending foreign patent applications relating to various aspects of Sumavel DosePro and our DosePro technology. Thirteen 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, 8,343,130, 8,663,158 and 8,715,259 are expected to expire in 2015, 2016, 2017, 2026, 2026, 2023, 2023, 2025, 2022, 2024, 2022, 2022 and 2023, respectively. U.S. Patent No. 5,891,086 covers a particular actuator mechanism forming a part of the needleless injector system; 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 systems with a cap and latch mechanism; U.S. Patent Nos. 7,901,385, 8,267,903 and 8,715,259 encompass various embodiments of the casing for enclosing the injection systems; U.S. Patent Nos. 8,118,771, 8,241,243 and 8,241,244 cover a method of reducing breakage of glass capsules; 8,491,524 and 8,663,158 relates to a drug capsule filled with a formulation purged with an inert gas; and 8,343,130 covers a method of reducing the propensity to create a shock wave on firing the system as used in the Sumavel DosePro system. U.S. Patent Nos. 6,902,742 and 6,228,398 relating to Zohydro ER covers a modified release composition containing hydrocodone and are expected to expire in November 2019. Upon the expiration of these patents, we or Alkermes, as applicable, will lose the right to exclude others from practicing the claimed inventions. Additionally, eleven of these thirteen patents are the only patents currently listed in the FDA Orange Book for Sumavel DosePro. Two patents are listed for Zohydro ER. The expiration of the Orange Book listed patents 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

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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 six months ended June 30, 2014, the price per share for our common stock on the Nasdaq Global Market has ranged from a low sale price of $1.63 to a high sale price of $5.19. This market volatility is likely to continue. These and other factors could reduce the market price of our common stock, regardless of our operating performance. In addition, the trading price of our common stock could change significantly, both over short periods of time and the longer term, due to many factors, including those described elsewhere in this “Risk Factors” section and the following:

• announcements concerning our commercial progress in promoting and selling Zohydro ER, including sales and revenue trends;

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

• negative publicity, including political actions and, potentially, court decisions, related to Zohydro ER;

• announcements of the introduction of new products by us or our competitors, including abuse deterrent formulations of hydrocodone products;

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

• 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 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 Zohydro ER 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

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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, 2014, we had research coverage by only five 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.

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, 2014, we had 141,044,864 shares of common stock outstanding. Of these shares, approximately 100,240,888 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). As of June 30, 2014, warrants were still outstanding to exercise 15,215,450 shares of this registered common stock, 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

Resignation of Chief Commercial Officer

On July 31, 2014, R. Scott Shively resigned from his position as our Chief Commercial Officer. Roger L. Hawley, our Chief Executive Officer, will assume the duties and responsibilities of the Chief Commercial Officer in the interim.

New Operating Lease

On August 5, 2014, we entered into a new operating lease, or the Lease, with Kilroy Realty L.P., or Kilroy, for approximately 17,361 rentable square feet of office space located in San Diego, California. We intend to use the leased premises as our corporate headquarters, and the new lease is expected to commence on December 1, 2014 upon expiration of our current San Diego office sublease of approximately 13,124 rentable square feet in the same location.

The Lease term will expire 64 months after the Lease commencement date with an option to renew the Lease for an additional five years. The initial base rent will be $73,784 per month, with 100% of rent being abated for the second, third, fourth and fifth months of the Lease term and 50% of rent being abated for the sixth month of the Lease term. The base rent will increase approximately 3.25% on a yearly basis throughout the Lease term. The Lease also requires us to pay additional rent consisting of a portion of common area and pass-through expenses in excess of base year amounts.

The Lease also contains customary provisions allowing Kilroy to terminate the Lease if we are rendered insolvent or have failed to remedy a breach of any of our obligations under the Lease within time periods specified in the Lease.

***

The foregoing description of the Lease does not purport to be complete and is qualified in its entirety by the Lease, a copy of which we intend to file with our Quarterly Report on Form 10-Q for the quarter ending September 30, 2014.

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Item 6. Exhibits

EXHIBIT INDEX

Exhibit Number	Description
2.01†	Asset Purchase Agreement, dated April 23, 2014, by and among the Registrant, Endo Ventures Bermuda Limited and Endo Ventures Limited
3.1(2)	Fifth Amended and Restated Certificate of Incorporation of the Registrant
3.2(5)	Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant
3.3(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†	Manufacturing and Supply Agreement, dated as of May 16, 2014, by and between the Registrant and Endo Ventures Limited

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10.2†	License Agreement, dated as of May 16, 2014, by and between the Registrant and Endo Ventures Bermuda Limited
10.4(6)#	Zogenix, Inc. Annual Incentive Plan as amended and restated, effective July 22, 2014
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, 2014, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (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.

(5) Filed with the Registrant's Quarterly Report on Form 10-Q on November 8, 2012.

(6) Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K on July 22, 2014.

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

# Indicates management contract or compensatory plan.

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

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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 6, 2014	By:	/s/ Roger L. Hawley
		Chief Executive Officer
		(Principal Executive Officer)
Date: August 6, 2014	By:	/s/ Ann D. Rhoads
		Executive Vice President, Chief Financial Officer, Treasurer and Secretary
		(Principal Financial and Accounting Officer)

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EX-2.1

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Asset Purchase Agreement

by and among

Zogenix, Inc.,
Endo Ventures Bermuda Limited

and

Endo Ventures Limited

dated as of April 23, 2014

Table of Contents

		Page
ARTICLE I Definitions		2
Section 1.01	Defined Terms	2
Section 1.02	Construction of Certain Terms and Phrases	2
ARTICLE II Purchase and Sale of Assets		2
Section 2.01	Purchase and Sale of Assets	2
Section 2.02	Transition Services	3
Section 2.03	Assignability and Consents	3
ARTICLE III Assumption of Assumed Liabilities; Excluded Liabilities		4
ARTICLE IV Purchase Price and Payment		4
Section 4.01	Purchase Price	4
Section 4.02	Purchase of Product Inventory	6
Section 4.03	Payment of Transfer Taxes; Withholding	6
Section 4.04	Allocation of Purchase Price	7
Section 4.05	Escrow	7
ARTICLE V Closing		8
Section 5.01	Time and Place	8
Section 5.02	Deliveries at Closing	8
ARTICLE VI Representations and Warranties of Seller		11
Section 6.01	Organization, Etc.	11
Section 6.02	Authority; Binding Nature of Agreement	11
Section 6.03	Non-Contravention; Consents	11
Section 6.04	Purchased Assets	12
Section 6.05	Title to Purchased Assets	12
Section 6.06	Contracts	12
Section 6.07	Intellectual Property	13
Section 6.08	Tax Matters	14
Section 6.09	Litigation	14
Section 6.10	Regulatory Compliance	15
Section 6.11	Product Inventory	17
Section 6.12	Brokers	17
Section 6.13	Compliance with Law	17
Section 6.14	Product Financial Information	18
Section 6.15	Absence of Material Changes	18
Section 6.16	Suppliers and Customers	19
Section 6.17	Solvency; No Fraudulent Conveyance.	19
Section 6.18	Operation of the Business	20
Section 6.19	No Other Representations	20

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ARTICLE VII Representations and Warranties of Buyers		20
Section 7.01	Organization, Etc.	20
Section 7.02	Authority; Binding Nature of Agreement	21
Section 7.03	Non-Contravention; Consents	21
Section 7.04	Litigation	21
Section 7.05	Financing	21
Section 7.06	Brokers	22
Section 7.07	Taxes	22
ARTICLE VIII Covenants of the Parties		22
Section 8.01	Maintenance of Business Prior to Closing	22
Section 8.02	Cooperation; Regulatory Approvals	24
Section 8.03	Access	24
Section 8.04	Public Announcements	25
Section 8.05	Non-Solicitation	26
Section 8.06	Corporate Names	26
Section 8.07	Product Inventory	26
Section 8.08	Regulatory Matters	27
Section 8.09	RESERVED	28
Section 8.10	Adverse Experience Reports	28
Section 8.11	Receivables	28
Section 8.12	Affiliates	28
Section 8.13	Labeling Requirements	28
Section 8.14	Aradigm Agreement	29
Section 8.15	Litigation Support	29
Section 8.16	Release of Encumbrances	29
Section 8.17	Notification of Certain Events	30
Section 8.18	Product Cost-of-Goods	30
Section 8.19	Further Assurances	30
ARTICLE IX Conditions to the Obligations of Seller		31
Section 9.01	Representations, Warranties and Covenants	31
Section 9.02	No Injunctions or Restraints	32
Section 9.03	No Actions or Proceedings	32
Section 9.04	Consents	32
Section 9.05	Transaction Documents	32
Section 9.06	Other Closing Deliveries	32
ARTICLE X Conditions to the Obligations of Buyers		32
Section 10.01	Representations, Warranties and Covenants	32
Section 10.02	No Injunctions or Restraints	33
Section 10.03	No Actions or Proceedings	33
Section 10.04	Consents	33

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Section 10.05	No Adverse Effect	33
Section 10.06	Transaction Documents	33
Section 10.07	Other Closing Deliveries	34
ARTICLE XI Indemnification		34
Section 11.01	Survival of Representations, Warranties, Etc.	34
Section 11.02	Indemnification	34
Section 11.03	Limitations	39
Section 11.04	Adjustments to Purchase Price	40
Section 11.05	Limitation of Liability	40
ARTICLE XII Termination and Abandonment		41
Section 12.01	Methods of Termination	41
Section 12.02	Procedure upon Termination	41
ARTICLE XIII Miscellaneous		42
Section 13.01	Confidentiality	42
Section 13.02	Notices	43
Section 13.03	Entire Agreement	45
Section 13.04	Waiver	45
Section 13.05	Amendment	45
Section 13.06	Third Party Beneficiaries	45
Section 13.07	Assignment; Binding Effect	45
Section 13.08	Headings	46
Section 13.09	Severability	46
Section 13.10	Governing Law; Dispute Resolution	46
Section 13.11	Expenses	48
Section 13.12	Counterparts	48
Section 13.13	Schedules, Exhibits and Other Agreements	48

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Exhibits and Schedules

Disclosure Schedules (Seller)*Exhibit A – DefinitionsExhibit B – Intentionally Omitted Exhibit C – Form of Transition Services Agreement*Exhibit D – Form of License Agreement Exhibit E – Form of Supply Agreement Exhibit F – Form of Trademark Assignment* Exhibit G – Form of Assignment and Assumption Agreement* Exhibit H – Form of Bill of Sale* Exhibit I – Form of Escrow Agreement* Exhibit J – Form of Commercial Agreement*
Exhibit K – Buyer Governmental Consents
Exhibit L – Buyer Third Party Consents
Exhibit M – Seller Knowledge Parties*
Exhibit N – Buyer Knowledge Parties*

Exhibit O – Seller Governmental Consents

Exhibit P – Seller Third Party Consents

*Exhibits and Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be supplementally provided to the Securities and Exchange Commission upon request.

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Asset Purchase Agreement

This Asset Purchase Agreement (this “Agreement”) is made and entered into as of April 23, 2014, by and among Zogenix, Inc., a Delaware corporation (“Seller”), Endo Ventures Bermuda Limited, a Bermuda limited company (“Buyer 1”) and Endo Ventures Limited, a company organized under the laws of Ireland (“Buyer 2” and together with Buyer 1, each a “Buyer” and, collectively “Buyers”).

RECITAL

WHEREAS, subject to the terms and conditions of this Agreement, Seller desires to sell to Buyers, and Buyers desire to purchase from Seller, the Purchased Assets (as defined below).

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Parties agree as follows:

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ARTICLE IDEFINITIONS

Section 1.01Defined Terms.

Certain capitalized terms used in this Agreement are defined in Exhibit A attached hereto.

Section 1.02Construction of Certain Terms and Phrases.

Unless the context of this Agreement otherwise requires: (a) words of any gender include each other gender; (b) words using the singular or plural number also include the plural or singular number, respectively; (c) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (d) the terms “Article,” “Section” or “Exhibit” refer to the specified Article, Section or Exhibit of this Agreement; (e) the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase, “and/or”; and (f) the term “including” means “including without limitation.” Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. All accounting terms used but not otherwise defined herein shall have the meanings ascribed to such terms under U.S. Generally Accepted Accounting Principles, consistently applied. The phrase “made available to Buyers” or similar phrases as used in this Agreement shall mean that the subject documents were either posted to the [***] or delivered to Buyers or their accountants or attorneys prior to 5:00 p.m. EDT on the date immediately preceding the date of this Agreement.

ARTICLE IIPURCHASE AND SALE OF ASSETS

Section 2.01Purchase and Sale of Assets.

(a)Subject to the terms and conditions of this Agreement, at the Closing:

(i)Seller shall, or shall cause its relevant Affiliates to, sell, transfer, convey, assign and deliver to Buyer 1, and Buyer 1 shall purchase, acquire and accept from Seller and such Affiliates of Seller, all of Seller’s and each such Affiliate’s right, title and interest, as of the Closing, in and to the Registered Intellectual Property, the Regulatory Approvals and the Product Data, free and clear of all Encumbrances (other than Permitted Encumbrances); and

***Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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(ii)Seller shall, or shall cause its relevant Affiliates to, sell, transfer, convey, assign and deliver to Buyer 2, and Buyer 2 shall purchase, acquire and accept from Seller and such Affiliates of Seller, all of Seller’s and each such Affiliate’s right, title and interest, as of the Closing, in and to the Purchased Assets (other than the Registered Intellectual Property, the Regulatory Approvals and the Product Data), free and clear of all Encumbrances (other than Permitted Encumbrances).

(b)Notwithstanding anything contained in this Agreement to the contrary, (i) from and after the Closing Seller and its Affiliates shall retain all of their right, title and interest in and to the Excluded Assets, and (ii) Seller may retain an archival copy of all Assumed Contracts, Books and Records (excluding any vendor lists, financial data, written and pending orders relating to the Product Inventory, Purchased Assets and the Business), Marketing Materials, Product Data, Tax Returns, Tax workpapers and other documents or materials conveyed hereunder (subject to Seller’s confidentiality obligations pursuant to Section 13.01 hereof).

Section 2.02Transition Services.

At the Closing, Seller and Buyer 2 shall enter into the Transition Services Agreement providing for the services described therein.

Section 2.03Assignability and Consents.

Notwithstanding anything to the contrary contained in this Agreement, if the sale, assignment, transfer, conveyance or delivery or attempted sale, assignment, transfer, conveyance or delivery to a Buyer of any asset that would be a Purchased Asset is (a) prohibited by any applicable Law or (b) would require any authorizations, approvals, consents or waivers from a third Person or Governmental or Regulatory Authority and such authorizations, approvals, consents or waivers shall not have been obtained prior to the Closing, then in either case the Closing shall proceed without the sale, assignment, transfer, conveyance or delivery of such asset and this Agreement shall not constitute an agreement for the sale, assignment, transfer, conveyance or delivery of such asset; provided that nothing in this Section 2.03 shall be deemed to waive the rights of such Buyer not to consummate the transactions contemplated by this Agreement if the conditions to its obligations set forth in Article X have not been satisfied. In the event that the Closing proceeds without the sale, assignment, transfer, conveyance or delivery of any such asset, then following the Closing, the Parties shall use their commercially reasonable efforts and cooperate with each other to obtain promptly such authorizations, approvals, consents or waivers. Pending such authorization, approval, consent or waiver, the Parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangements designed to provide to the applicable Buyer the benefits of use of such asset and to Seller the benefits,

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including any indemnities, that, in each case, it would have obtained had the asset been conveyed to such Buyer at the Closing. To the extent that a Buyer is provided the benefits pursuant to this Section 2.03 of any Contract, such Buyer shall (x) perform for the benefit of the other parties thereto the obligations of Seller or any Affiliate of Seller thereunder and (y) shall satisfy any related Liabilities with respect to such Contract that, but for the lack of an authorization, approval, consent or waiver to assign such obligations or Liabilities to such Buyer, would be Assumed Liabilities. Once authorization, approval, consent or waiver for the sale, assignment, transfer, conveyance or delivery of any such asset not sold, assigned, transferred, conveyed or delivered at the Closing is obtained, Seller shall assign, transfer, convey and deliver such asset to the applicable Buyer at no additional cost to the applicable Buyer.

ARTICLE IIIASSUMPTION OF ASSUMED LIABILITIES; EXCLUDED LIABILITIES

Subject to the terms and conditions of this Agreement, as of the Closing Date, Buyers will deliver the Assignment and Assumption Agreement to Seller pursuant to which (a) Buyer 1 agrees to assume, satisfy, perform, pay, discharge and otherwise be responsible for that portion of the Assumed Liabilities arising from or relating to the Registered Intellectual Property, the Regulatory Approvals and the Product Data and (b) Buyer 2 agrees to assume, satisfy, perform, pay, discharge and otherwise be responsible for (i) the Aradigm Royalty Obligation and (ii) the Assumed Liabilities (other than the assumed Liabilities described in clause (a)), in each case, subject to and in accordance with their respective terms and conditions. Notwithstanding anything to the contrary set forth in this Agreement, Seller and its Affiliates shall retain and be responsible for all Excluded Liabilities.

ARTICLE IVPURCHASE PRICE AND PAYMENT

Section 4.01Purchase Price.

As consideration for the Purchased Assets and Seller’s full and faithful performance of all of its obligations hereunder, Buyers shall:

(a)pay to Seller, at the Closing, a one-time, non-refundable payment in cash by wire transfer of immediately available funds of Seventy Six Million Five Hundred Thousand Dollars ($76,500,000) (the “Closing Payment”);

(b)deliver to the Escrow Agent, at the Closing, Eight Million Five Hundred

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Thousand Dollars ($8,500,000) in cash (the “Escrow Fund”), by wire transfer of immediately available funds. The Escrow Fund shall be held, administered and distributed in accordance with the terms of this Agreement and the Escrow Agreement. In addition, at the Closing, [***] of the Escrow Fee by wire transfer of immediately available funds;

(c)assume their respective portions of the Assumed Liabilities pursuant to the Assignment and Assumption Agreement;

(d)pay to Seller within thirty (30) days of achievement of Trailing Net Sales of Fifty Million Dollars ($50,000,000), a one-time, non-refundable payment in cash by wire transfer of immediately available funds of Five Million Dollars ($5,000,000) to an account or accounts designated in writing by Seller;

(e)pay to Seller within thirty (30) days of achievement of Trailing Net Sales of One Hundred Twenty Five Million Dollars ($125,000,000), a one-time, non-refundable payment in cash by wire transfer of immediately available funds of Ten Million Dollars ($10,000,000) to an account or accounts designated in writing by Seller; and

(f)pay to Seller within thirty (30) days of delivery of a Product Cost-of-Goods Improvement Notice demonstrating the achievement of the Product Cost-of-Goods Improvement (subject to the dispute resolution provisions set forth below), a one-time, non-refundable payment in cash by wire transfer of immediately available funds of Five Million Dollars ($5,000,000) (the “Product Cost-of-Goods Improvement Payment”) to an account or accounts designated by in writing by Seller.

Within sixty (60) days following the end of the calendar year in which the Product Cost-of-Goods Improvement is achieved, Seller shall deliver to Buyers a certificate, signed by an officer of Seller, setting forth Seller’s calculation of the Product Cost of Goods for such calendar year (the “Product Cost-of-Goods Improvement Notice”). Unless Buyers raise an objection to the Product Cost-of-Goods Improvement Notice within fifteen (15) days following receipt of such notice specifying in reasonable detail the calculations to which it objects and the reasons therefor (a “Dispute Notice”), such Product Cost-of-Goods Improvement Notice shall be deemed accepted by Buyers. If Buyers deliver a timely Dispute Notice, then for thirty (30) days (or such longer period as the Parties may agree in writing) following receipt of such notice by Seller (the “Resolution Period”), senior executives of the Parties shall attempt to resolve their differences arising from such objections, and any written resolution by them shall be final, binding and conclusive for purposes of determining the Product Cost-of-Goods Improvement. The Parties shall submit, within ten (10) days following the end of the Resolution Period, any objections regarding the calculations contained in the Product Cost-of Goods Improvement Notice

***Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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remaining in dispute at the end of the Resolution Period (“Unresolved Disputes”) to an independent accounting firm mutually agreed to by Buyers, on the one hand, and Seller, on the other hand (the “Independent Accounting Firm”). The Independent Accounting Firm shall be requested to promptly, and in any event within thirty (30) days after the submission of any Unresolved Disputes thereto, render its decision in writing (the “Final Report”) and finalize the calculations contained in the disputed Product Cost-of Goods Improvement Notice. The Final Report shall be final and binding upon the Parties hereto, shall be deemed a final arbitration award that is binding on each of the Parties hereto, and no Party shall seek further recourse to courts or other tribunals, other than to enforce the Final Report. [***] of all fees and expenses relating to the work of the Independent Accounting Firm; provided, however, that if the Independent Accounting Firm agrees with Buyers’ position or Seller’s position in full, then the Party (or Parties) whose position was not adopted by the Independent Accounting Firm shall be responsible for paying [***] of all fees and expenses relating to the work of the Independent Accounting Firm.

Section 4.02Purchase of Product Inventory.

(a)On the Closing Date, Buyer 2 shall acquire all Product Inventory pursuant to the terms of the Supply Agreement.

(b)No more than five (5) Business Days nor less than three (3) Business Days prior to the Closing Date, Seller shall prepare and provide to Buyer 2 a statement calculating in reasonable detail the estimated amount and value of the Product Inventory.

Section 4.03Payment of Transfer Taxes; Withholding.

(a)All transfer, sales, value added, stamp duty and similar Taxes payable in connection with the sale by Seller and its Affiliates of the Product Inventory and the Purchased Assets to Buyers pursuant to this Agreement (collectively, the “Transfer Taxes”) shall be borne [***].  The Party responsible for filing any Tax Return with respect to such Taxes shall properly and promptly file such Tax Return.  Buyers, on the one hand, and Seller, on the other hand, shall cooperate with each other and use their reasonable efforts to minimize the Transfer Taxes attributable to the transfer of the Product Inventory and the Purchased Assets and shall use commercially reasonable efforts to obtain any exemption or other similar certificate from any Governmental or Regulatory Authority as may be necessary to mitigate such Transfer Taxes.  Buyers, on the one hand, and Seller, on the other hand, shall each reimburse the other for any Transfer Taxes properly borne by such Party which are paid by such other Party.

(b)The Buyers shall be entitled to deduct and withhold from the amounts payable pursuant to this Agreement such amounts as the Buyers are required to deduct and

***Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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withhold under any provision of applicable Law. All such amounts shall be so withheld and paid over to the relevant Taxing Authority by the applicable Buyer, and such amounts shall be treated for all purposes as having been paid to Seller. To the extent that a Buyer becomes aware of any applicable Law that would require withholding from amounts payable pursuant to this Agreement, such Buyer shall provide written notice to Seller at least ten (10) Business Days prior to such withholding (or, if any withholding is required as a result of a change in Law occurring less than ten Business Days prior to when the applicable withholding is required, as soon as reasonably practicable prior to such withholding) of the amount of such Tax and shall consult with Seller in good faith as to the nature of the Tax and the basis upon which such withholding is required. Seller and Buyers agree to cooperate in good faith to obtain exemptions from, or reductions of, any Taxes required to be withheld from amounts paid pursuant to this Agreement. As soon as practicable after any such withholding and payment to a Taxing Authority, the withholding party shall provide Seller the original or certified copy of a receipt issued by such Taxing Authority evidencing such payment, a copy of the Tax Return reporting such payment, or other evidence of such payment reasonably acceptable to Seller.

(c)Buyers hereby waive compliance by Seller with the provisions of the bulk transfer laws of any jurisdiction.

Section 4.04Allocation of Purchase Price.

Prior to the Closing, Buyers, on the one hand, and Seller, on the other hand, shall prepare a schedule setting forth the allocation of the Purchase Price (as determined for United States federal income Tax purposes, including the assumption by each Buyer of its portion of the Assumed Liabilities) among the Product Inventory and the Purchased Assets in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended. Buyers and Seller agree, except as otherwise required by applicable Law, (i) to report the sale of the Product Inventory and the Purchased Assets for all Tax purposes in accordance with the allocations set forth on such schedule and (ii) not to take any position inconsistent with such allocations on any of their respective Tax returns. In the event that the purchase price allocation is disputed by any Taxing Authority, the Party receiving notice of the dispute shall promptly notify the other Party hereto, and Seller, on the one hand, and Buyers, on the other hand, agree to use their commercially reasonable efforts to defend such allocations in any audit or similar proceeding; provided, however, that nothing contained herein shall prevent Buyers or Seller from settling any proposed deficiency or adjustment by any Taxing Authority based upon or arising out of such allocations, after using commercially reasonable efforts to defend such allocations, and neither Buyers, on the one hand, nor Seller, on the other hand, shall be required to litigate before any court any proposed deficiency or adjustment by any Taxing Authority challenging such allocations.

Section 4.05Escrow.

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Subject to this Section 4.05, the Escrow Agent shall hold the Escrow Fund for a period commencing on the Closing Date and ending on the date that is twelve (12) months after the Closing Date (the “Escrow Period”) as security to pay, or be applied against, any Damages incurred by any Buyer Indemnified Party with respect to the indemnification obligations of Seller pursuant to Article XI, disbursed by the Escrow Agent in accordance with the Escrow Agreement. The Escrow Agreement shall provide that all interest accruing on amounts in the Escrow Account shall be deposited into the Escrow Account and distributed in accordance with the Escrow Agreement. Upon the expiration of the Escrow Period, the Escrow Agent shall pay to Seller the balance of the funds in the Escrow Account at such time, if any; provided, however, that if any Buyer Indemnified Party Damages remain unresolved or unpaid as of the expiration of the Escrow Period, then the Escrow Agent shall retain that portion of the funds in the Escrow Account necessary to satisfy such unresolved Buyer Indemnified Party Damages pending resolution thereof, which portion shall remain in the Escrow Account until such matters are finally resolved notwithstanding any reference to, or expiration of, the Escrow Period, and any amounts in excess of such retained portion of the Escrow Account shall be released to Seller in accordance with the terms and conditions of the Escrow Agreement. Following the end of the Escrow Period, as each unresolved Buyer Indemnified Party Damages amount identified prior to the end of the Escrow Period for which an amount was reserved under this Section 4.05 is resolved, the Escrow Agent shall either pay the Buyer Indemnified Party Damages subject to the limitations in Article XI or pay to Seller the amount so reserved for such Buyer Indemnified Party Damages, as appropriate. When there are no remaining unresolved claims (which were unresolved as of the conclusion of the Escrow Period), the balance of the Escrow Account which has not been used by the Escrow Agent to pay Buyer Indemnified Party Damages, if any, shall be paid to Seller.

ARTICLE VCLOSING

Section 5.01Time and Place.

The closing of the transactions contemplated by this Agreement, including the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities (the “Closing”), shall take place as promptly as practicable, but no later than five (5) Business Days, following satisfaction or waiver of the conditions set forth in Articles IX and X, at the offices of Latham & Watkins LLP, 12670 High Bluff Drive, San Diego, California 92130 unless another time or place shall be agreed to by the Parties.

Section 5.02Deliveries at Closing.

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(a)Closing Deliveries by Seller.

At the Closing, Seller shall deliver or cause to be delivered to Buyers (or, in the case of Transaction Documents, to the Buyer party to such Transaction Document):

(i)a Transition Services Agreement, substantially in the form of Exhibit C hereto (the “Transition Services Agreement”);

(ii)a License Agreement, substantially in the form of Exhibit D hereto, providing for the exclusive license to Seller of the Intellectual Property not included in the Purchased Assets (the “License Agreement”);

(iii)a Supply Agreement, substantially in the form of Exhibit E hereto (the “Supply Agreement”);

(iv)a trademark assignment, substantially in the form of Exhibit F hereto (the “Trademark Assignment”);

(v)an assignment and assumption agreement, substantially in the form of Exhibit G hereto, assigning to Buyer 2 the Aradigm Royalty Obligation and all rights and obligations of Seller and its Affiliates in and to the Assumed Contracts (the “Assignment and Assumption Agreement”);

(vi)a bill of sale, substantially in the form of Exhibit H hereto, transferring the Purchased Assets to Buyers (the “Bill of Sale”);

(vii)any documentation, including exemption certificates, required in order to support any sales, use, withholding, or other similar Tax exemption for any Purchased Assets or Product Inventory that qualify for such an exemption;

(viii)copies of all Seller Governmental Consents and Seller Third Party Consents; and

(ix)consent from, or required notice to, each relevant Person, in accordance with the relevant Assumed Contract, to the assignment by Seller (or its Affiliate) to Buyer 2 of any Assumed Contract to which such Person is a party, which consents or required notices, as the case may be, shall be in forms to be agreed upon by the Parties;

(x)an escrow agreement, substantially in the form of Exhibit I hereto (the “Escrow Agreement”);

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(xi)a commercial agreement, substantially in the form of Exhibit J hereto (the “Commercial Agreement”); and

(xii)a certificate, executed by an executive officer of Seller, confirming that the conditions set forth in Section 10.01 have been satisfied and other documents to be delivered pursuant to Article X hereof have in fact been delivered.

(b)Closing Deliveries by Buyers.

At the Closing:

(i)Buyers shall deliver, or cause to be delivered, (x) the Escrow Fund to the Escrow Agent in accordance with Section 4.01(b) and (y) the following to Seller:

(1)the Closing Payment in accordance with Section 4.01(a) hereof;

(2)the Escrow Agreement;

(3)the Bill of Sale;

(4)the Assignment and Assumption Agreement;

(5)such instruments of assumption and other instruments or documents, in form and substance reasonable acceptable to Seller and Buyers, as may be necessary to effect each Buyer’s assumption of its respective portion of the Assumed Liabilities;

(6)any documentation, including exemption certificates, required in order to support any sales, use, withholding, or other similar Tax exemption for any Purchased Assets or Product Inventory that qualify for such an exemption; and

(7)a certificate, executed by an executive officer of each Buyer, confirming that the conditions set forth in Section 9.01 have been satisfied and other documents to be delivered pursuant to Article IX hereof have in fact been delivered.

(ii)Buyer 1 shall deliver, or cause to be delivered, to Seller, the License Agreement; and

(iii)Buyer 2 shall deliver, or cause to delivered to Seller:

(1)the Transition Services Agreement;

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(2)the Supply Agreement; and

(3)the Commercial Agreement.

ARTICLE VIREPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyers, as of the date hereof and as of the Closing, as follows:

Section 6.01Organization, Etc.

Seller is a corporation duly incorporated under the laws of the State of Delaware, and has all requisite corporate power and authority (a) to conduct the Business in the manner in which it is currently being conducted, and (b) to own and use its assets in the manner in which its assets are currently owned and used. Seller is duly qualified or licensed to do business and is in good standing in each jurisdiction in which such qualification or licensing is necessary under applicable Law, except where the failure to be so qualified or licensed and to be in good standing would not have an Adverse Effect.

Section 6.02Authority; Binding Nature of Agreement.

Seller has all necessary power and authority to, and has taken all actions necessary to, enter into this Agreement and the other agreements to be executed pursuant hereto and to carry out the transactions contemplated hereby and thereby. Each of the Transaction Documents to which Seller is a party has been duly and validly executed and delivered by Seller and, when executed and delivered by the Buyer party to such Transaction Document, will constitute a legal, valid and binding obligation of Seller enforceable against it in accordance with their respective terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

Section 6.03Non-Contravention; Consents.

Subject to compliance with the Seller Governmental Consents and subject to obtaining the Seller Third Party Consents listed in Section 6.03 of the Seller Disclosure Schedule, neither the execution and delivery of any Transaction Document nor the sale of the Purchased Assets and Product Inventory to Buyers will contravene, conflict with or result in a violation or breach of any: (a) Laws applicable to the Purchased Assets, Product Inventory or any

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Assumed Contract; (b) any provision of an Assumed Contract; (c) any of the provisions of Seller’s organizational documents or any resolution adopted by Seller’s Board of Directors (or any committee thereof) or stockholders; or (d) any material Contract or other material instrument or arrangement to which Seller is subject, except with respect to clauses (a), (b) and (d), for any contraventions, conflicts, violations or breaches that would not have an Adverse Effect.

Section 6.04Purchased Assets.

Except as set forth on Section 6.04 of the Seller Disclosure Schedule or for actions taken in compliance with Section 8.01, the Purchased Assets, together with the Product Inventory purchased by Buyer 2 pursuant to the Supply Agreement, the Intellectual Property licensed to Buyer 1 pursuant to the License Agreement and the services provided to Buyer 2 pursuant to the Supply Agreement and the Transition Services Agreement, collectively constitute all of the properties, rights, interests and other tangible and intangible assets necessary to enable Buyers, following the Closing, to continue the Business as Seller has conducted the Business since January 1, 2014.

Section 6.05Title to Purchased Assets.

Except as set forth on Schedule 6.05(a), Seller has good and marketable title to all of the Purchased Assets and the Product Inventory, free and clear of all Encumbrances, other than Permitted Encumbrances.

Section 6.06Contracts.

(a)Section 6.06(a) of the Seller Disclosure Schedule sets forth a complete and correct list of each Contract to which Seller or any of its Affiliates is a party that relates to the Business or is necessary for the development, manufacture, marketing, sale or distribution of the Product with a value in excess of [***] and any other Contract if a default thereunder would reasonably be expected to have an Adverse Effect. Section 6.06(a) of the Seller Disclosure Schedule identifies each Contract which is an Assumed Contract. Seller has made available to Buyers complete and correct copies of those Contracts listed on Section 6.06(a) of the Seller Disclosure Schedule.

(b)Except as set forth in Section 6.06(b) of the Seller Disclosure Schedule, Seller is not a party to or bound by any Contract relating to the Business which Contract limits the freedom of the Business to compete in any line of business or any geographic area.

(c)(i) Seller has performed in all material respects all of the obligations required to be performed by Seller under the Assumed Contracts, and Seller is not presently in

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violation or breach of, and has not declared or committed any default under and, to the Knowledge of Seller, no Person is presently in violation or breach of, or has declared or committed any default under, any Assumed Contract, (ii) Seller has not received any written notice regarding any breach of, or default under, any Assumed Contract, (iii) to the Knowledge of Seller, no event has occurred, and no circumstance or condition exists (including the Closing of the transactions contemplated by this Agreement), that would give any Person the right to cancel, terminate or modify any Assumed Contract and (iv) each Assumed Contract sets forth the entire agreement and understanding between Seller and the other parties thereto and is valid, binding and in full force and effect.

Section 6.07Intellectual Property.

(a)Section 6.07(a) of the Seller Disclosure Schedule sets forth a complete and correct list of all Registered Intellectual Property. Except as set forth in Section 6.07(a) of the Seller Disclosure Schedule, Seller or its Affiliates own all right, title and interest in and to, or have a license, sublicense or other permission to use, all of the Registered Intellectual Property, free and clear of all Encumbrances other than Permitted Encumbrances.

(b)Section 6.07(b) of the Seller Disclosure Schedule sets forth a true, correct, and complete list of all Contracts pursuant to which Seller (i) is granted or obtains or agrees to obtain any right to use any Intellectual Property Rights in relation to the Product, including such Contracts pursuant to which Seller (or any of its Affiliates) is authorized to use the Intellectual Property, (ii) is restricted in its right to use or register any Intellectual Property Rights in relation to the Product, or (iii) permits or agrees to permit any other person, to use, obtain, enforce, or register any Intellectual Property Rights in relation to the Product, including any license agreements, coexistence agreements, and covenants not to sue, in each case of the foregoing (i)-(iii) as may be material to the development and commercialization of the Product.

(c)Neither Seller nor any of its Affiliates has made any claim of any violation or infringement by others of its rights in the Intellectual Property in relation to the Product, and, to the Knowledge of the Seller as of the date hereof, no grounds for any such claims exist in the in any jurisdiction in which the Product has been commercialized by or on behalf of the Seller (or its Affiliates), and, to the actual knowledge of the Seller as of the date hereof, no grounds for any such claims exist in any other jurisdiction. Neither Seller nor any of its Affiliates has received any notice in writing that it is in conflict with or infringing upon the asserted rights of others in connection with the Intellectual Property in relation to the Product and, to the Knowledge of the Seller as of the date hereof, the use of the Intellectual Property in the Business and the research, development, and commercialization of the Product as of the date hereof by Seller or any of its Affiliates is not infringing and has not infringed upon, misappropriated or otherwise violated any Intellectual Property Rights of any other Person in any jurisdiction in

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which the Product has been commercialized by or on behalf of the Seller (or its Affiliates).

(d)Seller has taken reasonable measures to maintain in confidence all material trade secrets and material confidential information included in the Purchased Assets or otherwise related to the Business. Each current and former employee and officer of Seller who has been involved with the research or development of any material Intellectual Property used or held for use in the Business has executed a proprietary information and inventions agreement or agreements or has otherwise assigned in writing or by operation of law to Seller all rights in the material Intellectual Property that is part of the Purchased Assets, licensed to Seller pursuant to the License Agreement or that is used or held for use in the Business. No current or former employee or officer of Seller has excluded works or inventions that would reasonably have been expected to be material to the Business from his or her assignment of inventions pursuant to such employee’s proprietary information and inventions agreement.

Section 6.08Tax Matters.

(a)Seller and its Affiliates have filed all required Tax Returns relating to the Purchased Assets, the Product Inventory and the Business and have paid all Taxes relating to the Purchased Assets, the Product Inventory and the Business that are due and payable.

(b)There are no Encumbrances with respect to Taxes upon any of the Purchased Assets or Product Inventory other than Permitted Encumbrances.

(c)There are not pending or threatened in writing any audits, investigations, disputes, notices of deficiency, claims or other actions or proceedings with any Tax authorities for or relating to any Taxes of Seller or any of its Affiliates relating to the Purchased Assets, the Product Inventory or the Business.

(d)No waiver or extension of any statute of limitations as to any Tax matter relating to the Purchased Assets, the Product Inventory or the Business has been given by Seller or its Affiliates that is currently in effect.

Section 6.09Litigation.

Except with respect to Taxes, which are addressed in Section 6.08:

(a)There are no pending Actions or Proceedings, and to the Knowledge of Seller, no Person has threatened by written notice to commence any Action or Proceeding, (a) that involves the Purchased Assets, the Product Inventory or the Registered Intellectual Property; (b) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the transactions contemplated by this Agreement, or (c) would

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reasonably be expected to impose any material limitation on the ability of a Buyer or any of its Affiliates, to operate that portion of the Business for which such Buyer will assume responsibility as of the Closing. There are, and there have been, no Actions or Proceedings or claims made in writing against Seller alleging any material defects in the Product or alleging any failure of the Product to meet Specifications (as defined in the Supply Agreement).

(b)There is no Order outstanding against or applicable to Seller relating to the Product, the Purchased Assets, the Product Inventory, the Intellectual Property Rights or the Business that would reasonably be expected to impose any liability on Buyers or the Business, or imposes any limitation on the ability of Seller to sell the Product Inventory or operate the Business or the Purchased Assets as currently conducted or planned to be conducted as of the date hereof by Seller and, to the Knowledge of Seller, there are no facts which would form a basis for any such Order.

(c)Except as set forth on Section 6.09(c) of the Seller Disclosure Schedule, neither Seller nor any of its Affiliates have undergone during the last three (3) years any audit, review, inspection, investigation, survey or examination of records by a Governmental or Regulatory Authority relating to the Product, the Business, the Product Inventory or the Purchased Assets.

(d)Except as set forth on Section 6.09(d) of the Seller Disclosure Schedule, since January 1, 2010, no product liability claims by any Third Party or any notice of investigation from a Governmental or Regulatory Authority have been received by Seller or any of its Affiliates and, to Seller’s Knowledge, no such product liability claims or investigations have been threatened against Seller or any of its Affiliates relating to marketing and sale of the Product, and to Seller’s Knowledge, there are no facts or circumstances that would reasonably give rise to an Action or Proceeding for product liability.  There is no Order outstanding against Seller relating to Product liability claims or Governmental or Regulatory Authority investigations relating to marketing and sale of the Product.

Section 6.10Regulatory Compliance.

Except with respect to Taxes, which are addressed in Section 6.08:

(a)Section 6.10(a) of the Seller Disclosure Schedule sets forth a complete and correct list of: (i) all new drug applications and drug submissions, licenses and marketing authorizations (and the equivalent foreign registrations and approvals) for the Product and all amendments, supplements thereto; and (ii) all material license, franchise, permit, approvals, registrations or other similar authorization (“Permits”) necessary to conduct the Business as currently conducted, together with the name of the Governmental or Regulatory Authority issuing such license or permit. Seller possesses, and is in compliance with, all Permits except

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where the failure to possess or comply with any such Permit would not reasonably be expected to be material to the operation of the Business, taken as a whole.

(b)Except as set forth on Section 6.10(b) of Seller Disclosure Schedule, during the three (3) years prior to the date hereof, with respect to the Product, any uses of the Platform that may impact the Product in the Ordinary Course of Business or any facility in which the Product or Platform are manufactured or stored: (i) Seller is in material compliance with the U.S. Food, Drug, and Cosmetic Act, as amended (21 U.S.C. §§ 301, et seq.) and all other applicable statutes, rules and regulations of the U.S. Food and Drug Administration or similar federal, state or local governmental authorities (the “FDA”) or similar foreign governmental authorities (“Foreign Authorities”) including with respect to the manufacture, collection, sale, labeling, storing, testing, distribution, marketing, record keeping, training and adverse event reporting; (ii) Seller is not in receipt or notice of, and to Seller’s Knowledge is not subject to, any adverse inspection, FDA Form 483, FDA Notice of Adverse Findings, other findings of deficiency or non-compliance, compelled or voluntary recall, investigation, penalty for corrective or remedial action or other compliance or enforcement action: (iii) there has not been a recall or market withdrawal by Seller whether voluntary or involuntary; and (iv) Seller has not received any notification, written or oral, from FDA, Foreign Authorities or other Governmental or Regulatory Authority regarding misbranding or adulteration as defined in the applicable statutes, rules and regulations.

(c)Except as set forth on Section 6.10(c) of Seller Disclosure Schedule or made available to Buyers, during the three (3) years prior to the date hereof and with respect to the Product or Platform, there have been no (i) serious adverse drug experiences as defined in 21 C.F.R. § 314.80 or (ii) material events and matters concerning or affecting safety.

(d)Seller has completed and filed all reports, documents, claims, permits and notices, including of all serious adverse events obtained or otherwise received relating to the Product and Platform from any source, in the United States or outside the United States, required by any Governmental or Regulatory Authority. To the Knowledge of Seller, all such reports, documents, claims, permits and notices were complete and accurate in all material respects on the date filed.

(e)Neither Seller nor any of its Affiliates has been debarred, or been convicted of a crime which could lead to debarment, under Section 306 of the U.S. Food, Drug, and Cosmetic Act, 21 U.S.C. § 335a(a) (the “FDCA”) or any similar Law or authorized by 21 U.S.C. § 335a(b) or any similar Law. Neither Seller nor any of its Affiliates has been excluded, or been convicted of a crime which could lead to exclusion, under Section 1128 of the Social Security Act, 42 U.S.C. § 1320a-7 or any similar Law. To Seller’s Knowledge, neither Seller nor any of its Affiliates has utilized the services of any individual or entity in the performance of

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services in connection with the Business that has been debarred, excluded, suspended, convicted of a crime which could lead to debarment, exclusion, suspension, or otherwise ineligible to participate in the Federal health care programs or in Federal procurement or nonprocurement programs.

Section 6.11Product Inventory.

(a)Section 6.11 of the Seller Disclosure Schedule sets forth a true and accurate description of (i) all Product Inventory (excluding samples of Product) as of the date of this Agreement and (ii) all samples of Product as of April 21, 2014 and lists (x) the lot numbers associated with the Product Inventory and (y) the manufacturing, warehousing, distribution and consignee locations where the Product Inventory is located.

(b)The Product Inventory represents all Product finished goods that is currently owned and on hand or in the control of Seller at any of its warehouses, manufacturers, suppliers or other Third Parties.

Section 6.12Brokers.

Except as set forth on Section 6.12 of the Seller Disclosure Schedule: (i) neither Seller nor any of its Affiliates has retained any broker in connection with the transactions contemplated hereunder; and (ii) Buyers have no, and will have no, obligation to pay any brokers, finders, investment bankers, financial advisors or similar fees in connection with this Agreement or the transactions contemplated hereby by reason of any action taken by or on behalf of Seller or any of its Affiliates.

Section 6.13Compliance with Law.

Except with respect to Taxes, which are addressed in Section 6.08:

(a)Seller, with respect to the Product, Seller’s operation of the Business and the ownership of the Product Inventory and the Purchased Assets, is in compliance in all material respects with all applicable Laws, including (A) any applicable Laws governing the development, approval, manufacture, sale, marketing, promotion, or distribution of drugs and the purchase or prescription of or reimbursement for drugs by any Governmental or Regulatory Authority, private health plan or entity, or individual, in each case as amended and as applicable and (B) the federal Anti−Kickback Statute (42 U.S.C. § 1320a−7(b)), the False Claims Act (42 U.S.C. § 1320a−7b(a)), the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et. seq.) and any comparable state or local Laws, in each case as amended and as applicable.

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(b)To the Knowledge of Seller, since December 31, 2008, none of Seller, nor any of its directors, agents, employees or any other Persons acting on their behalf, in connection with the operation of the Business, (a) used any corporate or other funds for unlawful contributions, payments, gifts or entertainment, or made any unlawful expenditures relating to political activity to government officials, candidates or members of political parties or organizations, or established or maintained any unlawful or unrecorded funds in violation of the Foreign Corrupt Practices Act of 1977, as amended, as if it were applicable to Seller at that time, or any other similar applicable Law, (b) paid, accepted or received any unlawful contributions, payments, expenditures or gifts or (c) violated or operated in non-compliance with any export restrictions, anti-boycott regulations, embargo regulations or other similar or related applicable domestic or foreign Laws and regulations.

(c)Seller has complied with all applicable Data Protection Laws, as well as with its own rules, policies, and procedures relating to privacy, data protection, and the collection and use of personal information collected, used, or held for use by Seller. No claims have been asserted or threatened against Seller alleging a violation of any Person’s privacy or personal information or data rights and nothing has been done or omitted to be done and no circumstances exist which could give rise to any proceeding, action or claim in connection with the applicable Data Protection Laws. The consummation of the transactions contemplated by this Agreement will not breach or otherwise cause any violation of any Data Protection Law or rule, policy or procedure relating to privacy, data protection, and the collection and use of personal information collected, used, or held for use by Seller in the conduct of the Business.

Section 6.14Product Financial Information.

Section 6.14 of the Seller Disclosure Schedule sets forth the net sales (the gross amount invoiced by Seller for sale or other commercial disposition of the Product (in final, finished presentation for use by an end-user) to an unrelated Third Party in an arms-length transaction, minus the deductions, if any, described in clauses (i)-(vii) of the definition of “Net Sales”), Product Cost-of-Goods, Units Produced and Units Sold for the Product for the twelve-months ended December 31, 2012 and 2013 and for the three months ended March 31, 2014 and the Units of inventory of finished Product owned by Seller or any Affiliate at December 31, 2012 and 2013 and at March 31, 2014 (the “Financial Information”), together with reasonably detailed supporting documentation. The Financial Information has been prepared in accordance with GAAP from the books and records of Seller and fairly presents in all material respects such net Sales, Product Cost-of-Goods, inventory of finished Product, Units Produced, and Units Sold for the Product for the periods indicated.

Section 6.15Absence of Material Changes.

***Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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Since[***], except as set forth on Section 6.15 of the Seller Disclosure Schedule, the Business has been operated in the ordinary course consistent with past practice and there has not been:

(a) to the date of this Agreement, any Adverse Effect;

(b)any sale, lease, license, abandonment or other disposition by Seller or any of its Affiliates of any material assets used solely in the Business or that are necessary for the conduct of the Business, except (i) in the Ordinary Course of Business; or (ii) in connection with the transactions contemplated hereby;

(c)any action which, if taken during the period from the date hereof through the Closing Date, would be deemed a breach of Section 8.01; or

(d)any agreement or commitment to take any action described in this Section 6.15.

Section 6.16Suppliers and Customers.

Section 6.16 of the Seller Disclosure Schedule sets forth: (a) the active pharmaceutical ingredient suppliers of the Business, (b) each supplier that constitutes a sole source of supply to the Business, (c) the top ten (10) managed care customers of the Business (determined based on aggregate rebates/chargebacks paid to such customers for the twelve (12)-month period ended December 31, 2013) and (d) the top ten (10) distributors of the Business (determined based on aggregate sales for the twelve (12)-month period ended December 31, 2013). No such supplier, customer or distributor has canceled, otherwise terminated or, to Seller’s Knowledge, threatened in writing to cancel, otherwise terminate or otherwise materially and adversely modify its relationship with the Business. Seller has made available to Buyers complete and correct copies of all Contracts with the Third Parties listed on Section 6.16 of the Seller Disclosure Schedule.

Section 6.17Solvency; No Fraudulent Conveyance.Seller is not insolvent, and neither the transactions contemplated by this Agreement nor Seller’s operation of the Business in the Ordinary Course of Business from the date hereof until the Closing will render Seller insolvent. As used herein, “insolvent” means that the sum of Seller’s debts and other probable Liabilities exceeds the present fair saleable value of Seller’s assets.

(a)Immediately after giving effect to the consummation of the transactions contemplated by this Agreement, (i) Seller shall be able to pay the Excluded Liabilities as they become due in the Ordinary Course of Business, (ii) Seller is not engaged in any business or

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transaction, nor is it about to engage in any business or transaction, for which the property remaining with Seller constitutes unreasonably small capital and (iii) Seller shall have assets (calculated at fair market value) that exceed its Liabilities. Seller has no current plans to file and prosecute a petition for relief under Chapter 11 or 7 of the United States Bankruptcy Code.

(b)The Purchase Price to be paid by Buyers to Seller constitutes reasonably equivalent value and fair consideration for the Purchased Assets. This Agreement is an arm’s length sale transaction. Seller is not entering into this Agreement with the intent to hinder, defraud or delay its creditors and the consummation of the transactions contemplated by this Agreement will not have any such effect.

Section 6.18Operation of the Business.

Since [***], with respect to the Business, Seller has not (i) materially altered its activities and practices with respect to inventory levels of Product maintained at the wholesale, chain, institutional or retail levels in any material respect or (ii) engaged in any activity or practice that would reasonably be expected to result, directly or indirectly, in a trade buy-in that is significantly in excess of normal customer purchasing patterns consistent with past practice of the Business during the [***] prior to the date of this Agreement.

Section 6.19No Other Representations.

SELLER MAKES NO REPRESENTATION OR WARRANTY OTHER THAN AS SET FORTH IN THIS AGREEMENT, THE LICENSE AGREEMENT OR THE SUPPLY AGREEMENT AS TO THE PRODUCT, THE PURCHASED ASSETS, THE PRODUCT INVENTORY OR THE BUSINESS, WHETHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR INFRINGEMENT OF THIRD PARTY RIGHTS, AND ALL SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED.

ARTICLE VIIREPRESENTATIONS AND WARRANTIES OF BUYERS

Buyers, jointly and severally, represent and warrant to Seller as follows:

Section 7.01Organization, Etc.

Buyer 1 is a limited company duly incorporated under the laws of Bermuda, and

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Buyer 2 is a company duly organized under the laws of Ireland. Each Buyer has all requisite corporate power and authority (a) to conduct its business in the manner in which it is currently being conducted, and (b) to own and use its assets in the manner in which its assets are currently owned and used.

Section 7.02Authority; Binding Nature of Agreement.

Each Buyer has all necessary power and authority and has taken all actions necessary to enter into this Agreement and the other agreements to be executed by it pursuant hereto and to carry out the transactions contemplated hereby and thereby. Each of the Transaction Documents to which a Buyer is a party has been duly and validly executed and delivered by such Buyer and, when executed and delivered by Seller, will constitute a legal, valid and binding obligation of such Buyer enforceable against it in accordance with their respective terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

Section 7.03Non-Contravention; Consents.

Subject to compliance with the Buyer Governmental Consents, neither the execution and delivery of any Transaction Document nor the purchase of the Purchased Assets by a Buyer will contravene, conflict with or result in a violation or breach of any: (a) Laws to which such Buyer or any of the assets owned or used by such Buyer is subject; (b) any of the provisions of such Buyer’s organizational documents or any resolution adopted by such Buyer’s Board of Directors (or any committee thereof) or stockholders; or (c) any material Contract or other material instrument or arrangement to which such Buyer is subject, except with respect to any contraventions, conflicts, violations or breaches that would not have an adverse effect on the ability of such Buyer to consummate the transactions contemplated by this Agreement.

Section 7.04Litigation.

There are no pending Actions or Proceedings, and to the Knowledge of each Buyer, no Person has threatened by written notice to commence any Action or Proceeding, (a) that involves such Buyer and that might reasonably be expected to have an adverse effect on the ability of such Buyer to consummate the transactions contemplated by this Agreement; or (b) that could reasonably be expected to challenge, or have the effect of preventing, delaying, making illegal or otherwise interfering with, the transactions contemplated by this Agreement.

Section 7.05Financing.

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Buyers will have funds sufficient to pay the Closing Payment and the Escrow Fund to the Escrow Agent on the Closing Date.

Section 7.06Brokers.

Neither Buyer has retained any broker in connection with the transactions contemplated hereunder. Seller has no, and will have no, obligation to pay any brokers, finders, investment bankers, financial advisors or similar fees in connection with this Agreement or the transactions contemplated hereby by reason of any action taken by or on behalf of Buyers.

Section 7.07Taxes.

Buyer 1 is not a resident of a taxing jurisdiction other than Bermuda or any subdivision thereof. Buyer 2 is not a resident of a taxing jurisdiction other than Ireland or any subdivision thereof, and is entitled to the benefits of the income Tax treaty between the United States and Ireland.

ARTICLE VIIICOVENANTS OF THE PARTIES

Section 8.01Maintenance of Business Prior to Closing.

From the date of this Agreement to the Closing Date, Seller and its Affiliates shall conduct the Business in the Ordinary Course of Business. In addition to and without limiting the foregoing, Seller and its Affiliates shall (a) use commercially reasonable efforts to preserve intact the Business and the goodwill of their customers, suppliers and others having business relations with them as it relates to the Product, and (b) promptly furnish to Buyers a copy of any correspondence received from or delivered to any Governmental or Regulatory Authority regarding the Regulatory Approvals or which may be material to the Business; and shall not:

(a)sell, pledge, dispose of, transfer, lease, license, allow to lapse, abandon, encumber or authorize the sale, pledge, disposition, transfer, lease, license, lapse, abandonment or encumbrance of any assets, either tangible or intangible, that are (or would otherwise be) Purchased Assets or Product Inventory, other than (i) sales of inventory of finished Product in the Ordinary Course of Business or (ii) Permitted Liens;

(b)acquire any properties or assets that constitute Purchased Assets or Product Inventory, either tangible or intangible, other than in the Ordinary Course of Business;

(c)(i) settle any litigation or material claim or (ii) waive any material claims

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or rights of material value, in either case in a manner that would constitute an Assumed Liability or otherwise be materially adverse to the Business from and after the Closing;

(d)(i) enter into any new Contract or renew or modify any Contract pertaining to the Purchased Assets, the Product, the Product Inventory or the Business, in each case, other than an Assumed Contract (except in the Ordinary Course of Business) or (ii) enter into any new Contract that would be an Assumed Contract or renew or modify any Assumed Contract (except in the Ordinary Course of Business for Contracts requiring payment of less than [***] on an annual basis);

(e)terminate, waive any material provision of, or amend or otherwise modify in any material respect, any Assumed Contract;

(f)fail to pay when due (after taking into consideration the Ordinary Course of Business) any accounts payable related to the Business;

(g)terminate, cancel, permit to lapse, amend, waive or modify any Permits related to the Business;

(h)with respect to the Business, (i) make any change in the selling, distribution, advertising, terms of sale or collection practices that is inconsistent with the Ordinary Course of Business, (ii) enter into any material business practices, programs or long-term allowances not previously used in the Ordinary Course of Business, (iii) make any change to practices with respect to inventory of finished Product, (iv) materially alter its activities and practices with respect to inventory levels of Product maintained at the wholesale, chain, institutional or retail levels in any material respect or engage in any activity or practice that would reasonably be expected to result, directly or indirectly, in a trade buy-in that is significantly in excess of normal customer purchasing patterns consistent with past practice of the Business during the [***] prior to the date of this Agreement;

(i)make or change any Tax election with respect to the Business or any Purchased Asset that could reasonably be expected to have an adverse effect on the Tax liability or Tax assets of Buyers or any of their Affiliates in any taxable period ending after the Closing Date;

(j)(i) take any action which is intended or known to have an Adverse Effect; or (ii) take or omit to take any action which is intended or known to render any of Seller’s representations or warranties untrue or misleading, or which would be likely to result in a material breach of any of Seller’s covenants; or

***Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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(k)agree, in writing or otherwise, to take authorize the taking of any of the foregoing actions.

Section 8.02Cooperation; Regulatory Approvals.

(a)Upon the terms and subject to the conditions of this Agreement, each of the Parties hereto shall use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable, including (i) the prompt preparation and filing of all forms, registrations and notices required to be filed to consummate the transactions contemplated by this Agreement and the taking of such reasonable actions as are necessary to obtain any requisite approvals, consents, orders, exemptions or waivers by any Governmental or Regulatory Authority or any other Person, including filings pursuant to the HSR Act and any actions necessary to cause the expiration of the notice periods under the HSR Act; provided, that such reasonable best efforts shall not include Buyers or their Affiliates agreeing to hold separate or divest any assets or categories of assets, or operations or portions of the Business, Buyers or any of their Affiliates or agreeing to any limitations or restrictions on its conduct in order for the Closing to occur and (ii) using reasonable best efforts to cause the satisfaction of all conditions to the Closing (other than conditions as to the performance by the other Parties of their obligations). Each Party shall promptly consult with the others with respect to, provide any necessary information with respect to, and provide the other Parties (or their counsel) copies of, all filings made by such Party with any Governmental or Regulatory Authority or any other Person or any other information supplied by such Party to a Governmental or Regulatory Authority or any other Person in connection with this Agreement and the transactions contemplated by this Agreement.

(b)Subject to appropriate confidentiality protections, each Party shall furnish to the other Parties such necessary information and reasonable assistance as the other Parties may reasonably request in connection with the foregoing and shall keep the other Parties reasonably informed with respect to any consent, authorization, order or approval of, or exemption by or sought from, any Governmental or Regulatory Authority in connection with this Agreement and the transactions contemplated hereby.

(c)As promptly as practicable after the date hereof (but in no event later than ten (10) Business Days following the date hereof), Seller and Buyers shall make the filings required of such Party under the HSR Act.

Section 8.03Access.

(a)From the date hereof until the Closing, Seller shall, and shall cause its

***Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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relevant Affiliates to, permit Buyers and their representatives to have access, during regular business hours and upon reasonable advance notice, to the assets of the Business that will be Purchased Assets or Product Inventory, in compliance with reasonable rules and regulations of Seller and any applicable Laws. Seller shall cause its and its relevant Affiliates’ employees, counsel and financial advisors to cooperate with Buyers in their investigation of the Business and Purchased Assets or Product Inventory and to furnish such information and documents relating thereto as Buyers may from time to time reasonably request.

(b)Upon the request of Seller, Buyers shall at all times following the Closing, to the extent permitted by Law, grant to Seller and its representatives the right, during normal business hours, to inspect and copy the Books and Records and other documents in Buyers’ possession to the extent pertaining to the operation of the Business prior to the Closing Date for Tax purposes and in connection with Actions or Proceedings. Any such access by Seller shall not unreasonably interfere with the conduct of the business of Buyers and their Affiliates. Seller will hold, and will use reasonable best efforts to cause its Affiliates and their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of applicable Law, all confidential documents and information concerning Buyer provided to it pursuant to this Section 8.03(b).

(c)Upon the reasonable request of Buyers, Seller shall, from and after the Closing Date until the date which is [***], to the extent permitted by Law, grant to Buyers and Buyer Representatives (as defined below) the right, during normal business hours and with reasonable advance written notice, to inspect and copy files, documents, instruments, papers, books and records (other than income Tax Returns and income Tax working papers) owned by Seller or an Affiliate relating to the Business that are not included in the Purchased Assets. Any such access by Buyers shall not unreasonably interfere with the conduct of the business of Seller and its Affiliates. Buyers will hold, and will use reasonable best efforts to cause their Affiliates and their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents (“Buyer Representatives”) to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of applicable Law, all confidential documents and information concerning Seller provided to it pursuant to this Section 8.03(c).

Section 8.04Public Announcements.

Neither Seller nor either Buyer (or any of their respective Affiliates) shall issue any press release or make any public announcement with respect to this Agreement, the License Agreement or the Supply Agreement and the transactions contemplated hereby and thereby without obtaining the prior written consent of the other Party, except as may be required by

***Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

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applicable Law or stock exchange regulation upon the advice of counsel and only if the disclosing Party provides the non-disclosing Party with an opportunity to first review the release or other public announcement (unless such review would be impractical given the circumstances).

Section 8.05Non-Solicitation.

Without the prior written consent of Seller, for a period commencing on the date hereof and expiring on [***], Buyers will not, and will not assist any of their Affiliates or representatives to, directly or indirectly, induce, encourage or solicit any of Seller’s officers or employees who worked in the Business on the Closing Date to leave such employment. Notwithstanding the foregoing, this Section 8.05 shall not be applicable to, nor prohibit, general solicitations of employment not specifically targeted at employees of Seller or any of its Affiliates.

Section 8.06Corporate Names.

(a)Except as set forth in Sections 8.06(b) and (c) below, following the Closing, Buyers shall not have any rights by virtue of this Agreement or any of the transactions contemplated hereby to any names, trademarks, trade names, trade dress or logos relating to Seller or any of the Affiliates of Seller or any of their products other than those included in the Registered Intellectual Property (the “Corporate Names”).

(b)Buyers may use on a non-exclusive basis in connection with its operation of the Business items of Product Inventory that bear any of the Corporate Names to sell such Product Inventory for a period not to exceed [***] following the Closing (or such shorter period as any Governmental or Regulatory Authority shall designate), it being understood that Buyers will use their commercially reasonable efforts to use or sell such items of Product Inventory prior to selling any other product under the trademark or trade name of the Product.

(c)Buyers may use on a non-exclusive basis Marketing Materials that were transferred to Buyers as Purchased Assets that bear any of the Corporate Names in connection with its operation of the Business for a period not to exceed [***] following the Closing; and thereafter Buyers may use such Marketing Materials only if Buyers completely remove all Corporate Names from, or completely covers all Corporate Names on, such materials. Buyers acknowledge and agree that Seller shall have no Liability or other obligation arising out of or in connection with Buyers’ or their Affiliates’ use of the Marketing Materials.

Section 8.07Product Inventory.

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From and after the Closing, Buyers shall hold, store and ship any Product Inventory in accordance with (a) all applicable Laws, (b) cGMP, (c) the applicable Regulatory Approvals and (d) applicable analytical methods and procedures, material specifications, master batch records, and stability protocols.

Section 8.08Regulatory Matters.

(a)From and after the transfer by Seller and its Affiliates to Buyer 1 of each Regulatory Approval pursuant to the terms hereof, Buyer 1, at its cost, shall be solely responsible and liable for (i) taking all actions, paying all fees and conducting all communication with the appropriate Governmental or Regulatory Authority required by Law in respect of such Regulatory Approval, including preparing and filing all reports (including adverse drug experience reports) with the appropriate Governmental or Regulatory Authority, (ii) taking all actions, paying all fees and conducting all communication with the appropriate Governmental or Regulatory Authority required by Law in respect of all Regulatory Approvals and other approvals needed to import, offer for sale or sell Product, (iii) taking all actions and conducting all communication with Third Parties in respect of Product sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval), including responding to all complaints in respect thereof, including complaints related to tampering or contamination, and (iv) investigating all complaints and adverse drug experiences in respect of Product sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval). Seller shall use commercially reasonable efforts to promptly effect the transfer of the Regulatory Approvals pursuant to the terms of this Agreement and, until such time, Seller shall take all commercially reasonable actions to maintain the Regulatory Approvals in full force and effect and will comply with all of the obligations of a holder of the Regulatory Approvals.

(b)From and after the transfer by Seller and its Affiliates to Buyer 1 of each Regulatory Approval pursuant to the terms hereof, Seller promptly (and in any event within the time periods required by law) shall notify Buyer 1 if Seller or any of its Affiliates receives a complaint or a report of an adverse drug experience in respect of a Product sold pursuant to such Regulatory Approval. In addition, Seller shall cooperate with Buyer 1’s reasonable requests and use commercially reasonable efforts to assist Buyer 1 in connection with the investigation of and response to any complaint or adverse drug experience related to a Product sold by Seller or any of its Affiliates.

(c)From and after the transfer by Seller to Buyer 1 of each Regulatory Approval pursuant to the terms hereof, except as otherwise provided in the Supply Agreement with respect to Product supplied by Seller to Buyer 1 thereunder, Buyer 1, at its cost, shall be solely responsible and liable for conducting all involuntary recalls, and all voluntary recalls

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deemed necessary by Buyer 1 in its reasonable discretion, of Units sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval), including recalls required by any Governmental or Regulatory Authority and recalls of Units sold by Seller or any of its Affiliates deemed necessary by Seller in its reasonable discretion; provided, however, that Seller shall reimburse Buyer 1 for the reasonable costs and expenses of conducting recalls required by the FDA or any other Governmental or Regulatory Authority relating to Product sold by or on behalf of Seller prior to the Closing, including, but not limited to, the costs of notifying customers, the costs associated with shipment of such recalled Product, the price paid for such Product Inventory, and reasonable credits extended to customers in connection with the recall.

Section 8.09RESERVED.

Section 8.10Adverse Experience Reports.

After the Closing, Seller shall promptly submit to Buyers all adverse drug experience information or customer complaints brought to the attention of Seller in respect of the Product, as well as any events and matters concerning or affecting the safety or efficacy of the Product. After the Closing, Buyers shall have all responsibility for required reporting of adverse experiences for the Product.

Section 8.11Receivables.

Seller and its Affiliates agree that any and all payment in respect of sales of the Product by Buyer 2 made after the Closing that are received by Seller or any of its Affiliates shall be held in an account for the benefit of Buyer 2 and delivered to Buyer 2 as soon as practicable. Buyer 2 agrees that any and all payment in respect of sales of Product made by Seller and its Affiliates prior to Closing that are received by Buyer 2 shall be held in an account for the benefit of Seller and delivered to Seller as soon as practicable. Seller agrees that in collecting Product receivables after Closing, neither Seller nor any of its Affiliates shall take any action which is not in the reasonable best interest of Buyer 2 or which is different from the collection efforts undertaken in the Ordinary Course of Business prior to Closing.

Section 8.12Affiliates.

Each Party hereto shall cause its respective controlled Affiliates to comply with the terms of this Agreement.

Section 8.13Labeling Requirements.

Following the Closing, Buyers shall at their own expense and as expeditiously as

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possible use commercially reasonable efforts to obtain such FDA approvals necessary for Buyer Labeling for the Product to be manufactured after the Closing.

Section 8.14Aradigm Agreement.

Following the Closing, Seller shall have the right to amend, modify or supplement the Aradigm Agreement; provided, however, that Seller shall not amend, modify or supplement the Aradigm Agreement in any manner that would adversely affect Buyer 2’s obligations under this Agreement without the prior written consent of Buyer 2, not to be unreasonably withheld, conditioned or delayed.

Section 8.15Litigation Support.

Following the Closing, Buyers and their Affiliates, on the one hand, and Seller and its Affiliates, on the other hand, shall reasonably cooperate with each other in the defense or settlement of any Liabilities or lawsuits involving the Purchased Assets, the Product Inventory, the Product, this Agreement or the Transaction Documents, the transactions contemplated hereby or thereby or the portion of the Business for which the other Party (or Parties) have responsibility under any Transaction Document by providing the requesting Party (or Parties) and such requesting Party’s legal counsel reasonable access to employees, records, documents, data, equipment, facilities, products, parts, prototypes and other information relating primarily to the Business, the Product Inventory and the Purchased Assets as the requesting Party may reasonably request, to the extent maintained by or under the possession or control of the requested Party; provided, however, that such access shall not unreasonably interfere with Buyers’ or their Affiliates’, or Seller or its Affiliates’, as the case may be, respective businesses; and provided, further, that either Party may restrict the foregoing access to the extent that (a) such restriction is required by applicable Law, (b) such access or provision of information would result in a violation of confidentiality obligations to a Third Party or (c) disclosure of any such information would result in the loss or waiver of the attorney-client privilege. The requesting Party shall reimburse the other Party for reasonable out-of-pocket expenses paid by the other Party to Third Parties in performing its obligations under this Section 8.15.

Section 8.16Release of Encumbrances.

On or prior to the Closing, Seller shall (a) take all actions necessary to extinguish or cause to be extinguished, as the case may be, all Encumbrances on the Purchased Assets and the Product Inventory, excluding Permitted Encumbrances, but including all Encumbrances on the Purchased Assets, the Product Inventory and Registered Intellectual Property arising in connection with the Financing Documents, in each case on terms reasonably satisfactory to Purchaser; and (b) file in the appropriate jurisdictions termination statements of Uniform Commercial Code financing statements (or equivalent filings in jurisdictions outside the United

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States) that have been filed by the holders of such Encumbrances with respect to Seller or any of the Purchased Assets or the Product Inventory, to Buyers’ reasonable satisfaction. In the event that, after the Closing, any such lienholder asserts any Encumbrance or security interest in the Purchased Assets, the Product Inventory or Registered Intellectual Property, Seller shall, upon written request from Buyers, take all actions necessary to obtain a release from such lienholder of all such Encumbrances or security interests.

Section 8.17Notification of Certain Events.

From the date hereof until the earlier to occur of the Closing Date or the termination of this Agreement pursuant to Article XII, Seller shall provide prompt written notice to Buyers of (i) the occurrence of any event that may lead to the failure of any of the representations and warranties set forth in Article VI to be true and correct in all material respects, (ii) any errors in, or omissions from, the Seller Disclosure Schedule (subject to any qualifications set forth in the applicable representation or warranty), (iii) the occurrence or non-occurrence of any event that would reasonably be expected to result in an Adverse Effect, (iv) the cancellation or other termination by any supplier or customer listed on Section 6.16 of the Seller Disclosure Schedule of its relationship with the Business that would be material to the Business, (v) any Actions or Proceedings commenced or threatened in writing which relate to the Business, Purchased Assets, Product Inventory, Product, this Agreement or any of the Transaction Documents or the transactions contemplated hereby or thereby or (vi) other events or conditions that would reasonably be expected to result in the conditions set forth in Article X not being satisfied on or prior to the Outside Date.

Section 8.18Product Cost-of-Goods.

The Product Cost-of-Goods as of the date of this Agreement is set forth on Section 8.18 of the Seller Disclosure Schedule (the “Standard COGS”). No later than five (5) Business Days prior to the anticipated Closing Date, either Buyers, on the one hand, or Seller, on the other hand, may deliver written notice to the other Party (a) requesting that the Standard COGS be adjusted and (b) setting forth in reasonable detail such Party’s proposal for any such adjustments. Representatives of the Parties shall meet promptly following the delivery of any such notice and shall seek in good faith to reach an agreement as to any such proposed adjustment or that no such adjustment is necessary. If agreement is reached as to the requested adjustment (or a related compromise) during such five (5) Business Day period, then Standard COGS shall be so adjusted. If the Parties are unable to reach agreement as to the proposed adjustment during such five (5) Business Day period, then the Standard COGS set forth on Section 8.18 of the Seller Disclosure Schedule shall not be adjusted.

Section 8.19Further Assurances.

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(a)On and after the Closing, Seller shall from time to time, at the reasonable request of Buyers, execute and deliver, or cause to be executed and delivered, such other instruments of conveyance and transfer and take such other actions as Buyers may reasonably request, in order to more effectively consummate the transactions contemplated hereby and to vest in Buyers good and marketable title to the Purchased Assets and the Product Inventory (including assistance in the collection or reduction to possession of any of the Purchased Assets or the Product Inventory).

(b)On and after the Closing, Buyers shall from time to time, at the reasonable request of Seller, take such actions as Seller may reasonably request, in order to more effectively consummate the transactions contemplated hereby, including Buyers’ assumption of the Assumed Liabilities.

(c)On the Closing Date, Seller shall make available to Buyer 2 a complete and correct schedule of each Contract to which Seller or any of its Affiliates is a party, as of such date, that relates to the Business or is necessary for the development, manufacture, marketing, sale or distribution of the Product. If, at any time during ninety (90) days following the Closing Date, Buyer 2 reasonably determines that a Contract set forth on such schedule should have been included as an Assumed Contract pursuant to this Agreement, then Buyer 2 shall provide written notice to Seller requesting assignment of such Contract to Buyer 2. Subject to Section 2.03 hereof, promptly following receipt of such written notice, Seller shall, or shall cause its Affiliate to, assign all right, title and interest in and to such Contract to Buyer 2, free and clear of all Encumbrances (other than Permitted Encumbrances).

ARTICLE IXCONDITIONS TO THE OBLIGATIONS OF SELLER

The obligation of Seller to effect the transactions contemplated hereby is subject to the satisfaction (or waiver by Seller, to the extent permitted by Law), at or before the Closing, of each of the following conditions:

Section 9.01Representations, Warranties and Covenants.

All representations and warranties of Buyers contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though given on and as of such date and Buyers shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it prior to or on the Closing Date, and Seller shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of each Buyer.

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Section 9.02No Injunctions or Restraints.

No preliminary or permanent injunction, Law or Governmental or Regulatory Authority Order enacted, promulgated, issued, entered, amended or enforced by any Governmental or Regulatory Authority shall be in effect enjoining, restraining, preventing or prohibiting consummation of the transactions contemplated by this Agreement or making the consummation of such transactions illegal.

Section 9.03No Actions or Proceedings.

No Actions or Proceedings that question the validity or legality of the transactions contemplated hereby shall have been instituted or threatened and not settled or otherwise terminated.

Section 9.04Consents.

All Seller Governmental Consents, Buyer Governmental Consents and Buyer Third Party Consents shall have been obtained or made, as the case may be.

Section 9.05Transaction Documents.

Each Buyer shall have delivered to Seller the Transaction Documents to which such Buyer is a party, executed by a duly authorized officer of such Buyer.

Section 9.06Other Closing Deliveries.

Buyers shall have delivered to Seller a certificate, executed by an executive officer of each Buyer, confirming that, to the actual knowledge of such executive officer, the conditions set forth in Section 9.01 have been satisfied, and any such other certificates and documents customary in transactions similar to those contemplated hereby that are reasonably requested by Seller.

ARTICLE XCONDITIONS TO THE OBLIGATIONS OF BUYERS

The obligation of Buyers to effect the transactions contemplated hereby is subject to the satisfaction (or waiver by Buyers, to the extent permitted by Law), at or before the Closing, of each of the following conditions:

Section 10.01Representations, Warranties and Covenants.

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All representations and warranties of Seller contained in Sections 6.01, 6.02, 6.05, 6.12 and 6.15(a) of this Agreement shall be true and correct in all respects as of the date hereof and as of the Closing Date as though given on and as of such date, except for any such representations and warranties that are by their terms given only as of a specific date. All representations and warranties of Seller, other than those listed in the preceding sentence, shall be true and correct in all respects (without giving effect to any limitation as to “materiality” or “Adverse Effect” set forth herein) as of the date hereof and as of the Closing Date as though given on and as of such date (except for any such representations and warranties that are by their terms given only as of a specific date), excluding for such purpose where the failure of such representations and warranties of Seller to be true and correct would not, individually or in the aggregate, result in an Adverse Effect. Seller shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it prior to or on the Closing Date.

Section 10.02No Injunctions or Restraints.

No preliminary or permanent injunction, Law or Governmental or Regulatory Authority Order enacted, promulgated, issued, entered, amended or enforced by any Governmental or Regulatory Authority shall be in effect enjoining, restraining, preventing or prohibiting consummation of the transactions contemplated by this Agreement or making the consummation of such transactions illegal.

Section 10.03No Actions or Proceedings.

No Actions or Proceedings that question the validity or legality of the transactions contemplated hereby shall have been instituted or threatened and not settled or otherwise terminated.

Section 10.04Consents.

All Seller Governmental Consents, Seller Third Party Consents and Buyer Governmental Consents shall have been obtained or made, as the case may be.

Section 10.05No Adverse Effect.

Since the date of the Agreement, there shall have been no events, facts, occurrences, changes, effects or conditions that, individually or in the aggregate, have had or would reasonably be expected to have an Adverse Effect.

Section 10.06Transaction Documents.

Seller shall have delivered to Buyers the License Agreement, the Supply

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Agreement, the Escrow Agreement, the Commercial Agreement and the other Transaction Documents, executed by a duly authorized officer of Seller.

Section 10.07Other Closing Deliveries.

Seller shall have delivered to Buyers (i) a certificate, executed by an executive officer of Seller, confirming that, to the knowledge of such executive officer after due inquiry, the conditions set forth in Section 10.01 have been satisfied, (ii) evidence reasonably acceptable to Buyers that all Encumbrances encumbering the Purchased Assets, the Product Inventory and the Registered Intellectual Property, excluding Permitted Encumbrances, have been properly terminated or released before Closing and (iii) any such other certificates and documents customary in transactions similar to those contemplated hereby that are reasonably requested by Buyers.

ARTICLE XIINDEMNIFICATION

Section 11.01Survival of Representations, Warranties, Etc.

Other than (i) the representations and warranties contained in [***] (the “Seller Fundamental Representations”) and [***] (the “Buyer Fundamental Representations”), which shall survive [***], (ii) the representations and warranties contained in [***], which shall survive until the date that is [***] following the applicable statute of limitations, and (iii) the representations and warranties contained in [***], which shall survive the Closing and shall expire [***], the representations and warranties made by the Parties in this Agreement shall survive the Closing and shall expire [***] and any Liability of the Parties, respectively (for indemnification or otherwise), with respect to such representations and warranties shall thereupon cease. All of the covenants and agreements contained in this Agreement that by their nature are required to be performed after the Closing shall survive the Closing until fully performed or fulfilled. The period for which a representation, warranty, covenant or agreement survives the Closing is referred to herein as the “Survival Period.” If, at any time prior to the expiration of a Survival Period, a notice of any claim for indemnification pursuant to Section 11.02(a)(i), 11.02(a)(ii), 11.02(b)(i) or 11.02(b)(ii), as the case may be, shall have been given prior to the applicable expiration date and such notice describes the circumstances with respect to which such indemnification claim relates, such indemnification claim shall survive until such time as such claim is finally resolved.

Section 11.02Indemnification.

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(a)By Seller. Subject to Sections 11.03 and 11.04, from and after the Closing, Seller shall indemnify, reimburse, defend and hold harmless Buyers, their Affiliates and their respective officers, directors, employees, agents, successors and assigns (collectively, the “Buyer Indemnified Parties”) from and against any and all costs, losses, Liabilities, damages, lawsuits, deficiencies, claims and expenses (including interest, penalties and reasonable fees and disbursements of attorneys paid in connection with the investigation, defense or settlement of any of the foregoing) (collectively, the “Damages”), to the extent arising or resulting from (i) any inaccuracy or breach of any representation or warranty of Seller or any of its Affiliates herein, or in any schedule, exhibit or attachment hereto (other than agreements to be executed at Closing); (ii) any breach by Seller or any of its Affiliates of any of its covenants or agreements contained herein, or in any schedule, exhibit or attachment hereto (other than agreements to be executed at Closing); (iii) Seller’s conduct of the Business or its activities related to the Product, the Product Inventory or the Purchased Assets prior to the Closing (except to the extent the same constitute Assumed Liabilities); (iv) the failure of Seller to pay, perform or discharge any Excluded Liabilities; or (v) any amounts that would be payable by Buyers or their Affiliates to the extent attributable to the failure of Seller and its Affiliates to comply with the requirements of “bulk-sale” or “bulk transfer” Laws of any jurisdiction that may be applicable to the sale of the Product Inventory and Purchased Assets to Buyers. The Parties agree that for any claims for which any Buyer Indemnified Party is entitled to indemnification under Section 11.02(a)(i), payment for such Damages shall be paid solely from the Escrow Fund, in accordance with Section 4.05 and the Escrow Agreement, subject to the limitations set forth in Section 11.03 and 11.04; provided, that, subject to Section 11.03(c), following the final distribution of any amounts in the Escrow Fund pursuant to Section 4.05, [***].

(b)By Buyers. Subject to Sections 11.03 and 11.04, from and after the Closing, Buyers shall jointly and severally indemnify, reimburse, defend and hold harmless Seller, its Affiliates and their respective officers, directors, employees, agents, successors and assigns (collectively, the “Seller Indemnified Parties”) from and against any and all Damages to the extent arising or resulting from (i) any inaccuracy or breach of any representation or warranty of Buyers or any of their Affiliates herein, or in any schedule, exhibit or attachment hereto (other than agreements to be executed at Closing); (ii) any breach by Buyers or any of their Affiliates of any of their covenants or agreements contained herein, or in any schedule, exhibit or attachment hereto (other than agreements to be executed at Closing); (iii) Buyers’ conduct of the Business or their activities related to the Product, the Product Inventory or the Purchased Assets following the Closing (except to the extent the same constitute Excluded Liabilities); or (iv) the failure of Buyers to pay, perform or discharge any Assumed Liabilities.

(c)Procedures. The indemnified party (the “Indemnified Party”) shall give

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the indemnifying party (the “Indemnifying Party”) prompt written notice (an “Indemnification Claim Notice”) of any Damages or discovery of fact upon which such Indemnified Party intends to base a request for indemnification under Section 11.02(a) or Section 11.02(b); provided, however, that a failure by the Indemnified Party to give such notice in a timely fashion shall not limit the obligations of the Indemnifying Party hereunder, except to the extent such Indemnifying Party has been actually prejudiced thereby. Each Indemnification Claim Notice must contain a reasonable description of the claim and the nature and amount of such Damages (to the extent that the nature and amount of such Damages are known at such time). The Indemnified Party shall furnish promptly to the Indemnifying Party copies of all papers and official documents received in respect of any Damages. All indemnification claims in respect of a Party, its Affiliates or their respective directors, officers, employees and agents (collectively, the “Indemnitees” and each an “Indemnitee”) shall be made solely by such Party to this Agreement.

(d)Third Party Claims. The obligations of an Indemnifying Party under this Section 11.02 with respect to Damages arising from claims of any Third Party that are subject to indemnification as provided for in Section 11.02(a) or Section 11.02(b) (a “Third Party Claim”) shall be governed by and be contingent upon the following additional terms and conditions:

(i)At its option, the Indemnifying Party may assume the defense of any Third Party Claim by giving written notice to the Indemnified Party within thirty (30) days after the Indemnifying Party’s receipt of an Indemnification Claim Notice. The assumption of the defense of a Third Party Claim by the Indemnifying Party shall not be construed as an acknowledgment that the Indemnifying Party is liable to indemnify any Indemnitee in respect of the Third Party Claim, nor shall it constitute a waiver by the Indemnifying Party of any defenses it may assert against any Indemnitee’s claim for indemnification. Upon assuming the defense of a Third Party Claim, the Indemnifying Party may appoint as lead counsel in the defense of the Third Party Claim any legal counsel selected by the Indemnifying Party that is reasonably acceptable to the Indemnified Party. In the event the Indemnifying Party assumes the defense of a Third Party Claim, the Indemnified Party shall promptly deliver to the Indemnifying Party all original notices and documents (including court papers) received by any Indemnitee in connection with the Third Party Claim. Should the Indemnifying Party assume the defense of and continue to defend a Third Party Claim with counsel reasonably acceptable to the Indemnified Party, except as provided in subsection (ii) below, the Indemnifying Party shall not be liable to the Indemnified Party or any other Indemnitee for any legal expenses subsequently incurred by such Indemnified Party or other Indemnitee in connection with the analysis, defense or settlement of the Third Party Claim. In the event that it is ultimately determined that the Indemnifying Party is not

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obligated to indemnify, defend or hold harmless an Indemnitee from and against the Third Party Claim, the Indemnified Party shall reimburse the Indemnifying Party for any and all costs and expenses (including attorneys’ fees and costs of suit) and any Damages incurred by the Indemnifying Party in its defense of the Third Party Claim with respect to such Indemnitee.

(ii)Without limiting Section 11.02(d)(i), any Indemnitee shall be entitled to participate in, but not control, the defense of such Third Party Claim and to employ counsel of its choice for such purpose; provided, however, that such employment of separate legal counsel shall be at the Indemnitee’s own expense unless (A) the employment thereof has been specifically authorized by the Indemnifying Party in writing, (B) the Indemnifying Party has failed to assume the defense and employ counsel in accordance with Section 11.02(d)(i) (in which case the Indemnified Party shall control the defense) or (C) if the Indemnified Party and the Indemnifying Party are both named parties to the proceeding and the Indemnified Party has reasonably concluded that there may be one or more legal defenses that are different from or in addition to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to assume the defense of such action on behalf of the Indemnified Party and the Indemnifying Party shall be liable for all legal expenses incurred by the Indemnified Party in furtherance thereof).

(iii)With respect to any Damages relating solely to the payment of money damages in connection with a Third Party Claim and that will not result in the Indemnitee’s becoming subject to injunctive or other relief or otherwise adversely affect the business of the Indemnitee in any manner, and as to which the Indemnifying Party shall have acknowledged in writing the obligation to indemnify the Indemnitee hereunder, the Indemnifying Party shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Damages, on such terms as the Indemnifying Party, in its sole discretion, shall deem appropriate. With respect to all other Damages in connection with Third Party Claims, where the Indemnifying Party has assumed the defense of the Third Party Claim in accordance with Section 11.02(d)(i), the Indemnifying Party shall not have authority to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Damages unless it obtains the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed). The Indemnifying Party shall not be liable for any settlement or other disposition of Damages by an Indemnitee that is reached without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed). Regardless of whether the Indemnifying Party

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chooses to defend or prosecute any Third Party Claim, no Indemnitee shall admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).

(iv)Regardless of whether the Indemnifying Party chooses to defend or prosecute any Third Party Claim, the Indemnified Party shall, and shall cause each other Indemnitee to, cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access during normal business hours afforded to the Indemnifying Party to, and reasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such Third Party Claim, and making Indemnitees and other employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Indemnifying Party shall reimburse the Indemnified Party for all its reasonable costs and expenses in connection with any of the foregoing.

(e)Expenses. Except as provided above, the costs and expenses, including fees and disbursements of counsel, incurred by the Indemnified Party in connection with any claim shall be reimbursed on a quarterly basis by the Indemnifying Party, without prejudice to the Indemnifying Party’s right to contest the Indemnified Party’s right to indemnification and subject to refund in the event the Indemnifying Party is ultimately held not to be obligated to indemnify the Indemnified Party.

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Section 11.03Limitations.

Notwithstanding anything to the contrary contained in this Agreement, each of the following limitations shall apply:

(a)Seller will not be required to indemnify Buyers under Section 11.02(a)(i) except to the extent that the cumulative amount of the Damages under Section 11.02(a)(i) actually incurred by the Buyer Indemnified Parties exceeds [***], and Seller will only be required to pay, and will only have Liability for, the amount by which [***].

(b)Buyers will not be required to indemnify Seller under Section 11.02(b)(i) except to the extent that the cumulative amount of the Damages under Section 11.02(b)(i) actually incurred by the Seller Indemnified Parties exceeds [***], and Buyers will only be required to pay, and will only have Liability for, the amount by which [***].

(c)In no event shall the aggregate Liability of either Party for any Damages pursuant to Section 11.02(a)(i) or 11.02(b)(i), as the case may be, exceed [***] (the “Cap”), provided, however, that the limitations on indemnification under this Section 11.03(c) shall not apply to breaches of [***]; provided further, that Damages in respect of such breaches shall not be considered for purposes of determining when the Cap has been met.

(d)Other than [***], each of which shall survive until the expiration of the applicable Survival Period, in no event shall Seller or Buyers have any Liability under Section 11.02(a)(i) or 11.02(b)(i), as the case may be, with respect to claims that are not properly asserted in writing prior to [***].

(e)The amount of any Damages under Section 11.02 shall be reduced by the amount of any insurance proceeds actually received by the Indemnified Party relating to such claim, such reduction not to include, in all cases, the amount of any premium increases or costs of recovery.

(f)No Party shall be entitled to indemnification under this Article XI to the extent Damages result from the gross negligence or intentional misconduct of the Party seeking indemnification.

(g)For purposes of determining the amount of any Damages for purposes of this Article XI and for the purposes of determining breach or inaccuracy of a representation or warranty for purposes of this Article XI, no qualifications as to “materiality” or “Adverse Effect” shall be given effect.

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(h)Except with respect to claims based on fraud or willful misconduct and except as otherwise expressly provided in this Agreement, after the Closing: (i) the right of the Buyer Indemnified Parties to indemnification under this Article XI shall be the exclusive remedy of the Buyer Indemnified Parties with respect to claims arising or resulting from the subject matter of this Agreement; and (ii) the right of the Seller Indemnified Parties to indemnification under this Article XI shall be the exclusive remedy of the Seller Indemnified Parties with respect to claims arising or resulting from the subject matter of this Agreement; provided, however, that the Parties shall be entitled to seek temporary or permanent injunctive relief in order to enforce their respective rights under this Article XI, or under any other provision of this Agreement or as provided in the Transaction Documents. Notwithstanding the foregoing, nothing shall prohibit the Parties from seeking specific performance hereunder or pursuant to any Transaction Document to the extent provided for therein.

(i)Seller shall not be required to indemnify any Buyer Indemnified Party under Section 11.02(a)(i) for any Taxes for any taxable period (or portion thereof) beginning after the Closing Date.

Section 11.04Adjustments to Purchase Price.

All indemnification payments under this Article XI shall be treated as adjustments to the Purchase Price for all United States federal Tax purposes.

Section 11.05Limitation of Liability.

NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NEITHER PARTY NOR ANY OF ITS AFFILIATES SHALL BE LIABLE TO THE OTHER PARTY BY REASON OF ANY BREACH OF ANY REPRESENTATION, WARRANTY, CONDITION OR OTHER TERM OF THIS AGREEMENT OR ANY DUTY OF COMMON LAW, FOR ANY SPECIAL OR INCIDENTAL OR PUNITIVE LOSS OR DAMAGE (WHETHER FOR LOSS OF CURRENT OR FUTURE PROFITS, LOSS OF ENTERPRISE VALUE OR OTHERWISE) AND WHETHER OCCASIONED BY THE NEGLIGENCE OF SUCH PARTY OR ITS AFFILIATES OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES; PROVIDED THAT THE FOREGOING IN NO WAY LIMITS ANY OF THE OBLIGATIONS OR LIABILITY OF EITHER PARTY OR ANY OF ITS AFFILIATES TO THE OTHER PARTY WITH RESPECT TO THIRD PARTY CLAIMS.

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ARTICLE XIITERMINATION AND ABANDONMENT

Section 12.01Methods of Termination.

The transactions contemplated herein may be terminated and/or abandoned at any time prior to the Closing:

(a)by mutual written agreement of Seller, on the one hand, and Buyers, on the other hand; or

(b)by either Seller, on the one hand, or Buyers, on the other hand, if the Closing shall not have occurred by [***] (the “Outside Date”); provided that if the Party seeking to terminate the Agreement is then in material breach of its obligations hereunder, the Outside Date shall be extended until [***]following the date upon which such breach is cured;

(c)by either Seller, on the one hand, or Buyers, on the other hand, if the other Party becomes insolvent or seeks protection under any bankruptcy, receivership, trust deed, creditors arrangement, composition or comparable proceeding, or if any such proceeding is instituted against the other Party which proceeding remains undismissed for a period of [***];

(d)by either Seller, on the one hand, or Buyers, on the other hand, if there shall be in effect any Law that prohibits the Closing or if the Closing would violate any non-appealable Order; or

(e)by either Seller, on the one hand, or Buyers, on the other hand, if the other Party has breached any material obligation hereunder that remains uncured for a period of [***], unless such breach is not capable of cure in which event the non-breaching Party may terminate immediately.

Section 12.02Procedure upon Termination.

In the event of termination and abandonment under Section 12.01 hereof, written notice thereof shall forthwith be given to the other Party and the transactions contemplated by this Agreement shall be terminated and abandoned, without further action by the Parties hereto. If the transactions contemplated by this Agreement are terminated and/or abandoned as provided herein:

(a)Each Party, if requested, will redeliver all documents, work papers and other material of the other Party and its Affiliates relating to the transactions contemplated

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hereby, whether so obtained before or after the execution hereof, to the Party furnishing the same;

(b)All confidential information received by any Party hereto with respect to the business of any other Party or its Affiliates shall be treated in accordance with that certain Confidential Disclosure Agreement, dated April 8, 2008, by and between an Affiliate of Buyers and Seller (the “Confidentiality Agreement”); and

(c)No Party hereto and none of their respective directors, officers, stockholders, Affiliates or controlling Persons shall have any further liability or obligation to any other Party to this Agreement except as stated in Sections 12.02 (a) or (b), except that (i) nothing in this Section 12.02 shall prejudice any rights, claims, or causes of action that may have accrued hereunder or with respect hereto prior to the date of such termination (including in respect of fraud or willful misconduct) and (ii) the provisions of this Section 12.02 and Article XIII shall survive any termination of this Agreement.

ARTICLE XIIIMISCELLANEOUS

Section 13.01Confidentiality.

(a)In addition to the restrictions contained in Section 8.04 and in the License Agreement and the Supply Agreement, each Party agrees that at and after the Closing, it shall not, without the prior written consent of the other Party, (i) disclose to any Person such other Party’s Confidential Information (as defined below), except to those of its employees or representatives who need to know such information for the purpose of exploiting its rights or fulfilling its obligations under this Agreement (and then only to the extent that such persons are under an obligation to maintain the confidentiality of the Confidential Information), or (ii) use any of such other Party’s Confidential Information for any reason other than as contemplated by this Agreement. If a Party has been advised by legal counsel that disclosure of Confidential Information of the other Party is required to be made under applicable Law (including the requirements of a national securities exchange or another similar regulatory body) or pursuant to documents subpoena, civil investigative demand, interrogatories, requests for information, or other similar process, the Party required to disclose the Confidential Information shall, to the extent practicable, provide the other Party with prompt written notice of such request or demands or other similar process so that such other Party may seek an appropriate protective order or, waive the Disclosing Party’s compliance with the provisions of this Section 13.01(a). In the absence of a protective order or waiver or other remedy, the Party required to disclose the other Party’s Confidential Information may disclose only that portion of the Confidential Information

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which its legal counsel advises that it is legally required to disclose, provided that it exercises its reasonable best efforts to preserve the confidentiality of such other party’s Confidential Information, including by cooperating with such other Party to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information.

(b)The term “Confidential Information” as used in this Section 13.01 means (i) as to a Buyer, all confidential information relating to such Buyer’s business, the portion of the Business for which such Buyer shall assume responsibility upon the Closing, the Purchased Assets purchased by such Buyer and the Assumed Liabilities assumed by such Buyer, and (ii) as to Seller, all confidential information relating to the business and operations of Seller and its Affiliates, including the Excluded Assets and the Excluded Liabilities or other obligations other than the Assumed Liabilities, and that portion of the Business over which Seller retains responsibility as of the Closing, but not including that portion of the Business for which Buyers will assume responsibility as of the Closing and the Purchased Assets, in each of (i) and (ii) whether disclosed prior to or after the date hereof. The term “Confidential Information” does not include information which becomes generally available to the public other than as a result of disclosure by the Disclosing Party, or becomes available to the Disclosing Party on a non-confidential basis from a source other than the Non-disclosing Party, provided that such source is not bound by a confidentiality agreement with the Non-disclosing Party.

(c)Except in the event of termination of this Agreement pursuant to Article 12 above, this Section 13.01, Section 4 of the License Agreement and Section 8 of the Supply Agreement supersede and replace in its entirety the Confidentiality Agreement.

Section 13.02Notices.

All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission with answer back confirmation or by nationally recognized overnight courier that maintains records of delivery to the Parties at the following addresses or facsimile numbers:

If to Buyer 1: Endo Ventures Bermuda Limited
c/o Appleby Services (Bermuda) Ltd.Canon’s Court22 Victoria StreetP.O. Box HM 1179Hamilton HM EX BermudaAttention:    Secretary

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Facsimile:     +1 441 298 3483

If to Buyer 2: Endo Ventures Limited
No. 33 Fitzwilliam SquareDublin 2IrelandAttention:     Secretary

Facsimile: (610) 884-5911

With copies to: Skadden, Arps, Slate, Meagher & Flom LLP4 Times SquareNew York, NY 10036
Attention: Eileen Nugent, Esq.
Michael Chitwood, Esq.Facsimile: (212) 735-2000

Endo International plc

1400 Atwater Drive

Malvern, PA 19355

Attention: Caroline B. Manogue

Facsimile: (610) 884-7159

If to Seller to: Zogenix, Inc.
12400 High Bluff Drive, Suite 650
San Diego, CA 92130
Facsimile: (858) 259-1166

With copies to: Latham & Watkins LLP
12670 High Bluff Drive
San Diego, CA 92130
Attention: Cheston Larson, Esq.
Facsimile: (858) 523-5450

All such notices, requests and other communications will (a) if delivered personally to the address as provided in this Section 13.02, be deemed given upon receipt, (b) if delivered by facsimile to the facsimile number as provided in this Section 13.02, be deemed given upon

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receipt by the sender of the answer back confirmation and (c) if delivered by overnight courier to the address as provided in this Section 13.02, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section 13.02). Any Party from time to time may change its address, facsimile number or other information for the purpose of notices to that Party by giving notice specifying such change to the other Parties hereto in accordance with the terms of this Section 13.02.

Section 13.03Entire Agreement.

This Agreement (and all Exhibits and Schedules attached hereto and all other documents delivered in connection herewith, including the Transaction Documents) supersedes all prior discussions and agreements among the Parties with respect to the subject matter hereof and contains the sole and entire agreement among the Parties hereto with respect to the subject matter hereof.

Section 13.04Waiver.

Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion.

Section 13.05Amendment.

This Agreement may be amended, supplemented or modified only by a written instrument duly executed by each Party hereto.

Section 13.06Third Party Beneficiaries.

The terms and provisions of this Agreement are intended solely for the benefit of each Party hereto and their respective successors or permitted assigns and it is not the intention of the Parties to confer third-party beneficiary rights upon any other Person.

Section 13.07Assignment; Binding Effect.

Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any Party hereto without the prior written consent of the other Party hereto (which consent shall not be unreasonably withheld) and any attempt to do so will be void; provided, however, such prior written consent will not be required with respect to an assignment by a Party

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if such assignment is (i) to a Person organized in the same jurisdiction in which the assigning Party is organized and (ii) either (a) to an Affiliate of such assigning Party so long as such assigning Party remains bound by the terms hereof, or (b) in connection with a merger, sale or transfer involving all or substantially all of the assets of such assigning Party. This Agreement is binding upon, inures to the benefit of and is enforceable by the Parties hereto and their respective successors and permitted assigns.

Section 13.08Headings.

The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

vSection 13.09Severability.

If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any Party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never compromised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar to terms to such illegal, invalid or unenforceable provision as may be possible and reasonably acceptable to the Parties herein.

Section 13.10Governing Law; Dispute Resolution.

(a)This Agreement shall be construed in accordance with, and governed in all respects by, the laws of the State of New York (without giving effect to principles of conflicts of laws that would require the application of any other law).

(b)Following the Closing, except with respect to any claim seeking injunctive relief hereunder or any dispute pursuant to Section 4.01(f) hereof, in the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement or the rights or obligations of the parties hereunder, the parties will try to settle their differences amicably between themselves as contemplated herein. To the extent not provided for herein, any party may, following the Closing, initiate such informal dispute resolution by sending written notice of the dispute to the other party, and within [***] after such notice, the Chief Executive Officer (or his or her designee) of the applicable Buyer (or an Affiliate of such Buyer) will meet with the Chief Executive Officer (or his or her designee) of the Seller, for attempted resolution by good faith negotiations. If such Persons are unable to resolve promptly such disputed matter,

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such dispute shall be finally settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”), then in force and the Federal Arbitration Act, 9 U.S.C. § 1 et seq., by three (3) arbitrators (the “Arbitrators”) appointed in accordance with said rules, provided that the appointed arbitrators shall have appropriate experience in the biopharmaceutical industry. The place of arbitration shall be New York, New York, and the Arbitrators shall decide the dispute in accordance with the substantive law of the State of New York. The Arbitrators, by accepting their appointment, undertake to conduct the process such that the award shall be rendered within [***] of their appointment and shall be final and binding upon all parties participating in such arbitration. The judgment rendered by the arbitrators may, at the arbitrator’s discretion, include costs of arbitration, reasonable attorneys’ fees and reasonable costs for any expert and other witnesses. Judgment upon the award may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award and/or an order of enforcement as the case may be. Notwithstanding the foregoing, any disputes regarding the scope, validity, enforceability or inventorship of any patents or patent applications shall be submitted for final resolution by a court of competent jurisdiction. Any period of limitations or Survival Period that would otherwise expire between the initiation of the procedures described in this Section 13.10(b) and the conclusion of such procedures shall be extended until [***] following the conclusion of such procedures.

(c)Subject to Section 4.01(f) and this Section 13.10, and prior to the Closing, the Parties consent to the exclusive jurisdiction of the Federal courts and the State courts of the State of New York, in each case, located in the borough of Manhattan, City of New York (the “New York Courts”) for the resolution of all disputes and controversies related to this Agreement. Prior to the Closing, each of the Parties (i) consents to the exclusive jurisdiction of such court in any Action or Proceeding relating to or arising out of this Agreement or the transactions contemplated herein; (ii) waives any objection that it may have to the laying of venue in any such Action or Proceeding; and (iii) agrees that service of any court paper may be made in such manner as may be provided under applicable Laws or court rules. Following the Closing, the Parties consent to the exclusive jurisdiction of the New York Courts for any action in aid of arbitration, for provisional relief of the status quo or to prevent irreparable harm prior to the appointment of the Arbitrators in Section 13.10(b) above, and to the non-exclusive jurisdiction of the New York Courts for any action to enter or enforce any arbitral award entered in connection with this Agreement. THE PARTIES HEREBY IRREVOCABLY WAIVE, AND AGREE TO CAUSE THEIR RESPECTIVE AFFILIATES TO WAIVE, THE RIGHT TO TRIAL BY JURY IN SUCH ACTIONS.

(d)The Parties agree that irreparable damage may occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties may

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be entitled to a temporary injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any court specified in Section 13.10(c) or an arbitral tribunal specified in Section 13.10(b), or to a permanent injunction in addition to any other remedy to which they are entitled at law or in equity.

Section 13.11Expenses.

Except as otherwise provided in this Agreement, each Party hereto shall pay its own expenses and costs incidental to the preparation of this Agreement and to the consummation of the transactions contemplated hereby, except that [***].

Section 13.12Counterparts.

This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

Section 13.13Schedules, Exhibits and Other Agreements.

The Exhibits, Schedules, other agreements, certificates and notices specifically referred to herein, and delivered pursuant hereto, are an integral part of this Agreement. Any disclosure that is made in any of the Schedules or certificates delivered pursuant to any section or subsection of this Agreement shall be deemed to have been disclosed with respect to any other section or subsection of this Agreement to which the matter relates, only to the extent that it is reasonably apparent on its face that the description of such matter in the Schedule or certificate is relevant to the pertinent section.

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IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto as of the date first above written.

Zogenix, Inc.

By:    /s/ Roger L. Hawley        Name: Roger L. Hawley    Title: Chief Executive Officer

Endo Ventures Bermuda Limited

By:    /s/ Susan T. Hall        Name: Susan T. Hall     Title: Director

Endo Ventures Limited

By:    /s/ Blaine T. Davis        Name: Blaine T. Davis    Title: President

[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]

Exhibit A

DEFINITIONS

“AAA” has the meaning set forth in Section 13.10(b).

“Action or Proceeding” means any action, suit, proceeding, arbitration, Order, hearing, assessment with respect to fines or penalties or litigation (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before any Governmental or Regulatory Authority.

“Adverse Effect” means an event, fact, occurrence, change, effect or condition that individually or in the aggregate is, or would reasonably be expected to be, materially adverse to the Product Inventory, the Purchased Assets, the Assumed Liabilities or the Registered Intellectual Property, individually or taken as a whole, or the business, results of operations, or financial condition of the Business, individually or taken as a whole, or the ability of Seller to consummate the transactions contemplated by this Agreement.

“Affiliate” means, with respect to any Person, any other Person which controls, is controlled by or is under common control with such Person. A Person shall be regarded as in control of another Person if it owns or controls, directly or indirectly, (i) in the case of corporate entities at least fifty percent (50%) (or the maximum ownership interest permitted by law) of the equity securities in the subject entity entitled to vote in the election of directors and, (ii) in the case of an entity that is not a corporation, at least fifty percent (50%) (or the maximum ownership interest permitted by law) of the equity securities or other ownership interests with the power to direct the management and policies of such subject entity or entitled to elect the corresponding management authority, or such other relationship as, in fact, constitutes actual control.

“Agreement” has the meaning set forth in the Preamble hereto.

“Aradigm” means Aradigm Corporation (or its permitted successors under the Aradigm Agreement).

“Aradigm Agreement” means that certain Asset Purchase Agreement dated as of August 25, 2006 between Seller and Aradigm (as amended from time to time pursuant to its terms).

“Aradigm Royalty Obligation” means the obligations of Seller to Aradigm with respect to the Product under (a) Section 2.06(a)(i)(2) of the Aradigm Agreement to pay to

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Aradigm a royalty of [***] (as defined therein), and (b) Sections 2.06(a)(ii), (iii), (v), (vi), (vii) and (viii).

“Arbitrators” has the meaning set forth in Section 13.10(b).

“Assets and Properties” of any Person means all assets and properties of any kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including cash, cash equivalents, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, regulatory approvals, equipment, inventory, goods and intellectual property.

“Assignment and Assumption Agreement” has the meaning set forth in Section 5.02(a)(v).

“Assumed Contract” means the Contracts or portions of the Contracts identified in Section 6.06(a) of the Seller Disclosure Schedule as such.

“Assumed Liabilities” means the following except, in all cases, for those Liabilities arising from or relating to the conduct of the Business or from any activities relating to the manufacture, production, processing, finishing, packaging, labeling, shipping and holding of the Product prior to the Closing:

(i)    all accounts payable incurred by or on behalf of Buyers or their Affiliates with respect to the Business after the Closing;

(ii)    any and all Liabilities and obligations of Seller or any of its Affiliates under the Assumed Contracts to be performed after the Closing, except to the extent such liabilities and obligations, but for a breach or default by Seller, would have been paid, performed or otherwise discharged on or prior to the Closing or to the extent the same arise out of any such breach or default;

(iii)    any and all state and federal Medicaid/Medicare rebates on sales of the Product made by or on behalf of Buyers or their Affiliates after the Closing;

(iv)    any and all credits, chargeback rebates, utilization based rebates, reimbursements and similar payments to wholesalers and other distributors, buying groups and other institutions on sales of the Product made by or on behalf of Buyers or their Affiliates after the Closing;

(v)    any and all Liabilities and obligations arising out of or resulting from

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product liability claims caused by the Product sold by or on behalf of Buyers or their Affiliates after the Closing;

(vi)    except as otherwise provided herein or in the other Transaction Documents, any and all other Liabilities and obligations that arise out of or are related to the Product Inventory, the Purchased Assets (including the Regulatory Approvals), the Business or the Product, attributable to occurrences and circumstances arising after the Closing; and

(viii)    the Aradigm Royalty Obligation.

“Bill of Sale” has the meaning set forth in Section 5.02(a)(vi).

“Books and Records” means all files, documents, instruments, papers, books and records owned by Seller or an Affiliate of Seller relating exclusively to the Business, including any pricing lists, customer lists, vendor lists, financial data and all documentation relating to the Registered Intellectual Property.

“Business” means the activities of developing, commercializing, manufacturing (or having manufactured), marketing, selling and distributing the Product, as conducted by Seller and its Affiliates (or by any Third Party on behalf of Seller and its Affiliates) as of the date hereof.

“Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of California are authorized or obligated to close.

“Buyers” has the meaning set forth in the Preamble to this Agreement.

“Buyer Fundamental Representations” has the meaning set forth in Section 11.01.

“Buyer Governmental Consents” means all consents, waivers, approvals, Orders, authorizations of, declarations or filings with any Governmental or Regulatory Authority that are required by, or with respect to, Buyers or any of their Affiliates in connection with the execution and delivery of this Agreement and the other Transaction Documents to be executed pursuant hereto by Buyers, the consummation by Buyers or any of their Affiliates of the transactions contemplated hereby and thereby and the performance of its obligations hereunder and thereunder. The Buyer Governmental Consents are set forth on Exhibit K hereto.

“Buyer Indemnified Parties” has the meaning set forth in Section 11.02(a).

“Buyer Labeling” means the printed labels, labeling and packaging materials, including printed carton, container labels and package inserts, used by Buyers or their Affiliates

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and bearing the name of a Buyer (or any of their Affiliates) for the Product.

“Buyer Representatives” has the meaning set forth in Section 8.03(c).

“Buyer Third Party Consents” means all consents, waivers, approvals, authorizations of, or notices to, any Person (other than a Governmental or Regulatory Authority) that are required by, or with respect to, Buyers or any of their Affiliates in connection with the execution and delivery of this Agreement and the other Transaction Documents to be executed pursuant hereto by Buyers, the consummation by Buyers or any of their Affiliates of the transactions contemplated hereby and thereby and the performance of its obligations hereunder and thereunder. Buyer Third Party Consents are set forth on Exhibit L hereto.

“Cap” has the meaning set forth in Section 11.03.

“cGMP” means current Good Manufacturing Practice as mandated by applicable Governmental or Regulatory Authorities or under applicable Laws.

“Closing” has the meaning set forth in Section 5.01.

“Closing Date” means the date that the Closing actually occurs as provided in Section 5.01.

“Closing Payment” has the meaning set forth in Section 4.01(a).

“Commercial Agreement” has the meaning set forth in Section 5.02(a)(xi).

“Confidential Information” has the meaning set forth in Section 13.01(b).

“Confidentiality Agreement” has the meaning set forth in Section 12.02(b).

“Contract” means any and all commitments, contracts, purchase orders, leases, or other agreements, whether written or oral, related to the Product (together with any amendments or supplements to any of the foregoing).

“Corporate Names” has the meaning set forth in Section 8.06(a).

“Damages” has the meaning set forth in Section 11.02(a).

“Data Protection Laws” means all applicable Laws in connection with privacy and the processing, collection, use and protection of personal data in any jurisdiction.

“Dispute Notice” has the meaning set forth in Section 4.01(f).

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“DMF” means a Drug Master File, as defined in the 21 C.F.R., Section 314.420, which DMF contains the chemistry, manufacturing, and controls section of the NDA or other Regulatory Approval, as may be amended from time to time.

“Encumbrance” means any mortgage, pledge, assessment, security interest, deed of trust, lease, lien, adverse claim, levy, charge or other encumbrance, restriction, limitation or Third Party right of any kind, or any conditional sale or title retention agreement or other agreement to give any of the foregoing in the future.

“Escrow Account” means the fund into which and from which, as applicable, the Escrow Fund is to be deposited and distributed, pursuant to this Agreement and the Escrow Agreement.

“Escrow Agent” means a nationally recognized bank mutually agreeable to Buyers and Seller.

“Escrow Agreement” has the meaning set forth in Section 5.02(a)(x).

“Escrow Fee” means the fee owed to the Escrow Agent due on the Closing Date and to be paid [***].

“Escrow Fund” has the meaning set forth in Section 4.01(b).

“Escrow Period” has the meaning set forth in Section 4.05.

“Excluded Assets” means all Assets and Properties of Seller and its Affiliates except the Purchased Assets and the Product Inventory. The Excluded Assets shall include the Manufacturing Data, the Intellectual Property (other than the Registered Intellectual Property), income Tax Returns, any cash, short-term investments or other cash equivalents, and any prepaid expenses or rights to receive refunds of Seller or any of its Affiliates.

“Excluded Liabilities” means (i) any and all Liabilities and obligations of Seller or any of its Affiliates, whether or not relating to or arising from the Product Inventory, the Purchased Assets or any rights transferred to Buyers pursuant to the provisions hereof, not expressly assumed by Buyers pursuant to the Assumption Agreement, (ii) any and all consumer product Liabilities unrelated to the Product, the Product Inventory, the Business or the Purchased Assets, and all consumer product Liabilities including those related to the manufacture, production, processing, finishing, packaging, labeling, shipping and holding of the Product prior to the Closing or for Product used after the Closing that was sold by Seller or its Affiliates prior to the Closing, (iii) any and all Liabilities and obligations with respect to any Taxes of Seller or

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any of its Affiliates for any taxable period and with respect to any of the Purchased Assets or the Business for all taxable periods or portions thereof ending on or prior to the Closing Date, (iv) any and all Liabilities and obligations in respect of any Excluded Assets, and (v) any and all Liabilities and obligations of Seller or any of its Affiliates which arise out of or are related to the conduct of the Business or from any activities relating to the manufacture, production, processing, finishing, packaging, labeling, shipping and holding of the Product prior to the Closing.

“FDA” has the meaning set forth in Section 6.10(b).

“FDCA” has the meaning set forth in Section 6.10(e).

“Final Report” has the meaning set forth in Section 4.01(f).

“Financial Information” has the meaning set forth in Section 6.14.

“Financing Documents” means the Financing Agreement, dated June 30, 2011, between Seller and Cowen Healthcare Royalty Partners II, LP, as well as all ancillary transaction documents associated therewith.

“Foreign Authorities” has the meaning set forth in Section 6.10(b).

“GAAP” means generally accepted accounting principles in the United States, consistently applied.

“Governmental or Regulatory Authority” means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States or other country, or any supra-national organization, state, county, city or other political subdivision thereof.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“IFRS” means the International Financial Reporting Standards.

“Indemnification Claim Notice” has the meaning set forth in Section 11.02(c).

“Indemnified Party” has the meaning set forth in Section 11.02(c).

“Indemnifying Party” has the meaning set forth in Section 11.02(c).

“Indemnitee” and “Indemnitees” have the respective meanings set forth in Section

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11.02(c).

“Independent Accounting Firm” has the meaning set forth in Section 4.01(f).

“Intellectual Property” means any and all of the following intellectual property rights owned by or licensed to Seller and its Affiliates and used in connection with or necessary to conduct the Business: (i) the Patents licensed to Seller pursuant to the License Agreement; (ii) the Know-how licensed to Seller pursuant to the License Agreement; (iii) copyrights, copyright registrations and applications therefor; and (iv) the Registered Intellectual Property.

“Intellectual Property Rights” means all Intellectual Property and industrial property rights and rights in confidential information of every kind and description throughout the world, including all U.S. and foreign (i) Patents, (ii) trademarks, service marks, names, corporate names, trade names, domain names, logos, slogans, trade dress, design rights, and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing, (iii) copyrights and copyrightable subject matter, (iv) rights in computer programs (whether in source code, object code, or other form), algorithms, databases, compilations and data, technology supporting the foregoing, and all documentation, including user manuals and training materials, related to any of the foregoing, (v) Know-how, (vi) rights of publicity, privacy, and rights to personal information, (vii) moral rights and rights of attribution and integrity, (viii) all rights in the foregoing and in other similar intangible assets, (ix) all applications and registrations for the foregoing and (x) all rights and remedies against past, present, and future infringement, misappropriation, or other violation thereof.

“Know-how” means the following information owned or licensed by Seller and its Affiliates: all of the manufacturing technology and know-how that is exclusively used in manufacturing or necessary to manufacture the Product, including, but not limited to, the manufacturing process approved in the applicable NDAs and amendments and supplements thereto, specifications and test methods, raw material, packaging, stability and other applicable specifications, manufacturing and packaging instructions, master formula, validation reports (process, analytical, methods and cleaning) to the extent available, stability data, analytical methods, records of complaints, annual product reviews to the extent available and other master documents necessary for the manufacture, control and release of the Product as conducted by, or on behalf of, Seller or any of its Affiliates.

“Knowledge” with respect to Seller, means the actual knowledge, after due inquiry, of the individuals set forth on Exhibit M and, with respect to Buyers, means the actual knowledge, after due inquiry, of the individuals set forth on Exhibit N.

“Law” means any federal, state or local law, statute or ordinance, or any rule,

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regulation, requirement, decree, code or published guidelines promulgated by any Governmental or Regulatory Authority.

“Liability” means any liability (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, and due or to become due).

“License Agreement” has the meaning set forth in Section 5.02(a)(ii).

“Manufacturing Data” means any manufacturing information and data and all submissions and correspondence with or to any Governmental or Regulatory Authority regarding the manufacture of the Product, including all such information and data set forth in [***].

“Marketing Materials” means all market research, marketing plans, media plans, advertising, sales training materials, promotional and marketing books and records owned by Seller or any its Affiliates and used or necessary in connection with the marketing and promotion of the Product, and any and all Intellectual Property Rights therein, other than any such items to the extent that (i) any applicable Law prohibits its transfer or (ii) any transfer thereof by Seller or any of its Affiliates would constitute a material contractual violation.

“Materials” shall mean the components and materials used in the manufacture of the Product, including raw materials (active and inert), API, and subassemblies (e.g., actuator and capsule) includingpackaging and labeling materials used to produce finished goods.

“NDA” means that certain New Drug Application 022-239, as amended and supplemented from time to time.

“Net Sales” means, with respect to an applicable period, the gross amount invoiced by Buyers, and/or their Affiliates and sublicensees for sale or other commercial disposition of the Product (in final, finished presentation for use by an end-user) to an unrelated Third Party in an arms’-length transaction, minus the following allowances and other deductions which are actually incurred, allowed, accrued or specifically allocated in their normal and customary amounts: [***] For clarity, Net Sales shall be determined in accordance with GAAP or IFRS, as applicable, and a sale or transfer by Buyers to their Affiliates and/or sublicensees for resale by such Affiliate and/or sublicensee shall not be considered a sale for the purpose of this provision but the resale by such Affiliate and/or sublicensee to a Third Party shall be a sale for such purposes.

“New York Courts” has the meaning set forth in Section 13.10(c).

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“Order” means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

“Ordinary Course of Business” means such action that is in the ordinary course of business consistent with the past practices of the Business.

“Outside Date” has the meaning set forth in Section 12.01(b).

“Parties” means Buyer 1, Buyer 2 and Seller.

“Party” means Buyer 1 and Buyer 2, on the one hand, and Seller, on the other hand.

“Patents” means any patents, patent applications, provisional patent applications and similar instruments (including any and all substitutions, divisions, continuations, continuations-in-part, reissues, renewals, extensions, reexaminations, patents of addition, supplementary protection certificates, inventors’ certificates, pediatric data package exclusivity extensions, divisions, re-filings, continuations and continuations-in-part thereof, or the like) as well as any foreign equivalents thereof (including certificates of invention and any applications therefor).

“Permits” has the meaning set forth in Section 6.10(a).

“Permitted Encumbrance” means (a) Encumbrances for Taxes or assessments which are not yet due or delinquent or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established, (b) Encumbrances with respect to an NDA, any restrictions, obligations or limitations contained in such NDA or (c) other Encumbrances not securing indebtedness or guarantees of indebtedness that does not or would not reasonably be expected to materially detract from the current value, or materially interfere with the present use, of any Purchased Asset subject thereto in the Ordinary Course of Business.

“Person” means any natural person, corporation, general partnership, limited partnership, limited liability company, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority.

“Platform” means [***].

“Product” means the finished pharmaceutical product set forth in the Regulatory Approvals, known as Sumavel® DosePro®.

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“Product Data” means all toxicology, pre-clinical and clinical information and data, and all submissions and correspondence with or to any Governmental or Regulatory Authority regarding the Product, but only to the extent the foregoing may be in Seller’s or any of Seller’s Affiliates’ possession or control, and any and all Intellectual Property Rights therein; provided, however, Product Data shall not include any Manufacturing Data.

“Product Cost-of-Goods” means, [***].

“Product Cost-of-Goods Improvement” means the improvement of Product Cost-of-Goods on a Unit basis, calculated for a calendar year pursuant to Section 4.01(f), by [***] when compared to the Standard COGS (as adjusted, if applicable).

“Product Cost-of Goods Improvement Notice” has the meaning set forth in Section 4.01(f).

“Product Cost-of-Goods Improvement Payment” has the meaning set forth in Section 4.01(f).

“Product Inventory” means all inventory owned as of the Closing by Seller or any Affiliate thereof of finished Product that has a remaining shelf life of at least [***], whether held at a location or facility of Seller or any Affiliate (or of any other Person on behalf of Seller or any Affiliate, including in any of Seller’s warehouses, manufacturers, suppliers, distributors or consignees) or in transit to or from Seller or any Affiliate (or any such other Person).

“Purchase Price” means the consideration set forth in Section 4.01.

“Purchased Assets” means, subject to Section 2.03: (i) the Registered Intellectual Property; (ii) the Assumed Contracts; (iii) the Regulatory Approvals; (iv) the Books and Records; (v) the Marketing Materials and (vi) the Product Data.

“Registered Intellectual Property” means: (i) the registered trademarks and applications to register trademarks identified in Section 6.07(a) of the Seller Disclosure Schedule; and (ii) the internet domain names and registrations therefor identified in Section 6.07(a) of the Seller Disclosure Schedule.

“Regulatory Approvals” means the NDA and comparable filings for marketing approval of the Product made by Seller with foreign Governmental or Regulatory Authorities, identified in Section 6.10(a)(ii) of the Seller Disclosure Schedule, and all amendments and supplements thereto. For clarity, Regulatory Approvals shall not include the DMF.

“Resolution Period” has the meaning set forth in Section 4.01(f).

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“Seller” has the meaning set forth in the Preamble to this Agreement.

“Seller Disclosure Schedule” means the disclosure schedule supplied by Seller to Buyers and dated as of the date hereof.

“Seller Fundamental Representations” has the meaning set forth in Section 11.01.

“Seller Governmental Consent” means all consents, waivers, approvals, Orders and authorizations of, and declarations or filings with, any Governmental or Regulatory Authority that are required by, or with respect to, Seller or any of its Affiliates in connection with the execution and delivery of this Agreement and the other Transaction Documents to be executed pursuant hereto by Seller, the consummation by Seller or any of its Affiliates of the transactions contemplated hereby and thereby and the performance of its obligations hereunder and thereunder. Seller Governmental Consents are set forth on Exhibit O hereto.

“Seller Indemnified Parties” has the meaning set forth in Section 11.02(b).

“Seller Third Party Consent” means all consents, waivers, approvals or authorizations of, or notices to, any Person (other than a Governmental or Regulatory Authority) that are required by, or with respect to, Seller or any of its Affiliates in connection with the execution and delivery of this Agreement and the other Transaction Documents to be executed pursuant hereto by Seller, the consummation by Seller or any of its Affiliates of the transactions contemplated hereby and thereby and the performance of its obligations hereunder and thereunder. Seller Third Party Consents are set forth on Exhibit P hereto.

“Supply Agreement” has the meaning set forth in Section 5.02(a)(iii).

“Survival Period” has the meaning set forth in Section 11.01.

“Tax” means all taxes of any kind, and all charges, fees, customs, levies, duties, imposts, required deposits or other assessments, including all federal, state, local or foreign net income, capital gains, gross income, gross receipt, property, franchise, sales, use, excise, withholding, payroll, employment, social security, worker’s compensation, unemployment, occupation, capital stock, transfer, gains, windfall profits, net worth, asset, transaction and other taxes, and any interest, penalties or additions to tax with respect thereto, in each case, imposed upon any Person by any Taxing Authority under applicable Law.

“Tax Return” means any report, return, election, notice, estimate, declaration, claim for refund, information return or statement and other forms and documents (including all schedules, exhibits and other attachments thereto) filed, or required to be filed with any Taxing

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Authority, in connection with the calculation, determination, assessment or collection of any Tax and includes any amendment of any of the foregoing.

“Taxing Authority” means any Governmental or Regulatory Authority having jurisdiction over the assessment, determination, collection or imposition of any Tax. For clarity, Taxing Authority shall not include the FDA or any Foreign Authorities.

“Third Party” means any Person who or which is neither a Party nor an Affiliate of a Party.

“Third Party Claim” has the meaning set forth in Section 11.02(d).

“Trademark Assignment” has the meaning set forth in Section 5.02(a)(iv).

“Trailing Net Sales” means Net Sales, measured during a trailing [***].

“Transfer Taxes” has the meaning set forth in Section 4.03(a).

“Transaction Documents” means this Agreement, the License Agreement, the Supply Agreement, the Assignment and Assumption Agreement, the Bill of Sale, the Transition Services Agreement, the Escrow Agreement, the Commercial Agreement and the Trademark Assignment.

“Transition Services Agreement” has the meaning set forth in Section 5.02(a)(i).

“Unit” means a single dose of Product.

“Units Produced” means individual Units produced.

“Units Sold” means individual Units sold to any Third Party.

“Unresolved Disputes” has the meaning set forth in Section 4.01(f).

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ExhibitB

INTENTIONALLY OMITTED

B-1

Exhibit C

FORM OF TRANSITION SERVICES AGREEMENT

C-1

Exhibit D

FORM OF LICENSE AGREEMENT

D-1

Exhibit E

FORM OF SUPPLY AGREEMENT

E-1

Exhibit F

FORM OF TRADEMARK ASSIGNMENT

F-1

Exhibit G

FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT

G-1

Exhibit H

FORM OF BILL OF SALE

H-1

Exhibit I

FORM OF ESCROW AGREEMENT

I-1

Exhibit J

FORM OF COMMERCIAL AGREEMENT

J-1

Exhibit K

BUYER GOVERNMENTAL CONSENTS

Expiration of the applicable waiting period following submission of the Notification and Report Form required to be filed under the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder, and any supplemental submissions requested or required pursuant thereto.

K-1

Exhibit L

BUYER THIRD PARTY CONSENTS

None

L-1

Exhibit M

SELLER KNOWLEDGE PARTIES

[***]

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M-1

Exhibit N

BUYER KNOWLEDGE PARTIES

[***]

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N-1

Exhibit O

SELLER GOVERNMENTAL CONSENTS

Expiration of the applicable waiting period following submission of the Notification and Report Form required to be filed under the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder, and any supplemental submissions requested or required pursuant thereto.

O-1

Exhibit P

SELLER THIRD PARTY CONSENTS

Reference is made to the Financing Documents.

P-1

1386347.04-NYCSR10A - MSW

EX-10.1

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

LICENSE AGREEMENT

by and between

Zogenix, Inc.

and

Endo Ventures Bermuda Limited

dated as of May 16, 2014

LICENSE AGREEMENT

This License Agreement (this “Agreement”), effective as of the Closing (“Effective Date”), is entered into by and between Zogenix, Inc., a Delaware corporation (“Zogenix”), and Endo Ventures Bermuda Limited, a Bermuda company (“Endo”).

PRELIMINARY STATEMENTS

A.    Zogenix and Endo have entered into an Asset Purchase Agreement, dated as of April 23, 2014 pursuant to which Endo will purchase from Zogenix the Purchased Assets (the “Purchase Agreement”), pursuant to the terms and conditions set forth therein;

B.    Zogenix and Endo have entered into a Supply Agreement, dated as of the Effective Date, pursuant to which Zogenix shall supply, and Endo shall purchase, Endo’s, it Affiliates’ and permitted sublicensees’ requirements of Product (the “Supply Agreement”), pursuant to the terms and conditions set forth therein; and

C.    In connection with its purchase of the Purchased Assets, Endo desires to exclusively license the Zogenix Patents and Zogenix Know-How for the continued development, manufacture and Commercialization of the Product throughout the world, and Zogenix desires to grant such license, pursuant to the terms and conditions set forth herein.

AGREEMENT

NOW THEREFORE, in consideration of the mutual covenants and agreements provided herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

1.     DEFINITIONS.

As used in this Agreement, capitalized terms shall have the meanings as set forth in this Section 1, or if not otherwise defined herein, then as set forth in the Purchase Agreement:

1.1     “Clinical Trial” means an investigation in human subjects and/or patients intended to discover or verify the clinical, pharmacological and/or other pharmacokinetic or pharmacodynamic effects of a Product, and/or to identify any adverse reactions to a Product, and/or to study absorption, distribution, metabolism, and/or excretion of a Product with the objective of dose ranging or otherwise ascertaining its safety, activity and/or efficacy.

1.2    “Closing” has the meaning set forth for such term in the Purchase Agreement.

1.3    “Commercialization” or “Commercialize” means the ongoing process and activities generally engaged in by a pharmaceutical company marketing human pharmaceutical

therapeutic products to establish and maintain a presence for such product in a given territory, including offering for sale, selling, marketing, promoting, distributing, having distributed, importing, having imported, exporting and having exported such product.

1.4    “Commercially Reasonable Efforts” with respect to any activity means the efforts and resources that would be used in the performance of the relevant activity in compliance with applicable Law by [***] with regard to a product at a similar stage in its product life taking into account the following factors to the extent reasonable and relevant: issues of safety and efficacy, product profile, market potential, competitive market conditions, duration of exclusivity or other proprietary position of the product and the potential profitability and economic return of the product, all as measured by the facts and circumstances at the time such efforts are due. Where this Agreement requires a Party to use Commercially Reasonable Efforts, such efforts and resources that are used by such Party’s Affiliates, agents, sublicensees and licensees, as relevant, shall also be attributed to such Party.

1.5    “Competitive Product” means [***].

1.6    “Control”or “Controlled” means possession of the right to grant to the other Party a license, sublicense or other right to use, of the scope provided for in this Agreement, to Intellectual Property Rights (including Patents, Know-How, trade secrets), data and rights to access or cross-reference regulatory filings without violating the terms of any applicable Law, agreement with any Third Party existing at the time a Party or its Affiliate would be first required hereunder to grant the other Party such license, sublicense or other right.

1.7    “Cost” means all internal and external costs, expenses, cost of labor and materials associated with an activity.

1.8    “Exploit” means research, develop, and Commercialize.

1.9    “Intellectual Property Rights” means Patents, copyrights, trade secrets, database rights, proprietary know-how and similar rights of any type (excluding trademarks) under any common law or statute, including all applications, registrations, extensions and renewals relating to any of the foregoing.

1.10    “Know-How” means all technical information and other technical subject matter, proprietary methods, ideas, concepts, formulations, discoveries, inventions, devices, prototypes, technology, trade secrets, compositions, designs, formulae, data (including clinical, Non-Clinical and Preclinical data), know-how, show-how, specifications, drawings, techniques, results, processes, methods, procedures and/or designs, whether or not patentable.

1.11    “Licensed Trademarks” means the trademarks, service marks and trade names listed on Schedule 1.11.

1.12    “Non-Clinical,” when used with respect to studies or data, means safety,

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toxicology and other studies undertaken in non-human animals in support of Clinical Trials or otherwise in support of Regulatory Approval, or data generated therefrom.

1.13    “Party” means Zogenix or Endo and, when used in the plural, shall mean Zogenix and Endo.

1.14    “Patent” and “Patents” mean U.S. and foreign issued patents and patent applications, including any and all provisionals, continuations, divisionals, continuation-in-part applications, substitutions, reissues, renewals, re-examinations, supplementary protection certificates, patent term extensions, adjustments or restoration rights, registrations, confirmations, successor protective rights or subsequently issued protective rights of similar nature of any of the above.

1.15    “Preclinical” when used with respect to studies or data, means preliminary pharmacological studies of a Product undertaken in non-human animals, but not necessarily for purposes of submission in support of Regulatory Approval, or data generated therefrom.

1.16    “Product” means (i) the pharmaceutical product set forth in the Regulatory Approval as of the Closing, known as Sumavel® DosePro®  [***] and (ii) any other pharmaceutical product which contains sumatriptan (or its pharmaceutically acceptable salts) as the sole active ingredient [***].

1.17     “Territory” means all countries of the world.

1.18    “Third Party” means any Person who or which is neither a Party nor an Affiliate of a Party.

1.19    “Zogenix Patents” means those Patents in the Territory Controlled by Zogenix or any of its Affiliates listed on Schedule 1.19.

1.20    “Zogenix Know-How” means any and all Know-How Controlled by Zogenix or any of its Affiliates as of the Effective Date and at any time during the Term, to the extent relevant to the manufacture, use or sale of the Product.

1.21    “Zogenix Technology” means the Zogenix Patents and the Zogenix Know-How.

1.22    Other Definitions.

Each of the following terms is defined in the Section set forth opposite such term below:

“AAA” – Section 7.11(b)

“Accelerated Arbitration Provisions” – Section 7.11(b)

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“Agreement” – Preamble

“Confidential Information” – Section 4.2

“Designated Executives” – Section 2.6(a)

“Dispute” – Section 7.11(b)

“Effective Date” – Preamble

“Endo” – Preamble

“Expedited Rules” – Section 7.11(b)

“Manufacturing License” – Section 2.2

“Orange Book” – Section 3.2(d)

“Patent Litigation Losses”– Section 3.6(c)

“Supply Agreement” – Preamble

“Term” – Section 6.1

“Third Party License Fees” – Section 3.6(f)

“Zogenix” – Preamble

1.23    Interpretation.

(a)    Whenever any provision of this Agreement uses the term “including” (or “includes”), such term shall be deemed to mean “including without limitation” and “including but not limited to” (or “includes without limitation” and “includes but is not limited to”) regardless of whether the words “without limitation” or “but not limited to” actually follow the term “including” (or “includes”);

(b)    All definitions set forth herein shall be deemed applicable whether the words defined are used herein in the singular or the plural;

(c)    Wherever used herein, any pronoun or pronouns shall be deemed to include both the singular and plural and to cover all genders;

(d)    The recitals set forth at the start of this Agreement, along with the Exhibits and Schedules to this Agreement, and the terms and conditions incorporated in such recital,

4

Exhibits and Schedules shall be deemed integral parts of this Agreement and all references in this Agreement to this Agreement shall encompass such recitals, Exhibits and Schedules and the terms and conditions incorporated in such recitals, Exhibits and Schedules, provided, that in the event of any conflict between the terms and conditions of this Agreement and any terms and conditions set forth in the Exhibits and Schedules, the terms of this Agreement shall control;

(e)    The Agreement shall be construed as if both Parties drafted it jointly, and shall not be construed against either Party as principal drafter;

(f)    Unless otherwise provided, all references to Sections and Schedules in this Agreement are to Sections and Schedules of and to this Agreement;

(g)    Any requirements of notice or notification by one Party to another shall be construed to mean written notice in accordance with Section 7.4; and

(h)    Wherever used, the word “shall” and the word “will” are each understood to be imperative or mandatory in nature and are interchangeable with one another.

2.     GRANT OF RIGHTS.

2.1    Product Technology Rights Granted to Endo. On the terms and subject to the conditions of this Agreement, Zogenix hereby grants to Endo the exclusive (even as to Zogenix and its Affiliates), perpetual and irrevocable (unless this Agreement or the licenses granted under this Section 2.1 terminate pursuant to Section 6), sublicenseable (as set forth in Section 2.3 below), fully paid-up, royalty-free right and license to make and have made (subject to Section 2.2), use, and Exploit the Product in the Territory under the Zogenix Know-How and the Zogenix Patents.

2.2    Limitations on Manufacturing License. The right and license granted to Endo pursuant to Section 2.1 to make and have made the Product (the “Manufacturing License”) shall be subject to the following limitations:

(a)    At any time after the Effective Date, Endo shall be permitted to qualify and enter into a back-up manufacturing agreement with (i) an alternative supplier which has already been qualified by Zogenix or one of Zogenix’ other customers with respect to DosePro or (ii) if there is no such prequalified supplier which is both made known to Endo and able to supply the Product to Endo on commercially reasonable terms, itself or with an alternative supplier otherwise reasonably acceptable to Zogenix [***]. If required by the alternative supplier to be maintained as a back-up supplier, Endo shall have the right to purchase a reasonable number of minimum Batches of Product from such alternative supplier per year, provided that in no event shall such amount exceed [***] ([***]) of the total amount purchased by Endo from Zogenix unless and until there has between a Significant Supply Failure as defined in the Supply Agreement. Endo shall have the right and license to setup such back-manufacturing arrangements (including the right to sublicense the Zogenix Technology with

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respect thereto) and to make or have made the foregoing quantities of Product. Notwithstanding the foregoing, [***].

(b)    Following a Significant Supply Failure, subject to the terms and conditions of the Supply Agreement, Endo may exercise the Manufacturing License, itself or through one or more Third Parties, to make or have made [***] of Endo’s, its Affiliates’ and permitted sublicensees’ Product requirements.

2.3    Sublicense Rights. Endo shall have the right, without Zogenix’s prior consent, to delegate rights and obligations hereunder to an Affiliate and to appoint Affiliates to develop, manufacture or Commercialize the Product in the Territory. Furthermore, Endo shall have the right to appoint any Third Party sublicensee(s) or designee(s) to Exploit or manufacture the Product in the Territory alone or in combination with Endo or its Affiliates and/or to sublicense the rights granted to it under Section 2.1 (subject to the limitations set forth in Section 2.2) and under Section 2.5; provided that in the event of any sublicense or delegation of rights by Endo hereunder, (i) such sublicense or delegation shall be subject to the terms and conditions of this Agreement that, by their terms, are applicable to the Product and to the activities under such sublicense or delegation, (ii) such Third Party sublicensee(s) or designee(s) shall be subject to the same obligations as are applicable to Endo with respect to the activities sublicensed or delegated as to such sublicensee’s territory and field, and (iii) Endo shall ensure that each sublicense agreement contains terms to implement such obligations. Notwithstanding the foregoing, the sublicense or delegation by Endo hereunder shall not relieve Endo of its obligations under this Agreement.

2.4    Section 365(n) of the Bankruptcy Code. All rights and licenses granted under or pursuant to this Agreement, including amendments hereto, by Zogenix to Endo are, for all purposes of 11 U.S.C. Section 365(n), licenses of rights to intellectual property as defined in Title 11. Endo may elect to retain and may fully exercise all of its rights and elections under 11 U.S.C. Section 365(n).

2.5    Trademarks; Logos.

(a)    Licensed Trademarks. On the terms and subject to the conditions of this Agreement, Zogenix hereby grants to Endo a perpetual and irrevocable (unless this Agreement or the licenses granted under Section 2.1 terminate pursuant to Section 6), sublicenseable, fully paid-up, royalty-free right to use the Licensed Trademarks in all mediums and channels of trade now known or hereinafter invented (including the Internet) in connection with the Commercialization of the Product in the Territory. The foregoing right shall include, but not be limited to, the right to use the Licensed Trademarks (a) as or as part of the Product trade name and (b) in one or more domain names registered by Endo and/or one or more of its Affiliates used in the Commercialization of the Product in the Territory. The rights granted to Endo under this Section 2.5(a) may only be sublicensed or delegated in connection with the sublicense or delegation of the rights granted to Endo under Section 2.1.

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(b)    Endo shall use Commercially Reasonable Efforts to utilize the Licensed Trademarks in connection with the Commercialization of the Products in each country in the Territory unless (i) restricted from doing so by the applicable Governmental or Regulatory Authority in such country or (ii) Endo determines in good-faith that the use thereof in such country may violate the Intellectual Property Rights of a Third Party. Endo agrees that the nature and quality of all goods and services sold by Endo in connection with the Licensed Trademarks, and all related advertising, promotional and other use of the Licensed Trademarks made by Endo, shall conform to the standards reasonably set by Zogenix, as communicated from time to time to Endo with sufficient prior written notice. In this regard, Endo agrees to supply Zogenix with specimens of uses of the Licensed Trademarks upon [***].

(c)    Endo shall ensure that Licensed Trademarks (i) are used in a manner sufficient to constitute trademark usage under applicable Law, (ii) are clearly identified as a trademark under applicable Law (e.g., through the use of a “®”, “™” or other appropriate identifier as may conform to applicable local Law) and (iii) are not used as combination marks with other marks or trademarks without the prior written consent of Zogenix, not to be unreasonably withheld, conditioned or delayed. Any and all use by Endo, its Affiliates and sublicensees of the Licensed Trademarks and any goodwill arising therefrom shall inure to the sole benefit of Zogenix and its Affiliates.

(d)    Reference to Zogenix as Licensor. To the extent permitted by applicable Law, Endo shall use Commercially Reasonable Efforts to ensure that the labels and packaging of all Product to be marketed, distributed or sold in any jurisdiction include text identifying Zogenix as the licensor of the Zogenix Technology and the Licensed Trademarks to be placed in a size and location reasonably agreed to by the Parties. Furthermore, Product labels and packaging shall bear appropriate patent markings and notices as may be applicable, and are acceptable to all applicable Governmental or Regulatory Authorities.

2.6    Ongoing Development by Endo.

(a)    Endo will provide to Zogenix for [***]. Zogenix shall [***] following Zogenix’s receipt of such [***] from Endo and Endo shall [***]; providedthat Endo shall have the sole discretion and authority to make all decisions with respect to final protocols and all other matters relating to development of the Product other than as set forth in Section 8.08(b) of the Purchase Agreement; provided, however, if Zogenix determines reasonably and in good faith that such decision over which Endo has discretion and authority under this Section 2.06(a) is reasonably likely to have a material and adverse impact on the Zogenix Technology, the matter shall be referred promptly to the designated executive officers (“Designated Executives”) of Zogenix and Endo who shall confer as soon as practicable, but no later than [***] after such referral, to attempt in good faith acting reasonably to resolve the dispute. If the dispute related to the matter is not resolved by the Designated Executives by mutual agreement within [***] after a conference to discuss the dispute, then such matter shall be resolved in accordance with Section 8.11(b). Endo shall promptly provide Zogenix with a copy of all final reports and final protocols

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from Preclinical and Non-Clinical trials and Clinical Trials for the Product in the Territory. Zogenix shall be responsible for all Costs related to its review [***] of the protocols.

(b)    As between the Parties, Endo shall exclusively own all Regulatory Approvals in the Territory.

(i)     [***] following Zogenix’s receipt of such [***] from Endo and Endo shall [***]; providedthat Endo shall have the sole discretion and authority to make all decisions with respect to such filings or correspondence other than as set forth in Section 8.08(b) of the Purchase Agreement; provided, however, if Zogenix determines in good faith that such decision over which Endo has discretion and authority under this Section 2.6(b)(i) is reasonably likely to have a material and adverse impact on the Zogenix Technology, the matter shall be referred promptly to Designated Executives of the Parties who shall confer as soon as practicable, but no later than [***] after such referral, to attempt in good faith to resolve the dispute. If the dispute related to the matter is not resolved by the Designated Executives by mutual agreement within [***] after a conference to discuss the dispute, then such matter shall be resolved in accordance with Section 8.11(b).

(ii)    Endo shall provide to Zogenix one paper copy or electronic file, such as a PDF, of all regulatory filings and correspondence regarding major or material issues from or to such Governmental or Regulatory Authorities concerning the Product in the Territory, to the extent they implicate the Zogenix Technology, and shall do so within [***] following such submission to or receipt from the Governmental or Regulatory Authority, or if not practicable, as promptly thereafter as practicable. Endo shall also provide to Zogenix one PDF copy of the annual Periodic Safety Update Report (PSUR) filed with FDA within [***] of the close of the annual reporting period.

(iii)    Zogenix shall be responsible for all Costs related to its review and comment of such [***].

(iv)    At the reasonable request of Endo, Zogenix shall participate [***] in any major conference or meeting with Governmental or Regulatory Authorities with respect to the Product in the Territory, and in any event, to the extent permitted by applicable Law, to the extent it implicates the Zogenix Technology Zogenix shall have the right to attend and observe at such conference or meeting [***]. Endo shall notify Zogenix in writing of its receipt of Regulatory Approval to market the Product in any jurisdiction in the Territory within [***] after receipt of any such approval.

(c)    In addition to the obligations set forth in subsections (a) and (b) above, Endo shall only alter or amend or agree to alter or amend the Manufacturing Data or Module 3 of the NDA (or any comparable information or data contained in a foreign Regulatory Approval) or submit to any Governmental or Regulatory Authority a filing for Regulatory Approval which contains Manufacturing Data which differs from that contained in the NDA in accordance with

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the applicable terms and conditions of this Agreement and the Supply Agreement.

2.7    Non-Compete. During the Term, Zogenix and its Affiliates shall not, directly or indirectly (other than through Endo), Exploit a Competitive Product in the Territory. Notwithstanding the foregoing, Endo acknowledges in the event that Zogenix or any of its Affiliates acquires any business (or assets) which is Exploiting a Competitive Product at the time of such acquisition, Zogenix shall not be in violation of its obligations under this Section 2.7 if: (x) Zogenix or its applicable Affiliate divests the rights in such Competitive Product within [***] from the effective date of the closing of the acquisition; or (y) Zogenix or its applicable Affiliate ceases Exploiting such Competitive Product within [***] from the effective date of the closing of the acquisition. In addition, if Zogenix or any of its Affiliates are acquired by or merged with a Third Party that is Exploiting a Competitive Product at the time of such acquisition or merger, such Third Party and its other Affiliates will not have any obligations under this Section 2.7; provided that the division, subsidiary or business group of the surviving party in such change of control that Exploits such Competitive Product shall not have access to, and shall not refer to, rely upon or use in any manner, the Zogenix Technology with respect to such Competitive Product. Furthermore, this Section shall be of no force or effect with respect to any country in the Territory in which an AP-rated (or foreign equivalent) generic version of the Product has entered the market.

2.8    Zogenix Covenant. During the Term, Zogenix covenants for itself and its Affiliates not to assert any claim of Patent infringement (including direct infringement, contributory infringement and inducing infringement) in the Territory against Endo, any of its Affiliates or any permitted sublicensee of Endo as a result of Endo, any of its Affiliates or any permitted sublicensee Exploiting the Product for so long as this Agreement has not been terminated. Zogenix acknowledges and agrees that the covenant set forth in this Section 2.8 shall (i) run with any applicable Patents that are owned by Zogenix during the Term and shall ensure that any acquirer of any such Patent is notified and agrees to be bound by this covenant with respect to any such Patent, and (ii) shall be assignable in whole or in part to an acquirer or sublicensee of Endo's rights under this Agreement in the Product as otherwise permitted under this Agreement.. Notwithstanding the foregoing, if Zogenix or any of its Affiliates are acquired by or merged with a Third Party, then the covenants set forth in this Section 2.8 shall solely be respect to the Patents Controlled by Zogenix and its Affiliates immediately prior to the closing of such acquisition or merger.

2.9    No Implied Licenses. Except as specifically and expressly granted in this Agreement, no rights or licenses to any Intellectual Property Rights are granted by either Party to the other Party, by implication, estoppel or otherwise, and each Party specifically reserves all its rights with respect to any Intellectual Property Rights not specifically granted hereunder. For clarity, Zogenix shall have the right, with the consent of Endo, to grant licenses to the Zogenix Technology to Third Parties to develop and/or commercialize pharmaceutical products other than the Product and/or to develop and/or commercialize pharmaceutical products other than the Product itself or with Third Parties. Furthermore, unless expressly provided otherwise herein,

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each Party may use and practice its own Intellectual Property Rights, technology and data in any manner not inconsistent with the terms of this Agreement without the consent of the other Party and without obligation to notify the other Party of its intended use.

3.     INTELLECTUAL PROPERTY.

3.1    Ownership of Zogenix Patents and Zogenix Know-How. Subject to the terms hereof, including the licenses and other rights granted hereunder, all Zogenix Technology shall be owned exclusively by Zogenix.

3.2    Ownership of Inventions. In order to protect the key business interests of both Parties, the Parties agree that, as between the Parties, ownership of any improvements to the Product arising from the development of the Product during the Term by one or both of the Parties or any Person performing services on either of their behalf shall be determined in accordance with United States laws of inventorship. Following a determination of any rights of the Parties pursuant to the United States laws of inventorship, the Parties agree that Zogenix shall be the sole and exclusive owner of any improvements made by either Party to the Platform (a "Platform Improvement") and Endo shall be the sole and exclusive owner of any improvements made by either Party to the formulation of sumatriptan (or any salt thereof) as a sole active ingredient, or method of manufacture thereof and/or any method of use of the Product (a "Product Specific Improvement"). Neither Party shall file for any patent that discloses or claims both a Platform Improvement and a Product Specific Improvement or the combination thereof without the prior written consent of the other Party. Endo shall and hereby does assign to Zogenix any rights it has or may obtain during the Term in and/or to any such Platform Improvement. Zogenix shall and hereby does assign to Endo any rights it has or may obtain during the Term in and/or to any such Product Specific Improvement. Each Party agrees to execute such documents and assignments and take such other actions as reasonably requested by the other Party (and at the requesting Party's Cost) to effect the assignments and ownership of Intellectual Property Rights as described herein.

3.3    Prosecution of Zogenix Patents and Licensed Trademarks.

(a)    As between Zogenix and Endo, Zogenix shall have the exclusive right and the obligation to use Commercially Reasonable Efforts [***] to prepare, prosecute and maintain the Zogenix Patents and Licensed Trademarks in [***] (including their issuance, reissuance, reexamination and the defense of any interference, revocation, post-grant review or opposition proceedings) (altogether, “Prosecute and Maintain”) at [***] and using Commercially Reasonable Efforts subject to the provisions of this Section 3.3.

(b)    Without limiting Zogenix's obligations under Section 3.3(a), if Zogenix determines, in its reasonable business judgment [***], to abandon, or not to Prosecute and Maintain any Zogenix Patents or Licensed Trademarks in any jurisdiction, then Zogenix shall provide Endo with [***] prior written notice (or, if not possible, such shorter time period that

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would permit Endo a reasonable opportunity to respond without any loss of rights to such Zogenix Patents or Licensed Trademarks under this Agreement) of such determination.

(c)    Notwithstanding subsection (b) above, Endo shall have the right to require Zogenix to continue to Prosecute and Maintain such Zogenix Patents or Licensed Trademarks in Zogenix’s name [***] by providing written notice to Zogenix of its election to exercise such right within the notice period described in subsection (b); provided, however, [***]. Any Costs to be incurred by Endo to Prosecute and Maintain such Zogenix Patents or Licensed Trademarks must be [***] and to that end, promptly upon Zogenix's receipt thereof, Zogenix shall provide Endo with copies of all correspondence to and from patent and trademark authorities or any court or adjudicative body regarding any Zogenix Patent or Licensed Trademark for which [***] and Zogenix shall take into reasonable account all comments of Endo with respect thereto. If either (i) Endo does not timely [***] or (ii) Endo notifies Zogenix in writing that it has elected to abandon the Prosecution and Maintenance of any such Zogenix Patent or Licensed Trademark, then Zogenix shall have no obligation to continue to Prosecute and Maintain such Zogenix Patents or Licensed Trademarks.

(d)    The Parties acknowledge that Endo, as the holder of the Regulatory Approval following Closing, may refer to applicable Zogenix Patents in the listing for the Product in the FDA’s Approved Drug Product List with Therapeutic Equivalence Evaluations (which lists all products and the patents that cover the products, that have been approved by the FDA for safety and effectiveness, and explains the therapeutic equivalence code for multi-source products) (the “Orange Book”). Endo shall have the right to list Zogenix Patents in the Orange Book with respect to the Product. In the event that Zogenix Patents are listed in the Orange Book pursuant to this Section 3.3(d), both Zogenix and Endo shall be identified as the point of contact for any Paragraph IV notifications.

(e)    Each Party shall, at its sole Cost and at the reasonable request of the other Party, execute all lawful papers, all divisional, continuing, reissue and foreign applications, make all rightful oaths and take such other actions as may be reasonably requested by the other Party in conjunction with submission, filing, prosecution, perfecting ownership and defense of Patents pursuant to this Section 3.

3.4    Paragraph IV Certifications. In the event either Party receives notice that a Third Party has filed a patent certification under the Hatch-Waxman Act or any successor statute (e.g., a Paragraph IV Certification under 21 C.F.R. §314.50(i) or 314.94(a)(12)) or under any comparable Law in another jurisdiction within the Territory referencing a Zogenix Patent licensed under Section 2.1, then such Party shall immediately notify the other Party in writing of such notice. The allocation of the right between the Parties to institute an action against a Third Party for infringement of Zogenix Patents listed in the Orange Book covering the Product in response to such Third Party’s filing of a Paragraph IV certification referencing such Zogenix Patent, and the rights and obligations applicable to any actions so brought shall be as set forth in Section 3.5 below, provided, however, with respect to actions brought in response to a Paragraph

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IV certification by a Third Party, the Party with the first right to institute an action shall be required to notify the other Party whether it intends to exercise such first right at least [***] before the expiration of the period within which a patent holder may bring an action for infringement against such Third Party so that other Party may timely institute an action in the event that such Party does elect to institute an action.

3.5    Enforcement of Zogenix Patent and Licensed Trademark Rights.

(a)    In the event that either Party becomes aware of any pharmaceutical product that is or is intended to be made, used, or sold in the Territory by a Third Party that it believes to infringe any Zogenix Patents, such Party will promptly notify the other Party of all the material relevant facts and circumstances known by it in connection with the infringement.

(b)    In the event that either Party becomes aware of any use of a trademark in the Territory by a Third Party that it believes to infringe any Licensed Trademark, such Party will promptly notify the other Party of all the relevant facts and circumstances known by it in connection with the infringement.

(c)    To the extent that such pharmaceutical product is a Product or a Competitive Product, the Parties shall thereafter consult and cooperate fully to determine a course of action, including the commencement of legal action by either or both Parties consistent with this Section 3.5, to terminate any such infringement, and each Party may hire separate counsel. Before commencing any such action, the Parties will discuss and consider in good faith whether an enforcement action is reasonably likely to have a material and adverse impact on the Zogenix Technology. In connection with such cooperation, the Parties, as soon as reasonably practicable, shall enter into a mutually agreeable joint defense agreement.

(d)    As between the Parties, Endo shall have the first right, but not the duty, upon written notice to Zogenix, to initiate, prosecute and control, using counsel reasonably acceptable to Zogenix, the enforcement of any of the Zogenix Patents or Licensed Trademarks against infringement by a Third Party in the Territory through the manufacture, use, marketing, sale, offer for sale or import of a Product or a Competitive Product. If Endo does not institute an action against such Third Party alleging infringement of the Zogenix Patents or the Licensed Trademarks, as applicable, through the manufacture, use, marketing, sale, offer for sale or import of a Product or a Competitive Product within [***] of a Party’s first notice to the other Party of such Third Party infringement, then Zogenix shall have the right to initiate, prosecute and control the enforcement of any of the Zogenix Patents or Licensed Trademarks against infringement by such Third Party by providing written notice to Endo of its election to exercise such right. If the alleged infringement by a Third Party of the Zogenix Patents or Licensed Trademarks, as applicable, does not involve the manufacture, use, marketing, sale, offer for sale or import of a Product or Competitive Product, Zogenix shall have the sole and exclusive right, but not the duty, to initiate, prosecute and control [***]the enforcement of any of the Zogenix Patents or Licensed Trademarks against infringement by a Third Party in the Territory and the remaining

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provisions (e) through (j) of this Section 3.5 shall not be applicable with respect to such action.

(e)    The Party controlling an action shall, prior to and throughout the course of such enforcement action or proceeding (i) provide a reasonable opportunity to the non-controlling party to discuss and provide input on the litigation strategy (including any strategy with respect to any Markman hearing) and (ii) shall furnish the other Party with copies of substantive documents related to such action sufficiently in advance of the due date for such document to permit such other Party to offer its comments thereon before such document is due or delivered to the opposing side and the controlling Party shall consider any such comments in good faith, incorporating such comments if reasonable.

(f)    The Costs of any such action under this Section 3.5 (including fees of attorneys and other professionals hired by the controlling party) shall be borne by the Party controlling such action. If the non-controlling Party is joined in any such action, the controlling Party’s counsel shall jointly represent the Parties (unless and until an ethical conflict arises which prohibits the same) at the controlling Party’s sole Cost, provided that the Party not controlling such action shall have a right but not an obligation to hire separate counsel of its own choosing at its own Cost (unless otherwise specified in this Agreement) to assist in but not control such proceedings. To the extent separate counsel is hired by the non-controlling Party for any reason, the Costs related to such separate counsel shall be borne by the non-controlling Party.

(g)    For any such action under this Section 3.5, the Party not initiating and controlling any such action shall reasonably cooperate with the controlling Party at its own Cost, including in the event that the controlling Party is unable to initiate or prosecute such action solely in its own name or it is otherwise advisable to obtain an effective remedy, by joining the non-controlling Party in such action, or by agreeing to have such action initiated or prosecuted in the non-controlling Party’s name, and will execute and cause its Affiliates to execute all documents necessary for the controlling Party to initiate and maintain such action.

(h)    The Party controlling an action may not voluntarily enter into any settlement, consent judgment or other voluntary final disposition of such action that settles a Paragraph IV Certification, admits or stipulates, in either case expressly and in writing, the non-infringement or the invalidity or unenforceability of any Zogenix Patent or Licensed Trademark licensed hereunder as it relates to the Product, subjects the other Party to an injunction, requires the other Party to contribute to any monetary payment or otherwise materially and adversely affects the rights licensed hereunder and/or the Zogenix Patents or Licensed Trademarks without the prior written consent of such other Party, such consent not to be unreasonably withheld, conditioned or delayed.

(i)    The Party controlling an action shall keep the other Party reasonably informed of the progress of the action and shall consider the comments and observations of such other Party as it relates to the Product in the Territory in prosecuting the proceedings.

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(j)    Any recovery obtained as a result of an infringement action brought under this Section 3.5, whether by judgment, award, decree or settlement, if such infringement action relates to infringement by a Third Party in the Territory through the manufacture, use, marketing, sale, offer for sale or import of a Product or a Competitive Product, will first be applied to reimbursement of each Party’s Costs in bringing such suit or proceeding or providing cooperation pursuant to this Section 3.5, and any remaining balance shall be paid to the Party controlling the suit or proceeding. Any recovery in respect [***] shall be deemed to [***].

3.6    Defense of Zogenix Patents and Licensed Trademarks.

(a)    In the event that either Party becomes aware of any action initiated by a Third Party (or any counterclaim or defense asserted in any action other than an action set forth in Section 3.5) in the Territory alleging invalidity or unenforceability of any Zogenix Patents, such Party will promptly notify the other Party of all the relevant facts and circumstances known by it in connection with such action.

(b)    In the event that either Party becomes aware of any action initiated by a Third Party (or any counterclaim or defense asserted in any action other than an action set forth in Section 3.5) in the Territory alleging invalidity or unenforceability of any Licensed Trademarks, such Party will promptly notify the other Party of all the relevant facts and circumstances known by it in connection with such action.

(c)    The Parties shall thereafter consult and cooperate fully to determine an appropriate course of action.

3.7    Patent Infringement Claims.

(a)    Each Party shall notify the other Party promptly in writing of any claim of, or action for, infringement of any Patents or misappropriation of trade secret rights of any Third Party that is threatened, made or brought against either Party by reason of the development, manufacture, use, sale, offer for sale, importation or exportation of the Product in the Territory.

(b)    In the event of the institution of any suit by a Third Party against either Party for Patent infringement involving the development, manufacture, use, sale, offer for sale, importation or exportation by or on behalf of Endo, its Affiliates or permitted sublicensees of the Product in the Territory after the Effective Date, Endo shall be responsible for the defense of any such suit and, subject to the terms of this Section 3.7, Endo shall control such defense. Endo shall select counsel, reasonably acceptable to Zogenix, to defend the Parties and, provided the Parties have entered into a joint defense agreement or that Endo can do so without compromising attorney-client privilege, regularly consult with Zogenix and its counsel to keep them reasonably informed on the progress and status of the suit. Zogenix shall assist Endo and cooperate in any such litigation at Endo’s request. No settlement, compromise or other disposition of any such proceeding that subjects Zogenix to an injunction or requires Zogenix to contribute to any

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monetary payment or admits infringement shall be entered into without Zogenix’s prior written consent, which consent will not be unreasonably withheld, conditioned or delayed.

(c)    Endo shall be responsible for all Costs to defend any suit under this Section 3.7, including all fees and Costs of attorneys, expert witnesses and other out-of-pocket litigation Costs and all damages, penalties, court Costs, attorney fees and other payments payable to any such Third Party, whether as a result of any judgment, award, settlement or otherwise (such liability, “Patent Litigation Losses”).

(d)    In the event a Third Party threatens suit against either Party for Patent or trademark infringement involving the development, manufacture, use, sale, offer for sale, importation, exportation, license or marketing of the Product in the Territory, the Parties shall confer with respect to the appropriate course of action, and if they determine that a declaratory action is warranted, then with respect to such action, the provisions of this Section 3.7 shall apply thereto with respect to the prosecution of such action and the defense of any claims asserted in response thereto.

(e)    In the event that either Party becomes aware of a Third Party Patent to which a license would be reasonably required in order to avoid infringement by the development, manufacture, use, sale, offer for sale, importation, exportation, license or marketing of the Product in any jurisdiction in the Territory, such Party shall promptly notify the other Party. The Parties shall then confer in good faith with respect to the appropriate course of action. Endo shall have the right to negotiate and obtain such a license or other resolution provided Endo shall provide a reasonable opportunity for Zogenix to participate in such discussion to the extent Endo is seeking an exclusive license and the same may be applicable to the Zogenix Technology generally. Endo shall be solely responsible for all Costs and obligations under such license or other resolution (the “Third Party License Fees”) (except that if Zogenix also requests rights under such license with respect to the Zogenix Technology for use with products other than the Product, the Parties shall determine an appropriate allocation of the Third Party License Fees).

3.8    Conflict. In the event of any conflict between the terms of this Section 3 and the indemnification obligations of the Parties as set forth in the Purchase Agreement with respect to which Party controls the defense of any action and pays the Costs therefor, the terms of the this Agreement shall govern

4.     PUBLICATION; CONFIDENTIALITY.

4.1    Scientific Publications. During the Term, Endo will not submit any publications, or make an oral or visual presentation at any conference regarding the Product Technology separate and apart from the Product without the prior written consent of Zogenix. Nothing in this Section 4.1 shall be construed as limiting Endo’s ability to submit any publications, or make an oral or visual presentation at any conference regarding the Product, itself; provided that Endo will provide to Zogenix any publications or presentations regarding the Product for Zogenix’s

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prompt review and comment prior to their submission or use. Endo shall consider in good faith all material comments timely provided by Zogenix in writing.

4.2    Confidentiality. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the Parties agree that, during the Term and for [***] thereafter, the receiving Party, its Affiliates and its designees shall, and shall ensure that their respective employees, officers, directors and other representatives shall, keep confidential and not publish or otherwise disclose and not use for any purpose, other than the development and Commercialization of the Product in the Territory, any information including all Know-How furnished to it by the other Party, its Affiliates or its designees, except to the extent that it can be established by the receiving Party by competent proof that such information: (i) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the disclosing Party; (ii) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (iii) became generally available to the public or was otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; (iv) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had, to the receiving Party’s knowledge, no legal obligation not to disclose such information to others; or (v) was independently generated by the receiving Party without reference to Confidential Information of the disclosing Party (all such information to which none of the foregoing exceptions applies, and the terms of this Agreement, shall be deemed “Confidential Information”). Any and all information, data and materials, including any and all Intellectual Property Rights therein and thereto, owned by a Party shall constitute Confidential Information of such Party which shall be deemed the disclosing Party with respect to such Confidential Information for the purposes of this Section 4. Notwithstanding the foregoing, the obligations of confidentiality under this Section 4.2 regarding any Confidential Information relating to or containing a Party’s trade secret that has been suitably identified to the other Party as such shall continue beyond the period set forth in this Section 4.2 (i.e., the Term plus [***]) so long as the subject matter remains a trade secret.

4.3    Exceptions to Obligation. The restrictions contained in Section 4.2 shall not apply to Confidential Information that: (i) is submitted by the recipient to a Governmental or Regulatory Authority to obtain or maintain Regulatory Approval for the Product; (ii) is provided by the recipient to Third Parties under confidentiality provisions at least as stringent as those in this Agreement, in connection with consulting, development, manufacturing, external testing, or Commercialization of the Product in the Territory or in connection with a proposed financing transaction or Change of Control of a Party; or (iii) is otherwise required to be disclosed in compliance with applicable Law or by a Governmental or Regulatory Authority; providedthat, if a Party is required to make any such disclosure of the disclosing Party’s Confidential Information, such Party will, except where impracticable for necessary disclosures (for example, to physicians conducting studies or to health authorities), give reasonable advance notice to the disclosing Party of such disclosure requirement and reasonably cooperate with the disclosing Party to secure confidential treatment of such Confidential Information required to be disclosed.

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4.4    Limitations on Use. Each Party shall use, and cause each of its Affiliates and use reasonable best efforts to cause each of its licensees to use, any Confidential Information obtained by such Party from the disclosing Party, its Affiliates or its licensees, pursuant to this Agreement or otherwise, solely in connection with the activities or transactions contemplated by this Agreement.

4.5    Remedies. Each Party shall be entitled, in addition to any other right or remedy it may have, at law or in equity, to seek an injunction, without the posting of any bond or other security, enjoining or restraining the other Party, its Affiliates and/or its licensees from any violation or threatened violation of this Section 4.

5.     REPRESENTATIONS, WARRANTIES AND COVENANTS.

5.1    Representations and Warranties of Zogenix. Zogenix hereby represents and warrants to Endo that as of the Effective Date:

(a)    Zogenix is the sole owner of the Zogenix Patents listed in Schedule 1.20. Zogenix has the right to grant to Endo the rights granted under this Agreement (including the right granted in Section 2.1 to develop, manufacture and Exploit the Product in the Territory), and Zogenix has not granted prior to the Effective Date any options or licenses on the Zogenix Technology that are inconsistent with the grants Zogenix has made in this Agreement. The Zogenix Patents are in full force and effect and have been maintained to date, and, to the Knowledge of Zogenix, the claims in the Zogenix Patents which cover the Product and are granted as of the Effective Date are valid (unless otherwise disclosed in writing to Endo prior to the Effective Date);

(b)    There are no asserted, pending or, to the Knowledge of Zogenix, threatened claims, interferences, oppositions, post-grant reviews or demands of any Third Party in existence as of the Effective Date: (i) alleging the invalidity, misuse, unregisterability, unenforceability or non-infringement of any Intellectual Property Rights associated with the Zogenix Know-How or the Zogenix Patents; (ii) challenging Zogenix’s right to use or ownership of any of the Zogenix Know-How or the Zogenix Patents; or (iii) making any adverse claim of ownership of the Zogenix Know-How or the Zogenix Patents;

(c)    There are no liens or security interests currently existing on or to the Zogenix Know-How or Zogenix Patents or any proceeds thereof that would reasonably be expected to adversely affect Endo’s benefits and rights under this Agreement;

(d)    There are no pending or, to the Knowledge of Zogenix, threatened claims or litigation which allege that conducting the development or Commercialization of the Product in the Territory as conducted by Zogenix prior to the Effective Date would violate the Intellectual Property Rights of any Third Party;

(e)    Zogenix has obtained the assignment of all interests and all rights of any

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and all Third Parties (including employees) with respect to the Zogenix Patents;

(f)    Zogenix has obtained the assignment of all interests and all rights of any and all Third Parties (including employees) with respect to the Zogenix Know-How and Zogenix has taken reasonable measures to protect the confidentiality of the Zogenix Know-How;

5.2    Disclaimer of Other Warranties. EXCEPT AS SET FORTH IN THIS AGREEMENT, THE SUPPLY AGREEMENT OR THE PURCHASE AGREEMENT, ZOGENIX MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.

5.3    Covenants of Endo.

(a)    Endo shall make all payments required under the Aradigm Royalty Obligation to Aradigm (or as otherwise directed by Zogenix in writing) in a timely manner.

(b)    Neither Endo or any of its Affiliates nor any permitted sublicensee shall commence or otherwise pursue, directly or indirectly (or voluntarily assists Third Parties to do so, other than as required by law or legal process), any proceeding seeking to have any of the Zogenix Patents or Licensed Trademarks revoked, re-examined or declared invalid, unpatentable, or unenforceable.

5.4    Covenant of Zogenix. Zogenix shall update the listing of Zogenix Patents set forth in Schedule 1.19 to include any Patent(s) filed by Zogenix after the Effective Date claiming [***]. Such updated Schedule 1.19 shall be attached to this Agreement, replacing the original Schedule 1.19 for all purposes.

5.5    Covenants of the Parties Regarding Insurance. Each Party shall carry and maintain in full force and effect while this Agreement is in effect reasonable insurance in view of its obligations hereunder, which may include a reasonable program of self-insurance. Each Party upon request shall provide the other with evidence of such insurance.

6.     TERM AND TERMINATION.

6.1    Term of Agreement. This Agreement shall become effective as of the Effective Date and remain in effect until termination of this Agreement pursuant to this Section 6 (the “Term”).

6.2    Termination for Material Breach. Upon the material breach by one Party under this Agreement, the other Party shall notify the breaching Party of such breach, and require that the breaching Party cure such breach within [***] or in the case of a breach that cannot be cured within [***], within a reasonable longer period for so long as the breaching Party is diligently

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proceeding to cure such default. In the event that a material breach by such Party is not cured within the applicable cure period and without limiting other available remedies, the other Party shall have the right to terminate this Agreement upon written notice.

6.3    Effect of Termination. Upon termination of this Agreement:,

(a)    all licenses granted to Endo hereunder shall terminate;

(b)    Each sublicense granted by Endo to a sublicensee not then in default will survive such termination (as a direct license from Zogenix), provided that such sublicensee continues to comply in all material respects with all of its obligations under the applicable sublicense and with Endo’s obligations of this Agreement as to such sublicensee’s territory and field.

6.4    Surviving Provisions. Upon termination or expiration of the Agreement, all rights and obligations of the Parties shall terminate; provided, however, notwithstanding the foregoing, expiration or any termination of this Agreement shall not release a Party from the obligations to perform any obligations that were due or had accrued prior to the effective date of such termination or expiration (including non-cancelable obligations or commitments made in good faith prior to notice of termination), and the following Sections of this Agreement shall survive any termination or expiration of this Agreement for any reason: (i) Sections 1 (to the extent necessary to interpret any other surviving provisions), (ii) Sections 3.2-3.7 (with respect to events occurring during the Term), and (iii) Sections 2.4, 3.1, 3.8, 4.2, 4.3, 4.5, 6.3, 6.4,7.2, 7.4, 7.10 and 7.11.

7.     MISCELLANEOUS PROVISIONS.

7.1    Relationship of Parties. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee or joint venture relationship between the Parties. No Party shall incur any debts or make any commitments for the other, except to the extent, if at all, specifically provided herein.

7.2    Assignment; Binding Effect. Neither Party shall assign this Agreement or its rights or obligations hereunder without the express written consent of the other Party hereto, except that either Party may assign or transfer this Agreement and its rights or obligations hereunder without the consent of the other Party to a Person who is who is (i) an Affiliate, (ii) any assignee of all or substantially all of its business or assets relating to this Agreement, or (iii) its successor in the event of a Change of Control of such Party. An assignment or transfer by a Party pursuant to this Section 7.2 shall be binding on its successors or assigns. Any permitted assignee shall assume all assigned obligations of its assignor under this Agreement. The assigning Party shall promptly notify the other Party of any such assignment (including a Change of Control) and shall use all reasonable efforts to provide such notification at least twenty (20) days before the assignment or before the completion of the Change of Control, as the case may

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be. No such assignment or transfer shall be valid or effective unless done in accordance with this Section 7.2.

7.3    Further Actions. Each Party shall execute, acknowledge and deliver such further instruments, and do all such other acts, as may be reasonably necessary or appropriate in order to carry out the purposes and intent of this Agreement.

7.4    Notice. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission with answer back confirmation or by nationally recognized overnight courier that maintains records of delivery to the Parties at the following addresses or facsimile numbers:

In the case of Zogenix, to:

Zogenix, Inc.
12400 High Bluff Drive, Suite 650San Diego, California 92130
Attention: Chief Financial OfficerFacsimile No.: (858) 259-1166

With copies to (which shall not constitute notice under this Agreement):

Latham & Watkins LLP
12670 High Bluff Drive
San Diego, California 92130
Attention: Cheston Larson, Esq.
Facsimile No.: (858) 523-5450

In the case of Endo, to:

Endo Ventures Bermuda Limited

c/o Endo Pharmaceuticals Incorporated
Attention: Chief Legal Officer
Facsimile: (610) 884-7159

With copies to (which shall not constitute notice under this Agreement)

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, NY 10036

Attention: Eileen Nugent, Esq.

Michael Chitwood, Esq.

Facsimile: (917) 777-2535

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Endo International plc

1400 Atwater Drive

Malvern, PA 19355

Attention: Caroline B. Manogue

Facsimile: (610) 884-7159

All such notices, requests and other communications will (a) if delivered personally to the address as provided in this Section 7.4, be deemed given upon receipt, (b) if delivered by facsimile to the facsimile number as provided in this Section 7.4, be deemed given upon receipt by the sender of the answer back confirmation and (c) if delivered by overnight courier to the address as provided in this Section 7.4, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section 7.4). Any Party from time to time may change its address, facsimile number or other information for the purpose of notices to that Party by giving notice specifying such change to the other Parties hereto in accordance with the terms of this Section 7.4.

7.5    Use of Name. Except as otherwise provided herein, Zogenix, on the one hand, and Endo on the other hand, shall not have any right, express or implied, to use in any manner the name or other designation of the other or any other trade name, trademark or logos of the other for any purpose, unless consented to in writing by the other Party.

7.6    Waiver. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion.

7.7    Counterparts. This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

7.8    Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any Party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never compromised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar to terms to such illegal, invalid or unenforceable provision as may be possible and reasonably acceptable to the Parties herein.

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7.9    Amendment. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by each Party hereto.

7.10    Governing Law. This Agreement shall be construed in accordance with, and governed in all respects by, the laws of the State of New York (without giving effect to principles of conflicts of laws that would require the application of any other law).

7.11    Dispute Resolution.

(a)    The Parties recognize that a bona fide dispute as to certain matters may from time to time arise during the Term that relate to a Party’s rights or obligations hereunder. In the event of the occurrence of any Dispute, either Party may, by written notice to the other, have such Dispute referred to its highest ranking officer for attempted resolution by good faith negotiations within [***] after such notice is received. If either Party desires to pursue arbitration under paragraph (b) below to resolve any such Dispute, unless expressly provided for otherwise herein, a referral to such executives under this paragraph (a) shall be a mandatory condition precedent. Said Designated Officers as of the Effective Date are as follows.

For Endo: [***]

For Zogenix: [***]

In the event that they shall be unable to resolve the Dispute by consensus within such [***], then the Dispute shall be finally settled by binding arbitration as provided below.

(b)    Except as expressly otherwise provided in this Agreement, in the event of any dispute arising out of or relating to the interpretation of any provisions of this Agreement or the failure of either Party to perform or comply with any obligation of such Party pursuant to this Agreement or the breach, termination or validity hereof (a “Dispute”), such Dispute shall be finally settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”), then in force and the Federal Arbitration Act, 9 U.S.C. § 1 et seq., by three (3) arbitrators (the “Arbitrators”) appointed in accordance with said rules, provided that the appointed arbitrators shall have appropriate experience in the biopharmaceutical industry. The place of arbitration shall be New York, New York, and the Arbitrators shall decide the dispute in accordance with the substantive law of the State of New York. The Arbitrators, by accepting their appointment, undertake to conduct the process such that the award shall be rendered within [***] of their appointment and shall be final and binding upon all parties participating in such arbitration. The judgment rendered by the Arbitrators may, at the arbitrator’s discretion, include costs of arbitration, reasonable attorneys’ fees and reasonable costs for any expert and other witnesses. Judgment upon the award may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award and/or an order of enforcement as the case may be. Notwithstanding the foregoing, any Disputes regarding the scope, validity, enforceability or inventorship of any patents or patent applications shall be submitted for final resolution by a court of competent jurisdiction. Any period of limitations or Survival Period that would otherwise expire between the initiation of the

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procedures described in this Section 7.11(b) and the conclusion of such procedures shall be extended until [***] following the conclusion of such procedures. This Section 7.11(b) shall not prohibit a Party from seeking preliminary injunctive relief in aid of arbitration from a court of competent jurisdiction.

(c)    The Parties consent to the exclusive jurisdiction of the Federal courts and the State courts of the State of New York, in each case, located in the borough of Manhattan, City of New York (the “New York Courts”) for any action in aid of arbitration, for provisional relief of the status quo or to prevent irreparable harm prior to the appointment of the Arbitrators in Section 7.11(b) above, and to the non-exclusive jurisdiction of the New York Courts for any action to enter or enforce any arbitral award entered in connection with this Agreement. THE PARTIES HEREBY IRREVOCABLY WAIVE, AND AGREE TO CAUSE THEIR RESPECTIVE AFFILIATES TO WAIVE, THE RIGHT TO TRIAL BY JURY IN SUCH ACTIONS.

7.12    Compliance with Laws. Each Party shall review in good faith and cooperate in taking actions to ensure compliance of this Agreement and the Parties’ activities hereunder with all applicable Law. Each Party shall provide the other Party such reasonable assistance as may be required for the Party requesting such assistance to comply with all applicable Law necessary to permit the Parties to perform hereunder and to exercise their respective rights hereunder.

7.13    Entire Agreement. This Agreement (and all exhibits and schedules attached hereto and all other documents delivered in connection herewith, including the Transaction Documents) supersedes all prior discussions and agreements among the Parties with respect to the subject matter hereof and contains the sole and entire agreement among the Parties hereto with respect to the subject matter hereof.

7.14    Parties in Interest. All of the terms and provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties hereto and their respective permitted successors and assigns.

7.15    No Third Party Beneficiaries. Except for rights and obligations specifically referred to herein that apply to Affiliates, sublicenses or licensees of the Parties, nothing in this Agreement is intended to confer on any Person other than Endo or Zogenix any rights or obligations under this Agreement, and there are no intended Third Party beneficiaries to this Agreement.

7.16    Descriptive Headings; Certain Terms. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

7.17    Fees and Payments. All fees and payments made by one Party to the other under this Agreement shall be deemed non-refundable and non-creditable unless expressly provided to the contrary herein.

7.18    Specific Performance. The Parties agree that irreparable damage may occur if any

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provision of this Agreement were not performed in accordance with the terms hereof and that the Parties may be entitled to a temporary injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any court specified in Section 7.11(c)or an arbitral tribunal specified in Section 7.11(b), or to a permanent injunction in addition to any other remedy to which they are entitled at law or in equity.

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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly authorized representative as of the day and year first above written.

Zogenix, Inc.

By: /s/ Stephen J. Far
Name:    Stephen J. Farr, Ph.D.
Title:    President and Chief Operating    Officer

Endo Ventures Bermuda Limited

By: /s/ Susan T. Hall
Name:    Susan T. Hall
Title:    Director

SCHEDULE 1.9 – LICENSED TRADEMARKS

[***]

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SCHEDULE 1.19 - ZOGENIX PATENTS

[***]

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EX-10.2

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CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

MANUFACTURING AND SUPPLY AGREEMENT

This Manufacturing and Supply Agreement (together with all exhibits attached hereto, the “Agreement”), effective as of May 16, 2014 (the “Effective Date”), is by and between Zogenix, Inc., a Delaware corporation, with its principal place of business at 12400 High Bluff Drive, Suite 650, San Diego, CA 92130 (“Zogenix”) and Endo Ventures Limited, a company organized under the Laws of Ireland, with its principal place of business at No. 33 Fitzwilliam Square, Dublin 2, Ireland (“Endo”).

W-I-T-N-E-S-S-E-T-H

A.    WHEREAS, Zogenix and Endo and an Affiliate of Endo have entered into an Asset Purchase Agreement, dated as of April 23, 2014, pursuant to which Endo and such Affiliate agreed to purchase from Zogenix the Purchased Assets (the “Purchase Agreement”), pursuant to the terms and conditions set forth therein;

B.    WHEREAS, Zogenix and an Affiliate of Endo have entered into a License Agreement, dated as of the Effective Date (the “License Agreement”), pursuant to which Zogenix agreed to grant Endo and its Affiliate rights under the Zogenix Technology (as defined in the License Agreement) to Exploit the Product in the Territory, pursuant to the terms and conditions set forth therein;

C.    WHEREAS, in connection with Endo’s and its Affiliate’s purchase of the Purchased Assets and license of the Zogenix Technology, Zogenix desires to supply, and Endo desires to purchase, Product pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Parties agree as follows:

1. DEFINITIONS

As used in this Agreement, capitalized terms shall have the meanings as set forth in this Section 1, or if not otherwise defined herein, then as set forth in the Purchase Agreement:

1.1“Acceptance” shall have the meaning set forth in Section 3.1.2.

1.2“Actual COGS” shall mean all of [***].

1.3“Actual Transfer Price” shall mean Actual COGS plus two and one-half percent

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Execution Version

(2.5%).

1.4“Agreement” shall have the meaning set forth in the preamble.

1.5“API” shall mean the active pharmaceutical ingredient, sumatriptan succinate, for the Product.

1.6“Applicable Law” shall mean all applicable Laws and Orders of or from Governmental Authorities relating to or governing the manufacture, Commercialization, use or regulation of the subject items (including applicable environmental, health and safety laws, applicable cGMP and any applicable reporting, permitting and registration requirements).

1.7“Batch” shall mean a uniquely identified or identifiable quantity of Product that have been produced by one (1) process or series of processes to the extent that such quantity could insofar be expected to be homogeneous and as such meaning is further set forth in 21 C.F.R. §820.3.

1.8“Business Day” means a day other than a Saturday, Sunday or a day that is a statutory holiday in the United Kingdom and in the United States of America.

1.9“Capacity” shall mean the quantity of Product Zogenix is able to have produced during a defined period of time. As of the Effective Date, “Capacity” is [***] Units per year, which amount may be amended in writing from time to time as may be agreed between the Parties.

1.10“Capital Investments” shall have the meaning set forth in Section 5.6.

1.11“cGMP” means current Good Manufacturing Practice published by the European Commission in the “Guide to good manufacturing practice for medicinal products” (“The rules governing medicinal products for human use”, IV Volume), as specified by the competent Governmental Authorities, and 21 C.F.R. § 211, and FDA guidance pertaining thereto.

1.12“Commercially Reasonable Efforts” with respect to any activity means the efforts and resources that would be used in the performance of the relevant activity in compliance with Applicable Law by [***] with regard to a product owned by such Party and for which sales of such product were for the benefit of such Party and which product was at a similar stage in its product life, all as measured by the facts and circumstances at the time such efforts are due. Where this Agreement requires a Party to use Commercially Reasonable Efforts, such efforts and resources that are used by such Party’s Affiliates, agents, sublicensees and licensees, as relevant, shall also be attributed to such Party.

1.13“Commencement Date” shall mean the first date upon which a Governmental Authority approves the Product for marketing and sale in a country in the Territory.

1.14“Commercialize” shall have the meaning set forth in the License Agreement.

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1.15“Confidential Information” shall have the meaning set forth in the License Agreement.

1.16“Contract Manufacturer(s)” shall mean Patheon and/or such other contract manufacturers which are authorized by Zogenix from time to time to Manufacture the Product and/or any component or API therefor.

1.17“Cost” means all internal and external costs, expenses, cost of labor and materials associated with an activity.

1.18“Defect” shall have the meaning set forth in Section 4.2.1.

1.19“Defective” shall have the meaning set forth in Section 4.2.1.

1.20“Delivery” shall have the meaning set forth in set forth in Section 3.4.2.

1.21“Delivery Date” shall have the meaning set forth in the respective Purchase Order; provided, however, the same is consistent with the minimum requirements set forth in Section 3.2.1.

1.22“Effective Date” shall have the meaning set forth in the preamble.

1.23“Endo” shall have the meaning set forth in the preamble.

1.24“Endo Invention” shall have the meaning given to it in the License Agreement.

1.25“Endo Trademarks” shall mean the trademarks specifically identified in Exhibit A and any other trademarks provided by Endo to Zogenix from time to time for use in connection with the Manufacture of the Product, including their packaging or labeling.

1.26“Exploit” shall have the meaning set forth in the License Agreement.

1.27“Facility” shall mean the manufacturing facility of Patheon, located at Kingfisher Drive, Covingham, Swindon, Wiltshire, SN3 5BZ, United Kingdom, and where manufacturing of the Product shall take place, or such other manufacturing facility at which manufacturing of the finished form of the Product may take place.

1.28“FCA” shall have the meaning ascribed to such term under Incoterms, 2010 edition, published by the International Chamber of Commerce, ICC Publication 720.

1.29“Finished Goods” means Product that is completely manufactured and packaged and released in a manner for sale and/or use, including trade or Sample use, by an end user of such Product, in each case in accordance with Applicable Law and the Product Specifications.

1.30“Firm Commitment” shall have the meaning set forth in Section 3.1.1.

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1.31“Force Majeure” shall have the meaning set forth in Section 12.1.

1.32“Governmental Authority” shall mean any branch, office or agency of any federal, provincial, state, regional or local government having statutory or regulatory authority over the design, manufacturing, distribution or sale of the Product in a country where the Product is Commercialized.

1.33“Improvement Projects” has the meaning set forth in Section 5.7.

1.34“Indemnified Party” shall have the meaning set forth in Section 10.3.1.

1.35“Inventory” shall mean all inventories of those Materials and other components of the Product set forth on Exhibit D that are produced or held by Zogenix in connection with the Manufacture. For clarity, the Inventory of Finished Goods set forth on Exhibit D is the “Product Inventory” referred to in the Purchase Agreement.

1.36“Latent Defect” shall have the meaning set forth in Section 4.2.2.

1.37“License Agreement” shall have the meaning set forth in the recitals.

1.38“Losses” shall have the meaning set forth in Section 10.1.

1.39“Manufacture” shall mean the process of making or having made the Product from raw materials by hand or by machinery, and shall also include the process of assembling or having assembled any components and packaging or having packaged an unfinished Product into Finished Goods ready for commercial sale, in each case in accordance with the Applicable Law and the Product Specifications and the terms and conditions set forth in this Agreement.

1.40[***]

1.41“Marketing Authorization” shall mean approval by the applicable Governmental Authority in any jurisdiction in the Territory for marketing of the Product in any regulatory application.

1.42“Master Production Plan” shall have the meaning set forth in Section 3.1.1.

1.43“Materials” shall mean the components and materials used in the Manufacture of the Product, including raw materials (active and inert), API, and subassemblies (e.g., actuator and capsule) includingpackaging and labeling materials used to produce Finished Goods.

1.44“New York Courts” has the meaning set forth in Section 13.2.

1.45 “Non-Binding Commitment” shall have the meaning set forth in Section 3.1.1.

1.46“Parties” means Zogenix and Endo and “Party” means either of them.

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1.47“Patheon” shall mean Patheon UK Limited, a company with a registered office at Kingfisher Drive, Covingham, Swindon, Wiltshire, SN3 5BZ, incorporated under the laws of England or any successor thereto.

1.48“Product” shall have the meaning set forth in the Purchase Agreement, as may be further improved by Zogenix or Endo acting individually or together in accordance with Section 5.7.

1.49“Product Quality Review” shall have the meaning set forth in Section 6.2.

1.50“Product Specifications” shall mean the requirements for the final Manufactured Product as set forth in the applicable Regulatory Approval as of the Effective Date and as may be amended from time to time pursuant to the terms and conditions of this Agreement.

1.51“Purchase Order” shall have the meaning set forth in Section 3.1.1.

1.52“Purchase Volume Limitation” shall have the meaning set forth in Section 3.1.1.

1.53“Quality Agreement” shall have the meaning set forth in Section 2.5.

1.54“Request for Specification Change” shall have the meaning set forth in Section 2.3.1.

1.55“Residual Shelf Life” shall mean the remaining length of time before the expiration date set forth in the applicable Product Specifications for the Product. The length of such time shall be measured from the date that Zogenix notifies Endo and/or its freight forwarder that the Product [***].

1.56“Sample” shall mean a unit of Product which is labeled as a sample not intended for resale.

1.57“Short Dated Product” shall mean any Product which has a remaining Residual Shelf Life of [***].

1.58“Significant Supply Failure” shall have the meaning set forth in Section 11.2.5.

1.59“Standard Batch Size” shall mean [***] Units as of the Effective Date, which amount may be amended in writing from time to time as agreed in writing between the Parties.

1.60“Standard COGS” shall have the meaning set forth in Section 5.1.

1.61“Standard Transfer Price” shall have the meaning set forth in Section 5.1.

1.62 “Supply Committee” shall have the meaning set forth in Section 7.1.

1.63“Technical Dispute” shall have the meaning set forth in Section 13.2.

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1.64“Term” shall have the meaning set forth in Section 11.1.

1.65“Territory” shall have the meaning set forth in the License Agreement.

1.66“Third Party Claim” shall have the meaning set forth in Section 10.3.1.

1.67“Working Capital Advance” shall have the meaning set forth in Section 5.5.

1.68“Zogenix” shall have the meaning set forth in the preamble.

1.69“Zogenix Know-How” shall have the meaning set forth in the License Agreement.

1.70General Interpretation. Except where the context requires otherwise, (i) the use of any gender herein shall be deemed to be or include the other gender, (ii) the use of the singular shall be deemed to include the plural (and vice versa), (iii) the words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation” and shall not be construed to limit any general statement which it follows to the specific or similar items or matters immediately following it, (iv) the word “will” shall be construed to have the same meaning and effect as the word “shall,” (v) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (vi) any reference herein to any Person shall be construed to include the Person’s successors, heirs and assigns, (vii) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (viii) all references herein to Articles, Sections or Exhibits shall be construed to refer to Articles, Sections and Exhibits of this Agreement, and references to this Agreement include all Exhibits hereto and (ix) references to any specific law or article, section or other division thereof shall be deemed to include the then-current amendments thereto or any replacement or successor law thereof. Each accounting term used in this Agreement that is not specifically defined in this Agreement shall have the meaning given to it under GAAP, but only to the extent consistent with its usage and the other definitions in this Agreement, and all calculations hereunder shall be made in accordance with GAAP.

2. MANUFACTURE AND SUPPLY

2.1Appointment.

2.1.1Subject to the terms of this Agreement, during the Term, Zogenix shall have and retain the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied all of Endo’s, its Affiliates and its and their permitted sublicensee’s requirements for the Product for Exploitation in the Territory and Endo shall have the obligation to exclusively purchase from Zogenix the same, subject in all cases to Endo’s right to qualify and maintain a back-up manufacturer in accordance with Section 11.2.6.

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2.1.2In the event that an Affiliate, sublicensee or distributor of Endo requires supply of Product, then orders for such Product shall be placed by Endo in its own name on behalf of Endo and shall be incorporated into Endo’s Master Production Plans and Purchase Orders. In no event shall Zogenix be obligated to accept Purchase Orders directly from any Affiliate, sublicensee or distributor of Endo.

2.2Zogenix Manufacturing Obligations - General.

2.2.1Zogenix shall, and shall require its Contract Manufacturers to Manufacture, handle, test and store Product in compliance with the Quality Agreement, all Applicable Laws and the Product Specifications. For clarity, only Zogenix shall be permitted to submit orders for Product to its Contract Manufacturers.

2.2.1All Product released to Endo shall meet, and Zogenix hereby warrants that such Product shall (i) comply with the Product Specifications (ii) not be adulterated or misbranded within the meaning of the United States Food, Drug and Cosmetic Act (21 U.S.C. § 301, et seq.) and all related regulations adopted or promulgated by the Food and Drug Administration (the “FDA”) and (iii) comply with Applicable Laws.

2.2.2Zogenix shall notify Endo upon any occasion in which Zogenix is notified by its Contract Manufacturers of any problems in Manufacturing any Product intended for Commercialization in the Territory which may materially delay Delivery of such Product ordered by Endo. Zogenix shall use Commercially Reasonable Efforts to cause its Contract Manufacturers to resolve any of those problems, and shall keep Endo fully informed of the status of those efforts.

2.2.3Zogenix shall require its Contract Manufacturers to have all required federal, state and local governmental permits and authorizations necessary to perform all the Manufacturing obligations under this Agreement.

2.3Product Specifications.

2.3.1A change in the Product Specifications shall only be made in accordance with this Section 2.3.1 unless otherwise required by Applicable Law:

2.3.1.1In the event Endo desires any change to the Product Specification, Endo shall deliver a written request (a “Request for Specification Change”) to Zogenix specifying such requested change. Zogenix shall, and shall cause its Contract Manufacturers to, evaluate such Request for Specification Change promptly after Zogenix's receipt thereof. Zogenix shall have the obligation to accept and implement any Request for Specification Change unless in its or its Contract Manufacturer's reasonable judgment, after reasonable consultation with Endo, Zogenix or its Contract Manufacturer determines that such Request for Specification Change is (i) not technically feasible, (ii) materially inconsistent

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with the Marketing Authorization, (iii) a change that would bring the Product outside the scope of the license granted to Endo under the License Agreement, or (iv) reasonably likely to have a material and adverse impact on the manufacture of other products incorporating Zogenix Technology. If the Product Specifications are changed based on Endo's Request for Specification Change, Endo shall, in reasonable consultation with Zogenix, determine the date upon which each applicable Contract Manufacturer will begin to Manufacture the Product under the new Product Specifications, taking into account technical and other applicable factors. If any such proposed change to the Product Specification requires additional capital expenditure or other expenditures by Zogenix and/or its Contract Manufacturers, Zogenix shall notify Endo in writing of the applicable additional capital expenditures, and the Request for Specification Change shall not be deemed accepted until Endo has consented in writing to reimburse Zogenix for the same in accordance with Section 5.6. Prior to shipment of any Product Manufactured under the new Product Specifications, Endo shall be obligated to purchase any inventory of in-process and Finished Goods Product Manufactured under the unmodified Product Specifications held by Zogenix or its Contract Manufacturers (to the extent Zogenix is so obligated to purchase it from such Contract Manufacturers) on behalf of Endo as a result of Endo’s Master Production Plan which in-process and Finished Goods Product has been rendered obsolete by such new Product Specifications.

2.3.1.2 In the event that Zogenix desires any change to the Product Specification that is not required by Applicable Law or Governmental Authority, Zogenix, after consultation with its Contract Manufacturers to determine feasibility of such change, shall deliver a written request (a “Request for Specification Change”) to Endo specifying such requested change. Endo shall evaluate such Request for Specification Change promptly after Zogenix's receipt thereof. Endo may accept or deny any Request for Specification Change of Zogenix in its sole discretion, including with respect to any allocation of Costs therefor, which shall be agreed between the Parties prior to any such acceptance. If Endo agrees to Zogenix's Request for Specifications Change and the Product Specifications are changed based on it, Endo shall, in reasonable consultation with Zogenix, determine the date upon which each applicable Contract Manufacturer will begin to Manufacture the Product under the new Product Specifications, taking into account technical and other applicable factors.

2.3.2Notwithstanding Section 2.3.1, if either Party becomes aware of any Applicable Law or Governmental Authority that requires a change in the Product

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Specifications, that Party shall promptly notify the other Party, and the Parties shall cooperate in a timely manner in connection with any modifications of the Product Specifications required to meet those requirements. Any Costs associated with a change in Product Specifications required by Applicable Law or any Governmental Authority shall be borne by [***] during such period and to which such modifications apply and otherwise by Zogenix, and Zogenix shall not be liable if its Contract Manufacturer is unable to Manufacture the Product under such new Product Specifications.

2.4Regulatory Matters. As part of the Manufacturing and Support Services as requested by Endo, Zogenix shall provide Endo with reasonable assistance and all documentation related to the Manufacture of the Product that in each case is necessary or useful to keep the Marketing Authorizations in effect or necessary or useful to respond to inquiries and requests from the FDA and other relevant Governmental Authorities as may be requested by Endo in writing. Endo shall comply with the obligations set forth in Section 2.6(b) of the License Agreement in its entirety.

2.5Quality Agreement. The Parties have agreed to certain protocols, tasks and responsibilities, relating to the testing, release, cGMP and Manufacture of the Product. These protocols, along with the procedures for resolution of any technical disputes regarding Product quality and notification procedures for Product complaints, adverse event and recalls are outlined in a separate Quality Agreement to be executed simultaneously herewith (the “Quality Agreement”).

2.6Intellectual Property

2.6.1Endo Trademarks. Endo hereby grants to Zogenix and its Affiliates a non-exclusive license under the Endo Trademarks and any Endo Inventions solely to make and have made Product for Endo pursuant to the terms of this Agreement.

2.6.2Inventions. Section 3.2 of the License Agreement is hereby incorporated herein by reference, mutatis mutandis, as if fully set forth herein.

3. FORECASTS; ORDERS; SHIPMENTS

3.1Forecasts.

3.1.1On or before the [***] during the Term, Endo shall furnish to Zogenix a written [***] forecast of the quantities of Product that Endo intends to order from Zogenix within the Capacity during such period (provided the initial [***] forecast shall be consistent with those quantities currently binding to Patheon and Zogenix as of the Effective Date) (the “Master Production Plan”). The [***] (beginning with the first [***] following the [***] in which the Master Production Plan is due) of each Master Production Plan shall be deemed to be a binding, non-cancelable purchase order and shall be accompanied by any other information required under Section 3.2 (the “Purchase Order”). The following [***] of the Master Production Plan shall be Endo’s non-binding, good faith estimate of such requirements based on forecasted trade demand

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(“Non-Binding Commitment”); provided,howeverthat the forecasted quantities for the [***] of the Non-Binding Commitment shall not vary by more than [***] from what was forecast for such period in the immediately prior Master Production Plan (such limitation on variation, the “Purchase Volume Limitation”). Notwithstanding the foregoing, any reasonable incremental change in the forecasted quantities made by Endo in order to make up for the variance (as provided in Section 3.4.4) between the actual units delivered by Zogenix from the Standard Batch Size shall not be subject to the Purchase Volume Limitation.

3.1.2Each Master Production Plan and accompanying binding Purchase Order shall be deemed to be automatically accepted unless Zogenix notifies Endo of its rejection of the same within [***] of receipt (“Acceptance”). If Zogenix has any concerns with respect to any Master Production Plan and/or Purchase Order, including with respect to any spikes or dips in the amounts being purchased or forecasted for purchase, the Parties shall discuss the same in good faith and make any necessary revisions to such Purchase Order and/or Master Production Plan; provided, however, Zogenix shall not be deemed to have automatically accepted any Master Production Plan or Purchase Order which is materially inconsistent with the terms of this Agreement. With respect to quantities of Product ordered pursuant to such Purchase Order that exceed the Purchase Volume Limitation, Zogenix shall not be obligated to accept the excess portion of such Purchase Order but nevertheless shall use Commercially Reasonable Efforts to fill such orders for such excess quantities from available supplies. If Zogenix is nonetheless unable using Commercially Reasonable Efforts to supply such quantities that exceed the Purchase Volume Limitation for Product, such inability to supply shall not be deemed to be a breach of this Agreement by Zogenix or a failure by Zogenix to supply for any purpose.

3.1.3If Zogenix reasonably believes that the Master Production Plan submitted by Endo, when combined with the requirements of Zogenix, its Affiliates or Zogenix's other licensees of Zogenix Technology, would exceed the Capacity of its Contract Manufacturers, its shall notify Endo of the same and the Parties shall use Commercially Reasonable Efforts to devise a mutually acceptable resolution provided that if the Parties are unable in a timely manner to reach agreement on such resolution, then in all cases, priority of supply shall be given to Product quantities forecast or ordered [***], such priority to be given to quantities forecast or ordered [***] such [***].

3.2Purchase Orders.

3.2.1Unless the Parties otherwise agree in writing, all orders for Product placed hereunder shall be submitted to Zogenix according to the procedures described in Section 3.1 of this Agreement. Each Purchase Order for Product shall specify: (i) the type of Product being ordered (i.e., whether the Product is intended for trade or Samples and for what territory it is intended to be marketed (it being acknowledged by Endo that as of the Effective Date, the Facility is only packaging Finished Goods for sale and/or use in the United States and additional Manufacturing Support Costs shall apply to the extent Endo requests supply of Finished Goods for sale or use outside of the United States and the associated Costs therefor are not included in Actual COGS); (ii) the amount of such Product being requested (which shall be within the

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Purchase Volume Limitation and in even multiples of the Standard Batch Size unless otherwise agreed by Zogenix); and (iii) the requested Delivery Dates (which, unless otherwise agreed by Zogenix in writing, shall be between [***] after acceptance of the Purchase Order.

3.2.2Each Purchase Order submitted by Endo and Accepted by Zogenix in accordance with the terms of this Agreement shall give rise to a contract for the purchase of Product under the terms set forth in this Agreement, to the exclusion of any additional or contrary terms set forth in any Purchase Order, invoice or other documentation exchanged between the Parties other than a signed written amendment of this Agreement.

3.2.3Notwithstanding anything to the contrary herein, on the Effective Date of this Agreement: (i) Endo shall be deemed to have placed a Purchase Order for all of the Inventory of Finished Goods then being held by Zogenix that has at least [***] of Residual Shelf Life as of the Effective Date and (ii) Zogenix shall have the right to submit an invoice to Endo for the value of such Inventory of Finished Goods that it delivers to Endo in one or more installments. Endo agrees to have its freight forwarder take delivery of such Inventory of Finished Goods from Zogenix's Sample fulfillment warehouse and third party logistics provider as soon as practicable, and in any event, within [***] after receipt of written notice from Zogenix that it is [***] and shall inspect, reject or accept and pay for such Finished Goods in accordance with the terms and conditions of this Agreement.

3.3Order Size. Endo shall place Purchase Orders for Product in whole multiples of the Standard Batch Size unless otherwise agreed by Zogenix in writing.

3.4Delivery.

3.4.1Zogenix shall use Commercially Reasonable Efforts to ensure that Product ordered pursuant to a Purchase Order which is properly provided under this Agreement and Accepted by Zogenix will be completed and delivered on or about the Delivery Date.

3.4.2All Product purchased hereunder shall be delivered FCA the Facility (or with respect to the Inventory of Finished Goods described in Section 3.2.3 such location as set forth therein). Endo shall be responsible for coordinating, contracting for and paying for the Cost of insuring and shipping all Product from the Facility to Endo’s designated location(s) using carriers designated by Endo. Upon acceptance of the Product by such carrier, the applicable Product shall be deemed "Delivered." Zogenix and its Contract Manufacturers shall be responsible for all documentation necessary to effect Delivery.

3.4.3Zogenix will provide, and will request its Contract Manufacturers to provide, Endo, at Endo’s Cost, with whatever reasonable assistance Endo may require in processing claims with the carriers for lost or damaged shipments once a shipment of Product has been Delivered in accordance with Section 3.4.2 and prior to its Acceptance or deemed Acceptance by Endo.

3.4.4Endo acknowledges and agrees that Product Delivered pursuant to an

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Accepted Purchase Order may vary from the quantities reflected in such Purchase Order; provided, however, Endo shall be obligated to pay and shall pay for only the quantity of Product actually Delivered. To the extent quantities vary by more than [***] from an Accepted Purchase Order the Parties shall confer and Endo may make any incremental adjustments reasonably necessary to account for such variance to the Master Production Plan for the following [***].

3.4.5Zogenix shall inform Endo of any anticipated delay in the shipment of any quantity of any Product.

3.4.6[***].

3.4.7If Zogenix is unable to supply to Endo the quantity of Product that Zogenix is required to supply hereunder [***], Zogenix shall allocate any Capacity at the Facility and inventories of components for the Product between Endo and any other purchasers of product manufactured using the Zogenix Technology with which Zogenix then has an on-going contractual relationship [***].

4. TESTING; PRODUCT REJECTION; MATERIALS

4.1Testing.

4.1.1Zogenix or its Contract Manufacturer shall conduct quality control testing of all Materials prior to use and all batch testing of Product prior to release as set forth in the Quality Agreement and in keeping with the Product Specifications and Applicable Law.

4.1.2Prior to delivering any Product, (i) Zogenix or its Contract Manufacturer shall utilize appropriate test protocols to ensure that the Product has been manufactured according to the Product Specifications and Applicable Law, (ii) Zogenix or its Contract Manufacturer shall provide to Endo or its designee a Certificate of Analysis showing the results of Zogenix’ or its Contract Manufacturer's testing and a signed Certificate of Compliance certifying that the Product meets the Product Specifications and was Manufactured in accordance with Applicable Laws including applicable cGMP and this Agreement and (iii) Zogenix or its or its Contract Manufacturer shall have released the Product for delivery.

4.1.3Zogenix or its Contract Manufacturer shall be responsible for conducting intermediate and final product testing and stability studies as required by any Governmental Authority having jurisdiction in the Territory and the Product Specifications; provided,however,Endo shall reimburse Zogenix for all of its out-of-pocket Costs incurred in connection therewith pursuant to Section 5.2.2.

4.1.4At the request of Endo in its reasonable discretion and at Endo's Cost, but at all times subject to Zogenix's then current commitments with its Contract Manufacturers, the Parties shall cooperate to transfer and qualify stability testing of the Product to Endo or a third-party laboratory designated by Endo, after which transfer and qualification, such stability testing of the Product shall be performed by Endo or such third-party designated laboratory instead of

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by Zogenix or its Contract Manufacturer.

4.2Non-Conforming Product.

4.2.1Endo shall have a period of [***] from the date of notification that the Product has been [***] to inspect or cause to be inspected Product supplied under this Agreement. Endo and/or its carrier shall complete an initial visual inspection of the Product at the time its freight forwarders pick up Product at Zogenix' or its Contract Manufacturer's warehouse. Endo shall have the right to reject by notice to Zogenix within such [***] any Product that does not conform in all material respects with the Product Specifications or applicable good manufacturing practices in effect at the time of Acceptance of the Purchase Order (such Product thereby having a “Defect” and upon proper rejection, deemed “Defective”). All shipments of Product shall be deemed accepted by Endo unless Zogenix receives written notice of rejection from Endo within such [***] describing the reasons for the rejection in reasonable detail. Once a delivery of Product is accepted or deemed accepted hereunder, Endo shall have no recourse against Zogenix in the event the Product is subsequently deemed unsuitable for use for any reason, except where the Defect is deemed a Latent Defect or with respect to Short Dated Product.

4.2.2As soon as either Party becomes aware of any Defect in any Product Batch which either (i) existed at the time of Acceptance but was not discovered at such time or (ii) arose as a result of any condition existing before the expiration of the Residual Shelf Life of the Product, by no fault of Endo or its Affiliates, sublicensees, distributors, wholesalers or its or their customers (each such Defect, a “Latent Defect”), it will promptly notify the other Party of such event (including reasonable details and the Batch involved). If Product accepted by Endo become non-conforming by virtue of the Latent Defect, such Product shall thereafter be deemed rejected and the notification made under this Section 4.2.2 shall constitute a notice of rejection thereof, and Endo may thereafter place the Batch on quality assurance hold pending Zogenix’ investigation and a final resolution of the claimed Latent Defect pursuant to Section 4.2.4. To the extent Defect or a Latent Defect in a Product resulted from a failure by a Zogenix Contract Manufacturer to abide by the terms of an applicable contract for manufacture or supply of Materials or Products to Zogenix for use in supply of Products to Endo hereunder, then Endo [***].

4.2.3If, after using Commercially Reasonable Efforts for a period of [***], Endo is unable to Commercialize any Batch which was deemed to be Short Dated Product at the time Delivered or Endo’s wholesaler returns any Batch which was deemed to be Short Dated Product at the time Delivered, then to the extent such Short-Dated Product resulted from a failure by a Zogenix Contract Manufacturer to abide by the terms of an applicable contract for manufacture or supply of Materials or Products to Zogenix for use in supply of Products to Endo hereunder, then Endo [***]. After its receipt of a notice of rejection from Endo pursuant to Section 4.2.1 or 4.2.2 above, Zogenix shall notify Endo as soon as reasonably practical whether it accepts Endo’s basis for rejection and Endo shall reasonably cooperate with Zogenix in reasonably determining whether such rejection was necessary, permitted or justified. If the Parties are unable to agree as to whether a shipment of Product supplied by Zogenix or its Contract Manufacturer hereunder is Defective, such question shall be submitted to an independent quality

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control laboratory mutually agreed upon by the Parties. The findings of such independent laboratory shall be binding upon the Parties. The Cost of the independent quality control laboratory shall be borne by the Party whose results are shown by such laboratory to have been incorrect.

4.2.4Except as may be required by Applicable Law, Endo may not return or destroy any rejected Product until it receives (i) written notification from Zogenix that Zogenix does not dispute that the Product is subject to a right of rejection pursuant to Section 4.2.1 or 4.2.2 or (ii) it receives written notice from the independent quality control laboratory that the Product was Defective at the time of release or had a Latent Defect. Zogenix will indicate in its notice either that Endo is authorized to destroy the rejected Product or that Zogenix requires return of the rejected Product. Upon written authorization from Zogenix to do so (which authorization shall be deemed an admission that the Batch was properly rejected by Endo), Endo shall promptly destroy the rejected Product and provide Zogenix with written certification of such destruction, or, if the request so states, Endo shall promptly return the rejected Product to Zogenix, in either case at Zogenix Cost, including the Cost of shipment from the Facility to Endo pursuant to the applicable Purchase order. Under no circumstances shall Endo Commercialize any Product which Endo believes is Defective or which Zogenix has informed Endo is Defective until and unless there is a determination by the Parties or the applicable independent laboratory that such Product is not Defective.

4.2.5Endo shall not be required to pay any invoice with respect to any shipment of Product properly rejected, returned or destroyed pursuant to this Section 4.2 until replacement thereof with conforming Product. Notwithstanding the foregoing, Endo shall be obligated to pay in full for any rejected shipment of Product that is subsequently determined not to have been properly rejected pursuant to this Section 4.2 within [***] of such determination, irrespective of whether Endo has already paid Zogenix for a replacement shipment. If Endo pays in full for a shipment of Product and subsequently properly rejects such shipment in accordance with this Section 4.2, Endo shall be entitled, upon confirmation that such shipment or material portion thereof is Defective, to require Zogenix to replace such rejected shipment with non-Defective Product. Endo acknowledges and agrees that the express remedies set forth herein and the indemnification obligations set forth in Section 10.1, shall be Endo’s sole and exclusive remedy, and Zogenix’ sole obligation, with respect to Defective Product, Short Dated Product or otherwise non-conforming Product delivered hereunder.

4.2.6Endo’s rights of rejection, return, refund and replacement set forth in this Section 4.2 shall not apply to any Product that is Defective due to damage (i) caused by Endo, its Affiliates, sublicensees or distributors or their respective employees or agents, including misuse, neglect, improper storage, transportation or use beyond any dating provided or (ii) that occurs due to any circumstance arising solely after Delivery (and for the avoidance of doubt, if a Defect occurs due in whole or in part to a circumstance arising before Delivery, this Section 4.2.6 shall not apply to such Defect), including any damage caused thereafter by accident, fire or other hazard. In each case, Zogenix shall have no liability or responsibility to Endo with respect thereto.

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4.3Materials.

4.3.1Unless otherwise agreed pursuant to an accepted Purchase Order, Zogenix or its Contract Manufacturers shall be responsible for the procurement of all Materials. In addition, Zogenix will procure the packaging materials, labels and labelling materials for all jurisdictions.

4.3.2Endo shall be solely responsible for ensuring that the form and content of the artwork for printed materials for the Product comply with Applicable Laws and does not violate any Third Party Intellectual Property Rights. Endo shall from time to time promptly inform Zogenix of any requested or required changes in the form and content of printed materials, including labels, package inserts and individual printed cartons, for the Product. Endo shall be responsible for obtaining applicable Marketing Authorization for any changes in the form and content of printed materials and for informing Zogenix of any changes in those printed materials required to comply with Applicable Laws. Endo shall reimburse Zogenix upon invoice for the Cost of dies and other start-up Costs incurred reasonably and in good faith in connection with creating and/or changing the printed materials. In addition, Endo shall reimburse Zogenix for its Costs in procuring and/or Manufacturing, in reasonable reliance upon Endo's Master Production Plans, any printed materials and/or any Product packaged or labeled with printed materials that are made obsolete due to changes requested by Endo or required by Applicable Law as well as Zogenix' disposal Costs therefor.

5. PRICE AND PAYMENT; WORKING CAPITAL ADVANCE

5.1Transfer Price. On the Effective Date and on or before the start of each calendar year during the Term, Zogenix and Endo shall agree upon the estimated Zogenix’s Actual COGS (“Standard COGS”), which Standard COGS plus two and one-half percent (2.5%) (the “Standard Transfer Price”) shall be applied to all Purchase Orders submitted by Endo during the upcoming calendar year. If for any reason, the Standard COGS are not agreed upon prior to the start of the applicable calendar year, then the Actual Transfer Price for Product ordered by Endo in the last quarter of the prior year shall apply until such time as the Parties reach agreement. Notwithstanding the foregoing, if Zogenix determines that the Standard Transfer Price is off by more or less than [***] of the Actual Transfer Price during an applicable calendar year, then Zogenix shall inform Endo of the same, and the Parties shall agree upon an interim adjustment.

5.2Invoices.

5.2.1Zogenix shall submit invoices to Endo for the Standard Transfer Price at the time of delivery of any Product ordered pursuant to a Purchase Order. The Standard Transfer Price includes all taxes except (i) value added tax ("VAT") and (ii) such sales and use taxes that Zogenix is required by law to collect from Endo. Such taxes, if any, will be separately stated in Zogenix's invoice and will be paid by Endo to Zogenix unless Endo provides an exemption to Zogenix and subject to receipt of a valid VAT receipt or invoice to Zogenix in the form and manner required by law to allow Endo to recover such taxes to the extent allowable by

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law. Zogenix shall be solely responsible for the timely payment of all such taxes to the applicable governmental authority.

5.2.2Zogenix shall also submit invoices to Endo on [***] for Manufacturing Support Costs, Capital Investments and Costs associated with Improvement Projects approved in advance in writing by Endo and incurred by Zogenix in the previous [***], which shall be paid by Endo in accordance with Section 5.2.3.

5.2.3All invoices hereunder shall be payable in U.S. dollars by Endo within [***] after issuance of an invoice by Zogenix to Endo. For any amounts more than [***] past due, Zogenix shall be entitled to charge Endo on the amount unpaid with interest for late payment. Said interest shall be calculated at an annual rate equal to [***] (providedthat such interest rate shall not exceed the maximum annual interest rate permitted by Law) and shall accrue from time to time until payment is received by the Zogenix. If any undisputed amount due hereunder remains outstanding for more than [***] after its due date and notice of non-payment from Zogenix, Zogenix may, in addition to any other rights or remedies it may have, refuse to Deliver Product hereunder except upon payment by Endo in advance, provided that as soon as Endo has paid to Zogenix any such outstanding amount and any interest due thereon, Zogenix's right to refuse to Deliver Product absent payment in advance shall end. Notwithstanding anything to the contrary herein, Endo shall have no obligation to pay or otherwise reimburse Zogenix for or in respect of any income tax, including any withholding tax, imposed upon Zogenix or any of its Affiliates with respect to payments made pursuant to this Agreement; provided, however, to the extent Endo pays any such withholding tax over to a Governmental Authority, Endo shall promptly provide Zogenix satisfactory evidence of such payment upon request.

5.3Adjustments. Within [***] after the end of each calendar quarter, Zogenix shall calculate the Actual COGS during such calendar quarter. If the Actual COGS were greater than the Standard COGS per unit paid by Endo in such quarter, then Zogenix shall provide to Endo a reasonably detailed statement setting forth the applicable variances and shall invoice Endo for the difference between the Actual Transfer Price and the Standard Transfer Price for units produced in such quarter. If the Actual COGS were less than the Standard COGS per unit paid by Endo, then Zogenix shall provide Endo a credit against future invoices.

5.4Records and Audits. Zogenix shall create and maintain complete and accurate records and documentation concerning the Actual COGS in sufficient detail to enable the amounts payable hereunder to be determined. Zogenix shall retain such records and documentation for not less than [***] from the date of their creation or such longer period as may be required by Applicable Law. During the Term and for a period of [***] thereafter, upon at least [***] written notice provided by Endo, Endo shall have the right to have an independent auditor reasonably acceptable to Zogenix audit no more than [***] per year such records and documentation as shall pertain to the determination of such Actual COGS. Such examiners shall have reasonable access during regular business hours to Zogenix’ offices and the relevant records, files and books of account necessary to determine the accuracy of the calculations provided by Zogenix. All information disclosed to such auditors shall be deemed the Confidential Information of Zogenix

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The Costs of any such audit shall be borne by Endo, unless as a result of such inspection it is determined that the amounts overpaid by Endo for any audited period (which were not already corrected in any true-up pursuant to this Agreement), which period shall not be less than [***], are in error by greater than [***], in which case the Costs of such audit shall be borne by Zogenix. Endo shall report the results of any such audit to Zogenix within [***] of completion. Thereafter, Zogenix shall promptly credit to Endo the amount of any overpayment discovered in such audit, or Endo shall pay to Zogenix the amount of any underpayment discovered in such audit, as the case may be.

5.5Working Capital Advance. Endo shall provide to Zogenix, within ten (10) days after the Effective Date, a working capital advance (the “Working Capital Advance”) equivalent to the lesser of (i) the book value of the inventory of Materials and unreleased Finished Goods that are held by Zogenix in connection with the Manufacture of Product minus the accounts payable associated with such Materials and unreleased Finished Goods, or (ii) a “Working Capital Cap”, which shall be initially established at seven million dollars ($7,000,000) and adjusted in accordance with the terms herein (the “Working Capital Target”). The forecast for the [***] following the Effective Date shall serve as the baseline for the Working Capital Cap, which cap shall be adjusted upwards or downwards on each anniversary of the Effective Date based on (i) changes in foreign exchange rates and (ii) the change between the baseline forecast and the current forecast. Thus, if on the Effective Date the forecast annual volume was [***] units, on the first anniversary date the forecast annual volume was [***] units, and on the second anniversary date the forecast annual volume was [***] units, the Working Capital Cap would be [***] of $7,000,000, or $[***] for the second year of the agreement and [***] of $7,000,000, or $[***], for the third year of the Agreement. On each anniversary of the Effective Date during the Term, Zogenix shall provide Endo with an update as to the then-current Materials, unreleased Finished Goods inventory and accounts payable levels associated with such inventory and shall either return to Endo any amount of the Working Capital Advance at such time that is greater than the then-current Working Capital Target or shall invoice Endo for difference between the then-current Working Capital Target and the then-current Working Capital Advance if such difference is a positive amount. Notwithstanding the foregoing, if at any time during the Term, Zogenix determines the book value of the inventory of Materials and unreleased Finished Goods that are held by Zogenix in connection with the Manufacture of Product minus the accounts payable associated with such Materials and unreleased Finished Goods exceeds the Working Capital Cap by more than [***], then Zogenix may inform Endo of the same and the Parties shall discuss in good faith and agree upon an adjustment to such Working Capital Cap. The Working Capital Advance shall be secured by notes providing Endo with liens upon the Materials and unreleased Finished Goods to secure payment thereof, such notes in the form set forth on Exhibit E.

5.6Capital Investment. After the Effective Date, if the Product is the only Product being Manufactured with Zogenix equipment and processes, then all capital investment approved in advance in writing by Endo to increase Capacity, improve yield, improve Product performance or mitigate supply risk or comply with Applicable Law or Regulatory Approvals (“Capital Investments”) shall be the responsibility of and paid for by Endo, and any other capital investment

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shall be the responsibility and paid for by Zogenix (unless otherwise contemplated in Section 2.3. If, however, another product utilizes the supply chain, then investment shall be shared between Endo and Zogenix on [***]. In either event, Zogenix shall own all equipment used by Zogenix or its Contract Manufacturers in the Manufacture of the Product, provided that the [***]. Notwithstanding anything to the contrary herein, no capital investment expenditures described under this Section 5.6 may be initiated without the express written approval of the Parties after recommendation by the Supply Committee pursuant to Section 7.1.

5.7Improvement Projects. Endo shall have the right in its sole discretion to approve any projects to be undertaken regarding the Manufacture of the Product (any such project, an "Improvement Project"). After the Effective Date, if the Product is the only Product being Manufactured with Zogenix equipment and processes, then all Improvement Projects for the Product approved in advance in writing by Endo shall be the responsibility of and paid for by Endo. If, however, another product utilizes said improvements, then investment shall be shared by Zogenix and Endo on [***]. Endo may agree on the creation and administration of new Improvement Projects at any time after the Effective Date, subject to the review of and consultation with the Supply Committee pursuant to Section 7.1. [***]. Within [***] after the Effective Date, the Parties shall discuss each [***] and whether Endo desires to approve Zogenix's completion of all or any of the same. If approved, Endo shall reimburse Zogenix upon invoice for the Costs set forth in such written budget and incurred by Zogenix in connection with the approved [***] on or following the Effective Date. Zogenix may, with the written consent of Endo (such consent not to be unreasonably withheld, delayed or conditioned) conduct its own Improvement Projects so long as any such Improvement Project is not reasonably likely to [***].

6. RECORDS

6.1Manufacturing Records. Zogenix shall, and shall cause Patheon and Zogenix's other Contract Manufacturers for the Product to, keep records pertaining to the Manufacture of all Product, validation/stability/developmental data and all other Manufacturing records related thereto in accordance with cGMP and all Applicable Laws and regulations for at least [***] after the expiration date of the applicable Batch (or such longer period as required by Applicable Law, regulation or good manufacturing practices). Zogenix shall not destroy any such records unless it first provides Endo with written notice of its intent to do so and provides Endo with the reasonable ability to obtain and retain custody of such records, at Endo’s sole Cost. Zogenix shall, and shall cause Patheon and Zogenix's Contract Manufacturers for the Product to, make those records reasonably available to Endo or its designees upon written request. In the event Zogenix replaces Patheon or any of Zogenix's other Contract Manufacturers for the Product, it shall require Patheon to transfer any such records to Zogenix to ensure that Zogenix can continue to comply with this Section 6.1.

7. SUPPLY COMMITTEE: PRODUCT RECALLS; AND GOVERNMENTAL COMMUNICATIONS; FACILITY AUDITS

7.1Supply Committee. The Parties shall establish a supply committee, with an equal

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number of representatives from each of Zogenix and Endo (the “Supply Committee”). Both Parties will ensure that their representatives attend regular telephonic or in-person meetings of the committee and report matters relevant to the performance of this Agreement. The meetings will be co-chaired by one operational senior management representative of, and selected by, each Party. Minutes of the committee’s meetings shall be signed by and circulated to both Parties. The Supply Committee shall meet quarterly in-person or by telephone for strategic operations review meetings during the Term and shall perform the following functions with respect to the Product:

7.1.1consider revisions to the Product Specifications and the impact of those revisions upon yields, Capacity, Costs and other terms of this Agreement;

7.1.2 review developments related to forecasting, commercial and regulatory issues;

7.1.3Capacity and contingency planning, investing in increasing Capacity and revisions to the Capacity;

7.1.4Review and approve (such approval not to be unreasonably withheld, conditioned or delayed) any new supply contracts (or contract amendments) with Patheon, Nipro Glass and/or Nypro to the extent such new contract (or contract amendment) adversely affects Actual COGS;

7.1.5review the Schedules of this Agreement where relevant;

7.1.6review and approve on an annual basis (i) any changes in [***] that (i) in the aggregate increase by the greater of [***] or the increase in the [***] as determined by the United States Bureau of Labor Statistics for the immediately preceding year or (ii) result in any [***], in each case (i) or (ii) excluding any [***];

7.1.7review, oversee and amend the scope or details of any existing Improvement Project, and approve the creation and administration of any new Improvement Project, as described in Section 5.7;

7.1.8review and approve proposed Capital Investments as described in Section 5.6; and

7.1.9such other major functions as the Parties jointly agree to assign to it;.

The Supply Committee will have solely the roles and responsibilities assigned to it in this Section 7.1. The Supply Committee will have no authority to amend, modify or waive compliance with this Agreement. In addition, the Supply Committee shall not have the authority to alter, or waive compliance by a Party with, a Party’s obligations under this Agreement. However, each Party will reasonably cooperate with the other in implementing the findings of the Supply Committee, to the extent that such implementation is necessary to give effect to this Agreement and does not

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unfairly and materially prejudice the interests of that Party.

7.2Decisions Concerning Recall; Costs.

7.2.1In the event that either Party believes it may be necessary to conduct a recall of any Product, it shall notify the other Party thereof as soon as reasonably practicable, and the Parties shall promptly consult with each other as to how best to proceed and shall use Commercially Reasonable Efforts to assist one another, it being understood and agreed that the final decision as to any recall of any Product in the Territory shall be made by Endo; provided, however, neither Party shall be prohibited hereunder from taking any action that it is required to take under Applicable Law. The Parties shall establish and maintain a system for implementing any such recall and managing all related communication and/or correspondence with the relevant Governmental Authorities.

7.2.2In the event of any recall of any Product arising out of, relating to, or occurring as a direct result of, any [***] herein, [***]. With respect to all other recalls, including any recalls that arise out of, relate to, or occur as a result of [***] herein, or from any acts taken or not taken [***].

7.3Regulatory Audits.

7.3.1Not more than [***], upon reasonable notice, and subject to the terms of the Quality Agreement and the applicable agreements between Zogenix and Patheon, Zogenix shall under Endo's direction or shall permit Endo (or, alternatively, an agent or consultant who has been retained by Endo to conduct such activity and who is bound by written confidentiality provisions no less strict that those set out herein) to conduct, at Endo's Cost, cGMP audits of the Facility, and the Parties shall share with each other the complete results of such audits. Endo will be permitted to have no more than [***] present at all times during the audit and Zogenix shall have the right to have its own personnel accompany such Endo representatives at the Facility.

7.3.2Zogenix shall or shall cause Patheon to also permit Governmental Authorities to conduct any required audits of the Facility. Each Party shall promptly notify the other of any notification by any Governmental Authority regarding Manufacture of the Product, including cGMP investigation or inspection associated with the Product.

7.3.3Zogenix shall [***] to cause such Contract Manufacturers to promptly correct any deficiencies or other adverse findings as reasonably determined by Endo or the Governmental Authorities.

7.3.4Notwithstanding the foregoing, in the event of a recall of the Products, or circumstances giving rise to an Audit for Cause (as such term is defined in the Quality Agreement), subject to the terms of the Quality Agreement and the applicable notice provisions for such an Audit for Cause in the agreements between Zogenix and Patheon, Endo shall have the right to promptly perform an audit of the Facility on less than the notice period of time specified above and more frequently [***]. Endo shall bear the Costs of its observers.

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7.3.5If deficiencies are discovered during an audit, Zogenix will provide Endo with an appropriate action plan within [***] written notice thereof (unless otherwise required by Applicable Law) addressing how Zogenix and its Contract Manufacturers plans to resolve such deficiencies and Zogenix shall implement such plan.

8. CONFIDENTIALITY

8.1Section 4.2 of the License Agreement (Confidentiality) is incorporated herein by this reference and shall apply to this Agreement with references therein to “this Agreement” being understood to refer to this Agreement rather than to the License Agreement.

9. REPRESENTATIONS, WARRANTIES AND COVENANTS

9.1Each Party represents and warrants to the other Party that it has the requisite corporate or other organizational power and authority to enter into and perform its obligations under this Agreement and has taken all corporate or other organizational action necessary to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder

9.2Neither Party, nor any of its Affiliates or employees, has ever been, is currently, or is the subject of a proceeding that could lead to that party becoming debarred by the FDA pursuant to 21 U.S.C. §335a (a) or (b); and

9.3Neither Party, nor any of its Affiliates employs any individual who has been debarred by the FDA pursuant to 21 U.S.C. §335a (a) or (b) from providing services in any capacity to a person that has an approved or pending drug product application.

9.4Zogenix has and shall have at the time of Delivery thereof good and marketable title to all Product supplied hereunder, free and clear of all liens or other encumbrances.

9.5Neither Party, nor any of its Affiliates or employees, has ever been, is currently, or is the subject of a proceeding that could lead to that party becoming excluded pursuant to Section 1128 of the Social Security Act, 42 U.S.C. § 1320a-7 or any similar Law.

9.6Exclusion of Warranties. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT OR THE LICENSE AGREEMENT, (I) NEITHER ZOGENIX, ITS CONTRACT MANUFACTURERS NOR ANY PERSON ON ZOGENIX' BEHALF HAS MADE OR MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER, EITHER ORAL OR WRITTEN, INCLUDING ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, WHETHER ARISING BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, OR USAGE OF TRADE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED, AND (II) ENDO ACKNOWLEDGES THAT IT HAS NOT RELIED UPON ANY REPRESENTATION OR WARRANTY MADE BY ZOGENIX, OR ANY OTHER PERSON ON ZOGENIX’ BEHALF, EXCEPT AS

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SPECIFICALLY PROVIDED IN THIS AGREEMENT, THE PURCHASE AGREEMENT OR IN THE LICENSE AGREEMENT. THE WARRANTIES SET FORTH IN THIS AGREEMENT MAY BE ASSERTED ONLY BY ENDO AND NOT ANY AFFILIATE, SUBLICENSEE, DISTRIBUTOR, THIRD PARTY PURCHASERS OF THE PRODUCT (BUT FOR CLARITY, MAY BE ASSERTED BY A THIRD PARTY ACQUIRER OF ENDO'S RIGHTS HEREUNDER). ENDO SHALL BE SOLELY RESPONSIBLE FOR ALL REPRESENTATIONS, WARRANTIES AND COVENANTS THAT ENDO, ITS AFFILIATES, SUBLICENSEES OR DISTRIBUTORS MADE OR MAKE TO THIRD PARTIES INCLUDING THIRD PARTY PURCHASERS. NOTHING IN THIS SECTION 9.6 IS INTENDED TO LIMIT ENDO'S RIGHTS UNDER THE PURCHASE AGREEMENT WITH RESPECT TO ANY REPRESENTATIONS OR WARRANTIES MADE BY ZOGENIX THEREIN.

10. INDEMNIFICATION; INSURANCE

10.1Zogenix. Zogenix shall indemnify and hold harmless Endo, its Affiliates, any present or future parent or subsidiary of any of them, and their respective officers, directors, employees, agents and Affiliates (collectively, the "Endo Indemnitees") from and against any and all losses, liabilities, damages, Costs whatsoever, including, but not limited to, reasonable counsel fees, and any and all other reasonable Costs (collectively in this section referred to as “Losses”) incurred in investigating, preparing, or defending (other than in a case where Zogenix timely assumes the defense pursuant to Section 10.3.2) any litigation, commenced or threatened by a non-Affiliate Third Party, or any non-Affiliate Third Party claim whatsoever, and any and all amounts reasonably paid in settlement of any claim or litigation, any settlement payments first being subject to Zogenix’ prior consent (not to be unreasonably withheld), and further including out-of-pocket Costs in respect of any Product, including any Product subjected to required recalls or withdrawals, as and when incurred; solely to the extent,such Losses arise out of, are based upon, or are in connection with (i) the gross negligence or wilful misconduct of Zogenix, (ii) violation of Applicable Law by Zogenix in the performance of any of Zogenix' obligations under this Agreement and/or (iii) any reasonably required Product recalls, personal injury, product liability or property damage relating to or arising from Zogenix’s failure to Manufacture Product in accordance with this Agreement, including with the Product Specifications; provided, further, that this obligation of indemnification by Zogenix under this Section 10.1 shall not apply to the extent that Endo is responsible for such Losses pursuant to Section 10.2(i) and 10.2(ii) below.

10.2Endo. Endo shall indemnify and hold harmless Zogenix, its Affiliates, its Contract Manufacturers, any present or future parent or subsidiary of them, and their respective officers, directors, employees, agents and Affiliates from and against any and all Losses incurred in investigating, preparing or defending (other than in a case where Endo timely assumes the defense pursuant to Section 10.3.2) any litigation commenced or threatened by a non-Affiliate third party, or any non-Affiliate third party claim whatsoever, and any and all amounts reasonably paid in settlement of any claim or litigation, any settlement payments first being subject to Endo’s prior consent (not to be unreasonably withheld), and further including out-of-pocket Costs in respect

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of any Product, including any Product subject to required recalls or withdrawals, as and when incurred; including, such Losses arise out of, are based upon, or are in connection with (i) the gross negligence or wilful misconduct of Endo, its Affiliates, sublicensees or distributors, (ii) any violation of Applicable Law by Endo or its Affiliates in the performance of any of Endo's rights or obligations under this Agreement (including failure to obtain any Marketing Authorizations required by Applicable Law) or in the Commercialization of the Product, (iii) the promotion, marketing, distribution, Commercialization and/or sale of any Product, whether directly or through Affiliates, sublicensees or distributors, (iv) any personal injury, product liability or property damage relating to the use, application, consumption, ingestion, misuse or abuse of any Product, or (v) the claimed infringement of any Third Party Intellectual Property Right relating to any Product; provided, further, that this obligation of indemnification by Endo under this Section 10.2 shall not apply to the extent that Zogenix is responsible for such Losses pursuant to Section 10.1 above or the Purchase Agreement or the License Agreement.

10.3Notice of Claim of Indemnification - Third Party Claims.

10.3.1A Party (the “Indemnified Party”) seeking indemnification under this Agreement in respect of, arising out of, or involving a claim or demand made by any entity or Governmental Authority against the Indemnified Party (a “Third Party Claim”) shall notify the indemnifying Party in writing of the Third Party Claim within thirty (30) days after receipt by the Indemnified Party of written notice of the Third Party Claim; however, failure to give such notification shall not affect the indemnification provided under this Agreement, except and only to the extent that the indemnifying Party shall actually have been prejudiced by the failure. Thereafter, the Indemnified Party shall deliver to the indemnifying Party, promptly after the Indemnified Party’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to the Third Party Claim.

10.3.2The indemnifying Party shall have the right, within thirty (30) days after being so notified, to assume the defense of such Third Party Claim with counsel reasonably satisfactory to the Indemnified Party. In any such proceeding the defense of which the indemnifying Party shall have so assumed, the Indemnified Party shall have the right to participate therein and retain its own counsel (without otherwise affecting the rights of the Parties under this Section 10.3.2) at its own Costs unless (i) the Indemnified Party and the indemnifying Party shall have mutually agreed to the retention of such counsel, (ii) the Indemnified Party shall have reasonably concluded that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying Party, or (iii) the named parties to any such proceeding (including the impleaded parties) include both the indemnifying Party and the Indemnified Party, and representation of both Parties by the same counsel would be inappropriate in the opinion of the Indemnified Party’s counsel due to actual or potential differing interests between them; in any such case, one firm of attorneys separate from the indemnifying Party’s counsel may be retained to represent the Indemnified Parties at the indemnifying Party’s Cost. Any settlement of such a Third Party Claim, the defense of which has been assumed by the indemnifying Party, shall not be entered into by the indemnifying Party without prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld; provided,

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however, that such consent shall not be required if (a) there is no finding or admission of any wrongdoing by the Indemnified Party, (b) the Indemnified Party’s intellectual property rights are not compromised in any manner and (c) the sole relief provided is monetary damages that are paid in full by the indemnifying Party.

10.3.3With respect to all Third Party Claims, the Indemnified Party shall cooperate in all reasonable respects with the indemnifying Party in connection with any Third Party Claims and the defense or compromise thereof. Such cooperation shall include the retention and (upon the indemnifying Party’s request) the provision to the indemnifying Party of records and information reasonably relevant to the Third Party Claim, making employees available on a mutually convenient basis to provide additional information and explanation of any material provided under this Agreement. If the indemnifying Party shall have assumed the defense of a Third Party Claim, the Indemnified Party shall not, without first waiving the indemnity as to such claim, admit any liability with respect to, or settle, compromise or discharge, the Third Party Claim, without the indemnifying Party’s prior written consent; provided, however, admissions of facts which a Party may reasonably be required to make shall not be deemed to be admissions of liability.

10.4Conflicts. In the event of any conflict between the terms of this Section 10and the indemnification obligations set forth in the Purchase Agreement with respect to which Party controls the defense of any action and pays the Costs therefor, the terms of this Agreement shall govern.

10.5Cooperation. The Parties shall cooperate with each other with respect to resolving any claim or liability with respect to which one Party is obligated to indemnify the other Party under this Agreement, including, without limitation, by making Commercially Reasonable Efforts to mitigate or resolve any such claim or liability.

10.6Insurance. Each Party shall at all times maintain insurance policies or self-insurance in such amounts and with such scope of coverage as are adequate to cover such Party’s obligations under this Agreement. If requested by the other Party, the insured Party shall furnish a Certificate of Insurance or other reasonable proof of coverage (which may be a certificate or other evidence issued by a Party under a program of self-insurance) evidencing the requisite coverage required under this Section 10.6 during the Term.

10.7Limitation of Liability. THE PARTIES HEREBY DISCLAIM ANY LIABILITY FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES (INCLUDING LOST PROFITS), UNLESS SUCH DAMAGES HAVE BEEN CAUSED BY GROSS NEGLIGENCE OR THE WILLFUL MISCONDUCT OF THE PARTY FROM WHOM RECOVERY OF SUCH DAMAGES IS SOUGHT. IN NO EVENT SHALL ZOGENIX BE LIABLE TO ENDO HEREUNDER FOR HARM TO THE EXTENT CAUSED BY ZOGENIX'S CONTRACT MANUFACTURERS PROVIDED THAT ZOGENIX SHALL HAVE COMPLIED WITH THE PROVISIONS OF SECTION 10.8.

10.8 [***].

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11. TERM AND TERMINATION

11.1Term. This Agreement shall commence on the Effective Date and, unless sooner terminated as provided herein, this Agreement shall continue in full force and effect until the earlier termination of the License Agreement (the “Term”).

11.2Termination.

11.2.1Termination for Convenience. Either Party shall have the right to terminate this Agreement for convenience upon providing three (3) years prior written notice of the same to the other, provided that (i) in no event shall notice of such termination for convenience be given prior to the fifth (5th) anniversary of the Effective Date, and (ii) any termination of this Agreement by Zogenix pursuant to this Section 11.2.1 shall be effective upon and only upon Zogenix fulfilling its obligations under Section 11.3.2.2 through 11.3.2.4.

11.2.2Termination Due to Default or Breach. If either Party breaches or defaults in the performance or observance of any of the material provisions of this Agreement, and (i) such breach or default is not cured within [***] after the giving of written notice by the other Party specifying in detail such breach or default; provided, however, such breach can reasonably be cured within the [***]; or (ii) if a cure of such breach or default reasonably would take longer [***], but the defaulting Party fails to commence curing such default or breach promptly, or thereafter fails to continually use its Commercially Reasonable Efforts to diligently pursue the cure of such breach or default or if the defaulting party fails to cure such breach or default within [***] for any reason, then in any of such events the non‑defaulting Party shall then have the right to terminate this Agreement on [***] prior written notice to the defaulting Party following the expiration of [***]. The failure by a Party to exercise its right to terminate this Agreement pursuant to this Section 11.2.2 in the event of any occurrence giving rise thereto shall not constitute waiver of the rights in the event of any subsequent occurrence, including any right to be indemnified hereunder in accordance with Section 10.

11.2.3Termination Due to Financial Difficulties. Either Party, being the non-defaulting Party hereunder, shall have the right to terminate this Agreement upon prior written notice to the other Party, with immediate effect, in the event that such other Party becomes involved in financial difficulties as evidenced:

11.2.3.1by that other Party’s commencement of a voluntary case under any applicable bankruptcy code or statute, or by its authorizing, by appropriate proceedings, the commencement of such a voluntary case;

11.2.3.2by its failing to receive dismissal of any involuntary case under any applicable bankruptcy code or statute within [***] after initiation of such action or petition;

11.2.3.3by its seeking relief as a debtor under any Applicable Law of

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any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or by consenting to or acquiescing in such relief;

11.2.3.4by the entry of an order by a court of competent jurisdiction finding it to be bankrupt or insolvent, or ordering or approving its liquidation, reorganization or any modification or alteration of the rights of its creditors or assuming custody of, or appointing a receiver or other custodian for, all or a substantial part of its property or assets; or

11.2.3.5by its making as assignment for the benefit of, or entering into a composition with, its creditors, or appointing or consenting to the appointment of a receiver or other custodian for all or a substantial part of its property.

11.2.4Termination Due to Safety or Efficacy. This Agreement will automatically terminate upon written notice by Endo to Zogenix in the event that the Product has been deemed ineffective or unsafe by the applicable Governmental Authorities and Endo determines to permanently withdraw the Product from the market throughout the Territory.

11.2.5Termination Due to Significant Supply Failure. If Zogenix fails for to supply to Endo at least [***] of the quantity of Product properly forecasted and ordered by Endo over the course of a [***] which result, in either period, in Endo being unable to supply Product to its trade customers (and provided such Purchase Orders were within the Capacity [***]) (the occurrence of such event, a “Significant Supply Failure”), then so long as such Significant Supply Failure was not the result of a Force Majeure, Endo in its sole discretion may, not later than [***] following the end of such Significant Supply Failure, provide written notice to Zogenix of such event, and may elect, in such written notice, to terminate the Agreement under this Section 11.2.5. If Endo elects to terminate the Agreement under this Section 11.2.5, then such termination shall become effective [***] after Zogenix’ receipt of Endo’s written notice thereof. If Endo elects to terminate this Agreement pursuant to this Section 11.2.5, then Endo shall have the right and license, pursuant to Section 2.2 of the License Agreement, to make or have made quantities of Product. In addition, Zogenix shall use provide to Endo and/or its designated back-up supplier reasonable assistance (both off site and on site) and all required technical information and a detailed description of all manufacturing processes required for the same. [***]

11.2.6Back-up Manufacturing Facility. At any time after the Effective Date, Endo shall be permitted to qualify and enter into a back-up manufacturing agreement for Finished Goods with (i) an alternative supplier which has already been qualified by Zogenix or one of Zogenix’ other customers with respect to DosePro or (ii) if there is no such prequalified supplier which is both made known to Endo and able to supply the Finished Goods to Endo on commercially reasonable terms, itself or with an alternative supplier otherwise reasonably

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acceptable to Zogenix [***]. If required by the alternative supplier to be maintained as a back-up supplier, Endo shall have the right to purchase a reasonable number of minimum Batches of Finished Goods from such alternative supplier per year, provided that in no event shall such amount exceed [***] of the total amount purchased by Endo from Zogenix unless and until there has between a Significant Supply Failure. Endo shall have the right and license, pursuant to Section 2.2 of the License Agreement to setup such back-manufacturing arrangements (including the right to sublicense the Zogenix Technology (as defined in the License Agreement)) with respect thereto and to make or have made the foregoing quantities of Finished Goods. Notwithstanding the foregoing,[***].

11.3Rights and Obligations upon Termination.

11.3.1If this Agreement is terminated by Zogenix pursuant to Sections 11.2.2 (Termination for Breach) or 11.2.3 (Termination Due to Financial Difficulties), or by Endo pursuant to Sections 11.2.1 (Termination for Convenience) or 11.2.4 (Termination Due to Safety or Efficacy), then (in addition to any other rights or remedies Zogenix may have in the event of default or breach by Endo):

11.3.1.1Endo shall satisfy the purchase price payable pursuant to Zogenix’ (or its applicable Contract Manufacturers’) orders with suppliers of Materials, provided such orders were made by Zogenix (or its applicable Contract Manufacturers) in reliance on Purchase Orders and provided that Zogenix shall Delver all such Materials to Endo promptly upon receipt or other control thereof by Zogenix;

11.3.1.2Where the Product is the only product being manufactured with the Zogenix Technology by its Contract Manufacturers, Endo shall reimburse Zogenix for any termination penalties, break-up fees, rental fees or minimum commitment fees which are payable to such Contract Manufacturersprovided that Zogenix shall use its best efforts to minimize such penalties and fees;

11.3.1.3Where termination of the Agreement is a result of an unremediated breach by Endo, Zogenix shall cease all Manufacturing and Support Services, except those quality and other activities that must by Applicable Law be continued;

11.3.2If this Agreement is terminated by Endo pursuant to Sections 11.2.2 (Termination Due to Default or Breach) or 11.2.3 (Termination Due to Financial Difficulties) or by Zogenix pursuant to Section 11.2.1 (Termination for Convenience), then (in addition to any other rights or remedies Endo may have in the event of default or breach by Zogenix):

11.3.2.1Endo shall have the right and license, pursuant to Section 2.2

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of the License Agreement, to make or have made quantities of Product.

11.3.2.2Prior to such termination becoming effective, Zogenix shall sell to Endo conveying good and marketable title, and Endo shall purchase at the then fair market value (which shall be no less than book value) of any equipment owned by Zogenix at such time and used in the Manufacture of the Product by Zogenix or any of its Contract Manufacturers;

11.3.2.3Prior to such termination becoming effective, Zogenix shall use its reasonable best efforts to assist Endo in entering into contracts with Zogenix's Contract Manufacturers to enable the continued uninterrupted Manufacture and supply of Products on commercially reasonable terms;

11.3.2.4Prior to such termination becoming effective, Zogenix shall provide to Endo and/or its designated back-up supplier all reasonable assistance (both off site and on site) and all required technical information and a detailed description of all manufacturing processes required for the same, in each case adequate to permit Endo to take over the supply chain for the Product. If termination is by Zogenix pursuant to Section 11.2.1 (Termination for Convenience) or by Endo pursuant to Section 11.2.2 (Termination Due to Default or Breach) if such breach giving rise to termination was due to Zogenix's gross negligence and/or willful misconduct, the Costs of providing such assistance shall be borne by Zogenix and in all other cases the reasonable Costs shall be borne by Endo, provided that in no case shall Endo be liable for Zogenix’s internal costs with respect to provision of any such assistance; and

11.3.2.5If another product is being manufactured at the Facility using the Zogenix Technology and equipment, then Endo shall, at Endo's option, either (i) permit Zogenix to contract directly with the applicable Contract Manufacturers for supply of products (provided that [***], or (ii) enter into a manufacturing and supply agreement with Zogenix containing substantially similar terms to those set forth in this Agreement, wherein Endo agrees to manufacture or have manufactured Zogenix's, its Affiliates and its and their permitted licensee's reasonable requirements for such product.

11.4Upon termination of this agreement for any reason:

11.4.1Zogenix shall repay the then-outstanding Working Capital Advance to Endo within [***] of the effective date of termination;

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11.4.2Zogenix will continue to: (a) transfer or make available documentation, and, where possible, information and expertise, to Endo, which (i) Zogenix is obligated to keep pursuant to cGMP and which, pursuant to such cGMP, Endo is unable to keep, or (ii) which Zogenix has chosen to keep beyond the Term or (iii) as agreed by the Parties in any executed technology transfer agreement; (b) test Product pursuant to Section 4.1 up until the expiration of the last returned sample held for stability testing even if Manufacturing ceases prior to that time; and (c) subject to the limitations of liability set forth in this Agreement, fulfill its remaining obligations pursuant to Sections 4.2 and 7.2, provided that Zogenix shall not be obligated to Manufacture replacement Batches;

11.4.3Endo shall take delivery of and pay for all undelivered Product that is Manufactured pursuant to a Purchase Order, at the Actual Transfer Price in effect at the time the Purchase Order was placed providedthat Endo shall be permitted to continue to sell such Product until inventories thereof are exhausted;

11.4.4Endo shall purchase, at Zogenix’ book value (as reflected in Zogenix's then-current books and records), the Materials which was purchased, produced or maintained by Zogenix in contemplation of filling Purchase Orders within the Firm Commitment prior to notice of termination being given to the extent the same are obsolete or cannot reasonably be used for other products being manufactured by Zogenix and/or its Contract Manufacturers

11.5Surviving Provisions. The provisions of Section 5.4 (for the duration set forth therein), Section 6.1(for the duration set forth therein), Section 7.2.2, Section 8.1, Section 9.6, Sections 10.1, 10.2, 10.3, 10.4, 10.5, 10.7 and 10.8, Sections 11.3, 11.4, and 11.5, Section 13, and Sections 14.5, 14.8, and 14.12 hereof shall survive any termination of this Agreement, except as otherwise provided herein.

12. FORCE MAJEURE

12.1Force Majeure. Except as otherwise specifically provided for herein, neither Party shall be liable for any default or delay in such Party’s performance if such default or delay is caused by an event beyond the reasonable control of such Party such as unforeseen nationwide labor conflict, acts of God, fire, earthquakes, floods, war, mobilization or unforeseen military call-up of a large magnitude, requisition, confiscation, commandeering, public decrees, riots, or insurrections, destruction of essential facilities or materials; acts or restraints of any Governmental Authority; strikes, lock-outs (except relating to the non-performing Party’s own Representatives); embargo or blockage; industry wide shortages of raw material or other similar events (a “Force Majeure Event”); provided, however, that the Party so affected will give prompt notice of such event, and shall use Commercially Reasonable Efforts to avoid, remove or alleviate such causes of non-performance. In the event that any Force Majeure cannot be removed, overcome or abated within [***] (or such other period as the Parties jointly shall determine in writing) from the date the Party affected first became affected, then Endo may, at the expiration

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of such period, by written notice to Zogenix terminate this Agreement immediately.

13. DISPUTE RESOLUTION

13.1The Parties recognize that a bona fide dispute as to certain matters may from time to time arise during the Term that relate to a Party’s rights or obligations hereunder. In the event of the occurrence of any Dispute, the Parties shall first try to settle their differences amicably via the Supply Committee. If the Supply Committee cannot achieve resolution, then either Party may, by written notice to the other, have such Dispute referred to its highest ranking officer for attempted resolution by good faith negotiations within [***] after such notice is received. If either Party desires to pursue arbitration under paragraph (b) below to resolve any such Dispute, unless expressly provided for otherwise herein, a referral to such executives under this paragraph (a) shall be a mandatory condition precedent. Said Designated Officers as of the Effective Date are as follows.

For Endo: [***]

For Zogenix: [***]

In the event that they shall be unable to resolve the Dispute by consensus within [***], then the Dispute shall be finally settled by binding arbitration as provided below.

13.2Except as expressly otherwise provided in this Agreement, in the event of any dispute arising out of or relating to the interpretation of any provisions of this Agreement or the failure of either Party to perform or comply with any obligation of such Party pursuant to this Agreement or the breach, termination or validity hereof (a “Dispute”), such Dispute shall be finally settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”), then in force and the Federal Arbitration Act, 9 U.S.C. § 1 et seq., by three (3) arbitrators (the “Arbitrators”) appointed in accordance with said rules, provided that the appointed arbitrators shall have appropriate experience in the biopharmaceutical industry. The place of arbitration shall be New York, New York, and the Arbitrators shall decide the dispute in accordance with the substantive law of the State of New York. The Arbitrators, by accepting their appointment, undertake to conduct the process such that the award shall be rendered within [***] of their appointment and shall be final and binding upon all parties participating in such arbitration. The judgment rendered by the arbitrators may, at the arbitrator’s discretion, include costs of arbitration, reasonable attorneys’ fees and reasonable costs for any expert and other witnesses. Judgment upon the award may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award and/or an order of enforcement as the case may be. Notwithstanding the foregoing, any Disputes regarding the scope, validity, enforceability or inventorship of any patents or patent applications shall be submitted for final resolution by a court of competent jurisdiction. Any period of limitations or Survival Period that would otherwise expire between the initiation of the procedures described in this Section 13.2 and the conclusion of such procedures shall be extended until [***] following the conclusion of such procedures. This Section 13.2 shall not prohibit a Party from seeking

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preliminary injunctive relief in aid of arbitration from a court of competent jurisdiction.

13.3The Parties consent to the exclusive jurisdiction of the Federal courts and the State courts of the State of New York, in each case, located in the borough of Manhattan, City of New York (the “New York Courts”) for any action in aid of arbitration, for provisional relief of the status quo or to prevent irreparable harm prior to the appointment of the Arbitrators in Section 13.2 above, and to the non-exclusive jurisdiction of the New York Courts for any action to enter or enforce any arbitral award entered in connection with this Agreement. THE PARTIES HEREBY IRREVOCABLY WAIVE, AND AGREE TO CAUSE THEIR RESPECTIVE AFFILIATES TO WAIVE, THE RIGHT TO TRIAL BY JURY IN SUCH ACTIONS.

13.4The Parties agree that irreparable damage may occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties may be entitled to a temporary injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any court specified in Section 13.3 or an arbitral tribunal specified in Section 13.2, or to a permanent injunction in addition to any other remedy to which they are entitled at law or in equity.

14. MISCELLANEOUS

14.1Discrepancies. Unless otherwise agreed between the Parties in writing, in the event of inconsistency between this Agreement and the License Agreement, the terms of this Agreement shall prevail.

14.2Entire Agreement - Modifications. This Agreement (and all exhibits attached hereto and all other documents delivered in connection herewith, including the Quality Agreement and the other Transaction Documents) supersedes all prior discussions and agreements among the Parties with respect to the subject matter hereof and contains the sole and entire agreement among the Parties hereto with respect to the subject matter hereof. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by each Party hereto.

14.3Relationship of the Parties. The relationship hereby established between Zogenix and Endo is solely that of independent contractors. This Agreement shall not create an agency, partnership, joint venture or employer/employee relationship, and nothing hereunder shall be deemed to authorize either Party to act for, represent or bind the other except as expressly provided in this Agreement.

14.4Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any Party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never compromised a part hereof, (c) the remaining

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provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar to terms to such illegal, invalid or unenforceable provision as may be possible and reasonably acceptable to the Parties herein.

14.5Assignment; Binding Effect. Neither Party shall assign this Agreement or its rights or obligations hereunder without the express written consent of the other Party hereto, except that either Party may assign or transfer this Agreement and its rights or obligations hereunder without the consent of the other Party to a Person who is (i) an Affiliate, (ii) any assignee of all or substantially all of its business or assets relating to this Agreement, or (iii) its successor in the event of a Change of Control of such Party. An assignment or transfer by a Party pursuant to this Section 14.5 shall be binding on its successors or assigns. Any permitted assignee shall assume all assigned obligations of its assignor under this Agreement. The assigning Party shall promptly notify the other Party of any such assignment (including a Change of Control) and shall use all reasonable efforts to provide such notification at least twenty (20) days before the assignment or before the completion of the Change of Control, as the case may be. No such assignment or transfer shall be valid or effective unless done in accordance with this Section 14.5.

14.6Costs and Expenses. Except as otherwise provided in this Agreement, each Party hereto shall pay its own expenses and Costs incidental to the performance of such Party’s obligations under this Agreement.

14.7No Third Party Beneficiaries. The terms and provisions of this Agreement are intended solely for the benefit of each Party hereto and their respective successors or permitted assigns and it is not the intention of the Parties to confer third-party beneficiary rights upon any other Person.

14.8Governing Law. This Agreement shall be construed in accordance with, and governed in all respects by, the laws of the State of New York (without giving effect to principles of conflicts of laws that would require the application of any other law). The Parties further expressly agree that the 1980 United Nations Convention on Contracts for the International Sale of Goods (and any improvements or additions thereto) shall not apply to this Agreement.

14.9Waiver.Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion.

14.10Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

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14.11Interpretation. The language used in this Agreement is the language chosen by the Parties to express their mutual intent, and no provision of this Agreement shall be interpreted for or against any Party because that Party or its attorney drafted the provision.

14.12Notice. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission with answer back confirmation or by nationally recognized overnight courier that maintains records of delivery to the Parties at the following addresses or facsimile numbers:

If to Endo: Endo Ventures Limited
No. 33 Fitzwilliam Square
Dublin 2
Ireland
Attention:     Secretary

Facsimile: (610) 884-5911

With copies to: Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, NY 10036
Attention:    Eileen Nugent, Esq.    Michael Chitwood, Esq.
Facsimile: (212) 735-2000

Endo International plc

1400 Atwater Drive

Malvern, PA 19355

Attention: Caroline B. Manogue

Facsimile: (610) 884-7159

If to Zogenix to: Zogenix, Inc.
12400 High Bluff Drive, Suite 650
San Diego, CA 92130
Facsimile: (858) 259-1166

With copies to: Latham & Watkins LLP
12670 High Bluff Drive
San Diego, CA 92130
Attention: Cheston Larson, Esq.
Facsimile: (858) 523-5450

All such notices, requests and other communications will (a) if delivered personally to the address as provided in this Section 14.12, be deemed given upon receipt, (b) if

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delivered by facsimile to the facsimile number as provided in this Section 14.12, be deemed given upon receipt by the sender of the answer back confirmation and (c) if delivered by overnight courier to the address as provided in this Section 14.12, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section 14.12). Any Party from time to time may change its address, facsimile number or other information for the purpose of notices to that Party by giving notice specifying such change to the other Parties hereto in accordance with the terms of this Section 14.12.

14.13Publicity. Except as set forth in the License Agreement, neither Party (or any of their respective Affiliates) shall issue any press release or make any public announcement with respect to this Agreement or the License Agreement and the transactions contemplated hereby and thereby without obtaining the prior written consent of the other Party, except as may be required by applicable Law upon the advice of counsel and only if the disclosing Party provides the non-disclosing Party with an opportunity to first review the release or other public announcement..

14.14Exhibits. The Exhibits, other agreements, certificates and notices specifically referred to herein, and delivered pursuant hereto, are an integral part of this Agreement. The following Exhibitsattached hereto are hereby made a part of this Agreement as if fully included herein.

Exhibit A:	Endo Trademarks
Exhibit B:	Improvement Projects

14.15Language. This Agreement shall be written and executed in, and all other communications under or in connection with this Agreement shall be in, the English language. Any translation into any other language shall not be an official version thereof, and in the event of any conflict in interpretation between the English version and such translation, the English version shall control.

14.16Counterparts. This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date.

Zogenix, Inc.

By: /s/ Stephen J. Farr
Name: Stephen J. Farr, Ph.D.
Title: President and Chief Operating Officer

Endo Ventures Limited

By: /s/ Blaine T. Davis
Name: Blaine T. Davis    
Title: President    

EXHIBIT A

ENDO TRADEMARKS

[***]

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EXHIBIT B

[***]

***Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT C

ACTUAL AND STANDARD COGS

[***]

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EXHIBIT D

INVENTORY

[***]

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EXHIBIT E

FORM OF NOTE

[***]

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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 6, 2014

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 6, 2014

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, 2014, 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 6, 2014

/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, 2014, 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 6, 2014

/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.

XML

Subsequent Event (Details) (USD $)	6 Months Ended	0 Months Ended
	Jun. 30, 2014 sqft	Aug. 05, 2014 Subsequent Event [Member] sqft	Aug. 05, 2014 Subsequent Event [Member]
Subsequent Event [Line Items]
Rentable Square Feet (in Sqft)	13,124	17,361
Term of contract		64 months
Renewal term		5 years
Base rent monthly payments			$ 73,784
Operating Leases, Rent Abatement Percent, Month Two		100.00%
Operating Leases, Rent Abatement Percent, Month Three		100.00%
Operating Leases, Rent Abatement Percent, Month Four		100.00%
Operating Leases, Rent Abatement Percent, Month Five		100.00%
Operating Leases, Rent Abatement Percent, Month Six		50.00%
Operating Leases, Future Yearly Base Rent Rate Increase, Percent		3.25%

XML

Inventory, Net (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Disclosure Inventory Net [Abstract]
Raw materials	$ 2,778	$ 2,770
Work in process	7,087	6,054
Finished goods	4,874	1,112
Deferred cost of goods sold	917	0
Inventory, net	$ 15,656	$ 9,936

XML

Sale of Sumavel DosePro Business Sale of Sumavel DosePro Business

6 Months Ended

Jun. 30, 2014

Discontinued Operations and Disposal Groups [Abstract]

Sale of Sumavel DosePro Business

Sale of Sumavel DosePro Business

Endo Ventures Bermuda Limited and Endo Ventures Limited Asset Purchase Agreement

On May 16, 2014, the Company closed the APA with Endo Ventures Bermuda and Endo Ventures, pursuant to which the Company sold its Sumavel DosePro business to Endo, including the registered trademarks, certain contracts, the NDA and other regulatory approvals, the books and records, marketing materials and product data relating to Sumavel DosePro. Upon Closing of the APA, Endo paid the Company $85,000,000 in cash, $8,500,000 of which was deposited into escrow to fund potential indemnification claims for a period of 12 months, and $4,624,000 in cash for the purchase of Sumavel DosePro finished goods inventory on hand at the Company's standard cost. In addition to the upfront cash payments, the Company is eligible to receive additional cash payments of up to $20,000,000 based on the achievement of pre-determined sales and gross margin milestones.

Furthermore, Endo Ventures assumed responsibility for the Company’s royalty obligation to Aradigm Corporation on sales of Sumavel DosePro.

At the Closing, the Company and Endo Ventures Bermuda entered into a license agreement (License Agreement), pursuant to which the Company granted Endo an exclusive, perpetual, sublicensable, irrevocable (unless terminated as set forth in the License Agreement), fully paid-up, royalty-free license to make and have made, use and research, develop and commercialize Sumavel DosePro throughout the world under a specified subset of the Company's technology patents. The Company retained all rights to the DosePro technology patents and know-how for use with other products. Either party may terminate the License Agreement in the event of the other party's uncured material breach.

At the Closing, the Company and Endo Ventures entered into the Supply Agreement, pursuant to which the Company will retain the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied Sumavel DosePro to Endo, subject to Endo’s right to qualify and maintain a back-up manufacturer. Endo will exclusively purchase all Sumavel DosePro supplied by the Company at the cost of goods sold plus a 2.5% mark-up. The Company will grant Endo a manufacturing license under certain circumstances outlined in the Supply Agreement, if Endo requires the use of a back-up supplier. Representatives from the Company and Endo will participate on a joint supply committee for general oversight and strategic functions regarding the Supply Agreement. Further, under the Supply Agreement, Endo will support the Company’s Sumavel DosePro manufacturing operations with an interest-free working capital advance equivalent to the book value of the inventory of materials and unreleased finished goods held by the Company in connection with the manufacture of the Sumavel DosePro minus the accounts payable associated with such materials and unreleased finished goods, capped initially at $7,000,000 and subject to annual adjustment. The working capital advance is evidenced by a promissory note (the Note) and is secured by liens on materials and unreleased finished Sumavel DosePro inventory.

The Supply Agreement may be terminated by either party upon three years' prior written notice, provided that the notice cannot be given prior to the fifth anniversary of the Closing date. Either party may also terminate the Supply Agreement in the following circumstances: (i) if the other party breaches any material term of the agreement and fails to cure such breach within a specified time period following written notice; or (ii) upon the occurrence of certain financial difficulties. Endo Ventures also may terminate the Supply Agreement in the following circumstances: (i) if Sumavel DosePro has been deemed ineffective or unsafe by the applicable governmental authorities; or (ii) if the Company fails to supply to Endo Ventures a minimum quantity of Sumavel DosePro over the course of a six month period which results in Endo Ventures being unable to supply Sumavel DosePro to its trade customers.

Further upon Closing, the Company and Endo Ventures entered into other ancillary agreements associated with the APA, pursuant to which the Company will help facilitate the transfer of the Sumavel DosePro business to Endo Ventures, which Endo Ventures assumed responsibility for as of the Closing date. The services to be provided by the Company include assistance with co-pay/voucher programs, continuation of Zogenix Product Express services, regulatory support and processing of all payment claims made under the Company's National Drug Code. Services provided by the Company will be provided over various time periods specified in the agreements.

The Company accounted for the agreement for the sale of the Sumavel DosePro business as a sale of a business and, as such, was required to estimate the fair value of the business, including the product rights under the APA, DosePro technology license and Sumavel DosePro finished goods inventory on hand at Closing. The Company estimated the fair value of the product rights using an income approach valuation technique through a discounted cash flow method. The assumptions used in the discounted cash flow method included estimated Sumavel DosePro units to be sold in the market based on current demand forecasts, net selling price of Sumavel DosePro based on current market price, working capital needs estimated by management and a discount rate based on a market participant weighted average cost of capital.

The Company estimated the fair value of the DosePro technology license using a relief from royalty valuation method, whereby the presumed royalty savings from owning the license was estimated. The valuation considered royalty rates involving other injection technologies in the current pharmaceutical space.

The Company estimated the fair value of the Sumavel DosePro finished goods inventory on hand at Closing (which was sold to Endo at standard cost) using a market approach reflecting the estimated costs incurred by the Company in performing monitoring and quality control services on inventory supplied to Endo.

The agreements entered into concurrently with the sale of the Sumavel DosePro business, including the License Agreement and Supply Agreement, contain various elements and, as such, are deemed to be an arrangement with multiple deliverables as defined under authoritative accounting guidance (see Note 2). Several non-contingent deliverables were identified within the agreements. The Company identified the contract manufacturing services, manufacturing license, transition services and performance on joint supply committee as separate non-contingent deliverables within the arrangement. The transition services and manufacturing license have standalone value and qualify as separate units of accounting. Performance on the joint supply committee does not have standalone value from the contract manufacturing services, and as such, these two deliverables qualify as one unit of accounting. The non-contingent consideration received from the Endo agreements was allocated to these separate units of accounting, including the sale of the Sumavel DosePro business, based on their respective fair values, using the relative selling price method.

The Company developed its BESP for each non-contingent deliverable, as VSOE and TPE was not available, in order to allocate the non-contingent arrangement consideration to the three undelivered units of accounting. The Company used a market valuation approach to develop the BESP for contract manufacturing services through the use of market rates available for comparable contract manufacturing services and consideration of internal costs of performing inventory monitoring and quality control services. Significant increases in the hours necessary to perform inventory monitoring and quality controls services would result in a significant increase in the fair value of the contract manufacturing services.

The Company developed the BESP for the manufacturing license by estimating the total number of hours required to qualify another manufacturer, the hourly rate of internal regulatory and manufacturing employees that are required to qualify another manufacturer and the market rate for estimated cost of travel required to qualify another manufacturer. The Company developed the BESP for the transition services through use of an estimate of the total number of hours required to complete the services and the hourly rate of an internal employee that performs the services, which was compared to hourly market rates for similar consulting services. The Company developed the BESP for performance on the joint supply committee through use of an estimate of the total number of participation hours required on the committee and the hourly rate of the internal employees that participate on the joint supply committee. Significant increases in the estimated number of hours required to qualify another manufacturer, required to perform transition services, or required for performance on the joint supply committee would significantly increase the fair value of these deliverables.

The Company allocated $9,100,000 of the upfront consideration to contract manufacturing services, which includes a discount valued at $4,748,000 related to the interest free working capital advance, and an immaterial amount of the upfront consideration was allocated to the manufacturing license, transition services and performance on the joint supply committee. Revenue associated with each of the undelivered elements will be recognized when the element is delivered.

As of June 30, 2014, the Company determined that the Sumavel DosePro business, which is comprised of the product rights under the APA, DosePro technology license and Sumavel DosePro finished goods inventory purchased at Closing, had been fully delivered, and, therefore representing control of the business obtained by Endo. As such, a gain on sale of business of $79,980,000, net of $660,000 in related transaction costs, was recognized for the sale of the Sumavel DosePro business in the consolidated statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2014.

Based on the Sumavel DosePro finished goods inventory delivered and the contract manufacturing services performed, as measured using a proportional performance method, during the three and six months ended June 30, 2014 a total of $2,238,000 was recognized as contract manufacturing revenue in the statement of operations and comprehensive income (loss). An immaterial amount of revenue was recognized for performance of transition services and performance on the joint supply committee during the three and six months ended June 30, 2014.

As of June 30, 2014, the Company had $9,005,000 remaining in deferred revenue attributed to the Endo arrangement.

The $79,980,000 gain on sale of Sumavel DosePro business was calculated as the difference between the allocated non-contingent consideration amount for the business and the net carrying amount of the assets transferred to Endo. The following sets forth the net assets and calculation of the gain on sale as of Closing (in thousands):

Non-contingent consideration received	$	89,624
Imputed interest on working capital advance	4,748
Carrying value of Sumavel DosePro inventory on hand at Closing	(4,624		)
Transaction costs	(660		)
Deferred revenue associated with undelivered elements	(9,108		)
Net gain on sale of business	$	79,980

The net gain on sale of business may be adjusted in future periods by the contingent consideration, of up to $20,000,000, based upon the achievement of pre-determined sales and gross margin milestones. Any future adjustment of the net gain on sale of business will be determined through use of the relative selling price method.

Further, as noted above, Endo Ventures provided the Company with an interest-free working capital advance upon Closing. The working capital advance of $7,000,000, which is evidenced by the Note, was recorded as a note payable on the consolidated balance sheet at Closing, net of a $4,748,000 debt discount. The fair value of the debt discount was established using a market approach, including an interest rate reflecting recent term sheets provided to the Company for offerings of debt instruments, interest rates on the Company's most recent debt instruments, and market interest rates on similar debt instruments. The debt discount will be amortized as interest expense using the effective interest method over the minimum eight year term of the Supply Agreement, as the working capital advance must be repaid upon termination of the Supply Agreement. The Company recognized $40,000 of interest expense during the three and six months ended June 30, 2014 related to the working capital advance from Endo.

The sale of the Sumavel DosePro business does not qualify as discontinued operations as the Company will have significant continuing involvement in the business as the exclusive supplier of Sumavel DosePro over the term of the Supply Agreement.

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Common Stock Warrants - Additional Informational (Detail) (USD $)	0 Months Ended		1 Months Ended	3 Months Ended	6 Months Ended	12 Months Ended
	Jul. 27, 2012	Jul. 18, 2011	Jul. 18, 2011	Jun. 30, 2014	Jun. 30, 2014	Dec. 31, 2013
Schedule Of Common Stock [Line Items]
Shares of common stock exercisable through warrants	15,784,200
Warrants exercise price per share	$ 2.50
Warrants expiry date	July 27, 2017
Term of common stock warrant exercisable (years)	5 years	10 years
Proceeds from warrant exercises				$ 1,163,000	$ 1,163,000	$ 259,000
Fair value of warrant liabilities				11,735,000	11,735,000	30,849,000
Warrant exercisable to Healthcare Royalty, shares		225,000	225,000
Warrant exercisable to Healthcare Royalty, price per share (usd per share)		$ 9.00
Healthcare Royalty
Schedule Of Common Stock [Line Items]
Fair value of warrant liabilities				$ 220,000	$ 220,000	$ 492,000
Common stock warrants
Schedule Of Common Stock [Line Items]
Warrants exercised				465,250	465,250	103,500

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Collaboration and Financing Agreements - Additional Information (Detail) (USD $)	0 Months Ended		1 Months Ended	3 Months Ended		6 Months Ended			6 Months Ended	0 Months Ended	3 Months Ended			6 Months Ended				3 Months Ended		6 Months Ended			0 Months Ended	3 Months Ended	0 Months Ended	3 Months Ended	0 Months Ended	3 Months Ended	0 Months Ended		3 Months Ended		6 Months Ended		0 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended		6 Months Ended
	May 16, 2014	Jul. 18, 2011	Jul. 18, 2011	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Jun. 30, 2014 Embedded Derivative Liabilities [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member]	Jun. 30, 2014 Healthcare Royalty Financing Agreement [Member]	Jun. 30, 2014 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Jun. 30, 2014 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Dec. 31, 2013 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member] Embedded Derivative Liabilities [Member]	Jun. 30, 2014 Healthcare Royalty Financing Agreement [Member] Common Stock Warrant Liabilities [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member] Common Stock Warrant Liabilities [Member]	Jun. 30, 2014 Healthcare Royalty Financing Agreement [Member] Common Stock Warrant Liabilities [Member]	Jun. 30, 2013 Healthcare Royalty Financing Agreement [Member] Common Stock Warrant Liabilities [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member] Common Stock Warrant Liabilities [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member] Scenario 1 [Member]	Jun. 30, 2014 Healthcare Royalty Financing Agreement [Member] Scenario 1 [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member] Scenario 2 [Member]	Jun. 30, 2014 Healthcare Royalty Financing Agreement [Member] Scenario 2 [Member]	Jul. 18, 2011 Healthcare Royalty Financing Agreement [Member] Scenario 3 [Member]	Jun. 30, 2014 Healthcare Royalty Financing Agreement [Member] Scenario 3 [Member]	Jul. 18, 2011 Minimum [Member] Healthcare Royalty Financing Agreement [Member] Scenario 1 [Member]	Jul. 18, 2011 Maximum [Member] Healthcare Royalty Financing Agreement [Member] Scenario 1 [Member]	Jun. 30, 2014 Mallinckrodt LLC Co-Promotion Agreement [Member]	Jun. 30, 2013 Mallinckrodt LLC Co-Promotion Agreement [Member]	Jun. 30, 2014 Mallinckrodt LLC Co-Promotion Agreement [Member]	Jun. 30, 2013 Mallinckrodt LLC Co-Promotion Agreement [Member]	Jun. 27, 2013 Valeant Pharmaceuticals North America LLC Co-Promotion Agreement [Member]	Jun. 30, 2014 Valeant Pharmaceuticals North America LLC Co-Promotion Agreement [Member]	Jun. 30, 2014 Valeant Pharmaceuticals North America LLC Co-Promotion Agreement [Member]	Jun. 30, 2014 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Jun. 30, 2013 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Jun. 30, 2014 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Jun. 30, 2013 Astellas Pharma Us Inc Co Promotion Agreement [Member]	Jul. 31, 2013 Astellas Pharma Us Inc Co Promotion Agreement [Member]
Debt Instrument [Line Items]
Co-promotion agreement termination notice period																																			6 months
Agreement Termination Notice Period Net Sales Contingent																																			30 days
Agreement Termination Notice Period Change of Control Contingent																																			90 days
Sales Revenue, Services, Net																																				$ 1,115,000	$ 1,980,000
Incurred Service Fee Expenses																															0	226,000	100,000	369,000
Tail payment liability related interest expense																																						44,000	146,000	87,000	287,000
Tail payment liability																															491,000		491,000					1,218,000		1,218,000		2,032,000
CoPromotion Agreement Additional Term Increments																																			12 months
Debt instrument, outstanding										30,000,000
Common stock issued and sold to Healthcare Royalty, amount				141,000		141,000		139,000		1,500,000
Common stock issued and sold to Healthcare Royalty, shares				141,045,000		141,045,000		138,927,000		388,601
Common stock issued and sold to Healthcare Royalty, price per share										$ 3.86
Warrant exercisable to Healthcare Royalty, shares		225,000	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																							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
Fixed Payments for Jan 31,2016											10,000,000
Fixed Payments for Jan 31,2017											10,000,000
Agreement termination date											Mar. 31, 2018
Terminate payment base amount																								52,500,000
Borrowed internal rate of return																								19.00%		17.00%
Repayment of debt						40,041,000	0
Fair value of embedded derivatives												247,000		247,000		233,000
Aggregate net proceed from financing agreement										29,485,000
Financing discounts										476,000							605,000					790,000
Change in fair value									14,000			0	480,000	14,000	562,000			150,000	41,000	272,000	(35,000)
Loss on early extinguishment of debt	$ 1,254,000			$ (1,254,000)	$ 0	$ (1,254,000)	$ 0

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Stock-Based Compensation - Assumptions used in Black-Scholes Option-Pricing Model (Detail)	3 Months Ended
	Jun. 30, 2014	Mar. 30, 2012	Jun. 30, 2014 Minimum [Member]	Mar. 30, 2012 Minimum [Member]	Jun. 30, 2014 Maximum [Member]	Mar. 30, 2012 Maximum [Member]	Jun. 30, 2014 Stock Options [Member]	Jun. 30, 2013 Stock Options [Member]	Jun. 30, 2014 Stock Options [Member] Minimum [Member]	Jun. 30, 2013 Stock Options [Member] Minimum [Member]	Jun. 30, 2014 Stock Options [Member] Maximum [Member]	Jun. 30, 2013 Stock Options [Member] Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate , minimum	1.60%	0.80%					1.60%	1.20%
Risk free interest rate, maximum	2.00%	1.20%					1.90%	1.20%
Expected term			5 years 1 month	5 years	6 years 1 month	6 years 1 month			5 years 1 month	5 years 1 month	6 years 1 month	6 years
Expected volatility, minimum	84.20%	84.50%					84.20%	84.50%
Expected volatility, maximum	84.90%	87.90%					84.70%	85.60%
Expected dividend yield							0.00%	0.00%

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Stock-Based Compensation Expense (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 2,785	$ 1,979	$ 5,292	$ 3,565
Cost of sales
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	141	63	268	108
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	364	250	721	466
Selling, general and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	2,280	1,465	4,303	2,790
Restructuring
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 0	$ 201	$ 0	$ 201

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Inventory, net

6 Months Ended

Jun. 30, 2014

Disclosure Inventory Net [Abstract]

Inventory, net

Inventory (in thousands)

	June 30, 2014		December 31, 2013
Raw materials	$	2,778	$	2,770
Work in process	7,087		6,054
Finished goods	4,874		1,112
Deferred cost of goods sold	917		—
	$	15,656	$	9,936

Deferred cost of goods sold consists of the costs of Zohydro ER associated with the deferred revenue, which are included in inventory, until such time the related deferred revenue is recognized.

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Stock-Based Compensation - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation, Nonemployee, Fair Value Increase (Decrease)	$ 109	$ 150
Consultants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares	202	202
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	322	322
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation costs	$ 18,781	$ 18,781
Recognition over weighted average periods	2 years 9 months 8 days
Stock Options [Member] | Consultants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	2 years 6 months

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 81,235	$ 72,021
Restricted cash	8,500	0
Trade accounts receivable, net	5,920	6,665
Inventory	15,656	9,936
Prepaid expenses and other current assets	5,190	4,257
Total current assets	116,501	92,879
Property and equipment, net	10,960	13,011
Other assets	5,837	6,614
Total assets	133,298	112,504
Current liabilities:
Accounts payable	13,546	4,622
Accrued expenses	14,467	18,865
Accrued compensation	6,399	3,952
Common stock warrant liabilities	11,955	31,341
Deferred revenue	8,424	0
Total current liabilities	54,791	58,780
Notes Payable, Noncurrent	2,292	0
Long-term debt, less current portion	0	28,802
Deferred revenue, less current portion	7,566	0
Other long-term liabilities	331	6,496
Commitments and contingencies
Stockholders' equity:
Common stock	141	139
Additional paid-in capital	436,491	428,534
Accumulated deficit	(368,314)	(410,247)
Total stockholders’ equity	68,318	18,426
Total liabilities and stockholders’ equity	$ 133,298	$ 112,504

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Organization and Basis of Presentation

6 Months Ended

Jun. 30, 2014

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 committed to developing and commercializing therapies that address specific clinical needs for people living with pain-related conditions and central nervous system disorders who need innovative treatment alternatives to help them return to normal daily functioning. On October 25, 2013, the Company received marketing approval from the U.S. Food and Drug Administration (FDA) for Zohydro™ ER (hydrocodone bitartrate) extended-release capsules, an opioid agonist, extended-release oral formulation of hydrocodone without acetaminophen, for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. Zohydro ER is the first extended-release oral formulation of hydrocodone without acetaminophen. The Company launched Zohydro ER in March 2014.

The Company’s 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 FDA that allows for the needle-free, subcutaneous delivery of medication. On April 23, 2014, the Company entered into an asset purchase agreement (Asset Purchase Agreement) with Endo Ventures Bermuda Limited (Endo Ventures Bermuda) and Endo Ventures Limited (Endo Ventures and, together with Endo Ventures Bermuda, Endo), pursuant to which, and on the terms and subject to the conditions thereof, among other things, the Company agreed to sell its Sumavel DosePro business to Endo, including the registered trademarks, certain contracts, the New Drug Application (NDA) and other regulatory approvals, the books and records, marketing materials and product data relating to Sumavel DosePro. The Asset Purchase Agreement closed on May 16, 2014 (the Closing) and in connection with the Closing, the Company and Endo Ventures also entered into a supply agreement (the Supply Agreement), pursuant to which the Company will retain the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied Sumavel DosePro to Endo Ventures, subject to Endo Venture’s right to qualify and maintain a back-up manufacturer. Further, under the Supply Agreement, Endo will support the Company’s Sumavel DosePro manufacturing operations with a working capital advance equivalent to the book value of the inventory of materials and unreleased finished goods held by the Company in connection with the manufacture of Sumavel DosePro minus the accounts payable associated with such materials and unreleased finished goods, capped initially at $7,000,000 and subject to annual adjustment. Upon the Closing, and in addition to the working capital advance, Endo paid the Company $85,000,000, $8,500,000 of which was deposited into escrow to fund potential indemnification claims for a period of 12 months, and $4,624,000 for finished goods inventory on hand at Closing. In addition to the upfront cash payment, the Company is eligible to receive additional cash payments of up to $20,000,000 based on the achievement of pre-determined sales and gross margin milestones (see Note 4).

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

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through equity financings, debt financings, revenues from the sale of product 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 year as the Company continues to incur costs related to the commercialization of Zohydro ER, required post-market testing for Zohydro ER, safe use initiatives for Zohydro ER and additional development activities with respect to Zohydro ER, including the development of abuse deterrent formulations, and the clinical development of Relday. Management may pursue additional opportunities to raise further capital, if required, through public or private equity offerings, including through 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.

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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, 2014
Warrants and Rights Outstanding [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	$ 31,341
Changes in fair value	(18,470)
Derecognition of liability	0
Exercises	(916)
Ending Balance	11,955
Embedded Derivative Liabilities [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	233
Changes in fair value	14
Derecognition of liability	(247)
Exercises	0
Ending Balance	$ 0

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Summary of Significant Accounting Policies - Schedule of Calculation of Diluted Net Loss Per Share (Detail)	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2013 Common stock options and restricted stock units	Jun. 30, 2013 Common stock options and restricted stock units	Jun. 30, 2014 Common stock warrants	Jun. 30, 2014 Common stock warrants
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share amount	1,710,000	1,710,000	9,255,000	12,684,000

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

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, 2013 filed with the SEC on March 7, 2014.

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.

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.

Restricted Cash

In connection with its sale of the Sumavel DosePro business in May 2014, the Company has $8,500,000 of cash in escrow as of June 30, 2014 to fund potential indemnification claims for a period of 12 months (see Note 4). The Company classifies the cash flow from this restricted cash as an investing activity in the consolidated statement of cash flows as the source of the restricted cash is related to the sale of the Sumavel DosePro business.

Further, in December 2009, the Company issued a line of credit for $200,000 in connection with an operating lease which was collateralized by a certificate of deposit in the same amount and recorded as restricted cash within other assets on the consolidated balance sheet as of December 31, 2013. This line of credit and certificate of deposit were terminated in February 2014 in connection with a renegotiation of the operating lease.

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, restricted 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 accrued liability for the annual tail payment due to Astellas Pharma US, Inc. (Astellas) (see Note 5) 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 its 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, 2014 and December 31, 2013 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, 2014
Assets
Cash equivalents(1)	$	78,515	—	—	$	78,515
Liabilities
Common stock warrant liabilities(2)	$	—	—	11,955	$	11,955
At December 31, 2013
Assets
Cash equivalents(1)	$	69,120	—	—	$	69,120
Liabilities
Common stock warrant liabilities(2)	$	—	—	31,341	$	31,341
Embedded derivative liabilities(3)	$	—	—	233	$	233

(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 6), 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 and the timing of such event; and for the valuation scenario in which an extraordinary event occurs that is not an all cash transaction or an event whereby a public acquirer would assume the warrants, (b) an expected volatility rate using the Company's historical volatility, supplemented with historical volatility of comparable companies, through the projected date of public announcement of an extraordinary transaction, blended with a 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 inputs used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering are the expected volatility and the 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. The decrease in the fair value of the common stock warrant liabilities as of June 30, 2014 was primarily driven by the decrease in the Company's stock price at June 30, 2014 as compared against December 31, 2013 measurement dates.

(3) Embedded derivatives were measured at fair value using various discounted cash flow valuation models and were included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models included: (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 interest payments over the term of the Healthcare Royalty 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 were management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement of the liability. The embedded derivatives were derecognized in May 2014 as a result of the early extinguishment of the Healthcare Royalty Financing Agreement (see Note 5).

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, 2014 (in thousands):

	Common Stock Warrant Liabilities			Embedded Derivative Liabilities
Balance at December 31, 2013	$	31,341		$	233
Changes in fair value	(18,470		)	14
Derecognition of liability	—			(247		)
Exercises	$	(916	)	$	—
Balance at June 30, 2014	$	11,955		$	—

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 income (loss). The derecognition of the embedded derivative liabilities was included in the loss on early extinguishment of debt in non-operating expenses in the consolidated statements of operations and comprehensive income (loss).

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing the net income (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 income (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, restricted stock units 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 income (loss) per share (in thousands, except per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014			2013
Numerator
Net income (loss), basic	62,865		(13,332		)	41,933			(34,389		)
Effect of dilutive securities:
Common stock warrants	$	—	$	—		$	(18,470	)	$	—
Net income (loss), diluted	$	62,865	$	(13,332	)	$	23,463		$	(34,389	)
Denominator
Weighted average common shares outstanding, basic	139,985		100,876			139,635			100,843
Effect of dilutive securities:
Common stock warrants	—		—			3,137			—
Weighted average common shares outstanding, diluted	139,985		100,876			142,772			100,843
Basic net income (loss) per share	$	0.45	$	(0.13	)	$	0.30		$	(0.34	)
Diluted net income (loss) per share	$	0.45	$	(0.13	)	$	0.16		$	(0.34	)

There were 9,255,000 and 12,684,000 dilutive securities (in common stock equivalent shares), from common stock options excluded from the calculation of diluted net loss during the three and six months ended June 30, 2014, respectively, because to include them would be anti-dilutive. There were 1,710,000 dilutive securities (in common stock equivalent shares), from common stock options and restricted stock units, excluded from the calculation of diluted net loss during the three and six months ended June 30, 2013 because to include them would be anti-dilutive. All common stock warrants disclosed in Note 6 were excluded from the calculation of diluted net loss during the three months ended June 30, 2013 and 2014, and during the six months ended June 30, 2013, as the exercise price of the warrants was greater than the Company's average stock price during these periods.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. As a result of the sale of its Sumavel DosePro business in May 2014, the Company recorded an impairment charge of $838,000 in the consolidated statement of operations and comprehensive income (loss) during the three and six months ended June 30, 2014 related to the disposal of construction in progress that will no longer be placed into service.

Revenue Recognition

The Company recognizes revenue from the sale of Sumavel DosePro and Zohydro ER, and from contract manufacturing, license fees, milestones and service fees earned on collaborative arrangements. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the Company’s price to the buyer is substantially fixed or determinable at the date of sale, (b) the buyer has paid the Company, or the buyer is obligated to pay the Company and the obligation is not contingent on resale of the product, (c) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product, (d) the buyer acquiring the product for resale has economic substance apart from that provided by the Company, (e) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (f) the amount of future returns can be reasonably estimated. The Company currently defers recognition of revenue on product shipments of Zohydro ER until the right of return no longer exists, as the Company currently cannot reliably estimate expected returns of the product at the time of shipment given the limited sales history of Zohydro ER.

Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The application of the multiple element guidance requires subjective determinations, and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company's control. In determining the units of accounting, the Company evaluates certain criteria, including whether the deliverables have stand-alone value, based on the consideration of the relevant facts and circumstances for each arrangement. In addition, the Company considers whether the buyer can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s).

Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria, as described above, are applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition. The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or management's best estimate of selling price (BESP) if neither VSOE nor TPE is available. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs.

Product Revenue, Net

The Company sells Zohydro ER, and sold Sumavel DosePro through May 2014, in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively the Company's customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. The Company recognized Sumavel DosePro product sales at the time title transfered to its customer, and reduced product sales for estimated future product returns and sales allowances in the same period the related revenue was recognized.

Given the limited sales history of Zohydro ER, the Company cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company defers recognition of revenue on Zohydro ER product shipments until the right of return no longer exists, which occurs at the earlier of the time Zohydro ER is dispensed through patient prescriptions or expiration of the right of return. The Company estimates Zohydro ER patient prescriptions dispensed using an analysis of third-party syndicated data. Zohydro ER was launched in March 2014 and, accordingly, the Company does not have significant history estimating the number of patient prescriptions dispensed. If the Company underestimates or overestimates patient prescriptions dispensed for a given period, adjustments to revenue may be necessary in future periods. The deferred revenue balance does not have a direct correlation with future revenue recognition as the Company will record sales deductions at the time the prescription unit is dispensed.

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

Product sales allowances for Zohydro ER and Sumavel DosePro include wholesaler and retail pharmacy distribution fees, prompt pay discounts, chargebacks, rebates and patient discount programs, and are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of the Company's agreements with its customers and third-party payors and the levels of inventory within the distribution and retail channels that may result in future rebates or discounts taken. In certain cases, such as patient support programs, the Company recognizes the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, the Company may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. The Company records product sales deductions in the statement of operations at the time product revenue is recognized.

In connection with the Closing of the Asset Purchase Agreement (APA) in May 2014, whereby Endo acquired the Company's Sumavel DosePro business, Endo purchased the Company's existing finished goods inventory of Sumavel DosePro at standard cost. The Company will be financially responsible for all returns of Sumavel DosePro product distributed by the Company prior to Closing of the APA up to a maximum per unit amount as specified in the agreements. The Company will also be financially responsible for payment of Sumavel DosePro product sales allowances on product distributed by the Company prior to Closing of the APA. Endo will be responsible for payment of all other Sumavel DosePro returns and sales allowances.

Contract Manufacturing Revenue

In connection with the Closing of the APA in May 2014, the Company and Endo Ventures entered into the Supply Agreement, pursuant to which the Company retains the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied Sumavel DosePro to Endo Ventures (see Note 4). The Company recognizes deferred revenue related to its supply of Sumavel DosePro as contract manufacturing revenue when earned on a "proportional performance" basis, as product is delivered. The Company recognizes revenue related to its sale of Sumavel DosePro product, equal to the cost of contract manufacturing plus a 2.5% mark-up, upon the transfer of title to Endo. The Company supplies Sumavel DosePro product based on non-cancellable purchase orders. The Company initially defers revenue for any consideration received in advance of services being performed and product being delivered, and recognizes revenue pursuant to the related pattern of performance, based on total product delivered relative to the total estimated product delivery over the minimum eight year term of the Supply Agreement. The Company continually evaluates the performance period and will adjust the period of revenue recognition if circumstances change.

In addition, the Company follows the authoritative accounting guidance when reporting revenue as gross when the Company acts as a principal versus reporting revenue as net when the Company acts as an agent. For transactions in which the Company acts as a principal, has discretion to choose suppliers, bears credit risk and performs a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services.

Segment Reporting

Management has determined that the Company operates in one business segment, which is the development and commercialization of pharmaceutical products for people living with pain-related conditions and central nervous system disorders.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued an accounting update that raises the threshold for disposals to qualify as discontinued operations and allows companies to have significant continuing involvement with and continuing cash flows from or to the discontinued operations. This accounting update also requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. This guidance will be effective for fiscal years beginning after December 15, 2014, with early adoption permitted. The Company does not expect that the adoption of the guidance will have a material impact on the Company's financial statements.

In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years beginning after December 16, 2016, including interim periods within that reporting period, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is prohibited. The Company is evaluating the impact of adopting this new accounting standard on its financial statements and related disclosures.

In June 2014, the FASB issued new accounting guidance related to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early adoption is permitted. The Company does not expect that the adoption of the guidance will have a material impact on the Company's financial statements.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Common Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Common Stock, Shares Authorized	200,000,000	200,000,000
Common Stock, Shares, Issued	141,045,000	138,927,000
Common Stock, Shares, Outstanding	141,045,000	138,927,000

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Sale of Sumavel DosePro Business (Tables)

6 Months Ended

Jun. 30, 2014

Discontinued Operations and Disposal Groups [Abstract]

Schedule of Net Assets and Calculation of the Gain on Sale

The following sets forth the net assets and calculation of the gain on sale as of Closing (in thousands):

Non-contingent consideration received	$	89,624
Imputed interest on working capital advance	4,748
Carrying value of Sumavel DosePro inventory on hand at Closing	(4,624		)
Transaction costs	(660		)
Deferred revenue associated with undelivered elements	(9,108		)
Net gain on sale of business	$	79,980

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 01, 2014
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
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		141,044,864

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2014

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, 2014 and 2013 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014	2013
Risk free interest rate	1.6% to 1.9%		1.2	%	1.6% to 2.0%	0.8% to 1.2%
Expected term	5.1 to 6.1 years		5.1 to 6.0 years		5.1 to 6.1 years	5.0 to 6.1 years
Expected volatility	84.2% to 84.7%		84.5% to 85.6%		84.2% to 84.9%	84.5% to 87.9%
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,
	2014		2013		2014		2013
Cost of goods sold	$	141	$	63	$	268	$	108
Research and development	364		250		721		466
Selling, general and administrative	2,280		1,465		4,303		2,790
Restructuring	—		201		—		201
Total	$	2,785	$	1,979	$	5,292	$	3,565

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Consolidated Statements of Operations and Comprehensive Loss (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenue:
Net product revenue	$ 5,780,000	$ 8,903,000	$ 12,550,000	$ 15,797,000
Contract revenue	2,238,000	0	2,238,000	0
Service and other revenue	1,143,000	39,000	2,048,000	127,000
Total revenue	9,161,000	8,942,000	16,836,000	15,924,000
Operating expenses:
Cost of sales	2,375,000	4,630,000	5,756,000	8,789,000
Cost of contract manufacturing	1,935,000	0	1,935,000	0
Royalty expense	435,000	338,000	798,000	620,000
Research and development	4,120,000	3,577,000	7,657,000	6,814,000
Selling, general and administrative	24,490,000	12,000,000	52,143,000	26,482,000
Restructuring	0	876,000	0	876,000
Impairment of long-lived assets	838,000	0	838,000	0
Net gain on sale of business	(79,980,000)	0	(79,980,000)	0
Total operating expenses	(45,787,000)	21,421,000	(10,853,000)	43,581,000
Loss from operations	54,948,000	(12,479,000)	27,689,000	(27,657,000)
Other income (expense):
Interest income	6,000	3,000	12,000	11,000
Interest expense	(1,029,000)	(1,595,000)	(2,915,000)	(3,208,000)
Loss on early extinguishment of debt	(1,254,000)	0	(1,254,000)	0
Change in fair value of warrant liabilities	10,201,000	1,264,000	18,470,000	(2,995,000)
Change in fair value of embedded derivatives	0	(480,000)	(14,000)	(562,000)
Other income (expense)	(7,000)	(45,000)	(55,000)	22,000
Total other income (expense)	7,917,000	(853,000)	14,244,000	(6,732,000)
Net loss before income taxes	62,865,000	(13,332,000)	41,933,000	(34,389,000)
Provision for income taxes	0	0	0	0
Net loss	62,865,000	(13,332,000)	41,933,000	(34,389,000)
Net income (loss) per share, basic, usd per share	$ 0.45	$ (0.13)	$ 0.30	$ (0.34)
Net income (loss) per share, diluted, usd per share	$ 0.45	$ (0.13)	$ 0.16	$ (0.34)
Weighted average common shares outstanding, basic	139,985	100,876	139,635	100,843
Weighted average common shares outstanding, diluted	139,985	100,876	142,772	100,843
Comprehensive loss	$ 62,865,000	$ (13,332,000)	$ 41,933,000	$ (34,389,000)

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2014

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, 2014 and 2013 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014	2013
Risk free interest rate	1.6% to 1.9%		1.2	%	1.6% to 2.0%	0.8% to 1.2%
Expected term	5.1 to 6.1 years		5.1 to 6.0 years		5.1 to 6.1 years	5.0 to 6.1 years
Expected volatility	84.2% to 84.7%		84.5% to 85.6%		84.2% to 84.9%	84.5% to 87.9%
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,
	2014		2013		2014		2013
Cost of goods sold	$	141	$	63	$	268	$	108
Research and development	364		250		721		466
Selling, general and administrative	2,280		1,465		4,303		2,790
Restructuring	—		201		—		201
Total	$	2,785	$	1,979	$	5,292	$	3,565

As of June 30, 2014, there was approximately $18,781,000 of total unrecognized compensation costs related to outstanding employee and board of director stock options and restricted stock units, which is expected to be recognized over a weighted average period of 2.8 years.

As of June 30, 2014, there were 201,563 unvested stock options outstanding to consultants, with approximately $322,000 of related unrecognized compensation expense based on a June 30, 2014 measurement date. These unvested stock options outstanding to consultants are expected to vest over a weighted average period of 2.5 years. In accordance with accounting guidance for stock-based compensation, the Company re-measures the fair value of stock option grants to non-employees at each reporting date and recognizes the related income or expense during their vesting period. The income recognized from the valuation of stock options and restricted stock units to consultants was $109,000 and $150,000 for the three and six months ended June 30, 2014, respectively, and was immaterial for the three and six months ended June 30, 2013. Stock option expense for awards issued to consultants is included in the consolidated statement of operations and comprehensive income (loss) within selling, general and administrative expense.

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Common Stock Warrants

6 Months Ended

Jun. 30, 2014

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 are exercisable at an exercise price of $2.50 per share and will expire on July 27, 2017, which is five 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). During the three and six months ended June 30, 2014, warrants to purchase 465,250 shares of common stock were exercised, and during the year ended December 31, 2013, warrants to purchase 103,500 shares of common stock were exercised. The Company recognized $1,163,000 and $259,000 in proceeds from the exercise of warrants during the three and six months ended June 30, 2014 and during the year ended December 31, 2013, respectively. The fair value of the warrants outstanding was approximately $11,735,000 and $30,849,000 as of June 30, 2014 and December 31, 2013, respectively.

In July 2011, upon the closing of and in connection with the Financing Agreement (see Note 5), 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 ten 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 and $492,000 as of June 30, 2014 and December 31, 2013, respectively.

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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, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Numerator
Net loss for basic EPS	$ 62,865	$ (13,332)	$ 41,933	$ (34,389)
Common stock warrants	0	0	18,470	0
Net loss for diluted EPS	$ 62,865	$ (13,332)	$ 23,463	$ (34,389)
Denominator
Weighted average common shares outstanding, basic	139,985	100,876	139,635	100,843
Common stock warrants, shares	0	0	3,137	0
Weighted average common shares outstanding, diluted	139,985	100,876	142,772	100,843
Basic net loss per share, usd per share	$ 0.45	$ (0.13)	$ 0.30	$ (0.34)
Diluted net loss per share, usd per share	$ 0.45	$ (0.13)	$ 0.16	$ (0.34)

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Organization and Basis of Presentation Narrative (Details) (USD $)	6 Months Ended			0 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	May 16, 2014 Notes Payable, Other Payables [Member]	May 16, 2014 Sumavel DosePro [Member]	May 16, 2014 Sumavel DosePro [Member]	May 16, 2014 Sumavel DosePro [Member] Purchasing Entity [Member]	May 16, 2014 Sumavel DosePro [Member] Notes Payable, Other Payables [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Face amount of debt			$ 7,000,000				$ 7,000,000
Revenue from finished goods inventory				4,624,000
Proceeds from sale of business	89,624,000	0		85,000,000
Escrow Deposit					8,500,000
Contingent consideration, asset						$ 20,000,000

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2014

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, 2014 and December 31, 2013 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, 2014
Assets
Cash equivalents(1)	$	78,515	—	—	$	78,515
Liabilities
Common stock warrant liabilities(2)	$	—	—	11,955	$	11,955
At December 31, 2013
Assets
Cash equivalents(1)	$	69,120	—	—	$	69,120
Liabilities
Common stock warrant liabilities(2)	$	—	—	31,341	$	31,341
Embedded derivative liabilities(3)	$	—	—	233	$	233

(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 6), 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 and the timing of such event; and for the valuation scenario in which an extraordinary event occurs that is not an all cash transaction or an event whereby a public acquirer would assume the warrants, (b) an expected volatility rate using the Company's historical volatility, supplemented with historical volatility of comparable companies, through the projected date of public announcement of an extraordinary transaction, blended with a 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 inputs used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering are the expected volatility and the 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. The decrease in the fair value of the common stock warrant liabilities as of June 30, 2014 was primarily driven by the decrease in the Company's stock price at June 30, 2014 as compared against December 31, 2013 measurement dates.

(3) Embedded derivatives were measured at fair value using various discounted cash flow valuation models and were included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models included: (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 interest payments over the term of the Healthcare Royalty 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 were management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement of the liability. The embedded derivatives were derecognized in May 2014 as a result of the early extinguishment of the Healthcare Royalty Financing Agreement (see Note 5).

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, 2014 (in thousands):

	Common Stock Warrant Liabilities			Embedded Derivative Liabilities
Balance at December 31, 2013	$	31,341		$	233
Changes in fair value	(18,470		)	14
Derecognition of liability	—			(247		)
Exercises	$	(916	)	$	—
Balance at June 30, 2014	$	11,955		$	—

Basic and Diluted Net Loss Per Share

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014			2013
Numerator
Net income (loss), basic	62,865		(13,332		)	41,933			(34,389		)
Effect of dilutive securities:
Common stock warrants	$	—	$	—		$	(18,470	)	$	—
Net income (loss), diluted	$	62,865	$	(13,332	)	$	23,463		$	(34,389	)
Denominator
Weighted average common shares outstanding, basic	139,985		100,876			139,635			100,843
Effect of dilutive securities:
Common stock warrants	—		—			3,137			—
Weighted average common shares outstanding, diluted	139,985		100,876			142,772			100,843
Basic net income (loss) per share	$	0.45	$	(0.13	)	$	0.30		$	(0.34	)
Diluted net income (loss) per share	$	0.45	$	(0.13	)	$	0.16		$	(0.34	)

Schedule of Calculation of Diluted Net Loss Per Share

There were 9,255,000 and 12,684,000 dilutive securities (in common stock equivalent shares), from common stock options excluded from the calculation of diluted net loss during the three and six months ended June 30, 2014, respectively, because to include them would be anti-dilutive. There were 1,710,000 dilutive securities (in common stock equivalent shares), from common stock options and restricted stock units, excluded from the calculation of diluted net loss during the three and six months ended June 30, 2013 because to include them would be anti-dilutive.

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Subsequent Event (Notes)

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Event

Subsequent Event

On August 5, 2014, the Company entered into a new operating lease (the Lease) for approximately 17,361 rentable square feet of office space located in San Diego, California. The Company intends to use the leased premises as its corporate headquarters, and the new lease is expected to commence on December 1, 2014 upon expiration of the Company’s current San Diego office sublease of approximately 13,124 rentable square feet in the same location.

The Lease term will expire 64 months after the Lease commencement date with an option to renew the Lease for an additional five years. The initial base rent will be $73,784 per month, with 100% of rent being abated for the second, third, fourth and fifth months of the Lease term and 50% of rent being abated for the sixth month of the Lease term. The base rent will increase approximately 3.25% on a yearly basis throughout the Lease term. The Lease also requires the Company to pay additional rent consisting of a portion of common area and pass-through expenses in excess of base year amounts. The Company will begin to amortize rent expense related to this operating lease using a straight-line method when it gains access to the new leased space.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2014

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, 2013 filed with the SEC on March 7, 2014.

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.

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.

Restricted Cash

Restricted Cash

In connection with its sale of the Sumavel DosePro business in May 2014, the Company has $8,500,000 of cash in escrow as of June 30, 2014 to fund potential indemnification claims for a period of 12 months (see Note 4). The Company classifies the cash flow from this restricted cash as an investing activity in the consolidated statement of cash flows as the source of the restricted cash is related to the sale of the Sumavel DosePro business.

Further, in December 2009, the Company issued a line of credit for $200,000 in connection with an operating lease which was collateralized by a certificate of deposit in the same amount and recorded as restricted cash within other assets on the consolidated balance sheet as of December 31, 2013. This line of credit and certificate of deposit were terminated in February 2014 in connection with a renegotiation of the operating lease.

Fair Value Measurements

Fair Value Measurements

The carrying amount of financial instruments consisting of cash, restricted 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 accrued liability for the annual tail payment due to Astellas Pharma US, Inc. (Astellas) (see Note 5) 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 its 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.

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 income (loss). The derecognition of the embedded derivative liabilities was included in the loss on early extinguishment of debt in non-operating expenses in the consolidated statements of operations and comprehensive income (loss).

Net Loss per Share

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing the net income (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 income (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, restricted stock units 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.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. As a result of the sale of its Sumavel DosePro business in May 2014, the Company recorded an impairment charge of $838,000 in the consolidated statement of operations and comprehensive income (loss) during the three and six months ended June 30, 2014 related to the disposal of construction in progress that will no longer be placed into service.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue from the sale of Sumavel DosePro and Zohydro ER, and from contract manufacturing, license fees, milestones and service fees earned on collaborative arrangements. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the Company’s price to the buyer is substantially fixed or determinable at the date of sale, (b) the buyer has paid the Company, or the buyer is obligated to pay the Company and the obligation is not contingent on resale of the product, (c) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product, (d) the buyer acquiring the product for resale has economic substance apart from that provided by the Company, (e) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (f) the amount of future returns can be reasonably estimated. The Company currently defers recognition of revenue on product shipments of Zohydro ER until the right of return no longer exists, as the Company currently cannot reliably estimate expected returns of the product at the time of shipment given the limited sales history of Zohydro ER.

Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The application of the multiple element guidance requires subjective determinations, and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company's control. In determining the units of accounting, the Company evaluates certain criteria, including whether the deliverables have stand-alone value, based on the consideration of the relevant facts and circumstances for each arrangement. In addition, the Company considers whether the buyer can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s).

Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria, as described above, are applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition. The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or management's best estimate of selling price (BESP) if neither VSOE nor TPE is available. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs.

Product Revenue, Net

The Company sells Zohydro ER, and sold Sumavel DosePro through May 2014, in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively the Company's customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. The Company recognized Sumavel DosePro product sales at the time title transfered to its customer, and reduced product sales for estimated future product returns and sales allowances in the same period the related revenue was recognized.

Given the limited sales history of Zohydro ER, the Company cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company defers recognition of revenue on Zohydro ER product shipments until the right of return no longer exists, which occurs at the earlier of the time Zohydro ER is dispensed through patient prescriptions or expiration of the right of return. The Company estimates Zohydro ER patient prescriptions dispensed using an analysis of third-party syndicated data. Zohydro ER was launched in March 2014 and, accordingly, the Company does not have significant history estimating the number of patient prescriptions dispensed. If the Company underestimates or overestimates patient prescriptions dispensed for a given period, adjustments to revenue may be necessary in future periods. The deferred revenue balance does not have a direct correlation with future revenue recognition as the Company will record sales deductions at the time the prescription unit is dispensed.

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

Product sales allowances for Zohydro ER and Sumavel DosePro include wholesaler and retail pharmacy distribution fees, prompt pay discounts, chargebacks, rebates and patient discount programs, and are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of the Company's agreements with its customers and third-party payors and the levels of inventory within the distribution and retail channels that may result in future rebates or discounts taken. In certain cases, such as patient support programs, the Company recognizes the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, the Company may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. The Company records product sales deductions in the statement of operations at the time product revenue is recognized.

In connection with the Closing of the Asset Purchase Agreement (APA) in May 2014, whereby Endo acquired the Company's Sumavel DosePro business, Endo purchased the Company's existing finished goods inventory of Sumavel DosePro at standard cost. The Company will be financially responsible for all returns of Sumavel DosePro product distributed by the Company prior to Closing of the APA up to a maximum per unit amount as specified in the agreements. The Company will also be financially responsible for payment of Sumavel DosePro product sales allowances on product distributed by the Company prior to Closing of the APA. Endo will be responsible for payment of all other Sumavel DosePro returns and sales allowances.

Contract Manufacturing Revenue

Contract Manufacturing Revenue

In connection with the Closing of the APA in May 2014, the Company and Endo Ventures entered into the Supply Agreement, pursuant to which the Company retains the sole and exclusive right and the obligation to manufacture, have manufactured, supply or have supplied Sumavel DosePro to Endo Ventures (see Note 4). The Company recognizes deferred revenue related to its supply of Sumavel DosePro as contract manufacturing revenue when earned on a "proportional performance" basis, as product is delivered. The Company recognizes revenue related to its sale of Sumavel DosePro product, equal to the cost of contract manufacturing plus a 2.5% mark-up, upon the transfer of title to Endo. The Company supplies Sumavel DosePro product based on non-cancellable purchase orders. The Company initially defers revenue for any consideration received in advance of services being performed and product being delivered, and recognizes revenue pursuant to the related pattern of performance, based on total product delivered relative to the total estimated product delivery over the minimum eight year term of the Supply Agreement. The Company continually evaluates the performance period and will adjust the period of revenue recognition if circumstances change.

In addition, the Company follows the authoritative accounting guidance when reporting revenue as gross when the Company acts as a principal versus reporting revenue as net when the Company acts as an agent. For transactions in which the Company acts as a principal, has discretion to choose suppliers, bears credit risk and performs a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services.

Segment Reporting

Segment Reporting

Management has determined that the Company operates in one business segment, which is the development and commercialization of pharmaceutical products for people living with pain-related conditions and central nervous system disorders.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued an accounting update that raises the threshold for disposals to qualify as discontinued operations and allows companies to have significant continuing involvement with and continuing cash flows from or to the discontinued operations. This accounting update also requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. This guidance will be effective for fiscal years beginning after December 15, 2014, with early adoption permitted. The Company does not expect that the adoption of the guidance will have a material impact on the Company's financial statements.

In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years beginning after December 16, 2016, including interim periods within that reporting period, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is prohibited. The Company is evaluating the impact of adopting this new accounting standard on its financial statements and related disclosures.

In June 2014, the FASB issued new accounting guidance related to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early adoption is permitted. The Company does not expect that the adoption of the guidance will have a material impact on the Company's financial statements.

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Inventory, net (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure Inventory Net [Abstract]

Inventory, Net

	June 30, 2014		December 31, 2013
Raw materials	$	2,778	$	2,770
Work in process	7,087		6,054
Finished goods	4,874		1,112
Deferred cost of goods sold	917		—
	$	15,656	$	9,936

Deferred cost of goods sold consists of the costs of Zohydro ER associated with the deferred revenue, which are included in inventory, until such time the related deferred revenue is recognized.

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Summary of Significant Accounting Policies - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014 Minimum [Member]	Jun. 30, 2014 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2013 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2013 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Embedded Derivative Liabilities [Member]		Jun. 30, 2014 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Money market fund shares [Member]		Dec. 31, 2013 Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] Money market fund shares [Member]		Jun. 30, 2014 Significant Other Observable Inputs (Level 2) [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2013 Significant Other Observable Inputs (Level 2) [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2013 Significant Other Observable Inputs (Level 2) [Member] Embedded Derivative Liabilities [Member]		Jun. 30, 2014 Significant Other Observable Inputs (Level 2) [Member] Money market fund shares [Member]		Dec. 31, 2013 Significant Other Observable Inputs (Level 2) [Member] Money market fund shares [Member]		Jun. 30, 2014 Significant Unobservable Inputs (Level 3) [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2013 Significant Unobservable Inputs (Level 3) [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2013 Significant Unobservable Inputs (Level 3) [Member] Embedded Derivative Liabilities [Member]		Jun. 30, 2014 Significant Unobservable Inputs (Level 3) [Member] Money market fund shares [Member]		Dec. 31, 2013 Significant Unobservable Inputs (Level 3) [Member] Money market fund shares [Member]		Jun. 30, 2014 Estimate of Fair Value, Fair Value Disclosure [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2013 Estimate of Fair Value, Fair Value Disclosure [Member] Common Stock Warrant Liabilities [Member]		Dec. 31, 2013 Estimate of Fair Value, Fair Value Disclosure [Member] Embedded Derivative Liabilities [Member]		Jun. 30, 2014 Estimate of Fair Value, Fair Value Disclosure [Member] Money market fund shares [Member]		Dec. 31, 2013 Estimate of Fair Value, Fair Value Disclosure [Member] Money market fund shares [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								$ 78,515	[1]	$ 69,120	[1]							$ 0	[1]	$ 0	[1]							$ 0	[1]	$ 0	[1]							$ 78,515	[1]	$ 69,120	[1]
Liabilities
Liabilities measured at fair value on a recurring basis		$ 0	[2]	$ 0	[2]	$ 0	[3]					$ 0	[2]	$ 0	[2]	$ 0	[3]					$ 11,955	[2]	$ 31,341	[2]	$ 233	[3]					$ 11,955	[2]	$ 31,341	[2]	$ 233	[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 6), 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 and the timing of such event; and for the valuation scenario in which an extraordinary event occurs that is not an all cash transaction or an event whereby a public acquirer would assume the warrants, (b) an expected volatility rate using the Company's historical volatility, supplemented with historical volatility of comparable companies, through the projected date of public announcement of an extraordinary transaction, blended with a 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 inputs used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering are the expected volatility and the 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. The decrease in the fair value of the common stock warrant liabilities as of June 30, 2014 was primarily driven by the decrease in the Company's stock price at June 30, 2014 as compared against December 31, 2013 measurement dates.

[3] Embedded derivatives were measured at fair value using various discounted cash flow valuation models and were included as a component of other long-term liabilities on the consolidated balance sheets. The assumptions used in the discounted cash flow valuation models included: (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 interest payments over the term of the Healthcare Royalty 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 were management’s revenue projections. Significant decreases in these significant inputs would result in a higher fair value measurement of the liability. The embedded derivatives were derecognized in May 2014 as a result of the early extinguishment of the Healthcare Royalty Financing Agreement (see Note 5).

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Sale of Sumavel DosePro Business - Additional Information (Details) (USD $)	3 Months Ended		6 Months Ended			0 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	May 16, 2014 Notes Payable, Other Payables [Member]	May 16, 2014 Sumavel DosePro [Member]	Jun. 30, 2014 Sumavel DosePro [Member]	May 16, 2014 Sumavel DosePro [Member]	Jun. 30, 2014 Sumavel DosePro [Member] Notes Payable, Other Payables [Member]	Jun. 30, 2014 Sumavel DosePro [Member] Notes Payable, Other Payables [Member]	May 16, 2014 Sumavel DosePro [Member] Notes Payable, Other Payables [Member]	May 16, 2014 Sumavel DosePro [Member] Purchasing Entity [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Proceeds from sale of business			$ 89,624,000	$ 0		$ 85,000,000
Escrow Deposit								8,500,000
Revenue from finished goods inventory						4,624,000
Contingent consideration, asset												20,000,000
Cost of goods sold mark-up, in percent						2.50%
Face amount of debt					7,000,000						7,000,000
Transaction costs								660,000
Contract Receivable								9,100,000
Debt discount								4,748,000			4,748,000
Net gain on sale of business	79,980,000	0	79,980,000	0		79,980,000	79,980,000
Contract revenue	2,238,000	0	2,238,000	0			2,238,000
Deferred Revenue							9,005,000	9,108,000
Interest expense									$ 40,000	$ 40,000

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Consolidated Statements of Cash Flows (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Operating activities:
Net loss for basic EPS	$ 41,933,000	$ (34,389,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	5,292,000	3,364,000
Share-Based Compensation, Restructuring Costs	0	201,000
Depreciation and amortization	820,000	945,000
Amortization of debt issuance costs and non-cash interest	287,000	276,000
Loss on early extinguishment of debt	1,254,000	0
Net gain on sale of business	(79,980,000)	0
Impairment of long-lived assets	838,000	0
Change in fair value of warrant liabilities	(18,470,000)	2,995,000
Change in fair value of embedded derivatives	14,000	562,000
Changes in operating assets and liabilities:
Trade accounts receivable	745,000	1,505,000
Inventory, net	(5,720,000)	(299,000)
Prepaid expenses and other current assets	(9,378,000)	210,000
Other assets	(4,995,000)	498,000
Accounts payable and accrued expenses	10,666,000	(584,000)
Restructuring liabilities	0	146,000
Deferred revenue	15,990,000	0
Net cash used in operating activities	(40,704,000)	(24,570,000)
Investing activities:
Purchases of property and equipment	83,000	(798,000)
Proceeds from sale of business	89,624,000	0
Restricted cash from sale of business	(8,500,000)	0
Net cash provided by (used in) investing activities	81,207,000	(798,000)
Financing activities:
Proceeds from note payable	7,000,000	0
Repayment of debt	40,041,000	0
Proceeds from exercise of common stock options	1,508,000	0
Proceeds from issuance of common stock and common stock warrants	244,000	261,000
Net cash provided by financing activities	(31,289,000)	261,000
Net (decrease) increase in cash and cash equivalents	9,214,000	(25,107,000)
Cash and cash equivalents at beginning of period	72,021,000	41,228,000
Cash and cash equivalents at end of period	$ 81,235,000

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Collaboration and Financing Agreements

6 Months Ended

Jun. 30, 2014

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), which was originally scheduled to terminate on June 30, 2014. 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.

In partial consideration of Mallinckrodt’s sales efforts, the Company paid Mallinckrodt a service fee on a quarterly basis through January 31, 2014 that represented 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. Amounts payable to Mallinckrodt for service fees are reflected as selling, general and administrative expenses. For the three and six months ended June 30, 2014, the Company incurred $0 and $100,000, respectively, in service fee expenses under the Co-Promotion Agreement, excluding the tail-payment expense discussed below. 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

In January 2014, the Company entered into an amendment to the Co-Promotion Agreement, whereby the Co-Promotion Agreement terminated on January 31, 2014. The Company assumed full responsibility for the commercialization of Sumavel DosePro in February 2014. In connection with the termination of the Co-Promotion Agreement, the Company is required to make a one-time tail payment to Mallinckrodt, calculated as a fixed percentage of net sales from the Mallinckrodt targeted prescriber audience during the 12 month period ending on January 31, 2015. A liability of $491,000 for this estimated tail-payment was recorded as service fee expense in selling, general and administrative expenses in the statement of operations during the six months ended June 30, 2014.

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. The Company's sales team began promoting Migranal to prescribers in August 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 12 month increments. Valeant remains responsible for the manufacture, supply and distribution of Migranal for sale in the United States. In addition, Valeant supplies 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. The cost of any additional samples and any promotional materials ordered by the Company will be recognized as selling, general and administrative expenses.

In partial consideration of the Company's sales efforts, Valeant pays 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 the inability of 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. 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.

The Company recognizes co-promotion fees received under the Valeant Agreement as service revenue in the period in which its promotional activities generate net sales over the Baseline Forecast or Adjusted Baseline Forecast. For the three and six months ended June 30, 2014, the Company recognized service revenue of $1,115,000 and $1,980,000, respectively, under the Valeant Agreement.

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.

Following completion of the co-promotion term in March 2012, the Company was required to pay Astellas one tail payment in July 2013 and is required to pay Astellas another tail payment in July 2014, calculated as decreasing fixed percentages (ranging from mid-twenties down to a mid-teen percentage) of net sales in the Astellas Segment during the 12 months ended March 31, 2012. The fair value of the tail payments is being accreted through interest expense through the dates of payment in July 2013 and July 2014. The first tail payment of $2,032,000 was made in July 2013. As of June 30, 2014, the tail payment liability of $1,218,000 was included in accounts payable on the consolidated balance sheet. The Company recognized $44,000 and $146,000 of related interest expense during the three months ended June 30, 2014 and 2013, respectively, and recognized $87,000 and $287,000 of related interest expense during the six months ended June 30, 2014 and 2013, respectively.

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. The Financing Agreement was originally scheduled to terminate on March 31, 2018, but Healthcare Royalty exercised its right to early terminate the Financing Agreement on May 16, 2014, as discussed below.

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 was 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 were only included in the Revenue Interest if such net sales exceeded $10,000,000. The Company was 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.

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’s security interest was extinguished upon early termination of the Financing Agreement on May 16, 2014.

The Company had 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 generated 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 had 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. Healthcare Royalty exercised its option to terminate the Financing Agreement in connection with the Company's sale of the Sumavel DosePro business to Endo on May 16, 2014. Upon termination of the Financing Agreement by Healthcare Royalty, the Company was obligated to make a final payment (Final Payment) of $40,041,000 to Healthcare Royalty, which was an amount that generated a 17% internal rate of return on the Borrowed Amount as of the date of prepayment, reduced by the Revenue Interest and principal payments received by Healthcare Royalty up to the date of Final Payment. The Company no longer has any further payment obligations under the Financing Agreement after the Final Payment was made.

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, met 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 December 31, 2013 was $233,000 and is included in other long-term liabilities. The fair value of the embedded derivatives of $247,000 was derecognized upon termination of the Financing Agreement on May 16, 2014 and is included in the loss on early extinguishment of debt in the statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2104.

The Company received aggregate net proceeds of $29,485,000 from the Financing Agreement (including the purchase of common stock). The discounts, which were 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 $150,000 and $272,000 for the three and six months ended June 30, 2014, respectively, and $41,000 and $(35,000) for the three and six months ended June 30, 2013, respectively, in the statement of operations and comprehensive income (loss). The Company has recognized other expense in relation to the change in the fair value of the embedded derivatives of $0 and $14,000 for the three and six months ended June 30, 2014, respectively, and $480,000 and $562,000 for the three and six months ended June 30, 2013, respectively, in the statement of operations and comprehensive income (loss).

Upon early termination of the Financing Agreement on May 16, 2014, and the Company's Final Payment to Healthcare Royalty, the Company determined that the early termination resulted in an extinguishment of the outstanding debt and recognized a loss on early extinguishment of debt of $1,254,000 which was recorded as non-operating expenses in the statement of operations and comprehensive income (loss). The loss on early extinguishment of debt is related to the write-off of the unamortized balances of the debt discounts (which includes derecognition of the embedded derivative liabilities, as discussed above), debt acquisition costs, and accrued interest expenses related to the Financing Agreement.

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Sale of Sumavel DosePro Business Net Assets and Calculation of Gain on Sale (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended			0 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	May 16, 2014 Sumavel DosePro [Member]	Jun. 30, 2014 Sumavel DosePro [Member]	May 16, 2014 Sumavel DosePro [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Non-contingent consideration received								$ 89,624
Imputed interest on working capital advance								4,748
Carrying value of Sumavel DosePro inventory on hand at Closing	4,874		4,874		1,112			(4,624)
Transaction costs								(660)
Deferred revenue associated with undelivered elements							(9,005)	(9,108)
Net gain on sale of business	$ 79,980	$ 0	$ 79,980	$ 0		$ 79,980	$ 79,980

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Summary of Significant Accounting Policies - Additional Information (Details) (USD $)	3 Months Ended		6 Months Ended			0 Months Ended
	Jun. 30, 2014 segment	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2009	May 16, 2014 Sumavel DosePro [Member]	Jun. 30, 2014 Sumavel DosePro [Member]
Line of Credit Facility [Line Items]
Cost of goods sold mark-up, in percent						2.50%
Restricted Cash and Cash Equivalents							$ 8,500,000
Line of Credit Facility, Maximum Borrowing Capacity					200,000
Impairment of long-lived assets	$ 838,000	$ 0	$ 838,000	$ 0
Number of business segments	1