Summary of SUPERNUS PHARMACEUTICALS INC

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

Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of the Company. The interim financial statements included in this report and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2011, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on April 30, 2012 (File No. 333-171375) (the "Registration Statement"). In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements may included declarations regarding the Company's belief or current expectations of management, such as statements including the words "budgeted," "anticipate," "project," "estimate," "expect," "may," "believe," "potential," and similar statements or expressions are intended to be among the statements that are forward-looking statements. As such statements reflect the reality of risk and uncertainty that is inherent in the Company's business, actual results may differ materially from those expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date this report was filed with the Securities and Exchange Commission. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under the "Risk Factors" section of the Registration Statement and elsewhere in this report as well as in other reports and documents we file with the Securities and Exchange Commission from time to time. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Overview

We are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system, or CNS, diseases. Our extensive experience in product development has been built over the past 20 years: initially as a standalone development organization, then as a U.S. subsidiary of Shire plc and, upon our acquisition of substantially all of the assets of Shire Laboratories Inc. in late 2005, as Supernus Pharmaceuticals. We are developing several product candidates in neurology and psychiatry to address large market opportunities in epilepsy and attention deficit hyperactivity disorder, or ADHD, including ADHD patients with impulsive aggression.

Our two epilepsy product candidates are Trokendi XR, formerly known as SPN-538 (extended release topiramate), for which the Food and Drug Administration (the FDA) granted tentative approval on June 25, 2012, and SPN-804 (extended release oxcarbazepine) for which we have submitted a new drug application, or NDA, that was accepted for review by the FDA in February 2012. The Prescription Drug User Fee Act, or PDUFA, date for SPN-804 is October 19, 2012. The final approval for Trokendi XR may not be made effective until the period of marketing exclusivity protection associated with safety information regarding a specific pediatric population expires. This marketing exclusivity expires on June 22, 2013. We are not required to complete any additional clinical trials for Trokendi XR. We anticipate the commercial launch of SPN-804 to occur during the first quarter of 2013 and the commercial launch of Trokendi XR to occur during the third quarter of 2013 assuming the receipt of final approval by the FDA.

Our ADHD product candidates include SPN-810 (molindone hydrochlroride), which is in a Phase IIb trial as a novel treatment for impulsive aggression in patients with ADHD, and SPN-812 which completed a Phase IIa trial as a novel non-stimulant treatment for ADHD. In addition to these four lead product candidates, we have several additional product candidates in various stages of development. We intend to market our product candidates in the United States through our focused sales force targeting specialty physicians, including neurologists and psychiatrists. We believe our broad and diversified portfolio of product candidates provides us with multiple opportunities to achieve our goal of becoming a leading specialty pharmaceutical company focused on CNS

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diseases. We use our proprietary technologies to enhance the therapeutic benefits of approved anti-epileptic drugs, or AEDs through advanced extended release formulations. Our most advanced product candidates, Trokendi XR and SPN-804, are novel oral once-daily extended release formulations of topiramate and oxcarbazepine, respectively, for the treatment of epilepsy. Immediate release formulations of topiramate and oxcarbazepine are available in generic form and are marketed under the brand names of Topamax and Trileptal, respectively. According to IMS Health, peak sales of Topamax and Trileptal represented an estimated 25.8% and 8.1% of the total seizure disorder market in 2008 and 2006, respectively. We are pursuing a Section 505(b)(2) regulatory strategy for SPN-804, which allows us to rely on the existing data from the NDA of Trileptal. We believe there is a significant unmet need for extended release products, such as Trokendi XR and SPN-804, for the treatment of epilepsy. Extended release products have been shown to improve compliance, increase seizure control, reduce side effects and improve tolerability as compared to immediate release products.

We are also developing treatments for new indications in diseases such as ADHD and its coexisting disorders. We are developing SPN-810, which is currently in a Phase IIb trial, as a novel treatment for impulsive aggression in patients with ADHD. This trial is fully recruited with 122 patients. If approved by the FDA, SPN-810 could be the first product available to address this serious, unmet medical need. SPN-810 is based on molindone hydrochloride, which was previously marketed in the United States as an anti-psychotic to treat schizophrenia under the trade name Moban. In addition, SPN-812, which completed a Phase IIa trial, is being developed as a novel non-stimulant treatment for ADHD. SPN-812 is a selective norepinephrine reuptake inhibitor that we believe could be more effective and have a better side effect profile than other non-stimulant treatments for ADHD. In addition, because the active ingredient of SPN-812 has demonstrated efficacy as an antidepressant in Europe, this product candidate, if studied in that specific patient population and shown to be effective, may provide increased benefit to an estimated 40% of ADHD patients who suffer from depression. In addition to these four lead product candidates, we have a number of other product candidates in various stages of development such as SPN-809, which would represent a novel mechanism of action for the U.S. antidepressant market.

Historically, our revenues have been generated through research and development agreements, which included fees for development services provided to customers and payments for achievement of specified development, regulatory and sales milestones, as well as royalties on product sales of licensed products, Oracea, Sanctura XR, and Intuniv. Since our inception in 2005, we have generated no revenue from product sales and have incurred significant operating losses. As of June 30, 2012, we had an accumulated deficit of approximately $59.3 million and a total stockholders' equity of approximately $38.0 million. We expect to incur net losses and negative cash flow from operating activities for the foreseeable future as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of Trokendi XR and SPN-804, as well as our other product candidates.

Critical Accounting Policies and the Use of Estimates

A "critical accounting policy" is one that is both important to the portrayal of our financial condition and results of operations and that requires management's most difficult, subjective or complex judgments. Such judgments are often the result of a need to make estimates about the effect of matters that are inherently uncertain. The preparation of our financial statements in conformity with accounting principles generally accepted in the United States applicable to interim financial reporting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. There were no significant changes in critical accounting policies from those at December 31, 2011. During the six months ended June 30, 2012, we consistently applied the critical accounting policies discussed in the Registration Statement, which contained our financial statements for the years ended December 31, 2009, 2010 and 2011. For a complete discussion regarding these critical accounting policies, refer to the Registration Statement.

Inventories, which are recorded at the lower of cost or market, include materials, labor and other direct and indirect costs and are valued using the first-in, first-out method. The Company capitalizes inventories produced in preparation for commercial launches when the related product candidates are considered likely to receive regulatory approval and it is probable that the related costs will be recoverable through the commercialization of the product. Following the receipt of tentative approval for Trokendi XR from the FDA on June 25, 2012, the Company will

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capitalize validation batch manufacturing costs, to the extent the product is expected to be sold commercially after the product launch.

Results of Operations



Comparison of the Three Months Ended June 30, 2011 and June 30, 2012



                                                    Three Months Ended
                                                         June 30,           Increase/
                                                     2011        2012      (decrease)
                                                       (unaudited)
                                                      (in thousands)
Revenues:
Development and milestone revenues                $      750   $      91   $      (659 )
Total revenues                                           750          91
Operating Expenses:
Research and development                               7,251       4,703        (2,548 )
Selling, general and administrative                    1,895       4,645         2,750
Total operating expenses                               9,146       9,348
Operating loss from continuing operations             (8,396 )    (9,257 )
Interest income and other income (expense), net          (45 )       173           218
Interest expense                                        (499 )      (929 )        (430 )
Total other income (expense)                            (544 )      (756 )
Loss from continuing operations                   $   (8,940 ) $ (10,013 )
Income from discontinued operations, net of tax        1,563           -        (1,563 )
Net Loss                                          $   (7,377 ) $ (10,013 )

Revenues

We recognize development and milestone revenues related to research and development agreements pursuant to which various third parties have accessed our proprietary technologies. These arrangements generally provide for fees for research and development services rendered, including milestone payments at the conclusion of the research period upon achieving specified events. Over time, we do not expect these historical revenues relating to development and milestone revenues to be significant as we continue to focus on the development and potential commercialization of our own product candidates.

The table below summarizes the revenues that we have recognized from our collaboration arrangements.

                                                             Three Months Ended June 30,
                                                              2011                 2012
                                                                     (unaudited)
                                                                   (in thousands)
Development and milestone revenues-collaboration
arrangements                                            $            750      $            91

Total revenues                                          $            750      $            91

Our revenues were approximately $0.1 million for the three months ended June 30, 2012 compared to $0.8 million for the same period in 2011, representing a decrease of $0.7 million. This decrease was principally attributable to a one-time milestone payment of $0.8 million received in 2011 under our license agreement with United Therapeutics.

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Research and Development Expense

Research and development expenses consist of costs incurred in connection with the development of our and our collaborators' product candidates. These expenses consist primarily of:

� employee-related expenses, which include salaries and benefits;

� expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies;

� the cost of acquiring and manufacturing clinical trial materials;

� the cost of manufacturing validation batches, if these materials are manufactured prior to obtaining regulatory approval and are not reasonably likely to have a potential commercial use;

� costs related to facilities, depreciation and other allocated expenses;

� license fees for, and milestone payments related to, in-licensed products and technology;

� stock-based compensation expense to employees and consultants engaged in research and development activities; and

� costs associated with non-clinical activities and regulatory approvals.

For the three months ended June 30, 2011 and 2012, we incurred research and development expenses related to the following products:

                                              Three Months Ended June 30,
                                               2011                2012
                                                      (unaudited)
                                                    (in thousands)
Trokendi XR                               $           886     $           887
SPN-804                                             2,996                 659
SPN-810                                               974                 469
SPN-812 and SPN-809                                   240                 190
Development expenses-general                        2,155               2,498
Total research and development expenses   $         7,251     $         4,703

Our research and development expenses were $4.7 million for the three months ended June 30, 2012, compared to $7.3 million for the same period in 2011, a decrease of $2.6 million or 35%. This decrease is attributable to lower clinical trial costs for SPN-804 of approximately $2.3 million, as the Phase III trial for SPN-804 was substantially completed by the first quarter of 2011.

Selling, General and Administrative Expense. Our general and administrative expenses were $4.6 million for the three months ended June 30, 2012 compared to $1.9 million for the same period in 2011, representing an increase of approximately $2.7 million or approximately 145%. This increase is mainly due to an increase in marketing costs associated with preparing for launches of SPN-804 and Trokendi XR, which are now expected during the first and third quarters of 2013, respectively.

Interest Income and Other Income (Expense), Net. Interest income and other income (expense), net was $(0.04) million for the three months ended June 30, 2012 compared to $0.17 million for the same period in 2011, representing an increase of $0.21 million. The increase is primarily the result of foreign currency fluctuations and an increase in marketable securities as well as a decrease in warrant valuations from March 31, 2012 to June 30, 2012.

Interest Expense. Interest expense was approximately $0.9 million for the three months ended June 30, 2012 compared to $0.5 million for the same period in 2011. This increase is primarily due to the drawdown of the second $15.0 million under our secured credit facility in December 2011.

Loss from continuing operations. Loss from continuing operations was $10.0 million for the three months ended June 30, 2012 compared to a loss of $8.9 million for the same period in 2011. This increase was primarily due to the increase in marketing costs offset by decrease in clinical trial costs.

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Income from discontinued operations. Income from discontinued operations was $1.6 million for the three months ended June 30, 2011. There were no activities related to discontinued operations in 2012 as we sold our membership interests in TCD Royalty Sub, LLC in December 2011.

Comparison of the Six Months Ended June 30, 2011 and June 30, 2012



                                                    Six Months Ended
                                                        June 30,           Increase/
                                                    2011        2012      (decrease)
                                                       (unaudited)
                                                     (in thousands)
Revenues:
Development and milestone revenues                $     750   $     299   $      (451 )
Total revenues                                          750         299
Operating Expenses:

Research and development                             14,702      10,061        (4,641 )
Selling, general and administrative                   3,642       7,374         3,732
Total operating expenses                             18,344      17,435

Operating loss from continuing operations           (17,594 )   (17,136 )         458
Interest income and other income (expense), net        (202 )      (261 )          59
Interest expense                                       (859 )    (1,891 )      (1,032 )
Total other income (expense)                         (1,061 )    (2,152 )

Loss from continuing operations                   $ (18,655 ) $ (19,288 )
Income from discontinued operations, net of tax         229           -          (229 )

Net Loss                                          $ (18,426 ) $ (19,288 )

Revenues

The table below summarizes the revenues that we have recognized from our collaboration arrangements.

                                                            Six Months Ended June 30,
                                                             2011               2012
                                                                   (unaudited)
                                                                 (in thousands)
Development and milestone revenues-collaboration
arrangements                                            $          750     $          299
Total revenues                                          $          750     $          299

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Our revenues were approximately $0.3 million for the six months ended June 30, 2012 compared to $0.8 million for the same period in 2011, representing a decrease of $0.5 million. This decrease was principally attributable to a one-time milestone payment of $0.8 million received in 2011 under our license agreement with United Therapeutics offset by recognition of revenue under our agreement with Stendhal in 2012.