10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________

FORM 10-Q

___________________________________________

(Mark One)

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

For the quarterly period ended June 30, 2020

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

510-550-8300

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ZGNX	The Nasdaq Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

Large accelerated filer	☒	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of July 31, 2020 was 55,447,840.

ZOGENIX, INC.

Form 10-Q

For the Quarterly Period Ended June 30, 2020

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	2
	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019	3
	Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	Signatures	33

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Zogenix, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except par value)

	June 30, 2020		December 31, 2019
Assets:
Current assets:
Cash and cash equivalents	$	136,871	$	62,070
Marketable securities	253,378		189,085
Inventory, net	475		—
Prepaid expenses and other current assets	10,833		11,084
Acquisition holdback placed in escrow	25,000		25,000
Total current assets	426,557		287,239
Property and equipment, net	9,300		9,424
Operating lease right-of-use assets	8,266		7,774
Intangible assets	102,500		102,500
Goodwill	6,234		6,234
Other noncurrent assets	2,250		1,079
Total assets	$	555,107	$	414,250
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	8,518	$	7,979
Accrued and other current liabilities	40,176		30,117
Acquisition holdback liability	24,444		24,444
Deferred revenue, current	5,303		5,927
Current portion of operating lease liabilities	1,633		1,322
Current portion of contingent consideration	13,000		25,600
Total current liabilities	93,074		95,389
Deferred revenue, noncurrent	5,768		7,425
Operating lease liabilities, net of current portion	11,022		10,752
Contingent consideration, net of current portion	40,100		38,200
Deferred tax liability	—		17,425
Total liabilities	149,964		169,191
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding	—		—
Common stock, $0.001 par value; 100,000 shares authorized; and 55,445 and 45,272 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	55		45
Additional paid-in capital	1,599,047		1,360,092
Accumulated deficit	(1,194,581)		(1,115,457)
Accumulated other comprehensive income	622		379
Total stockholders’ equity	405,143		245,059
Total liabilities and stockholders’ equity	$	555,107	$	414,250

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc. | Q2 2020 Form 10-Q | 1

Zogenix, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Collaboration revenue	$	1,032	$	1,069	$	2,281	$	1,069
Operating expenses:
Research and development	34,373		27,096		67,613		51,448
Selling, general and administrative	24,431		15,459		45,749		26,377
Acquired in-process research and development expense	1,500		—		3,000		—
Change in fair value of contingent consideration	12,200		(700)		4,300		2,300
Total operating expenses	72,504		41,855		120,662		80,125
Loss from operations	(71,472)		(40,786)		(118,381)		(79,056)
Other (expense) income, net	(157)		40		19,864		(48)
Interest income	880		2,983		1,968		6,139
Loss before income taxes	(70,749)		(37,763)		(96,549)		(72,965)
Income tax benefit	(17,425)		—		(17,425)		—
Net loss	$	(53,324)	$	(37,763)	$	(79,124)	$	(72,965)
Net loss per share, basic and diluted	$	(0.96)	$	(0.89)	$	(1.53)	$	(1.72)
Weighted average number of shares used in the calculation of basic and diluted net loss per common share	55,355		42,458		51,770		42,348

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc. | Q2 2020 Form 10-Q | 2

Zogenix, Inc.

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net loss	$	(53,324)	$	(37,763)	$	(79,124)	$	(72,965)
Other comprehensive (loss) income, net of tax:
Change in unrealized gains related to marketable securities	444		353		272		723
Foreign currency translation adjustments	(34)		—		(29)		—
Total other comprehensive income	410		353		243		723
Comprehensive loss	$	(52,914)	$	(37,410)	$	(78,881)	$	(72,242)

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc. | Q2 2020 Form 10-Q | 3

Zogenix, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands)

	Six Months Ended June 30, 2020
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2019	45,272	$	45	$	1,360,092	$	379	$	(1,115,457)	$	245,059
Net loss	—	—		—		—		(25,800)		(25,800)
Other comprehensive loss	—	—		—		(167)		—		(167)
Issuance of common stock, net of offering costs	9,798	10		221,698		—		—		221,708
Issuance of common stock under employee equity plans	297	—		3,882		—		—		3,882
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	(26)	—		(569)		—		—		(569)
Stock-based compensation	—	—		6,394		—		—		6,394
Balance at March 31, 2020	55,341	$	55	$	1,591,497	$	212	$	(1,141,257)	$	450,507
Net loss	—	—		—		—		(53,324)		(53,324)
Other comprehensive income	—	—		—		410		—		410
Issuance of common stock under employee equity plans	153	—		616		—		—		616
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	(49)	—		(1,369)		—		—		(1,369)
Stock-based compensation	—	—		8,303		—		—		8,303
Balance at June 30, 2020	55,445	$	55	$	1,599,047	$	622	$	(1,194,581)	$	405,143

	Six Months Ended June 30, 2019
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2018	42,078	$	42	$	1,218,710	$	3	$	(695,954)	$	522,801
Net loss	—	—		—		—		(35,202)		(35,202)
Other comprehensive income	—	—		—		370		—		370
Issuance of common stock under employee equity plans	380	—		5,293		—		—		5,293
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	(12)	—		(606)		—		—		(606)
Stock-based compensation	—	—		4,223		—		—		4,223
Balance at March 31, 2019	42,446	$	42	$	1,227,620	$	373	$	(731,156)	$	496,879
Net loss	—	—		—		—		(37,763)		(37,763)
Other comprehensive income	—	—		—		353		—		353
Issuance of common stock under employee equity plans	52	—		888		—		—		888
Stock-based compensation	—	—		5,358		—		—		5,358
Balance at June 30, 2019	42,498	$	42	$	1,233,866	$	726	$	(768,919)	$	465,715

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc. | Q2 2020 Form 10-Q | 4

Zogenix, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Six Months Ended June 30,
	2020		2019
Cash flow from operating activities:
Net loss	$	(79,124)	$	(72,965)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation	14,697		9,581
Depreciation and amortization	740		552
Deferred income taxes	(17,425)		—
Noncash lease expense	619		—
Net accretion and amortization of investments in marketable securities	(380)		(3,299)
Change in fair value of warrant liabilities	(162)		158
Acquired in-process research and development expense	3,000		—
Change in fair value of contingent consideration	4,300		2,300
Changes in operating assets and liabilities:
Inventory, net	(475)		—
Prepaid expenses and other current assets	251		6,071
Other assets	(1,171)		(5,963)
Accounts payable, accrued and other liabilities	(5,737)		(5,193)
Operating lease liability	(634)		12,588
Deferred revenue	(2,281)		14,431
Net cash used in operating activities	(83,782)		(41,739)
Cash flow from investing activities:
Cash paid for in-process research and development asset	(3,000)		—
Purchases of marketable securities	(180,832)		(251,782)
Proceeds from maturities of marketable securities	114,205		289,357
Proceeds from sales of marketable securities	2,988		—
Purchases of property and equipment	(415)		(8,922)
Net cash (used in) provided by investing activities	(67,054)		28,653
Cash flow from financing activities:
Payment of contingent consideration	—		(10,000)
Proceeds from issuance of common stock under equity incentive plans	4,498		6,026
Taxes paid related to net share settlement of equity awards	(569)		(606)
Proceeds from issuance of common stock, net of issuance costs	221,708		—
Net cash provided by (used in) financing activities	225,637		(4,580)
Net increase (decrease) in cash and cash equivalents	74,801		(17,666)
Cash and cash equivalents, beginning of the period	62,070		68,454
Cash and cash equivalents, end of the period	136,871		50,788

See accompanying notes to the unaudited condensed consolidated financial statements.

Zogenix, Inc. | Q2 2020 Form 10-Q | 5

Zogenix, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Organization, Basis of Presentation and Liquidity

Zogenix, Inc. and subsidiaries (the Company, we, us or our) is a global biopharmaceutical company committed to developing and commercializing therapies with the potential to transform the lives of patients and their families living with rare diseases. Our first rare disease therapy, Fintepla (fenfluramine) oral solution, C-IV has been approved by the U.S. Food and Drug Administration (FDA) and is under review in Europe for the treatment of seizures associated with Dravet syndrome, a rare, severe childhood onset epilepsy. In addition, the company has two late-stage development programs underway: one for Fintepla for the treatment of seizures associated with Lennox-Gastaut syndrome, a rare childhood-onset epilepsy and another for MT1621, an investigational novel substrate enhancement therapy for the treatment of TK2 deficiency, a rare genetic disorder.

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

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Zogenix, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The results of operations for any interim period are not necessarily indicative of results of operations for any future period. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and related notes included in our 2019 Annual Report on Form 10-K (2019 Form 10-K), which was filed with the SEC on March 2, 2020.

Future Funding Requirements

As of June 30, 2020, our cash, cash equivalents and marketable securities totaled $390.2 million. Excluding gains from two discrete business divestitures, we have incurred significant net losses and negative cash flows from operating activities since inception resulting in an accumulated deficit of $1.2 billion as of June 30, 2020. We expect to continue to incur significant operating losses and negative cash flows from operations to support the marketing and commercialization of Fintepla for Dravet syndrome as well as continuing to advance our clinical programs. Additionally, we are obligated to make future milestone payments that are contingent upon the successful achievement of certain development, regulatory and sales-based milestone events related to Fintepla and MT1621. Historically, we have relied primarily on the proceeds from equity offerings to finance our operations. Until such time, if ever, we can generate a sufficient amount of revenue to finance our cash requirements, we may need to continue to rely on additional financing to achieve our business objectives.

On June 12, 2020, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective upon filing. The shelf registration statement permits us to offer and sell, from time to time over the next three years, in one or more offerings, an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants or units consisting of any of the foregoing. The specific terms of any offering, if any, under the shelf registration statement would be established at the time of such offering. The shelf registration statement also includes a sales agreement prospectus covering the offering, issuance and sale of up to $200.0 million of our common stock, through Cantor Fitzgerald & Co. (Cantor), acting as our sales agent, pursuant to a sales agreement with Cantor dated May 10, 2016 for our “at-the-market” equity program. During the quarter ended June 30, 2020, we did not issue any shares of our common stock through this program.

We believe maintaining an active shelf registration provides additional financial flexibility to access the capital markets and allow us to act opportunistically in support of our growth objectives. However, there is no assurance that such financings could be consummated on acceptable terms or at all. Failure to raise sufficient capital when needed could require us to significantly delay, scale back or discontinue one or more of our product development programs or commercialization efforts or other aspects of our business plans, and our operating results and financial condition would be adversely affected.

Zogenix, Inc. | Q2 2020 Form 10-Q | 6

Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from those estimates.

Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the accompanying condensed consolidated financial statements are described in Note 2, Summary of Significant Accounting Policies to the consolidated financial statements in our 2019 Form 10-K. There have been no material changes in our significant accounting policies during the six months ended June 30, 2020 other than as set forth below.

Inventory

Inventory is recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. We periodically review our inventories to identify obsolete, slow moving, excess or otherwise unsaleable items. If obsolete, slow moving, excess or unsaleable items are observed and there are no alternate uses for the inventory, we record a write-down to net realizable value. The determination of net realizable value requires judgment including consideration of many factors, such as estimates of future product demand, product net selling prices, current and future market conditions and potential product obsolescence, among others.

Prior to regulatory approval, we expense costs associated with the manufacture of our product candidates to research and development expense unless we are reasonably certain such costs have future commercial use and net realizable value. Since we consider attaining regulatory approval of a product candidate to be highly uncertain and difficult to predict, we expect only in rare instances will pre-launch inventory be capitalized, if at all. As of June 30, 2020, our inventory of $0.5 million consisted of raw materials received subsequent to regulatory approval and was purchased for use in commercial production.

Finite-Lived Intangible Assets

Purchased finite-lived intangible assets are initially recognized at fair value and subject to amortization over its estimated useful life. Our finite-lived intangible assets are amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used. If that pattern cannot be reliably determined, the intangible assets are amortized using the straight-line method over their estimated useful lives and are tested for impairment along with other long-lived assets. At June 30, 2020, our finite-lived intangible assets consisted of Fintepla product rights (see Note 7).

Long-Lived Assets

Long-lived assets, including right-of-use operating lease assets and our finite-lived intangible asset, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (group) may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations related to the assets (asset group) to their carrying amount. If the carrying value of the assets (asset group) exceeds its undiscounted cash flows, we then compare the fair value of the assets (asset group) to their carrying value to determine the impairment loss. The impairment loss will be allocated to the carrying values of the long-lived assets (asset group), but not below their individual fair values.

If we determine that events and circumstances warrant a revision to the remaining period of amortization, a long-lived asset’s remaining useful life shall be changed, and the remaining carrying amount of the long-lived asset shall be depreciated or amortized prospectively over that revised remaining useful life.

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Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the global novel coronavirus disease (COVID-19) outbreak a pandemic. To date, our operations have not been significantly impacted by the COVID-19 pandemic. However, we cannot predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on our financial condition and operations, including ongoing and planned clinical trials, the timelines for receiving feedback or approvals from regulatory authorities, and product launch in the midst of a pandemic.

Management is monitoring the potential impact of the COVID-19 pandemic, if any, on the carrying value of our finite-lived intangible asset, goodwill, long-lived assets and right-of-use assets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets. If the financial markets and/or the overall economy are impacted for an extended period, our business, results of operations and financial condition may be adversely affected.

Income Taxes

On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act) and On March 27, 2020, The Coronavirus Aid, Relief and Economic Security Act (CARES Act) were signed into law in response to the COVID-10 pandemic. The FFCR Act and CARES Act, includes provisions related to refundable payroll tax credits, deferment of employer side social security payments, retroactively and temporarily (for taxable years beginning before January 1, 2021) suspending the application of the 80%-of-income limitation on the use of net operating losses, which was enacted as part of the Tax Cuts and Jobs Act of 2017. The CARES Act also provides that net operating losses arising in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back up to five years.

On June 29, 2020, Assembly Bill 85 (A.B. 85) was signed into California law. A.B. 85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022.

The enactment of the FFCR Act, CARES Act and A.B. 85 did not result in any material adjustments to our income tax provision for the three and six months ended June 30, 2020 or to our net deferred tax assets as of June 30, 2020. Given our history of losses, we do not expect the provisions of the FFCR Act, CARES Act and A.B. 85 to have a material impact on our annual effective tax rate or condensed consolidated financial statements in 2020; however, we will continue to evaluate the impact of tax legislation and will update our disclosures as additional information and interpretive guidance becomes available.

Recently Adopted Accounting Pronouncements

Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments revises the measurement of credit losses for most financial instruments measured at amortized cost, including trade receivables, from an incurred loss methodology to an expected loss methodology which results in earlier recognition of credit losses. Under the incurred loss model, a loss is not recognized until it is probable that the loss-causing event has already occurred. The standard introduces a forward-looking expected credit loss model that requires an estimate of the expected credit losses over the life of the instrument by considering all relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. In addition, the standard also modifies the impairment model for available-for-sale debt securities, which are measured at fair value, by eliminating the consideration for the length of time fair value has been less than amortized cost when assessing credit loss for a debt security and provides for reversals of credit losses through income upon credit improvement. The standard became effective for us beginning January 1, 2020. Based on the composition of our investment portfolio, which reflects our primary investment objective of capital preservation, the adoption of this standard did not have a material impact on our condensed consolidated financial statements or related disclosures.

ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value for a reporting unit is determined in the same manner as the amount of goodwill

Zogenix, Inc. | Q2 2020 Form 10-Q | 8

recognized in a business acquisition of the reporting unit. Under the standard, an entity shall recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The standard became effective for us beginning January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements or related disclosures; however, any prospective goodwill impairment losses recognized will be measured in accordance with the updated guidance.

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modifies the disclosure requirements in Topic 820 by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard became effective for us beginning January 1, 2020 and the adoption of this standard did not have a material impact on our condensed consolidated financial statements. For the new disclosures regarding our Level 3 fair value measurements, see Note 5, Fair Value Measurements to these condensed consolidated financial statements.

ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) removes certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU is effective for us for all interim and annual periods beginning January 1, 2021, with early adoption permitted. We early adopted ASU 2019-12 beginning January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.

The only aspect of ASU 2019-12 that is currently applicable to us is the removal of the exception related to intraperiod tax allocation. Beginning January 1, 2020, we have applied the general methodology regarding the intraperiod allocation of tax expense for reporting periods where we have a loss from continuing operations by determining the amount of taxes attributable to continuing operations without regard to the tax effect of other items, including changes in unrealized gains related to marketable securities.

Recent Accounting Pronouncements

We have reviewed recently issued accounting pronouncements and concluded they are either not applicable to our business or no material effect is expected on our condensed consolidated financial statements as a result of future adoption.

Note 3 – Collaborative Arrangement

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

Shinyaku has agreed to support development and regulatory approval of Fintepla in Japan by actively participating in the design of non-clinical, clinical and manufacturing requirements needed for regulatory submission, actively planning and participating in product labeling decisions and discussions with the Japanese Ministry of Health, Labor and Welfare (MHLW) and obtained distribution exclusivity through the payment of an initial fixed consideration. Pursuant to the terms of the agreement, Shinyaku agreed to make aggregate fixed payments of $20.0 million to us in scheduled installments. As of June 30, 2020, we have received $17.0 million with the remaining balance due within the next year. We will be actively running the clinical trials, performing manufacturing validation activities, preparing regulatory filings and holding discussions with MHLW, and negotiating pricing. We and Shinyaku have agreed to proportionally share the Japan specific development costs that may arise outside of the initial development plan and any post-approval clinical study costs in Japan. In addition, we can earn up to $66.0 million from Shinyaku for the achievement of certain regulatory milestones for the treatment of Dravet

Zogenix, Inc. | Q2 2020 Form 10-Q | 9

syndrome and LGS. If regulatory approval of Fintepla is received in Japan, we have agreed to supply Shinyaku with Fintepla upon receipt of purchase orders at our actual manufacturing cost plus a fixed transfer price mark-up, a fixed percentage of Shinyaku's net sales of Fintepla in Japan for such fiscal year, and a net price mark-up based on a percent of the applicable aggregate sales of Fintepla by Shinyaku for such fiscal year. The net price mark-up percentage increases with Shinyaku’s sales of Fintepla annual net sales in Japan and ranges between mid-twenties and is capped at a low thirties of the aggregate annual net sales for an applicable fiscal year. In addition, we can earn up to an additional $42.5 million tied to the achievement of certain net sales milestones by Shinyaku through the term of the agreement, which generally expires in 2045.

The collaborative activities under the Shinyaku Agreement prior to regulatory approval are within the scope of the accounting guidance related to collaborative arrangements as both parties are active participants and are exposed to significant risks and rewards dependent on the success of commercializing Fintepla in Japan. Since Shinyaku is not a customer as it does not obtain an output of our development and regulatory approval activities for Fintepla as they were not provided a license to our intellectual property or the ability to manufacture the product, and we do not consider performing development and regulatory approval services to be a part of our ongoing activities. Shinyaku will only become a customer and subject to revenue from contracts from customers accounting guidance after regulatory approval of Fintepla in Japan occurs and Shinyaku places purchase orders with us. To date, Shinyaku has not provided us with any purchase orders and thus no revenue has been recognized for the supply of Fintepla.

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

Since Shinyaku was not provided a license to our intellectual property or the ability to manufacture Fintepla, Shinyaku will only become a customer, and payments made under the Shinyaku Agreement will only be subject to the accounting guidance related to revenue from contracts from customers, after regulatory approval of Fintepla in Japan occurs and Shinyaku places purchase orders with us.

The initial collaboration consideration consisted solely of the fixed consideration payments of $20.0 million and was allocated on a relative standalone selling price basis to the two identified development programs akin to performance obligations related to collaborative activities for development and regulatory approval efforts for Dravet syndrome and LGS. Analogizing to the revenue from contracts with customers variable consideration guidance, all potential regulatory milestone payment consideration will be included in the collaboration consideration if and when it is probable that a significant reversal in the amount of cumulative collaboration consideration recognized will not occur when the uncertainty associated with the variable collaboration consideration is subsequently resolved. At contract inception and through June 30, 2020, this consideration was fully constrained as the achievement of the events tied to these regulatory milestone payments was highly dependent on factors outside our control.

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

For the three and six months ended June 30, 2020, we recognized collaboration revenue of $1.0 million and $2.3 million, respectively. As of June 30, 2020, the deferred revenue balance of $11.1 million related to this agreement was recorded as deferred revenue, which is classified as either current or net of current portion in the accompanying condensed consolidated balance sheets based on the period over which the collaboration revenue is expected to be recognized. We expect to recognize collaboration revenue related to these collaborative activities through the end of 2023.

Note 4 – Cash, Cash Equivalents and Marketable Securities

The following tables summarize the amortized cost and the estimated fair value of our cash, cash equivalents and marketable securities as of June 30, 2020 and December 31, 2019 (in thousands):

Zogenix, Inc. | Q2 2020 Form 10-Q | 10

	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	23,688	$	—	$	—	$	23,688
Cash equivalents:
U.S. Treasuries	11,300		—		—		11,300
Money market funds	61,840		—		—		61,840
Certificate of deposits	10,900		—		—		10,900
Commercial paper	29,143		—		—		29,143
Total cash and cash equivalents	136,871		—		—		136,871
Marketable securities:
U.S. Treasuries	55,677		3		—		55,680
Commercial paper	94,567		—		—		94,567
U.S. Government-sponsored enterprises debt securities	6,200		13		—		6,213
Corporate debt securities	53,537		637		—		54,174
Certificate of deposits	42,744		—		—		42,744
Total marketable securities	252,725		653		—		253,378
Total cash, cash equivalents and marketable securities	$	389,596	$	653	$	—	$	390,249

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	43,058	$	—	$	—	$	43,058
Cash equivalents:
Money market funds	11,527		—		—		11,527
Commercial paper	7,485		—		—		7,485
Total cash and cash equivalents	62,070		—		—		62,070
Marketable securities:
Commercial paper	73,366		—		—		73,366
Corporate debt securities	74,038		381		(2)		74,417
Certificate of deposits	41,302		—		—		41,302
Total marketable securities	188,706		381		(2)		189,085
Total cash, cash equivalents and marketable securities	$	250,776	$	381	$	(2)	$	251,155

The following table summarizes the cost and fair value of marketable securities based on stated effective maturities as of June 30, 2020 (in thousands):

	Amortized Cost		Fair Value
Due within one year	$	245,025	$	245,635
Due between one and two years	7,700		7,743
Total	$	252,725	$	253,378

We regularly review our available-for-sale marketable securities in an unrealized loss position and evaluate the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. As of June 30, 2020, no assessment of expected credit losses was necessary as we did not have any individual security in an unrealized loss position.

Zogenix, Inc. | Q2 2020 Form 10-Q | 11

Accrued interest receivable on available-for-sale marketable securities are recorded within “Prepaid expenses and other current assets” on our condensed consolidated balance sheets and was $0.4 million and $0.6 million at June 30, 2020 and December 31, 2019, respectively.

See Note 5 for further information regarding the fair value of our financial instruments.

Note 5 – Fair Value Measurements

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

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

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

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

Our financial instruments consist primarily of cash and cash equivalents, marketable securities, other current assets, accounts payable and accrued liabilities, contingent consideration liabilities and our outstanding common stock warrant liabilities. Certain cash equivalents, marketable securities, contingent consideration liabilities and common stock warrant liabilities are reported at their respective fair values on our condensed consolidated balance sheets. The remaining financial instruments are carried at cost which approximates their respective fair values because of the short-term nature of these financial instruments. See Note 4 for further information regarding the amortized cost of our financial assets.

The following tables summarize assets and liabilities recognized or disclosed at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
U.S. Treasuries	$	—	$	11,300	$	—	$	11,300
Money market funds	61,840		—		—		61,840
Certificate of deposits	—		10,900		—		10,900
Commercial paper	—		29,143		—		29,143
Marketable securities:
U.S. Treasuries	—		55,680		—		55,680
Commercial paper	—		94,567		—		94,567
U.S. Government-sponsored enterprises debt securities	—		6,213		—		6,213
Corporate debt securities	—		54,174		—		54,174
Certificate of deposits	—		42,744		—		42,744
Total assets(1)	$	61,840	$	304,721	$	—	$	366,561
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	36	$	36
Contingent consideration liabilities	—		—		53,100		53,100
Total liabilities	$	—	$	—	$	53,136	$	53,136

Zogenix, Inc. | Q2 2020 Form 10-Q | 12

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	11,527	$	—	$	—	$	11,527
Commercial paper	—		7,485		—		$	7,485
Marketable securities:
Commercial paper	—		73,366		—		73,366
Corporate debt securities	—		74,417		—		74,417
Certificate of deposits	—		41,302		—		41,302
Total assets(1)	$	11,527	$	196,570	$	—	$	208,097
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	198	$	198
Contingent consideration liabilities	—		—		63,800		63,800
Total liabilities	$	—	$	—	$	63,998	$	63,998

————————————

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

Contingent Consideration Liability

Pursuant to the terms of the Brabant purchase agreement in 2014 in which we acquired worldwide development and commercialization rights to Fintepla, we are obligated to make future milestone payments that are contingent upon the successful achievement of certain regulatory and sales-based milestone events related to Fintepla. As of June 30, 2020, the potential amount of future payments that we may be required to make is between zero, if none of the remaining milestones are achieved, to a maximum of $60.0 million.

The following table provides a reconciliation of our contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Balance at beginning of period	$	55,900	$	71,200	$	63,800	$	78,200
Change in fair value	12,200		(700)		4,300		2,300
Transfers out of Level 3 fair value hierarchy(1)	(15,000)		—		(15,000)		—
Settlements	—		—		—		(10,000)
Balance at end of period	$	53,100	$	70,500	$	53,100	$	70,500

————————————

(1)For the three and six months ended June 30, 2020, a $15.0 million regulatory milestone payment associated with the FDA’s approval of Fintepla was achieved and such consideration payable was no longer contingent. As of June 30, 2020, the amount has been reclassified from contingent consideration liability to accrued and other current liabilities which was subsequently paid in July 2020.

For the three months ended June 30, 2020, the $12.2 million increase to the estimated fair value of our contingent consideration liability consisted of updated assumptions used regarding the probability of success for achieving certain regulatory and sales-based milestone events in light of FDA approval of Fintepla in June 2020, which accounted for approximately $10.0 million of the increase, with the remaining increase attributed to a market-driven decrease in discount rates. The change in fair value for the three and six months ended June 30, 2019 and the six months ended June 30, 2020 was attributable to immaterial adjustments to certain assumptions and estimates used in the remeasurement to fair value.

The following table summarizes the significant unobservable inputs used in the fair value measurement of our contingent consideration liabilities as of June 30, 2020.

Zogenix, Inc. | Q2 2020 Form 10-Q | 13

Fair Value as of June 30, 2020 (in thousands)	Valuation Technique	Unobservable Input	Range	Weighted Average(1)
$53,100	Discounted cash flow	Discount rate	4.5% — 12.7%	6.8%
		Probability of payment	0% — 94.3%	94.3%
		Projected year of payment	2021 — 2030	2022

————————————

(1)Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

The weighted average discount rate was calculated based on the relative fair value of our contingent consideration obligations. Significant increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement as of June 30, 2020.

Note 6 – Accrued and Other Current Liabilities

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

	June 30, 2020		December 31, 2019
Accrued clinical trial expenses	$	11,335	$	18,666
Accrued compensation	7,229		7,179
Accrued milestone payment	15,000		—
Other accrued liabilities	6,576		4,074
Common stock warrant liabilities	36		198
Total accrued and other current liabilities	$	40,176	$	30,117

Note 7 – Intangible Assets

The following table provides details of the carrying amount of our intangible assets (in thousands):

	June 30, 2020		December 31, 2019
Finite-lived intangible assets	$	102,500	$	—
Indefinite-lived in-process research and development (IPR&D) intangible assets	—		102,500
Total intangible assets	$	102,500	$	102,500

Our intangible assets consist of worldwide development, commercialization and related intellectual property rights including patents and licenses for our product, Fintepla (fenfluramine; formerly referred to as ZX008), which at the time of our acquisition in October 2014 and as of December 31, 2019, was classified as an indefinite-lived IPR&D asset. Upon FDA approval of Fintepla in June 2020, this indefinite-lived asset was reclassified to a finite-lived intangible asset subject to amortization.

In July 2020, we commercially launched Fintepla and commenced amortization of this asset on a straight-line basis over its estimated useful life. Due to the inherent subjectivity of forecasting the timing in which the cash flows may be generated from this intangible asset over a long-term time horizon, we concluded the pattern of economic benefit cannot be reliably determined. As such, we elected to use the straight-line method of amortization for this intangible asset.

In estimating the useful life of the finite-lived Fintepla intangible asset, we considered the estimated period over which the asset will contribute directly or indirectly to our future cash flows, the strength of issued or licensed patents and related period of intellectual property protection, the availability of competitor products treating similar indications and the impact of patent expiry on the sustainability of future operating cash flows of the asset. Based on these factors, we estimated the useful life of the finite-lived intangible asset to be 13 years.

As of June 30, 2020, the estimated intangible asset amortization expense for the next five years and thereafter is as follows (in thousands):

Zogenix, Inc. | Q2 2020 Form 10-Q | 14

	Estimated Amortization Expense
2020 (remaining 6 months)	$	3,942
2021	7,885
2022	7,885
2023	7,885
2024	7,885
Thereafter	67,018
Total	$	102,500

Note 8 – Leases

We have operating leases consisting of office space for our Emeryville, California headquarters and for our various subsidiaries. In March 2020, our operating lease for our former headquarters in San Diego, California and the co-terminus sublease arrangement with our sublessee expired in accordance with the terms of the leases. In February 2020, we entered into a lease for office space in Maidenhead, United Kingdom, for a five-year term with aggregate lease payments of approximately $1.5 million. Operating lease assets represent our right to use an underlying asset for the lease term. Operating lease liabilities represent the present value of lease payments over the lease term, discounted using an estimate of our secured incremental borrowing rate.

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

	Six Months Ended June 30,
	2020		2019
Lease costs
Operating lease cost	$	1,045	$	995
Short-term lease cost	259		548
Sublease income	(115)		(290)
Total	$	1,189	$	1,253

Cash paid for amounts included in the measurement of lease liabilities for the six months ended June 30, 2020 and 2019 was $1.0 million and $0.6 million, respectively. The amounts were included in net cash used in operating activities in our condensed consolidated statements of cash flows. Right-of-use assets obtained in exchange for new operating lease liabilities were $1.2 million for the six months ended June 30, 2020.

Zogenix, Inc. | Q2 2020 Form 10-Q | 15

Maturities of operating lease liabilities as of June 30, 2020 and December 31, 2019 were as follows (in thousands):

	June 30, 2020		December 31, 2019
2020 (remaining 6 months and 12 months, respectively)	$	1,152	$	1,986
2021	2,292		1,957
2022	2,230		1,894
2023	2,287		1,951
2024	2,300		2,010
Thereafter	5,103		5,101
Total lease payments	15,364		14,899
Less imputed interest	(2,709)		(2,825)
Total operating lease liabilities	$	12,655	$	12,074

	June 30, 2020		December 31, 2019
Current portion of operating lease liabilities	$	1,633	$	1,322
Operating lease liabilities, net of current portion	11,022		10,752
Total lease liabilities	$	12,655	$	12,074

As of June 30, 2020, the weighted-average remaining lease term was 6.5 years and the weighted-average discount rate, weighted based on the remaining balance of lease payments, was 6.2%.

Note 9 – Stockholders’ Equity and Stock-Based Compensation

Sale of Common Stock

In March 2020, we completed an underwritten public offering of 9,798,000 shares of our common stock at an offering price of $23.50 per share, including 1,278,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares. Net proceeds realized from the offering amounted to approximately $221.7 million, after deducting commissions and other offering expenses.

Equity Incentive Plans

We have issued stock-based awards from various equity incentive and stock purchase plans, as more fully described in Note 12, Stock-Based Compensation to the consolidated financial statements in our 2019 Form 10-K. In June 2020, our shareholders approved an amendment and restatement of our 2010 Employee Stock Purchase Plan (the “Restated ESPP”). Effective May 29, 2020, the plan was amended to increase the aggregate number of shares authorized for issuance from 375,000 to 875,000 shares and to eliminate the annual evergreen feature, which automatically added 31,250 shares to the aggregate shares authorized for issuance on each January 1st. In addition, the expiration date of the Restated ESPP was modified from October 2020 to the date that all shares authorized have been issued. As of June 30, 2020, there were 524,962 shares of common stock available for future purchases under the Restated ESPP.

Stock Options

The following is a summary of stock option activity for the six months ended June 30, 2020 (in thousands, except per share data):

	Shares	Weighted- Average Exercise Price per Share
Outstanding at December 31, 2019	4,253	$	29.59
Granted	1,185	29.36
Exercised	(231)	16.85
Canceled	(145)	39.56
Outstanding at June 30, 2020	5,062	$	29.83

Zogenix, Inc. | Q2 2020 Form 10-Q | 16

Restricted Stock Units

The following is a summary of restricted stock unit activity for the six months ended June 30, 2020 (in thousands, except per share data):

	Shares	Weighted- Average Fair Value per Share at Grant Date
Outstanding at December 31, 2019	439	$	36.97
Granted	218	27.34
Vested	(194)	23.95
Canceled	(28)	38.74
Outstanding at June 30, 2020	435	$	38.09

In June 2020, approximately 128,000 shares of performance-based restricted stock units (PSU’s) granted in March 2017 vested upon satisfaction of both a service-period condition and a performance condition, the latter of which was satisfied following the FDA’s approval of Fintepla in June 2020. As of June 30, 2020, all outstanding restricted stock units were subject to time-based vesting.

Stock-Based Compensation Expense Allocation

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Research and development	$	3,488	$	2,074	$	6,217	$	3,509
Selling, general and administrative	4,815		3,284		8,480		6,072
Total	$	8,303	$	5,358	$	14,697	$	9,581

Stock-based compensation expense for the three and six months ended June 30, 2020 included $1.4 million of compensation expense related to the vesting of PSUs.

Note 10 – Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock and potential dilutive common stock equivalents outstanding during the period if the effect is dilutive. Our potentially dilutive shares of common stock include outstanding stock options, restricted stock units and warrants to purchase common stock.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Numerator:
Net loss	$	(53,324)	$	(37,763)	$	(79,124)	$	(72,965)
Denominator:
Shares used in per share calculation	55,355		42,458		51,770		42,348
Net loss per share, basic and diluted	$	(0.96)	$	(0.89)	$	(1.53)	$	(1.72)

Zogenix, Inc. | Q2 2020 Form 10-Q | 17

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Shares subject to outstanding stock options	4,942	4,227	4,696	3,973
Shares subject to outstanding restricted stock units	555	415	520	355
Shares subject to outstanding warrants to purchase common stock	28	28	28	28
Total	5,525	4,670	5,244	4,356

Note 11 - Income Taxes

Income tax benefit during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items, which are recorded in the interim period. The income tax benefit for the three and six months ended June 30, 2020 differs from the U.S. federal statutory rate of 21.0% primarily due to effect of change in the valuation allowance against our deferred tax assets, which resulted in an income tax benefit.

As of December 31, 2019, our net deferred tax liability was related to book and tax basis differences for our indefinite-lived Fintepla IPR&D intangible asset that was acquired through the October 2014 acquisition of Brabant Pharma Limited. Previously, this deferred tax liability was not considered to be a source of income for purposes of establishing our deferred tax asset valuation allowance due to the uncertainty associated with the timing of the reversal of this temporary tax difference. Upon FDA approval of Fintepla in June 2020, the indefinite-lived asset was reclassified to a finite-lived intangible asset and was subject to amortization over its estimated useful life. Because the detail scheduling of the timing of reversal of this temporary tax difference became available, the deferred tax liability associated with this finite-lived intangible asset was considered to be a source of income when assessing the realizability of our deferred tax assets as of June 30, 2020. We therefore recorded a $17.4 million income tax benefit for the three and six months ended June 30, 2020 with a corresponding reduction to our valuation allowance on deferred tax assets. The income tax benefit recognized for the three and six months ended June 30, 2020 included the effects of foreign exchange differences on remeasurement of the deferred tax liability. An immaterial portion of the adjustment for foreign exchange differences was related to prior periods. As of June 30, 2020, given our recurring net operating losses, we maintained a full valuation allowance against our net deferred tax assets.

Note 12 – United Kingdom (U.K.) Research and Development (R&D) Tax Relief Scheme

We conduct extensive research and development activities that benefit from U.K.’s small and medium-sized enterprises (SMEs) R&D tax relief scheme. Under this tax relief scheme, a SME can make an election (i) to receive an enhanced U.K. tax deduction on its eligible R&D activities or, when an SME entity is in a net operating loss position, or (ii) to surrender net operating losses that arise from its eligible R&D activities in exchange for a cash payment from the U.K. tax authorities. As the tax incentives may be received without regard to an entity’s actual tax liability, they are not subject to accounting for income taxes. Amounts recognized by us for cash payment claims under the SME R&D tax relief scheme are recorded as a component of other income after an election for tax relief has been made by submitting a claim for a discrete tax year and collectability is deemed probable and reasonably assured.

In December 2019, we elected to surrender net operating losses by submitting claims to receive cash payments of $9.9 million and $9.8 million related to our 2017 and 2018 tax years, respectively. Upon approval of our submitted claims by the U.K. tax authorities in the first quarter of 2020, we recorded income of $19.7 million as a component of other income on the condensed consolidated statement of operations. In May 2020, we received the cash payment for our submitted claims. For our 2019 tax year, we have not yet decided whether to seek tax relief by surrendering some of our losses for a tax credit cash rebate claim or electing to receive enhanced U.K. tax deductions on our eligible research and development activities. Under the U.K.’s tax legislation, there is a two-year window after the end of a tax year to seek relief under this tax relief scheme.

Zogenix, Inc. | Q2 2020 Form 10-Q | 18

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 commercialize Fintepla for the treatment of seizures associated with Dravet syndrome;

•the progress and timing of clinical trials of our product candidates Fintepla outside the United States and to treat patients with Lennox-Gastaut Syndrome and MT1621;

•the safety and efficacy of our product candidates;

•the impact of COVID-19 pandemic;

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

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

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

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

•the impact of healthcare reform laws; and

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

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

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

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

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

The condensed consolidated financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our 2019 Annual Report on Form 10-K, which was filed with the SEC on March 2, 2020 (2019 Form 10-K).

Zogenix, Inc. | Q2 2020 Form 10-Q | 19

Overview

We are a global biopharmaceutical company committed to developing and commercializing therapies with the potential to transform the lives of patients and their families living with rare diseases. Our first rare disease therapy, Fintepla (fenfluramine) oral solution, C-IV has been approved by the FDA and is under review in Europe for the treatment of seizures associated with Dravet syndrome, a rare, severe childhood onset epilepsy. In addition, the company has two late-stage development programs underway: one for Fintepla for the treatment of seizures associated with Lennox-Gastaut syndrome, a rare childhood-onset epilepsy and another for MT1621, an investigational novel substrate enhancement therapy for the treatment of TK2 deficiency, a rare genetic disorder.

Fintepla for Patients with Rare Epilepsy Disorders

Dravet Syndrome

In June 2020, we received FDA approval of Fintepla (fenfluramine) oral solution, CIV for the treatment of seizures associated with Dravet syndrome in patients two years of age and older. In July 2020, we launched Fintepla in the U.S. market through a restricted distribution program, called the Fintepla Risk Evaluation and Mitigation Strategy (REMS) Program, and is available through our specialty pharmacy partner. The FDA’s approval of Fintepla in Dravet syndrome was based on data from two randomized, double-blinded, placebo-controlled Phase 3 clinical trials, published in The Lancet (Volume 394, Issue 10216, P2243-2254, December 21, 2019) and JAMA Neurology (2020 Mar; 77(3): 300–308), and safety data from an open-label extension trial in which many patients received Fintepla for up to three years. When added to existing treatment regimens, Fintepla significantly reduced the monthly convulsive seizure frequency compared to placebo in study patients whose seizures were not adequately controlled on one or more antiepileptic drugs. In addition, most study patients responded to treatment with Fintepla within three to four weeks and effects remained consistent over the treatment period.

In addition, our Marketing Authorization Application (MAA) for Fintepla in Dravet syndrome submitted to the EMA has been under review since its acceptance in March 2019, and we anticipate a decision on the MAA from the EMA in the fourth quarter of 2020.

In Japan, we have enrolled our last patient in a pivotal Phase 3 study, with top-line data expected in late 2020/early 2021 and anticipate submission of a J-NDA to Japan’s Pharmaceutical and Medical Devices Agency in 2021.

Lennox-Gastaut Syndrome

Fintepla is also under late-stage development for the treatment of seizures associated with LGS, another rare and devastating form of childhood-onset epilepsy. In November 2017, we announced the initiation of Study 1601, our double-blind, placebo-controlled, multicenter global Phase 3 clinical trial of Fintepla as an adjunctive treatment for seizures in patients with LGS. In February 2020, we announced positive top-line results from Study 1601, which met its primary objective of demonstrating that Fintepla at a dose of 0.7 mg/kg/day was superior to placebo in reducing the frequency of drop seizures, based on the change between baseline and the titration and maintenance treatment period (p=0.0012). The same dose of Fintepla (0.7 mg/kg/day) also demonstrated improvements versus placebo in key secondary efficacy measures, including a significant reduction in the proportion of patients with a clinically meaningful reduction (≥50%) in drop seizure frequency (p=0.0150). A decrease in the frequency of drop seizures between baseline and the treatment period was observed for a lower dose of Fintepla (0.2 mg/kg/day) compared to placebo, but this change did not reach statistical significance (p=0.0915). In Study 1601, Fintepla was generally well-tolerated, with the adverse events consistent with those observed in our two prior Phase 3 studies in Dravet syndrome. The most common adverse events (≥10%) in the Fintepla-treated groups were decreased appetite, somnolence, fatigue, vomiting, diarrhea, seizure and pyrexia. The incidence of serious treatment emergent adverse events was 11.5% (n=10) in the 0.7 mg/kg/day group, 4.5% (n=4) in the 0.2 mg/kg/day group, and 4.6% (n=4) in the placebo group. Patients who completed the double-blind phase of Study 1601 and were eligible could enter a 12-month open label extension study to evaluate the long-term safety, tolerability and effectiveness of Fintepla. We are now focused on finalizing the studies and data required to support a supplemental New Drug Application (sNDA) and are scheduled to meet with the FDA in September 2020 to discuss requirements for an sNDA submission.

Other Potential Indications

In addition to Dravet syndrome and LGS, we are evaluating Fintepla in other rare epileptic syndromes and diseases. We believe that the unique mechanism of action of Fintepla has the potential to other epileptic encephalopathies where there is a significant unmet medical need. After the COVID-19 pandemic subsides, we plan to initiate an exploratory Phase 2 study (the “basket study”), which is a study designed to understand the characteristics of rare epilepsy disorders other than Dravet syndrome and LGS in separate cohorts and evaluate whether Fintepla is safe and effective versus placebo in these patient populations.

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MT1621 for Patients with TK2 Deficiency

In September 2019, we acquired all the outstanding equity interests of Modis Therapeutics, Inc. (Modis), a privately-held biopharmaceutical company based in Oakland, California. Modis holds an exclusive worldwide license from Columbia University in New York City to certain intellectual property rights owned or controlled by Columbia University to develop and commercialize MT1621. MT1621 is an investigational deoxynucleoside-combination substrate enhancement therapy in development for the treatment of TK2d, a rare, debilitating, and often fatal genetic mitochondrial DNA depletion disorder that primarily affects infants and children and for which there are currently no approved therapies. Modis previously completed the RETRO study, a potentially pivotal Phase 2 global retrospective study of MT1621 in 38 pediatric and adult patients with TK2d (median age of disease onset, 2.5 years) treated at eight clinical sites in the United States, Spain and Israel. Subjects received MT1621 for a median of 71 weeks (range 92 days – 7 years). In October 2019, we announced positive top-line results from the RETRO study in which 94.7% of treated patients had either improved (68%) or stabilized (26%) overall responses in major functional domains. A survival analysis using a time-dependent Cox regression model showed that the difference in probability of survival between treated patients and untreated natural history control patients was statistically significant (p<0.0006). Among clinical responders, a subset demonstrated profound responses, in some cases reacquiring previously lost capabilities such as ambulation, respiratory function allowing discontinuation from ventilatory support and independent feeding allowing removal of a feeding tube. Safety data from RETRO indicated that MT1621 was generally well-tolerated. Most reported adverse events were considered not related to study drug (199 of 292), with mild or moderate diarrhea being the most common treatment-related adverse event (AE), occurring in 63% of patients. Serious AEs (SAEs) were reported in 14 subjects (37%). The majority of SAEs were deemed related to TK2d; two patients experienced three adverse events related to study drug alone (kidney stone, kidney stone removal, diarrhea). Two adult-onset patients stopped treatment due to asymptomatic increases in aminotransferase liver enzymes (no increase in bilirubin levels), which resolved upon discontinuation of treatment.

In April 2020, we held an End-of-Phase 2 meeting with the FDA and in June 2020, we met with the FDA to discuss chemistry, manufacturing, and controls (CMC) for MT1621. In the meetings, the FDA outlined the additional clinical and non-clinical information needed for an NDA submission. Based on the feedback, we expect availability of all required data by end of 2021 to support an NDA submission, which we are targeting for first half of 2022. Also, in the meeting, the FDA requested we include additional information on treated patients who did not participate in the Modis-sponsored portion of the RETRO study in order to have a complete survival analysis for the NDA. This additional information will be collected in a non-interventional medical chart-review study. The FDA also recommended we conduct a Phase 1 pharmacokinetic (PK) studies in renal impairment to provide dosing recommendations in the setting of impaired renal function and include in the NDA submission. The FDA also concurred with our proposed CMC plan for the prospective NDA submission.

Business Update Regarding the COVID-19 Pandemic

The current COVID-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees, patients and their families and caregivers, communities and business operations, as well as the U.S. and global economies and financial markets. International and U.S. governmental authorities in impacted regions are taking actions in an effort to slow the spread of COVID-19, including issuing varying forms of “stay-at-home” orders, and restricting business functions outside of one’s home. In response, we closed our offices for all but the most essential activities and have implemented a policy allowing all employees to work from across all locations, following the guidelines or directives issued by federal, state and local government agencies in the U.S. as well as the U.K. government. We only recently reopened the UK site for use by employees on a volunteer basis under strict guidelines and using government recommended health protocols.

In July 2020, we commenced the commercial launch of Fintepla in the United States. Our commercialization efforts will need to navigate through the operational restrictions imposed on our sales force from quarantines, travel restrictions and bans and other governmental restrictions related to COVID-19. As a result of these restrictions, our sales force may not be able to conduct in-person interactions with physicians and customers and may be restricted to conducting educational and promotional activities for Fintepla virtually, which may impact our ability to market Fintepla. In addition, Fintepla is being launched through a Risk Evaluation and Mitigation Strategy (REMS) Program requiring patients to visit sites of care for an echocardiogram during this pandemic. To date, we have been able to continue to supply Fintepla and MT1621 to our patients currently enrolled in our clinical trials and do not currently anticipate any interruptions in supply. While we are currently continuing the clinical trials we have underway in sites across the globe, we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trials. For example, due to the challenges of enrolling new patients posed by the COVID-19 pandemic, we have paused the initiation of our basket study until there is more clarity on the extent of the impact of the COVID-19 pandemic on our business. Any delays in the completion of our clinical trials and any disruption in our supply chain could have a material adverse effect on our business, results of operations and financial condition. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning

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COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in conformity with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Our critical accounting policies and estimates are described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our 2019 Form 10-K. There were no material changes to our critical accounting policies during the six months ended June 30, 2020, as compared to the critical accounting policies and estimates disclosed in our 2019 Form 10-K, excepted as described below.

Finite-Lived Intangible Assets

Purchased finite-lived intangible assets are initially recognized at fair value and subject to amortization over its estimated useful life. Finite-lived intangible assets are amortized using the method that best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives. Due to the inherent subjectivity of forecasting the timing in which the cash flows may be generated from our Fintepla intangible asset over a long-term time horizon, we concluded the pattern of economic benefit could not be reliably determined. We have therefore elected to use the straight-line method of amortization for this intangible asset.

The estimate of the useful life of our Fintepla intangible asset involves management judgment. In determining the estimated useful life, we considered the estimated period over which the asset will contribute directly or indirectly to our future cash flows, the strength of issued patents and related period of intellectual property protection, the availability of competitor products treating similar indications and the impact of patent expiry on the sustainability of future operating cash flows of the asset.

Recent Accounting Pronouncements

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

Results of Operations

Comparison of Three and Six Months Ended June 30, 2020 and 2019

Collaboration Revenue

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2020		2019		Change		2020		2019		Change
Collaboration revenue	$	1,032	$	1,069	$	(37)	$	2,281	$	1,069	$	1,212

For the periods presented, all revenue was derived from a collaboration agreement with Nippon Shinyaku Co., Ltd. entered into in March 2019. We may also be entitled to receive additional payments under the collaboration agreement upon achievement of certain regulatory milestones and the occurrence of specific events. As the recognition of this collaboration revenue is based on costs incurred to date relative to total estimated costs at completion when measuring progress and the uncertainty of when the events underlying various milestones are resolved, we expect our collaboration revenue will fluctuate from period to period.

We commercially launched Fintepla in the U.S. market in July 2020, after receiving FDA approval for the treatment of seizures associated with Dravet syndrome in patients two years of age and older and expect to report revenue from product sales beginning with the third quarter of 2020.

Zogenix, Inc. | Q2 2020 Form 10-Q | 22

Research and Development Expenses

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2020		2019		Change		2020		2019		Change
Research and development	$	34,373	$	27,096	$	7,277	$	67,613	$	51,448	$	16,165

Research and development expenses consist of expenses incurred in developing, testing and seeking marketing approval of our product candidates, including: payments made to third-party clinical research organizations (CROs) and investigational sites, which conduct our clinical trials on our behalf, and consultants; expenses associated with regulatory submissions, pre-clinical development and clinical trials; payments to third-party manufacturers, which produce our active pharmaceutical ingredient and finished product; pre-launch inventory, personnel related expenses, such as salaries, benefits, travel and other related expenses, including stock-based compensation; and facility, maintenance, depreciation and other related expenses.

For each of our research and development programs, we incur both external and internal costs. External costs include clinical and non-clinical activities performed by CROs, lab services, purchases of product candidate materials and manufacturing development costs. We track external research and development expenses for each of our key development programs. We have not tracked internal costs on a program-by-program basis because our research and development employees and infrastructure resources are utilized across our product candidate development programs.

The table below sets forth components of our research and development expenses for the periods presented.

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2020		2019		Change		2020		2019		Change
Fintepla for Dravet syndrome	$	7,643	$	11,047	$	(3,404)	$	14,954	$	20,666	$	(5,712)
Fintepla for LGS	7,759		6,668		1,091		15,702		12,671		3,031
MT1621	4,432		—		4,432		6,084		—		6,084
Other(1)	646		27		619		1,443		725		718
Total external costs	20,480		17,742		2,738		38,183		34,062		4,121
Internal costs	13,893		9,354		4,539		29,430		17,386		12,044
Total	$	34,373	$	27,096	$	7,277	$	67,613	$	51,448	$	16,165

————————————

(1)Other external costs include early-phase exploratory research programs.

In October 2014, we acquired worldwide development and commercialization rights to Fintepla from the acquisition of Brabant and have since incurred significant expenditures related to conducting clinical trials of Fintepla. Research and development expenses related to Fintepla for Dravet syndrome decreased by $3.4 million and $5.7 million for the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019 primarily due to wind-down of clinical activities related to our Phase 3 trials Study 1501 and Study 1504. Research and development spend related to Fintepla for LGS increased by $1.1 million and $3.0 million in the same year-over-year periods reflecting the progression and expansion of our clinical trial activities within Study 1601. External costs of $4.4 million and $6.1 million incurred during the three and six months ended June 30, 2020, respectively, reflect our continuation of the MT1621 development program, which we acquired through our acquisition of Modis in September 2019. Internal costs for research and development activities increased by $4.5 million and $12.0 million for the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019 primarily driven by additions to headcount, including, in part, former Modis employees who continued their employment with us and additional hires to support the development of MT1621.

Selling, General and Administrative Expenses

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2020		2019		Change		2020		2019		Change
Selling	$	10,352	$	2,266	$	8,086	$	21,784	$	11,432	$	10,352
General and administrative	14,079		6,311		7,768		23,965		14,945		9,020
Total selling, general and administrative	$	24,431	$	15,459	$	15,854	$	45,749	$	26,377	$	19,372

Selling expense consists primarily of salaries and benefits of sales and marketing personnel and market research expenses for our product and product candidates that are in development and marketing expenses to support our commercial launch efforts. General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, accounting, business development and internal support functions. In addition, general and administrative expenses include professional fees for legal, consulting and accounting services.

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Selling expense increased by $8.1 million and $10.4 million for the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019 and was primarily attributable to increased personnel-related costs as a result of headcount additions in preparation for commercialization and launch of Fintepla for Dravet syndrome, which occurred in July 2020.

General and administrative expense increased by $7.8 million and $9.0 million for the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019 and was primarily attributable to increased personnel-related costs, including stock-based compensation related to the vesting of performance-based awards upon FDA approval of Fintepla for Dravet syndrome and an increase in professional services.

Acquired In-Process Research and Development Expense

Acquired in-process research and development (IPR&D) expense consists of a transaction accounted for as an asset acquisition. For the three and six months ended June 30, 2020, we incurred $1.5 million and $3.0 million, respectively, in aggregate monthly option maintenance fees for the right to license an IPR&D asset. The underlying program subject to our option maintenance fees had not yet reached technological feasibility and had no alternative future use which resulted in a write-off to acquired IPR&D expense.

Change in Fair Value of Contingent Consideration

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Change in fair value of contingent consideration	$	12,200	$	(700)	$	4,300	$	2,300

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

For the three months ended June 30, 2020, the $12.2 million increase to the estimated fair value of our contingent consideration consisted of updated assumptions used regarding the probability of success for achieving certain regulatory and sales-based milestone events in light of FDA approval of Fintepla in June 2020, which accounted for approximately $10.0 million of the increase, with the remaining increase attributed to a market-driven decrease in discount rates.

Other Income (Expense)

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Other income (expense):
Interest income	$	880	$	2,983	$	1,968	$	6,139
Other income, net	(157)		40		19,864		(48)
Total other income	$	723	$	3,023	$	21,832	$	6,091

The decrease in interest income for the three and six months ended June 30, 2020 compared to the same periods in 2019 was attributable to lower average cash and investment balances as we funded our acquisition of Modis in September 2019 with cash on hand.

The increase in other income, net for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to amounts recorded to other income of $19.7 million for a cash rebate claim submitted under the U.K.’s small and medium-sized enterprise and research and development tax relief scheme for qualifying expenditures incurred in tax years 2017 and 2018. For our 2019 tax year, we have not yet decided whether to seek tax relief by surrendering some of our losses for a tax credit cash rebate claim or electing to receive enhanced U.K. tax deductions on our eligible research and development activities. Under the U.K.’s tax legislation, there is a two-year window after the end of a tax year to seek relief under this tax relief scheme.

Income Tax Benefit

For the three and six months ended June 30, 2020, we recorded a tax benefit of $17.4 million resulting from our determination that we are now able to consider the deferred tax liability associated with the IPR&D intangible acquired in connection with our acquisition of Brabant in 2014 as a source of income in assessing the realizability of our deferred tax assets as of June 30, 2020. This change in estimate was based on the approval of Fintepla by the FDA in June 2020.

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Liquidity and Capital Resources

Excluding gains from two discrete business divestitures, we have incurred significant net losses and negative cash flows from operating activities since inception. As of June 30, 2020, our accumulated deficit was $1.2 billion. We expect to continue to incur significant operating losses and negative cash flows from operations to support the marketing and commercialization of Fintepla for Dravet syndrome as well as continuing to advance our clinical programs. Additionally, we are obligated to make future milestone payments that are contingent upon the successful achievement of certain substantive development, regulatory and sales-based milestone events related to Fintepla and MT1621. As of June 30, 2020, we derive collaboration revenue from our Shinyaku Agreement related to development and commercialization activities for Fintepla in Japan. To date, we have relied primarily on the proceeds from equity offerings to finance our operations.

In March 2020, we completed an underwritten public offering of 9,798,000 shares of our common stock at an offering price of $23.50 per share, including 1,278,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares. Net proceeds realized from the offering amounted to approximately $221.7 million, after deducting commissions and other offering expenses.

As of June 30, 2020, our cash, cash equivalents and marketable securities totaled $390.2 million. We believe our existing capital resources are sufficient to meet our projected operating requirements for at least the next 12 months. On June 12, 2020, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective upon filing. The shelf registration statement permits us to offer and sell, from time to time over the next three years, in one or more offerings, an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants or units consisting of any of the foregoing. The specific terms of any offering, if any, under the shelf registration statement would be established at the time of such offering. The shelf registration statement also includes a sales agreement prospectus covering the offering, issuance and sale of up to $200.0 million of our common stock, through Cantor Fitzgerald & Co. (Cantor), acting as our sales agent, pursuant to a sales agreement with Cantor dated May 10, 2016 for our “at-the-market” equity program. During the quarter ended June 30, 2020, we did not issue any shares of our common stock through this program. We believe maintaining an active shelf registration provides additional financial flexibility to access the capital markets and allow us to act opportunistically in support of our growth objectives.

Our principal uses of cash are research and development expenses, selling, general and administrative expenses and other working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•our ability to generate sales of Fintepla for the treatment of seizures associated with Dravet syndrome;

•the costs of establishing or outsourcing sales, marketing and distribution capabilities for Fintepla for the treatment of Dravet syndrome and, should we elect to do so, for any of our other product candidates;

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

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

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

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

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

•the effect of competing technological and market developments; and

•any delays and cost increases that result from the COVID-19 pandemic.

Until we can generate a sufficient amount of revenue to finance our cash requirements, if ever, we may need to continue to rely on additional financing to achieve our business objectives. However, we may not be able to secure such financing in a timely manner or on favorable terms, if at all, and this risk could be exacerbated by the impact of COVID-19 on global economic conditions. If future funds are raised through issuance of equity or debt securities, these securities may have rights, preferences and privileges senior to those of our existing stockholders. If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. Without additional funds at the time we need such funding, we may be forced to delay, scale back or eliminate some of our research and development activities, our commercialization efforts, or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve the development and commercialization goals could be adversely affected.

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

	Six Months Ended June 30,
	2020		2019
Cash and cash equivalents, beginning of the period	$	62,070	$	68,454
Net cash used in operating activities	(83,782)		(41,739)
Net cash (used in) provided by investing activities	(67,054)		28,653
Net cash provided by (used in) financing activities	225,637		(4,580)
Net increase (decrease) in cash and cash equivalents	74,801		(17,666)
Cash and cash equivalents, end of the period	$	136,871	$	50,788

Operating Activities

For the six months ended June 30, 2020, net cash used in operating activities of $83.8 million was primarily attributable to a net loss of $79.1 million and net changes in operating assets and liabilities of $10.0 million, offset by an aggregate of $5.4 million of non-cash charges, net. Non-cash items included stock-based compensation expense of $14.7 million, fair value adjustments related to contingent consideration liability of $4.3 million, an IPR&D charge of $3.0 million and an income tax benefit of $17.4 million. Cash used in operating activities included research and development spend related to ongoing open-label clinical trials for Fintepla and manufacturing process development for Fintepla and MT1621, commercial preparedness and planning expenses including additions in headcount to build out our sales force of key account managers and general and administrative costs to support our business objectives. This cash outflow was partially offset by cash received of $19.7 million for a cash rebate claim submitted under U.K.’s small and medium-sized enterprise and research and development tax relief scheme for qualifying expenditures incurred in tax years 2017 and 2018.

For the six months ended June 30, 2019, net cash used in operating activities of $41.7 million was primarily attributable to a net loss of $73.0 million, plus the net effect of non-cash items of $9.3 million, primarily from stock-based compensation, and a net cash inflow from changes in operating assets and liabilities of $21.9 million. Cash inflows from changes in operating assets and liabilities included the receipt of a $15.5 million upfront payment in connection with the Shinyaku Agreement entered into in March 2019. Changes in other operating assets and liabilities were primarily attributable to the timing of payments for prepaid and accrued clinical trial costs and accrued expenses in the normal course of business.

Investing Activities

For the six months ended June 30, 2020, net cash used in investing activities of $67.1 million was primarily attributable to net purchases of available-for-sale marketable securities.

For the six months ended June 30, 2019, net cash provided by investing activities of $28.7 million was attributable to $289.4 million related to maturities of marketable securities, offset by cash outflows of $251.8 million for purchases of marketable securities and $8.9 million in capital spend primarily related to the build-out of our new headquarters, which we began to occupy in early March 2019.

Financing Activities

For the six months ended June 30, 2020, net cash provided by financing activities of $225.6 million primarily consisted of net proceeds realized from the issuance of 9,798,000 million shares of our common stock in a public offering and $3.9 million in net proceeds received from the issuance of common stock pursuant to our equity incentive plans.

For the six months ended June 30, 2019, net cash used in financing activities of $4.6 million consisted of a $10.0 million payment of contingent consideration related to a prior acquisition and cash used to remit withholding taxes of $0.6 million related to the vesting of restricted stock units that were net share-settled by us to cover the required withholding tax. These cash outflows were offset by $6.0 million of proceeds from common stock issuances pursuant to our equity incentive plans.

Contractual Obligations

There were no material changes outside the ordinary course of our business during the six months ended June 30, 2020 to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Form 10-K.

Zogenix, Inc. | Q2 2020 Form 10-Q | 26

Off-Balance Sheet Arrangements

As of June 30, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Zogenix, Inc. | Q2 2020 Form 10-Q | 27

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our 2019 Form 10-K. Our exposures to market risk have not changed materially since December 31, 2019.

Item 4. Controls and Procedures

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

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

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2020 at the reasonable assurance level.

Changes in Disclosure Controls and Procedures

There were no changes in our internal control over financial reporting during the six months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Zogenix, Inc. | Q2 2020 Form 10-Q | 28

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

See discussion of legal proceedings set forth under Part II, Item 1. Legal Proceedings in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 6, 2020, which is incorporated by reference into this Part II. Item 1, as well as the discussion in Part I, Item 3. Legal Proceedings in our 2019 Form 10-K.

We may become involved in various legal proceedings and claims that arise in the ordinary course of business. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our 2019 Form 10-K, other than as set forth below.

Our business is subject to risks arising from epidemic diseases, such as the recent COVID-19 pandemic.

The current COVID-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees, patients, communities and business operations, as well as the U.S. and global economy and financial markets. International and U.S. governmental authorities in impacted regions are taking actions to slow the spread of COVID-19, including issuing varying forms of “stay-at-home” orders, and restricting business functions outside of one’s home. In response, we closed our offices for all but the most essential activities and have implemented a policy allowing all employees to work from across all locations, following the guidelines or directives issued by federal, state and local government agencies in the U.S. as well as the U.K. government. We only recently reopened the UK site for use by employees on a volunteer basis under strict guidelines and using government recommended health protocols.. To date, we have been able to continue to supply Fintepla and MT1621 to our patients currently enrolled in our clinical trials and do not currently anticipate any interruptions in clinical or commercial supply. In addition, while we are continuing the clinical trials we have underway in sites across the globe, we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trials. For example, due to the challenges of enrolling new patients posed by the COVID-19 pandemic, we have paused the initiation of our exploratory Phase 2 basket study, which is designed to understand the characteristics of rare epilepsy disorders other than Dravet syndrome and LGS in separate cohorts and evaluate whether Fintepla is safe and effective versus placebo in these patient populations. As the COVID-19 pandemic continues to spread around the globe, we may experience disruptions that could severely impact our business, clinical trials and manufacturing and supply chains, including:

•interruption or delays in the operations of the FDA, EMA or other regulatory authorities, which may impact review and approval timelines of our NDA and MAA for Fintepla for the treatment of seizures associated with Dravet syndrome;

•further delays or difficulties in enrolling patients in our clinical trials;

•delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

•diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

•interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints;

•interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, including interruption of commercial supply;

•delays or inability of us or our independent registered public accounting firm to count and/or observe the counts of our physical inventories;

•delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials and interruption in global shipping that may affect the transport of clinical trial materials;

•limitations on employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

Zogenix, Inc. | Q2 2020 Form 10-Q | 29

•delays in receiving feedback or approvals from the FDA, EMA or other regulatory authorities with respect to future clinical trials or regulatory submissions, including for MT1621;

•changes in local regulations as part of a response to COVID-19 which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue such clinical trials altogether;

•delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;

•refusal of the FDA or EMA to accept data from clinical trials in affected geographies; and

•difficulties launching or commercializing products, including due to reduced access to doctors as a result of social distancing protocols.

In addition, the spread of COVID-19 has had and may continue to severely impact the trading price of shares of our common stock and could further severely impact our ability to raise additional capital on a timely basis or at all.

The COVID-19 pandemic continues to rapidly evolve. The extent to which the COVID-19 may impact our business, including our clinical trials, manufacturing and supply chains and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this section and in the “Risk Factors” section of our 2019 Form 10-K.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs or modifications to approved drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.

Separately, in response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most foreign inspections of manufacturing facilities, and subsequently, on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, on July 10, 2020 the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

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

Unregistered Sales of Equity Securities

None.

Use of Proceeds

Not applicable.

Zogenix, Inc. | Q2 2020 Form 10-Q | 30

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Zogenix, Inc. | Q2 2020 Form 10-Q | 31

[Item 6. Exhibits]

EXHIBIT INDEX 

Exhibit Number	Exhibit Description
3.1(1)	Fifth Amended and Restated Certificate of Incorporation of the Registrant
3.2(2)	Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant
3.3(3)	Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant
3.4(4)	Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Registrant
3.5(1)	Fifth Amended and Restated Certificate of Incorporation of the Registrant
4.1(5)	Form of the Registrant’s Common Stock Certificate
4.2(6)	Warrant dated July 18, 2011 issued by the Registrant to Healthcare Royalty Partners (formerly Cowen Healthcare Royalty Partners II, L.P.)
10.1*†	Employment Agreement dated April 20, 2020, by and between the Registrant and Shawnte M. Mitchell
10.2(7)†	Zogenix, Inc. Employee Stock Purchase Plan Stock Purchase Plan
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*	Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
104*	Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.

____________________

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

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

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

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

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

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

†Indicates management contract or compensatory plan.

*Filed herewith.

**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 herewith.

Zogenix, Inc. | Q2 2020 Form 10-Q | 32

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, 2020	By:	/s/ Stephen J. Farr
			President and Chief Executive Officer
			(Principal Executive Officer)
Date:	August 6, 2020	By:	/s/ Michael P. Smith
			Executive Vice President, Chief Financial Officer and Treasurer
			(Principal Financial and Accounting Officer)

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between Zogenix, Inc., a Delaware corporation (the “Company”), and Shawnte Mitchell (“Executive”), and shall be effective as of April 20, 2020 (the “Effective Date”).

WHEREAS, the Company desires to employ Executive, and Executive desires to accept employment with the Company, on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows:

1.Definitions. As used in this Agreement, the following terms shall have the following meanings:

(a)“Board” means the Board of Directors of the Company.

(b)“Bonus” means an amount equal to the average of the bonuses awarded to Executive for each of the three (3) fiscal years prior to the date of Executive’s termination of employment, or such lesser number of years as may be applicable if Executive has not been employed for three (3) full years on the date of Executive’s termination of employment; provided, that to the extent Executive has not received any bonus prior to the date of her termination of employment due to the fact that her employment commenced during the fiscal year in which her termination of employment occurs, her “Bonus” for purposes of Section 4 shall be equal to her target bonus for the fiscal year in which such termination occurs (calculated by reference to the target bonus level in effect on the date of termination). For purposes of determining Executive’s “Bonus,” (i) to the extent Executive received no bonus in any year due to a failure to meet the applicable performance objectives, such year will still be taken into account (using zero (0) as the applicable bonus) in determining Executive’s “Bonus,” and (ii) to the extent Executive was not employed for an entire fiscal year, the bonus received by Executive for such fiscal year for purposes of the preceding calculation shall be annualized. If any portion of the bonuses awarded to Executive consisted of securities or other property, the fair market value thereof shall be determined in good faith by the Board.

(c)“California WARN Act” means California Labor Code Sections 1400 et seq.

(d)“Cause” means any of the following:

(i)the commission of an act of fraud, embezzlement or dishonesty by Executive, or the commission of some other illegal act by Executive, that has a material adverse impact on the Company or any successor or affiliate thereof;

(ii)a conviction of, or plea of “guilty” or “no contest” to, a felony by Executive;

(iii)any unauthorized use or disclosure by Executive of confidential information or trade secrets of the Company or any successor or affiliate thereof that has, or may reasonably be expected to have, a material adverse impact on any such entity;

(iv)Executive’s gross negligence, insubordination or material violation of any duty of loyalty to the Company or any successor or affiliate thereof, or any other material misconduct on the part of Executive;

(v)Executive’s ongoing and repeated failure or refusal to perform or neglect of Executive’s duties as required by this Agreement, which failure, refusal or neglect continues for thirty (30) days following Executive’s receipt of written notice from the Board or the Company’s Chief Executive Officer (the “CEO”) stating with specificity the nature of such failure, refusal or neglect; or

(vi)Executive’s breach of any material Company policy or any material provision of this Agreement;

provided, however, that prior to the determination that “Cause” under this Section 1(d) has occurred, the Company shall (A) provide to Executive in writing, in reasonable detail, the reasons for the determination that such “Cause” exists, (B) other than with respect to clause (v) above which specifies the applicable period of time for Executive to remedy her breach, afford Executive a reasonable opportunity to remedy any such breach, (C) provide Executive an opportunity to be heard prior to the final decision to terminate Executive’s employment hereunder for such “Cause” and (D) make any decision that such “Cause” exists in good faith.

The foregoing definition shall not in any way preclude or restrict the right of the Company or any successor or affiliate thereof to discharge or dismiss Executive for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of this Agreement, to constitute grounds for termination for Cause.

(e)“Change in Control” means and includes each of the following:

(i)a transaction or series of transactions (other than an offering of the Company’s common stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the

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Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act), of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

(ii)the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (A) a merger, consolidation, reorganization, or business combination or (B) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (C) the acquisition of assets or stock of another entity, in each case other than a transaction:

(1)which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(2)after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (2) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.

Notwithstanding the foregoing, a transaction shall not constitute a “Change in Control” if: (i) its sole purpose is to change the state of the Company’s incorporation; (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction; (iii) it constitutes the Company’s initial public offering of its securities; or (iv) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise). The Board shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters thereto.

(f)“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations and other interpretive guidance issued thereunder.

(g)“Good Reason” means the occurrence of any of the following events or conditions without Executive’s written consent:

(i)a material diminution in Executive’s authority, duties or responsibilities;

(ii)a material diminution in Executive’s base compensation, unless such a reduction is imposed across-the-board to senior management of the Company;

(iii)a material change in the geographic location at which Executive must perform her duties (and the parties agree that any involuntary change in the geographic location at which Executive must perform her duties to a location that requires a one-way drive from Executive’s principal residence as of the Effective Date in excess of forty (40) miles shall constitute a material change); or

(iv)any other action or inaction that constitutes a material breach by the Company or any successor or affiliate of its obligations to Executive under this Agreement.

Executive must provide written notice to the Company of the occurrence of any of the foregoing events or conditions without Executive’s written consent within ninety (90) days of the occurrence of such event. The Company or any successor or affiliate shall have a period of thirty (30) days to cure such event or condition after receipt of written notice of such event from Executive.

(h)“Involuntary Termination” means (i) Executive’s Separation from Service by reason of Executive’s discharge by the Company other than for Cause, or (ii) Executive’s Separation from Service by reason of Executive’s resignation of employment with the Company for Good Reason. Executive’s Separation from Service by reason of Executive’s death or discharge by the Company following Executive’s Permanent Disability shall not constitute an Involuntary Termination. Executive’s Separation from Service by reason of resignation from employment with the Company for Good Reason shall be an “Involuntary Termination” only if such Separation from Service occurs within two (2) years following the initial existence of the act or failure to act constituting Good Reason. Executive’s Separation from Service by reason of resignation from employment with the Company for Good Reason shall be treated as involuntary.

(i)Executive’s “Permanent Disability” shall be deemed to have occurred if Executive shall become physically or mentally incapacitated or disabled or otherwise unable fully to discharge her duties hereunder for a period of ninety (90) consecutive calendar days or for one hundred twenty (120) calendar days in any one hundred eighty (180) calendar-day period.

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The existence of Executive’s Permanent Disability shall be determined by the Company on the advice of a physician chosen by the Company and the Company reserves the right to have Executive examined by a physician chosen by the Company at the Company’s expense.

(j)“Separation from Service,” with respect to Executive, means Executive’s “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h).

(k)“Stock Awards” means all stock options, restricted stock and such other awards granted pursuant to the Company’s stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof.

(l)“WARN Act” shall mean the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Sections 2101 et seq., and the Department of Labor regulations thereunder.

2.Services to Be Rendered.

(a)Duties and Responsibilities. Executive shall serve as Executive Vice President and General Counsel of the Company. In the performance of such duties, Executive shall report directly to the CEO and shall be subject to the direction of the CEO and to such limits upon Executive’s authority as theCEO may from time to time impose. In the event of the CEO’s incapacity or unavailability, Executive shall be subject to the direction of the Board. Executive hereby consents to serve as an officer and/or director of the Company or any subsidiary or affiliate thereof without any additional salary or compensation, if so requested by the CEO. Executive shall be employed by the Company on a full time basis. Executive’s primary place of work shall be the Company’s facility in Emeryville, California, or such other locations designated by the CEO from time to time. Prior to the Relocation Date (as defined below), Executive will be expected to work from the Company’s facility in Emeryville, California, no less than four days per week and will be permitted to work from home one day per week; provided that from and after July 1, 2020, Executive will be expected to work from the Company’s facility in Emeryville, California on a full-time basis. Executive shall also render services at such other places within or outside the United States asthe CEO may direct from time to time. Executive shall be subject to and comply with the policies and procedures generally applicable to senior executives of the Company to the extent the same are not inconsistent with any term of this Agreement.

(b)Exclusive Services. Executive shall at all times faithfully, industriously and to the best of her ability, experience and talent perform to the satisfaction of the Boardand the CEO all of the duties that may be assigned to Executive hereunder and shall devote substantially all of her productive time and efforts to the performance of such duties. Subject to the terms of the Proprietary Information and Inventions Agreement referred to in Section 5(b), this shall not preclude Executive from devoting time to personal and family investments or serving on community and civic boards, or participating in industry associations, provided such activities do not interfere with her duties to the Company, as determined in good faith by the CEO. Executive agrees that she will not join any boards, other than community and civic boards (which do not interfere with her duties to the Company), without the prior approval of the CEO. Notwithstanding the foregoing, the Company agrees that Executive shall be permitted to continue to provide transitional consulting services to her former employer for up to sixty (60) days following the Effective Date, provided that such services do not exceed five (5) hours per week and do not interfere with her duties to the Company.

3.Compensation and Benefits. The Company shall pay or provide, as the case may be, to Executive the compensation and other benefits and rights set forth in this Section 3.

(a)Base Salary. The Company shall pay to Executive a base salary of $430,000 per year, payable in accordance with the Company’s usual pay practices (and in any event no less frequently than monthly). Executive’s base salary shall be subject to review annually by and at the sole discretion of the Compensation Committee of the Board or its designee.

(b)Bonus. Commencing in 2020, Executive shall participate in any bonus plan that the Board or its designee may approve for the senior executives of the Company. Executive’s target bonus under the Company’s annual bonus plan shall be forty-five percent (45%) of Executive’s base salary. Notwithstanding anything to the contrary in the Company's annual bonus plan, Executive shall be eligible for a full annual bonus for 2020, without proration for partial year service, despite her commencement of employment following the beginning of the year.

(c)Benefits. Executive shall be entitled to participate in benefits under the Company’s benefit plans and arrangements, including, without limitation, any employee benefit plan or arrangement made available in the future by the Company to its senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall have the right to amend or delete any such benefit plan or arrangement made available by the Company to its senior executives and not otherwise specifically provided for herein; provided, that any reduction of Executive’s benefits such that Executive’s benefits are, in the aggregate, materially less favorable to Executive than those benefits offered to Executive as of the Effective Date shall be considered a material breach of this Agreement by the Company.

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(d)Expenses. The Company shall reimburse Executive for reasonable out-of-pocket business expenses incurred in connection with the performance of her duties hereunder, subject to (i) such policies as the Company may from time to time establish, and (ii) Executive furnishing the Company with evidence in the form of receipts satisfactory to the Company substantiating the claimed expenditures.

(e)Paid Time Off. Executive shall be entitled to such periods of paid time off (“PTO”) each year as provided from time to time under the Company’s PTO policy and as otherwise provided for senior executive officers.

(f)Equity Awards and Plans.

(i)As soon as practicable following the Effective Date, and subject to the approval of the Compensation Committee of the Board, Executive shall receive stock options to purchase 110,000 shares of the Company’s common stock pursuant to the Company’s 2010 Equity Incentive Award Plan (the “Plan”). Such stock options shall have an exercise price equal to the “Fair Market Value” per share of the Company’s common stock on the date of grant, as determined pursuant to the Plan. Such stock options shall vest as follows: one-fourth (1/4) of the shares subject to the option shall vest on the first anniversary of the Effective Date, and the remaining shares subject to the stock options shall vest in thirty-six (36) equal monthly installment over the three-year period thereafter, subject to Executive’s continued employment or service with the Company on each such date. Such stock options shall have a ten (10) year term and shall be subject to the terms and conditions of the Plan and the stock option agreement pursuant to which such stock options are granted.

(ii)Executive shall be entitled to participate in any equity or other employee benefit plan that is generally available to senior executive officers, as distinguished from general management, of the Company. Except as otherwise provided in this Agreement, Executive’s participation in and benefits under any such plan shall be on the terms and subject to the conditions specified in the governing document of the particular plan.

(g)Stock Award Acceleration.

(i)In the event of a Change in Control, the vesting and exercisability of fifty percent (50%) of Executive’s outstanding unvested Stock Awards shall be automatically accelerated effective immediately prior to the consummation of such Change in Control.

(ii)In the event of Executive’s Involuntary Termination or Executive’s Separation from Service by reason of Executive’s death or discharge by the Company following Executive’s Permanent Disability, the vesting and/or exercisability of each of Executive’s outstanding unvested Stock Awards shall be automatically accelerated on the date of Executive’s Separation from Service as to the number of Stock Awards that would vest over the twelve (12) month period following the date of Executive’s Separation from Service had Executive remained continuously employed by the Company during such period.

(iii)In the event of Executive’s Involuntary Termination within three (3) months prior to or twelve (12) months following a Change in Control, the vesting and/or exercisability of any outstanding unvested portions of such Stock Awards shall be automatically accelerated on the later of (A) the date of Executive’s Separation from Service and (B) the date of the Change in Control (provided, however, that unless otherwise expressly provided in a Stock Award Agreement, any Stock Awards that are restricted stock units shall only be eligible for accelerated vesting pursuant to this clause (iii) in the event of an Involuntary Termination within twelve (12) months following a Change in Control and an Involuntary Termination preceding a Change in Control will not trigger acceleration under this clause (iii)). In addition, with respect to Stock Awards granted to Executive on or after the Effective Date, such Stock Awards may be exercised by Executive (or Executive’s legal guardian or legal representative) until the latest of (A) three (3) months after the date of Executive’s Separation from Service, (B) with respect to any portion of the Stock Awards that become exercisable on the date of a Change in Control pursuant to this Section 3(g)(iii), three (3) months after the date of the Change in Control, or (C) such longer period as may be specified in the applicable Stock Award agreement; provided, however, that in no event shall any Stock Award remain exercisable beyond the original outside expiration date of such Stock Award.

(iv)The vesting pursuant to clauses (i), (ii) and (iii) of this Section 3(g) shall be cumulative. The foregoing provisions are hereby deemed to be a part of each Stock Award and to supersede any less favorable provision in any agreement or plan regarding such Stock Award.

(h)Relocation.

(i)The Company expects Executive to relocate her principal place of residence from Seattle, Washington to the San Francisco Bay Area on or before July 1, 2020 (the date of such relocation, the “Relocation Date”). In furtherance of Executive’s relocation, the Company shall pay for or reimburse Executive in accordance with the Company’s written expense reimbursement policies and procedures for (i) the movement of Executive’s reasonable household goods, which includes two automobiles (excluding extraordinary or unusual moving costs such as boat, recreational vehicle, playground equipment), up to

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$16,500, (ii) reimbursement for up to three (3) house hunting trips to the San Francisco Bay Area for Executive, her spouse and her dependent children, up to a total of $6,900, (iii) weekend commuting trips by Executive back to Seattle, Washington until the earlier of the Relocation Date or July 1, 2020, up to a total of $4,000, (iv) reimbursement for up to three (3) months of duplicate housing expenses following Executive's relocation to the San Francisco Bay Area prior to the sale of Executive's residence in Seattle, Washington, up to $10,000, and (v) temporary housing in the San Francisco Bay Area, subject to the Company's prior approval of such temporary housing arrangements, until the earlier of the Relocation Date or July 1, 2020, up to $16,500, (vi) a rental car for use in the San Francisco Bay Area until the earlier of the Relocation Date or July 1, 2020, up to $1,000, and (vii) up to $5,000 for additional miscellaneous moving expenses (the items in clauses (i) through (vii), collectively, the “Relocation Reimbursement”).

(ii)In addition, the Company shall pay to Executive a tax gross-up (the “Tax Gross-Up”) for any federal and state income and employment taxes Executive is required to pay resulting from the Relocation Reimbursement and from the Tax Gross-Up, which Tax Gross-Up shall be paid in accordance with Treasury Regulation Section 1.409A-3(i)(1)(v). The Relocation Reimbursement and any Tax Gross-Up shall be subject to an aggregate cap of $100,500. All amounts eligible for the Relocation Reimbursement must be incurred by and paid to Executive during the term of her employment with the Company. The Relocation Reimbursement and the Tax Gross-Up shall be paid to Executive within thirty (30) days following the Company’s receipt of a written request for such reimbursement, but subject to receipt by the Company of supporting receipts and/or documentation and/or receipts in form and substance reasonably acceptable to the Company. If Executive voluntarily terminates her employment without Good Reason prior to the first anniversary of the Effective Date, Executive shall repay to the Company a pro rata portion of the Relocation Reimbursement and any Tax Gross-Up based on the number of days elapsed in the one-year period ending on the first anniversary of the Effective Date. The Company will have the right to offset such amounts against any compensation otherwise payable to Executive on the date of Executive’s termination of employment.

(i)Attorneys' Fees. The Company will reimburse Executive for up to $7,500 in attorneys’fees incurred by Executive in connection with the review of this Agreement. Such reimbursement will be paid to Executive within thirty (30) days following the Company’s receipt of a written request for such reimbursement, but subject to receipt by the Company of supporting receipts and/or documentation and/or receipts in form and substance reasonably acceptable to the Company.

4.Severance. Executive shall be entitled to receive benefits upon a Separation from Service only as set forth in this Section 4:

(a)At-Will Employment; Termination. The Company and Executive acknowledge that Executive’s employment is and shall continue to be at-will, as defined under applicable law, and that Executive’s employment with the Company may be terminated by either party at any time for any or no reason, with or without notice. If Executive’s employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided in this Agreement. Executive’s employment under this Agreement shall be terminated immediately on the death of Executive.

(b)Separation from Service by Death or Following Permanent Disability. Subject to Sections 4(e) and 9(o) and Executive’s continued compliance with Section 5, in the event of Executive’s Separation from Service as a result of Executive’s death or discharge by the Company following Executive’s Permanent Disability, Executive or Executive’s estate, as applicable, shall be entitled to receive, in lieu of any severance benefits to which Executive or Executive’s estate may otherwise be entitled under any severance plan or program of the Company, the benefits provided below, which, with respect to clause (ii) below will be payable in a lump sum within ten (10) days following the effective date of Executive’s Release (or, in the event of Executive’s incapacity as a result of her Permanent Disability, the Release executed by Executive’s legal representative) (or, in the event of Executive’s death, within ten (10) days following the date of Executive’s death):

(i)the Company shall pay to Executive or Executive’s estate, as applicable, Executive’s fully earned but unpaid base salary, when due, through the date of Executive’s Separation from Service at the rate then in effect, plus all other benefits, if any, under any Company group retirement plan, nonqualified deferred compensation plan, equity award plan or agreement (other than any such plan or agreement pertaining to Stock Awards whose treatment is prescribed by Section 3(g) above), health benefits plan or other Company group benefit plan to which Executive or Executive’s estate may be entitled pursuant to the terms of such plans or agreements at the time of Executive’s Separation from Service;

(ii)Executive or Executive’s estate, as applicable, shall be entitled to receive severance pay in an amount equal to twelve (12) multiplied by Executive’s monthly base salary as in effect immediately prior to the date of Executive’s Separation from Service; and

(iii)for the period beginning on the date of Executive’s Separation from Service and ending on the date which is twelve (12) full months following the date of Executive’s Separation from Service (or, if earlier, (1) the date on which the applicable continuation period under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) expires or (2) the date Executive becomes eligible to receive the equivalent or increased healthcare coverage from a subsequent employer) (such period, the “COBRA Coverage Period”), if Executive and/or her eligible dependents who were covered under the Company’s health insurance plans as of the date of Executive’s Separation from Service elect to have COBRA coverage and are eligible for such coverage, the Company shall reimburse Executive or her estate, as applicable, on a monthly basis for an

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amount equal to (A) the monthly premium Executive and/or her covered dependents, as applicable, are required to pay for continuation coverage pursuant to COBRA for Executive and/or her eligible dependents, as applicable, who were covered under the Company’s health plans as of the date of Executive’s Separation from Service (calculated by reference to the premium as of the date of Executive’s Separation from Service) less (B) the amount Executive would have had to pay to receive group health coverage for Executive and/or her covered dependents, as applicable, based on the cost sharing levels in effect on the date of Executive’s Separation from Service. If any of the Company’s health benefits are self-funded as of the date of Executive’s Separation from Service, or if the Company cannot provide the foregoing benefits in a manner that is exempt from Section 409A (as defined below) or that is otherwise compliant with applicable law (including, without limitation, Section 2716 of the Public Health Service Act), instead of providing the reimbursements as set forth above, the Company shall instead pay to Executive or her estate, as applicable, the foregoing monthly amount as a taxable monthly payment for the COBRA Coverage Period (or any remaining portion thereof). Executive or her estate, as applicable, shall be solely responsible for all matters relating to continuation of coverage pursuant to COBRA, including, without limitation, the election of such coverage and the timely payment of premiums.

(c)Severance Upon Involuntary Termination. Subject to Sections 4(e) and 9(o) and Executive’s continued compliance with Section 5, if Executive’s employment is Involuntarily Terminated, Executive shall be entitled to receive, in lieu of any severance benefits to which Executive may otherwise be entitled under any severance plan or program of the Company, the benefits provided below, which, with respect to clause (ii) below will be payable in a lump sum within ten (10) days following the effective date of Executive’s Release:

(i)the Company shall pay to Executive her fully earned but unpaid base salary, when due, through the date of Executive’s Involuntary Termination at the rate then in effect, plus all other benefits, if any, under any Company group retirement plan, nonqualified deferred compensation plan, equity award plan or agreement (other than any such plan or agreement pertaining to Stock Awards whose treatment is prescribed by Section 3(g) above), health benefits plan or other Company group benefit plan to which Executive may be entitled pursuant to the terms of such plans or agreements at the time of Executive’s Involuntary Termination;

(ii)Executive shall be entitled to receive severance pay in an amount equal to twelve (12) multiplied by Executive’s monthly base salary as in effect immediately prior to the date of Executive’s Involuntary Termination; and

(iii)for the COBRA Coverage Period, if Executive and her eligible dependents who were covered under the Company’s health insurance plans as of the date of Executive’s Involuntary Termination elect to have COBRA coverage and are eligible for such coverage, the Company shall reimburse Executive on a monthly basis for an amount equal to (A) the monthly premium Executive is required to pay for continuation coverage pursuant to COBRA for Executive and her eligible dependents who were covered under the Company’s health plans as of the date of Executive’s Involuntary Termination (calculated by reference to the premium as of the date of Executive’s Involuntary Termination) less (B) the amount Executive would have had to pay to receive group health coverage for Executive and her covered dependents based on the cost sharing levels in effect on the date of Executive’s Involuntary Termination. If any of the Company’s health benefits are self-funded as of the date of Executive’s Involuntary Termination, or if the Company cannot provide the foregoing benefits in a manner that is exempt from Section 409A (as defined below) or that is otherwise compliant with applicable law (including, without limitation, Section 2716 of the Public Health Service Act), instead of providing the reimbursements as set forth above, the Company shall instead pay to Executive the foregoing monthly amount as a taxable monthly payment for the COBRA Coverage Period (or any remaining portion thereof). Executive shall be solely responsible for all matters relating to continuation of coverage pursuant to COBRA, including, without limitation, the election of such coverage and the timely payment of premiums.

(iv)Notwithstanding anything to the contrary in this Section 4(c), and subject to Sections 4(e) and 9(o) and Executive's continued compliance with Section 5, in the event of Executive's Involuntary Termination during the period commencing sixty (60) days prior to a Change in Control and continuing until twelve (12) months following a Change in Control, Executive shall be entitled to receive, in addition to the severance benefits described in clauses (i), (ii) and (iii) above, an amount equal to Executive’s Bonus for the year in which Executive’s Involuntary Termination occurs, which amount shall be payable in a lump sum within ten (10) days following the later of (A) the effective date of Executive’s Release and (B) the date of the Change in Control.

(d)Termination for Cause or Voluntary Resignation Without Good Reason. In the event of Executive’s termination of employment as a result of Executive’s discharge by the Company for Cause or Executive’s resignation without Good Reason (other than as a result of Executive’s death or Separation of Service by reason of discharge by the Company following Executive’s Permanent Disability), the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive (i) Executive’s fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (ii) all other amounts or benefits to which Executive is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by COBRA or applicable law. In addition, in the event of Executive’s Separation from Service as a result of Executive’s discharge

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by the Company for Cause or Executive’s resignation without Good Reason (other than as a result of Executive’s death or Separation of Service by reason of discharge by the Company following Executive’s Permanent Disability), all vesting of Executive’s unvested Stock Awards previously granted to her by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination. The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.

(e)Release. As a condition to Executive’s receipt of any post-termination benefits pursuant to Sections 4(b) and (c) above, Executive (or, in the event of Executive’s incapacity as a result of her Permanent Disability, Executive’s legal representative) shall execute and not revoke a general release of all claims in favor of the Company (the “Release”) in the form attached hereto as Exhibit A. In the event the Release does not become effective within the fifty-five (55) day period following the date of Executive’s Separation from Service, Executive shall not be entitled to the aforesaid payments and benefits.

(f)Exclusive Remedy. Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Executive’s employment shall cease upon such termination. In the event of Executive’s termination of employment with the Company, Executive’s sole damages shall be to receive the payments and benefits described in this Section 4. In addition, Executive acknowledges and agrees that she is not entitled to any reimbursement by the Company for any taxes payable by Executive as a result of the payments and benefits received by Executive pursuant to this Section 4, including, without limitation, any excise tax imposed by Section 4999 of the Code. Any payments made to Executive under this Section 4 shall be inclusive of any amounts or benefits to which Executive may be entitled pursuant to the WARN Act or the California WARN Act.

(g)No Mitigation. Except as otherwise provided in Section 4(b)(iii) or 4(c)(iii) above, Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by Executive as the result of employment by another employer or self-employment or by retirement benefits; provided, however, that loans, advances or other amounts owed by Executive to the Company may be offset by the Company against amounts payable to Executive under this Section 4.

(h)Return of the Company’s Property. In the event of Executive’s termination of employment for any reason, the Company shall have the right, at its option, to require Executive to vacate her offices prior to or on the effective date of separation and to cease all activities on the Company’s behalf. Upon Executive’s termination of employment in any manner, as a condition to Executive’s receipt of any severance benefits described in this Agreement, Executive shall immediately surrender to the Company all lists, books and records of, or in connection with, the Company’s business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company. Executive shall deliver to the Company a signed statement certifying compliance with this Section 4(h) prior to the receipt of any severance benefits described in this Agreement.

(i)Waiver of the Company’s Liability. Executive recognizes that her employment is subject to termination with or without Cause for any reason and therefore Executive agrees that Executive shall hold the Company harmless from and against any and all liabilities, losses, damages, costs and expenses, including but not limited to, court costs and reasonable attorneys’ fees, which Executive may incur as a result of Executive’s termination of employment. Executive further agrees that Executive shall bring no claim or cause of action against the Company for damages or injunctive relief based on a wrongful termination of employment. Executive agrees that the sole liability of the Company to Executive upon termination of this Agreement shall be that determined by this Section 4. In the event this covenant is more restrictive than permitted by laws of the jurisdiction in which the Company seeks enforcement thereof, this covenant shall be limited to the extent permitted by law.

5.Certain Covenants.

(a)Noncompetition. Except as may otherwise be approved by the Board, during the term of Executive’s employment, Executive shall not have any ownership interest (of record or beneficial) in, or have any interest as an employee, salesman, consultant, officer or director in, or otherwise aid or assist in any manner, any firm, corporation, partnership, proprietorship or other business that engages in any county, city or part thereof in the United States and/or any foreign country in a business which competes directly or indirectly with the Company’s business in such county, city or part thereof, so long as the Company, or any successor in interest of the Company to the business and goodwill of the Company, remains engaged in such business in such county, city or part thereof or continues to solicit customers or potential customers therein; provided, however, that Executive may own, directly or indirectly, solely as an investment, securities of any entity which are traded on any national securities exchange if Executive (i) is not a controlling person of, or a member of a group which controls, such entity; or (ii) does not, directly or indirectly, own one percent (1%) or more of any class of securities of any such entity.

(b)Confidential Information. Executive and the Company have entered into the Company’s standard employee proprietary information and inventions agreement (the “Employee Proprietary Information and Inventions Agreement”). Executive agrees to perform each and every obligation of Executive therein contained.

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(c)Solicitation of Employees. Executive shall not during the term of Executive’s employment and for the applicable severance period for which Executive receives severance benefits following any termination hereof pursuant to Section 4(b) or (c) above (regardless of whether Executive receives payment of severance amounts payable thereunder in a lump sum) (the “Restricted Period”), directly or indirectly, solicit or encourage to leave the employment of the Company or any of its affiliates, any employee of the Company or any of its affiliates.

(d)Solicitation of Consultants. Executive shall not during the term of Executive’s employment and for the Restricted Period, directly or indirectly, hire, solicit or encourage to cease work with the Company or any of its affiliates any consultant then under contract with the Company or any of its affiliates within one year of the termination of such consultant’s engagement by the Company or any of its affiliates. For the avoidance of doubt, this Section 5(d) shall not prevent Executive's retention or engagement following her termination of legal counsel, accounting firms or other third-party professional services providers used by the Company during the term of Executive's employment.

(e)Rights and Remedies Upon Breach. If Executive breaches or threatens to commit a breach of any of the provisions of this Section 5 (the “Restrictive Covenants”), the Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity:

(i)Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, all without the need to post a bond or any other security or to prove any amount of actual damage or that money damages would not provide an adequate remedy, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide adequate remedy to the Company; and

(ii)Accounting and Indemnification. The right and remedy to require Executive (A) to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive or any associated party deriving such benefits as a result of any such breach of the Restrictive Covenants; and (B) to indemnify the Company against any other losses, damages (including special and consequential damages), costs and expenses, including actual attorneys’ fees and court costs, which may be incurred by them and which result from or arise out of any such breach or threatened breach of the Restrictive Covenants.

(f)Severability of Covenants/Blue Pencilling. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Executive hereby waives any and all right to attack the validity of the Restrictive Covenants on the grounds of the breadth of their geographic scope or the length of their term.

(g)Enforceability in Jurisdictions. The Company and Executive intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and Executive that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.

(h)Definitions. For purposes of this Section 5, the term “Company” means not only Zogenix, Inc., but also any company, partnership or entity which, directly or indirectly, controls, is controlled by or is under common control with Zogenix, Inc.

(i)Whistleblower Provision. Nothing herein is intended to or shall prevent Executive from communicating directly with, cooperating with, or providing information to, any federal, state or local government regulator, including, but not limited to, the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, or the U.S. Department of Justice. Executive acknowledges that the Company has provided Executive with the following notice of immunity rights in compliance with the requirements of the Defend Trade Secrets Act: (i) Executive shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of proprietary information of the Company that is made in confidence to a Federal, State, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, (ii) Executive shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of proprietary information of the Company that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal and (iii) if Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may disclose the proprietary information to my attorney and use the proprietary information in the court proceeding, if Executive files any document containing the proprietary information under seal, and does not disclose the proprietary information, except pursuant to court order.

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6.Insurance; Indemnification.

(a)Insurance. The Company shall have the right to take out life, health, accident, “key-man” or other insurance covering Executive, in the name of the Company and at the Company’s expense in any amount deemed appropriate by the Company. Executive shall assist the Company in obtaining such insurance, including, without limitation, submitting to any required examinations and providing information and data required by insurance companies.

(b)Indemnification. Executive will be provided with indemnification against third party claims related to her work for the Company as required by Delaware law. The Company shall provide Executive with directors and officers liability insurance coverage at least as favorable as that which the Company may maintain from time to time for members of the Board and other executive officers.

7.Arbitration. Any dispute, claim or controversy based on, arising out of or relating to Executive’s employment or this Agreement shall be settled by final and binding arbitration in Alameda County, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the “Rules”) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. The Rules may be found online at www.adr.org. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 etseq.). If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules. Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Executive and the Company agree that, to the extent permitted by law, the arbitrator may, in his or her discretion, award reasonable attorneys’ fees to the prevailing party; provided, further, that the prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days following any such award, but in no event later than the last day of Executive’s taxable year following the taxable year in which the fees, costs and expenses were incurred; provided, further, that the parties’ obligations pursuant to this sentence shall terminate on the tenth (10th) anniversary of the date of Executive’s termination of employment. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAA’s administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 7 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that Executive shall retain the right to file administrative charges with or seek relief through any government agency of competent jurisdiction, and to participate in any government investigation, including but not limited to (i) claims for workers’ compensation, state disability insurance or unemployment insurance; (ii) claims for unpaid wages or waiting time penalties brought before the California Division of Labor Standards Enforcement; provided, however, that any appeal from an award or from denial of an award of wages and/or waiting time penalties shall be arbitrated pursuant to the terms of this Agreement; and (iii) claims for administrative relief from the United States Equal Employment Opportunity Commission and/or the California Department of Fair Employment and Housing (or any similar agency in any applicable jurisdiction other than California); provided, further, that Executive shall not be entitled to obtain any monetary relief through such agencies other than workers’ compensation benefits or unemployment insurance benefits. This Agreement shall not limit either party’s right to obtain any provisional remedy, including, without limitation, injunctive or similar relief, from any court of competent jurisdiction as may be necessary to protect their rights and interests pending the outcome of arbitration, including without limitation injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such party’s right to compel arbitration. Both Executive and the Company expressly waive their right to a jury trial.

8.General Relationship. Executive shall be considered an employee of the Company within the meaning of all federal, state and local laws and regulations including, but not limited to, laws and regulations governing unemployment insurance, workers’ compensation, industrial accident, labor and taxes.

9.Miscellaneous.

(a)Modification; Prior Claims. This Agreement and the Employee Proprietary Information and Inventions Agreement set forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, including any offer letter provided to Executive by the Company. This Agreement may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

(b)Assignment; Assumption by Successor. The rights of the Company under this Agreement may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder.

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 As used in this Agreement, the “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

(c)Survival. The covenants, agreements, representations and warranties contained in or made in Sections 3(g), 4, 5, 6, 7 and 9 of this Agreement shall survive any Executive’s termination of employment.

(d)Third-Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement.

(e)Waiver. The failure of either party hereto at any time to enforce performance by the other party of any provision of this Agreement shall in no way affect such party’s rights thereafter to enforce the same, nor shall the waiver by either party of any breach of any provision hereof be deemed to be a waiver by such party of any other breach of the same or any other provision hereof.

(f)Section Headings. The headings of the several sections in this Agreement are inserted solely for the convenience of the parties and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.

(g)Notices. Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by email, telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to Executive at the address listed on the Company’s personnel records and to the Company at its principal place of business, or such other address as either party may specify in writing.

(h)Severability. All Sections, clauses and covenants contained in this Agreement are severable, and in the event any of them shall be held to be invalid by any court, this Agreement shall be interpreted as if such invalid Sections, clauses or covenants were not contained herein.

(i)Governing Law and Venue. This Agreement is to be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Except as provided in Sections 5 and 7, any suit brought hereon shall be brought in the state or federal courts sitting in Alameda County, California, the parties hereto hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

(j)Non-transferability of Interest. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Executive. Any attempted assignment, transfer, conveyance, or other disposition (other than as aforesaid) of any interest in the rights of Executive to receive any form of compensation to be made by the Company pursuant to this Agreement shall be void.

(k)Gender. Where the context so requires, the use of the masculine gender shall include the feminine and/or neuter genders and the singular shall include the plural, and vice versa, and the word “person” shall include any corporation, firm, partnership or other form of association.

(l)Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.

(m)Construction. The language in all parts of this Agreement shall in all cases be construed simply, according to its fair meaning, and not strictly for or against any of the parties hereto. Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Agreement or any part thereof.

(n)Withholding and other Deductions. All compensation payable to Executive hereunder shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order.

(o)Code Section 409A.

(i)This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the severance payments payable under Sections 4(b)(ii) and 4(c)(ii) and (iv) shall be paid no later than the later of: (A) the fifteenth (15th) day of the third month following Executive’s first taxable year in which such amounts are no longer subject to a substantial risk of forfeiture, and (B) the fifteenth (15th) day of the third month following first taxable year of the Company in which such amounts are is no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder. To the extent applicable, this Agreement shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder. Each series of installment payments made under this Agreement is hereby designated as

10

a series of “separate payments” within the meaning of Section 409A of the Code. For purposes of this Agreement, all references to Executive’s “termination of employment” shall mean Executive’s Separation from Service.

(ii)If Executive is a “specified employee” (as defined in Section 409A of the Code), as determined by the Company in accordance with Section 409A of the Code, on the date of Executive’s Separation from Service, to the extent that the payments or benefits under this Agreement are subject to Section 409A of the Code and the delayed payment or distribution of all or any portion of such amounts to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, then such portion deferred pursuant to this Section 9(o)(ii) shall be paid or distributed to Executive in a lump sum on the earlier of (A) the date that is six (6)-months following Executive’s Separation from Service, (B) the date of Executive’s death or (C) the earliest date as is permitted under Section 409A of the Code. Any remaining payments due under the Agreement shall be paid as otherwise provided herein.

(iii)To the extent applicable, this Agreement shall be interpreted in accordance with the applicable exemptions from Section 409A of the Code. If Executive and the Company determine that any payments or benefits payable under this Agreement intended to comply with Sections 409A(a)(2), (3) and (4) of the Code do not comply with Section 409A of the Code, Executive and the Company agree to amend this Agreement, or take such other actions as Executive and the Company deem reasonably necessary or appropriate, to comply with the requirements of Section 409A of the Code and the Treasury Regulations thereunder (and any applicable transition relief) while preserving the economic agreement of the parties. To the extent that any provision in this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner that no payments payable under this Agreement shall be subject to an “additional tax” as defined in Section 409A(a)(1)(B) of the Code.

(iv)Any reimbursement of expenses or in-kind benefits payable under this Agreement shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Executive’s taxable year following the taxable year in which Executive incurred the expenses. The amount of expenses reimbursed or in-kind benefits payable during any taxable year of Executive’s shall not affect the amount eligible for reimbursement or in-kind benefits payable in any other taxable year of Executive’s, and Executive’s right to reimbursement for such amounts shall not be subject to liquidation or exchange for any other benefit.

(v)In the event that the amounts payable under Sections 4(b)(ii) and 4(c)(ii) and (iv) are subject to Section 409A of the Code and the timing of the delivery of Executive’s Release could cause such amounts to be paid in one or another taxable year, then notwithstanding the payment timing set forth in such sections, such amounts shall not be payable until the later of (A) the payment date specified in such section or (B) the first business day of the taxable year following Executive’s Separation from Service.

(Signature Page Follows)

11

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

ZOGENIX, INC.

By: /s/Stephen J. Farr, Ph.D.

Name: Stephen J. Farr, Ph.D.

Title: Chief Executive Officer

EXECUTIVE

/s/ Shawnte Mitchell

Shawnte Mitchell

EXHIBIT A

GENERAL RELEASE OF CLAIMS

[The language in this Release may change based on legal developments and evolving best practices; this form is provided as an example of what will be included in the final Release document.]

This General Release of Claims (“Release”) is entered into as of this _____ day of ________, ____, between Shawnte Mitchell (“Executive”), and Zogenix, Inc., a Delaware corporation (the “Company”) (collectively referred to herein as the “Parties”).

WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated as of April 13, 2020 (the “Agreement”);

WHEREAS, the Parties agree that Executive is entitled to certain severance benefits under the Agreement, subject to Executive’s execution of this Release; and

WHEREAS, the Company and Executive now wish to fully and finally to resolve all matters between them.

NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to Executive pursuant to the Agreement, the adequacy of which is hereby acknowledged by Executive, and which Executive acknowledges that she would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:

1.General Release of Claims by Executive.

(a)Executive, on behalf of herself and her executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of her employment with or service to the Company (collectively, the “Company Releasees”), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, “Claims”), which Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executive’s employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, and claims of any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, etseq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 etseq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 etseq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, etseq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, etseq. (the “ADEA”); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, etseq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 etseq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 etseq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 etseq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, etseq.

Notwithstanding the generality of the foregoing, Executive does not release the following claims:

(i)Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

(ii)Claims for workers’ compensation insurance benefits under the terms of any worker’s compensation insurance policy or fund of the Company;

(iii)Claims pursuant to the terms and conditions of the federal law known as COBRA;

(iv)Claims for indemnity under the bylaws of the Company, as provided for by California law or under any applicable insurance policy with respect to Executive’s liability as an employee, director or officer of the Company;

1

(v)Claims based on any right Executive may have to enforce the Company’s executory obligations under the Agreement;

(vi)Executive’s right to bring to the attention of the Equal Employment Opportunity Commission or the California Department of Fair Employment and Housing or any other federal, state or local government agency claims of discrimination, harassment, interference with leave rights or retaliation; provided, however, that Executive does release her right to secure any damages for such alleged treatment;

(vii)Claims Executive may have to vested or earned compensation and benefits; and

(viii)Executive’s right to communicate or cooperate with any governmental agency.

(b)EXECUTIVE ACKNOWLEDGES THAT SHE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS SHE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

[Note: Clauses (c), (d) and (e) apply only if Executive is age 40 or older at time of termination]

(c)Executive acknowledges that this Release was presented to her on the date indicated above and that Executive is entitled to have [twenty-one (21)][forty-five (45)] days’ time in which to consider it. Executive further acknowledges that the Company has advised her that she is waiving her rights under the ADEA, and that Executive should consult with an attorney of her choice before signing this Release, and Executive has had sufficient time to consider the terms of this Release. Executive represents and acknowledges that if Executive executes this Release before [twenty-one (21)][forty-five (45)] days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executive’s legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.

(d)Executive understands that after executing this Release, Executive has the right to revoke it within seven (7) days after her execution of it. Executive understands that this Release will not become effective and enforceable unless the seven (7) day revocation period passes and Executive does not revoke the Release in writing. Executive understands that this Release may not be revoked after the seven (7) day revocation period has passed. Executive also understands that any revocation of this Release must be made in writing and delivered to the Company at its principal place of business within the seven (7) day period.

(e)Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth (8th) day after her execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above.

(f)Executive further understands that Executive will not be given any severance benefits under the Agreement unless this Release is effective on or before the date that is fifty-five (55) days following the date of Executive’s termination of employment.

2.Nondisparagement. Executive agrees that she shall not disparage or otherwise communicate negative statements or opinions about the Company, its board members, officers, employees, shareholders or agents; provided, however, that Executive shall not be prohibited from making such statements or opinions to her immediate family so long as such statements or opinions are not likely to be harmful to the Company, its board members, officers, employees, shareholders or agents or its or their businesses, business reputations, or personal reputations. The Company agrees that neither its board members nor officers shall disparage or otherwise communicate negative statements or opinions about Executive.

3.Whistleblower Provision. Nothing herein is intended to or shall prevent Executive from communicating directly with, cooperating with, or providing information to, any federal, state or local government regulator, including, but not limited to, the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, or the U.S. Department of Justice. Executive acknowledges that the Company has provided Executive with the following notice of immunity rights in compliance with the requirements of the Defend Trade Secrets Act: (i) Executive shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of proprietary information of the Company that is made in confidence to a Federal, State, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, (ii) Executive shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of proprietary information of the Company that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal and (iii) if Executive files a lawsuit for retaliation by the Company for

2

reporting a suspected violation of law, Executive may disclose the proprietary information to my attorney and use the proprietary information in the court proceeding, if Executive files any document containing the proprietary information under seal, and does not disclose the proprietary information, except pursuant to court order.

4.No Assignment. Executive represents and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim that Executive may have against the Company Releasees. Executive agrees to indemnify and hold harmless the Company Releasees from any liability, claims, demands, damages, costs, expenses and attorneys’ fees incurred as a result of any such assignment or transfer from Executive.

5.Severability. In the event any provision of this Release is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

6.Interpretation; Construction. The headings set forth in this Release are for convenience only and shall not be used in interpreting this Agreement. This Release has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Release and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Release. Either party’s failure to enforce any provision of this Release shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Release.

7.Governing Law and Venue. This Release will be governed by and construed in accordance with the laws of the United States of America and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Any suit brought hereon shall be brought in the state or federal courts sitting in Alameda County, California, the Parties hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.

8.Entire Agreement. This Release and the Agreement constitute the entire agreement of the Parties in respect of the subject matter contained herein and therein and supersede all prior or simultaneous representations, discussions, negotiations and agreements, whether written or oral. This Release may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

9.Counterparts. This Release may be executed in multiple counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

(Signature Page Follows)

3

IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing Release as of the date first written above.

EXECUTIVE		ZOGENIX, INC.
	By:
Name: Shawnte Mitchell	Name:
	Title:

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen J. Farr, certify that:

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

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

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

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

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

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

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

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

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

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

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

/s/ Stephen J. Farr

Stephen J. Farr

President and Chief Executive Officer

(Principal Executive Officer)

Date: August 6, 2020

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael P. Smith, certify that:

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

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/ Michael P. Smith

Michael P. Smith

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

Date: August 6, 2020

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, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen J. Farr, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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

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

Date: August 6, 2020

/s/ Stephen J. Farr

Stephen J. Farr

President and Chief Executive Officer

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

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, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael P. Smith, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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

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

Date: August 6, 2020

/s/ Michael P. Smith

Michael P. Smith

Executive Vice President, Chief Financial Officer and Treasurer

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

Cover Page - shares	6 Months Ended
	Jun. 30, 2020	Jul. 31, 2020
Cover [Abstract]
Document type	10-Q
Document quarterly report	true
Document period end date	Jun. 30, 2020
Document transition report	false
Entity file number	001-34962
Entity registrant name	ZOGENIX, INC.
Entity incorporation, state or country code	DE
Entity tax identification number	20-5300780
Entity address, address line one	5959 Horton Street
Entity address, address line two	Suite 500
Entity address, city or town	Emeryville
Entity address, state or province	CA
Entity address, postal zip code	94608
City area code	510
Local phone number	550-8300
Title of 12(b) security	Common Stock, par value $0.001 per share
Trading symbol	ZGNX
Security exchange name	NASDAQ
Entity current reporting status	Yes
Entity interactive data current	Yes
Entity filer category	Large Accelerated Filer
Entity small business	false
Entity emerging growth company	false
Entity shell company	false
Entity common stock, shares outstanding		55,447,840
Entity central index key	0001375151
Amendment flag	false
Document fiscal year focus	2020
Document fiscal period focus	Q2
Current fiscal year end date	--12-31

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 136,871	$ 62,070
Marketable securities	253,378	189,085
Inventory, net	475	0
Prepaid expenses and other current assets	10,833	11,084
Acquisition holdback placed in escrow	25,000	25,000
Total current assets	426,557	287,239
Property and equipment, net	9,300	9,424
Operating lease right-of-use assets	8,266	7,774
Intangible assets	102,500	102,500
Goodwill	6,234	6,234
Other noncurrent assets	2,250	1,079
Total assets	555,107	414,250
Current liabilities:
Accounts payable	8,518	7,979
Accrued and other current liabilities	40,176	30,117
Acquisition holdback liability	24,444	24,444
Deferred revenue, current	5,303	5,927
Current portion of operating lease liabilities	1,633	1,322
Current portion of contingent consideration	13,000	25,600
Total current liabilities	93,074	95,389
Deferred revenue, noncurrent	5,768	7,425
Operating lease liabilities, net of current portion	11,022	10,752
Contingent consideration, net of current portion	40,100	38,200
Deferred tax liability	0	17,425
Total liabilities	149,964	169,191
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued and outstanding	0	0
Common stock, $0.001 par value; 100,000 shares authorized; and 55,445 and 45,272 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	55	45
Additional paid-in capital	1,599,047	1,360,092
Accumulated deficit	(1,194,581)	(1,115,457)
Accumulated other comprehensive income	622	379
Total stockholders’ equity	405,143	245,059
Total liabilities and stockholders’ equity	$ 555,107	$ 414,250

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Preferred stock par value (usd per share)	$ 0.001	$ 0.001
Preferred stock authorized (shares)	10,000,000	10,000,000
Preferred stock issued (shares)	0	0
Preferred stock outstanding (shares)	0	0
Common stock par value (usd per share)	$ 0.001	$ 0.001
Common stock authorized (shares)	100,000,000	100,000,000
Common stock issued (shares)	55,445,000	45,272,000
Common stock outstanding (shares)	55,445,000	45,272,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Statement [Abstract]
Collaboration revenue	$ 1,032	$ 1,069	$ 2,281	$ 1,069
Operating expenses:
Research and development	34,373	27,096	67,613	51,448
Selling, general and administrative	24,431	15,459	45,749	26,377
Acquired in-process research and development expense	1,500	0	3,000	0
Change in fair value of contingent consideration	12,200	(700)	4,300	2,300
Total operating expenses	72,504	41,855	120,662	80,125
Loss from operations	(71,472)	(40,786)	(118,381)	(79,056)
Other (expense) income, net	(157)	40	19,864	(48)
Interest income	880	2,983	1,968	6,139
Loss before income taxes	(70,749)	(37,763)	(96,549)	(72,965)
Income tax benefit	(17,425)	0	(17,425)	0
Net loss	$ (53,324)	$ (37,763)	$ (79,124)	$ (72,965)
Net loss per share, basic and diluted
Net loss per share, basic and diluted (in dollars per share)	$ (0.96)	$ (0.89)	$ (1.53)	$ (1.72)
Weighted average number of shares used in the calculation of basic and diluted net loss per common share (in shares)	55,355	42,458	51,770	42,348

XML

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement of Comprehensive Income [Abstract]
Net loss	$ (53,324)	$ (37,763)	$ (79,124)	$ (72,965)
Other comprehensive (loss) income, net of tax:
Change in unrealized gains related to marketable securities	444	353	272	723
Foreign currency translation adjustments	(34)	0	(29)	0
Total other comprehensive income	410	353	243	723
Comprehensive loss	$ (52,914)	$ (37,410)	$ (78,881)	$ (72,242)

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Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income	Accumulated Deficit
Stockholders' Equity Beginning Balance at Dec. 31, 2018	$ 522,801	$ 42	$ 1,218,710	$ 3	$ (695,954)
Stockholders' Equity - Beginning Balance (in shares) at Dec. 31, 2018		42,078
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(35,202)				(35,202)
Other comprehensive income (loss)	370			370
Issuance of common stock under employee equity plans	5,293		5,293
Issuance of common stock under employee equity plans (in shares)		380
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	(606)		(606)
Shares repurchased for tax withholdings related to net share settlement of employee equity awards (in shares)		(12)
Stock-based compensation	4,223		4,223
Stockholders' Equity Ending Balance at Mar. 31, 2019	496,879	$ 42	1,227,620	373	(731,156)
Stockholders' Equity - Ending Balance (in shares) at Mar. 31, 2019		42,446
Stockholders' Equity Beginning Balance at Dec. 31, 2018	522,801	$ 42	1,218,710	3	(695,954)
Stockholders' Equity - Beginning Balance (in shares) at Dec. 31, 2018		42,078
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(72,965)
Stockholders' Equity Ending Balance at Jun. 30, 2019	465,715	$ 42	1,233,866	726	(768,919)
Stockholders' Equity - Ending Balance (in shares) at Jun. 30, 2019		42,498
Stockholders' Equity Beginning Balance at Mar. 31, 2019	496,879	$ 42	1,227,620	373	(731,156)
Stockholders' Equity - Beginning Balance (in shares) at Mar. 31, 2019		42,446
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(37,763)				(37,763)
Other comprehensive income (loss)	353			353
Issuance of common stock under employee equity plans	888		888
Issuance of common stock under employee equity plans (in shares)		52
Stock-based compensation	5,358		5,358
Stockholders' Equity Ending Balance at Jun. 30, 2019	465,715	$ 42	1,233,866	726	(768,919)
Stockholders' Equity - Ending Balance (in shares) at Jun. 30, 2019		42,498
Stockholders' Equity Beginning Balance at Dec. 31, 2019	245,059	$ 45	1,360,092	379	(1,115,457)
Stockholders' Equity - Beginning Balance (in shares) at Dec. 31, 2019		45,272
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(25,800)				(25,800)
Other comprehensive income (loss)	(167)			(167)
Issuance of common stock, net of offering costs	221,708	$ 10	221,698
Issuance of common stock, net of offering costs (in shares)		9,798
Issuance of common stock under employee equity plans	3,882		3,882
Issuance of common stock under employee equity plans (in shares)		297
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	(569)		(569)
Shares repurchased for tax withholdings related to net share settlement of employee equity awards (in shares)		(26)
Stock-based compensation	6,394		6,394
Stockholders' Equity Ending Balance at Mar. 31, 2020	450,507	$ 55	1,591,497	212	(1,141,257)
Stockholders' Equity - Ending Balance (in shares) at Mar. 31, 2020		55,341
Stockholders' Equity Beginning Balance at Dec. 31, 2019	245,059	$ 45	1,360,092	379	(1,115,457)
Stockholders' Equity - Beginning Balance (in shares) at Dec. 31, 2019		45,272
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(79,124)
Stockholders' Equity Ending Balance at Jun. 30, 2020	405,143	$ 55	1,599,047	622	(1,194,581)
Stockholders' Equity - Ending Balance (in shares) at Jun. 30, 2020		55,445
Stockholders' Equity Beginning Balance at Mar. 31, 2020	450,507	$ 55	1,591,497	212	(1,141,257)
Stockholders' Equity - Beginning Balance (in shares) at Mar. 31, 2020		55,341
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(53,324)				(53,324)
Other comprehensive income (loss)	410			410
Issuance of common stock under employee equity plans	616		616
Issuance of common stock under employee equity plans (in shares)		153
Shares repurchased for tax withholdings related to net share settlement of employee equity awards	(1,369)		(1,369)
Shares repurchased for tax withholdings related to net share settlement of employee equity awards (in shares)		(49)
Stock-based compensation	8,303		8,303
Stockholders' Equity Ending Balance at Jun. 30, 2020	$ 405,143	$ 55	$ 1,599,047	$ 622	$ (1,194,581)
Stockholders' Equity - Ending Balance (in shares) at Jun. 30, 2020		55,445

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flow from operating activities:
Net loss	$ (79,124)	$ (72,965)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation	14,697	9,581
Depreciation and amortization	740	552
Deferred income taxes	(17,425)	0
Noncash lease expense	619	0
Net accretion and amortization of investments in marketable securities	(380)	(3,299)
Change in fair value of warrant liabilities	(162)	158
Acquired in-process research and development expense	3,000	0
Change in fair value of contingent consideration	4,300	2,300
Changes in operating assets and liabilities:
Inventory, net	(475)	0
Prepaid expenses and other current assets	251	6,071
Other assets	(1,171)	(5,963)
Accounts payable, accrued and other liabilities	(5,737)	(5,193)
Operating lease liability	(634)	12,588
Deferred revenue	(2,281)	14,431
Net cash used in operating activities	(83,782)	(41,739)
Cash flow from investing activities:
Cash paid for in-process research and development asset	(3,000)	0
Purchases of marketable securities	(180,832)	(251,782)
Proceeds from maturities of marketable securities	114,205	289,357
Proceeds from sales of marketable securities	2,988	0
Purchases of property and equipment	(415)	(8,922)
Net cash (used in) provided by investing activities	(67,054)	28,653
Cash flow from financing activities:
Payment of contingent consideration	0	(10,000)
Proceeds from issuance of common stock under equity incentive plans	4,498	6,026
Taxes paid related to net share settlement of equity awards	(569)	(606)
Proceeds from issuance of common stock, net of issuance costs	221,708	0
Net cash provided by (used in) financing activities	225,637	(4,580)
Net increase (decrease) in cash and cash equivalents	74,801	(17,666)
Cash and cash equivalents, beginning of the period	62,070	68,454
Cash and cash equivalents, end of the period	$ 136,871	$ 50,788

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Organization, Basis of Presentation and Liquidity

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Basis of Presentation and Liquidity

Organization, Basis of Presentation and Liquidity

Zogenix, Inc. and subsidiaries (the Company, we, us or our) is a global biopharmaceutical company committed to developing and commercializing therapies with the potential to transform the lives of patients and their families living with rare diseases. Our first rare disease therapy, Fintepla (fenfluramine) oral solution, C-IV has been approved by the U.S. Food and Drug Administration (FDA) and is under review in Europe for the treatment of seizures associated with Dravet syndrome, a rare, severe childhood onset epilepsy. In addition, the company has two late-stage development programs underway: one for Fintepla for the treatment of seizures associated with Lennox-Gastaut syndrome, a rare childhood-onset epilepsy and another for MT1621, an investigational novel substrate enhancement therapy for the treatment of TK2 deficiency, a rare genetic disorder.

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

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Zogenix, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The results of operations for any interim period are not necessarily indicative of results of operations for any future period. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and related notes included in our 2019 Annual Report on Form 10-K (2019 Form 10-K), which was filed with the SEC on March 2, 2020.

Future Funding Requirements

As of June 30, 2020, our cash, cash equivalents and marketable securities totaled $390.2 million. Excluding gains from two discrete business divestitures, we have incurred significant net losses and negative cash flows from operating activities since inception resulting in an accumulated deficit of $1.2 billion as of June 30, 2020. We expect to continue to incur significant operating losses and negative cash flows from operations to support the marketing and commercialization of Fintepla for Dravet syndrome as well as continuing to advance our clinical programs. Additionally, we are obligated to make future milestone payments that are contingent upon the successful achievement of certain development, regulatory and sales-based milestone events related to Fintepla and MT1621. Historically, we have relied primarily on the proceeds from equity offerings to finance our operations. Until such time, if ever, we can generate a sufficient amount of revenue to finance our cash requirements, we may need to continue to rely on additional financing to achieve our business objectives.

On June 12, 2020, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective upon filing. The shelf registration statement permits us to offer and sell, from time to time over the next three years, in one or more offerings, an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants or units consisting of any of the foregoing. The specific terms of any offering, if any, under the shelf registration statement would be established at the time of such offering. The shelf registration statement also includes a sales agreement prospectus covering the offering, issuance and sale of up to $200.0 million of our common stock, through Cantor Fitzgerald & Co. (Cantor), acting as our sales agent, pursuant to a sales agreement with Cantor dated May 10, 2016 for our “at-the-market” equity program. During the quarter ended June 30, 2020, we did not issue any shares of our common stock through this program.

We believe maintaining an active shelf registration provides additional financial flexibility to access the capital markets and allow us to act opportunistically in support of our growth objectives. However, there is no assurance that such financings could be consummated on acceptable terms or at all. Failure to raise sufficient capital when needed could require us to significantly delay, scale back or discontinue one or more of our product development programs or commercialization efforts or other aspects of our business plans, and our operating results and financial condition would be adversely affected.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Use of Estimates

The preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from those estimates.

Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the accompanying condensed consolidated financial statements are described in Note 2, Summary of Significant Accounting Policies to the consolidated financial statements in our 2019 Form 10-K. There have been no material changes in our significant accounting policies during the six months ended June 30, 2020 other than as set forth below.

Inventory

Inventory is recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. We periodically review our inventories to identify obsolete, slow moving, excess or otherwise unsaleable items. If obsolete, slow moving, excess or unsaleable items are observed and there are no alternate uses for the inventory, we record a write-down to net realizable value. The determination of net realizable value requires judgment including consideration of many factors, such as estimates of future product demand, product net selling prices, current and future market conditions and potential product obsolescence, among others.

Prior to regulatory approval, we expense costs associated with the manufacture of our product candidates to research and development expense unless we are reasonably certain such costs have future commercial use and net realizable value. Since we consider attaining regulatory approval of a product candidate to be highly uncertain and difficult to predict, we expect only in rare instances will pre-launch inventory be capitalized, if at all. As of June 30, 2020, our inventory of $0.5 million consisted of raw materials received subsequent to regulatory approval and was purchased for use in commercial production.

Finite-Lived Intangible Assets

Purchased finite-lived intangible assets are initially recognized at fair value and subject to amortization over its estimated useful life. Our finite-lived intangible assets are amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used. If that pattern cannot be reliably determined, the intangible assets are amortized using the straight-line method over their estimated useful lives and are tested for impairment along with other long-lived assets. At June 30, 2020, our finite-lived intangible assets consisted of Fintepla product rights (see Note 7).

Long-Lived Assets

Long-lived assets, including right-of-use operating lease assets and our finite-lived intangible asset, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (group) may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations related to the assets (asset group) to their carrying amount. If the carrying value of the assets (asset group) exceeds its undiscounted cash flows, we then compare the fair value of the assets (asset group) to their carrying value to determine the impairment loss. The impairment loss will be allocated to the carrying values of the long-lived assets (asset group), but not below their individual fair values.

If we determine that events and circumstances warrant a revision to the remaining period of amortization, a long-lived asset’s remaining useful life shall be changed, and the remaining carrying amount of the long-lived asset shall be depreciated or amortized prospectively over that revised remaining useful life.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the global novel coronavirus disease (COVID-19) outbreak a pandemic. To date, our operations have not been significantly impacted by the COVID-19 pandemic. However, we cannot predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on our financial condition and operations, including ongoing and planned clinical trials, the timelines for receiving feedback or approvals from regulatory authorities, and product launch in the midst of a pandemic.

Management is monitoring the potential impact of the COVID-19 pandemic, if any, on the carrying value of our finite-lived intangible asset, goodwill, long-lived assets and right-of-use assets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets. If the financial markets and/or the overall economy are impacted for an extended period, our business, results of operations and financial condition may be adversely affected.

Income Taxes

On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act) and On March 27, 2020, The Coronavirus Aid, Relief and Economic Security Act (CARES Act) were signed into law in response to the COVID-10 pandemic. The FFCR Act and CARES Act, includes provisions related to refundable payroll tax credits, deferment of employer side social security payments, retroactively and temporarily (for taxable years beginning before January 1, 2021) suspending the application of the 80%-of-income limitation on the use of net operating losses, which was enacted as part of the Tax Cuts and Jobs Act of 2017. The CARES Act also provides that net operating losses arising in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back up to five years.

On June 29, 2020, Assembly Bill 85 (A.B. 85) was signed into California law. A.B. 85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022.

The enactment of the FFCR Act, CARES Act and A.B. 85 did not result in any material adjustments to our income tax provision for the three and six months ended June 30, 2020 or to our net deferred tax assets as of June 30, 2020. Given our history of losses, we do not expect the provisions of the FFCR Act, CARES Act and A.B. 85 to have a material impact on our annual effective tax rate or condensed consolidated financial statements in 2020; however, we will continue to evaluate the impact of tax legislation and will update our disclosures as additional information and interpretive guidance becomes available.

Recently Adopted Accounting Pronouncements

Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments revises the measurement of credit losses for most financial instruments measured at amortized cost, including trade receivables, from an incurred loss methodology to an expected loss methodology which results in earlier recognition of credit losses. Under the incurred loss model, a loss is not recognized until it is probable that the loss-causing event has already occurred. The standard introduces a forward-looking expected credit loss model that requires an estimate of the expected credit losses over the life of the instrument by considering all relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. In addition, the standard also modifies the impairment model for available-for-sale debt securities, which are measured at fair value, by eliminating the consideration for the length of time fair value has been less than amortized cost when assessing credit loss for a debt security and provides for reversals of credit losses through income upon credit improvement. The standard became effective for us beginning January 1, 2020. Based on the composition of our investment portfolio, which reflects our primary investment objective of capital preservation, the adoption of this standard did not have a material impact on our condensed consolidated financial statements or related disclosures.

ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value for a reporting unit is determined in the same manner as the amount of goodwill

recognized in a business acquisition of the reporting unit. Under the standard, an entity shall recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The standard became effective for us beginning January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements or related disclosures; however, any prospective goodwill impairment losses recognized will be measured in accordance with the updated guidance.

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modifies the disclosure requirements in Topic 820 by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard became effective for us beginning January 1, 2020 and the adoption of this standard did not have a material impact on our condensed consolidated financial statements. For the new disclosures regarding our Level 3 fair value measurements, see Note 5, Fair Value Measurements to these condensed consolidated financial statements.

ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) removes certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU is effective for us for all interim and annual periods beginning January 1, 2021, with early adoption permitted. We early adopted ASU 2019-12 beginning January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.

The only aspect of ASU 2019-12 that is currently applicable to us is the removal of the exception related to intraperiod tax allocation. Beginning January 1, 2020, we have applied the general methodology regarding the intraperiod allocation of tax expense for reporting periods where we have a loss from continuing operations by determining the amount of taxes attributable to continuing operations without regard to the tax effect of other items, including changes in unrealized gains related to marketable securities.

Recent Accounting Pronouncements

We have reviewed recently issued accounting pronouncements and concluded they are either not applicable to our business or no material effect is expected on our condensed consolidated financial statements as a result of future adoption.

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Collaborative Arrangement

6 Months Ended

Jun. 30, 2020

Disaggregation of Revenue [Abstract]

Collaborative Arrangement

Collaborative Arrangement

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

Shinyaku has agreed to support development and regulatory approval of Fintepla in Japan by actively participating in the design of non-clinical, clinical and manufacturing requirements needed for regulatory submission, actively planning and participating in product labeling decisions and discussions with the Japanese Ministry of Health, Labor and Welfare (MHLW) and obtained distribution exclusivity through the payment of an initial fixed consideration. Pursuant to the terms of the agreement, Shinyaku agreed to make aggregate fixed payments of $20.0 million to us in scheduled installments. As of June 30, 2020, we have received $17.0 million with the remaining balance due within the next year. We will be actively running the clinical trials, performing manufacturing validation activities, preparing regulatory filings and holding discussions with MHLW, and negotiating pricing. We and Shinyaku have agreed to proportionally share the Japan specific development costs that may arise outside of the initial development plan and any post-approval clinical study costs in Japan. In addition, we can earn up to $66.0 million from Shinyaku for the achievement of certain regulatory milestones for the treatment of Dravet

syndrome and LGS. If regulatory approval of Fintepla is received in Japan, we have agreed to supply Shinyaku with Fintepla upon receipt of purchase orders at our actual manufacturing cost plus a fixed transfer price mark-up, a fixed percentage of Shinyaku's net sales of Fintepla in Japan for such fiscal year, and a net price mark-up based on a percent of the applicable aggregate sales of Fintepla by Shinyaku for such fiscal year. The net price mark-up percentage increases with Shinyaku’s sales of Fintepla annual net sales in Japan and ranges between mid-twenties and is capped at a low thirties of the aggregate annual net sales for an applicable fiscal year. In addition, we can earn up to an additional $42.5 million tied to the achievement of certain net sales milestones by Shinyaku through the term of the agreement, which generally expires in 2045.

The collaborative activities under the Shinyaku Agreement prior to regulatory approval are within the scope of the accounting guidance related to collaborative arrangements as both parties are active participants and are exposed to significant risks and rewards dependent on the success of commercializing Fintepla in Japan. Since Shinyaku is not a customer as it does not obtain an output of our development and regulatory approval activities for Fintepla as they were not provided a license to our intellectual property or the ability to manufacture the product, and we do not consider performing development and regulatory approval services to be a part of our ongoing activities. Shinyaku will only become a customer and subject to revenue from contracts from customers accounting guidance after regulatory approval of Fintepla in Japan occurs and Shinyaku places purchase orders with us. To date, Shinyaku has not provided us with any purchase orders and thus no revenue has been recognized for the supply of Fintepla.

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

Since Shinyaku was not provided a license to our intellectual property or the ability to manufacture Fintepla, Shinyaku will only become a customer, and payments made under the Shinyaku Agreement will only be subject to the accounting guidance related to revenue from contracts from customers, after regulatory approval of Fintepla in Japan occurs and Shinyaku places purchase orders with us.

The initial collaboration consideration consisted solely of the fixed consideration payments of $20.0 million and was allocated on a relative standalone selling price basis to the two identified development programs akin to performance obligations related to collaborative activities for development and regulatory approval efforts for Dravet syndrome and LGS. Analogizing to the revenue from contracts with customers variable consideration guidance, all potential regulatory milestone payment consideration will be included in the collaboration consideration if and when it is probable that a significant reversal in the amount of cumulative collaboration consideration recognized will not occur when the uncertainty associated with the variable collaboration consideration is subsequently resolved. At contract inception and through June 30, 2020, this consideration was fully constrained as the achievement of the events tied to these regulatory milestone payments was highly dependent on factors outside our control.

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

For the three and six months ended June 30, 2020, we recognized collaboration revenue of $1.0 million and $2.3 million, respectively. As of June 30, 2020, the deferred revenue balance of $11.1 million related to this agreement was recorded as deferred revenue, which is classified as either current or net of current portion in the accompanying condensed consolidated balance sheets based on the period over which the collaboration revenue is expected to be recognized. We expect to recognize collaboration revenue related to these collaborative activities through the end of 2023.

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Cash, Cash Equivalents and Marketable Securities

6 Months Ended

Jun. 30, 2020

Cash and Cash Equivalents [Abstract]

Cash, Cash Equivalents, and Marketable Securities

Cash, Cash Equivalents and Marketable SecuritiesThe following tables summarize the amortized cost and the estimated fair value of our cash, cash equivalents and marketable securities as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	23,688	$	—	$	—	$	23,688
Cash equivalents:
U.S. Treasuries	11,300		—		—		11,300
Money market funds	61,840		—		—		61,840
Certificate of deposits	10,900		—		—		10,900
Commercial paper	29,143		—		—		29,143
Total cash and cash equivalents	136,871		—		—		136,871
Marketable securities:
U.S. Treasuries	55,677		3		—		55,680
Commercial paper	94,567		—		—		94,567
U.S. Government-sponsored enterprises debt securities	6,200		13		—		6,213
Corporate debt securities	53,537		637		—		54,174
Certificate of deposits	42,744		—		—		42,744
Total marketable securities	252,725		653		—		253,378
Total cash, cash equivalents and marketable securities	$	389,596	$	653	$	—	$	390,249

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	43,058	$	—	$	—	$	43,058
Cash equivalents:
Money market funds	11,527		—		—		11,527
Commercial paper	7,485		—		—		7,485
Total cash and cash equivalents	62,070		—		—		62,070
Marketable securities:
Commercial paper	73,366		—		—		73,366
Corporate debt securities	74,038		381		(2)		74,417
Certificate of deposits	41,302		—		—		41,302
Total marketable securities	188,706		381		(2)		189,085
Total cash, cash equivalents and marketable securities	$	250,776	$	381	$	(2)	$	251,155

The following table summarizes the cost and fair value of marketable securities based on stated effective maturities as of June 30, 2020 (in thousands):

	Amortized Cost		Fair Value
Due within one year	$	245,025	$	245,635
Due between one and two years	7,700		7,743
Total	$	252,725	$	253,378

We regularly review our available-for-sale marketable securities in an unrealized loss position and evaluate the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. As of June 30, 2020, no assessment of expected credit losses was necessary as we did not have any individual security in an unrealized loss position.

Accrued interest receivable on available-for-sale marketable securities are recorded within “Prepaid expenses and other current assets” on our condensed consolidated balance sheets and was $0.4 million and $0.6 million at June 30, 2020 and December 31, 2019, respectively.

See Note 5 for further information regarding the fair value of our financial instruments.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

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

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

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

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

Our financial instruments consist primarily of cash and cash equivalents, marketable securities, other current assets, accounts payable and accrued liabilities, contingent consideration liabilities and our outstanding common stock warrant liabilities. Certain cash equivalents, marketable securities, contingent consideration liabilities and common stock warrant liabilities are reported at their respective fair values on our condensed consolidated balance sheets. The remaining financial instruments are carried at cost which approximates their respective fair values because of the short-term nature of these financial instruments. See Note 4 for further information regarding the amortized cost of our financial assets.

The following tables summarize assets and liabilities recognized or disclosed at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
U.S. Treasuries	$	—	$	11,300	$	—	$	11,300
Money market funds	61,840		—		—		61,840
Certificate of deposits	—		10,900		—		10,900
Commercial paper	—		29,143		—		29,143
Marketable securities:
U.S. Treasuries	—		55,680		—		55,680
Commercial paper	—		94,567		—		94,567
U.S. Government-sponsored enterprises debt securities	—		6,213		—		6,213
Corporate debt securities	—		54,174		—		54,174
Certificate of deposits	—		42,744		—		42,744
Total assets(1)	$	61,840	$	304,721	$	—	$	366,561
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	36	$	36
Contingent consideration liabilities	—		—		53,100		53,100
Total liabilities	$	—	$	—	$	53,136	$	53,136

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	11,527	$	—	$	—	$	11,527
Commercial paper	—		7,485		—		$	7,485
Marketable securities:
Commercial paper	—		73,366		—		73,366
Corporate debt securities	—		74,417		—		74,417
Certificate of deposits	—		41,302		—		41,302
Total assets(1)	$	11,527	$	196,570	$	—	$	208,097
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	198	$	198
Contingent consideration liabilities	—		—		63,800		63,800
Total liabilities	$	—	$	—	$	63,998	$	63,998

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

Contingent Consideration Liability

Pursuant to the terms of the Brabant purchase agreement in 2014 in which we acquired worldwide development and commercialization rights to Fintepla, we are obligated to make future milestone payments that are contingent upon the successful achievement of certain regulatory and sales-based milestone events related to Fintepla. As of June 30, 2020, the potential amount of future payments that we may be required to make is between zero, if none of the remaining milestones are achieved, to a maximum of $60.0 million.

The following table provides a reconciliation of our contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Balance at beginning of period	$	55,900	$	71,200	$	63,800	$	78,200
Change in fair value	12,200		(700)		4,300		2,300
Transfers out of Level 3 fair value hierarchy(1)	(15,000)		—		(15,000)		—
Settlements	—		—		—		(10,000)
Balance at end of period	$	53,100	$	70,500	$	53,100	$	70,500

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(1)For the three and six months ended June 30, 2020, a $15.0 million regulatory milestone payment associated with the FDA’s approval of Fintepla was achieved and such consideration payable was no longer contingent. As of June 30, 2020, the amount has been reclassified from contingent consideration liability to accrued and other current liabilities which was subsequently paid in July 2020.

For the three months ended June 30, 2020, the $12.2 million increase to the estimated fair value of our contingent consideration liability consisted of updated assumptions used regarding the probability of success for achieving certain regulatory and sales-based milestone events in light of FDA approval of Fintepla in June 2020, which accounted for approximately $10.0 million of the increase, with the remaining increase attributed to a market-driven decrease in discount rates. The change in fair value for the three and six months ended June 30, 2019 and the six months ended June 30, 2020 was attributable to immaterial adjustments to certain assumptions and estimates used in the remeasurement to fair value.

The following table summarizes the significant unobservable inputs used in the fair value measurement of our contingent consideration liabilities as of June 30, 2020.

Fair Value as of June 30, 2020 (in thousands)	Valuation Technique	Unobservable Input	Range	Weighted Average(1)
$53,100	Discounted cash flow	Discount rate	4.5% — 12.7%	6.8%
		Probability of payment	0% — 94.3%	94.3%
		Projected year of payment	2021 — 2030	2022

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(1)Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

The weighted average discount rate was calculated based on the relative fair value of our contingent consideration obligations. Significant increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement as of June 30, 2020.

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Accrued and Other Current Liabilities

6 Months Ended

Jun. 30, 2020

Payables and Accruals [Abstract]

Accrued and Other Current Liabilities

Accrued and Other Current Liabilities

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

	June 30, 2020		December 31, 2019
Accrued clinical trial expenses	$	11,335	$	18,666
Accrued compensation	7,229		7,179
Accrued milestone payment	15,000		—
Other accrued liabilities	6,576		4,074
Common stock warrant liabilities	36		198
Total accrued and other current liabilities	$	40,176	$	30,117

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Intangible Assets

6 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible Assets

The following table provides details of the carrying amount of our intangible assets (in thousands):

	June 30, 2020		December 31, 2019
Finite-lived intangible assets	$	102,500	$	—
Indefinite-lived in-process research and development (IPR&D) intangible assets	—		102,500
Total intangible assets	$	102,500	$	102,500

Our intangible assets consist of worldwide development, commercialization and related intellectual property rights including patents and licenses for our product, Fintepla (fenfluramine; formerly referred to as ZX008), which at the time of our acquisition in October 2014 and as of December 31, 2019, was classified as an indefinite-lived IPR&D asset. Upon FDA approval of Fintepla in June 2020, this indefinite-lived asset was reclassified to a finite-lived intangible asset subject to amortization.

In July 2020, we commercially launched Fintepla and commenced amortization of this asset on a straight-line basis over its estimated useful life. Due to the inherent subjectivity of forecasting the timing in which the cash flows may be generated from this intangible asset over a long-term time horizon, we concluded the pattern of economic benefit cannot be reliably determined. As such, we elected to use the straight-line method of amortization for this intangible asset.

In estimating the useful life of the finite-lived Fintepla intangible asset, we considered the estimated period over which the asset will contribute directly or indirectly to our future cash flows, the strength of issued or licensed patents and related period of intellectual property protection, the availability of competitor products treating similar indications and the impact of patent expiry on the sustainability of future operating cash flows of the asset. Based on these factors, we estimated the useful life of the finite-lived intangible asset to be 13 years.

As of June 30, 2020, the estimated intangible asset amortization expense for the next five years and thereafter is as follows (in thousands):

	Estimated Amortization Expense
2020 (remaining 6 months)	$	3,942
2021	7,885
2022	7,885
2023	7,885
2024	7,885
Thereafter	67,018
Total	$	102,500

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Leases

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Leases

Leases

We have operating leases consisting of office space for our Emeryville, California headquarters and for our various subsidiaries. In March 2020, our operating lease for our former headquarters in San Diego, California and the co-terminus sublease arrangement with our sublessee expired in accordance with the terms of the leases. In February 2020, we entered into a lease for office space in Maidenhead, United Kingdom, for a five-year term with aggregate lease payments of approximately $1.5 million. Operating lease assets represent our right to use an underlying asset for the lease term. Operating lease liabilities represent the present value of lease payments over the lease term, discounted using an estimate of our secured incremental borrowing rate.

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

	Six Months Ended June 30,
	2020		2019
Lease costs
Operating lease cost	$	1,045	$	995
Short-term lease cost	259		548
Sublease income	(115)		(290)
Total	$	1,189	$	1,253

Cash paid for amounts included in the measurement of lease liabilities for the six months ended June 30, 2020 and 2019 was $1.0 million and $0.6 million, respectively. The amounts were included in net cash used in operating activities in our condensed consolidated statements of cash flows. Right-of-use assets obtained in exchange for new operating lease liabilities were $1.2 million for the six months ended June 30, 2020.

Maturities of operating lease liabilities as of June 30, 2020 and December 31, 2019 were as follows (in thousands):

	June 30, 2020		December 31, 2019
2020 (remaining 6 months and 12 months, respectively)	$	1,152	$	1,986
2021	2,292		1,957
2022	2,230		1,894
2023	2,287		1,951
2024	2,300		2,010
Thereafter	5,103		5,101
Total lease payments	15,364		14,899
Less imputed interest	(2,709)		(2,825)
Total operating lease liabilities	$	12,655	$	12,074

	June 30, 2020		December 31, 2019
Current portion of operating lease liabilities	$	1,633	$	1,322
Operating lease liabilities, net of current portion	11,022		10,752
Total lease liabilities	$	12,655	$	12,074

As of June 30, 2020, the weighted-average remaining lease term was 6.5 years and the weighted-average discount rate, weighted based on the remaining balance of lease payments, was 6.2%.

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Stockholders' Equity and Stock-Based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Stockholders' Equity and Stock-Based Compensation

Stockholders’ Equity and Stock-Based Compensation

Sale of Common Stock

In March 2020, we completed an underwritten public offering of 9,798,000 shares of our common stock at an offering price of $23.50 per share, including 1,278,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares. Net proceeds realized from the offering amounted to approximately $221.7 million, after deducting commissions and other offering expenses.

Equity Incentive Plans

We have issued stock-based awards from various equity incentive and stock purchase plans, as more fully described in Note 12, Stock-Based Compensation to the consolidated financial statements in our 2019 Form 10-K. In June 2020, our shareholders approved an amendment and restatement of our 2010 Employee Stock Purchase Plan (the “Restated ESPP”). Effective May 29, 2020, the plan was amended to increase the aggregate number of shares authorized for issuance from 375,000 to 875,000 shares and to eliminate the annual evergreen feature, which automatically added 31,250 shares to the aggregate shares authorized for issuance on each January 1st. In addition, the expiration date of the Restated ESPP was modified from October 2020 to the date that all shares authorized have been issued. As of June 30, 2020, there were 524,962 shares of common stock available for future purchases under the Restated ESPP.

Stock Options

The following is a summary of stock option activity for the six months ended June 30, 2020 (in thousands, except per share data):

	Shares	Weighted- Average Exercise Price per Share
Outstanding at December 31, 2019	4,253	$	29.59
Granted	1,185	29.36
Exercised	(231)	16.85
Canceled	(145)	39.56
Outstanding at June 30, 2020	5,062	$	29.83

Restricted Stock Units

The following is a summary of restricted stock unit activity for the six months ended June 30, 2020 (in thousands, except per share data):

	Shares	Weighted- Average Fair Value per Share at Grant Date
Outstanding at December 31, 2019	439	$	36.97
Granted	218	27.34
Vested	(194)	23.95
Canceled	(28)	38.74
Outstanding at June 30, 2020	435	$	38.09

In June 2020, approximately 128,000 shares of performance-based restricted stock units (PSU’s) granted in March 2017 vested upon satisfaction of both a service-period condition and a performance condition, the latter of which was satisfied following the FDA’s approval of Fintepla in June 2020. As of June 30, 2020, all outstanding restricted stock units were subject to time-based vesting.

Stock-Based Compensation Expense Allocation

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Research and development	$	3,488	$	2,074	$	6,217	$	3,509
Selling, general and administrative	4,815		3,284		8,480		6,072
Total	$	8,303	$	5,358	$	14,697	$	9,581

Stock-based compensation expense for the three and six months ended June 30, 2020 included $1.4 million of compensation expense related to the vesting of

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Net Loss Per Share

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Net Loss Per Share

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock and potential dilutive common stock equivalents outstanding during the period if the effect is dilutive. Our potentially dilutive shares of common stock include outstanding stock options, restricted stock units and warrants to purchase common stock.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Numerator:
Net loss	$	(53,324)	$	(37,763)	$	(79,124)	$	(72,965)
Denominator:
Shares used in per share calculation	55,355		42,458		51,770		42,348
Net loss per share, basic and diluted	$	(0.96)	$	(0.89)	$	(1.53)	$	(1.72)

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Shares subject to outstanding stock options	4,942	4,227	4,696	3,973
Shares subject to outstanding restricted stock units	555	415	520	355
Shares subject to outstanding warrants to purchase common stock	28	28	28	28
Total	5,525	4,670	5,244	4,356

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Income Taxes	6 Months Ended
	Jun. 30, 2020
Income Tax Disclosure [Abstract]
Income Taxes	Income TaxesIncome tax benefit during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items, which are recorded in the interim period. The income tax benefit for the three and six months ended June 30, 2020 differs from the U.S. federal statutory rate of 21.0% primarily due to effect of change in the valuation allowance against our deferred tax assets, which resulted in an income tax benefit.As of December 31, 2019, our net deferred tax liability was related to book and tax basis differences for our indefinite-lived Fintepla IPR&D intangible asset that was acquired through the October 2014 acquisition of Brabant Pharma Limited. Previously, this deferred tax liability was not considered to be a source of income for purposes of establishing our deferred tax asset valuation allowance due to the uncertainty associated with the timing of the reversal of this temporary tax difference. Upon FDA approval of Fintepla in June 2020, the indefinite-lived asset was reclassified to a finite-lived intangible asset and was subject to amortization over its estimated useful life. Because the detail scheduling of the timing of reversal of this temporary tax difference became available, the deferred tax liability associated with this finite-lived intangible asset was considered to be a source of income when assessing the realizability of our deferred tax assets as of June 30, 2020. We therefore recorded a $17.4 million income tax benefit for the three and six months ended June 30, 2020 with a corresponding reduction to our valuation allowance on deferred tax assets. The income tax benefit recognized for the three and six months ended June 30, 2020 included the effects of foreign exchange differences on remeasurement of the deferred tax liability. An immaterial portion of the adjustment for foreign exchange differences was related to prior periods. As of June 30, 2020, given our recurring net operating losses, we maintained a full valuation allowance against our net deferred tax assets.

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United Kingdom (U.K.) Research and Development (R&D) Tax Relief Scheme

6 Months Ended

Jun. 30, 2020

Other Income and Expenses [Abstract]

United Kingdom (U.K.) Research and Development (R&D) Tax Relief Scheme

United Kingdom (U.K.) Research and Development (R&D) Tax Relief Scheme

We conduct extensive research and development activities that benefit from U.K.’s small and medium-sized enterprises (SMEs) R&D tax relief scheme. Under this tax relief scheme, a SME can make an election (i) to receive an enhanced U.K. tax deduction on its eligible R&D activities or, when an SME entity is in a net operating loss position, or (ii) to surrender net operating losses that arise from its eligible R&D activities in exchange for a cash payment from the U.K. tax authorities. As the tax incentives may be received without regard to an entity’s actual tax liability, they are not subject to accounting for income taxes. Amounts recognized by us for cash payment claims under the SME R&D tax relief scheme are recorded as a component of other income after an election for tax relief has been made by submitting a claim for a discrete tax year and collectability is deemed probable and reasonably assured.

In December 2019, we elected to surrender net operating losses by submitting claims to receive cash payments of $9.9 million and $9.8 million related to our 2017 and 2018 tax years, respectively. Upon approval of our submitted claims by the U.K. tax authorities in the first quarter of 2020, we recorded income of $19.7 million as a component of other income on the condensed consolidated statement of operations. In May 2020, we received the cash payment for our submitted claims. For our 2019 tax year, we have not yet decided whether to seek tax relief by surrendering some of our losses for a tax credit cash rebate claim or electing to receive enhanced U.K. tax deductions on our eligible research and development activities. Under the U.K.’s tax legislation, there is a two-year window after the end of a tax year to seek relief under this tax relief scheme.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Use of Estimates

Use of EstimatesThe preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from those estimates.

Inventory

Inventory

Inventory is recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. We periodically review our inventories to identify obsolete, slow moving, excess or otherwise unsaleable items. If obsolete, slow moving, excess or unsaleable items are observed and there are no alternate uses for the inventory, we record a write-down to net realizable value. The determination of net realizable value requires judgment including consideration of many factors, such as estimates of future product demand, product net selling prices, current and future market conditions and potential product obsolescence, among others.

Prior to regulatory approval, we expense costs associated with the manufacture of our product candidates to research and development expense unless we are reasonably certain such costs have future commercial use and net realizable value. Since we consider attaining regulatory approval of a product candidate to be highly uncertain and difficult to predict, we expect only in rare instances will pre-launch inventory be capitalized, if at all.

Finite-Lived Intangible Assets

Finite-Lived Intangible AssetsPurchased finite-lived intangible assets are initially recognized at fair value and subject to amortization over its estimated useful life. Our finite-lived intangible assets are amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used. If that pattern cannot be reliably determined, the intangible assets are amortized using the straight-line method over their estimated useful lives and are tested for impairment along with other long-lived assets. At June 30, 2020, our finite-lived intangible assets consisted of Fintepla product rights

Long-Lived Assets

Long-Lived Assets

Long-lived assets, including right-of-use operating lease assets and our finite-lived intangible asset, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (group) may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations related to the assets (asset group) to their carrying amount. If the carrying value of the assets (asset group) exceeds its undiscounted cash flows, we then compare the fair value of the assets (asset group) to their carrying value to determine the impairment loss. The impairment loss will be allocated to the carrying values of the long-lived assets (asset group), but not below their individual fair values.

If we determine that events and circumstances warrant a revision to the remaining period of amortization, a long-lived asset’s remaining useful life shall be changed, and the remaining carrying amount of the long-lived asset shall be depreciated or amortized prospectively over that revised remaining useful life.

Impact of COVID-19 Pandemic

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the global novel coronavirus disease (COVID-19) outbreak a pandemic. To date, our operations have not been significantly impacted by the COVID-19 pandemic. However, we cannot predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on our financial condition and operations, including ongoing and planned clinical trials, the timelines for receiving feedback or approvals from regulatory authorities, and product launch in the midst of a pandemic.

Management is monitoring the potential impact of the COVID-19 pandemic, if any, on the carrying value of our finite-lived intangible asset, goodwill, long-lived assets and right-of-use assets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets. If the financial markets and/or the overall economy are impacted for an extended period, our business, results of operations and financial condition may be adversely affected.

Income Taxes

Income Taxes

On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act) and On March 27, 2020, The Coronavirus Aid, Relief and Economic Security Act (CARES Act) were signed into law in response to the COVID-10 pandemic. The FFCR Act and CARES Act, includes provisions related to refundable payroll tax credits, deferment of employer side social security payments, retroactively and temporarily (for taxable years beginning before January 1, 2021) suspending the application of the 80%-of-income limitation on the use of net operating losses, which was enacted as part of the Tax Cuts and Jobs Act of 2017. The CARES Act also provides that net operating losses arising in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back up to five years.

On June 29, 2020, Assembly Bill 85 (A.B. 85) was signed into California law. A.B. 85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022.

The enactment of the FFCR Act, CARES Act and A.B. 85 did not result in any material adjustments to our income tax provision for the three and six months ended June 30, 2020 or to our net deferred tax assets as of June 30, 2020. Given our history of losses, we do not expect the provisions of the FFCR Act, CARES Act and A.B. 85 to have a material impact on our annual effective tax rate or condensed consolidated financial statements in 2020; however, we will continue to evaluate the impact of tax legislation and will update our disclosures as additional information and interpretive guidance becomes available.

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments revises the measurement of credit losses for most financial instruments measured at amortized cost, including trade receivables, from an incurred loss methodology to an expected loss methodology which results in earlier recognition of credit losses. Under the incurred loss model, a loss is not recognized until it is probable that the loss-causing event has already occurred. The standard introduces a forward-looking expected credit loss model that requires an estimate of the expected credit losses over the life of the instrument by considering all relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. In addition, the standard also modifies the impairment model for available-for-sale debt securities, which are measured at fair value, by eliminating the consideration for the length of time fair value has been less than amortized cost when assessing credit loss for a debt security and provides for reversals of credit losses through income upon credit improvement. The standard became effective for us beginning January 1, 2020. Based on the composition of our investment portfolio, which reflects our primary investment objective of capital preservation, the adoption of this standard did not have a material impact on our condensed consolidated financial statements or related disclosures.

ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value for a reporting unit is determined in the same manner as the amount of goodwill

recognized in a business acquisition of the reporting unit. Under the standard, an entity shall recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The standard became effective for us beginning January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements or related disclosures; however, any prospective goodwill impairment losses recognized will be measured in accordance with the updated guidance.

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement modifies the disclosure requirements in Topic 820 by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard became effective for us beginning January 1, 2020 and the adoption of this standard did not have a material impact on our condensed consolidated financial statements. For the new disclosures regarding our Level 3 fair value measurements, see Note 5, Fair Value Measurements to these condensed consolidated financial statements.

ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) removes certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU is effective for us for all interim and annual periods beginning January 1, 2021, with early adoption permitted. We early adopted ASU 2019-12 beginning January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.

The only aspect of ASU 2019-12 that is currently applicable to us is the removal of the exception related to intraperiod tax allocation. Beginning January 1, 2020, we have applied the general methodology regarding the intraperiod allocation of tax expense for reporting periods where we have a loss from continuing operations by determining the amount of taxes attributable to continuing operations without regard to the tax effect of other items, including changes in unrealized gains related to marketable securities.

Recent Accounting Pronouncements

We have reviewed recently issued accounting pronouncements and concluded they are either not applicable to our business or no material effect is expected on our condensed consolidated financial statements as a result of future adoption.

Fair Value Measurements

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

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

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

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

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

Stock-Based Compensation

We have issued stock-based awards from various equity incentive and stock purchase plans, as more fully described in Note 12, Stock-Based Compensation to the consolidated financial statements in our 2019 Form 10-K. In June 2020, our shareholders approved an amendment and restatement of our 2010 Employee Stock Purchase Plan (the “Restated ESPP”). Effective May 29, 2020, the plan was amended to increase the aggregate number of shares authorized for issuance from 375,000 to 875,000 shares and to eliminate the annual evergreen feature, which automatically added 31,250 shares to the aggregate shares authorized for issuance on each January 1st. In addition, the expiration date of the Restated ESPP was modified from October 2020 to the date that all shares authorized have been issued. As of June 30, 2020, there were 524,962 shares of common stock available for future purchases under the Restated ESPP.

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock and potential dilutive common stock equivalents outstanding during the period if the effect is dilutive. Our potentially dilutive shares of common stock include outstanding stock options, restricted stock units and warrants to purchase common stock.

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Cash, Cash Equivalents and Marketable Securities (Tables)

6 Months Ended

Jun. 30, 2020

Cash and Cash Equivalents [Abstract]

Amortized cost and fair value of cash, cash equivalents and marketable securities

The following tables summarize the amortized cost and the estimated fair value of our cash, cash equivalents and marketable securities as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	23,688	$	—	$	—	$	23,688
Cash equivalents:
U.S. Treasuries	11,300		—		—		11,300
Money market funds	61,840		—		—		61,840
Certificate of deposits	10,900		—		—		10,900
Commercial paper	29,143		—		—		29,143
Total cash and cash equivalents	136,871		—		—		136,871
Marketable securities:
U.S. Treasuries	55,677		3		—		55,680
Commercial paper	94,567		—		—		94,567
U.S. Government-sponsored enterprises debt securities	6,200		13		—		6,213
Corporate debt securities	53,537		637		—		54,174
Certificate of deposits	42,744		—		—		42,744
Total marketable securities	252,725		653		—		253,378
Total cash, cash equivalents and marketable securities	$	389,596	$	653	$	—	$	390,249

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	43,058	$	—	$	—	$	43,058
Cash equivalents:
Money market funds	11,527		—		—		11,527
Commercial paper	7,485		—		—		7,485
Total cash and cash equivalents	62,070		—		—		62,070
Marketable securities:
Commercial paper	73,366		—		—		73,366
Corporate debt securities	74,038		381		(2)		74,417
Certificate of deposits	41,302		—		—		41,302
Total marketable securities	188,706		381		(2)		189,085
Total cash, cash equivalents and marketable securities	$	250,776	$	381	$	(2)	$	251,155

Cost and fair value of marketable securities

The following table summarizes the cost and fair value of marketable securities based on stated effective maturities as of June 30, 2020 (in thousands):

	Amortized Cost		Fair Value
Due within one year	$	245,025	$	245,635
Due between one and two years	7,700		7,743
Total	$	252,725	$	253,378

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Assets measured at fair value on recurring basis

The following tables summarize assets and liabilities recognized or disclosed at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
U.S. Treasuries	$	—	$	11,300	$	—	$	11,300
Money market funds	61,840		—		—		61,840
Certificate of deposits	—		10,900		—		10,900
Commercial paper	—		29,143		—		29,143
Marketable securities:
U.S. Treasuries	—		55,680		—		55,680
Commercial paper	—		94,567		—		94,567
U.S. Government-sponsored enterprises debt securities	—		6,213		—		6,213
Corporate debt securities	—		54,174		—		54,174
Certificate of deposits	—		42,744		—		42,744
Total assets(1)	$	61,840	$	304,721	$	—	$	366,561
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	36	$	36
Contingent consideration liabilities	—		—		53,100		53,100
Total liabilities	$	—	$	—	$	53,136	$	53,136

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	11,527	$	—	$	—	$	11,527
Commercial paper	—		7,485		—		$	7,485
Marketable securities:
Commercial paper	—		73,366		—		73,366
Corporate debt securities	—		74,417		—		74,417
Certificate of deposits	—		41,302		—		41,302
Total assets(1)	$	11,527	$	196,570	$	—	$	208,097
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	198	$	198
Contingent consideration liabilities	—		—		63,800		63,800
Total liabilities	$	—	$	—	$	63,998	$	63,998

————————————

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

Liabilities measured at fair value on recurring basis

The following tables summarize assets and liabilities recognized or disclosed at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
U.S. Treasuries	$	—	$	11,300	$	—	$	11,300
Money market funds	61,840		—		—		61,840
Certificate of deposits	—		10,900		—		10,900
Commercial paper	—		29,143		—		29,143
Marketable securities:
U.S. Treasuries	—		55,680		—		55,680
Commercial paper	—		94,567		—		94,567
U.S. Government-sponsored enterprises debt securities	—		6,213		—		6,213
Corporate debt securities	—		54,174		—		54,174
Certificate of deposits	—		42,744		—		42,744
Total assets(1)	$	61,840	$	304,721	$	—	$	366,561
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	36	$	36
Contingent consideration liabilities	—		—		53,100		53,100
Total liabilities	$	—	$	—	$	53,136	$	53,136

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	11,527	$	—	$	—	$	11,527
Commercial paper	—		7,485		—		$	7,485
Marketable securities:
Commercial paper	—		73,366		—		73,366
Corporate debt securities	—		74,417		—		74,417
Certificate of deposits	—		41,302		—		41,302
Total assets(1)	$	11,527	$	196,570	$	—	$	208,097
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	198	$	198
Contingent consideration liabilities	—		—		63,800		63,800
Total liabilities	$	—	$	—	$	63,998	$	63,998

————————————

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

Reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3)

The following table provides a reconciliation of our contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Balance at beginning of period	$	55,900	$	71,200	$	63,800	$	78,200
Change in fair value	12,200		(700)		4,300		2,300
Transfers out of Level 3 fair value hierarchy(1)	(15,000)		—		(15,000)		—
Settlements	—		—		—		(10,000)
Balance at end of period	$	53,100	$	70,500	$	53,100	$	70,500

————————————

(1)For the three and six months ended June 30, 2020, a $15.0 million regulatory milestone payment associated with the FDA’s approval of Fintepla was achieved and such consideration payable was no longer contingent. As of June 30, 2020, the amount has been reclassified from contingent consideration liability to accrued and other current liabilities which was subsequently paid in July 2020.

Significant inputs used in fair value measurement

The following table summarizes the significant unobservable inputs used in the fair value measurement of our contingent consideration liabilities as of June 30, 2020.

Fair Value as of June 30, 2020 (in thousands)	Valuation Technique	Unobservable Input	Range	Weighted Average(1)
$53,100	Discounted cash flow	Discount rate	4.5% — 12.7%	6.8%
		Probability of payment	0% — 94.3%	94.3%
		Projected year of payment	2021 — 2030	2022

————————————

(1)Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

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Accrued and Other Current Liabilities (Tables)

6 Months Ended

Jun. 30, 2020

Payables and Accruals [Abstract]

Details of accrued and other current liabilities

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

	June 30, 2020		December 31, 2019
Accrued clinical trial expenses	$	11,335	$	18,666
Accrued compensation	7,229		7,179
Accrued milestone payment	15,000		—
Other accrued liabilities	6,576		4,074
Common stock warrant liabilities	36		198
Total accrued and other current liabilities	$	40,176	$	30,117

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Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

The following table provides details of the carrying amount of our intangible assets (in thousands):

	June 30, 2020		December 31, 2019
Finite-lived intangible assets	$	102,500	$	—
Indefinite-lived in-process research and development (IPR&D) intangible assets	—		102,500
Total intangible assets	$	102,500	$	102,500

Schedule of Intangible Assets

The following table provides details of the carrying amount of our intangible assets (in thousands):

	June 30, 2020		December 31, 2019
Finite-lived intangible assets	$	102,500	$	—
Indefinite-lived in-process research and development (IPR&D) intangible assets	—		102,500
Total intangible assets	$	102,500	$	102,500

Schedule of estimated future asset amortization expense

As of June 30, 2020, the estimated intangible asset amortization expense for the next five years and thereafter is as follows (in thousands):

	Estimated Amortization Expense
2020 (remaining 6 months)	$	3,942
2021	7,885
2022	7,885
2023	7,885
2024	7,885
Thereafter	67,018
Total	$	102,500

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Leases (Tables)

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Components of lease costs

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

	Six Months Ended June 30,
	2020		2019
Lease costs
Operating lease cost	$	1,045	$	995
Short-term lease cost	259		548
Sublease income	(115)		(290)
Total	$	1,189	$	1,253

Maturities of operating lease liabilities

Maturities of operating lease liabilities as of June 30, 2020 and December 31, 2019 were as follows (in thousands):

	June 30, 2020		December 31, 2019
2020 (remaining 6 months and 12 months, respectively)	$	1,152	$	1,986
2021	2,292		1,957
2022	2,230		1,894
2023	2,287		1,951
2024	2,300		2,010
Thereafter	5,103		5,101
Total lease payments	15,364		14,899
Less imputed interest	(2,709)		(2,825)
Total operating lease liabilities	$	12,655	$	12,074

	June 30, 2020		December 31, 2019
Current portion of operating lease liabilities	$	1,633	$	1,322
Operating lease liabilities, net of current portion	11,022		10,752
Total lease liabilities	$	12,655	$	12,074

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Stockholders' Equity and Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Summary of stock option activity

The following is a summary of stock option activity for the six months ended June 30, 2020 (in thousands, except per share data):

	Shares	Weighted- Average Exercise Price per Share
Outstanding at December 31, 2019	4,253	$	29.59
Granted	1,185	29.36
Exercised	(231)	16.85
Canceled	(145)	39.56
Outstanding at June 30, 2020	5,062	$	29.83

Schedule of restricted stock unit activity

The following is a summary of restricted stock unit activity for the six months ended June 30, 2020 (in thousands, except per share data):

	Shares	Weighted- Average Fair Value per Share at Grant Date
Outstanding at December 31, 2019	439	$	36.97
Granted	218	27.34
Vested	(194)	23.95
Canceled	(28)	38.74
Outstanding at June 30, 2020	435	$	38.09

Stock-based compensation expense

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Research and development	$	3,488	$	2,074	$	6,217	$	3,509
Selling, general and administrative	4,815		3,284		8,480		6,072
Total	$	8,303	$	5,358	$	14,697	$	9,581

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Net Loss Per Share (Tables)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Basic and diluted net loss per share

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Numerator:
Net loss	$	(53,324)	$	(37,763)	$	(79,124)	$	(72,965)
Denominator:
Shares used in per share calculation	55,355		42,458		51,770		42,348
Net loss per share, basic and diluted	$	(0.96)	$	(0.89)	$	(1.53)	$	(1.72)

Schedule of antidilutive securities excluded from computation of diluted net loss per share

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Shares subject to outstanding stock options	4,942	4,227	4,696	3,973
Shares subject to outstanding restricted stock units	555	415	520	355
Shares subject to outstanding warrants to purchase common stock	28	28	28	28
Total	5,525	4,670	5,244	4,356

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Organization, Basis of Presentation and Liquidity - Narrative (Details)		6 Months Ended
	Jun. 12, 2020 USD ($)	Jun. 30, 2020 USD ($) segment numberOfDivestitures numberOfPrograms	Dec. 31, 2019 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of late-stage development programs | numberOfPrograms		2
Number of operating segments | segment		1
Total cash, cash equivalents and short-term investments, estimated fair value		$ 390,249,000	$ 251,155,000
Number of discrete business divestitures | numberOfDivestitures		2
Accumulated deficit		$ 1,194,581,000	$ 1,115,457,000
Period permitted for offering	3 years
Common stock authorized for issuance and sale under Shelf Registration	$ 200,000,000.0

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Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Accounting Policies [Abstract]
Inventory	$ 475		$ 475		$ 0
Income tax benefit	$ (17,425)	$ 0	$ (17,425)	$ 0

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Collaborative Arrangement (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		16 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Mar. 31, 2019
Disaggregation of Revenue [Line Items]
Collaboration revenue	$ 1,032	$ 1,069	$ 2,281	$ 1,069
Deferred revenue	11,100		11,100		$ 11,100
Fixed consideration
Disaggregation of Revenue [Line Items]
Performance obligation at inception of arrangement	20,000		20,000		20,000	$ 20,000
Portion of fixed consideration received					17,000
Variable consideration | Achievement of regulatory milestones
Disaggregation of Revenue [Line Items]
Amount that can be earned upon achievement of milestone	66,000		66,000		66,000
Variable consideration | Achievement of net sales milestones
Disaggregation of Revenue [Line Items]
Amount that can be earned upon achievement of net sales milestone	$ 42,500		$ 42,500		$ 42,500

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Cash, Cash Equivalents and Marketable Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Cash and Cash Equivalents [Line Items]
Cash	$ 23,688	$ 43,058
Total cash and cash equivalents	136,871	62,070
Marketable securities, amortized cost	252,725	188,706
Marketable securities, gross unrealized gains	653	381
Marketable securities, gross unrealized losses	0	(2)
Marketable securities, estimated fair value	253,378	189,085
Total cash, cash equivalents and marketable securities, amortized cost	389,596	250,776
Total cash, cash equivalents and marketable securities	390,249	251,155
Amortized Cost
Due within one year, amortized cost	245,025
Due between one and two years, amortized cost	7,700
Marketable securities, amortized cost	252,725
Fair Value
Due within one year, estimated fair value	245,635
Due between one and two years, estimated fair value	7,743
Marketable securities, estimated fair value	253,378
Prepaid expenses and other current assets
Fair Value
Accrued interest receivable	400	600
U.S. Treasuries
Cash and Cash Equivalents [Line Items]
Cash equivalents:	11,300
Marketable securities, amortized cost	55,677
Marketable securities, gross unrealized gains	3
Marketable securities, gross unrealized losses	0
Marketable securities, estimated fair value	55,680
Money market funds
Cash and Cash Equivalents [Line Items]
Cash equivalents:	61,840	11,527
Certificate of deposits
Cash and Cash Equivalents [Line Items]
Cash equivalents:	10,900
Marketable securities, amortized cost	42,744	41,302
Marketable securities, gross unrealized gains	0	0
Marketable securities, gross unrealized losses	0	0
Marketable securities, estimated fair value	42,744	41,302
Commercial paper
Cash and Cash Equivalents [Line Items]
Cash equivalents:	29,143	7,485
Marketable securities, amortized cost	94,567	73,366
Marketable securities, gross unrealized gains	0	0
Marketable securities, gross unrealized losses	0	0
Marketable securities, estimated fair value	94,567	73,366
U.S. Government-sponsored enterprises debt securities
Cash and Cash Equivalents [Line Items]
Marketable securities, amortized cost	6,200
Marketable securities, gross unrealized gains	13
Marketable securities, gross unrealized losses	0
Marketable securities, estimated fair value	6,213
Corporate debt securities
Cash and Cash Equivalents [Line Items]
Marketable securities, amortized cost	53,537	74,038
Marketable securities, gross unrealized gains	637	381
Marketable securities, gross unrealized losses	0	(2)
Marketable securities, estimated fair value	$ 54,174	$ 74,417

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Fair Value Measurements - Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	$ 253,378,000	$ 189,085,000
Total assets	366,561,000	208,097,000
Common stock warrant liabilities	36,000	198,000
Total liabilities	53,136,000	63,998,000
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	61,840,000	11,527,000
Total liabilities	0	0
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	304,721,000	196,570,000
Total liabilities	0	0
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
Contingent consideration liabilities	53,100,000
Total liabilities	53,136,000	63,998,000
Common stock warrant liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Common stock warrant liabilities	36,000	198,000
Common stock warrant liabilities | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Common stock warrant liabilities	0	0
Common stock warrant liabilities | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Common stock warrant liabilities	0	0
Common stock warrant liabilities | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Common stock warrant liabilities	36,000	198,000
Contingent consideration liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration liabilities	53,100,000	63,800,000
Contingent consideration liabilities | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration liabilities	0	0
Contingent consideration liabilities | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration liabilities	0	0
Contingent consideration liabilities | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration liabilities	53,100,000	63,800,000
U.S. Treasuries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	11,300,000
Marketable securities:	55,680,000
U.S. Treasuries | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	0
Marketable securities:	0
U.S. Treasuries | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	11,300,000
Marketable securities:	55,680,000
U.S. Treasuries | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	0
Marketable securities:	0
Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	61,840,000	11,527,000
Money market funds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	61,840,000	11,527,000
Money market funds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	0	0
Money market funds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	0	0
Certificate of deposits
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	10,900,000
Marketable securities:	42,744,000	41,302,000
Certificate of deposits | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	0
Marketable securities:	0	0
Certificate of deposits | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	10,900,000
Marketable securities:	42,744,000	41,302,000
Certificate of deposits | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	0
Marketable securities:	0	0
Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	29,143,000	7,485,000
Marketable securities:	94,567,000	73,366,000
Commercial paper | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	0	0
Marketable securities:	0	0
Commercial paper | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	29,143,000	7,485,000
Marketable securities:	94,567,000	73,366,000
Commercial paper | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents:	0	0
Marketable securities:	0	0
U.S. Government-sponsored enterprises debt securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	6,213,000
U.S. Government-sponsored enterprises debt securities | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	0
U.S. Government-sponsored enterprises debt securities | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	6,213,000
U.S. Government-sponsored enterprises debt securities | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	0
Corporate debt securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	54,174,000	74,417,000
Corporate debt securities | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	0	0
Corporate debt securities | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	54,174,000	74,417,000
Corporate debt securities | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities:	0	$ 0
ZX008
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Potential contingent consideration payment, minimum	0
Potential contingent consideration payment, maximum	$ 60,000,000.0

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Fair Value Measurements - Reconciliation of Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Change in fair value of contingent consideration	$ 12,200	$ (700)	$ 4,300	$ 2,300
Contingent consideration liabilities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period	55,900	71,200	63,800	78,200
Change in fair value	12,200	(700)	4,300	2,300
Transfers out of Level 3 fair value hierarchy	(15,000)	0	(15,000)	0
Settlements	0	0	0	(10,000)
Balance at end of period	53,100	$ 70,500	$ 53,100	$ 70,500
Change in fair value of contingent consideration	$ 10,000

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Fair Value Measurements - Significant Inputs Used in Fair Value Measurement (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Level 3
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value	$ 53,100
Discount rate | Discounted cash flow | Minimum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input (percent)	0.045
Discount rate | Discounted cash flow | Maximum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input (percent)	0.127
Discount rate | Discounted cash flow | Weighted average
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input (percent)	0.068
Probability of payment | Discounted cash flow | Minimum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input (percent)	0
Probability of payment | Discounted cash flow | Maximum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input (percent)	0.943
Probability of payment | Discounted cash flow | Weighted average
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input (percent)	0.943

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Accrued and Other Current Liabilities - Details of Accrued and Other Current Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Payables and Accruals [Abstract]
Accrued clinical trial expenses	$ 11,335	$ 18,666
Accrued compensation	7,229	7,179
Accrued milestone payment	15,000	0
Other accrued liabilities	6,576	4,074
Common stock warrant liabilities	36	198
Total accrued and other current liabilities	$ 40,176	$ 30,117

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Intangible Assets - Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
Finite-lived intangible assets	$ 102,500	$ 0
Indefinite-lived in-process research and development (IPR&D) intangible assets	0	102,500
Total intangible assets	$ 102,500	$ 102,500

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Intangible Assets - Estimated Amortization Expense (Details) - USD ($) $ in Thousands	1 Months Ended
	Jul. 31, 2020	Jun. 30, 2020	Dec. 31, 2019
Estimated Amortization Expense
2020 (remaining 6 months)		$ 3,942
2021		7,885
2022		7,885
2023		7,885
2024		7,885
Thereafter		67,018
Total		$ 102,500	$ 0
Subsequent event
Finite-Lived Intangible Assets [Line Items]
Estimated useful life of intangible asset	13 years

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Leases - Narrative (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Feb. 29, 2020	Dec. 31, 2019
Lessee, Lease, Description [Line Items]
Aggregate lease payments	$ 15,364			$ 14,899
Cash paid for amounts included in measurement of lease liabilities	1,000	$ 600
Right-of-use asset obtained in exchange for new operating lease liabilities	$ 1,200
Weighted average remaining lease term	6 years 6 months
Weighted-average discount rate (percent)	6.20%
Maidenhead, United Kingdom lease
Lessee, Lease, Description [Line Items]
Term of new lease			5 years
Aggregate lease payments			$ 1,500

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Leases - Information Related to Operating Leases (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Lease, Cost [Abstract]
Operating lease cost	$ 1,045	$ 995
Short-term lease cost	259	548
Sublease income	(115)	(290)
Total	$ 1,189	$ 1,253

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Leases - Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Operating Lease Liabilities, Payments Due [Abstract]
2020 (remaining 6 months)	$ 1,152
Maturing in first year	2,292	$ 1,986
Maturing in second year	2,230	1,957
Maturing in third year	2,287	1,894
Maturing in fourth year	2,300	1,951
Maturing in fifth year		2,010
Thereafter	5,103
Thereafter		5,101
Total lease payments	15,364	14,899
Less imputed interest	(2,709)	(2,825)
Total operating lease liabilities	12,655	12,074
Assets and Liabilities, Lessee [Abstract]
Current portion of operating lease liabilities	1,633	1,322
Operating lease liabilities, net of current portion	11,022	10,752
Total operating lease liabilities	$ 12,655	$ 12,074

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Stockholders' Equity and Stock-Based Compensation - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended		6 Months Ended		13 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Mar. 31, 2020	May 29, 2020	May 28, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense			$ 8,303	$ 5,358	$ 14,697	$ 9,581
ESPP
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of common stock that may be issued (shares)								875,000	375,000
Eliminated increase to the number of shares authorized for issuance that was previously automatically added annually								31,250
ESPP | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for grant (shares)	524,962		524,962		524,962
Restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested (shares)					194,000
PSU's
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested (shares)	128,000
Stock-based compensation expense			$ 1,400		$ 1,400
Underwritten public offering
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued in public offering (in shares)		9,798,000
Price per share (in usd per share)		$ 23.50					$ 23.50
Proceeds realized from offering		$ 221,700
Option to purchase additional shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued in public offering (in shares)							1,278,000

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Stockholders' Equity and Stock-Based Compensation - Options Activity (Details) shares in Thousands	6 Months Ended
	Jun. 30, 2020 $ / shares shares
Shares (in thousands)
Options outstanding, beginning of period (in shares) | shares	4,253
Granted (in shares) | shares	1,185
Exercised (in shares) | shares	(231)
Canceled (in shares) | shares	(145)
Options outstanding, end of period (in shares) | shares	5,062
Weighted- Average Exercise Price per Share
Outstanding weighted average exercise price, beginning balance (in usd per share) | $ / shares	$ 29.59
Granted weighted average exercise price (in usd per share) | $ / shares	29.36
Exercised weighted average exercise price (in usd per share) | $ / shares	16.85
Canceled weighted average exercise price (in usd per share) | $ / shares	39.56
Outstanding weighted average exercise price, ending balance (in usd per share) | $ / shares	$ 29.83

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Stockholders' Equity and Stock-Based Compensation - Restricted Stock Unit Activity (Details) - Restricted stock units shares in Thousands	6 Months Ended
	Jun. 30, 2020 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at beginning of period (in shares) | shares	439
Granted (in shares) | shares	218
Vested (in shares) | shares	(194)
Canceled (in shares) | shares	(28)
Outstanding at end of period (in shares) | shares	435
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Nonvested at beginning of period - Weighted average fair value per share at grant date (in usd per share) | $ / shares	$ 36.97
Granted - Weighted average fair value per share at grant date (in usd per share) | $ / shares	27.34
Vested - Weighted average fair value per share at grant date (in usd per share) | $ / shares	23.95
Canceled - Weighted average fair value per share at grant date (in usd per share) | $ / shares	38.74
Nonvested at end of period - Weighted average fair value per share at grant date (in usd per share) | $ / shares	$ 38.09

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Stockholders' Equity and Stock-Based Compensation - Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 8,303	$ 5,358	$ 14,697	$ 9,581
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	3,488	2,074	6,217	3,509
Selling, general and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 4,815	$ 3,284	$ 8,480	$ 6,072

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Net Loss Per Share - Reconciliation of Numerator and Denominators in Computing Net Loss per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Numerator:
Net loss	$ (53,324)	$ (25,800)	$ (37,763)	$ (35,202)	$ (79,124)	$ (72,965)
Denominator:
Shares used in per share calculation (in shares)	55,355		42,458		51,770	42,348
Net loss per share, basic and diluted (in dollars per share)	$ (0.96)		$ (0.89)		$ (1.53)	$ (1.72)

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Net Loss Per Share - Antidilutive Securities (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share amount	5,525	4,670	5,244	4,356
Shares subject to outstanding stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share amount	4,942	4,227	4,696	3,973
Shares subject to outstanding restricted stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share amount	555	415	520	355
Shares subject to outstanding warrants to purchase common stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share amount	28	28	28	28

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Tax Disclosure [Abstract]
Income tax benefit	$ 17,425	$ 0	$ 17,425	$ 0
Decrease to valuation allowance	$ 17,400		$ 17,400

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United Kingdom (U.K.) Research and Development (R&D) Tax Relief Scheme (Details) - USD ($) $ in Millions	1 Months Ended	3 Months Ended	6 Months Ended
	May 31, 2020	Mar. 31, 2020	Jun. 30, 2020	Dec. 31, 2019
U.K. tax legislation | U.K. tax legislation
Operating Loss Carryforwards [Line Items]
Window to seek relief under U.K. tax legislature			2 years
Tax year 2017
Operating Loss Carryforwards [Line Items]
Claim for refundable cash credit				$ 9.9
Proceeds from claims	$ 9.9
Tax year 2018
Operating Loss Carryforwards [Line Items]
Claim for refundable cash credit				$ 9.8
Proceeds from claims	$ 9.8
2017 and 2018 tax year claims
Operating Loss Carryforwards [Line Items]
Other income		$ 19.7