You should read the following management's discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2011, included in our prospectus dated July 25, 2012, filed with the U.S. Securities and Exchange Commission ("SEC") pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.

Overview

We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat disorders in the areas of orphan diseases and hepatology. We are developing our product candidate, Ravicti, to treat two different diseases in which blood ammonia is elevated: the most prevalent urea cycle disorders ("UCD") and hepatic encephalopathy ("HE"). UCD are inherited rare genetic diseases caused by a deficiency of one or more enzymes or protein transporters that constitute the urea cycle, which in a healthy individual removes ammonia through the conversion of ammonia to urea. HE may develop in some patients with liver scarring, known as cirrhosis, or acute liver failure and is a chronic disease which fluctuates in severity and may lead to serious neurological damage. On December 23, 2011, we submitted a New Drug Application ("NDA") to the U.S. Food and Drug Administration ("FDA") for Ravicti for the chronic management of UCD in patients aged 6 years and above. The FDA accepted the NDA for review in February 2012. Under the Prescription Drug User Fee Act, ("PDUFA") the FDA was originally due to notify us regarding Ravicti's approval status by October 23, 2012. On September 5, 2012, the FDA notified us that our August 23, 2012 submission of additional information requested by the FDA has been designated as a major amendment. As a result, the FDA extended the PDUFA action date by three months to January 23, 2013. In April 2012, we submitted data from the switchover portion of a clinical trial in UCD patients aged 29 days through 5 years and a revised draft package insert requesting approval of Ravicti to include this patient population. We currently expect to commercially launch Ravicti in the first half of 2013. In May 2012, our Phase II HE trial data was unblinded and the trial met its primary endpoint, which was to demonstrate that the proportion of patients experiencing an HE event was significantly lower on Ravicti versus placebo, both administered in addition to a standard of care, including lactulose and/or rifaximin.

Pursuant to an asset purchase agreement, or purchase agreement, with Ucyclyd Pharma, Inc. ("Ucyclyd"), a wholly owned subsidiary of Medicis Pharmaceutical Corporation, we purchased the worldwide rights to Ravicti in March 2012 for an upfront payment of $6.0 million, future payments based upon the achievement of regulatory milestones in indications other than UCD, sales milestones, and mid to high single digit royalties on global net sales of Ravicti. Pursuant to an amended and restated collaboration agreement, or restated collaboration agreement, with Ucyclyd entered into on March 2012, we have an option to purchase all of Ucyclyd's worldwide rights in BUPHENYL and AMMONUL® (sodium phenylacetate and sodium benzoate) injection 10%/10%, the only adjunctive therapy currently FDA-approved for the treatment of HA crises in UCD patients, for an upfront payment of $22.0 million, plus subsequent milestone and royalty payments. We will be permitted to exercise this option for a period of 90 days beginning on the earlier of the date of the approval of Ravicti for the treatment of UCD and June 30, 2013, but in no event earlier than January 1, 2013. To fund this upfront payment, we may draw on a loan commitment from Ucyclyd, which loan would be payable over eight quarters. If we exercise our option, Ucyclyd has a time-limited option to retain AMMONUL at a purchase price of $32.0 million. If Ucyclyd exercises its option and retains AMMONUL, the upfront purchase price for Ucyclyd's worldwide rights to BUPHENYL will be $19.0 million resulting in a net payment from Ucyclyd to us of $13.0 million upon close of the transaction.

We are a development stage company and have incurred net losses since our inception. As of June 30, 2012, we had a deficit accumulated during the development stage of $125.8 million. We recorded net losses of $7.2 million and $19.0 million during the three and six months ended June 30, 2012, respectively, and net losses of $8.1 million and $14.0 million during the three and six months ended June 30, 2011, respectively. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval of Ravicti, and preparing for potential commercialization of Ravicti, and BUPHENYL and AMMONUL if purchased from Ucyclyd. We expect to incur significant and increasing operating losses and negative cash flows in the near future as we continue to conduct clinical trials, seek regulatory approval of Ravicti in UCD and HE, expand our organization, prepare for the potential commercial launch of Ravicti if approved by the FDA, and purchase Ucyclyd's worldwide rights to BUPHENYL and AMMONUL, subject to Ucyclyd's option to retain AMMONUL. In addition, any future acquisitions of products or product candidates may require additional capital and personnel.

Prior to our initial public offering ("IPO") in July 2012, substantially all of our operations have been funded through the private placement of equity securities and convertible debt. Through June 30, 2012, we have raised net cash proceeds of approximately $66.1 million from the sales of convertible preferred stock, and $15.3 million from the issuance of convertible notes which subsequently converted into shares of convertible preferred stock. Additionally, during 2011 and during the first quarter of 2012 we issued approximately $25.0 million and $7.5 million, respectively, in convertible notes.

In May 2012, we completed a Phase II trial of Ravicti in HE which met its primary endpoint. We expect our research and development expenses to increase if we initiate a Phase III trial of Ravicti in HE or if the FDA requires us to do additional studies for the approval of Ravicti in UCD. If we obtain marketing approval for Ravicti in UCD, we will likely incur significant commercial, sales, marketing and outsourced manufacturing expenses. We also expect to incur additional expenses associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future.

On July 31, 2012, we completed our IPO and issued 5,000,000 shares of our common stock at an initial offering price of $10.00 per share. We sold an additional 750,000 shares of common stock directly to our underwriters when they exercised their over-allotment option in full at the initial offering price of $10.00 per share. Our shares began trading on the NASDAQ Global Market on July 26, 2012. We received net proceeds from the IPO of approximately $51.2 million, after deducting underwriting discounts and commissions of approximately $4.0 million and expenses of approximately $2.3 million. We plan to use the net proceeds of the offering to fund clinical development, regulatory approval, post-marketing studies and, if approved, the commercial launch of Ravicti for UCD; to fund license payments to Brusilow Enterprises, LLC; and for general corporate purposes. For additional information, see Note 12 to our unaudited condensed consolidated financial statements appearing elsewhere in this report.

Financial Overview

Revenue

We have generated no revenue from the sale of any products in the last three years, and we do not expect to generate any revenue unless or until we obtain marketing approval of and commercialize Ravicti, or exercise the option to purchase Ucyclyd's worldwide rights to and commercialize BUPHENYL and AMMONUL, subject to Ucyclyd's option to retain AMMONUL.

For the period from inception to June 30, 2012, we have only generated limited revenue from the promotion of BUPHENYL and AMMONUL during 2007 and 2008, and earned no revenue during 2006 and 2009 through June 30, 2012.

Research and Development Expenses

Since our inception, we have focused on our clinical development programs. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:

• salaries and related expenses for personnel, including expenses related to stock options or other stock-based compensation granted to personnel in development functions;

• fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations, or CROs, in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data, including all related fees, such as for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis;

• other consulting fees paid to third parties;

• expenses related to production of clinical supplies, including fees paid to contract manufacturers;

• expenses related to license fees and milestone payments under in-licensing agreements;

• expenses related to compliance with drug development regulatory requirements in the United States, the European Union and other foreign jurisdictions; and

• depreciation and other allocated expenses.

We expense both internal and external research and development expenses as they are incurred. We did not begin tracking our research and development expenses on a program-by-program basis until January 1, 2010. We have been developing Ravicti in both UCD and HE in parallel, and we typically use our employees, consultants and infrastructure resources across our two programs. Thus, some of our research and development expenses are not attributable to an individual program, but rather are allocated across our two clinical stage programs and these costs are included in unallocated costs as detailed below. Allocated expenses include salaries, stock-based compensation and related benefit expenses for our employees, consulting fees and fees paid to clinical suppliers. The following table shows our research and development expenses for the three and six months ended June 30, 2012 and 2011:

                                 Three Months Ended          Six Months Ended
                                      June  30,                  June  30,
              (in thousands)      2012          2011         2012         2011
                                     (unaudited)                (unaudited)
              UCD Program      $      948      $ 1,507     $   2,052     $ 3,099
              HE Program              745        1,557         1,620       3,012
              Unallocated           1,039        1,568         7,968       2,821

              Total            $    2,732      $ 4,632     $  11,640     $ 8,932

We expect our research and development expenses to increase if we initiate our Phase III trial of Ravicti for the treatment of patients with episodic HE or if the FDA requires us to do additional studies for the approval of Ravicti for UCD. Due to the inherently unpredictable nature of product development, we are currently unable to estimate the expenses we will incur in the continued development of Ravicti.

Our research and development expenditures are subject to numerous uncertainties in timing and cost to completion. Development timelines, the probability of success and development expenses can differ materially from expectations. Clinical trials in orphan diseases, such as UCD and HE, may be difficult to enroll given the small number of patients with these diseases. Completion of clinical trials may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

• the number of trials required for approval;

• the number of sites included in the trials;

• the length of time required to enroll suitable patients;

• the number of patients that participate in the trials;

• the drop-out or discontinuation rates of patients;

• the duration of patient follow-up;

• the number and complexity of analyses and tests performed during the trial;

• the phase of development of the product candidate; and

• the efficacy and safety profile of the product candidate.

Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity according to the protocol. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.

As a result of the uncertainties discussed above, we are unable to determine with certainty the duration and completion costs of our Ravicti development programs or when and to what extent we will receive revenue from the commercialization and sale of Ravicti.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and stock-based compensation for employees in administration, finance and business development. Other significant expenses include allocated facilities expenses and professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents.

We expect that our general and administrative expenses will increase with the continued development of, and if approved, the commercialization of Ravicti and as we begin to operate as a public company. We expect these increases will likely include increased expenses for insurance, expenses related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of salaries and benefits for employees in the marketing, commercial and sales functions. Other significant expenses include professional and consulting fees related to these functions. We expect to incur increased selling and marketing expenses in connection with the commercialization of Ravicti, and BUPHENYL and AMMONUL if purchased from Ucyclyd.

Interest Income

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

Interest Expense

Interest expense consists primarily of non-cash and cash interest costs related to our borrowings.

Other Income (Expense), net

In the three and six months ended June 30, 2012 and 2011, other income (expense), net consists primarily of the changes in the fair value of the common and preferred stock warrants liability and call option liability associated with the issuance of approximately $32.5 million of convertible notes. Under ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity, we account for the common stock warrants issued in 2011 and preferred stock warrants issued in 2012 and 2011, at fair value and recorded as liabilities on the date of each issuance. The fair value was determined and subsequently remeasured using the Black-Scholes option-pricing model on each reporting date.

Income Taxes

Since inception, we have only generated revenues in the U.S. and have not generated revenues outside the U.S. The only revenues generated in the U.S. have been from commissions for promotion services in 2007 and 2008 through the Ucyclyd collaboration agreement related to the sales of BUPHENYL and AMMONUL for UCD. We have incurred net losses and have not recorded any U.S. federal or state income tax benefits for the losses as they have been offset by valuation allowances.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Actual results could differ from those estimates.

Critical accounting estimates are necessary in the application of certain accounting policies and procedures, and are particularly susceptible to significant change. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. For additional information on our critical accounting policies, please refer to the information contained in Note 2 of the accompanying unaudited condensed consolidated financial statements and Note 2 of the consolidated financial statements included in our prospectus dated July 25, 2012, filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act.

Results of Operations

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




                                           Three Months Ended                                %               Six Months Ended                                %
                                                June  30,              Increase/         Increase/               June 30,              Increase/         Increase/
(in thousands, except for percentages)      2012          2011         (Decrease)        (Decrease)          2012         2011         (Decrease)        (Decrease)
                                               (unaudited)                                                      (unaudited)
Research and development                 $    2,732      $ 4,632      $     (1,900 )             (41 )%    $ 11,640      $ 8,932      $      2,708                30 %
General and administrative                    1,469        2,488            (1,019 )             (41 )        3,540        3,849              (309 )              (8 )
Selling and marketing                           554          217               337               155            800          467               333                71
Interest income                                   3           10                (7 )             (70 )            7           14                (7 )             (50 )
Interest expense                             (1,282 )       (849 )             433                51         (2,322 )       (849 )           1,473               173
Other income (expense), net                  (1,128 )         52            (1,180 )          (2,269 )         (753 )         52              (805 )          (1,548 )

Research and Development Expenses

Research and development expenses decreased by $1.9 million, or 41%, to $2.7 million for the three months ended June 30, 2012, from $4.6 million for the three months ended June 30, 2011. This decrease was primarily due to decreases of $1.6 million in clinical development costs and $0.2 million in consulting fees due to lower costs in our HE Phase II trial as patient enrollment was largely completed in the fourth quarter of 2011, and as a result of completing the long term safety extension trial in adults with UCD in 2011. The decrease in research and development expenses was also due to a decrease of $0.4 million in clinical regulatory related expenses as the NDA filing for Ravicti occurred in December 2011. These decreases were partially offset by an increase of $0.3 million in manufacturing related expenses.

Research and development expenses increased by $2.7 million, or 30%, to $11.6 million for the six months ended June 30, 2012, from $8.9 million for the six months ended June 30, 2011. This increase was primarily due to $5.7 million incurred in connection with the purchase agreement with Ucyclyd and an increase of $0.5 million in manufacturing expenses. The increase was partially offset by decreases of $2.6 million in clinical development costs and $0.4 million in consulting fees due to lower costs in our HE Phase II trial as patient enrollment was largely completed in the fourth quarter of 2011 and as a result of completing the long term safety extension trial in adults with UCD in 2011. Additionally, clinical regulatory expenses in 2012 were lower by $0.4 million as the NDA filing for Ravicti occurred in December 2011.

For the period from inception to June 30, 2012, research and development expenses amounted to $81.9 million. Research and development expenses comprise primarily clinical and pre-clinical development costs of $43.7 million, payroll related costs of $13.5 million, professional consulting costs of $7.3 million, the expenses incurred for the purchase of Ravicti of $5.7 million, and regulatory related costs of $3.5 million.

General and Administrative Expenses

General and administrative expenses decreased by $1.0 million, or 41%, to $1.5 million for the three months ended June 30, 2012, from $2.5 million for the three months ended June 30, 2011. This decrease was primarily due to a decrease of $1.2 million in professional and consulting fees related to a potential financing in 2011 and also related to our arbitration with Ucyclyd that occurred in 2011 without similar expenses in 2012. The decrease was partially offset by an increase in compensation expense of $0.2 million during the second quarter of 2012.

General and administrative expenses decreased by $0.3 million, or 8%, to $3.5 million for the six months ended June 30, 2012, from $3.8 million for the six months ended June 30, 2011. The decrease was primarily due to a decrease of $0.8 million in professional and consulting fees related to a potential financing in 2011 and also related to our arbitration with Ucyclyd that occurred in 2011 without similar expenses in 2012, partially offset by an increase of $0.2 million in consulting fees mainly related to valuation services that were performed in 2012. The decrease was also partially offset by an increase in compensation expense of $0.3 million during the second quarter of 2012.

For the period from inception to June 30, 2012, general and administrative expenses amounted to $22.7 million. General and administrative expenses comprise primarily payroll related expenses of $8.1 million, professional and consulting costs of $12.2 million and office and rent related costs of $2.2 million.

Selling and Marketing Expenses

Selling and marketing expenses increased by $0.3 million, or 155%, to $0.6 million for the three months ended June 30, 2012, from $0.2 million for the three months ended June 30, 2011. The increase in the second quarter of 2012 was primarily due to an increase in consulting fees of $0.1 million as well as $0.1 million in recruiting costs, in preparation for the commercialization of Ravicti in UCD.

Selling and marketing expenses increased by $0.3 million, or 71%, to $0.8 million for the six months ended June 30, 2012, from $0.5 million for the six months ended June 30, 2011. The increase in the first half of 2012 was primarily due to the same reasons noted for the three months ended June 30, 2012, as discussed above.

For the period from inception to June 30, 2012, selling and marketing expenses amounted to $7.9 million. Selling and marketing expenses comprise primarily payroll related expenses of $4.0 million, professional and consulting costs of $1.5 million, and marketing related costs of $1.5 million.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents. The changes in interest income were not significant for the three and six months ended June 30, 2012 compared to the same periods in 2011.

For the period from inception to June 30, 2012, interest income amounted to $0.4 million which consists of interest earned on our cash and cash equivalents.

Interest Expense

We recognized $1.3 million and $2.3 million in interest expense for the three and six months ended June 30, 2012, respectively, compared to $0.8 million for both the three and six months ended June 30, 2011. Interest expense increased for both the three and six months ended June 30, 2012, compared to the same periods in 2011 due primarily to interest expense incurred relating to our convertible notes issued in October 2011 and February 2012 and our loan and security agreement with Silicon Valley Bank and Leader Lending, LLC - Series B entered into in April 2012.

For the period from inception to June 30, 2012, interest expense amounted to $7.6 million primarily related to our interest expense on our convertible notes payable and our loan and security agreements entered into in 2007 and April 2012.

Other Income (Expense), net

Other income (expense), net, primarily relates to the change in fair values of our common and preferred stock warrants and call option liability associated with our convertible notes.

During the three months ended June 30, 2012, we recorded a change in fair value of $1.3 million of expense and $0.2 million of income related to the common stock warrants and the preferred stock warrants, respectively. During the six months ended June 30, 2012, we recorded a change in fair value of $1.8 million of expense and $0.3 million of income related to the common stock warrants and the preferred stock warrants, respectively. Additionally, we recorded $0.7 million to other income relating to the change in the fair value of our call option liability upon the issuance of our convertible notes in February 2012. During the three and six months ended June 30, 2011, we recorded a change in fair value of $50,400 of income related to our common stock warrants and April 2011 call option liability. The call option related to our convertible notes is more fully described in Note 6 to our unaudited condensed consolidated financial statements included elsewhere in this report.

For the period from inception to June 30, 2012, other income amounted to $0.5 million, consisting primarily of the change in fair value of our preferred stock liability associated with our Series C-2 convertible preferred stock, and the change in fair values of our common and preferred stock warrants and call option liability associated with our convertible notes.

Liquidity and Capital Resources

Since our inception in November 2006, we have funded our operations primarily through proceeds from the sale of convertible preferred stock, bank debt and the issuance of convertible debt. In July 2012, we raised approximately $51.2 million in net proceeds in our IPO. We have not generated any revenue from the . . .