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Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Document and Entity Information - USD ($) $ in Millions	Dec. 31, 2016	Feb. 06, 2017	Jun. 30, 2016
Document Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Trading Symbol	VNDA
Entity Registrant Name	Vanda Pharmaceuticals Inc.
Entity Central Index Key	0001347178
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		44,346,431
Entity Public Float			$ 473.6

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 40,426	$ 50,843
Marketable securities	100,914	92,337
Accounts receivable, net	20,268	16,331
Inventory	779	1,294
Prepaid expenses and other current assets	11,788	5,742
Total current assets	174,175	166,547
Property and equipment, net	5,015	4,570
Intangible assets, net	27,819	38,752
Non-current inventory and other	3,365	3,181
Total assets	210,374	213,050
Current liabilities:
Accounts payable and accrued liabilities	16,196	15,767
Accrued government and other rebates	34,124	35,550
Total current liabilities	50,320	51,317
Milestone obligation under license agreement	25,000	25,000
Other non-current liabilities	3,724	3,706
Total liabilities	79,044	80,023
Commitments and contingencies (Notes 13 and 18)
Stockholders' equity:
Preferred stock, $0.001 par value; 20,000,000 shares authorized, and no shares issued or outstanding
Common stock, $0.001 par value; 150,000,000 shares authorized; 44,000,614 and 42,815,291 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively	44	43
Additional paid-in capital	477,087	460,794
Accumulated other comprehensive income	58	39
Accumulated deficit	(345,859)	(327,849)
Total stockholders' equity	131,330	133,027
Total liabilities and stockholders' equity	$ 210,374	$ 213,050

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2016	Dec. 31, 2015
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	44,000,614	42,815,291
Common stock, shares outstanding	44,000,614	42,815,291

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenues:
Net product sales	$ 146,017	$ 109,925	$ 12,909
Royalty revenue			6,502
Licensing agreement			30,746
Total revenues	146,017	109,925	50,157
Operating expenses:
Cost of goods sold, excluding amortization	24,712	23,462	1,583
Research and development	29,156	29,145	19,230
Selling, general and administrative	99,787	84,531	84,644
Intangible asset amortization	10,933	12,972	2,254
Gain on arbitration settlement			(77,616)
Total operating expenses	164,588	150,110	30,095
Income (loss) from operations	(18,571)	(40,185)	20,062
Other income	665	320	124
Income (loss) before income taxes	(17,906)	(39,865)	20,186
Provision for income taxes	104	0	0
Net income (loss)	$ (18,010)	$ (39,865)	$ 20,186
Net income (loss) per share:
Basic	$ (0.41)	$ (0.94)	$ 0.58
Diluted	$ (0.41)	$ (0.94)	$ 0.55
Weighted average shares outstanding:
Basic	43,449,441	42,250,254	34,774,163
Diluted	43,449,441	42,250,254	36,686,723

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Net income (loss)	$ (18,010)	$ (39,865)	$ 20,186
Other comprehensive income (loss):
Net foreign currency translation loss	(1)
Change in net unrealized gain (loss) on marketable securities	20	23	(5)
Tax provision on other comprehensive income (loss)	0	0	0
Other comprehensive income (loss), net of tax	19	23	(5)
Comprehensive income (loss)	$ (17,991)	$ (39,842)	$ 20,181

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Other Comprehensive Income (Loss)	Accumulated Deficit
Beginning balance (in shares) at Dec. 31, 2013		33,338,543
Beginning balance at Dec. 31, 2013	$ 44,124	$ 33	$ 352,240	$ 21	$ (308,170)
Net proceeds from public offering of common stock	62,313	$ 5	62,308
Net proceeds from public offering of common stock (in shares)		5,750,000
Issuance of common stock to Novartis Pharma AG (in shares)		1,808,973
Issuance of common stock to Novartis Pharma AG	25,905	$ 2	25,903
Issuance of common stock form the exercise of stock options and settlement of restricted stock awards (in shares)		621,231
Issuance of common stock from the exercise of stock options and settlement of restricted stock units	2,852	$ 1	2,851
Shares withheld upon settlement of equity awards(in shares)		(32,386)
Shares withheld upon settlement of equity awards	(436)		(436)
Stock-based compensation expense	5,878		5,878
Net income (loss)	20,186				20,186
Other comprehensive income, net of tax	(5)			(5)
Ending balance (in shares) at Dec. 31, 2014		41,486,361
Ending balance at Dec. 31, 2014	160,817	$ 41	448,744	16	(287,984)
Issuance of common stock form the exercise of stock options and settlement of restricted stock awards (in shares)		1,353,877
Issuance of common stock from the exercise of stock options and settlement of restricted stock units	4,374	$ 2	4,372
Shares withheld upon settlement of equity awards(in shares)		(24,947)
Shares withheld upon settlement of equity awards	(283)		(283)
Stock-based compensation expense	7,961		7,961
Net income (loss)	(39,865)				(39,865)
Other comprehensive income, net of tax	$ 23			23
Ending balance (in shares) at Dec. 31, 2015	42,815,291	42,815,291
Ending balance at Dec. 31, 2015	$ 133,027	$ 43	460,794	39	(327,849)
Issuance of common stock form the exercise of stock options and settlement of restricted stock awards (in shares)		1,185,323
Issuance of common stock from the exercise of stock options and settlement of restricted stock units	7,751	$ 1	7,750
Stock-based compensation expense	8,543		8,543
Net income (loss)	(18,010)				(18,010)
Other comprehensive income, net of tax	$ 19			19
Ending balance (in shares) at Dec. 31, 2016	44,000,614	44,000,614
Ending balance at Dec. 31, 2016	$ 131,330	$ 44	$ 477,087	$ 58	$ (345,859)

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities
Net income (loss)	$ (18,010)	$ (39,865)	$ 20,186
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of property and equipment	935	582	530
Stock-based compensation	8,543	7,961	5,878
Amortization of discounts and premiums on marketable securities	62	677	174
Intangible asset amortization	10,933	12,972	2,254
Deferred income taxes	(104)
Deferred licensing revenues			(30,572)
Gain on arbitration settlement			(77,616)
Other non-cash adjustments, net	646	483	239
Changes in operating assets and liabilities:
Accounts receivable	(4,298)	(12,677)	(1,623)
Prepaid expenses and other assets	(6,159)	(2,558)	(318)
Inventory	200	387	(2,210)
Accounts payable and accrued liabilities	575	9,432	1,029
Accrued government and other rebates	(1,426)	35,055	495
Net cash provided by (used in) operating activities	(8,103)	12,449	(81,554)
Cash flows from investing activities
Acquisition of intangible assets			(8,000)
Purchases of property and equipment	(1,407)	(2,527)	(769)
Purchases of marketable securities	(165,405)	(193,111)	(93,343)
Proceeds from sale of marketable securities		999	8,948
Maturities of marketable securities	156,787	168,041	80,882
Change in restricted cash	(46)		245
Net cash used in investing activities	(10,071)	(26,598)	(12,037)
Cash flows from financing activities
Net proceeds from offering of common stock			62,313
Proceeds from exercise of employee stock options	7,751	4,374	2,851
Tax obligations paid in connection with settlement of restricted stock units		(283)	(436)
Net cash provided by financing activities	7,751	4,091	89,728
Effect of foreign currencies on cash and cash equivalents	6
Net decrease in cash and cash equivalents	(10,417)	(10,058)	(3,863)
Cash and cash equivalents
Beginning of year	50,843	60,901	64,764
End of year	$ 40,426	$ 50,843	60,901
Novartis Pharma AG
Cash flows from financing activities
Net proceeds from offering of common stock			$ 25,000

Business Organization and Presentation

12 Months Ended

Dec. 31, 2016

Business Organization and Presentation

1. Business Organization and Presentation

Business organization

Vanda Pharmaceuticals Inc. (the Company) is a global biopharmaceutical company focused on the development and commercialization of innovative therapies to address high unmet medical needs and improve the lives of patients. The Company commenced its operations in 2003 and operates in one reporting segment. The Company’s portfolio includes the following products:

•

HETLIOZ^® (tasimelteon), a product for the treatment of Non-24-Hour Sleep-Wake Disorder (Non-24), was approved by the U.S. Food and Drug Administration (FDA) in January 2014 and launched commercially in the U.S. in April 2014. In July 2015, the European Commission (EC) granted centralized marketing authorization with unified labeling for HETLIOZ^® for the treatment of Non-24 in totally blind adults. HETLIOZ^® was commercially launched in Germany in August 2016. HETLIOZ^® has potential utility in a number of other circadian rhythm disorders and is presently in clinical development for the treatment of Pediatric Non-24, Jet Lag Disorder and Smith-Magenis Syndrome (SMS).

•

Fanapt^® (iloperidone), a product for the treatment of schizophrenia, the oral formulation of which was approved by the FDA in May 2009 and launched commercially in the U.S. by Novartis Pharma AG (Novartis) in January of 2010. Novartis transferred all the U.S. and Canadian commercial rights to the Fanapt^® franchise to the Company on December 31, 2014. Additionally, the Company’s distribution partners launched Fanapt^® in Israel and Mexico in 2014. Fanapt^® has potential utility in a number of other disorders. An assessment of new Fanapt^® clinical opportunities is ongoing.

•

Tradipitant (VLY-686), a small molecule neurokinin-1 receptor (NK-1R) antagonist, which is presently in clinical development for the treatment of chronic pruritus in atopic dermatitis and gastroparesis.

•

Trichostatin A, a small molecule histone deacetylase (HDAC) inhibitor.

•

AQW051, a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist.

Basis of presentation

The accompanying consolidated financial statements includes the accounts of Vanda Pharmaceuticals Inc. and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany accounts and transactions have been eliminated in consolidation.

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. The Company has estimated its annual fees for Fanapt^® under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, however, the amount of the estimated liability could increase, but the range of this increase is not reasonably estimable at this time. Management continually re-evaluates its estimates, judgments and assumptions, and management’s evaluation could change. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the consolidated balance sheets and consolidated statements of cash flows, cash equivalents represent highly-liquid investments with a maturity date of three months or less at the date of purchase. Restricted cash of $0.8 million relating primarily to leases for office space is included in other current and other non-current assets at December 31, 2016 and 2015.

Marketable Securities

The Company classifies all of its marketable securities as available-for-sale securities. The Company’s investment policy requires the selection of high-quality issuers, with bond ratings of AAA to A1+/P1. Available-for-sale securities are carried at fair market value, with unrealized gains and losses reported as a component of stockholders’ equity in accumulated other comprehensive income/loss. Interest and dividend income is recorded when earned and included in interest income. Premiums and discounts on marketable securities are amortized and accreted, respectively, to maturity and included in interest income. The Company uses the specific identification method in computing realized gains and losses on the sale of investments, which would be included in the consolidated statements of operations when generated. Marketable securities with a maturity of more than one year as of the balance sheet date and which the Company does not intend to sell within the next twelve months are classified as non-current. All other marketable securities are classified as current.

Inventory

Inventory, which is recorded at the lower of cost or net realizable value, includes the cost of third-party manufacturing and other direct and indirect costs and is valued using the first-in, first-out method. The Company capitalizes inventory costs associated with its products upon regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. Inventory is evaluated for impairment by consideration of factors such as lower of cost or net realizable value, obsolescence or expiry. Inventory not expected to be consumed within 12 months following the balance sheet date are classified as non-current.

Intangible Assets

Costs incurred for products not yet approved by the FDA and for which no alternative future use exists are recorded as expense. In the event a product has been approved by the FDA or an alternative future use exists for a product, patent and license costs are capitalized and amortized over the expected patent life of the related product. Milestone payments to the Company’s partners are recognized when it is deemed probable that the milestone event will occur.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. The costs of leasehold improvements funded by or reimbursed by the lessor are capitalized and amortized as leasehold improvements along with a corresponding deferred rent liability. Depreciation of most property and equipment is provided on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized using a straight-line basis over the lesser of the estimated useful lives of the assets or the terms of the related leases. The costs of additions and improvements are capitalized, and repairs and maintenance costs are charged to operations in the period incurred. Upon retirement or disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statement of operations for that period.

Accounts Payable and Accrued Liabilities

The Company’s management is required to estimate accrued liabilities as part of the process of preparing financial statements. The estimation of accrued liabilities involves identifying services that have been performed on the Company’s behalf, and then estimating the level of service performed and the associated cost incurred for such services as of each balance sheet date in the financial statements. Accrued liabilities include professional service fees, such as lawyers and accountants, contract service fees, such as those under contracts with clinical monitors, data management organizations and investigators in conjunction with clinical trials, fees to contract manufacturers in conjunction with the production of clinical materials, and fees for marketing and other commercialization activities. Pursuant to management’s assessment of the services that have been performed on clinical trials and other contracts, the Company recognizes these expenses as the services are provided. Such management assessments include, but are not limited to: (i) an evaluation by the project manager of the work that has been completed during the period, (ii) measurement of progress prepared internally and/or provided by the third-party service provider, (iii) analyses of data that justify the progress, and (iv) management’s judgment. In the event that the Company does not identify certain costs that have begun to be incurred or the Company under- or over-estimates the level of services performed or the costs of such services, the Company’s reported expenses for such period would be too low or too high.

Net Product Sales

The Company’s net product sales consist of sales of HETLIOZ^® and, beginning in 2015, sales of Fanapt^®. Net sales by product for the years ended December 31, 2016, 2015 and 2014 were as follows:


	Year Ended December 31,
*(in thousands)*	2016		2015		2014
HETLIOZ^® product sales, net	$	71,671	$	44,302	$	12,802
Fanapt^® product sales, net		74,346		65,623		107

	$	146,017	$	109,925	$	12,909

The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 605-15, Revenue Recognition—Products. The Company recognizes revenue from product sales when there is persuasive evidence that an arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable, collectability is reasonably assured and the Company has no further performance obligations.

Product Sales Discounts and Allowances

The Company’s product sales are recorded net of applicable discounts, chargebacks, rebates, co-pay assistance, service fees and product returns that are applicable for various government and commercial payors. Reserves established for discounts and returns are classified as reductions of accounts receivable if the amount is payable to direct customers, with the exception of service fees. Service fees are classified as a liability. Reserves established for chargebacks, rebates or co-pay assistance are classified as a liability if the amount is payable to a party other than customers. The Company currently records sales allowances for the following:

Rebates: Allowances for rebates include mandated and supplemental discounts under the Medicaid Drug Rebate Program as well as contracted rebate programs with other payors. Rebate amounts owed after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers, such as Medicaid. The allowance for rebates is based on statutory or contracted discount rates and expected utilization. Estimates for the expected utilization of rebates are based on historical activity and, where available, actual and pending prescriptions for which the Company has validated the insurance benefits. Rebates are generally invoiced and paid in arrears, such that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarter’s unpaid rebates. If actual future invoicing varies from estimates, the Company may need to adjust accruals, which would affect net revenue in the period of adjustment.

Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from specialty pharmacies and wholesalers. Contracted customers, which currently consist primarily of Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price. The specialty pharmacy or wholesaler, in turn, charges back the difference between the price initially paid by the specialty pharmacy or wholesaler and the discounted price paid to the specialty pharmacy or wholesaler by the contracted customer. The allowance for chargebacks is based on historical activity and, where available, actual and pending prescriptions for which the Company has validated the insurance benefits.

Medicare Part D Coverage Gap: Medicare Part D prescription drug benefit mandates manufacturers to fund approximately 50% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. Estimates for expected Medicare Part D coverage gap are based in part on historical activity and, where available, actual and pending prescriptions for which the Company has validated the insurance benefits. Funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarter activity. If actual future funding varies from estimates, the Company may need to adjust accruals, which would affect net revenue in the period of adjustment.

Service Fees: The Company also incurs specialty pharmacy and wholesaler fees for services and their data. These fees are based on contracted terms and are known amounts. The Company accrues service fees at the time of revenue recognition, resulting in a reduction of product sales and the recognition of an accrued liability, unless it receives an identifiable and separate benefit for the consideration and it can reasonably estimate the fair value of the benefit received. In which case, service fees are recorded as selling, general and administrative expense.

Co-payment Assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. Co-pay assistance utilization is based on information provided by the Company’s third-party administrator. The allowance for co-pay assistance is based on actual sales and an estimate for pending sales based on either historical activity or pending sales for which the Company has validated the insurance benefits.

Prompt-pay: Specialty pharmacies and wholesalers are offered discounts for prompt payment. The Company expects that the specialty pharmacies and wholesalers will earn prompt payment discounts and, therefore, deducts the full amount of these discounts from total product sales when revenues are recognized.

Product Returns: Consistent with industry practice, the Company generally offers direct customers a limited right to return as defined within the Company’s returns policy. The Company considers several factors in the estimation process, including historical return activity, expiration dates of product shipped to specialty pharmacies, inventory levels within the distribution channel, product shelf life, prescription trends and other relevant factors. The following table summarizes activity for product returns as of and for the years ended December 31, 2016, 2015 and 2014:


*(in thousands)*
Balance at December 31, 2013	$	—
Additions		85

Balance at December 31, 2014		85
Additions		986
Credits/payments		(12	)

Balance at December 31, 2015		1,059
Additions		2,507
Credits/payments		(486	)

Balance at December 31, 2016	$	3,080

License Revenue

The Company’s license and royalty revenue for the year ended December 31, 2014 was derived from the amended and restated sublicense agreement with Novartis. Pursuant to the amended and restated sublicense agreement, Novartis had the right to commercialize and develop Fanapt^® in the U.S. and Canada. Under the amended and restated sublicense agreement, the Company received an upfront payment of $200.0 million. Revenue related to the upfront payment was recognized ratably from the date the amended and restated sublicense agreement became effective (November 2009) through the expected duration of the Novartis commercialization of Fanapt^® in the U.S. which was estimated to be through the expiry of the Fanapt^® composition of patent, including a granted Hatch-Waxman extension (November 2016). In connection with the Settlement Agreement with Novartis, the Company recognized the remaining deferred revenue as of December 31, 2014 as part of the gain on arbitration settlement. See Note 3, Settlement Agreement with Novartis, for additional information.

Major Customers

HETLIOZ^® is only available in the U.S. for distribution through a limited number of specialty pharmacies, and is not available in retail pharmacies. Fanapt^® is available in the U.S. for distribution through a limited number of wholesalers and is available in retail pharmacies. The Company invoices and records revenue when its customers, specialty pharmacies and wholesalers, receive product from the third-party logistics warehouse. Revenues and accounts receivable are concentrated with these customers. The following table presents each major customer that represented more than 10% of total revenues for the years ended December 31, 2016, 2015 and 2014:


	Year Ended December 31,
Percent of Total Revenues	2016			2015			2014
Distributor A		23	%		14	%		—
Distributor B		16	%		18	%		—
Distributor C		16	%		19	%		—
Distributor D		16	%		14	%		—
Distributor E		15	%		17	%		—
Distributor F		—			12	%		—
Novartis royalty revenue		—			—			13	%
Novartis license agreement		—			—			61	%

The following table presents each major customer that represented more than 10% of accounts receivable, net, as of December 31, 2016 and 2015:


	December 31,
Percent of Accounts Receivable, Net	2016			2015
Distributor A		22	%		12	%
Distributor B		19	%		24	%
Distributor C		15	%		17	%
Distributor D		11	%		12	%
Distributor E		25	%		22	%

Cost of Goods Sold

Cost of goods sold includes royalties payable, the cost of inventory sold, manufacturing and supply chain costs and product shipping and handling costs related to U.S. sales of HETLIOZ^® and sales of Fanapt^® to the Company’s distribution partners.

Research and Development Expenses

Research and development expenses consist primarily of fees for services provided by third parties in connection with the clinical trials, costs of contract manufacturing services, milestone payments, costs of materials used in clinical trials and research and development, costs for regulatory consultants and filings, depreciation of capital resources used to develop products, related facilities costs, and salaries, other employee-related costs and stock-based compensation for research and development personnel. The Company expenses research and development costs as they are incurred for products in the development stage, including manufacturing costs and milestone payments made under license agreements prior to FDA approval. Upon and subsequent to FDA approval, manufacturing and milestone payments related to license agreements are capitalized. Milestone payments are accrued when it is deemed probable that the milestone event will be achieved. Costs related to the acquisition of intellectual property are expensed as incurred if the underlying technology is developed in connection with the Company’s research and development efforts and has no alternative future use.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of salaries, stock-based compensation, facilities and third party expenses. Selling, general and administrative expenses are associated with the activities of the executive, finance, accounting, information technology, business development, commercial support, trade and distribution, sales, marketing, legal, medical affairs and human resource functions. Additionally, selling, general and administrative expenses included an estimate for the annual Patient Protection and Affordable Care fee.

Stock-Based Compensation

Compensation costs for all stock-based awards to employees and directors are measured based on the grant date fair value of those awards and recognized over the period during which the employee or director is required to perform service in exchange for the award. The fair value of stock options granted and restricted stock units (RSUs) awarded are amortized using the straight-line method. As stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates

Advertising Expense

The Company expenses the costs of advertising, including branded promotional expenses, as incurred. Branded advertising expenses, recorded in selling, general and administrative expenses, were $1.4 million, $3.4 million and $5.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Foreign Currency

The reporting currency of the Company is the U.S. dollar. The functional currency of the Company’s international subsidiaries is the local currency. Assets and liabilities, including inter-company balances for which settlement is anticipated in the foreseeable future, denominated in foreign currencies are translated at exchange rates in effect at the balance sheet date. Foreign currency equity balances are translated at historical rates. Revenues and expenses denominated in foreign currencies are translated at average exchange rates for the respective periods. Foreign currency translation adjustments are recorded in accumulated other comprehensive income.

Transactions denominated in currencies other than subsidiaries’ functional currencies are recorded based on exchange rates at the time such transactions arise. Changes in exchange rates with respect to amounts recorded in the consolidated balance sheets related to these items will result in unrealized foreign currency transaction gains and losses based upon period-end exchange rates. The Company also records realized foreign currency transaction gains and losses upon settlement of the transactions. Foreign currency transaction gains and losses are included in other income and amounted to a loss of $0.2 million for the year ended December 31, 2016. Foreign currency transaction gains and losses were not material for the years ended December 31, 2015 and 2014.

Income Taxes

The Company accounts for income taxes in accordance with the authoritative guidance on accounting for income taxes, which requires companies to account for deferred income taxes using the asset and liability method. Under the asset and liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax rate changes are reflected in income during the period such changes are enacted. Changes in ownership may limit the amount of NOL carryforwards that can be utilized in the future to offset taxable income.

Non-Cash Investing and Financing Activities

Purchases of property and equipment accrued in current liabilities amounted to $0.2 million for each of the years ended December 31, 2016 and 2015 and zero for the year ended December 31, 2014. The acquisition of an intangible asset relating to HETLIOZ^® accrued in non-current liabilities amounted to $25.0 million for the year ended December 31, 2015. The reacquired right relating to Fanapt^® resulted in an intangible asset of $15.9 million, inventories of $3.0 million and a prepaid asset of $0.1 million for the year ended December 31, 2014.

Certain Risks and Uncertainties

The Company’s products under development require approval from the FDA or other international regulatory agencies prior to commercial sales. There can be no assurance the products will receive the necessary clearance. If the Company is denied clearance or clearance is delayed, it may have a material adverse impact on the Company.

The Company’s products are concentrated in rapidly-changing, highly-competitive markets, which are characterized by rapid technological advances, changes in customer requirements and evolving regulatory requirements and industry standards. Any failure by the Company to anticipate or to respond adequately to technological developments in its industry, changes in customer requirements or changes in regulatory requirements or industry standards or any significant delays in the development or introduction of products or services could have a material adverse effect on the Company’s business, operating results and future cash flows.

The Company depends on single source suppliers for critical raw materials for manufacturing, as well as other components required for the administration of its products. The loss of these suppliers could delay the clinical trials or prevent or delay commercialization of the products.

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash, cash equivalents and marketable securities. The Company places its cash, cash equivalents and marketable securities with highly-rated financial institutions. At December 31, 2016, the Company maintained all of its cash, cash equivalents and marketable securities in three financial institutions. Deposits held with these institutions may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand, and the Company believes there is minimal risk of losses on such balances.

Segment and Geographic Information

The Company operates in one reporting segment and, accordingly, no segment disclosures are presented herein. HETLIOZ^® was commercially launched in Germany in August 2016. Foreign sales were not material for the year ended December 31, 2016.

Recent Accounting Pronouncements

In November 2016 the FASB issued Accounting Standards Update (ASU) 2016-18, Restricted Cash. The new standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for annually reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2017. Early adoption is permitted. The Company is evaluating this standard to determine if adoption will have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments, to clarify guidance on the classification of certain cash receipts and cash payments in the statement of cash flow. The standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2017. Early adoption is permitted. Adoption of this new standard is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, related to the measurement of credit losses on financial instruments. The standard will require the use of an “expected loss” model for instruments measured at amortized cost. The standard is effective for years beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2019. The Company is evaluating this standard to determine if adoption will have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The ASU provides that all of the tax effects related to share-based payments are recorded as part of the provision for income taxes, allows entities to withhold an amount up to the employees’ maximum individual tax rate in the relevant jurisdiction, allows entities to estimate the effect of forfeitures or recognized forfeitures when they occur, and other improvements to the accounting for share-based awards. The new standard is effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. Adoption of this new standard is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard requires that lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability subject to certain adjustments. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). The new standard is effective for annual periods ending after December 15, 2018, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating this standard to determine if adoption will have a material impact on the Company’s consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, dealing with changes to the subsequent measurement of inventory. Currently, an entity is required to measure its inventory at the lower of cost or market, whereby market can be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The changes require that inventory be measured at the lower of cost and net realizable value, thereby eliminating the use of the other two market methodologies. Net realizable value is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. The new standard is effective for periods beginning after December 15, 2016. The Company adopted this new standard in the second quarter of 2016, and adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern. The new standard requires management of public and private companies to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, disclose that fact. Management will also be required to evaluate and disclose whether its plans alleviate that doubt. The new standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. The Company adopted this new standard for the year ended December 31, 2016, and adoption did not have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This new standard requires companies to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. Under the new standard, revenue is recognized when a customer obtains control of a good or service. The standard allows for two transition methods—entities can either apply the new standard (i) retrospectively to each prior reporting period presented, or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which defers the effective date by one year to December 15, 2017 for fiscal years, and interim periods within those fiscal years, beginning after that date. Early adoption of the standard is permitted, but not before the original effective date of December 15, 2016. In March 2016, the FASB issued ASU 2016-08 Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue versus Net), in April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers, identifying Performance Obligations and Licensing, and in May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, which provide additional clarification on certain topics addressed in ASU 2014-09. ASU 2016-08, ASU 2016-10, and ASU 2016-12 follow the same implementation guidelines as ASU 2014-09 and ASU 2015-14. The initial analysis identifying areas that will be impacted by the new guidance is substantially complete, and the Company is currently analyzing the potential impacts to the consolidated financial statements and related disclosures. Revenue from the Company’s product sales is expected to remain substantially unchanged.

Settlement Agreement with Novartis

12 Months Ended

Dec. 31, 2016

Settlement Agreement with Novartis

3. Settlement Agreement with Novartis

In May 2014, the Company commenced arbitration proceedings with Novartis relating to the license of Fanapt^® (the Fanapt^® Arbitration). In December 2014, the Company entered into a settlement agreement with Novartis and certain of its affiliates (the Settlement Agreement). Pursuant to the terms of the Settlement Agreement, the Company and Novartis dismissed the Fanapt^® Arbitration and released each other from any related claims. In addition, in connection with the Settlement Agreement, Novartis (i) transferred all U.S. and Canadian rights in the Fanapt^® franchise to the Company, (ii) purchased $25.0 million of the Company’s common stock at a price per share equal to $13.82, and (iii) granted to the Company an exclusive worldwide license to AQW051, a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist.

Pursuant to the stock purchase agreement entered into as part of the Settlement Agreement, Novartis purchased $25.0 million of the Company’s common stock. The Company issued to Novartis an aggregate of 1,808,973 shares at $13.82 per share, which per share represented a 10% premium to the average closing prices of the Company’s common stock for the ten trading days prior to December 22, 2014. The Company recorded a loss of $0.9 million as part of gain on arbitration settlement in the consolidated statement of operations for the year ended December 31, 2014 related to the issuance of stock, which was valued using the Company’s closing stock price on December 31, 2014, the effective date of the transaction.

In connection with the Settlement Agreement, the Company received an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize AQW051. Under the AQW051 license agreement, the Company is obligated to use its commercially reasonable efforts to develop and commercialize AQW051 and is responsible for all development costs under the AQW051 license agreement. Novartis is eligible to receive tiered-royalties on net sales at percentage rates up to the mid-teens. The Company evaluated AQW051 and determined that the asset is both incomplete and has substance. However, given the early stage of AQW051 and the future costs of development, no transaction value was allocated to this asset.

The Company accounted for the Settlement Agreement in accordance with the provisions of ASC Subtopic 805, Business Combinations (ASC 805). Under the provisions of ASC 805, the acquisition date for a business is the date on which the company obtains control of the acquiree. The Company obtained control on December 31, 2014, the effective date of the Settlement Agreement.

The following summarizes the fair value of consideration exchanged as part of the Settlement Agreement:


*(in thousands)*
Equity issued	$	25,904
Cash received		(25,000	)
Settlement of pre-existing non-contractual relationship		18,087

	$	18,991

Assets acquired and recorded at fair value as of December 31, 2014 were as follows:


*(in thousands)*
Inventory	$	2,960
Intangible—Re-acquired right		15,940
Prepaid services		91

	$	18,991

The Company recorded the reacquired right as an intangible asset as of December 31, 2014 and has amortized the reacquired right on a straight-line basis through November 2016.

Due to the effective date of the Settlement Agreement being December 31, 2014, the Company did not recognize any revenue or operating expenses related to U.S. or Canadian commercial sales of Fanapt^® in the consolidated statement of operations for the year ended December 31, 2014.

In connection with the Settlement Agreement, the Company and Novartis terminated the 2009 Amended Sublicense Agreement (the 2009 Agreement). Given the termination of this pre-existing contractual relationship and that there is no further obligation under the 2009 Agreement, the Company recognized a gain of $59.5 million, representing the remaining deferred revenue related to the $200.0 million upfront payment received from Novartis under the 2009 Agreement. This amount was included in gain on arbitration settlement in the consolidated statement of operations in the fourth quarter of 2014.

The Settlement Agreement provided for a mutual release of claims and dismissed the Fanapt^® Arbitration, which effectively settled a pre-existing non-contractual relationship. As a result, the Company recorded an $18.1 million gain on the settlement of arbitration, which represented the value of a potential future arbitration outcome. This amount was valued based on a probability weighted scenario analysis that took into consideration the probability of each potential future alternative outcomes of the arbitration between the parties. This amount is included in gain on arbitration settlement in the consolidated statement of operations for the year ended December 31, 2014.

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1497-128463

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1490-128463

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 10
-Section 50
-Paragraph 2
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Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 30
-Section 50
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-URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
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-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1486-128463

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
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-URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 20
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=73530397&loc=d3e4845-128472

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 10
-Section 50
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-URI http://asc.fasb.org/extlink&oid=65885119&loc=d3e1524-128463

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 30
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 20
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-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=73530397&loc=d3e4922-128472

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=73530397&loc=d3e4926-128472

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 20
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-URI http://asc.fasb.org/extlink&oid=73530397&loc=SL65897772-128472

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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Reference 15: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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+ Details

Earnings per Share

12 Months Ended

Dec. 31, 2016

Earnings per Share

4. Earnings per Share

Basic earnings per share (EPS) is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding, plus potential outstanding common stock for the period. Potential outstanding common stock includes stock options and shares underlying RSUs, but only to the extent that their inclusion is dilutive.

The following table presents the calculation of basic and diluted net income (loss) per share of common stock for the years ended December 31, 2016, 2015, and 2014:


	Year Ended December 31,
*(in thousands, except for share and per share amounts)*	2016			2015			2014
Numerator:
Net income (loss)	$	(18,010	)	$	(39,865	)	$	20,186

Denominator:
Weighted average shares outstanding: Basic		43,449,441			42,250,254			34,774,163
Effect of dilutive securities		—			—			1,912,560

Weighted average shares outstanding: Diluted		43,449,441			42,250,254			36,686,723

Net income (loss) per share, basic and diluted:
Basic	$	(0.41	)	$	(0.94	)	$	0.58

Diluted	$	(0.41	)	$	(0.94	)	$	0.55

Antidilutive securities excluded from calculations of diluted net income (loss) per share		4,943,797			5,660,199			3,524,656

The Company incurred a net loss for each of the years ended December 31, 2016 and 2015 causing inclusion of any potentially dilutive securities to have an anti-dilutive effect, resulting in dilutive loss per share and basic loss per share attributable to common stockholders being equivalent.

Marketable Securities

12 Months Ended

Dec. 31, 2016

Marketable Securities

5. Marketable Securities

The following is a summary of the Company’s available-for-sale marketable securities as of December 31, 2016, all of which have contract maturities of less than one year:


December 31, 2016 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
U.S. Treasury and government agencies	$	50,661	$	3	$	(17	)	$	50,647
Corporate debt		50,194		89		(16	)		50,267

	$	100,855	$	92	$	(33	)	$	100,914

The following is a summary of the Company’s available-for-sale marketable securities as of December 31, 2015:


December 31, 2015 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
U.S. Treasury and government agencies	$	44,059	$	6	$	(8	)	$	44,057
Corporate debt		48,239		46		(5	)		48,280

	$	92,298	$	52	$	(13	)	$	92,337

- Definition

The entire disclosure for investments in certain debt and equity securities.

+ References + Details

Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Fair Value Measurements

6. Fair Value Measurements

Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

•

Level 1 — defined as observable inputs such as quoted prices in active markets

•

Level 2 — defined as inputs other than quoted prices in active markets that are either directly or indirectly observable

•

Level 3 — defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions

Marketable securities classified in Level 1 and Level 2 as of December 31, 2016 and 2015 consist of available-for-sale marketable securities. The valuation of Level 1 instruments is determined using a market approach, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of investments classified in Level 2 also is determined using a market approach based upon quoted prices for similar assets in active markets, or other inputs that are observable for substantially the full term of the financial instrument. Level 2 securities include certificates of deposit, commercial paper and corporate notes that use as their basis readily observable market parameters. The Company did not transfer any assets between Level 2 and Level 1 during the years ended December 31, 2016 and 2015.

The Company held certain assets that are required to be measured at fair value on a recurring basis as of December 31, 2016, as follows:


			Fair Value Measurement as of December 31, 2016 Using
(in thousands)	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
U.S. Treasury and government agencies	$	50,647	$	50,647	$	—	$	—
Corporate debt		50,267		—		50,267

	$	100,914	$	50,647	$	50,267	$	—

The Company held certain assets that are required to be measured at fair value on a recurring basis as of December 31, 2015, as follows:


			Fair Value Measurement as of December 31, 2015 Using
(in thousands)	December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
U.S. Treasury and government agencies	$	44,057	$	44,057	$	—	$	—
Corporate debt		48,280		—		48,280

	$	92,337	$	44,057	$	48,280	$	—

The Company also has financial assets and liabilities, not required to be measured at fair value on a recurring basis, which primarily consist of cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued liabilities, the carrying value of which materially approximate their fair values.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Inventory

12 Months Ended

Dec. 31, 2016

Inventory

7. Inventory

The Company evaluates expiry risk by evaluating current and future product demand relative to product shelf life. The Company builds demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. Inventory levels are evaluated for the amount of inventory that would be sold within one year. At certain times, the level of inventory can exceed the forecasted level of cost of goods sold for the next twelve months. The Company classifies the estimate of such inventory as non-current. Inventory consisted of the following as of December 31, 2016 and 2015:


	December 31,
*(in thousands)*	2016		2015
Current assets
Work-in-process	$	17	$	—
Finished goods		762		1,294

	$	779	$	1,294

Non-Current assets
Raw materials	$	127	$	127
Work-in-process		2,225		2,369
Finished goods		83		—

	$	2,435	$	2,496

Prepaid Expenses and Other Current Assets

12 Months Ended

Dec. 31, 2016

Prepaid Expenses and Other Current Assets

8. Prepaid Expenses and Other Current Assets

The following is a summary of the Company’s prepaid expenses and other current assets as of December 31, 2016 and 2015:


	December 31,
*(in thousands)*	2016		2015
Research and development expenses	$	2,397	$	2,948
Consulting and other professional fees		6,051		1,815
Prepaid royalties		1,761		—
Other		1,579		979

	$	11,788	$	5,742

Property and Equipment

12 Months Ended

Dec. 31, 2016

Property and Equipment

9. Property and Equipment

The following is a summary of the Company’s property and equipment, at cost, as of December 31, 2016 and 2015:


	Estimated Useful Life (Years)		December 31,
*(in thousands)*	Estimated Useful Life (Years)		2016			2015
Computer and other equipment		3	$	2,426		$	2,046
Furniture and fixtures		5 - 7		1,412			1,318
Leasehold improvements		5 -11		4,408			3,519

				8,246			6,883
Accumulated depreciation and amortization				(3,231	)		(2,313	)

			$	5,015		$	4,570

Depreciation expense was $0.9 million, $0.6 million and $0.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Intangible Assets

12 Months Ended

Dec. 31, 2016

Intangible Assets

10. Intangible Assets

The following is a summary of the Company’s intangible assets as of December 31, 2016:


			December 31, 2016
*(in thousands)*	Estimated Useful Life (Years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
HETLIOZ^®		January 2033	$	33,000	$	5,181	$	27,819
Fanapt^®		November 2016		27,941		27,941		—

			$	60,941	$	33,122	$	27,819

The following is a summary of the Company’s intangible assets as of December 31, 2015:


			December 31, 2015
*(in thousands)*	Estimated Useful Life (Years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
HETLIOZ^®		January 2033	$	33,000	$	3,460	$	29,540
Fanapt^®		November 2016		27,941		18,729		9,212

			$	60,941	$	22,189	$	38,752

HETLIOZ^®. In January 2014, the Company announced that the FDA had approved the NDA for HETLIOZ^®. As a result of this approval, the Company met a milestone under its license agreement with Bristol-Myers Squibb (BMS) that required the Company to make a license payment of $8.0 million to BMS. The $8.0 million is being amortized on a straight-line basis over the remaining life of the U.S. patent for HETLIOZ^®, which prior to June 2014, the Company expected to last until December 2022. In June 2014, the Company received a notice of allowance from the U.S. Patent and Trademark Office for a patent covering the method of use of HETLIOZ^®. The patent expires in January 2033, thereby potentially extending the exclusivity protection in the U.S. beyond the composition of matter patent. As a result of the patent allowance, the Company extended the estimated useful life of the U.S. patent for HETLIOZ^® from December 2022 to January 2033.

The Company is obligated to make a future milestone payment to BMS of $25.0 million in the event that cumulative worldwide sales of HETLIOZ^® reach $250.0 million. The likelihood of achieving the milestone and the related milestone obligation was determined to be probable during the year ended December 31, 2015. As a result, the future obligation of $25.0 million was recorded as a non-current liability as of December 31, 2016 and 2015. The $25.0 million was determined to be additional consideration for the acquisition of the HETLIOZ^® intangible asset, which was created upon FDA approval on January 31, 2014. The actual payment of the $25.0 million will occur once the $250.0 million in cumulative worldwide sales of HETLIOZ^® is realized, which the Company expects to occur by the end of 2018. The intangible asset of $25.0 million is being amortized on a straight-line basis over the remaining life of the U.S. patent for HETLIOZ^®, which is expected to be January 2033. Amortization of intangible assets relating to HETLIOZ^® amounted to $1.7 million, $2.9 million and $0.6 million for the years ended December 31, 2016, 2015 and 2014, respectively. In future periods the Company expects annual amortization of capitalized intangible asset costs relating to HETLIOZ^® will amount to $1.7 million until the expiration of the patent in 2033.

Fanapt^®. In 2009, the Company announced that the FDA had approved the NDA for Fanapt^®. As a result of this approval, the Company met a milestone under its original sublicense agreement with Novartis that required the Company to make a license payment of $12.0 million to Novartis. The $12.0 million has been amortized on a straight-line basis over the remaining life of the U.S. composition of matter patent for Fanapt^® to November 2016.

Pursuant to the Settlement Agreement, Novartis transferred all U.S. and Canadian rights in the Fanapt^® franchise to the Company. As a result, the Company recognized an intangible asset of $15.9 million on December 31, 2014 related to the reacquired rights to Fanapt^®, which has been amortized on a straight-line basis through November 2016. The useful life estimation for the Fanapt^® intangible asset was based on the market participant methodology prescribed by ASC 805, and therefore does not reflect the impact of additional Fanapt^® patents solely owned by the Company with varying expiration dates, the latest of which is December 2031. Amortization of intangible assets relating to Fanapt^® was completed in November 2016 and amounted to $9.2 million, $10.1 million and $1.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Intangible assets are amortized over their estimated useful economic life using the straight line method. Total amortization expense was $10.9 million, $13.0 million and $2.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The following is a summary of the future intangible asset amortization schedule as of December 31, 2016:


*(in thousands)*	Total		2017		2018		2019		2020		2021		Thereafter
HETLIOZ^®	$	27,819	$	1,721	$	1,721	$	1,721	$	1,721	$	1,721	$	19,214

Accounts Payable and Accrued Liabilities

12 Months Ended

Dec. 31, 2016

Accounts Payable and Accrued Liabilities

11. Accounts Payable and Accrued Liabilities

The following is a summary of the Company’s accounts payable and accrued liabilities as of December 31, 2016 and 2015:


	December 31,
*(in thousands)*	2016		2015
Research and development expenses	$	3,024	$	3,199
Consulting and other professional fees		3,192		5,088
Compensation and employee benefits		4,291		468
Royalties payable		4,555		5,328
Other		1,134		1,684

	$	16,196	$	15,767

Deferred Licensing Revenue

12 Months Ended

Dec. 31, 2016

Deferred Licensing Revenue

12. Deferred Licensing Revenue

The following is a summary of changes in deferred licensing revenue for the year ended December 31, 2014:


*(in thousands)*	Year Ended December 31, 2014
Balance December 31, 2013	$	90,275
Licensing revenue recognized		(30,746	)
Recognized as part of gain on arbitration settlement		(59,529	)

Balance December 31, 2014	$	—

During the year ended December 31, 2014, the Company recognized revenue of $30.7 million related to the amended and restated sublicense agreement with Novartis entered into in 2009. In connection with the Settlement Agreement, the Company

recognized the remaining deferred revenue balance of $59.5 million during year ended December 31, 2014, as part of the gain on arbitration settlement. See Note 3, Settlement Agreement with Novartis, for additional information.

- Definition

The entire disclosure for deferred revenues at the end of the reporting period, and description and amounts of significant changes that occurred during the reporting period. Deferred revenue is a liability as of the balance sheet date related to a revenue producing activity for which revenue has not yet been recognized. Generally, an entity records deferred revenue when it receives consideration from a customer before achieving certain criteria that must be met for revenue to be recognized in conformity with GAAP.

+ References + Details

Commitments and Contingencies

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies

13. Commitments and Contingencies

Operating Leases

Commitments relating to operating leases represent the minimum annual future payments under operating leases and subleases for a total of 40,188 square feet of office space for the Company’s headquarters at 2200 Pennsylvania Avenue, N.W. in Washington, D.C. that expire in 2026, the operating lease for 2,880 square feet of office space for the Company’s European headquarters in London that has a noncancellable lease term ending in 2021, and 1,249 square feet of office space in Berlin under a short-term operating lease. The following is a summary of the minimum annual future payments under operating leases and subleases for office space as of December 31, 2016:


	Cash payments due by year
*(in thousands)*	Total		2017		2018		2019		2010		2021		Thereafter
Operating leases	$	21,623	$	1,981	$	2,216	$	2,271	$	2,327	$	2,170	$	10,658

In 2011, the Company entered into an operating lease for its headquarters at 2200 Pennsylvania Avenue, N.W. in Washington, D.C. A lease amendment in 2014 increased the office space under lease to 30,260 square feet, and a lease amendment in June 2016 extended the lease term from April 2023 to September 2026. Subject to the prior rights of other tenants, the Company has the right to renew the lease for five years following its expiration. The Company has the right to sublease or assign all or a portion of the premises, subject to standard conditions. The lease may be terminated early by the Company or the landlord under certain circumstances.

In June 2016, the Company entered into a sublease under which the Company will lease 9,928 square feet of office space for its headquarters at 2200 Pennsylvania Avenue, N.W. in Washington, D.C. The sublease term begins in January 2017 and ends in July 2026, but may be terminated earlier by either party under certain circumstances. The Company has the right to sublease or assign all or a portion of the premises, subject to standard conditions.

Rent expense under operating leases and subleases, was $2.5 million, $1.9 million and $1.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Guarantees and Indemnifications

The Company has entered into a number of standard intellectual property indemnification agreements in the ordinary course of its business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual from the date of execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Since inception, the Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. The Company also indemnifies its officers and directors for certain events or occurrences, subject to certain conditions.

License Agreements

The Company’s rights to develop and commercialize its products are subject to the terms and conditions of licenses granted to the Company by other pharmaceutical companies.

HETLIOZ^®. In February 2004, the Company entered into a license agreement with BMS under which it received an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize HETLIOZ^®. In partial consideration for the license, the Company paid BMS an initial license fee of $0.5 million. The Company made a milestone payment to BMS of $1.0 million under the license agreement in 2006 relating to the initiation of its first Phase III clinical trial for HETLIOZ^®. As a result of the FDA acceptance of the Company’s NDA for HETLIOZ^® for the treatment of Non-24 in July 2013, the Company incurred a $3.0 million milestone obligation under the license agreement with BMS. As a result of the FDA’s approval of the HETLIOZ^® NDA in January 2014, the Company incurred an $8.0 million milestone obligation in the first quarter of 2014 under the same license agreement that was capitalized as an intangible asset and is being amortized over the expected HETLIOZ^® patent life in the U.S. The Company is obligated to make a future milestone payment to BMS of $25.0 million in the event that cumulative worldwide sales of HETLIOZ^® reach $250.0 million. During the first quarter of 2015, the likelihood of achieving the milestone and the related milestone obligation was determined to be probable. As such, the $25.0 million milestone obligation was capitalized as an intangible asset and is being amortized over the expected HETLIOZ^® patent life in the U.S. The actual payment of the $25.0 million will occur once the $250.0 million in cumulative worldwide sales of HETLIOZ^® is realized, which is expected to be in 2018. Additionally, the Company is obligated to make royalty payments on HETLIOZ^® net sales to BMS in any territory where the Company commercializes HETLIOZ^® for a period equal to the greater of 10 years following the first commercial sale in the territory or the expiry of the new chemical entity patent in that territory. During the period prior to the expiry of the new chemical entity patent in a territory, the Company is obligated to pay a 10% royalty on net sales in that territory. The royalty rate is decreased by half for countries in which no new chemical entity patent existed or for the remainder of the 10 years after the expiry of the new chemical entity patent. The Company is also obligated under the license agreement to pay BMS a percentage of any sublicense fees, upfront payments and milestone and other payments (excluding royalties) that it receives from a third party in connection with any sublicensing arrangement, at a rate which is in the mid-twenties. The Company has agreed with BMS in the license agreement for HETLIOZ^® to use its commercially reasonable efforts to develop and commercialize HETLIOZ^®.

The license agreement was amended in April 2013 to add a process that would allow BMS to waive the right to develop and commercialize HETLIOZ^® in those countries not covered by a development and commercialization agreement. Subsequent to the execution of the April 2013 amendment, BMS provided the Company with formal written notice that it irrevocably waived the option to exercise the right to reacquire any or all rights to any product (as defined in the license agreement) containing HETLIOZ^®, or to develop or commercialize any such product, in the countries not covered by a development and commercialization agreement.

Either party may terminate the HETLIOZ^® license agreement under certain circumstances, including a material breach of the agreement by the other. In the event the Company terminates the license, or if BMS terminates the license due to the Company’s breach, all rights licensed and developed by the Company under the license agreement will revert or otherwise be licensed back to BMS on an exclusive basis.

Fanapt^®. A predecessor company of Sanofi, Hoechst Marion Roussel, Inc. (HMRI) discovered Fanapt^® and completed early clinical work on the product. In 1996, following a review of its product portfolio, HMRI licensed its rights to the Fanapt^® patents and patent applications to Titan Pharmaceuticals, Inc. (Titan) on an exclusive basis. In 1997, soon after it had acquired its rights, Titan sublicensed its rights to Fanapt^® on an exclusive basis to Novartis. In June 2004, the Company acquired exclusive worldwide rights to these patents and patent applications, as well as certain Novartis patents and patent applications to develop and commercialize Fanapt^®, through a sublicense agreement with Novartis. In October 2009, subsequent to the FDA’s approval of the NDA for Fanapt^®, the Company entered into an amended and restated sublicense agreement with Novartis, which amended and restated the June 2004 sublicense agreement. Pursuant to the amended and restated sublicense agreement, Novartis had exclusive commercialization rights to all formulations of Fanapt^® in the U.S. and Canada. Novartis began selling Fanapt^® in the U.S. during the first quarter of 2010. Novartis was responsible for the further clinical development activities in the U.S. and Canada. The Company also received royalties equal to 10% of net sales of Fanapt^® in the U.S. and Canada up to December 31, 2014. The Company retained exclusive rights to Fanapt^® outside the U.S. and Canada and was obligated to make royalty payments to Sanofi S.A. (Sanofi) on Fanapt^® sales outside the U.S. and Canada.

Pursuant to the terms of the Settlement Agreement with Novartis, Novartis transferred all U.S. and Canadian rights in the Fanapt^® franchise to the Company on December 31, 2014. The Company is obligated to make royalty payments to Sanofi and Titan, at a percentage rate equal to 23% on annual U.S. net sales of Fanapt^® up to $200.0 million, and at a percentage rate in the mid-twenties on sales over $200.0 million through November 2016. In February 2016, the Company amended the agreement with Sanofi and Titan to remove Titan as the entity through which royalty payments from the Company are directed to Sanofi following the expiration of the new chemical entity (NCE) patent for Fanapt^® in the U.S. on November 15, 2016. Under the amended agreement, the Company will pay directly to Sanofi a fixed royalty of 3% of net sales from November 16, 2016 through December 31, 2019 related to manufacturing know-how. The Company made a $2.0 million payment during the year ended December 31, 2016 that applied to this 3% manufacturing know-how royalty and will make additional royalty payments only to the extent that the Company’s cumulative royalty obligations during this period exceed the amount of the pre-payment. No further royalties on manufacturing know-how are payable by the Company after December 31, 2019. This amended agreement does not alter Titan’s obligation under the license agreement to make royalty payments to Sanofi prior to November 16, 2016 or the Company’s obligations under the sublicense agreement to pay Sanofi a fixed royalty on Fanapt^® net sales equal up to 6% on Sanofi know-how not related to manufacturing under certain conditions for a period of up to 10 years in markets where the NCE patent has expired or was not issued.

The Company has entered into distribution agreements with Probiomed S.A. de C.V. for the commercialization of Fanapt^® in Mexico and Megapharm Ltd. for the commercialization of Fanapt^® in Israel.

Tradipitant. In April 2012, the Company entered into a license agreement with Eli Lilly and Company (Lilly) pursuant to which the Company acquired an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize an NK-1R antagonist, tradipitant, for all human indications. The patent describing tradipitant as a new chemical entity expires in April 2023, except in the U.S., where it expires in June 2024 absent any applicable patent term adjustments. Pursuant to the license agreement, the Company paid Lilly an initial license fee of $1.0 million and will be responsible for all development costs. The initial license fee was recognized as research and development expense in the consolidated statement of operations for the year ended December 31, 2012. Lilly is also eligible to receive additional payments based upon achievement of specified development and commercialization milestones as well as tiered-royalties on net sales at percentage rates up to the low double digits. These milestones include $4.0 million for pre-NDA approval milestones and up to $95.0 million for future regulatory approval and sales milestones. The Company is obligated to use its commercially reasonable efforts to develop and commercialize tradipitant. Either party may terminate the license agreement under certain circumstances, including a material breach of the license agreement by the other. In the event that the Company terminates the license agreement, or if Lilly terminates due to the Company’s breach or for certain other reasons set forth in the license agreement, all rights licensed and developed by the Company under the license agreement will revert or otherwise be licensed back to Lilly on an exclusive basis, subject to payment by Lilly to the Company of a royalty on net sales of products that contain tradipitant.

AQW051. In connection with the settlement agreement with Novartis relating to Fanapt^®, the Company received an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize AQW051, a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist. Pursuant to the license agreement, the Company is obligated to use its commercially reasonable efforts to develop and commercialize AQW051 and is responsible for all development costs under the AQW051 license agreement. The Company has no milestone obligations; however, Novartis is eligible to receive tiered-royalties on net sales at percentage rates up to the mid-teens.

Research and Development and Marketing Agreements

In the course of its business, the Company regularly enters into agreements with clinical organizations to provide services relating to clinical development and clinical manufacturing activities under fee service arrangements. The Company’s current agreements for clinical services may be terminated on generally 60 days’ notice without incurring additional charges, other than charges for work completed but not paid for through the effective date of termination and other costs incurred by the Company’s contractors in closing out work in progress as of the effective date of termination.

Income Taxes

12 Months Ended

Dec. 31, 2016

Income Taxes

14. Income Taxes

The Company recorded total tax expense of $0.1 million on consolidated pretax loss of $17.9 million, consisting of $18.1 million of pretax loss in the U.S. and $0.2 million of pretax income from foreign subsidiaries. The following is a summary of the provision (benefit) for income taxes for the years ended December 31, 2016, 2015 and 2014:


	Year Ended December 31,
*(in thousands)*	2016			2015		2014
Current:
Federal	$	—		$	—	$	—
State		66			—		—
Foreign		142			—		—
Deferred:
Federal		—			—		—
State		—			—		—
Foreign		(104	)		—		—

Provision for income taxes	$	104		$	—	$	—

Deferred tax assets are reduced by a tax valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The fact that the Company has historically generated pretax losses in the U.S. serves as strong evidence that it is more likely than not that deferred tax assets in the U.S. will not be realized in the future. Therefore, the Company had a full tax valuation allowance against all deferred tax assets in the U.S. as of December 31, 2016 and 2015. As a result of the tax valuation allowance against deferred tax assets in the U.S., there was no benefit for income taxes for the years ended December 31, 2016 and 2015 and there was no provision for income taxes for the years ended December 31, 2015 and 2014.

The following is reconciliation between the federal statutory tax rate and the Company’s effective tax rate for the years ended December 31, 2016, 2015 and 2014:


	Year Ended December 31,
	2016			2015			2014
Federal tax at statutory rate		35.0	%		35.0	%		34.0	%
State taxes		0.8	%		-0.1	%		7.2	%
Change in valuation allowance		-38.4	%		-25.4	%		-59.7	%
Research and development credit		3.8	%		1.5	%		1.3	%
Orphan drug credit		7.6	%		1.6	%		8.5	%
Section 162(m) limitation		0.0	%		-5.7	%		1.1	%
Tax rate change		3.9	%		-0.3	%		4.8	%
Change in state NOLs		0.0	%		-1.4	%		0.0	%
Non-deductible stock-based compensation		-12.5	%		-5.1	%		0.0	%
Other non-deductible items		-0.8	%		-0.1	%		2.8	%

Effective tax rate		-0.6	%		0.0	%		0.0	%

The following is a summary of the components of the Company’s deferred tax assets, net, and the related tax valuation allowance as of December 31, 2016 and 2015:


	December 31,
*(in thousands)*	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	84,177		$	83,686
Stock-based compensation		12,443			12,919
Accrued and deferred expenses		2,558			1,443
Research and development and orphan drug credit carryforwards		41,104			38,333
Intangible assets		5,477			2,954
Other		1,019			802

Total deferred tax assets		146,778			140,137
Deferred tax liabilities:
Other		(666	)		(1,100	)

Total deferred tax liabilities		(666	)		(1,100	)
Deferred tax assets, net		146,112			139,037
Valuation allowance		(146,012	)		(139,037	)

Net deferred tax assets	$	100		$	—

The Company’s net deferred tax asset of $0.1 million as of December 31, 2016 was included as a component of non-current inventory and other in the consolidated balance sheet.

The following is a summary of changes in the Company’s tax valuation allowance for the years ended December 31, 2016, 2015 and 2014:


*(in thousands)*	Balance at Beginning of Year		Additions		Reductions			Balance at End of Year
Year Ended:
December 31, 2016	$	139,037	$	11,031	$	(4,056	)	$	146,012
December 31, 2015		128,890		17,002		(6,855	)		139,037
December 31, 2014		141,150		27,893		(40,153	)		128,890

As of December 31, 2016, the Company had federal and state net operating loss (NOL) carryforwards of $228.0 million, including $8.7 million of gross excess windfall benefits generated from stock-based compensation from which the tax benefit would be recorded to Additional Paid-in Capital if realized. As of December 31, 2016, the Company also had research and development credits of $7.5 million and orphan drug carryforward credits of $33.7 million. These NOL carryforwards and credits will begin to expire in 2028 and 2024, respectively.

Because the Company has generated NOLs from inception through December, 31, 2016, all income tax returns filed by the Company are open to examination by tax jurisdictions. As of December 31, 2016, the Company’s income tax returns had not been under examination by any federal or state tax jurisdictions. As of December 31, 2016 and 2015, the Company had no uncertain tax positions.

Certain tax attributes of the Company, including NOLs and credits, are potentially subject to a limitation should an ownership change as defined under the Internal Revenue Code of 1986, as amended (IRC), Section 382, occur. The limitations resulting from a change in ownership could affect the Company’s ability to use NOLs and credit carryforward (tax attributes). Ownership changes did occur as of December 31, 2014 and December 31, 2008. However, the Company believes that it had sufficient Built-In-Gain to offset the IRC Section 382 limitation generated by the ownership changes. Any future ownership changes may cause the Company’s existing tax attributes to have additional limitations. Additionally, the Company maintains a valuation allowance on its tax attributes, therefore, any IRC Section 382 limitation would not have a material impact on the Company’s provision for income taxes as of December 31, 2016.

Public Offering of Common Stock	12 Months Ended
Public Offering of Common Stock	Dec. 31, 2016
Public Offering of Common Stock	15. Public Offering of Common Stock In October 2014, the Company completed a public offering of 5,750,000 shares of common stock at a price to the public of $11.60 per share. Net cash proceeds from the public offering were $62.3 million, after deducting the underwriting discounts and commissions and offering expenses.

Equity Incentive Plans

12 Months Ended

Dec. 31, 2016

Equity Incentive Plans

16. Equity Incentive Plans

As of December 31, 2016, there were 6,686,764 shares that were subject to outstanding options and RSUs under the 2006 Equity Incentive Plan (the 2006 Plan) and the 2016 Equity Incentive Plan (the 2016 Plan) (collectively, the Plans). The 2006 Plan expired by its terms on April 12, 2016. Outstanding options and RSUs under the 2006 Plan remain in effect and the terms of the 2006 Plan continue to apply, but no additional awards can be granted under the 2006 Plan. On June 16, 2016, the Company’s stockholders approved the 2016 Plan. There are 2,000,000 shares of common stock reserved for issuance under the 2016 Plan, of which 1,822,500 shares remained available for future grant as of December 31, 2016.

Stock Options

The Company has granted option awards under the Plans with service conditions (service option awards) that are subject to terms and conditions established by the compensation committee of the board of directors. Service option awards have 10-year contractual terms and all service option awards granted prior to December 31, 2006, service option awards granted to new employees, and certain service option awards granted to existing employees vest and become exercisable on the first anniversary of the grant date with respect to the 25% of the shares subject to service option awards. The remaining 75% of the shares subject to the service option awards vest and become exercisable monthly in equal installments thereafter over three years. Certain service option awards granted to existing employees after December 31, 2006 vest and become exercisable monthly in equal installments over four years. The initial service option awards granted to directors upon their election vest and become exercisable in equal monthly installments over a period of four years, while the subsequent annual service option awards granted to directors vest and become exercisable in equal monthly installments over a period of one year. Certain service option awards to executives and directors provide for accelerated vesting if there is a change in control of the Company. Certain service option awards to employees and executives provide for accelerated vesting if the respective employee’s or executive’s service is terminated by the Company for any reason other than cause or permanent disability. As of December 31, 2016, $8.9 million of unrecognized compensation costs related to unvested service option awards are expected to be recognized over a weighted average period of 1.2 years. No option awards are classified as a liability as of December 31, 2016.

The Company’s equity incentive plan, the Second Amended and Restated Management Equity Plan (the 2004 Plan), expired by its terms in 2014 and no additional options will be granted under the 2004 Plan. There were no shares subject to outstanding options granted under the 2004 Plan as of December 31, 2016 and 2015. The following is a summary of option activity for the 2004 Plan for the years ended December 31, 2015 and 2014:


2004 Plan *(in thousands, except for share and per share amounts)*	Number of Shares			Weighted Average Exercise Price at Grant Date		Weighted Average Remaining Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2013		670,744		$	1.79		1.78	$	7,124
Exercised		(17,934	)		3.57

Outstanding at December 31, 2014		652,810			1.74		0.78		8,212
Exercised		(652,810	)		1.74				6,129

Outstanding at December 31, 2015		—

The following is a summary of option activity for the 2006 Plan and the 2016 Plan for the years ended December 31, 2016, 2015, and 2014:


2006 and 2016 Plans *(in thousands, except for share and per share amounts)*	Number of Shares			Weighted Average Exercise Price at Grant Date		Weighted Average Remaining Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2013		5,533,618		$	10.98		6.93	$	21,264
Granted		1,324,337			12.17
Forfeited		(237,108	)		8.35
Exercised		(393,735	)		7.08				2,923

Outstanding at December 31, 2014		6,227,112			11.58		6.71		28,523
Granted		1,056,500			11.74
Forfeited		(496,854	)		10.75
Expired		(64,336	)		25.69
Exercised		(469,974	)		7.02				2,594

Outstanding at December 31, 2015		6,252,448			11.87		6.16		7,498
Granted		866,011			8.43
Forfeited		(392,700	)		11.23
Expired		(279,766	)		17.38
Exercised		(897,657	)		8.63				4,264

Outstanding at December 31, 2016		5,548,336			11.62		5.58		32,453

Exercisable at December 31, 2016		3,983,012			12.07		4.45		23,924

Vested and expected to vest at December 31, 2016		5,450,280			11.66		5.52		31,850

The weighted average grant-date fair value of options granted was $4.53, $6.59 and $6.99 per share for the years ended December 31, 2016, 2015 and 2014, respectively. Proceeds from the exercise of stock options amounted to $7.8 million, $4.4 million and $2.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Restricted Stock Units

An RSU is a stock award that entitles the holder to receive shares of the Company’s common stock as the award vests. The fair value of each RSU is based on the closing price of the Company’s stock on the date of grant. The Company has granted RSUs under the Plans with service conditions (service RSUs) that vest in four equal annual installments provided that the employee remains employed with the Company. As of December 31, 2016, $8.2 million of unrecognized compensation costs related to unvested service RSUs are expected to be recognized over a weighted average period of 1.8 years. No RSUs are classified as a liability as of December 31, 2016.

The following is a summary of RSU activity for the 2006 Plan and the 2016 Plan for the years ended December 31, 2016, 2015, and 2014:


RSUs	Number of Shares Underlying RSUs			Weighted Average Grant Date Fair Value
Unvested at December 31, 2013		883,690		$	7.70
Granted		436,115			12.28
Forfeited		(84,282	)		6.75
Vested		(209,562	)		6.67

Unvested at December 31, 2014		1,025,961			9.94
Granted		417,000			11.51
Forfeited		(189,187	)		10.60
Vested		(231,093	)		7.96

Unvested at December 31, 2015		1,022,681			10.90
Granted		657,742			8.71
Forfeited		(254,329	)		10.38
Vested		(287,666	)		9.65

Unvested at December 31, 2016		1,138,428			10.07

The grant date fair value for the 287,666 shares underlying RSUs that vested during the year ended December 31, 2016 was $2.8 million.

Stock-Based Compensation Expense

Stock-based compensation expense recognized for the years ended December 31, 2016, 2015 and 2014 was allocated as follows:


	Year Ended December 31,
*(in thousands)*	2016		2015		2014
Research and development	$	2,087	$	2,269	$	1,933
Selling, general and administrative		6,456		5,692		3,945

	$	8,543	$	7,961	$	5,878

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses the assumptions noted in the following table. Expected volatility rates are based on the historical volatility of the Company’s publicly traded common stock. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has not paid dividends to its stockholders since its inception (other than a dividend of preferred share purchase rights, which was declared in September 2008) and does not plan to pay dividends in the foreseeable future. Assumptions used in the Black-Scholes-Merton option pricing model for employee and director stock options granted during the years ended December 31, 2016, 2015 and 2014 were as follows:


	Year Ended December 31,
	2016			2015			2014
Expected dividend yield		0	%		0	%		0	%
Weighted average expected volatility		57	%		60	%		62	%
Weighted average expected term (years)		6.08			6.00			5.90
Weighted average risk-free rate		1.37	%		1.67	%		1.73	%

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References + Details

Employee Benefit Plan

12 Months Ended

Dec. 31, 2016

Employee Benefit Plan

17. Employee Benefit Plan

The Company has a defined contribution plan under IRC Section 401(k). This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Currently, the Company matches 50 percent up to the first six percent of employee contributions. All matching contributions have been paid by the Company. The Company match vests over a four-year period and amounted to $0.4 million, $0.3 million and $0.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Legal Matters

12 Months Ended

Dec. 31, 2016

Legal Matters

18. Legal Matters

In June 2014, the Company filed suit against Roxane Laboratories, Inc. (Roxane) in the U.S. District Court for the District of Delaware (the Delaware District Court). The suit seeks an adjudication that Roxane has infringed one or more claims of the Company’s U.S. Patent No. 8,586,610 (the ‘610 Patent) by submitting to the FDA an Abbreviated New Drug Application (ANDA) for a generic version of Fanapt^® prior to the expiration of the ‘610 Patent in November 2027. In addition, pursuant to the settlement agreement with Novartis, the Company assumed Novartis’ patent infringement action against Roxane in the Delaware District Court. That suit alleges that Roxane has infringed one or more claims of U.S. Patent RE39198 (the ‘198 Patent), which is licensed exclusively to the Company, by filing an ANDA for a generic version of Fanapt^® prior to the expiration of the ‘198 Patent in November 2016. These two cases against Roxane were consolidated by agreement of the parties and were tried together in a five-day bench trial that concluded on March 4, 2016. On August 25, 2016, the Delaware District Court ruled in favor of the Company, finding that Roxane’s ANDA product infringed the asserted claims of the ‘610 Patent and the ‘198 Patent. The Delaware District Court ruled that the Company is entitled to a permanent injunction against Roxane enjoining Roxane from infringing the ‘610 Patent, including the manufacture, use, sale, offer to sell, sale, distribution or importation of any generic iloperidone product described in the ‘610 Patent ANDA until the expiration of the ‘610 Patent in November 2027. If the Company obtains pediatric exclusivity, the injunction against Roxane would be extended until May 2028 under the Delaware District Court’s order. On September 23, 2016, Roxane filed a notice of appeal with the Federal Circuit Court of Appeals. Roxane filed its opening appellate brief on February 7, 2017.

In 2015, the Company filed six separate patent infringement lawsuits in the Delaware District Court against Roxane, Inventia Healthcare Pvt. Ltd. (Inventia), Lupin Ltd. and Lupin Pharmaceuticals, Inc. (Lupin), Taro Pharmaceuticals USA, Inc. and Taro Pharmaceutical Industries, Ltd. (Taro), and Apotex Inc. and Apotex Corp., (collectively, the Defendants). The lawsuits each seek an adjudication that the respective Defendants infringed one or more claims of the ‘610 Patent and/or the Company’s U.S. Patent No. 9,138,432 (the ‘432 Patent) by submitting to the FDA an ANDA for a generic version of Fanapt^® prior to the expiration of the ‘610 Patent in November 2027 or the ‘432 Patent in September 2025. The Defendants have denied infringement and counterclaimed for declaratory judgment of invalidity and noninfringement of the ‘610 Patent and the ‘432 Patent. A trial on these matters was scheduled to begin on May 15, 2017. On December 15, 2016, following a submission by the parties that it may be appropriate to remove the May 15, 2017 trial from the Delaware District Court’s calendar pending the Federal Circuit’s decision in Roxane’s appeal of the Delaware District Court’s August 25, 2016 ruling finding that Roxane’s proposed products infringed the asserted claims of the ‘610 Patent, the Delaware District Court removed the May 15, 2017 trial from the calendar and adopted a new schedule for discovery. The parties agreed that within 14 days after any decision on the merits in the Roxane appeal, the parties will submit to the Delaware District Court a status report and request a schedule for trial. The Company entered into a confidential stipulation with Inventia regarding any potential launch of Inventia’s generic ANDA product. The Company also entered into a confidential stipulation with Lupin regarding any potential launch of Lupin’s generic ANDA product.

Lupin filed counter claims for declaratory judgment of invalidity and noninfringement of seven of the Company’s method of treatment patents that are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book) related to Fanapt^® (such seven patents, the Method of Treatment Patents). The Company has not sued Lupin for infringing the Method of Treatment Patents. On October 13, 2016, the Company and Lupin filed a Stipulation of Dismissal in the Delaware District Court pursuant to which Lupin’s counterclaims relating to the Method of Treatment Patents were dismissed without prejudice in recognition of an agreement reached between the parties by which the Company would not assert those patents against Lupin absent certain changes in Lupin’s proposed prescribing information for its iloperidone tablets.

On October 24, 2016, the Company entered into a License Agreement with Taro to resolve the Company’s patent litigation against Taro regarding Taro’s ANDA seeking approval of its generic version of Fanapt^® (the Taro License Agreement). Under the Taro License Agreement, the Company granted Taro a non-exclusive license to manufacture and commercialize Taro’s version of Fanapt^® in the U.S. effective November 2, 2027, unless prior to that date the Company obtains pediatric exclusivity for Fanapt^®, in which case, the license will be effective May 2, 2028. Taro may enter the market earlier under certain limited circumstances. The Taro License Agreement, which is subject to review by the U.S. Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ), provides for a full settlement and release by the Company and Taro of all claims that are the subject of the litigation.

On December 7, 2016, the Company entered into a License Agreement with Apotex to resolve the Company’s patent litigation against Apotex regarding Apotex’s ANDA seeking approval of its generic version of Fanapt^® (the Apotex License Agreement). Under the Apotex License Agreement, the Company granted Apotex a non-exclusive license to manufacture and commercialize Apotex’s version of Fanapt^® in the U.S. effective November 2, 2027, unless prior to that date the Company obtains pediatric exclusivity for Fanapt^®, in which case, the license will be effective May 2, 2028. Apotex may enter the market earlier under certain limited circumstances. The Apotex License Agreement, which is subject to review by the FTC and the DOJ, provides for a full settlement and release by the Company and Apotex of all claims that are the subject of the litigation.

On February 26, 2016, Roxane filed suit against the Company in the U.S. District Court for the Southern District of Ohio. The suit seeks a declaratory judgment of invalidity and noninfringement of the Method of Treatment Patents. The Company has not sued Roxane for infringing the Method of Treatment Patents. The Company filed a motion to dismiss this lawsuit for lack of personal jurisdiction or to transfer the lawsuit to the Delaware District Court. On December 20, 2016, the Ohio District Court ruled in our favor, dismissing Roxane’s suit without prejudice for lack of personal jurisdiction.

On February 26, 2016, Roxane filed a Petition for Inter Partes Review (IPR) of the ‘432 Patent with the Patent Trials and Appeals Board (PTAB) of the United States Patent and Trademark Office. The Company filed a Preliminary Response on June 7, 2016, and on August 30, 2016 the PTAB denied the request by Roxane to institute an IPR of the ‘432 Patent. On September 29, 2016, Roxane filed a Petition for Rehearing with the PTAB, and on October 13, 2016 the Company filed a Response to Roxane’s Petition. On November 4, 2016, the PTAB denied Roxane’s Petition for Rehearing.

Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2016

Quarterly Financial Data (Unaudited)

19. Quarterly Financial Data (Unaudited)

The following is a summary of quarterly financial data for the years ended December 31, 2016 and 2015:


*(in thousands, except for per share amounts)*	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Year Ended December 31, 2016
Revenue	$	33,262		$	36,029		$	38,482		$	38,244
Gross profit (1)		24,363			26,593			28,549			30,867
Loss from operations		(12,475	)		(4,789	)		(653	)		(654	)
Net loss		(12,358	)		(4,618	)		(430	)		(604	)
Net loss per share, basic and diluted	$	(0.29	)	$	(0.11	)	$	(0.01	)	$	(0.01	)
Year Ended December 31, 2015
Revenue	$	22,150		$	27,582		$	28,344		$	31,849
Gross profit (1)		12,991			18,874			18,891			22,735
Loss from operations		(10,293	)		(5,458	)		(9,541	)		(14,893	)
Net loss		(10,221	)		(5,386	)		(9,461	)		(14,797	)
Net loss per share, basic and diluted	$	(0.24	)	$	(0.13	)	$	(0.22	)	$	(0.35	)

(1)	Gross profit includes revenue less cost of goods sold, excluding amortization and intangible asset amortization.

Business Organization and Presentation (Policies)

12 Months Ended

Dec. 31, 2016

Business organization

Business organization

•

Trichostatin A, a small molecule histone deacetylase (HDAC) inhibitor.

•

AQW051, a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist.

Basis of presentation

Basis of presentation

Use of Estimates

Use of Estimates

Cash and Cash Equivalents

Cash and Cash Equivalents

Marketable Securities

Marketable Securities

Inventory

Inventory

Intangible Assets

Intangible Assets

Property and Equipment

Property and Equipment

Accounts Payable and Accrued Liabilities

Accounts Payable and Accrued Liabilities

Net Product Sales

Net Product Sales

The Company’s net product sales consist of sales of HETLIOZ^® and, beginning in 2015, sales of Fanapt^®. Net sales by product for the years ended December 31, 2016, 2015 and 2014 were as follows:


	Year Ended December 31,
*(in thousands)*	2016		2015		2014
HETLIOZ^® product sales, net	$	71,671	$	44,302	$	12,802
Fanapt^® product sales, net		74,346		65,623		107

	$	146,017	$	109,925	$	12,909

Product Sales Discounts and Allowances


*(in thousands)*
Balance at December 31, 2013	$	—
Additions		85

Balance at December 31, 2014		85
Additions		986
Credits/payments		(12	)

Balance at December 31, 2015		1,059
Additions		2,507
Credits/payments		(486	)

Balance at December 31, 2016	$	3,080

License Revenue

Major Customers

Major Customers


	Year Ended December 31,
Percent of Total Revenues	2016			2015			2014
Distributor A		23	%		14	%		—
Distributor B		16	%		18	%		—
Distributor C		16	%		19	%		—
Distributor D		16	%		14	%		—
Distributor E		15	%		17	%		—
Distributor F		—			12	%		—
Novartis royalty revenue		—			—			13	%
Novartis license agreement		—			—			61	%

The following table presents each major customer that represented more than 10% of accounts receivable, net, as of December 31, 2016 and 2015:


	December 31,
Percent of Accounts Receivable, Net	2016			2015
Distributor A		22	%		12	%
Distributor B		19	%		24	%
Distributor C		15	%		17	%
Distributor D		11	%		12	%
Distributor E		25	%		22	%

Cost of Goods Sold

Cost of Goods Sold

Research and Development Expenses

Research and Development Expenses

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses

Stock-Based Compensation

Stock-Based Compensation

Advertising Expense

Advertising Expense

Foreign Currency

Foreign Currency

Income Taxes

Income Taxes

Non-Cash Investing and Financing Activities

Non-Cash Investing and Financing Activities

Certain Risks and Uncertainties

Certain Risks and Uncertainties

Concentrations of Credit Risk

Concentrations of Credit Risk

Segment and Geographic Information

Segment and Geographic Information

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2016

Net Sales by Product

The Company’s net product sales consist of sales of HETLIOZ^® and, beginning in 2015, sales of Fanapt^®. Net sales by product for the years ended December 31, 2016, 2015 and 2014 were as follows:


	Year Ended December 31,
*(in thousands)*	2016		2015		2014
HETLIOZ^® product sales, net	$	71,671	$	44,302	$	12,802
Fanapt^® product sales, net		74,346		65,623		107

	$	146,017	$	109,925	$	12,909

Summary of Accounts Receivable Allowance Activity

The following table summarizes activity for product returns as of and for the years ended December 31, 2016, 2015 and 2014:


*(in thousands)*
Balance at December 31, 2013	$	—
Additions		85

Balance at December 31, 2014		85
Additions		986
Credits/payments		(12	)

Balance at December 31, 2015		1,059
Additions		2,507
Credits/payments		(486	)

Balance at December 31, 2016	$	3,080

Schedule of Major Customers that Represented More Than 10% of Total Revenues

The following table presents each major customer that represented more than 10% of total revenues for the years ended December 31, 2016, 2015 and 2014:


	Year Ended December 31,
Percent of Total Revenues	2016			2015			2014
Distributor A		23	%		14	%		—
Distributor B		16	%		18	%		—
Distributor C		16	%		19	%		—
Distributor D		16	%		14	%		—
Distributor E		15	%		17	%		—
Distributor F		—			12	%		—
Novartis royalty revenue		—			—			13	%
Novartis license agreement		—			—			61	%

Schedule of Major Customers that Represented More Than 10% of Accounts Receivable, Net

The following table presents each major customer that represented more than 10% of accounts receivable, net, as of December 31, 2016 and 2015:


	December 31,
Percent of Accounts Receivable, Net	2016			2015
Distributor A		22	%		12	%
Distributor B		19	%		24	%
Distributor C		15	%		17	%
Distributor D		11	%		12	%
Distributor E		25	%		22	%

Settlement Agreement with Novartis (Tables)

12 Months Ended

Dec. 31, 2016

Fair Value of Consideration Exchanged as Part of Settlement Agreement

The following summarizes the fair value of consideration exchanged as part of the Settlement Agreement:


*(in thousands)*
Equity issued	$	25,904
Cash received		(25,000	)
Settlement of pre-existing non-contractual relationship		18,087

	$	18,991

Assets Acquired and Recorded at Fair Value

Assets acquired and recorded at fair value as of December 31, 2014 were as follows:


*(in thousands)*
Inventory	$	2,960
Intangible—Re-acquired right		15,940
Prepaid services		91

	$	18,991

Earnings per Share (Tables)

12 Months Ended

Dec. 31, 2016

Basic and Diluted Net Income (Loss) Per Share of Common Stock

The following table presents the calculation of basic and diluted net income (loss) per share of common stock for the years ended December 31, 2016, 2015, and 2014:


	Year Ended December 31,
*(in thousands, except for share and per share amounts)*	2016			2015			2014
Numerator:
Net income (loss)	$	(18,010	)	$	(39,865	)	$	20,186

Denominator:
Weighted average shares outstanding: Basic		43,449,441			42,250,254			34,774,163
Effect of dilutive securities		—			—			1,912,560

Weighted average shares outstanding: Diluted		43,449,441			42,250,254			36,686,723

Net income (loss) per share, basic and diluted:
Basic	$	(0.41	)	$	(0.94	)	$	0.58

Diluted	$	(0.41	)	$	(0.94	)	$	0.55

Antidilutive securities excluded from calculations of diluted net income (loss) per share		4,943,797			5,660,199			3,524,656

Marketable Securities (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Available-for-Sale Marketable Securities

The following is a summary of the Company’s available-for-sale marketable securities as of December 31, 2016, all of which have contract maturities of less than one year:


December 31, 2016 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
U.S. Treasury and government agencies	$	50,661	$	3	$	(17	)	$	50,647
Corporate debt		50,194		89		(16	)		50,267

	$	100,855	$	92	$	(33	)	$	100,914

The following is a summary of the Company’s available-for-sale marketable securities as of December 31, 2015:


December 31, 2015 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
U.S. Treasury and government agencies	$	44,059	$	6	$	(8	)	$	44,057
Corporate debt		48,239		46		(5	)		48,280

	$	92,298	$	52	$	(13	)	$	92,337

- Definition

Tabular disclosure of available-for-sale securities which includes, but is not limited to, changes in the cost basis and fair value, fair value and gross unrealized gain (loss), fair values by type of security, contractual maturity and classification, amortized cost basis, contracts to acquire securities to be accounted for as available-for-sale, debt maturities, transfers to trading, change in net unrealized holding gain (loss) net of tax, continuous unrealized loss position fair value, aggregate losses qualitative disclosures, other than temporary impairment (OTTI) losses or other disclosures related to available for sale securities.

+ References + Details

Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2016

Assets Measured at Fair Value on Recurring Basis

The Company held certain assets that are required to be measured at fair value on a recurring basis as of December 31, 2016, as follows:


			Fair Value Measurement as of December 31, 2016 Using
(in thousands)	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
U.S. Treasury and government agencies	$	50,647	$	50,647	$	—	$	—
Corporate debt		50,267		—		50,267

	$	100,914	$	50,647	$	50,267	$	—

The Company held certain assets that are required to be measured at fair value on a recurring basis as of December 31, 2015, as follows:


			Fair Value Measurement as of December 31, 2015 Using
(in thousands)	December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
U.S. Treasury and government agencies	$	44,057	$	44,057	$	—	$	—
Corporate debt		48,280		—		48,280

	$	92,337	$	44,057	$	48,280	$	—

Inventory (Tables)

12 Months Ended

Dec. 31, 2016

Inventory

Inventory consisted of the following as of December 31, 2016 and 2015:


	December 31,
*(in thousands)*	2016		2015
Current assets
Work-in-process	$	17	$	—
Finished goods		762		1,294

	$	779	$	1,294

Non-Current assets
Raw materials	$	127	$	127
Work-in-process		2,225		2,369
Finished goods		83		—

	$	2,435	$	2,496

Prepaid Expenses and Other Current Assets (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Prepaid Expenses, and Other Current Assets

The following is a summary of the Company’s prepaid expenses and other current assets as of December 31, 2016 and 2015:


	December 31,
*(in thousands)*	2016		2015
Research and development expenses	$	2,397	$	2,948
Consulting and other professional fees		6,051		1,815
Prepaid royalties		1,761		—
Other		1,579		979

	$	11,788	$	5,742

Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Property and Equipment-at Cost

The following is a summary of the Company’s property and equipment, at cost, as of December 31, 2016 and 2015:


	Estimated Useful Life (Years)		December 31,
*(in thousands)*	Estimated Useful Life (Years)		2016			2015
Computer and other equipment		3	$	2,426		$	2,046
Furniture and fixtures		5 - 7		1,412			1,318
Leasehold improvements		5 -11		4,408			3,519

				8,246			6,883
Accumulated depreciation and amortization				(3,231	)		(2,313	)

			$	5,015		$	4,570

Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Intangible Assets

The following is a summary of the Company’s intangible assets as of December 31, 2016:


			December 31, 2016
*(in thousands)*	Estimated Useful Life (Years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
HETLIOZ^®		January 2033	$	33,000	$	5,181	$	27,819
Fanapt^®		November 2016		27,941		27,941		—

			$	60,941	$	33,122	$	27,819

The following is a summary of the Company’s intangible assets as of December 31, 2015:


			December 31, 2015
*(in thousands)*	Estimated Useful Life (Years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
HETLIOZ^®		January 2033	$	33,000	$	3,460	$	29,540
Fanapt^®		November 2016		27,941		18,729		9,212

			$	60,941	$	22,189	$	38,752

Summary of Future Intangible Asset Amortization

The following is a summary of the future intangible asset amortization schedule as of December 31, 2016:


*(in thousands)*	Total		2017		2018		2019		2020		2021		Thereafter
HETLIOZ^®	$	27,819	$	1,721	$	1,721	$	1,721	$	1,721	$	1,721	$	19,214

Accounts Payable and Accrued Liabilities (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Accounts Payable and Accrued Liabilities

The following is a summary of the Company’s accounts payable and accrued liabilities as of December 31, 2016 and 2015:


	December 31,
*(in thousands)*	2016		2015
Research and development expenses	$	3,024	$	3,199
Consulting and other professional fees		3,192		5,088
Compensation and employee benefits		4,291		468
Royalties payable		4,555		5,328
Other		1,134		1,684

	$	16,196	$	15,767

Deferred Licensing Revenue (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Changes in Deferred Licensing Revenue

The following is a summary of changes in deferred licensing revenue for the year ended December 31, 2014:


*(in thousands)*	Year Ended December 31, 2014
Balance December 31, 2013	$	90,275
Licensing revenue recognized		(30,746	)
Recognized as part of gain on arbitration settlement		(59,529	)

Balance December 31, 2014	$	—

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Minimum Annual Future Payments under Operating Leases and Subleases

The following is a summary of the minimum annual future payments under operating leases and subleases for office space as of December 31, 2016:


	Cash payments due by year
*(in thousands)*	Total		2017		2018		2019		2010		2021		Thereafter
Operating leases	$	21,623	$	1,981	$	2,216	$	2,271	$	2,327	$	2,170	$	10,658

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Provision (Benefit) for Income Taxes

The following is a summary of the provision (benefit) for income taxes for the years ended December 31, 2016, 2015 and 2014:


	Year Ended December 31,
*(in thousands)*	2016			2015		2014
Current:
Federal	$	—		$	—	$	—
State		66			—		—
Foreign		142			—		—
Deferred:
Federal		—			—		—
State		—			—		—
Foreign		(104	)		—		—

Provision for income taxes	$	104		$	—	$	—

Reconciliation Between Statutory Tax Rate and Effective Tax Rate

The following is reconciliation between the federal statutory tax rate and the Company’s effective tax rate for the years ended December 31, 2016, 2015 and 2014:


	Year Ended December 31,
	2016			2015			2014
Federal tax at statutory rate		35.0	%		35.0	%		34.0	%
State taxes		0.8	%		-0.1	%		7.2	%
Change in valuation allowance		-38.4	%		-25.4	%		-59.7	%
Research and development credit		3.8	%		1.5	%		1.3	%
Orphan drug credit		7.6	%		1.6	%		8.5	%
Section 162(m) limitation		0.0	%		-5.7	%		1.1	%
Tax rate change		3.9	%		-0.3	%		4.8	%
Change in state NOLs		0.0	%		-1.4	%		0.0	%
Non-deductible stock-based compensation		-12.5	%		-5.1	%		0.0	%
Other non-deductible items		-0.8	%		-0.1	%		2.8	%

Effective tax rate		-0.6	%		0.0	%		0.0	%

Components of Deferred Tax Assets, Net, and Related Valuation Allowance

The following is a summary of the components of the Company’s deferred tax assets, net, and the related tax valuation allowance as of December 31, 2016 and 2015:


	December 31,
*(in thousands)*	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	84,177		$	83,686
Stock-based compensation		12,443			12,919
Accrued and deferred expenses		2,558			1,443
Research and development and orphan drug credit carryforwards		41,104			38,333
Intangible assets		5,477			2,954
Other		1,019			802

Total deferred tax assets		146,778			140,137
Deferred tax liabilities:
Other		(666	)		(1,100	)

Total deferred tax liabilities		(666	)		(1,100	)
Deferred tax assets, net		146,112			139,037
Valuation allowance		(146,012	)		(139,037	)

Net deferred tax assets	$	100		$	—

Summary of Changes in Tax Valuation Allowance

The following is a summary of changes in the Company’s tax valuation allowance for the years ended December 31, 2016, 2015 and 2014:


*(in thousands)*	Balance at Beginning of Year		Additions		Reductions			Balance at End of Year
Year Ended:
December 31, 2016	$	139,037	$	11,031	$	(4,056	)	$	146,012
December 31, 2015		128,890		17,002		(6,855	)		139,037
December 31, 2014		141,150		27,893		(40,153	)		128,890

Equity Incentive Plans (Tables)

12 Months Ended

Dec. 31, 2016

Summary of RSU Activity for 2006 Plan and 2016 Plan

The following is a summary of RSU activity for the 2006 Plan and the 2016 Plan for the years ended December 31, 2016, 2015, and 2014:


RSUs	Number of Shares Underlying RSUs			Weighted Average Grant Date Fair Value
Unvested at December 31, 2013		883,690		$	7.70
Granted		436,115			12.28
Forfeited		(84,282	)		6.75
Vested		(209,562	)		6.67

Unvested at December 31, 2014		1,025,961			9.94
Granted		417,000			11.51
Forfeited		(189,187	)		10.60
Vested		(231,093	)		7.96

Unvested at December 31, 2015		1,022,681			10.90
Granted		657,742			8.71
Forfeited		(254,329	)		10.38
Vested		(287,666	)		9.65

Unvested at December 31, 2016		1,138,428			10.07

Stock-Based Compensation Expense

Stock-based compensation expense recognized for the years ended December 31, 2016, 2015 and 2014 was allocated as follows:


	Year Ended December 31,
*(in thousands)*	2016		2015		2014
Research and development	$	2,087	$	2,269	$	1,933
Selling, general and administrative		6,456		5,692		3,945

	$	8,543	$	7,961	$	5,878

Black-Scholes-Merton Option Pricing Model for Employee and Director Stock Options Granted

Assumptions used in the Black-Scholes-Merton option pricing model for employee and director stock options granted during the years ended December 31, 2016, 2015 and 2014 were as follows:


	Year Ended December 31,
	2016			2015			2014
Expected dividend yield		0	%		0	%		0	%
Weighted average expected volatility		57	%		60	%		62	%
Weighted average expected term (years)		6.08			6.00			5.90
Weighted average risk-free rate		1.37	%		1.67	%		1.73	%

2004 Plan

Summary of Option Activity Plan

The following is a summary of option activity for the 2004 Plan for the years ended December 31, 2015 and 2014:


2004 Plan *(in thousands, except for share and per share amounts)*	Number of Shares			Weighted Average Exercise Price at Grant Date		Weighted Average Remaining Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2013		670,744		$	1.79		1.78	$	7,124
Exercised		(17,934	)		3.57

Outstanding at December 31, 2014		652,810			1.74		0.78		8,212
Exercised		(652,810	)		1.74				6,129

Outstanding at December 31, 2015		—

2006 Plan and 2016 Plan

Summary of Option Activity Plan

The following is a summary of option activity for the 2006 Plan and the 2016 Plan for the years ended December 31, 2016, 2015, and 2014:


2006 and 2016 Plans *(in thousands, except for share and per share amounts)*	Number of Shares			Weighted Average Exercise Price at Grant Date		Weighted Average Remaining Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2013		5,533,618		$	10.98		6.93	$	21,264
Granted		1,324,337			12.17
Forfeited		(237,108	)		8.35
Exercised		(393,735	)		7.08				2,923

Outstanding at December 31, 2014		6,227,112			11.58		6.71		28,523
Granted		1,056,500			11.74
Forfeited		(496,854	)		10.75
Expired		(64,336	)		25.69
Exercised		(469,974	)		7.02				2,594

Outstanding at December 31, 2015		6,252,448			11.87		6.16		7,498
Granted		866,011			8.43
Forfeited		(392,700	)		11.23
Expired		(279,766	)		17.38
Exercised		(897,657	)		8.63				4,264

Outstanding at December 31, 2016		5,548,336			11.62		5.58		32,453

Exercisable at December 31, 2016		3,983,012			12.07		4.45		23,924

Vested and expected to vest at December 31, 2016		5,450,280			11.66		5.52		31,850

Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2016

Quarterly Financial Data

The following is a summary of quarterly financial data for the years ended December 31, 2016 and 2015:


*(in thousands, except for per share amounts)*	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Year Ended December 31, 2016
Revenue	$	33,262		$	36,029		$	38,482		$	38,244
Gross profit (1)		24,363			26,593			28,549			30,867
Loss from operations		(12,475	)		(4,789	)		(653	)		(654	)
Net loss		(12,358	)		(4,618	)		(430	)		(604	)
Net loss per share, basic and diluted	$	(0.29	)	$	(0.11	)	$	(0.01	)	$	(0.01	)
Year Ended December 31, 2015
Revenue	$	22,150		$	27,582		$	28,344		$	31,849
Gross profit (1)		12,991			18,874			18,891			22,735
Loss from operations		(10,293	)		(5,458	)		(9,541	)		(14,893	)
Net loss		(10,221	)		(5,386	)		(9,461	)		(14,797	)
Net loss per share, basic and diluted	$	(0.24	)	$	(0.13	)	$	(0.22	)	$	(0.35	)

(1)	Gross profit includes revenue less cost of goods sold, excluding amortization and intangible asset amortization.

Business Organization and Presentation - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2016 Segment
Organization and Summary of Significant Accounting Policies Disclosure [Line Items]
Number of operating segments	1

Summary of Significant Accounting Policies - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2016 USD ($) Segment	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2009 USD ($)
Summary Of Significant Accounting Policies [Line Items]
Restricted cash, current and non-current	$ 0.8	$ 0.8
Percentage of insurance coverage gap allocated for prescription drugs under Medicare Part D	50.00%
Advertising expenses	$ 1.4	3.4	$ 5.0
Purchases of property, plant and equipment and the related current liability	$ 0.2	0.2	0.0
Acquisition of intangible asset accrued in non-current liabilities		$ 25.0
Intangible asset related to re-acquired right to Fanapt			15.9
Inventories			3.0
Prepaid services			$ 0.1
Number of reportable segments \| Segment	1
Other Income
Summary Of Significant Accounting Policies [Line Items]
Foreign currency transaction gains and losses	$ 0.2
Fanapt
Summary Of Significant Accounting Policies [Line Items]
Upfront payment received under Fanapt sublicense agreement from Novartis				$ 200.0

Net Sales by Product (Detail) - USD ($) $ in Thousands	12 Months Ended
Net Sales by Product (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenue from External Customer [Line Items]
Net product sales	$ 146,017	$ 109,925	$ 12,909
HETLIOZ
Revenue from External Customer [Line Items]
Net product sales	71,671	44,302	12,802
Fanapt
Revenue from External Customer [Line Items]
Net product sales	$ 74,346	$ 65,623	$ 107

Summary of Accounts Receivable Allowance Activity (Detail) - Accounts Receivable Allowance - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Valuation and Qualifying Accounts Disclosure [Line Items]
Beginning balance	$ 1,059	$ 85
Additions	2,507	986	$ 85
Credits/payments	(486)	(12)
Ending balance	$ 3,080	$ 1,059	$ 85

Schedule of Major Customers that Represented More Than 10% of Total Revenues (Detail) - Customer Concentration Risk - Sales Revenue, Net	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Distributor A
Revenue, Major Customer [Line Items]
Concentration Risk, Percentage	23.00%	14.00%
Distributor B
Revenue, Major Customer [Line Items]
Concentration Risk, Percentage	16.00%	18.00%
Distributor C
Revenue, Major Customer [Line Items]
Concentration Risk, Percentage	16.00%	19.00%
Distributor D
Revenue, Major Customer [Line Items]
Concentration Risk, Percentage	16.00%	14.00%
Distributor E
Revenue, Major Customer [Line Items]
Concentration Risk, Percentage	15.00%	17.00%
Distributor F
Revenue, Major Customer [Line Items]
Concentration Risk, Percentage		12.00%
Novartis \| Royalty Revenue
Revenue, Major Customer [Line Items]
Concentration Risk, Percentage			13.00%
Novartis \| Licensing agreement
Revenue, Major Customer [Line Items]
Concentration Risk, Percentage			61.00%

Schedule of Major Customers that Represented More Than 10% of Accounts Receivable, Net (Detail) - Credit Concentration Risk - Accounts Receivable	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Distributor A
Concentration Risk [Line Items]
Concentration Risk, Percentage	22.00%	12.00%
Distributor B
Concentration Risk [Line Items]
Concentration Risk, Percentage	19.00%	24.00%
Distributor C
Concentration Risk [Line Items]
Concentration Risk, Percentage	15.00%	17.00%
Distributor D
Concentration Risk [Line Items]
Concentration Risk, Percentage	11.00%	12.00%
Distributor E
Concentration Risk [Line Items]
Concentration Risk, Percentage	25.00%	22.00%

Settlement Agreement with Novartis - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	12 Months Ended
	Oct. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2009
Business Acquisition [Line Items]
Net proceeds from offering of common stock	$ 62,300			$ 62,313
Intangible assets, amortization method		Straight-line basis
Gain on the settlement of arbitration				$ 77,616
Fanapt
Business Acquisition [Line Items]
Intangible assets, estimated useful life		2016-11	2016-11	2016-11
Upfront payment received					$ 200,000
Settlement Agreement
Business Acquisition [Line Items]
Net proceeds from offering of common stock				$ 25,000
Effective date of the Settlement Agreement				Dec. 31, 2014
Gain on the settlement of arbitration				$ 18,087
Up-front Payment Arrangement
Business Acquisition [Line Items]
Gain on the settlement of arbitration				59,529
Novartis Pharma AG
Business Acquisition [Line Items]
Net proceeds from offering of common stock				25,000
Novartis Pharma AG \| Settlement Agreement
Business Acquisition [Line Items]
Net proceeds from offering of common stock				$ 25,000
Price per share				$ 13.82
Stock issued during period, shares				1,808,973
Percentage of premium to average closing prices				10.00%
Trading days				10 days
Gain (Loss) on issuance of stock				$ (900)

Fair Value of Consideration Exchanged as Part of Settlement Agreement (Detail) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended
	Oct. 31, 2014	Dec. 31, 2016	Dec. 31, 2014
Business Acquisition [Line Items]
Equity issued			$ 25,905
Cash received	$ (62,300)		(62,313)
Settlement of pre-existing non-contractual relationship			77,616
Settlement Agreement
Business Acquisition [Line Items]
Equity issued			25,904
Cash received			(25,000)
Settlement of pre-existing non-contractual relationship			18,087
Business Combination, Consideration Transferred, Total			$ 18,991

Assets Acquired and Recorded at Fair Value (Detail) $ in Thousands	Dec. 31, 2014 USD ($)
Business Acquisition [Line Items]
Assets acquired and recorded at fair value, Inventory	$ 2,960
Assets acquired and recorded at fair value, Intangible re-acquired right	15,940
Assets acquired and recorded at fair value, Prepaid services	91
Assets acquired and recorded at fair value	$ 18,991

Basic and Diluted Net Income (Loss) Per Share of Common Stock (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Numerator:
Net income (loss)	$ (604)	$ (430)	$ (4,618)	$ (12,358)	$ (14,797)	$ (9,461)	$ (5,386)	$ (10,221)	$ (18,010)	$ (39,865)	$ 20,186
Denominator:
Weighted average shares outstanding: Basic									43,449,441	42,250,254	34,774,163
Effect of dilutive securities											1,912,560
Weighted average shares outstanding: Diluted									43,449,441	42,250,254	36,686,723
Net income (loss) per share, basic and diluted:
Basic									$ (0.41)	$ (0.94)	$ 0.58
Diluted									$ (0.41)	$ (0.94)	$ 0.55
Antidilutive securities excluded from calculations of diluted net income (loss) per share									4,943,797	5,660,199	3,524,656

Summary of Available-For-Sale Marketable Securities (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Fair Market Value	$ 100,914	$ 92,337
U.S. Treasury and government agencies
Schedule of Available-for-sale Securities [Line Items]
Fair Market Value	50,647	44,057
Corporate debt
Schedule of Available-for-sale Securities [Line Items]
Fair Market Value	50,267	48,280
Current Investment
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	100,855	92,298
Gross Unrealized Gains	92	52
Gross Unrealized Losses	(33)	(13)
Fair Market Value	100,914	92,337
Current Investment \| U.S. Treasury and government agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	50,661	44,059
Gross Unrealized Gains	3	6
Gross Unrealized Losses	(17)	(8)
Fair Market Value	50,647	44,057
Current Investment \| Corporate debt
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	50,194	48,239
Gross Unrealized Gains	89	46
Gross Unrealized Losses	(16)	(5)
Fair Market Value	$ 50,267	$ 48,280

Assets Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	$ 100,914	$ 92,337
U.S. Treasury and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	50,647	44,057
Corporate debt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	50,267	48,280
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	50,647	44,057
Quoted Prices in Active Markets for Identical Assets (Level 1) \| U.S. Treasury and government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	50,647	44,057
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	50,267	48,280
Significant Other Observable Inputs (Level 2) \| Corporate debt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	$ 50,267	$ 48,280

Inventory (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Current assets
Work-in-process	$ 17
Finished goods	762	$ 1,294
Total	779	1,294
Non-Current assets
Raw materials	127	127
Work-in-process	2,225	2,369
Finished goods	83
Total	$ 2,435	$ 2,496

Summary of Prepaid Expenses and Other Current Assets (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Prepaid Expenses And Other Current Assets [Line Items]
Research and development expenses	$ 2,397	$ 2,948
Consulting and other professional fees	6,051	1,815
Prepaid royalties	1,761
Other	1,579	979
Prepaid expenses and other current assets	$ 11,788	$ 5,742

Summary of Property and Equipment-at Cost (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 8,246	$ 6,883
Accumulated depreciation and amortization	(3,231)	(2,313)
Property and equipment, net	$ 5,015	4,570
Computer and Other Equipment
Property, Plant and Equipment [Line Items]
Estimated Useful Life (Years)	3 years
Property and equipment, gross	$ 2,426	2,046
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 1,412	1,318
Furniture and fixtures \| Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (Years)	5 years
Furniture and fixtures \| Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (Years)	7 years
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 4,408	$ 3,519
Leasehold improvements \| Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (Years)	5 years
Leasehold improvements \| Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life (Years)	11 years

Property and Equipment - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment [Line Items]
Depreciation expense	$ 935	$ 582	$ 530

Summary of Intangible Assets (Detail) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount		$ 60,941	$ 60,941
Accumulated Amortization		33,122	22,189
Net Carrying Amount		$ 27,819	$ 38,752
HETLIOZ
Finite-Lived Intangible Assets [Line Items]
Intangible assets, estimated useful life	2022-12	2033-01	2033-01
Gross Carrying Amount		$ 33,000	$ 33,000
Accumulated Amortization		5,181	3,460
Net Carrying Amount		$ 27,819	$ 29,540
Fanapt
Finite-Lived Intangible Assets [Line Items]
Intangible assets, estimated useful life		2016-11	2016-11	2016-11
Gross Carrying Amount		$ 27,941	$ 27,941
Accumulated Amortization		$ 27,941	18,729
Net Carrying Amount			$ 9,212

Intangible Assets (Textual 2 - HETLIOZ) - Additional Information (Detail) - USD ($) $ in Thousands	1 Months Ended		3 Months Ended		12 Months Ended
	Jul. 31, 2013	Feb. 29, 2004	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2006
Finite-Lived Intangible Assets [Line Items]
Acquisition of intangible assets							$ 8,000
Milestone obligation under license agreement					$ 25,000	$ 25,000
Intangible asset amortization					$ 10,933	$ 12,972	2,254
HETLIOZ
Finite-Lived Intangible Assets [Line Items]
Acquisition of intangible assets	$ 3,000	$ 500		$ 8,000				$ 1,000
Intangible assets, estimated useful life				2022-12	2033-01	2033-01
Cumulative worldwide sales milestone			$ 250,000			$ 250,000
Milestone obligation under license agreement			25,000		$ 25,000	25,000
Intangible assets capitalized			$ 25,000			25,000
Intangible asset amortization					1,700	$ 2,900	$ 600
Future annual amortization of intangible asset					$ 1,700

Intangible Assets (Textual 3 - Fanapt) - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2009
Finite-Lived Intangible Assets [Line Items]
Acquisition of intangible assets			$ 8,000
Assets acquired and recorded at fair value, Intangible re-acquired right			15,940
Intangible asset amortization	$ 10,933	$ 12,972	$ 2,254
Fanapt
Finite-Lived Intangible Assets [Line Items]
Acquisition of intangible assets				$ 12,000
Estimated Patent life end date	2016-11	2016-11	2016-11
Assets acquired and recorded at fair value, Intangible re-acquired right			$ 15,900
Intangible asset amortization	$ 9,200	$ 10,100	$ 1,700

Intangible Assets - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Finite-Lived Intangible Assets [Line Items]
Intangible asset amortization	$ 10,933	$ 12,972	$ 2,254

Summary of Future Intangible Asset Amortization (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Net Carrying Amount	$ 27,819	$ 38,752
HETLIOZ
Finite-Lived Intangible Assets [Line Items]
Net Carrying Amount	27,819	$ 29,540
2017	1,721
2018	1,721
2019	1,721
2020	1,721
2021	1,721
Thereafter	$ 19,214

Summary of Accounts Payable and Accrued Liabilities (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Accounts Payable and Accrued Liabilities [Line Items]
Research and development expenses	$ 3,024	$ 3,199
Consulting and other professional fees	3,192	5,088
Compensation and employee benefits	4,291	468
Royalties payable	4,555	5,328
Other	1,134	1,684
Accounts payable and accrued liabilities	$ 16,196	$ 15,767

Summary of Changes in Deferred Licensing Revenue (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2014
Deferred Revenue Arrangement [Line Items]
Balance beginning of year		$ 90,275
Licensing revenue recognized		(30,746)
Recognized as part of gain on arbitration settlement		(77,616)
Up-front Payment Arrangement
Deferred Revenue Arrangement [Line Items]
Recognized as part of gain on arbitration settlement		$ (59,529)

Deferred Licensing Revenue - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2014
Deferred Revenue Arrangement [Line Items]
Licensing agreement		$ 30,746
Gain on arbitration settlement		77,616
Up-front Payment Arrangement
Deferred Revenue Arrangement [Line Items]
Gain on arbitration settlement		$ 59,529

Commitments and Contingencies - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2016 USD ($) ft²	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Commitments and Contingencies Disclosure [Line Items]
Rent expense \| $	$ 2.5	$ 1.9	$ 1.7
Washington DC Lease
Commitments and Contingencies Disclosure [Line Items]
Leased square footage	40,188
Expiration date of leases for office space	2026
Washington DC Lease \| Sublease
Commitments and Contingencies Disclosure [Line Items]
Leased square footage	9,928
Washington DC Lease Amendment
Commitments and Contingencies Disclosure [Line Items]
Leased square footage	30,260
Renewal term of lease agreement	5 years
London Lease
Commitments and Contingencies Disclosure [Line Items]
Leased square footage	2,880
Noncancellable lease term ending date	2021
Berlin Lease
Commitments and Contingencies Disclosure [Line Items]
Leased square footage	1,249

Summary of Minimum Annual Future Payments Under Operating Leases and Subleases for Office Space (Detail) $ in Thousands	Dec. 31, 2016 USD ($)
Operating Leased Assets [Line Items]
Operating leases, Total	$ 21,623
Operating leases, 2017	1,981
Operating leases, 2018	2,216
Operating leases, 2019	2,271
Operating leases, 2010	2,327
Operating leases, 2021	2,170
Operating leases, Thereafter	$ 10,658

Commitments and Contingencies (Textual 2 - HETLIOZ) - Additional Information (Detail) - USD ($) $ in Thousands	1 Months Ended		3 Months Ended		12 Months Ended
	Jul. 31, 2013	Feb. 29, 2004	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2006
HETLIOZ
Acquisition of intangible assets							$ 8,000
Milestone obligation under license agreement					$ 25,000	$ 25,000
Percentage of future sublicense fees payable to third-party					Mid-twenties
HETLIOZ
HETLIOZ
Acquisition of intangible assets	$ 3,000	$ 500		$ 8,000				$ 1,000
Milestone obligation under license agreement			$ 25,000		$ 25,000	25,000
Royalty payable percentage on net sales			10.00%
Cumulative worldwide sales milestone			$ 250,000			250,000
Intangible assets capitalized			$ 25,000			$ 25,000

Commitments and Contingencies (Textual 3 - Fanapt) - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2014
Fanapt
Royalty received percentage on net sales		10.00%
Prepaid royalty	$ 1,761,000
Royalty Rate for Annual Sales up to $200 million through November 2016
Fanapt
Royalty percentage payable on net sales below annual threshold	23.00%
Royalty Rate for Annual Sales in Excess of $200 million through November 2016
Fanapt
Royalty percentage payable on net sales above annual threshold	Mid-twenties
November 16,2016 through December 31,2019
Fanapt
Royalty payable percentage on net sales	3.00%
Prepaid royalty	$ 2,000,000
Maximum
Fanapt
Agreed upon sales threshold level for royalty rate	$ 200,000,000
Fanapt
Fanapt
Royalty payable percentage on net sales	6.00%
Royalty payment period	10 years

Commitments and Contingencies (Textual 4 - Tradipitant) - Additional Information (Detail) - Tradipitant $ in Millions	12 Months Ended
	Dec. 31, 2012 USD ($)
Tradipitant
Future percentage of royalty payments based net sales	Low double digits
Possible future milestone payments	$ 4.0
Milestone payment under license agreement	1.0
Future Regulatory Approval and Sales Milestones
Tradipitant
Possible future milestone payments	$ 95.0

Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Taxes [Line Items]
Provision for income taxes	$ 104	$ 0	$ 0
Income (loss) before income taxes	(17,906)	$ (39,865)	$ 20,186
Pretax loss in U.S	(18,100)
Pretax income from foreign subsidiaries	200
Net deferred tax assets	100
Operating loss carryforwards, net	228,000
Operating loss carryforwards, excess windfall benefits generated from stock options	$ 8,700
Net operating loss carryforwards beginning expiration year	2028
Carryforward credits beginning expiration year	2024
Research and Development
Income Taxes [Line Items]
Tax credits carryforwards	$ 7,500
Orphan Drug
Income Taxes [Line Items]
Tax credits carryforwards	33,700
Non-current inventory and other
Income Taxes [Line Items]
Net deferred tax assets	$ 100

Summery of Provision (Benefit) for Income Taxes (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Current:
Federal	$ 0	$ 0	$ 0
State	66
Foreign	142
Deferred:
Federal	0	0	0
State	0	0	0
Foreign	(104)
Provision for income taxes	$ 104	$ 0	$ 0

Reconciliation Between Statutory Tax Rate and Effective Tax Rate (Detail)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Rate Reconciliation [Line Items]
Federal tax at statutory rate	35.00%	35.00%	34.00%
State taxes	0.80%	(0.10%)	7.20%
Change in valuation allowance	(38.40%)	(25.40%)	(59.70%)
Research and development credit	3.80%	1.50%	1.30%
Orphan drug credit	7.60%	1.60%	8.50%
Section 162(m) limitation	0.00%	(5.70%)	1.10%
Tax rate change	3.90%	(0.30%)	4.80%
Change in state NOLs	0.00%	(1.40%)	0.00%
Non-deductible stock-based compensation	(12.50%)	(5.10%)	0.00%
Other non-deductible items	(0.80%)	(0.10%)	2.80%
Effective tax rate	(0.60%)	0.00%	0.00%

Components of Deferred Tax Assets, Net and Related Valuation Allowance (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Deferred tax assets:
Net operating loss carryforwards	$ 84,177	$ 83,686
Stock-based compensation	12,443	12,919
Accrued and deferred expenses	2,558	1,443
Research and development and orphan drug credit carryforwards	41,104	38,333
Intangible assets	5,477	2,954
Other	1,019	802
Total deferred tax assets	146,778	140,137
Deferred tax liabilities:
Other	(666)	(1,100)
Total deferred tax liabilities	(666)	(1,100)
Deferred tax assets, net	146,112	139,037
Valuation allowance	(146,012)	$ (139,037)	$ (128,890)	$ (141,150)
Net deferred tax assets	$ 100

Valuation Allowance Activity on Deferred Tax Assets (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Valuation Allowance [Line Items]
Balance At Beginning Of Period	$ 139,037	$ 128,890	$ 141,150
Additions	11,031	17,002	27,893
Reductions	(4,056)	(6,855)	(40,153)
Balance At End Of Period	$ 146,012	$ 139,037	$ 128,890

Public Offering of Common Stock - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	12 Months Ended
	Oct. 31, 2014	Dec. 31, 2016	Dec. 31, 2014
Stockholders Equity Note [Line Items]
Public common stock offering, shares	5,750,000
Common stock offering price, per share	$ 11.60
Net cash proceeds from public common stock offering	$ 62,300		$ 62,313

Equity Incentive Plans (Textual 1 - Equity Incentive Plan) - Additional Information (Detail) - shares	12 Months Ended
	Dec. 31, 2016	Jun. 16, 2016
2006 Plan and 2016 Plan \| Outstanding options and RSUs granted (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares subject to outstanding options and RSUs	6,686,764
2016 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares of common stock reserved for issuance		2,000,000
Number of shares of common stock available for future grant	1,822,500

Equity Incentive Plans (Textual 2 Stock Option) - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation option awards contractual term	10 years
Portion of initial stock options granted to employees that vests on employee's first anniversary	25.00%
Portion of initial stock options granted to employees that vests ratably over three years after completion of first year of service	75.00%
Option awards vesting period, after completion of one year of service	3 years
Vesting period	4 years
Vesting period for initial stock options granted to directors	4 years
Vesting period for subsequent stock options granted to directors	1 year
Proceeds from exercise of employee stock options	$ 7,751	$ 4,374	$ 2,851
Options granted, weighted average fair value per share	$ 4.53	$ 6.59	$ 6.99
Service option awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expenses	$ 8,900
Unrecognized compensation expenses, weighted average period	1 year 2 months 12 days

Summary of Option Activity for 2004 Plan (Detail) - 2004 Plan - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Number of Shares
Beginning balance	652,810	670,744
Exercised	(652,810)	(17,934)
Ending balance		652,810	670,744
Weighted Average Exercise Price at Grant Date
Beginning balance	$ 1.74	$ 1.79
Exercised	$ 1.74	3.57
Ending balance		$ 1.74	$ 1.79
Weighted Average Remaining Term (Years)
Weighted Average Remaining Term		9 months 11 days	1 year 9 months 11 days
Aggregate Intrinsic Value
Beginning balance	$ 8,212	$ 7,124
Exercised	$ 6,129
Ending balance		$ 8,212	$ 7,124

Summary of Option Activity for 2006 Plan and the 2016 Plan (Detail) - 2006 Plan and 2016 Plan - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Number of Shares
Beginning balance	6,252,448	6,227,112	5,533,618
Granted	866,011	1,056,500	1,324,337
Forfeited	(392,700)	(496,854)	(237,108)
Expired	(279,766)	(64,336)
Exercised	(897,657)	(469,974)	(393,735)
Ending balance	5,548,336	6,252,448	6,227,112	5,533,618
Exercisable	3,983,012
Vested and expected to vest at December 31, 2016	5,450,280
Weighted Average Exercise Price at Grant Date
Beginning balance	$ 11.87	$ 11.58	$ 10.98
Granted	8.43	11.74	12.17
Forfeited	11.23	10.75	8.35
Expired	17.38	25.69
Exercised	8.63	7.02	7.08
Ending balance	11.62	$ 11.87	$ 11.58	$ 10.98
Exercisable	12.07
Vested and expected to vest at December 31, 2016	$ 11.66
Weighted Average Remaining Term (Years)
Weighted Average Remaining Term	5 years 6 months 29 days	6 years 1 month 28 days	6 years 8 months 16 days	6 years 11 months 5 days
Exercisable	4 years 5 months 12 days
Vested and expected to vest at December 31, 2016	5 years 6 months 7 days
Aggregate Intrinsic Value
Beginning balance	$ 7,498	$ 28,523	$ 21,264
Exercised	4,264	2,594	2,923
Ending balance	32,453	$ 7,498	$ 28,523	$ 21,264
Exercisable	23,924
Vested and expected to vest at December 31, 2016	$ 31,850

Equity Incentive Plans (Textual 3 RSU) - Additional Information (Detail) - Restricted Stock Units (RSU) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period of RSU awards in equal installments	4 years
Unrecognized compensation expenses, weighted average period	1 year 9 months 18 days
Unrecognized compensation expenses related to unvested RSUs	$ 8.2
2006 Plan and 2016 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of common stock vested, shares	287,666	231,093	209,562
Fair value of common stock vested	$ 2.8

Summary of RSU Activity under 2006 Plan and the 2016 Plan (Detail) - 2006 Plan and 2016 Plan - Restricted Stock Units (RSU) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Number of Shares Unvested
Beginning balance	1,022,681	1,025,961	883,690
Granted	657,742	417,000	436,115
Forfeited	(254,329)	(189,187)	(84,282)
Vested	(287,666)	(231,093)	(209,562)
Ending balance	1,138,428	1,022,681	1,025,961
Weighted Average Price/Share Unvested
Beginning balance	$ 10.90	$ 9.94	$ 7.70
Granted	8.71	11.51	12.28
Forfeited	10.38	10.60	6.75
Vested	9.65	7.96	6.67
Ending balance	$ 10.07	$ 10.90	$ 9.94

Total Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 8,543	$ 7,961	$ 5,878
Research and development
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	2,087	2,269	1,933
Selling, general and administrative
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 6,456	$ 5,692	$ 3,945

Black-Scholes-Merton Option Pricing Model for Stock Options Granted (Detail)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share Based Payment Award Stock Options Valuation Assumptions [Line Items]
Expected dividend yield	0.00%	0.00%	0.00%
Weighted average expected volatility	57.00%	60.00%	62.00%
Weighted average expected term (years)	6 years 29 days	6 years	5 years 10 months 24 days
Weighted average risk-free rate	1.37%	1.67%	1.73%

Employee Benefit Plan - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Employee Benefit Plans [Line Items]
Defined contribution plan employer matching percent	50.00%
Defined contribution plan maximum employee contribution percent	6.00%
Defined contribution plan vesting period	4 years
Defined contribution plan matching amount	$ 0.4	$ 0.3	$ 0.2

Quarterly Financial Data (Detail) - USD ($)
$ / shares in Units, $ in Thousands

3 Months Ended

12 Months Ended

Dec. 31, 2016

Sep. 30, 2016

Jun. 30, 2016

Mar. 31, 2016

Dec. 31, 2015

Sep. 30, 2015

Jun. 30, 2015

Mar. 31, 2015

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2014

Quarterly Financial Data [Line Items]

Revenue

$ 38,244

$ 38,482

$ 36,029

$ 33,262

$ 31,849

$ 28,344

$ 27,582

$ 22,150

$ 146,017

$ 109,925

$ 50,157

Gross profit

^[1]

30,867

28,549

26,593

24,363

22,735

18,891

18,874

12,991

Loss from operations

(654)

(653)

(4,789)

(12,475)

(14,893)

(9,541)

(5,458)

(10,293)

(18,571)

(40,185)

20,062

Net loss

$ (604)

$ (430)

$ (4,618)

$ (12,358)

$ (14,797)

$ (9,461)

$ (5,386)

$ (10,221)

$ (18,010)

$ (39,865)

$ 20,186

Net loss per share, basic and diluted

$ (0.01)

$ (0.11)

$ (0.29)

$ (0.35)

$ (0.22)

$ (0.13)

$ (0.24)

[1]	Gross profit includes revenue less cost of goods sold, excluding amortization and intangible asset amortization.