Marinus Pharmaceuticals
Annual Report 2021

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2021☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number 001-36576Marinus Pharmaceuticals, Inc.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization)20-0198082(I.R.S. EmployerIdentification No.)5 Radnor Corporate Center, Suite 500100 Matsonford RoadRadnor, PA 19087(Address of principal executive offices including zip code)(484) 801-4670(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of Each ClassTrading Symbol(s)Name of Each Exchange on WhichRegisteredCommon Stock, par value $0.001 per shareMRNSNasdaq Global MarketSecurities registered pursuant to Section 12(g) of the Act: None.Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☑Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☑ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes ☑ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, oran emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company"in Rule 12b-2 of the Exchange Act.Large accelerated filer ☐Accelerated filer ☐Non-accelerated filer ☑Smaller reporting company ☑ Emerging growth company ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying withany new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑The aggregate market value of the registrant’s common stock (the only common equity of the registrant) held by non-affiliates of the registrant onthe last business day of the registrant’s most recent completed second fiscal quarter (June 30, 2021) was $451,604,966, based on the closing price reported on the Nasdaq Global Market on June 30, 2021. The total number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of March 18, 2022 was 37,003,419.Documents Incorporated by ReferenceCertain portions of the registrant’s Definitive Proxy Statement for its 2022 Annual Meeting of the Stockholders, which is expected to be filed withthe U.S. Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2021, are incorporated byreference into Part III, Items 10-14 of this Annual Report on Form 10-K.Table of Contents1TABLE OF CONTENTS PageNote Regarding Forward-Looking Statements.2Risk Factor Summary5Part I.7 Item 1.Business.7Item1A.Risk Factors.40Item1B.Unresolved Staff Comments.86Item 2.Properties.86Item 3.Legal Proceedings.86Item 4.Mine Safety Disclosures.86Part II.87Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.87Item 6.Reserved.87Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.88Item 7A.Quantitative and Qualitative Disclosures About Market Risk.98Item 8.Financial Statements and Supplementary Data.98Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.98Item 9A.Controls and Procedures.98Item 9B.Other Information.99Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.99Part III.99Item 10.Directors, Executive Officers and Corporate Governance.99Item 11.Executive Compensation.99Item 12.Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters.99Item 13.Certain Relationships and Related Transactions, and Director Independence.100Item 14.Principal Accountants Fees and Services.100Part IV.100Item 15.Exhibits, Financial Statement Schedules.100Item 16.Form 10-K Summary103Signatures.104Index to Financial Statements.F-1Table of Contents2Cautionary Note Regarding Forward-Looking Statements.This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the U.S.Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. In some cases, youcan identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”“intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,”and or the negative of these terms, or other comparable terminology intended to identify statements about the future.These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results,levels of activity, performance or achievements to be materially different from the information expressed or implied bythese forward-looking statements. Although we believe that we have a reasonable basis for each forward-lookingstatement contained in this Annual Report on Form 10-K, we caution you that these statements are based on acombination of facts and factors currently known by us and our expectations of the future, about which we cannot becertain.The forward-looking statements in this Annual Report on Form 10-K include, among other things,statements about:●our plans to successfully commercialize ganaxolone in Cyclin-dependent Kinase-like 5 DeficiencyDisorder (CDD) in the United States;●our plans to meet our post-approval commitments to the U.S. Food and Drug Administration (FDA)for ganaxolone;●our plans to achieve regulatory approval for ganaxolone in the European Union (EU);●our ability to develop ganaxolone for additional indications, including Refractory Status Epilepticus(RSE), Established Status Epilepticus (ESE), Tuberous Sclerosis Complex (TSC) and Lennox GastautSyndrome (LGS);●the status, timing and results of preclinical studies and clinical trials;●the design of and enrollment in clinical trials, availability of data from ongoing clinical trials,expectations for regulatory approvals, or the attainment of clinical trial results that will be supportive ofregulatory approvals;●the potential benefits of ganaxolone, including in indications other than CDD;●the timing of seeking marketing approval of ganaxolone in specific additional indications;●our ability to maintain marketing approval for ganaxolone in CDD and obtain regulatory approval forganaxolone in other indications;●the possibility that we expand the targeted indication footprint and explore new potential formulationsof ganaxolone;●our estimates of expenses and future revenue and profitability;●our estimates regarding our capital requirements and our needs for additional financing;●our estimates of the size of the potential markets for ganaxolone;●our expectations regarding our collaboration with Orion Corporation (Orion), including the expectedamount and timing of R&D reimbursement, milestone, royalty and other payments pursuant thereto;Table of Contents3●our ability to attract collaborators with acceptable development, regulatory and commercial expertise;●the benefits to be derived from corporate collaborations, license agreements, and other collaborative oracquisition efforts, including those relating to the development and commercialization of ganaxolone;●sources of revenue, including expected future sales of ganaxolone in CDD, revenue contributions fromour contract (BARDA Contract) with the Biomedical Advanced Research and Development Authority(BARDA), corporate collaborations, license agreements, and other collaborative efforts for thedevelopment and commercialization of ganaxolone for CDD and in other indications being developedfor ganaxolone;●our eligibility to receive funding under the debt tranches available under the Credit Agreement withOaktree;●our ability to create an effective sales and marketing infrastructure where we elect to market and sellganaxolone directly;●the timing and amount of reimbursement for ganaxolone;●the success of other competing therapies that may become available;●the manufacturing capacity and supply for ganaxolone;●the extent to which our ability to market and sell ganaxolone may be negatively impacted by third partypatents;●the possibility that we expand and diversify our product pipeline through acquisitions of additionaldrug candidates that fit our business strategy;●our belief that our existing cash and cash equivalents will be sufficient to fund our operating expenses,capital expenditure requirements, and maintain the minimum cash balance required under our debtfacility into the fourth quarter of 2022;●our ability to maintain and protect our intellectual property rights;●our expectations regarding the scheduling of ZTALMY by the U.S. Drug Enforcement Administration(DEA) as a controlled substance under the Controlled Substances Act, and the timing thereof;●our results of operations, financial condition, liquidity, prospects, and growth strategies;●our ability to, among other actions, monetize our Priority Review Voucher, secure additional financingand/or secure strategic transactions and continue as a going concern;●the extent to which our business may be adversely impacted by the effects of the COVID-19coronavirus pandemic or by other pandemics, epidemics or outbreaks;●the enforceability of the exclusive forum provisions in our fourth amended and restated certificate ofincorporation; and●the industry in which we operate and trends which may affect the industry or us.Table of Contents4Forward-looking statements appear primarily in the sections of this Annual Report on Form 10-K entitled“Item 1 – Business,” “Item 1A “Risk Factors,” “Item 7 – Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” “Item 7A – Quantitative and Qualitative Disclosures About Market Risk,” and“Item 8 – Financial Statements and Supplementary Data.” Furthermore, if our forward-looking statements prove to beinaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements,you should not regard these statements as a representation or warranty by us or any other person that we will achieveour objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update anyforward-looking statements, whether as a result of new information, future events or otherwise, except as required bylaw.You should read this Annual Report on Form 10-K and the documents that we reference in this AnnualReport on Form 10-K and have filed as exhibits to this Annual Report on Form 10-K completely and with theunderstanding that our actual future results may be materially different from what we expect. We qualify all of ourforward-looking statements by these cautionary statements.Table of Contents5Risk Factors SummaryThe following summarizes the principal factors that make an investment in us speculative or risky, all ofwhich are more fully described in “Item 1A – Risk Factors” of this Annual Report on Form 10-K. This summaryshould be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive summaryof the material risks facing our business.Risks Related to our Financial Position and Need for Additional Capital●We have identified conditions and events that raise substantial doubt about our ability to continue as a goingconcern.●We have not generated any revenue to date from product sales. We may never achieve or sustain profitability,which could depress the market price of our common stock, and could cause you to lose all or a part of yourinvestment.●We will require additional capital to fund our operations and if we fail to obtain necessary financing, we may beunable to commercialize ZTALMY or complete the development and commercialization, if approved, ofganaxolone in the other indications we are developing.●Our failure to comply with the covenants or other terms of the Credit Agreement, including as a result of eventsbeyond our control, could result in a default under the Credit Agreement that could materially and adversely affectthe ongoing viability of our business.●If we are unable to satisfy certain conditions in our Credit Agreement, we will be unable to draw down theremaining amount of the term loan facility.●Our Credit Agreement contains restrictions that limit our flexibility in operating our business.●Raising additional capital could dilute our stockholders, restrict our operations or require us to relinquish rights toganaxolone or any other future product candidates.●We intend to expend our limited resources to pursue ganaxolone and may fail to capitalize on other technologies orany other future product candidates that may be more profitable or for which there may be a greater likelihood ofsuccess.Risks Related to the Commercialization of ZTALMY and Other Future Product Candidates●We have no history of commercializing drugs, which may make it difficult for you to evaluate the success of ourbusiness to date and to assess our future viability. ●Even though we have obtained regulatory approval for ZTALMY in the U.S., we will still face extensive FDAregulatory requirements and may face regulatory difficulties.●Our commercial success depends upon attaining significant market access and acceptance of ZTALMY amongphysicians, patients, government and private payers and others in the medical community and attaining sufficientreimbursement for ganaxolone.●We face substantial competition, which may result in others discovering, developing or commercializing productsbefore or more successfully than we do.●If we are unable to differentiate ZTALMY from current and future products or existing methods of treatments, ourability to successfully commercialize ZTALMY would be adversely affected.●ZTALMY is our first commercial product and our sales field force is currently being hired. If our sales andmarketing capabilities to market and sell ganaxolone are not effective, we may be unable to generate any revenue.●Even if we are able to commercialize ganaxolone, it may not receive coverage and adequate reimbursement fromthird-party payers, which could harm our business.●If the market opportunities for ZTALMY in CDD and other indications for which we obtain regulatory approval,if any, are smaller than we believe they are, our results of operations may be adversely affected and our businessmay suffer.●If the FDA or other applicable regulatory authorities approve generic products that compete with any of ourproducts or product candidates, it could reduce our sales of those products or product candidates.Risks Related to Clinical Development and Regulatory Approval of our Product Candidates●Our future success is dependent on the successful clinical development, regulatory approval and commercializationof ganaxolone, which is being studied in several indications and will require significant capital resources and yearsof additional clinical development effort.●We are conducting clinical development activities for ganaxolone across multiple indications, and such clinicaldevelopment activities may not produce favorable results, which could adversely impact our ability to achieveregulatory approval for ganaxolone in such indications.Table of Contents6●Ganaxolone may cause undesirable side effects, or have other properties, such as abuse potential, that could delayor prevent its regulatory approval in indications under clinical development, limit the commercial profile of anapproved label, or result in significant negative consequences following any marketing approval.●The therapeutic efficacy and safety of ganaxolone in indications other than CDD have not been established byregulatory authorities, and we may not be able to successfully develop and commercialize ganaxolone in the otherindications under clinical development in the future.●We may not be able to obtain or maintain orphan drug exclusivity for ganaxolone across all indications andmarkets, which could limit the potential profitability of ganaxolone.●Failure to obtain regulatory approval in international jurisdictions would prevent ganaxolone from being marketedin these jurisdictions.●ZTALMY is expected to be regulated as a controlled substance, the making, use, sale, importation, exportation, anddistribution of which will be subject to significant regulation by the DEA and other regulatory agencies.Risks Related to Our Dependence on Third Parties●We rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do notsuccessfully carry out their duties in compliance with contractual terms and/or regulatory requirements or meetexpected timelines, our development plans may be adversely affected and we may not be able to commercializeganaxolone for CDD or obtain regulatory approval for ganaxolone in other indications.●We have multiple ganaxolone drug products in development, and until such products are approved by regulatoryauthorities, there remains the risk that the drug product quality requirements may not support continued clinicalinvestigation and result in delays or termination of such clinical studies, and product approvals.●Our experience manufacturing ganaxolone is limited to the needs of our preclinical studies and clinical trials. Wehave no experience manufacturing ganaxolone on a commercial scale and have no manufacturing facility. We aredependent on third-party manufacturers for the manufacture of ganaxolone drug substance and drug products aswell as on third parties for our supply chain, and if we experience problems with any such third parties, themanufacturing and supply of ganaxolone could be delayed.●We will depend on Orion for the commercialization of ganaxolone in Europe, and if it terminates the OrionCollaboration Agreement, we would not have a European commercial presence.●Government funding for certain aspects of our programs adds uncertainty to our research efforts with respect tothose programs and may impose requirements that increase the costs of commercialization and production ofcertain product candidates developed under those government-funded programs.●We may elect to enter into license or collaboration agreements to partner ganaxolone in territories currently retainedby us. Our dependence on such relationships may adversely affect our business.Risks Related to Regulatory Compliance●Currently enacted and future legislation, including potentially unfavorable pricing regulations or other healthcarereform initiatives, may increase the difficulty and cost for us to obtain marketing approval of and commercializeganaxolone and affect the prices we may obtain.Risks Related to Intellectual Property●If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate forour technology and product candidates, our competitive position could be harmed.●Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, theoutcome of which would be uncertain and could harm our business.●We may not be able to protect our intellectual property rights throughout the world.●Patent terms may be inadequate to protect our competitive position on our products for an adequate amount oftime.●We rely on government funding for certain aspects of our research and development activities and we may developintellectual property through such activities and therefore may be subject to federal regulations such as “march-in”rights, certain reporting requirements and a preference for U.S. based companies. Compliance with such regulationsmay limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.Risks Related to our Business Operations●The COVID-19 pandemic could continue to adversely affect our business and our ability to conduct and completeclinical trials.Table of Contents7PART IUnless the context requires otherwise, any references in this Annual Report on Form 10-K to “we,” “us,” “our,” the“Company” or “Marinus” refers to Marinus Pharmaceuticals, Inc. and its wholly-owned subsidiary. Unlessotherwise indicated, all share and per share amounts in this Annual Report on Form 10-K reflect, as applicable, theoccurrence of a 1-for-4 reverse split of our common stock that occurred on September 23, 2020.Item 1. Business.OverviewOur CompanyWe are a pharmaceutical company focused on the development and commercialization of products for patients suffering from rare genetic epilepsies and other seizure disorders. On March 18, 2022, the U.S Food and Drug Administration (FDA) approved our new drug application (NDA) for the use of ZTALMY® (ganaxolone) oral suspension for the treatment of seizures associated with cyclin-dependent kinase-like 5 (CDKL5) deficiency disorder (CDD) in patients 2 years of age and older. This is our first FDA-approved product which we plan to commercialize inthe United States. We also plan to continue to develop ganaxolone for other rare genetic epilepsies and for a numberof additional indications including other seizure disorders. While the precise mechanism by which ganaxolone exertsits therapeutic effects in the treatment of seizures associated with CDD is unknown, its anticonvulsant effects arethought to result from positive allosteric modulation of the gamma-aminobutyric acid type A (GABAA) receptor in theCentral Nervous System (CNS). Ganaxolone is being developed in formulations for two different routes ofadministration: intravenous (IV) and oral. Ganaxolone is a synthetic analog of allopregnanolone, an endogenousneurosteroid. The different formulations are intended to maximize potential therapeutic applications of ganaxolone foradult and pediatric patient populations, in both acute and chronic care, and for both in-patient and self-administeredsettings. Ganaxolone acts at both synaptic and extrasynaptic GABAA receptors, a target known for its anti-seizure,antidepressant and anxiolytic potential.Our StrategyOur mission is to maximize the value of ganaxolone as a best-in-class therapy for rare seizure andneurological disorders through development of multiple formulations for oral and IV administration. The key elementsof our strategy include the following:●Pursuing orphan, genetic epilepsy indications for ganaxolone. Within epilepsy, there are several disorders where the symptoms have been linked to deficits in GABAergic signaling. Based on our clinical data, we believe that increasing activation of GABA receptors and associated processes (GABAergic tone) with ganaxolone could provide therapeutic benefits and that treatments for these small populations have the potential for more efficient paths through clinical development, regulatory approval and commercialization. In addition to CDD and Tuberous Sclerosis Complex (TSC), we may in the future develop ganaxolone in one or more additional indications for rare epilepsies. We may also seek to in-license complementary products to leverage our development and commercial investment.●Pursuing hospital-based orphan indications for ganaxolone. We believe that hospitalized statusepilepticus (SE) patients who do not respond to available first- and second-line treatments aresignificantly underserved with severely limited treatment options. Additionally, SE is associated withsignificant morbidity and mortality. Due to its activity at extrasynaptic GABAA receptors, ganaxolonemay provide a therapeutic benefit for patients whose SE is refractory to currently available first- andsecond-line treatments. To that end, and based on our Phase 2 trial results, we are conducting theRandomized Therapy In Status Epilepticus Trial (RAISE trial), a pivotal Phase 3 trial in refractorystatus epilepticus (RSE) patients. We are also conducting the Researching Established Status EpilepticsTreatment Trial, or theTable of Contents8RESET trial, a Phase 2 trial in established status epileptics (ESE), and may in the future study similarand other hospital-based indications that could benefit from ganaxolone’s mechanism of action.●Reformulation and prodrug compounds. We intend to further develop the current oral formulation ofganaxolone through second generation reformulation and prodrug compounds. A reformulation orprodrug of ganaxolone that increases bioavailability and improves the pharmacokinetics (PK) profilemay create substantial indication expansion opportunities and have the potential to enhance efficacy bybetter achieving desired ganaxolone blood levels, improve the safety profile through a more consistentPK profile, reduce dosing frequency, generate new IP, and improve costs of goods through loweractive pharmaceutical ingredient (API) requirements. We have identified Lennox Gastaut Syndrome(LGS) as a potential lead indication for a reformulated oral form of ganaxolone compound and willseek additional indications in epilepsy and potentially other therapeutic areas as activities progress.●Building on our product pipeline. We may expand and diversify our product pipeline throughacquisition of additional drug candidates that fit our business strategy.COVID-19The continued global spread of COVID-19, including the Omicron variant, has impacted our clinicaloperations and timelines. For example, our Phase 3 RAISE trial in RSE is conducted in hospitals, including intensivecare units and academic medical centers, which have experienced high rates of COVID-19 admissions. Severalacademic medical centers and intensive care units participating in the RAISE trial have experienced COVID-relateddifficulties, including staff turnover and the need to devote significant resources to patients with COVID-19, which hasresulted in site initiation and enrollment delays for the RAISE trial. Given these COVID-19-related challenges and ourrecent interruption in drug supply, we now expect our top-line data readout for the RAISE trial to be available in thesecond half of 2023. In addition, our ganaxolone clinical trials in the outpatient setting may be negatively impacted ifpatients and their caregivers do not want to participate while the COVID-19 pandemic persists. The duration andseverity of the pandemic and its long-term impact on our business are uncertain at this time.Our Products and Product CandidatesZTALMY® (ganaxolone) oral suspension CXXZTALMY is an oral suspension given three times per day that we have developed for the treatment ofCDD. ZTALMY was approved by the FDA in March 2022 for the treatment of seizures associated with CDD inpatients 2 years of age and older. ZTALMY is pending scheduling by the Drug Enforcement Agency (DEA) as acontrolled substance under the Controlled Substances Act, which we expect to be completed in June 2022 (DEAScheduling). We expect to have ZTALMY available for commercial sale and shipment to patients with a prescriptionin the U.S. in mid-July 2022.CDD is a serious and rare genetic disorder that is caused by a mutation of the CDKL5 gene, located on theX chromosome. CDD is a severely debilitating and potentially fatal genetic condition, which occurs with an estimatedfrequency of 1:40,000 live births in the U.S. It predominantly affects females and is characterized by early onset,difficult to control seizures and severe neurodevelopmental impairment. The CDKL5 gene encodes proteins essentialfor normal brain function. Most children affected by CDD have neurodevelopmental deficits such as difficulty walking,talking and taking care of themselves. Many also suffer from scoliosis, gastrointestinal dysfunction or sleep disorders.Genetic testing is available to determine if a patient has a mutation in the CDKL5 gene.In June 2017, we were granted FDA orphan drug designation for ganaxolone for the treatment of CDD.Additionally, in November 2019, the European Medical Agency’s (EMA) Committee for Orphan Medicinal Products(COMP) granted orphan drug designation for ganaxolone for the treatment of CDD. In July 2020, the FDA grantedRare Pediatric Disease Designation (RPD Designation) for ganaxolone for the treatment of CDD. The FDA grants RPD Designation for diseases that affect fewer than 200,000 people in the U.S. and in which the serious or life-threatening manifestations occur primarily in individuals 18 years of age and younger. The approval of ZTALMY inCDD is based on data from the Phase 3 Marigold double-blind placebo-controlled trial, in which 101 patients wererandomized andTable of Contents9treated with ZTALMY. Patients showed a median 30.7% reduction in 28-day major motor seizure frequency, comparedto a median 6.9% reduction for those receiving placebo, achieving the trial’s primary endpoint (p=0.0036). In theMarigold open label extension study, patients treated with ZTALMY for at least 12 months (n=48) experienced amedian 49.6% reduction in major motor seizure frequency. In the clinical development program, ZTALMYdemonstrated efficacy, safety and tolerability with the most common adverse reactions (AEs) (incidence >5% and atleast twice the rate of placebo) in the ZTALMY group being somnolence, pyrexia, salivary hypersecretion, andseasonal allergy.Priority Review Voucher. As a result of the RPD Designation for ganaxolone for the treatment of CDD, the FDA awarded the Company a Rare Pediatric Disease Priority Review Voucher (PRV). This voucher may be redeemed for priority review by the FDA in a subsequent marketing application. Vouchers can be sold or transferred to a third party by the voucher recipient. We intend to monetize the PRV to fund on-going operations, including continued clinical development and commercialization efforts for ganaxolone. Commercial Strategy. Since ZTALMY was approved by FDA, we are focused on implementing and executing an integrated launch plan making ZTALMY available upon DEA Scheduling to CDD patients through a specialty pharmacy. Key launch strategies include: (1) establishing our supply chain network and quality management system to assure product is available to patients; (2) driving clinical awareness of ZTALMY as the first and only FDA approved product indicated specifically for seizures associated with CDD; (3) deploying our field sales force to target physicians who treat this rare pediatric patient population; (4) engaging commercial and government payers with the objective of obtaining insurance coverage; and (5) developing our internal capabilities (such as Finance, HR, IT, Data Analytics and Compliance) to support our first launch as a commercial company. Marketing Strategy. At launch, our strategy is to reinforce that seizures are central to the constellation ofCDD symptoms, establish ZTALMY as central to the comprehensive management of CDD, and ensure that patientshave seamless access to ZTALMY from prescription through fulfillment. Sales Strategy. Our sales leadership is in place, and we plan to hire approximately 16 regional accountmanagers experienced in rare disease as our commercial sales force. We expect to have the majority of these regional account managers hired by the end of the second quarter of 2022. Our field force will target identified key accounts and centers of excellence for CDD. Based on our market research, we estimate the addressable patient population for ZTALMY in CDD in the U.S. is approximately 2,000 patients. As this is the first product approvedby the FDA specifically for seizures associated with CDD and the International Classification of Diseases, TenthRevision (ICD10) code for CDD was established in 2020, there is limited data available for this specific market. Market Access. We have established a cross-functional payer and reimbursement account team with theobjective of obtaining and maintaining reimbursement (coverage) of ZTALMY. We plan to focus our efforts onreimbursement from commercial payers where pharmacy benefit managers (PBMs) control the majority of commercialpharmacy-benefit lives and government payers, primarily Medicaid for the target population for CDD. We expectapproximately 60% of the CDD patient population will access coverage through both Fee-for-Service and ManagedMedicaid, with the remaining 40% accessing commercial coverage, with the top PBMs having significant influence. Specialty Pharmacy. We plan to engage a specialty pharmacy to provide services for patients, includingpatient enrollment, benefit verification and investigation, prior authorization support, patient education and drugcounseling, dispensing of product and shipment coordination. Infrastructure. We continue to develop our internal capabilities and processes to support a commercial stagecompany. We have implemented a healthcare compliance program to guide our compliance with rules andregulations regarding pharmaceutical sales. Manufacture of Commercial Supply. We are in the process of negotiating a commercial supply agreement for ganaxolone API with our current manufacturer. We are also finalizing a commercial supply agreement with our current supplier of finished bulk drug product. Table of Contents10Regulated as a Controlled Substance. ZTALMY is expected to be regulated by the DEA as a controlled substance under the federal Controlled Substances Act of 1970 (CSA). Under the CSA, drugs are classified into five (5) distinct categories or schedules depending upon the drug’s acceptable medical use and the drug’s abuse or dependency potential. Based on our assessment of the abuse-related preclinical and clinical data on ganaxolone and its mechanism of action, we expect ZTALMY to be a Schedule IV drug. Schedule IV is defined by the DEA as drugs with a low potential for abuse and low risk of dependence. We expect this scheduling process to take approximately 90 days. We plan to commercially launch ZTALMY after this scheduling process is completed. As a controlled substance, ganaxolone will be subject to the applicable CSA requirements such as registration, security, recordkeeping and reporting, storage manufacturing, distribution, importation and other requirements. Post Marketing Requirements. In connection with the FDA approval of ZTALMY for CDD, we have a number of post marketing commitments which include: 2-year carcinogenicity studies of ganaxolone and the major human unconjugated plasma metabolite, M2, in rats; a 26-week carcinogenicity of ganaxolone in transgenic mice; a juvenile animal toxicity study of the major human unconjugated plasma metabolite, M2, in rats; phase 1 renal and hepatic impairment studies and a thorough QTc study; extractable/leachable study results on the container closure system; a CNS distribution study of the M47 metabolite in rats; and in vitro studies to assess the drug interaction potential of M47 metabolite. We expect to be able to complete the required FDA studies within the requested FDA timeframe. Marketing Authorization Application In August 2021, the Committee for Medicinal Products for Human Use (CHMP) of the EMA granted our request for accelerated assessment of ganaxolone for the treatment of seizures associated with CDD. The marketing authorization application (MAA) for ganaxolone was submitted to the EMA on October 11, 2021 and on October 28,2021 we received formal notification from the EMA that the CDD MAA was validated. With this validation, the EMAbegan its formal review of the MAA under the centralized procedure for all member states of the European Union(EU), Norway, Iceland, and Liechtenstein. In February 2022, the MAA was converted to a standard review and we reached an agreement with the EMA to extend the Day 120 clock stop by three months to allow sufficient time to respond to questions received as part of the review process. As a result, we expect the CHMP’s opinion on the MAA by the end of 2022.Our PipelineWe are developing ganaxolone in indications where there is a mechanistic rationale for ganaxolone toprovide a benefit, including the following indications:Table of Contents11Status Epilepticus (SE)SE is a life-threatening condition characterized by continuous, prolonged seizures or rapidly recurringseizures without intervening recovery of consciousness. If SE is not treated urgently, permanent neuronal damage mayoccur, which contributes to high rates of morbidity and mortality. Patients with SE who do not respond to first-linebenzodiazepine treatment are classified as having ESE and those who then progress to and then fail at least onesecond-line antiepileptic drug (AED) are classified as having RSE. In RSE, synaptic GABAA receptors are internalizedinto the neuron, resulting in decreased responsiveness to drugs such as benzodiazepines. Current treatment for RSEunresponsive to one or more second-line AEDs is IV anesthesia to terminate seizures and prevent neuronal injury andother complications. The IV anesthetic is increased to a level that induces deep coma and is maintained at that rate for24 hours or more. SE that recurs following an attempted wean of IV anesthesia is classified as super refractory statusepilepticus (SRSE). In April 2016, we were granted FDA orphan drug designation for IV formulation of ganaxolonefor the treatment of SE, which includes RSE.We own a family of pending patent applications that claim certain therapeutic regimens for the treatment ofSE, including RSE, using intravenous ganaxolone. In September 2021, the United States Patent Office granted us apatent on a method of treating status epilepticus, including dosing regimens. This issued patent expires in 2040.In January 2021, we enrolled the first patient in the Phase 3 pivotal RAISE trial. The RAISE trial is arandomized, double-blind, placebo-controlled clinical trial in patients with RSE. We expect approximately 80 trial sitesin hospitals, primarily across the U.S. and Canada, to participate. The RAISE trial is designed to enroll approximately124 patients, who will be randomized to receive ganaxolone or placebo added to standard of care second-line AED.With this number of patients, the trial is designed to provide over 90% power to detect a 30% efficacy differencebetween ganaxolone and placebo.The co-primary endpoints for the RAISE trial are (1) proportion of patients with RSE who experienceseizure cessation within 30 minutes of treatment initiation without other medications for RSE treatment, and (2)proportion of patients with no progression to IV anesthesia for 36 hours following initiation of the study drug. Severalacademic medical centers and intensive care units participating in the RAISE trial have experienced COVID-relateddifficulties including staff turnover and the need for clinical sites to devote significant resources to patients withCOVID-19, which has resulted in site initiation and enrollment delays in the RAISE trial. Additionally, in February2022, we temporarily paused the RAISE trial after routine monitoring of stability batches of clinical supply materialindicated that it became necessary to reduce the shelf life to less than the anticipated 24-months to meet productstability testing specifications.Table of Contents12We are targeting resupply of clinical trial material by the end of May 2022. Given these most recent challenges, weexpect our top-line data readout for the RAISE trial to be available in the second half of 2023.Planning continues for a separate RSE trial to support an MAA (RAISE II trial). Following a meeting withthe EMA in the first quarter of 2021, at which we discussed trial design, and due to the delay in clinical trial supplymentioned above, trial initiation is planned for the first half of 2023. The RAISE II trial will be a double blind,placebo-controlled pivotal registration trial expected to enroll 70 patients who have failed first-line benzodiazepinetreatment and at least one prior second-line AED. Patients will receive either ganaxolone or placebo, administered incombination with a standard-of-care second-line AED. The RAISE II trial in Europe will provide data that iscomplementary to the U.S. RAISE trial, with ganaxolone or placebo being administered in combination with astandard-of-care AED. There are two additional key differences from the U.S. RAISE trial. First, rather than includingonly progression to IV anesthesia as a treatment failure, the endpoint for RAISE II will include any escalation of care.This could be IV anesthesia or another second-line IV AED. Second, the primary analysis for the RAISE II trial willbe a responder analysis, with response defined as SE cessation within 30 minutes and no escalation of care within 36hours. The U.S. RAISE trial specifies a co-primary endpoint, requiring statistical significance for both early onset anddurability of effect.The FDA has indicated alignment on the overall trial design for a third SE study, the RESET trial, whichwill study ganaxolone in ESE. We are making preparations to begin U.S. enrollment of this Phase 2 clinical trial in thesecond half of 2022. The RESET trial is expected to be conducted in emergency rooms under exception from informedconsent guidelines and is expected to enroll patients with convulsive ESE. We expect that the RESET trial will becomposed of two stages, the initial open-label, dose optimization stage and subsequent double-blind placebo-controlledstage. We anticipate that during the open-label portion of the trial, multiple sequential cohorts of patients will beassessed to determine the bolus dose and subsequent IV infusion rate and infusion duration to be used in the double-blind second stage of the trial. We expect that this double-blind placebo-controlled phase will enroll approximately 80ESE patients equally distributed between two arms of the trial who, in addition to standard of care, will receive eitherIV ganaxolone or placebo. We also expect that the primary efficacy endpoint of the RESET trial will be the absenceof electrographic (rapid EEG) evidence of SE or recurrence of generalized convulsions at 1 hour after the initiation oftreatment. We plan to announce top-line data from the RESET trial by the end of 2023.Tuberous Sclerosis Complex (TSC)TSC is a rare genetic disorder that affects many organs and causes non-malignant tumors in the brain, skin,kidney, heart, eyes, and lungs. The condition is caused by inherited mutations in either the TSC1 gene or the TSC2gene. TSC occurs with a frequency of 1:6,000 live births and a mutation is found in 85% of patients. While the diseasephenotype can be extremely variable, epilepsy occurs in up to 85% of TSC patients. TSC is a leading cause of geneticepilepsy, often manifesting in the first year of life as either focal seizures or infantile spasms. There are currentlyfew disease-specific treatments approved for seizures in TSC. Orphan drug designation for ganaxolone for thetreatment in TSC was granted by the FDA in August 2021 and by the EMA in October 2021.In August 2021, we announced top-line data from our open-label Phase 2 trial (CALM trial) evaluating thesafety and efficacy of adjunctive oral ganaxolone in 23 patients with seizures associated with TSC. The CALM trialenrolled 23 patients ages 2 to 32 who entered a four-week baseline period followed by a 12-week treatment period,during which they received up to 600 mg of ganaxolone (oral liquid suspension) three times a day. Patients who meteligibility criteria were able to continue ganaxolone treatment during a 24-week extension. The primary endpoint wasthe percent change in 28-day TSC-associated seizure frequency during the 12-week treatment period relative to thefour-week baseline period. Secondary outcome measures included the percentage of patients experiencing a greaterthan or equal to 50% reduction in 28-day TSC-associated seizure frequency through the end of the 12-week treatmentperiod compared to the 4-week baseline period.The primary endpoint showed a median 16.6% reduction in 28-day in the frequency of TSC-associated seizures relative to the four-week baseline period. A secondary endpoint showed that the proportion of patients that achieved at least a 50% seizure reduction was 30.4%. During the trial, patients with focal seizures (n=19) showed a median 25.2% reduction in focal seizure frequency. Ganaxolone was generally well-tolerated with somnolence reported as the most common AE. In addition, one serious adverse event (SAE) of worsening seizures occurred, which was assessed by the investigator as treatment-related. Four patients discontinued the trial due to AEs. Additionally, the data from the trial Table of Contents13suggested that in patients on concomitant Epidiolex, early elevation of ganaxolone blood levels occurred and appeared to be linked to greater somnolence. We have adjusted the titration schedule in the Phase 3 TSC trial, with the goal of improving tolerability.In response to our request for an End of Phase 2 meeting with the FDA regarding a proposed Phase 3 TSC trial, the FDA provided written responses to our questions in lieu of a meeting. We believe the written responses show overall alignment on the clinical development plan in TSC. We also believe that, based on FDA’s written responses, with the FDA approval of CDD, a single trial could serve the necessary support for an NDA for TSC in the U.S. In response to our request for Protocol Assistance, which is a special form of scientific advice available for developers of designated orphan medicines for rare diseases, EMA provided written feedback in December 2021 in lieu of a meeting. We believe the written responses, as did those from the FDA, show overall alignment on the clinical development plan in TSC. After commencing site initiations in the first quarter of 2022, we are actively screening patients in the U.S. for the first patient to be enrolled in a global Phase 3 randomized, double blind, placebo-controlled trial (TrustTSC trial) of adjunctive ganaxolone in approximately 160 TSC patients. The primary endpoint for the TrustTSC trial is percent change in 28-day frequency of TSC-associated seizures. Lennox-Gestaut Syndrome (LGS) LGS is a severe form of epilepsy that typically begins between one and eight years of age. Affected childrenexperience multiple seizure types that are often unresponsive to treatment, the most common being atonic, tonic andatypical absence seizures. Children with LGS may also have neurodevelopmental delay and behavioral problems. We plan to pursue the development of ganaxolone for LGS, given the overlap in seizure types and etiologieswith other disorders where ganaxolone has potential to improve clinical outcomes, such as CDD and TSC. We areplanning to use a second-generation formulation of ganaxolone for our LGS development program.Orphan DesignationsThe FDA has granted orphan drug designation to ganaxolone for the treatment of SE, CDD, and TSC.Orphan drug designation is granted by the FDA Office of Orphan Products Development to novel drugs or biologicsthat treat a rare disease or condition affecting fewer than 200,000 patients in the United States. The designationprovides the drug developer with a seven-year period of U.S. marketing exclusivity, as well as tax credits for clinicalresearch costs, the ability to apply for annual grant funding, clinical research trial design assistance and waiver ofPrescription Drug User Fee Act filing fees.Ganaxolone Mechanism of ActionGanaxolone is a methylated analog of the endogenous neurosteroid, allopregnanolone. Allopregnanoloneexhibits potent anxiolytic, antidepressant and anti-seizure activity. Unlike allopregnanolone, ganaxolone cannot beback-converted to active intermediates possessing steroid hormone activity.Both ganaxolone and allopregnanolone bind to GABAA receptors that, when activated, permit flow of chloride ions into the neuron. This change in concentration of chloride ions results in hyperpolarization and is the basis for the inhibitory effect of GABA. Classic GABAA active drugs bind only at receptors located on the synapsebetween neurons. However, both allopregnanolone and ganaxolone also bind to extrasynaptic GABAA receptors.Synaptic GABAA receptors respond quickly to inhibit neurotransmission (phasic inhibition), while extrasynapticGABAA receptors provide a constant baseline level of inhibition (tonic inhibition).Activity at extrasynaptic GABAA receptors may be of particular importance for the prolonged seizures inSE, during which synaptic, but not extrasynaptic, receptors become internalized into the neuron and are unavailable forbinding of GABAergic drugs.Table of Contents14Safety OverviewOral SafetyMore than 1,900 individuals have received oral formulations of ganaxolone for durations from one day tomore than two years at doses of 50 to 2,000 mg/day. Ganaxolone was administered in Phase 2 clinical trials to pediatricpatients at doses up to 1,800 mg/day and to adult patients at doses up to 1,875 mg/day. No drug-related deaths occurredin any of these clinical trials and the majority of AEs were non-serious and resolved upon discontinuation of therapy.The most common side effects with oral ganaxolone relate to sedation or somnolence. In the oral ganaxolone safetydatabase there are no trends of medically important changes in blood chemistry, vital signs, liver function, renalfunction or cardiovascular parameters in adult or pediatric populations.In the pivotal Phase 3 clinical trial (Marigold Study), which evaluated the use of oral ganaxolone in childrenand young adults with CDD ganaxolone was generally well tolerated with a safety profile consistent with previousclinical trials. The most frequent AE was somnolence.In the Phase 2 TSC trial, ganaxolone was generally well tolerated with somnolence reported as the mostcommon AE consistent with previous studies. Concomitant Epidiolex appeared to be linked to greater somnolence. Astudy is planned to assess whether there is a potential for drug-drug interaction between ganaxolone and Epidiolex.IV SafetyIn 2016, we completed a Phase 1 dose-escalation trial with IV ganaxolone that enrolled 36 patients, designedto determine the PK, pharmacodynamics (PD), and safety of IV ganaxolone administered as an ascending bolus dose(Stage 1) or continuous infusion (Stage 2). Thirty-six healthy volunteers were enrolled.Every dose regimen of IV ganaxolone, either bolus or continuous infusion, was generally safe and well-tolerated and rapidly reached targeted dose levels. Six treatment-emergent AEs were reported, all of which were mildin severity and resolved without intervention. Only headache was considered possibly related to study treatment. Nopatient discontinued due to an AE and no SAEs were reported. IV ganaxolone plasma concentrations were generallyproportional to the administered dose. In addition, the continuous infusion of IV ganaxolone achieved the targetedexposure levels associated with anticonvulsant activity.In 2019, we announced positive top-line results in our open-label, dose-finding Phase 2 clinical trial evaluating IV ganaxolone in patients with RSE. In the trial, ganaxolone had an acceptable safety and tolerability profile for the RSE patient population in all dose groups. There were 10 SAEs; eight were considered not related to treatment and two were considered treatment-related (TRSAEs). The TRSAEs were severe sedation in two patients that led to early ganaxolone discontinuation: one in the medium dose group on day three and one in the target dose group on day one. There were 50 AEs, thirteen of which were considered treatment-related (TRAEs) reported in seven patients. The most commonly reported TRAEs were somnolence, mild hypotension and sedation.Preclinical Pharmacology and ToxicologyWe have completed preclinical safety pharmacology and toxicology testing, including reproductivetoxicology. Animal pharmacokinetic and in vitro studies show that ganaxolone is metabolized primarily by theCytochrome P450, family 3, subfamily A (CYP3A) family of liver enzymes, a common route of drug metabolism. Allin vitro studies have shown that ganaxolone has low potential for interaction with other drugs at several multiples ofobserved human ganaxolone levels. Our recent Phase 2 clinical study in TSC suggests a pharmacokinetic drug-druginteraction (DDI) between Epidiolex and ganaxolone where co-administration produces higher plasma levels ofganaxolone than those produced by administration of ganaxolone without Epidiolex. Preclinical in vitro studies havebeen conducted in an effort to identify the precise DDI between these two drugs. These studies indicate that the DDIis not caused in the liver by Epidiolex or its metabolites interfering with ganaxolone metabolism. Furthermore, neitherganaxolone nor its metabolites have a ketone ring at the 3-position, a requirement for hormonal activity. In bindingand functional activity studies, ganaxolone has no appreciable affinity for estrogen or progesterone receptors. Wefound no evidence of changesTable of Contents15in blood, liver, kidney or the gastrointestinal systems indicating functional or anatomical adverse effects associatedwith either single- or multiple-dose treatment with ganaxolone in preclinical safety pharmacology studies, nor have weseen evidence of any end organ toxicity from human clinical trials. We have not detected potential for ganaxolone tocause cellular mutations or carcinogenicity in trials to date.Ganaxolone is metabolized extensively in animals and humans. During the development of CDD, one majormetabolite (M2) was present in plasma of humans that was not found in plasma of rats or dogs. The chemicalstructure of M2 has been identified. In October 2020, the FDA communicated that the characterization of the activityof the M2 metabolite would need to be included in the NDA submission for CDD. We have determined that M2 hasno functional activity on GABA receptors and have concluded that M2 does not contribute to the pharmacologicalactivity associated with ganaxolone administration. The results of the activity assay were included in the July 2021NDA submission for CDD, as required. Additionally, a dose range finding study in rats and an in vivo micronucleuswith comet analysis for the detection of genotoxicity have been conducted, with the results from the verified draftstudy report showing no genotoxicity found, as measured by formation of micronuclei in the bone marrow or cometmorphology in the liver. The final study report is expected by the end of the second quarter of 2022. Results fromadditional preclinical studies are required to the FDA as post-marketing requirement(s). These include: 2-yearcarcinogenicity studies of ganaxolone and the major human unconjugated plasma metabolite, M2, in rats; a 26-weekcarcinogenicity of ganaxolone in transgenic mice; a juvenile animal toxicity study of the major human unconjugatedplasma metabolite, M2, in rats; a CNS distribution study with M47 metabolite, in rats; and in vitro studies to assess thedrug interaction potential of M47 metabolite. We plan to complete the required FDA studies within the required FDAtimeframe. In the EU, if additional studies are needed, these are usually required before or during MAA review.In reproductive toxicology studies, ganaxolone did not cause malformations of the embryo or fetus in rats ormice and did not significantly affect the development of offspring. No changes in sperm parameters were found. Webelieve these findings are important, as many currently marketed AEDs have shown developmental toxicities in animalstudies, including fetal death and skeletal abnormalities. Valproate, carbamazepine, phenytoin, topiramate and otherAEDs have been linked to birth defects in humans (e.g., head and facial malformations and lowered birth weight).These findings have resulted in labeling for these drugs indicating evidence of human fetal risk.Intellectual PropertyThe proprietary nature of and protection for ZTALMY, other indications being developed for ganaxoloneand any other future product candidates, discovery programs and know-how are important to our business. We havesought patent protection in the United States and internationally for synthetic methods for making ganaxolone,ganaxolone nanoparticles, which are used in certain oral solid, oral liquid, and IV dose formulations, other injectableand oral ganaxolone formulations, and methods of treatment using ganaxolone. Our policy is to pursue, maintain anddefend patent rights whether developed internally or licensed from third parties and to protect the technology,inventions and improvements that are commercially important to the development of our business. The patents andpatent applications owned by us comprise approximately 15 different patent families, filed in various jurisdictionsaround the world.Nanoparticle Ganaxolone Formulations. We own approximately four patent families directed to nanoparticleformulations of ganaxolone and complexing agents that deliver consistent exposure and improved stability ofganaxolone, and certain uses of the formulations. One of the patent families includes eight issued United States patentswith claims directed to certain solid and liquid ganaxolone formulations and certain methods for the making and usethereof. Corresponding foreign patents have been granted in Australia, Canada, China, Europe, Hong Kong, India,Israel, Japan, Mexico, South Africa, New Zealand, Singapore and South Korea. The 20-year term for patents in thisfamily runs through 2026, absent any available patent term adjustments or extensions. We have not out-licensed anyrights to practice these patents in any of these territories. Pursuant to our agreement with Domain Russia InvestmentsLimited (DRI), we assigned to DRI patent rights, which rights were subsequently assigned to NovaMedica LLC (NovaMedica), along with the right to develop and commercialize ganaxolone in Russia and certain other member countries of the Eurasian Patent Organization. For more information regarding the DRI and NovaMedica agreements, please see “Intellectual Property – Licenses and Collaborations.” A second patent family directed to injectable nanoparticle neurosteroid formulations consists of one granted United States patent and one pending United States application. The 20-year term of this patent family runs through 2036, absent any available patent term adjustments. We have Table of Contents16approximately two patent families consisting of two pending United States provisional applications directed to additional formulations of ganaxolone.Process for Manufacturing Ganaxolone. Our patent portfolio contains patents issued in Australia, Brazil,Canada, China, Europe, Hong Kong, India, Israel Japan, Mexico, New Zealand, South Korea, and the United Statescovering our synthetic process for manufacturing ganaxolone. The 20-year term for patents in this family runs through2030, absent any available patent term adjustments or extensions. The European patent has been validated in France,Germany, Ireland, Italy, Spain, and Switzerland.Intravenous Ganaxolone Formulations. We own approximately four patent families directed to our IVganaxolone formulations that we are developing for the treatment of SE and certain other disorders. One of the patentfamilies includes pending applications in Australia, Canada, China, Europe, Israel, India, Japan, South Africa, and theUnited States that claim certain injectable ganaxolone formulations containing sulfobutyl ether-beta-cyclodextrin andcertain methods of use of the formulations, including for the treatment of SE. The 20-year term for this patent familyruns through to 2036, absent any available patent term adjustments or extensions. A second patent family currentlyincludes one issued United States patent with claims directed to certain therapeutic regimens for the treatment of SEusing IV ganaxolone, and an international application filed under the Patent Cooperation Treaty (PCT) that is directedto certain therapeutic regimens for the treatment of SE using IV ganaxolone. The 20-year term for patents based onthis international application will run through 2040, absent any available patent term adjustments. We intend to filenational phase applications in various foreign jurisdictions based on this PCT application before applicable deadlines. Athird patent family currently consists of a pending international application filed under the PCT that is directed tocertain therapeutic uses of IV ganaxolone. We intend to file national phase applications in various foreign jurisdictionsbased on the PCT application before applicable deadlines. The 20-year term for patents based on this internationalapplication will run through 2041, absent any applicable available patent term adjustments. A fourth patent familycurrently consists of a pending United States provisional application directed to certain therapeutic uses of SE. Weintend to file an international patent application under the PCT before the applicable deadline.Additional Therapeutic Uses. We own approximately four patent families directed to certain therapeutic usesof ganaxolone, including for treating genetic epilepsy disorders, such as, CDD and PCDH19-Related Epilepsy(PCDH19-RE), TSC, and depressive disorders. One of the patent families includes pending applications filed inAustralia, Canada, China, Eurasia, Europe, India, Japan, Korea, Malaysia, New Zealand, Singapore, Vietnam, and theUnited States that claim certain methods of treating epileptic disorders. The 20-year term for patents in this family runsthrough 2038, absent any available patent term adjustments or extensions. A second patent family currently includesone pending international patent application filed under the PCT that claims certain methods of treating TSC. Weintend to file national phase applications in various foreign jurisdictions based on this PCT application beforeapplicable deadlines. The 20-year term for patents based on this family run through 2040, absent any available patentterm adjustments or extensions. A third family currently comprises one pending United States provisional applicationdirected to certain therapeutic regimens for certain disorders using ganaxolone. We intend to file an international patentapplication under the PCT before the applicable deadline.We have also licensed from Ovid certain patents that are directed to certain therapeutic uses of ganaxolonefor the treatment of CDD. The licensed patent family includes a granted U.S. patent and a pending application inEurope. The 20-year term for patents based on this international application will run through 2037, absent an availablepatent term adjustments.We also own two patent families directed to certain methods of treating depressive disorders. One patentfamily consists of three granted United States patents directed to certain methods of using ganaxolone for treatingpostpartum depression and related disorders. The 20-year patent term of this family runs through 2037, absent anyavailable patent term adjustments. A second patent family currently includes one allowed United States patent directedto claims certain methods of using ganaxolone for treating postpartum depression using ganaxolone. The 20-year termof this family runs through 2039, absent any available patent term extensions. Our fifth patent family currentlycomprises one pending international patent application filed under the PCT that is directed to certain new therapeuticregimens for treating epileptic disorders. We intend to file national phase applications in various foreign jurisdictionsbased on the PCTTable of Contents17application before applicable deadlines. The 20-year term for patents based on this international application will runthrough 2041, absent any applicable available patent term adjustments.In addition to patents, we rely upon unpatented trade secrets, know-how and continuing technologicalinnovation to develop and maintain a competitive position. We seek to protect our proprietary information, in part,through confidentiality agreements with our employees, collaborators, contractors and consultants, and inventionassignment agreements with our employees and some of our collaborators. The confidentiality agreements are designedto protect our proprietary information and, in the case of agreements or clauses requiring invention assignment, to grantus ownership of technologies that are developed through a relationship with a third party.General ConsiderationsAs with other biotechnology and pharmaceutical companies, our ability to maintain and solidify a proprietaryposition for our ganaxolone synthesis and formulations will depend upon our success in obtaining effective patentclaims and enforcing those claims once granted. Our commercial success will depend in part upon not infringing uponthe proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent could require us toalter our development or commercial strategies, obtain licenses, or cease certain activities. The biotechnology andpharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual propertyrights.The term of a patent that covers an FDA-approved drug may be eligible for patent term extension, whichprovides patent term restoration as compensation for the patent term lost during the FDA regulatory review process.The Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act) permits a patent termextension of up to five years beyond the expiration of the patent. The length of the patent term extension is related tothe length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patentbeyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug maybe extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patentthat covers an approved drug. In the future, if and when our pharmaceutical products receive FDA approval, we expectto apply for patent term extensions, where available, on patents covering those products in the respective jurisdictions.Many pharmaceutical companies, biotechnology companies and academic institutions are competing with usin the field of neuropsychiatric disorders and filing patent applications potentially relevant to our business. Even if aparticular third-party patent is identified as possibly being relevant to our product candidates or technology, we mayconclude upon a thorough analysis, that we do not infringe upon the patent or that the patent is invalid. If the third-party patent owner disagrees with our conclusion and we continue with the business activity in question, we may besubject to patent litigation. Alternatively, we might decide to initiate litigation in an attempt to have a court declare thethird-party patent invalid or non-infringed by our activity. In either scenario, patent litigation typically is costly andtime-consuming, and the outcome can be favorable or unfavorable.Licenses and CollaborationsOrionOn July 30, 2021, we entered into a collaboration agreement (Orion Collaboration Agreement) with Orion Corporation (Orion), whereby Orion received exclusive rights to commercialize the oral and IV dose formulations of ganaxolone in the European Economic Area, United Kingdom and Switzerland in multiple seizure disorders, including CDD, TSC and RSE. Under the agreement, we received a €25 million ($29.6 million) upfront fee and are eligible to receive up to an additional €97 million in R&D reimbursement and cash milestone payments based on specific clinical and commercial achievements, as well as tiered royalty payments based on net sales ranging from the low double digits to the high teens for the oral programs and the low double-digits to the low twenties for the IV programs. In connection with the upfront fee, we agreed to provide Orion with the results of an ongoing genotoxicity study on the M2 metabolite of ganaxolone, a “Combined Micronucleus & Comet study in vivo.” In the event that the results of such study were positive, based on the criteria set forth in the study’s protocol, Orion would have had the right to terminate the Orion Collaboration Agreement within ninety (90) days after its receipt of the final report of such study, in which case we Table of Contents18would have been required to refund Orion seventy-five percent (75%) of the upfront fee. In February 2022, the verified draft study report showed that no genotoxicity was found, as measured by formation of micronuclei in the bone marrow or comet morphology in the liver. As such, but subject to confirmation of such results in the final study report expected by the end of the second quarter of 2022, we will not be required to refund Orion any of the upfront fee and Orion will not have a right to terminate the Orion Collaboration Agreement as a result of the study’s findings. CyDexIn March 2017, we entered into a License Agreement and a Supply Agreement with CyDex Pharmaceuticals,Inc. (CyDex). Under the terms of the License Agreement, CyDex granted us an exclusive license to use CyDex’ssulfobutylether beta-cyclodextrin, or Captisol®, drug formulation system and related intellectual property in connection with the development and commercialization of ganaxolone in any and all therapeutic uses in humans, with some exceptions. As consideration for this license, we paid an upfront fee and are required to make additional payments in thefuture upon achievement of various specified clinical and regulatory milestones. We will also be required to payroyalties to CyDex on sales of ganaxolone, if successfully developed, in the low-to-mid single digits based on levels ofannual net sales. As of March 24, 2022, we have achieved one milestone under the License Agreement, whichoccurred and was paid in the first quarter of 2021. Certain patents relating to Captisol®, including some that werelicensed to us by CyDex, have expired, while other patents that are licensed to us remain in force.Under the terms of the Supply Agreement, we are required to purchase all of our requirements for Captisolwith respect to ganaxolone from CyDex, and CyDex is required to supply us with Captisol for such purposes, subjectto certain limitations.NovaMedicaIn December 2012, we entered into a Technology Transfer Agreement (Transfer Agreement) with DRI.Pursuant to the Transfer Agreement, in exchange for a payment of $100,000, we assigned to DRI certain patents andpatents applications in Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan,Turkmenistan, Ukraine and Uzbekistan (Covered Territory), and granted to DRI an exclusive, royalty-free, irrevocableand assignable license under our know-how to develop and commercialize ganaxolone and other products that wouldinfringe our patent rights or use our know-how (Covered Products) in the Covered Territory, in the field of uses forany human or animal disease or condition excluding the treatment of unpleasant sensory or emotional experienceassociated with actual or potential tissue damage or described in terms of such damage (Field). DRI subsequentlytransferred all of its rights and obligations under the Transfer Agreement to NovaMedica. Under the terms of theTransfer Agreement, NovaMedica, or its permitted transferees or assignees, has the exclusive right within the CoveredTerritory to manufacture the Covered Products solely for development and commercialization in the Covered Territoryin the Field. Until the first commercial sale of a Covered Product within the Covered Territory, NovaMedica will havethe right to purchase supplies of the Covered Product from us on a cost-plus basis, subject to certain limitations. TheTransfer Agreement also provides that we will enter into the Supply Agreement with NovaMedica to supplyganaxolone and/or Covered Product for development in the Covered Territory at a future date.In June 2013, we entered into a Clinical Development and Collaboration Agreement (CollaborationAgreement) with NovaMedica, pursuant to which we agreed to assist NovaMedica in the development andcommercialization of Covered Products in the Covered Territory in the Field. The Collaboration Agreement requiresthe formation of committees consisting of our representatives and NovaMedica representatives to oversee the generaldevelopment, day-to-day development work and commercialization of Covered Products in the Field in the CoveredTerritory. NovaMedica is required to reimburse us for any out-of-pocket expenses incurred by us in providing thisassistance, except for expenses incurred in our participation on the joint committees. Pursuant to the CollaborationAgreement and the Transfer Agreement, we have agreed to use commercially reasonable efforts to include sites in theRussian Federation in our clinical trial programs for the first indications of the Covered Products at our sole expense.Under the Transfer Agreement, at least 36 months prior to the first commercial sale of a product candidate in theCoveredTable of Contents19Territory, the parties have agreed to negotiate in good faith a supply agreement pursuant to which we or a third partycontract manufacturer authorized by us to manufacture and supply the Covered Products, will supply needed quantitiesof Covered Product to NovaMedica solely for commercialization of Covered Products in the Covered Territory, oncommercially fair and reasonable terms. Such purchases will be made on a cost-plus basis. The CollaborationAgreement expires on the earlier of three years following the first commercial sale of a product candidate in theCovered Territory or the termination of the Transfer Agreement. NovaMedica also has the right to terminate theCollaboration Agreement at any time at its convenience upon 90 days’ prior written notice.Purdue Neuroscience Company (Purdue)In September 2004, we entered into a license agreement with Purdue, which was amended and restated inMay 2008, that granted us exclusive rights to certain know-how and technology relating to ganaxolone, excluding thefield of treatment of unpleasant sensory or emotional experience associated with actual or potential tissue damage ordescribed in terms of such damage. The agreement contains a right by us to sublicense, subject to prior writtenapproval by Purdue, and we have sublicensed our licensed rights to NovaMedica for the Covered Territory. We areobligated to pay royalties as a percentage in the range of high single digits up to 10% of net product sales for directlicensed products, such as ganaxolone. The obligation to pay royalties expires, on a country-by-country basis, ten yearsfrom the first commercial sale of a licensed product in each country. Upon commercialization, we estimate the in-licensed technology would result in us paying royalties to Purdue in the low single digits as a percentage of sales.Other payment obligations may be triggered if we successfully partner our product candidates with third parties. Inaddition, the agreement also requires that we pay Purdue a percentage in the mid-single digits of the non-royaltyconsideration that we receive from a sublicensee and a percentage in the twenties of milestone payments received fromsublicensees for indications other than seizure disorders and vascular migraine headaches not associated with mooddisorders. Under the license agreement, we are committed to use commercially reasonable efforts to develop andcommercialize at least one licensed product.Ovid LicenseIn March 2022, we entered into an exclusive patent license agreement (License Agreement) with OvidTherapeutics Inc. (Ovid). Under the License Agreement, we have an exclusive, non-transferable (except as provided inthe License Agreement), royalty-bearing, sublicensable license under certain of Ovid’s patent(s) and patent applicationsto develop, make, have made, commercialize, promote, distribute, sell, offer for sale and import, ganaxolone, includingany analogues or derivatives, including its salts, and pharmaceutical formulations of the foregoing (Licensed Products),in the U.S., the member states of the EU, Iceland, Lichtenstein, Norway, the United Kingdom, and Switzerland(Territory) for the treatment of CDD in humans (Field). Under the License Agreement, we have the sole right andresponsibility for, and control over, all development, manufacturing, and commercialization activities, including allregulatory activities, with respect to the Licensed Products in the Field in the Territory. In addition, all regulatoryapprovals and related filings with respect to the Licensed Products in the Field in the Territory will be in the name of,and be owned solely by, us. We are required, at Ovid’s option exercisable in accordance with the License Agreement,to (i) pay to Ovid the sum of $1.5 million in cash; or (ii) issue to Ovid 123,255 shares of our common stock, whichoption to obtain shares of our common stock is exercisable within the five-business day period following the filing ofthis Annual Report on Form 10-K. The License Agreement also provides for payment of royalties by us to Ovid in thelow single digits on net sales by us, our affiliates and sublicensees, of Licensed Products in the Field in the Territory.Such royalties are subject to reduction in the event of generic competition in accordance with the License Agreement.We may terminate the License Agreement at any time without cause on thirty days’ prior written notice. Either partymay terminate the License Agreement for the other party’s material breach or insolvency subject to certain cureperiods. Also, Ovid has the right to terminate the License Agreement if there has not been a first commercial sale ofany Licensed Products in the Field in the Territory on or before June 30, 2025. In the event of termination, all licensesgranted under the License Agreement will terminate.CompetitionThe pharmaceutical industry is highly competitive and subject to rapid and significant technological change.While we believe that our development experience and scientific knowledge provide us with competitive advantages,weTable of Contents20face competition from both large and small pharmaceutical and biotechnology companies, specifically from companiesthat treat rare seizure disorders.There are a variety of available therapies marketed for rare seizure disorders. In many cases, these productsare administered in combination to enhance efficacy or to reduce side effects. Some of these drugs are branded andsubject to patent protection, some are in clinical development and not yet approved, and others are available on ageneric basis. Many of these approved drugs are well established therapies or products and are widely accepted byphysicians, patients and third-party payers. Insurers and other third-party payers may also encourage the use of genericproducts. More established companies have a competitive advantage over us due to their greater size, cash flows,established commercial infrastructure, clinician relationships and institutional experience. Compared to us, many of ourcompetitors have significantly greater financial, technical and human resources with longer histories of marketedproducts.Our competitors may also develop drugs that are safer, more effective, more widely used and less costly thanours, and may also be more successful than us in manufacturing and marketing their products. These appreciableadvantages could render ganaxolone obsolete or non-competitive before we can recover the expenses of ganaxolone’sdevelopment and commercialization.We primarily compete with pharmaceutical and biotechnology companies that are developing therapies ormarketing drugs to treat indications that we are targeting.SESE patients generally are treated with benzodiazepines as first-line treatment. When benzodiazepines are not effective the patients are in ESE and are treated with various second-line IV AEDs, such as levetiracetam, fosphenytoin, lacosamide, or valproate. In 2019, a multicenter, randomized clinical trial (Established Status Epilepticus Treatment Trial; ESETT) was conducted by a group of academic investigators and was designed to evaluate the effectiveness of second-line IV AEDs in ESE. In this trial, the efficacy of levetiracetam, fosphenytoin, or valproate was evaluated in convulsive ESE patients. It was reported that levetiracetam, fosphenytoin, and valproate were effective at stopping SE in 47%, 45%, and 46% of the patients, respectively. When second-line AEDs are not effective, RSE patients are generally placed in a medically-induced coma under IV anesthesia in an attempt to stop the seizures and prevent further damage to the brain and death. Patients on third-line IV anesthesia are at higher risk for anesthesia-associated morbidities, such as infection, and have 2.9 times greater mortality rate. In addition, patients on IV anesthetics for SE treatment have increased lengths of stays in the hospital and ICU resulting in increased healthcare utilization. To our knowledge, there are no treatments indicated for RSE, and there are no other companies currently conducting clinical trials in SE patients.CDD and TSCThere are no drugs other than our product ZTALMY approved specifically for the treatment of seizures associated with CDD, and two drugs approved for the treatment of seizures associated with TSC: Novartis Pharmaceuticals Corp.’s Afinitor DISPERZ® (everolimus tablets for oral suspension) and Jazz Pharmaceuticals, Inc.’s EPIDIOLEX® (cannabidiol). CDD and TSC patients are typically prescribed drugs approved for epileptic seizures, which often fail to control seizures in these patient populations. To our knowledge, there is only one other company with a drug in active development for the treatment of CDD (UCB S.A’s, FINTEPLA® Fenfluramine Hydrochloride).ManufacturingManufacturing of drugs and product candidates, including ganaxolone, must comply with FDA current goodmanufacturing practice (cGMP) regulations. Ganaxolone is a synthetic small molecule made through a series oforganic chemistry steps starting with commercially available organic chemical raw materials. We conduct manufacturingactivities under individual purchase orders with independent contract manufacturing organizations (CMOs) to supplyour clinical trials. We are in the process of negotiating a commercial supply agreement for ganaxolone’s API with ourcurrent manufacturer and are finalizing a commercial supply agreement with our current supplier of finished bulk drugproduct. We have an internal quality program and have qualified and signed quality agreements with our major CMOs.Table of Contents21We conduct periodic quality audits of their facilities. We believe that our existing suppliers of ganaxolone’s activepharmaceutical ingredient and finished product will be capable of providing sufficient quantities of each to meet ourclinical trial supply needs. We also believe our current API manufacturer will be able to meet our commercial needsfor ZTALMY. CMOs may be used in the future for clinical supplies and commercial manufacturing.Ganaxolone FormulationsThe therapeutic possibilities of ganaxolone have been understood for some time; however, becauseganaxolone is a high-dose water insoluble compound, developing a formulation that could provide consistent drugexposure and could be manufactured at a commercially feasible cost had proven challenging. We believe our patentednanoparticulate formulation and novel manufacturing process for ganaxolone can successfully address the cost ofmanufacturing and pharmacokinetic challenges that previously encumbered the clinical and commercial feasibility ofganaxolone.Ganaxolone is currently formulated for oral and IV administration. In addition, we are evaluating variousformulation approaches to improve ganaxolone’s oral drug properties.Commercial OperationsIn anticipation of FDA approval for ZTALMY, we have built a commercial operations infrastructure, including, marketing infrastructure, market access capabilities, and we are building our sales field force and expect it to be fully in place by the end of the second quarter 2022, to reach high prescribing neurologist, critical care, epilepsy specialists and other target physician populations in the United States. ZTALMY is expected to be regulated by the DEA as a controlled substance under the CSA. We expect this scheduling process to take approximately 90 days. We plan to commercially launch ZTALMY after this scheduling process is completed. We believe a focused salesand marketing organization could be leveraged to market ganaxolone across multiple epilepsy indications. We believethat there could also be significant market opportunities for ganaxolone in epilepsy and other neurological andpsychiatric conditions outside of the United States. In order to capitalize on such opportunities, we plan to seekcollaborations with pharmaceutical companies that have greater reach and resources by virtue of their size andexperience in the field.Government RegulationAs a pharmaceutical company that operates in the United States, we are subject to extensive regulation bythe FDA, and other federal, state, and local regulatory agencies. The Federal Food, Drug, and Cosmetic Act (FDC Act)and its implementing regulations set forth, among other things, requirements for the research, testing, development,manufacture, quality control, safety, effectiveness, approval, packaging, labeling, storage, record keeping, reporting,distribution, import, export, advertising and promotion of our products. Although the discussion below focuses onregulation in the United States, we anticipate seeking approval for, and marketing of, our product candidates in othercountries. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope asthat imposed in the United States, although there can be important differences. In addition, some significant aspects ofregulation in the European Union (EU) are addressed in a centralized way through the European Medicines Agency(EMA), but country-specific regulation also remains in many essential respects. The process of obtaining regulatorymarketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes andregulations will require the expenditure of substantial time and financial resources in order to be successful.United States Government RegulationThe FDA is the main agency that regulates pharmaceuticals in the United States, and its regulatory authorityis based in the FDC Act. Pharmaceutical products are also subject to other federal, state and local statutes. A failure tocomply with applicable requirements during the product development, approval, or post-approval periods may lead toadministrative or judicial sanctions. These sanctions could include the imposition by the FDA or an institutionalreview board (IRB) of a hold on clinical trials, refusal to approve pending marketing applications or supplements,withdrawal of approval, warning letters, product recalls, product seizures, total or partial suspension of production ordistribution, injunctions, fines, civil penalties or criminal prosecution.Table of Contents22The steps required before a new drug may be marketed in the United States generally include:●completion of preclinical laboratory tests and animal studies in compliance with the FDA’s goodlaboratory practice (GLP) regulations, as applicable, including pharmacology and formulation studies todevelop detailed information relating to the product’s chemistry, manufacturing and controls;●submission to the FDA of an Investigational New Drug application (IND) to support human clinicaltrials;●approval by an IRB at each clinical site before each trial may be initiated;●performance of adequate and well-controlled clinical trials in accordance with federal regulations,including requirements for good clinical practices (GCP) to establish the safety and efficacy of theinvestigational product candidate for each targeted indication;●submission of a new drug application (NDA) to the FDA;●satisfactory completion of an FDA Advisory Committee review, if applicable;●satisfactory completion of an FDA inspection of clinical trial sites to ensure compliance with GCP, ifapplicable;●satisfactory completion of an FDA inspection of the manufacturing facilities at which the investigationalproduct candidate is produced to assess compliance with cGMP, and to assure that the facilities,methods and controls are adequate; and●FDA review and approval of the NDA.The preclinical and clinical testing and approval process requires substantial time, effort, and financial resources, andwe cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.Clinical TrialsAn IND is a request for authorization from the FDA to administer an investigational product candidate tohumans. A 30-day waiting period after the initial submission of an IND is required prior to the commencement ofclinical testing in humans. If the FDA has not raised concerns or questions about the proposed clinical testing andplaced the IND on clinical hold within this 30-day period, the clinical trial proposed in the IND may initiate. If an INDhas been placed on clinical hold, the sponsor must resolve the FDA’s outstanding concerns or questions beforeclinical trials can begin.Clinical trials involve the administration of the investigational product candidate to subjects under the supervision of qualified investigators in accordance with GCP, which are requirements meant to protect the rights and health of subjects and to assure the quality, reliability and integrity of data collected in clinical trials. Clinical trials are conducted under protocols that detail, among other things, the subject inclusion and exclusion criteria, the dosing regimen, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. Each protocol involving testing on United States subjects and subsequent protocol amendments must be submitted to the FDA as part of the IND. The informed written consent of each participating subject is required, and an IRB at each site where the trial is conducted must approve the trial. The IRB must monitor the trial until completed. There are also requirements governing the registration of ongoing clinical trials and the reporting of clinical trial results to public registries.Table of Contents23The clinical investigation of an investigational product candidate is generally divided into three phases.Although the phases are usually conducted sequentially, they may overlap or be combined. The three phases of aninvestigation are as follows:●Phase 1. Phase 1 includes the initial introduction of an investigational product candidate into humans.Phase 1 trials generally are conducted in healthy volunteers but in some cases are conducted in patientswith the target disease or condition. These trials are designed to evaluate the safety, metabolism, PKsand pharmacologic actions of the investigational product candidate in humans, the side effectsassociated with increasing doses, and if possible, to gain early evidence on effectiveness. DuringPhase 1 trials, sufficient information about the investigational product candidate’s PKs andpharmacological effects may be obtained to permit the design of Phase 2 trials. The total number ofparticipants included in Phase 1 trials varies but is generally in the range of 20 to 80.●Phase 2. Phase 2 includes the controlled clinical trials conducted in patients with the target disease orcondition, to determine dosage tolerance and optimal dosage, to identify possible adverse side effectsand safety risks associated with the product candidate, and to obtain initial evidence of the effectivenessof the investigational product candidate for a particular indication. Phase 2 trials are typically well-controlled, closely monitored, and conducted in a limited subject population, usually involving no morethan several hundred participants.●Phase 3. Phase 3 trials are controlled clinical trials conducted in an expanded subject population atgeographically dispersed clinical trial sites. They are performed after preliminary evidence suggestingeffectiveness of the investigational product candidate has been obtained, and are intended to furtherevaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of theproduct candidate, and to provide an adequate basis for drug approval. Phase 3 trials usually involveseveral hundred to several thousand participants. In most cases, the FDA requires two adequate andwell controlled Phase 3 trials to demonstrate the efficacy and safety of the drug; however, the FDA mayfind a single Phase 2 or Phase 3 trial with other confirmatory evidence to be sufficient in rare instances,particularly in an area of significant unmet medical need and if the trial design provides a well-controlled and reliable assessment of clinical benefit.●Phase 4. In some cases, the FDA may condition approval of an NDA for a product candidate on thesponsor’s agreement to conduct additional clinical trials after approval. In other cases, a sponsor mayvoluntarily conduct additional clinical trials after approval to gain more information about the product.Such post-approval trials are typically referred to as Phase 4 clinical trials.Clinical trials may not be completed successfully within a specified period of time, if at all. The decision toterminate development of an investigational product candidate may be made by either a health authority, such as theFDA, or IRB/ethics committees, or by a company for various reasons. The FDA may order the temporary, orpermanent, discontinuation of a clinical trial, which is referred to as a clinical hold, at any time, or impose othersanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements orpresents an unacceptable risk to the clinical trial patients. In some cases, clinical trials are overseen by an independentgroup of qualified experts organized by the trial sponsor, known as a data monitoring committee or data safetymonitoring board. Such a group provides recommendations to the sponsor for whether or not a trial may moveforward at designated check points, based on limited access to data from the ongoing trial. The suspension ortermination of development can occur during any phase of clinical trials if it is determined that the participants orsubjects are being exposed to an unacceptable health risk. In addition, there are requirements for the registration ofongoing clinical trials of product candidates on public registries and the disclosure of certain clinical trial results andother trial information after completion.A sponsor may be able to request a special protocol assessment (SPA) the purpose of which is to reachagreement with the FDA on the design and size of certain clinical trials or animal studies that will adequately addressscientific and/or regulatory requirements that could support marketing approval. A sponsor may make a specificrequest for an SPA and provide information regarding the design and size of the proposed clinical trial. An SPArequest must beTable of Contents24made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a writtenagreement is reached, it will be documented and made part of the regulatory record. The agreement will be binding onthe FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreementof the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining thesafety or efficacy of the product candidate was identified after the testing began. An SPA is not binding if newcircumstances arise, and there is no guarantee that a trial will ultimately be adequate to support an approval even if thetrial is subject to an SPA.Assuming successful completion of all required testing in accordance with all applicable regulatoryrequirements, detailed investigational product candidate information is submitted to the FDA in the form of an NDA torequest market approval for the product in specified indications.New Drug ApplicationsIn order to obtain approval to market a drug in the United States, a marketing application must be submittedto the FDA that provides data establishing the safety and effectiveness of the product candidate for the proposedindication. The application includes all relevant data available from pertinent preclinical studies and clinical trials,including negative or ambiguous results as well as positive findings, together with detailed information relating to theproduct’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come fromcompany-sponsored clinical trials intended to test the safety and effectiveness of a product, or from a number ofalternative sources, including studies initiated by investigators. To support marketing approval, the data submitted mustbe sufficient in quality and quantity to establish the safety and effectiveness of the investigational product candidate tothe satisfaction of the FDA.In most cases, the NDA must be accompanied by a substantial user fee; there may be some instances inwhich the user fee is waived. The FDA will initially review the NDA for completeness before it accepts the NDA forfiling. The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted forfiling based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Afterthe NDA submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certainperformance goals in the review of NDAs. Applications for standard review product candidates are reviewed withinten months of FDA’s acceptance for filing. An accelerated six-month review can be given to applications that meetcertain criteria. The FDA can extend the review period by three months, or potentially longer, to consider certain late-submitted information or information intended to clarify information provided in the initial submission. The FDAreviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intendeduse, and whether the product is being manufactured in accordance with cGMP. FDA Advisory Committee meetingsare often held for New Chemical Entities (NCEs), novel indications, or for applications that otherwise presentscientific, technical, or policy questions on which the agency believes it would benefit from the perspectives of outsideexperts. An advisory committee meeting includes a panel of independent experts, including clinicians and otherscientific experts, who review, evaluate and make a recommendation as to whether the application should be approvedand under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considerssuch recommendations carefully when making decisions.Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. TheFDA will not approve the product unless it determines that the manufacturing processes and facilities are incompliance with cGMP requirements and adequate to assure consistent production of the product within requiredspecifications. In addition, before approving an NDA, the FDA will typically inspect one or more clinical sites toassure compliance with GCP. After the FDA evaluates the NDA and the manufacturing facilities, it issues either anapproval letter or a complete response letter. A complete response letter generally outlines the deficiencies in thesubmission and may require substantial additional testing or information in order for the FDA to reconsider theapplication. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of theNDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or sixmonths depending on the type of information included. Notwithstanding the submission of any requested additionalinformation, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.An approval letter authorizes commercial marketing of the drug with specific prescribing information forspecific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategyTable of Contents25(REMS) to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medicationguides, communication plans for healthcare professionals, and elements to assure safe use (ETASU). ETASU caninclude, but are not limited to, special training or certification for prescribing or dispensing, dispensing only undercertain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materiallyaffect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may bewithdrawn if compliance with regulatory requirements is not maintained or problems are identified following initialmarketing.Changes to some of the conditions established in an approved application, including changes in indications,labeling, or manufacturing processes or facilities, require submission and prior FDA approval of a new NDA or NDAsupplement before the change can be implemented. An NDA supplement for a new indication typically requiresclinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewingNDA supplements as it does in reviewing NDAs.Compounds that have a potential for dependence and abuse are scheduled as controlled substances under theControlled Substances Act and similar state and foreign laws. In the United States, for new chemical entities underdevelopment for therapeutic use, FDA and HHS complete an analysis and recommendation about whether a drugshould be scheduled as a controlled substance, and the Drug Enforcement Administration (DEA) takes the analysis andrecommendation into account in the scheduling process. In the case of a new drug approved by the FDA, if schedulingis warranted then the DEA issues an interim final rule controlling the drug 90 days after receipt of the FDA/HHSanalysis and recommendation or notice of the FDA approval of the drug, whichever is later. Drugs that are scheduledas controlled substances are subject to stringent regulatory requirements, including requirements for registeringmanufacturing and distribution facilities, security controls and employee screening, recordkeeping, reporting, productlabeling and packaging, import and export. There are five federal schedules for controlled substances, known asSchedule I, II, III, IV and V. The regulatory requirements that apply to a drug vary depending on the particularcontrolled substance schedule into which a drug is placed, based on consideration of a number of factors, including itspotential for dependence and abuse. Schedules I and II contain the most stringent restrictions and requirements, andSchedule V the least. For all controlled substances, there are potential criminal and civil penalties that apply for thefailure to meet applicable legal requirements, and healthcare professionals must have a DEA license in order to handle,prescribe, or dispense controlled substances.Breakthrough Therapy DesignationIn the United States, FDA may grant breakthrough therapy designation to a drug candidate if preliminary clinical evidence indicates that the therapy may offer substantial improvement on a clinically significant endpoint over existing options for patients with a serious condition. Features of breakthrough therapy designation include intensive guidance to ensure that the design of clinical trials are as efficient as practicable, increased involvement of senior managers and experienced review staff and where appropriate, a cross-disciplinary project lead assigned to the FDA review team, and rolling review of the NDA. Breakthrough designation can be requested with the IND or ideally no later than the end-of-Phase 2 meeting. Fast Track DesignationFast Track is a designation by the FDA of an investigational drug that is intended to treat a serious condition and for which nonclinical or clinical data demonstrate the potential to address an unmet medical need. The request for fast track designation can be initiated with the IND or ideally no later than the pre-NDA/BLA meeting. Features of fast track designation include more frequent meetings and interactions with FDA to expedite development and review, including to discuss the drug’s development plan and ensure collection of appropriate data needed to support drug approval, and a rolling review of the NDA/BLA. Priority ReviewBased on results of the Phase 3 clinical trials submitted in an NDA, upon the request of an applicant, apriority review designation may be granted to a product by the FDA, which sets the target date for FDA action on theapplicationTable of Contents26at six months from FDA acceptance for filing. Priority review may be granted where a product is intended to treat aserious condition and, if approved, would provide a significant improvement in safety or effectiveness of the treatment,diagnosis or prevention of the serious condition. If criteria are not met for priority review, the standard FDA reviewperiod is ten months from FDA acceptance for filing. Priority review designation does not change thescientific/medical standard for approval or the quality of evidence necessary to support approval.Post-Approval RegulationAfter regulatory approval of a drug is obtained, a sponsor is required to comply with a number of post-approval requirements. For example, as a condition of approval of an NDA, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. In addition, as a holder of an approved NDA, a sponsor is required to report adverse reactions and production problems to the FDA, provide updated safety and efficacy information, submit annual reports and comply with advertising and promotional labeling requirements. Manufacturing must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Compliance with cGMP includes adhering to requirements relating to organization and training of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, quality control and quality assurance, packaging and labeling controls, holding and distribution, laboratory controls, and records and reports. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose manufacturing documentation requirements. Accordingly, sponsors must continue to expend time, money and effort to maintain quality control and compliance with cGMP. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of ganaxolone. The FDA also conducts regular, periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may lead to the FDA taking enforcement actions or seeking sanctions, including fines, issuance of warning letters, civil penalties, injunctions, suspension of manufacturing operations, operating restrictions, withdrawal of FDA approval, seizure or recall of products, and criminal prosecution. Although we periodically monitor the FDA compliance of our third-party manufacturers, we cannot be certain that our present or future third-party manufacturers will consistently comply with cGMP and other applicable FDA regulatory requirements.The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugsthrough, among other things, standards and regulations for direct-to-consumer advertising, communications regardingunapproved uses, industry-sponsored scientific and educational activities, and promotional activities involving theInternet. A product cannot be commercially promoted before it is approved. After approval, product promotion caninclude only those claims relating to safety and effectiveness that are consistent with the labeling approved by theFDA. Healthcare providers are permitted to prescribe drugs for “off-label” uses—that is, uses not approved by theFDA and therefore not described in the drug’s labeling—because the FDA does not regulate the practice of medicine.However, FDA regulations impose stringent restrictions on manufacturers’ communications regarding off-label uses.In general, a manufacturer may not promote a drug for off-label use, but may engage in non-promotional, balancedcommunication regarding off-label use under specified conditions. Failure to comply with applicable FDArequirements and restrictions in this area may subject a company to adverse publicity and enforcement action by theFDA, the United States Department of Justice (DOJ) or the Office of the Inspector General of the United StatesDepartment of Health and Human Services (HHS OIG), as well as state authorities. Enforcement action could subjecta company to a range of penalties that could have a significant commercial impact, including civil and criminal finesand agreements that materially restrict the manner in which a company promotes or distributes drug products.NDA holders must comply with other regulatory requirements, including submitting annual reports, reportinginformation about adverse drug experiences, and maintaining certain records.Table of Contents27Newly discovered or developed safety or effectiveness data may require changes to a product’s approvedlabeling, including the addition of new warnings, contraindications, or limitations of use, and also may require theimplementation of other risk management measures. Also, new government requirements, including those resultingfrom new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatoryapproval of our products under development.The Hatch-Waxman Amendments to the FDC ActOrange Book ListingIn seeking approval for a drug through an NDA, applicants are required to list with the FDA each patentwhose claims cover the applicant’s product or a method of using the product. Upon approval of a drug, each of thepatents listed in the application for the drug is then published in the FDA’s Approved Drug Products with TherapeuticEquivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, bereferenced by potential generic competitors in support of approval of an abbreviated new drug application (ANDA) or505(b)(2) application. An ANDA provides for marketing of a drug product that has the same active ingredients,generally in the same strengths and dosage form, as a referenced listed drug (RLD) and has been shown through PKtesting to be bioequivalent to the RLD. Other than the requirement for bioequivalence testing, ANDA applicants aregenerally not required to conduct, or submit results of, preclinical studies or clinical trials to prove the safety oreffectiveness of their drug product. 505(b)(2) applications provide for marketing of a drug product that may have thesame active ingredients as the reference drug and contains full safety and effectiveness data, but at least some of thisinformation comes from studies not conducted by or for the applicant and to which the applicant does not have a rightof reference. Drugs approved through an ANDA are commonly referred to as “generic equivalents” and can often besubstituted by pharmacists under prescriptions written for the RLD, depending on applicable state laws.The ANDA or 505(b)(2) applicant is required to certify to the FDA concerning any patents listed for thereference product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patentinformation has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire ona particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not beinfringed by the new product. The ANDA or 505(b)(2) applicant may also elect to submit a statement certifying thatits proposed ANDA label does not contain (or carves out) any language regarding a patented method of use or usecovered by regulatory exclusivity. If the applicant does not challenge the listed patents by filing a certification that thelisted patent is invalid or will not be infringed by the new product, the ANDA or 505(b)(2) application will not beapproved until all the listed patents claiming the referenced product have expired.A certification that the new product will not infringe the already approved product’s listed patents, or thatsuch patents are invalid, is called a Paragraph IV certification. If the ANDA or 505(b)(2) applicant has provided aParagraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to theNDA and patent holders once the ANDA or 505(b)(2) application has been accepted for filing by the FDA. The NDAand patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IVcertification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certificationautomatically prevents the FDA from approving the ANDA or 505(b)(2) application until the earliest of 30 months,expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDAor 505(b)(2) applicant. The ANDA or 505(b)(2) application also will not be approved until any applicable non-patentexclusivity listed in the Orange Book for the reference product has expired.Marketing ExclusivityUpon NDA approval of a new chemical entity, which is a drug that contains no active moiety that has beenapproved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDAcannot approve any ANDA seeking approval of a generic version of that drug. Certain changes to a drug, such as theaddition of a new indication to the package insert, are associated with a three-year period of exclusivity during whichthe FDA cannot approve an ANDA for a generic drug that includes the change. An ANDA may be submitted oneyearTable of Contents28before five-year marketing exclusivity expires if a Paragraph IV certification is filed. In this case, the 30-month stay, ifapplicable, runs from the end of the five-year marketing exclusivity period.In the European Economic Area (EEA), which is comprised of twenty-seven Member States of the EU plusNorway, Iceland, and Liechtenstein, medicinal products can only be commercialized after a related MarketingAuthorization (MA) has been granted. MA for medicinal products can be obtained through several differentprocedures. These procedures include a centralized, mutual recognition procedure, decentralized procedure, or nationalprocedure (if marketing authorization is sought for a single EU Member State). The centralized procedure allows acompany to submit a single application to the European Medicines Agency (EMA). If a related positive opinion isprovided by the EMA, the European Commission will grant a centralized marketing authorization that is valid in alltwenty-seven EU Member States and three of the four European Free Trade Association countries (Norway, Iceland,and Liechtenstein and Norway) all of whom are part of the EEA.The centralized procedure is mandatory for certain types of products, such as biotechnology medicinalproducts, orphan medicinal products, and medicinal products containing a new active substance indicated for thetreatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctionsand viral diseases. The centralized procedure is optional for products containing a new active substance that is not yetauthorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or forwhich a grant of centralized marketing authorization is in the interest of patients at EU level within the EU.In the EU, a medicinal product containing a new active substance, which has never been approved in amedicinal product in the EU before, as well as in certain other circumstances, is entitled to eight years of dataexclusivity and ten years of market exclusivity following a grant of MA. During the first eight years, no genericcompany may refer to the data used by the innovator to obtain a marketing authorization. After eight years, genericsmay reference the innovator data, but generic medicinal products may only be placed on the market after a total of tenyears. Approval of a new indication will not result in a separate additional period of regulatory data protection andmarket exclusivity. If, however, during the first eight years after initial marketing authorization, a new indication isapproved which is considered by the competent authorities to be of significant clinical benefit in comparison to existingtherapies, this would result in one additional year of market exclusivity, in addition to the initial eight plus two years.Such significant clinical benefit would generally have to be supported by comparative clinical trials.Orphan Drug DesignationThe FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition thataffects fewer than 200,000 individuals in the United States, or, if the disease or condition affects more than 200,000individuals in the United States, there is no reasonable expectation that the cost of developing and making the drugwould be recovered from sales in the United States. In the EU, the EMA’s Committee for Orphan Medicinal Productsassesses applications for orphan designations after which the European Commission may grant orphan drugdesignation. In the EU, orphan designation is granted if it is established that a medicinal product is intended for thediagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than fivein 10,000 persons in the EU. In addition, designation is granted for products intended for the diagnosis, prevention ortreatment of a life- threatening, seriously debilitating or serious and chronic condition and when, without incentives, itis unlikely that sales of the drug in the EU would be sufficient to justify the necessary investment in developing thedrug. In order to obtain orphan designation in the EU, it must in addition be established that there exists no satisfactorymethod of diagnosis, prevention or treatment of the condition in the EU or if such method exists, that the medicinalproduct will be of significant benefit to those affected by the condition.In the United States, orphan drug designation may confer eligibility for financial incentives, such asopportunities for grant funding towards clinical trial costs, tax credits for certain research and user fee waivers. Inaddition, if a product receives the first FDA approval for the indication for which it has orphan designation, theproduct is entitled to seven years of market exclusivity, which means the FDA may not approve any other applicationfor the same drug for the same indication for a period of seven years, except in limited circumstances, such as ashowing of clinical superiority over the product with orphan exclusivity. Orphan drug exclusivity does not prevent theFDA from approving a different drug for the same disease or condition, or the same drug for a different disease orcondition.Table of Contents29In the EU, orphan drug designation may be granted to drugs that can be used to treat life-threatening diseasesor chronically debilitating conditions with an incidence of no more than five in 10,000 people or, for economic reasons,would be unlikely to be developed without incentives. Orphan drug designation also entitles an applicant for MA tofinancial incentives such as reduction of fees or fee waivers, and protocol assistance, a type of scientific advice specificfor designated orphan medicinal products. Following a grant of MA, the product is entitled to ten years of exclusivityif the product continues to be designated as an orphan medical product upon grant of the marketing authorization. Thisperiod may be reduced to six years if the orphan drug designation criteria are no longer met, including where it isshown that the product is sufficiently profitable not to justify maintenance of market exclusivity. During the orphanexclusivity period, the competent authorities in the EU may not accept a marketing authorization application for asimilar medicinal product for the same therapeutic indication. However, marketing authorization may be granted to asimilar medicinal product (i.e., a medicinal product with an identical active substance, or an active substance with thesame principal molecular structural features and which acts via the same mechanism) with the same orphan indicationduring the ten-year period with the consent of the marketing authorization holder for the original orphan medicinalproduct or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities.Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if thislatter product is demonstrated to be safer, more effective or otherwise clinically superior to the original orphanmedicinal product.In the EU, if pediatric studies are conducted in accordance with a pediatric investigation plan, which waspreviously agreed upon with the European Medicines Agency, it may be possible to obtain an extension of orphanmarket exclusivity of two years, resulting in a total orphan market exclusivity period of twelve years.Orphan drug designation must be requested before submission of an application for marketing approval. Orphan drugdesignation does not change the scientific/medical standards for approval or the quality of evidence necessary tosupport approval, or shorten the duration of the regulatory review and approval process.Patent Term ExtensionAfter NDA approval, owners of relevant drug patents may apply for up to a five year patent extension. Theallowable patent term extension is calculated as half of the drug’s testing phase—the time between an effective INDand NDA submission—and all of the review phase—the time between NDA submission and approval, up to amaximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approvalwith due diligence. The total patent term after the extension may not exceed 14 years.Many other countries also provide for patent term extensions or similar extensions of patent protection forpharmaceutical products. For example, in Japan, it may be possible to extend the patent term for up to five years and inthe EU, it may be possible to obtain a supplementary protection certificate that would effectively extend patentprotection for up to five years.In the EU, if pediatric studies are conducted in accordance with a pediatric investigation plan, which waspreviously agreed upon with the EMA, it may be possible to obtain an extension of a supplementary protectioncertificate of up to six months. This pediatric extension would not be available if the product is an orphan medicinalproduct. The extension would also not be available if one additional year of market exclusivity was granted for a newpediatric indication on the basis of the results of pediatric studies conducted in compliance with an agreed pediatricinvestigation plan.Controlled SubstancesThe federal Controlled Substances Act of 1970 (CSA) and its implementing regulations establish a “closedsystem” of regulations for controlled substances. The CSA imposes registration, security, recordkeeping and reporting,storage, manufacturing, distribution, importation and other requirements under the oversight of the DEA. The DEA isthe federal agency responsible for regulating controlled substances, and requires those individuals or entities thatmanufacture, import, export, distribute, research, or dispense controlled substances to comply with the regulatoryrequirements in order to prevent the diversion of controlled substances to illicit channels of commerce.Table of Contents30The DEA categorizes controlled substances into one of five schedules — Schedule I, II, III, IV or V — withvarying qualifications for listing in each schedule. Schedule I substances by definition have a high potential for abuse,have no currently accepted medical use in treatment in the U.S. and lack accepted safety for use under medicalsupervision. Pharmaceutical products having a currently accepted medical use that are otherwise approved formarketing may be listed as Schedule II, III, IV or V substances, with Schedule II substances presenting the highestpotential for abuse and physical or psychological dependence, and Schedule V substances presenting the lowestrelative potential for abuse and dependence.Facilities that manufacture, distribute, import or export any controlled substance must register annually withthe DEA. The DEA registration is specific to the particular location, activity(ies) and controlled substance schedule(s).For example, separate registrations are required for importation and manufacturing activities, and each registrationauthorizes which schedules of controlled substances the registrant may handle. However, certain coincident activitiesare permitted without obtaining a separate DEA registration, such as distribution of controlled substances by themanufacturer that produces them.The DEA inspects all manufacturing facilities to review security, recordkeeping, reporting and handling priorto issuing a controlled substance registration. The specific security requirements vary by the type of business activityand the schedule and quantity of controlled substances handled. The most stringent requirements apply tomanufacturers of Schedule I and Schedule II substances. Required security measures commonly include backgroundchecks on employees and physical control of controlled substances through storage in approved vaults, safes and cages,and thorough use of alarm systems and surveillance cameras. Registrants must also report any controlled substancethefts or significant losses, and must comply with CSA and DEA regulatory requirements to destroy or dispose ofcontrolled substances.The states also maintain separate controlled substance laws and regulations, including licensing,recordkeeping, security, distribution, and dispensing requirements. State Authorities, including Boards of Pharmacy,regulate use of controlled substances in each state. Failure to maintain compliance with applicable requirements,particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that couldhave a material adverse effect on our business, operations and financial condition. The DEA may seek civil penalties,refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances,violations could lead to criminal prosecution.The Foreign Corrupt Practices ActThe Foreign Corrupt Practices Act (FCPA) prohibits any United States individual or business from paying,offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, politicalparty or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist theindividual or business in obtaining or retaining business. The FCPA also obligates companies whose securities arelisted in the United States to comply with accounting provisions requiring such companies to maintain books andrecords that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and todevise and maintain an adequate system of internal accounting controls for international operations.European and Other International Government RegulationIn addition to regulations in the United States, we will be subject to a variety of regulations in otherjurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products.Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatoryauthorities in foreign countries prior to the commencement of clinical trials or marketing of the product in thosecountries. Some countries outside of the United States have a similar process that requires the submission of a requestfor a clinical trial authorization (CTA) much like the IND prior to the commencement of human clinical trials. In theEU, for example, a request for a CTA must be submitted to each country’s national health authority and anindependent ethics committee, much like the FDA and IRB, respectively. Once the CTA request is approved inaccordance with a country’s requirements, clinical trial development may proceed. The conduct of a clinical trial in theEU must comply with regulatory requirements based on the Clinical Trials Directive 2001/20/EC (Clinical TrialsDirective), the details of which may vary per EU Member State. On January 31, 2022, the EU Clinical TrialsRegulation (EU) No 536/2014Table of Contents31(Clinical Trials Regulation) came into effect. The Clinical Trials Regulation applies to clinical trials in all countries of the European Economic Area (EEA, i.e. the EU Member States plus Iceland, Norway and Liechtenstein). The Clinical Trials Regulation allows investigators to start and conduct a clinical trial in accordance with the Clinical Trials Directive during a transitional period of one year after the application date (i.e. January 31, 2022). The transition period for the trials ongoing at the moment of applicability will be a maximum of 3 years after the date of application of the Clinical Trials Regulation. Clinical trials authorized under the current Clinical Trials Directive before January 31, 2023 can continue to be conducted under the Clinical Trials Directive until January 31, 2025. An application to transition ongoing trials from the current Clinical Trials Directive to the new Clinical Trials Regulation will need to be submitted and authorized in time before the end of the transitional period. The new Clinical Trials Regulation is intended to simplify and streamline the approval of clinical trials in the EEA. The main characteristics of the regulation include: (i) a streamlined application procedure through a single entry point known as the “EU portal”; (ii) a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and (iii) a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts.In addition, when conducting a clinical trial in the EU, the processing of personal data, includingpseudonymized data, would have to comply with the EU General Data Protection Regulation (GDPR). The GDPRimposes strict obligations on the processing of personal data, including relating to the transfer of personal data to thirdcountries such as the US. The competent authorities of the EU Member States may impose significant financialpenalties in the event of violation of the GDPR.To obtain regulatory approval to commercialize a new drug under EU regulatory systems, we must submit amarketing authorization application (MAA). MAAs can be submitted to the EMA through a centralized procedure,resulting in one marketing authorization valid throughout the EU (27 EU Member States as well as in Iceland,Liechtenstein and Norway). The centralized procedure is mandatory for certain products, such as orphan medicinalproducts or product with a new active substance for certain therapeutic indications and is optional for certain otherproducts, such as products that contain a new active substance that has not previously been approved in a medicinalproduct in the EU. Alternative MAA routes in the EU are the decentralized procedure in which it is possible to requestmarketing authorization in a selection of various EU Member States, the national procedure in which a marketingauthorization is requested for one EU Member State only or the mutual recognition procedure in which marketingauthorization in one or more EU Member States is requested on the basis of a prior marketing authorization in anotherEU Member State.For other countries outside of the EU, such as countries in Eastern Europe, Russia, Latin America or Asia,the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary fromcountry to country. Internationally, clinical trials are generally required to be conducted in accordance with GCP,applicable regulatory requirements of each jurisdiction and the medical ethics principles that have their origin in theDeclaration of Helsinki.Small Medium Enterprise (SME) designationIn the EU, small medium enterprise designation (SME) can be granted to non-subsidiary, independent firmswhich employ fewer than 250 employees to promote innovation and the development of new medicinal products bysmaller companies. The criteria for designation are dependent on staff headcount, either turnover or balance sheet totaland the ownership structure, including any partnership or linkage. Benefits of SME designation include directassistance on regulatory aspects of the pharmaceutical legislation, help navigating the array of services available, feeexemptions and reductions for pre- and post-authorization regulatory procedures, assistance with translations ofproduct information into all official EU languages, guidance on clinical data publication and a free redaction toollicense, liaison with academic investigators in pediatric-medicine research through the European Network of PediatricResearch at the EMA and workshops and training sessions. In 2020, we renewed our SME designation in the EU.ComplianceDuring all phases of development (pre- and post-marketing), failure to comply with applicable regulatoryrequirements may result in administrative or judicial sanctions. These sanctions could include the FDA’s imposition ofaTable of Contents32clinical hold on trials, refusal to approve pending applications, withdrawal of an approval, warning letters, productrecalls, product seizures, total or partial suspension of production or distribution, product detention or refusal to permitthe import or export of products, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicialenforcement action could have a material adverse effect on us.Accelerated Review (EU)Under the Centralized Procedure in the EU, the maximum timeframe for the evaluation of a MAA is210 days (excluding “clock stops,” when additional written or oral information is to be provided by the applicant inresponse to questions asked by the Committee for Medicinal Products for Human Use (CHMP). Acceleratedevaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a majorpublic health interest, which should be justified on a case-by-case basis. In this circumstance, EMA ensures that theopinion of the CHMP is given within 150 days.Healthcare ReformThe Patient Protection and Affordable Care Act, as amended, (Affordable Care Act) has substantiallychanged the way healthcare is financed by both governmental and private insurers, and significantly impacts thepharmaceutical industry. The Affordable Care Act has impacted pre-existing government healthcare programs andresulted in the development of new programs. For example, the Affordable Care Act provides for Medicare paymentfor performance initiatives and improvements to Medicare physician quality reporting system and feedback program.Among the Affordable Care Act’s provisions of importance to the pharmaceutical industry are thefollowing:●an annual, nondeductible fee on any covered entity engaged in manufacturing or importing certainbranded prescription drugs and biological products, apportioned among such entities in accordance withtheir respective market share in certain government healthcare programs;●an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug RebateProgram, retroactive to January 1, 2010, to 23.1% and 13.0% of the average manufacturer price(AMP), for most branded and generic drugs, respectively;●expansion of healthcare fraud and abuse laws, including the False Claims Act (FCA) and the Anti-Kickback Statute (AKS), new government investigative powers, and enhanced penalties fornoncompliance;●a new prescription drug benefit for Medicare recipients (Medicare Part D), coverage gap discountprogram, in which manufacturers must agree to offer 70.0% (as of January 1, 2019) point-of-salediscounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coveragegap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D;●extension of manufacturers’ Medicaid rebate liability to covered outpatient drugs dispensed toindividuals who are enrolled in Medicaid managed care organizations;●expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offerMedicaid coverage to additional individuals beginning in 2014 and by adding new mandatory eligibilitycategories for individuals with income at or below 133.0% of the Federal Poverty Level, therebypotentially increasing manufacturers’ Medicaid rebate liability;●expansion of the types of entities eligible for participation in and discounts under the Public HealthService 340B drug pricing program;Table of Contents33●new requirements to report annually specified financial arrangements with physicians and teachinghospitals, as defined in the Affordable Care Act and its implementing regulations, including reportingany “payments or transfers of value” made or distributed to physicians and teaching hospitals, andreporting any ownership and investment interests held by physicians and their immediate familymembers and applicable group purchasing organizations during the preceding calendar year, with datacollection to be required beginning August 1, 2013 and reporting to the Centers for Medicare &Medicaid Services (CMS), to be required by March 31, 2014, and by the 90th day of each subsequentcalendar year;●a new requirement to annually report drug samples that manufacturers and distributors provide tophysicians;●a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conductcomparative clinical effectiveness research, along with funding for such research; and●a mandatory nondeductible payment for employers with 50 or more full-time employees (orequivalents) who fail to provide certain minimum health insurance coverage for such employees andtheir dependents, beginning in 2016.Certain provisions of the Affordable Care Act have been subject to judicial challenges as well as efforts tomodify them or to alter their interpretation and implementation. For example, the Tax Cuts and Jobs Act (Tax Act), enacted on December 22, 2017, eliminated the tax-based shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, commonly referred to as the “individual mandate,” effective January 1, 2019. Additional legislative changes, regulatory changes, and judicial challenges related to the Affordable Care Act remain possible. It is unclear how the Affordable Care Act and its implementation, as well as efforts to modify the Affordable Care Act, its implementing regulations, or portionsthereof, will affect our business.In addition, other legislative changes have been proposed and adopted since the Affordable Care Act wasenacted. For example, the Budget Control Act of 2011, among other things, created the Joint Select Committee onDeficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did notachieve its targeted deficit reduction of an amount greater than $1.2 trillion for the years 2013 through 2021, triggeringthe legislation’s automatic reductions to several government programs. These reductions include aggregate reductionsto Medicare payments to healthcare providers of, on average, 2.0% per fiscal year, starting in 2013 and continuingthrough 2030 (with the exception of a temporary suspension from May 1, 2020 through March 31, 2022). The lawprovides for 1% Medicare sequestration in the second quarter of 2022 and allows the full 2% sequestration thereafteruntil 2030. To offset the temporary suspension during the COVID-19 pandemic, in 2030, the sequestration will be2.25% for the first half of the year, and 3% in the second half of the year. Additionally, the American Taxpayer ReliefAct of 2012, among other things, reduced Medicare payments to several categories of healthcare providers andincreased the statute of limitations period for the government to recover overpayments to providers from three to fiveyears. These laws may result in additional reductions in Medicare and other healthcare funding, which could have amaterial adverse effect on our customers and accordingly, our financial operations.We anticipate that the Affordable Care Act and other healthcare reform measures will result in additionaldownward pressure on coverage and the price that we receive for any approved product, and could seriously harm ourbusiness. Any reduction in reimbursement from Medicare and other government programs may result in a similarreduction in payments from private payers. The implementation of cost containment measures or other healthcarereforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. Inaddition, it is possible that there will be further state and federal healthcare reform measures adopted in the future, anyof which could limit the amounts that state and federal governments will pay for healthcare products and services,which could result in reduced demand for our products or additional pricing pressure.Table of Contents34Coverage and ReimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any drug products for whichwe obtain regulatory approval. In the United States and markets in other countries, sales of any products for which wereceive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payers. Third-party payers include government health administrative authorities, managed care providers, privatehealth insurers and other organizations. The process for determining whether a payer will provide coverage for a drugproduct may be separate from the process for setting the price or reimbursement rate that the payer will pay for thedrug product. Third-party payers may limit coverage to specific drug products on an approved list, or formulary, whichmight not include all of the FDA-approved drugs for a particular indication. Third-party payers are increasinglychallenging the price and examining the medical necessity and cost-effectiveness of medical products and services, inaddition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order todemonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtainFDA approvals. Ganaxolone may not be considered by payers to be medically necessary or cost-effective forparticular diseases or conditions. A payer’s decision to provide coverage for a drug product does not imply that anadequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable usto maintain price levels sufficient to realize an appropriate return on our investment in product development.In addition, Medicare Part D and further legislation may limit payments for pharmaceuticals such as the product candidates that we are developing. While government payment pursuant to Medicare Part D for some of the costs of prescription drugs may increase demand for any products for which we receive marketing approval, to obtain payments under this program, we would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products. Federal, state and local governments in the United States continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Different pricing and reimbursement schemes exist in other countries. In the EU, governments influence theprice of pharmaceutical products through their pricing and reimbursement rules and control of national healthcaresystems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive andnegative list systems under which products may only be marketed once a reimbursement price has been agreed upon.To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials thatcompare the cost-effectiveness of a particular product candidate to currently available therapies. Other Member Statesallow companies to fix their own prices for medicines, but monitor and control company profits. The downwardpressure on healthcare costs in general, particularly prescription drugs, has become more intense. As a result,increasingly high barriers are being erected to the entry of new products. The EU provides options for its MemberStates to restrict the range of medicinal products for which their national health insurance systems providereimbursement and to control the prices of medicinal products for human use. A member state may approve a specificprice for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability ofthe company placing the medicinal product on the market. We may face competition for ganaxolone from lower-pricedproducts in foreign countries that have placed price controls on pharmaceutical products. In addition, in some countries,cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.The marketability of any products for which we receive regulatory approval for commercial sale may sufferif the government and third-party payers fail to provide adequate coverage and reimbursement. In addition, anincreasing emphasis on managed care in the United States has increased and will continue to increase the pressure onpharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time.Even if favorable coverage and reimbursement status is attained for one or more products for which wereceive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in thefuture.Other Healthcare Laws and Compliance RequirementsThe federal Anti-Kickback Statute (AKS) prohibits, among other things, knowingly and willfully offering,paying, soliciting or receiving remuneration (anything of value), directly or indirectly, in cash or in kind, to induce or inTable of Contents35return either for the referral of an individual for, or for purchasing, leasing, ordering or arranging for the purchase,lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financedhealthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturerson one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number ofstatutory exceptions and regulatory safe harbors protecting certain common business arrangements and activities fromprosecution or regulatory sanctions, the exceptions and safe harbors are drawn narrowly and practices that involveremuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not fitsquarely within an exception or safe harbor. Our practices may not in all cases meet all of the criteria for safe harborprotection from AKS liability. Moreover, there are no safe harbors for many common practices, such as educationaland research grants, charitable donations, product support and patient assistance programs. The regulatory safe harborsalso are subject to regulatory revision and interpretation by a number of government agencies. For example, inNovember 2020, the U.S. Department of Health and Human Services finalized a previously abandoned proposal toamend the discount safe harbor regulation of the AKS in a purported effort to create incentives to manufacturers tolower their list prices, and to lower federal program beneficiary out-of-pocket costs. The rule, which is currently slatedto take full effect January 1, 2023, revises the AKS discount safe harbor to exclude manufacturer rebates to MedicarePart D plans, either directly or through PBMs, creates a new safe harbor for point-of-sale price reductions that are setin advance and are available to the beneficiary at the point-of-sale, and creates a new safe harbor for service fees paidby manufacturers to PBMs for services rendered to the manufacturer. The effective date of the rule has been delayedby the Biden Administration amid legal challenges. It is unclear whether the rule will be further delayed, rewritten, oreven allowed to go into effect, and if so, what the effect of the rule will be on negotiations of coverage for ourproducts with Medicare Part D plans, or whether the rule will affect our coverage arrangements with commercialinsurers. It is also unclear whether the rule will have the intended effect of reducing net prices and beneficiary out-of-pocket costs without also increasing Medicare Part D premiums, which may impact the willingness of Part D plans tocover our products and the price concessions or other terms the plans or their PBMs may seek from us. Liabilityunder the AKS may be established without proving actual knowledge of the statute or specific intent to violate it. Inaddition, the government may assert that a claim including items or services resulting from a violation of the AKSconstitutes a false or fraudulent claim for purposes of the federal civil False Claims Act (discussed below). Violationsof the AKS are punishable by imprisonment, criminal fines, damages, civil monetary penalties, and exclusion fromparticipation in federal healthcare programs.The federal civil False Claims Act (FCA) prohibits any person from, among other things, knowinglypresenting, or causing to be presented, a false or fraudulent claim for payment of government funds, or knowinglymaking, using, or causing to be made or used a false record or statement material to an obligation to pay money to thegovernment, or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligationto pay money to the federal government. Actions under the FCA may be brought by the Attorney General or as a quitam action by a private individual in the name of the government. Such private individuals may share in amounts paidby the entity to the government in recovery or settlement. Recently, several pharmaceutical and other healthcarecompanies have been prosecuted under these laws for allegedly providing free product to customers with theexpectation that the customers would bill federal programs for the product. Other companies have been prosecuted forcausing false claims to be submitted because of the companies’ marketing of the product for unapproved, and thusnon-reimbursable, uses. FCA liability is potentially significant in the healthcare industry because the statute providesfor treble damages and significant mandatory penalties per false or fraudulent claim or statement for violations, as wellas exclusion from participation in federal healthcare programs. Pharmaceutical and other healthcare companies also aresubject to other federal false claims laws, including, among others, federal criminal healthcare fraud and false statementstatutes that extend to non-government health benefit programs.The Health Insurance Portability and Accountability Act of 1996 and its implementing regulations(collectively, HIPAA) imposes criminal and civil liability for, among other things, knowingly and willfully executing,or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers, andknowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitiousor fraudulent statement or representation, or making or using any false writing or document knowing the same tocontain any materially false, fictitious, or fraudulent statement or entry, in connection with the delivery of or paymentfor healthcare benefits, items or services.Table of Contents36The federal Physician Payments Sunshine Act, implemented as the Open Payments Program, requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS, information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report information regarding payments and transfers of value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives.Also, many states have analogous fraud and abuse statutes or regulations, such as state anti-kickback and false claims laws, that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Other state laws require posting of information relating to clinical trials and their outcomes. Some states restrict the ability of manufacturers to offer co-pay support to patients for certain prescription drugs. Other states require identification or licensing of sales representatives. In addition, we may be subject to data privacy and security regulations by both the federal government andthe states in which we conduct our business. HIPAA imposes requirements relating to the privacy, security andtransmission of individually identifiable health information. HIPAA imposes privacy and security obligations oncovered entity health care providers, health plans, and health care clearinghouses, as well as their “business associates”—certain persons or entities that create, receive, maintain, or transmit protected health information in connection withproviding a specified service or performing a function on behalf of a covered entity. We may obtain health informationfrom third parties (including research institutions from which we obtain clinical trial data) that are subject to privacyand security requirements under HIPAA and other privacy and data security and consumer protection laws. Althoughwe are not directly subject to HIPAA, other than potentially with respect to providing certain employee benefits, wecould potentially be subject to criminal penalties if we, our affiliates, or our agents knowingly receive individuallyidentifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permittedby HIPAA, and subject to other civil and/or criminal penalties if we obtain, use, or disclose information in a mannernot permitted by other privacy and data security and consumer protection laws. In addition, numerous other federal andstate laws and regulations govern privacy and security, including state data breach notification laws, state healthinformation and/or genetic privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the FederalTrade Commission Act, and the California Consumer Privacy Act (CCPA)), many of which differ from each other insignificant ways and may not have the same effect, thus complicating compliance efforts. Compliance with these lawsis difficult, constantly evolving, time consuming, and requires a flexible privacy framework and substantial resources.Compliance efforts will likely be an increasing and substantial cost in the future. Federal regulators, state attorneysgeneral, and plaintiffs’ attorneys have been and will likely continue to be active in this space.In California, the CCPA establishes certain requirements for data use and sharing transparency and createsnew data privacy rights for consumers. These laws and regulations are evolving and subject to interpretation, and mayimpose limitations on our activities or otherwise adversely affect our business. Similarly, there are a number oflegislative proposals in the EU, the United States, at both the federal and state level, as well as other jurisdictions thatcould impose new obligations or limitations in areas affecting our business. In addition, some countries are consideringor have passed legislation implementing data protection requirements or requiring local storage and processing of dataor similar requirements that could increase the cost and complexity of delivering our services and research activities.These laws and regulations, as well as any associated claims, inquiries, or investigations or any other governmentactions may lead to unfavorable outcomes including increased compliance costs, delays or impediments in thedevelopment of new products, negative publicity, increased operating costs, diversion of management time andattention, and remedies that harm our business, including fines or demands or orders that we modify or cease existingbusiness practices.The EU, EEA countries and other jurisdictions have adopted data protection laws and regulations, whichimpose significant compliance obligations. The GDPR is directly applicable in each EEA country. The GDPR imposesstrict restrictions and obligations on companies’ ability to collect, analyze and transfer personal data or otherwiseprocessTable of Contents37personal data, especially if they process sensitive personal data (such as data concerning patient health), includingsignificant fines for non-compliance with the GDPR. Implementation of the GDPR has influenced other jurisdictionsto either amend or propose legislation to amend their existing data privacy and cybersecurity laws to resemble therequirements of GDPR.In addition to the foregoing requirements, we have certain price reporting obligations to the Medicaid DrugRebate Program. Under the Medicaid Drug Rebate Program, we are required to pay a rebate to each state Medicaidprogram for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaidprogram as a condition of having federal funds made available to states for our drugs under Medicaid and MedicarePart B. Those rebates are based on pricing data that we report on a monthly and quarterly basis to CMS, the federalagency that administers the Medicare and Medicaid Drug Rebate Programs. These data include the averagemanufacturer price and, in the case of innovator products, the best price for each drug which, in general, represents thelowest price available from the manufacturer to any entity in the United States in any pricing structure, calculated toinclude all sales and associated rebates, discounts and other price concessions, subject to certain exclusions. TheAffordable Care Act made significant changes to the Medicaid Drug Rebate Program, and CMS issued a finalregulation, which became effective on April 1, 2016, to implement the changes to the Medicaid Drug Rebate Programunder the Affordable Care Act. On December 21, 2020, CMS issued a final regulation that modified existing MedicaidDrug Rebate Program regulations to permit reporting multiple best price figures with regard to value-based purchasing arrangements (beginning in 2022); provide definitions for “line extension,” “new formulation,” and related terms with the practical effect of expanding the scope of drugs considered to be line extensions (beginning in 2022); and revise manufacturer price and best price exclusions of manufacturer-sponsored patient benefit programs, specifically regarding inapplicability of such exclusions in the context of PBM “accumulator” programs (beginning in 2023). Ourfailure to comply with the aforementioned price reporting and rebate payment obligations could negatively impact ourfinancial results. In addition, statutory and regulatory changes or other agency action regarding the Medicaid DrugRebate Program could negatively affect our financial results or expand our rebate liability. For example, Congresscould enact legislation that would extend rebates under the Medicaid Drug Rebate Program to all Children’s HealthInsurance Program or CHIP utilization.Federal law requires that any company that participates in the Medicaid Drug Rebate Program alsoparticipate in the 340B program in order for federal funds to be available for the manufacturer’s drugs under Medicaidand Medicare Part B. The 340B program, which is administered by the Health Resources and Services Administration(HRSA) requires participating manufacturers to agree to charge statutorily defined covered entities no more than the340B “ceiling price” for the manufacturer’s covered outpatient drugs. These 340B covered entities include a variety ofcommunity health clinics and other entities that receive health services grants from the Public Health Service, as well ashospitals that serve a disproportionate share of low-income patients. The Affordable Care Act expanded the list ofcovered entities to include certain free-standing cancer hospitals, critical access hospitals, rural referral centers and solecommunity hospitals, but exempts “orphan drugs” from the ceiling price requirements for these covered entities. The340B ceiling price is calculated using a statutory formula based on the average manufacturer price and rebate amountfor the covered outpatient drug as calculated under the Medicaid Drug Rebate Program, and in general, productssubject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price calculation anddiscount requirement. Any additional future changes to the definition of average manufacturer price and the Medicaidrebate amount under the Affordable Care Act or other legislation or regulation could affect our 340B ceiling pricecalculations and negatively impact our results of operations if we successfully commercialize one or more products forwhich we receive regulatory approval.HRSA issued a final regulation, effective January 1, 2019, regarding the calculation of the 340B ceiling priceand the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge coveredentities. HRSA also has implemented a ceiling price reporting requirement, pursuant to which manufacturers mustreport the 340B ceiling prices for their covered outpatient drugs to HRSA on a quarterly basis. HRSA then publishesthose prices to 340B covered entities. Moreover, under a final regulation effective January 13, 2021, HRSA newlyestablished an administrative dispute resolution (ADR) process for claims by covered entities that a manufacturer hasengaged in overcharging, and by manufacturers that a covered entity violated the prohibitions against diversion orduplicate discounts. Such claims are to be resolved through an ADR panel of government officials rendering a decisionthat could be appealed only in federal court. An ADR proceeding could subject a manufacturer to onerous proceduralrequirementsTable of Contents38and could result in additional liability. In addition, changes to legislation, regulations, or guidance could modify 340Bprogram compliance or expand discount liability.Federal law also requires that a company report average sales price information each quarter to CMS for certain categories of drugs that are payable under the Medicare Part B program. Manufacturers calculate the average sales price based on a statutorily defined formula as well as regulations and interpretations of the statute by CMS. CMS uses these submissions to determine payment rates for drugs under Medicare Part B. Starting in 2023, manufacturers must pay refunds to Medicare for single source drugs or biologics, or biosimilar biological products, reimbursed under Medicare Part B and packaged in single-dose containers or single-use packages, for units of discarded drug reimbursed by Medicare Part B in excess of 10 percent of total allowed charges under Medicare Part B for that drug. Manufacturers that fail to pay refunds could be subject to civil monetary penalties of 125 percent of the refund amount. Congress further could enact a Medicare Part B inflation rebate, under which manufacturers would owe additional rebates if the average sales price of a drug were to increase faster than the pace of inflation.In addition, manufacturers are required to provide to CMS a 70% discount on brand name prescription drugs utilized by Medicare Part D beneficiaries when those beneficiaries are in the coverage gap phase of the Part D benefit design. Congress could enact legislation that sunsets this discount program and replaces it with a new manufacturer discount program. Under either program, civil monetary penalties could be applied if a manufacturer fails to provide these discounts in the amount of 125 percent of the discount that was due. Congress further could enact a Medicare Part D inflation rebate, under which manufacturers would owe additional rebates if the average manufacturer price of a drug were to increase faster than the pace of inflation.In order to be eligible to have our products that we successfully commercialize paid for with federal fundsunder the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, we alsowould have to participate in the U.S. Department of Veterans Affairs (VA), Federal Supply Schedule (FSS), pricingprogram. As part of this program, we would be obligated to make our products available for procurement on an FSScontract under which we must comply with standard government terms and conditions and charge a price that is nohigher than the statutory Federal Ceiling Price (FCP) to four federal agencies (VA, U.S. Department of Defense(DOD), Public Health Service, and U.S. Coast Guard).The FCP is based on the Non-Federal Average Manufacturer Price (Non-FAMP), which we would berequired to calculate and report to the VA on a quarterly and annual basis. Pursuant to applicable law, knowingprovision of false information in connection with a Non-FAMP filing can subject a manufacturer to significant civilmonetary penalties for each item of false information. The FSS pricing and contracting obligations also containextensive disclosure and certification requirements. For additional information regarding obligations under federalhealth care programs, refer to the risk factor entitled “If we participate in the Medicaid Drug Rebate Program and failto comply with our reporting and payment obligations under that program or other governmental pricing programsthat we participate in, we could be subject to additional reimbursement requirements, penalties, sanctions and fines,which could have a material adverse effect on our business, financial condition, results of operations and growthprospects” in this Annual Report on Form 10-K.In the United States our activities are potentially subject to additional regulation by various federal, state andlocal authorities in addition to the FDA, including CMS, other divisions of HHS (for example, the OIG), the DOJ andindividual United States Attorney offices within the DOJ, and state and local governments.Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, itis possible that some of our business activities could be subject to challenge under one or more of such laws. If ouroperations are found to be in violation of any of the federal and state laws described above or any other governmentalregulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties,damages, fines, imprisonment, exclusion from participation in government programs, injunctions, recall or seizure ofproducts, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, orrefusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuringof our operations, any of which could adversely affect our ability to operate our business and our results of operations.To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws andregulations,Table of Contents39which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud andabuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value tohealthcare professionals.In order to distribute products commercially, we must comply with state laws that require the registration ofmanufacturers and wholesale distributors of pharmaceutical products in a state, including, in some states, manufacturersand distributors who ship products into the state even if such manufacturers or distributors have no place of businesswithin the state. Several states have enacted legislation requiring pharmaceutical companies to, among other things,establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales,marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibitpharmacies and other healthcare entities from providing specified physician prescribing data to pharmaceuticalcompanies for use in sales and marketing, and to prohibit other specified sales and marketing practices. All of ouractivities are potentially subject to federal and state consumer protection and unfair competition laws.Human CapitalWe are committed to a work environment that is welcoming, inclusive and encouraging. To achieve ourplans and goals, it is imperative that we attract and retain top talent. In order to do so, we aim to have a safe andencouraging workplace, with opportunities for our employees to grow and develop professionally, supported by strongcompensation, benefits, and other incentives. In addition to competitive base salaries, we offer every full-timeemployee a cash target bonus, a comprehensive benefits package and equity compensation.Historically, we have experienced a low turnover of employees. During 2021, our voluntary turnover ratewas approximately 11%.As of December 31, 2021, we had 113 full-time employees and no part-time employees. In addition to ouremployees, we contract with third parties for the conduct of certain clinical development, manufacturing, accountingand administrative activities. We anticipate increasing the number of our employees. We have no collective bargainingagreements with our employees, and none are represented by labor unions.Throughout the COVID-19 pandemic, most of our employees have been working remotely. We implemented a number of significant safety measures based on current guidelines recommended by the Centers for Disease Control for employees who choose to work at our facilities. These include, but are not limited to, social distancing, capacity limitations, mask requirements in common areas, weekly deep cleaning and daily sanitation procedures. Reverse stock splitOn September 23, 2020, we effected a 1-for-4 reverse split of shares of our common stock (Reverse Split), as approved by our board of directors and stockholders. The par value per share of our common stock was not adjusted as a result of the Reverse Split, and our authorized shares of common stock was reduced to 150,000,000. All of the share and per share amounts included in this Annual Report on Form 10-K have been adjusted to reflect the Reverse Split.Corporate InformationWe were incorporated in Delaware in August 2003. Our principal executive offices are located at 5 RadnorCorporate Center, Suite 500, 100 Matsonford Rd, Radnor, Pennsylvania 19087 and our telephone number is(484) 801-4670. Our website address is www.marinuspharma.com. The inclusion of our website address is, in eachcase, intended to be an inactive textual reference only and not an active hyperlink to our website. The informationcontained in, or that can be accessed through, our website is not part of this Annual Report on Form 10-K. We makeavailable free of charge on our website, Form 10-Ks, Form 10-Qs, Form 8-Ks and amendments to those reports assoon as reasonably practicable after filing with or furnishing to the Securities and Exchange Commission (SEC).Table of Contents40Item 1A. Risk FactorsOur business is subject to substantial risks and uncertainties. The occurrence of any of the following risks anduncertainties, either alone or taken together, could materially and adversely affect our business, financial condition,results of operations or prospects. In these circumstances, the market price of our common stock could decline andyou may lose all or part of your investment. The risks and uncertainties described below are not the only ones weface. Risks and uncertainties of general applicability and additional risks and uncertainties not currently known to usor that we currently deem to be immaterial may also materially and adversely affect our business, financial condition,results of operations or prospects.Risks Related to our Financial Position and Need for Additional CapitalWe have identified conditions and events that raise substantial doubt about our ability to continue as a goingconcern.We have incurred significant operating losses since our inception, including a net loss of $98.8 million forthe year ended December 31, 2021. As of December 31, 2021, we had an accumulated deficit of $410.7 million. Ourprior losses, combined with expected future losses, have had and will continue to have an adverse effect on ourstockholders’ equity and working capital. Our losses have resulted principally from costs incurred in our research anddevelopment activities. We anticipate that our operating losses will substantially increase over the next several years aswe execute our plan to expand our research, development and commercialization activities of ganaxolone. Ourcontinuation as a going concern is dependent on our ability to (1) generate sufficient cash flows from operations tomeet our obligations, (2) draw down on our existing debt facility or obtain additional debt/equity financing, (3)monetize our Priority Review Voucher, and/or (4) execute strategic transactions, as may be required.In addition, although we have received approval to commercialize ZTALMY in CDD in the United States,we expect to incur significant sales and marketing expenses in connection with the commercial launch of ZTALMY.Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable topredict the extent of any future losses or whether or when we will become profitable, if ever. The net losses we incurmay fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of ourresults of operations may not be a good indication of our future performance. In any particular quarter or quarters, ouroperating results could be below the expectations of securities analysts or investors, which could cause our stock priceto decline.As of December 31, 2021, our cash and cash equivalents, excluding the $20.0 million liquidity requirementassociated with our Note Payable, was not sufficient to fund operations for the one-year period after the date hereof.These factors raise substantial doubt about our ability to continue as a going concern. As a result, our independentregistered public accounting firm has included an explanatory paragraph in its report on our audited consolidatedfinancial statements for the year ended December 31, 2021 related to our ability to continue as a going concern. If weare unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value atwhich those assets are carried on our financial statements, and it is likely that investors will lose all or a part of theirinvestment. Future reports of our independent registered public accounting firm may contain statements expressingsubstantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our businessactivities and there remains substantial doubt about our ability to continue as a going concern, investors or otherfinancing sources may be unwilling to provide funding to us on commercially reasonable terms, if at all.We have not generated any revenue to date from product sales. We may never achieve or sustain profitability,which could depress the market price of our common stock, and could cause you to lose all or a part of yourinvestment.To date we have not generated any revenue from sales of ZTALMY or any other indications being developed for ganaxolone. Our ability to generate revenue from product sales and achieve profitability will depend upon our ability to successfully commercialize ZTALMY and to achieve successful clinical development of ganaxolone in the other indications we are developing or other product candidates that we may develop, in-license or acquire in the future. Our Table of Contents41ability to generate revenue from product sales of ZTALMY, ganaxolone in the other indications we are developing or any other future product candidates also depends on a number of additional factors, including our ability to:●successfully complete pre-clinical and clinical development activities, including enrollment of clinicaltrial participants, completion of the necessary pre-clinical studies and clinical trials and attainment ofstudy and trial results that will support regulatory approvals;●complete and submit NDAs to the FDA, MAAs with the EMA and other marketing authorizationfilings with regulatory agencies in other countries, and obtain regulatory approval for indications forwhich there is a commercial market;●make or have made commercial quantities of our products at acceptable cost levels;●develop a commercial organization capable of manufacturing, selling, marketing and distributing anyproducts we intend to sell ourselves in the markets in which we choose to commercialize on our own;●find suitable partners to help us market, sell and distribute our approved products in other markets;●obtain adequate pricing, coverage and reimbursement from third parties, including government andprivate payers;●launch and commercialize ZTALMY, other indications being developed for ganaxolone and any otherfuture product candidates for which we obtain regulatory approval;●obtain market acceptance of ZTALMY, other indications being developed for ganaxolone and any otherfuture product candidates as viable treatment options;●address any competing technological and market developments;●implement additional internal systems and infrastructure, as needed;●identify and validate new product candidates;●negotiate favorable terms in any collaboration, licensing or other commercial arrangements into whichwe may enter;●resolve potential intellectual property disputes with third parties;●maintain, protect and expand our portfolio of intellectual property rights, including patents, trade secretsand know-how; and●attract, hire and retain qualified personnel.In addition, because of the numerous risks and uncertainties associated with product development, includingthat ganaxolone may not advance through development or achieve the endpoints of applicable preclinical studies andclinical trials for ganaxolone in the other indications we are developing, we are unable to predict the timing or amountof increased expenses, or if or when we will be able to achieve or maintain profitability. Our expenses could increasebeyond expectations if we are required by the FDA or other regulatory agencies, domestic or foreign, to performpreclinical studies and clinical trials or other studies in addition to those that we currently anticipate. Even if we areable to complete the development and regulatory process for ZTALMY or ganaxolone in the other indications we aredeveloping, we anticipate incurring significant costs associated with commercializing ZTALMY, any other indicationsfor ganaxolone or other product candidates.Table of Contents42Even if we are able to generate revenue from the sale of ZTALMY, other indications being developed forganaxolone or any future commercial products, we may not become profitable and will need to obtain additionalfunding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuingbasis, and we are not successful in obtaining additional funding, then we may be unable to continue our operations atplanned levels, or at all, which would likely materially and adversely affect our business and the market price of ourcommon stock.We will require additional capital to fund our operations and if we fail to obtain necessary financing, we may beunable to commercialize ZTALMY or complete the development and commercialization, if approved, of ganaxolonein the other indications we are developing.Our operations have consumed substantial amounts of cash since inception. We expect to continue to spendsubstantial amounts to commercialize ZTALMY and to advance the clinical and regulatory development of ganaxolonein the other indications we are developing and, if approved, commercialize ganaxolone in those indications. If we areunable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate ourcommercialization efforts or our research and development programs.We believe that our existing cash and cash equivalents on hand as of December 31, 2021, including the $22million previously received as a contingent refundable upfront fee, will be sufficient to fund our operating expenses,capital expenditure requirements, and maintain the minimum cash balance required under our debt facility into thefourth quarter of 2022. We have based this estimate on assumptions that may prove to be wrong, and we couldexhaust our available capital resources sooner than we currently expect. Our future funding requirements, both nearand long-term, will depend on many factors, including, but not limited to:●the effects of the COVID-19 pandemic on our business, the medical community and the globaleconomy;●the results of our preclinical studies and clinical trials;●the development, formulation and commercialization activities related to ganaxolone, includingZTALMY;●the scope, progress, results and costs of researching and developing ganaxolone, including ZTALMY,or any other future product candidates, and conducting preclinical studies and clinical trials;●the timing of, and the costs involved in, obtaining regulatory approvals for ganaxolone, includingZTALMY, or any other future product candidates;●the cost of commercialization activities for ZTALMY, ganaxolone in any other indications, or any otherfuture product candidates, are approved for sale, including marketing, sales and distribution costs;●the cost of manufacturing and formulating ganaxolone, or any other future product candidates, tointernal and regulatory standards for use in preclinical studies, clinical trials and, if approved,commercial sale;●our ability to establish and maintain strategic collaborations, licensing or other arrangements and thefinancial terms of such agreements;●our ability to receive funding under the BARDA Contract;●our expectations regarding the amount and timing of milestone and royalty payments pursuant to ourexclusive license agreement with Orion for the commercialization of ganaxolone in Europe;●our obligation to reimburse the upfront payment under the Collaboration Agreement to Orion in theevent of a positive genotoxicity study;Table of Contents43●any product liability, infringement or other lawsuits related to ZTALMY or other indications beingdeveloped for ganaxolone and, if approved, products;●capital needed to attract and retain skilled personnel;●the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims,including litigation costs and the outcome of such litigation; and●the timing, receipt and amount of sales of, or royalties on, future approved products, if any.If we are unable to expand our operations or otherwise capitalize on our business opportunities due to a lack of capital, our ability to become profitable will be compromised. Failure to progress our product development or commercialization of ganaxolone as anticipated will have a negative effect on our business, future prospects and ability to obtain further financing on acceptable terms, if at all, and the value of the enterprise, which could require us to, among other things:●significantly delay, scale back or discontinue the development or commercialization of ganaxolone orone or more of our other research and development initiatives;●seek collaborators for one or more of our current or future product candidates at an earlier stage thanotherwise would be desirable or on terms that are less favorable than might otherwise be available;●sell or license on unfavorable terms our rights to ganaxolone or one of our future product candidatesthat we otherwise would seek to develop or commercialize ourselves; or●seek bankruptcy protection.Our failure to comply with the covenants or other terms of the Credit Agreement, including as a result of eventsbeyond our control, could result in a default under the Credit Agreement that could materially and adverselyaffect the ongoing viability of our business.On May 11, 2021 (Closing Date), we entered into a Credit Agreement and Guaranty (as amended by that certain letter agreement on May 17, 2021, the Credit Agreement) with Oaktree Fund Administration, LLC, as administrative agent (Oaktree) and the lenders party thereto (collectively, the Lenders) that provides for a five-year senior secured term loan facility in an aggregate original principal amount of up to $125.0 million, consisting of (i) tranche A-1 term loans in an aggregate principal amount of $15.0 million advanced on the Closing Date, (ii) tranche A-2 term loans in an aggregate principal amount of $30.0 million advanced on September 27, 2021, (iii) tranche B term loans in an aggregate principal amount of $30.0 million, (iv) tranche C term loans in an aggregate principal amount of $25.0 million and (v) tranche D term loans in an aggregate principal amount of $25.0 million (collectively, the Term Loans). Our ability to draw each tranche of the Term Loans is subject to the satisfaction of certain conditions applicable to each tranche as specified in the Credit Agreement. The Term Loans bear interest at a fixed per annum rate (subject to increase during an event of default) of 11.50% and are scheduled to mature on the fifth anniversary of the Closing Date (Maturity Date). In addition, at the time of funding of any tranche of the Term Loans, we are required to pay an upfront fee of 2.0% of the aggregate principal amount being funded. We are required to make quarterly interest payments until the Maturity Date. We are also required to make principal payments, which are payable in quarterly installments beginning on the last day of the first quarter ending after the third anniversary of the Closing Date, in an amount equal to 5.0% of the aggregate amount of the Term Loans outstanding on the date of the first such quarterly principal payment and continuing until the Maturity Date, on which date all outstanding Term Loans and other amounts owed under the Credit Agreement will be required to be paid in full. A commitment fee of 75 basis points per annum will accrue on each of the tranche B, C and D commitments for the period beginning 120 days after the funding date of the tranche A-2 term loans until the applicable tranche is either funded or terminated. The Term Loans will be guaranteed by certain of our future subsidiaries. Our obligations under the Credit Agreement and the guarantee of such obligations are secured by a pledge of substantially all of our assets and will be secured by a pledge of substantially all of the assets of the future guarantors. The Credit Agreement contains various covenantsthat limit our ability to engage in specified types ofTable of Contents44transactions without Oaktree's prior consent, as well as a financial covenant that requires us to maintain at all timescash and cash equivalents in certain deposit accounts in an amount at least equal to (i) from the funding date of thetranche A-2 term loans until the funding date of the tranche B term loans, $20.0 million, and (ii) from the funding ofthe tranche B term loans until the Maturity Date, $15.0 million. Oaktree may elect to accelerate the repayment of all unpaid principal of the Term Loans, accrued interest andother amounts owed under the Credit Agreement upon consummation of a specified change of control transaction orthe occurrence of certain events of default (as specified in the Credit Agreement), including, among other things:●our default in a payment obligation under the Credit Agreement;●our breach of the restrictive covenants or other terms of the Credit Agreement;●our breach of reporting obligations;●our failure to properly maintain the collateral;●certain regulatory actions that cause an ongoing delay in commercialization of ganaxolone and whichcould reasonably be expected to result in a material adverse effect;●a recall of ganaxolone that could reasonably be expected to result in a material adverse effect;●following the sale of ganaxolone by us in the United States to treat CDD, an injunction against the saleor manufacture of ganaxolone for more than 45 days that could, after the termination of such 45-dayperiod, reasonably be expected to result in a material adverse effect; and●certain specified insolvency and bankruptcy-related events.Subject to any applicable cure period set forth in the Credit Agreement, all amounts outstanding with respectto the Term Loans (principal and accrued interest), as well as any applicable prepayment premiums, interest “make-whole” payments or exit fees, would become due and payable (i) immediately, in the case of a payment or bankruptcyevent of default or (ii) in the case of any other event of default, upon the request of Lenders holding at least amajority of the outstanding Term Loans and Term Loan commitments, at a default interest rate of 13.50%. Our assetsor cash flow may not be sufficient to fully repay our obligations under the Term Loans if the obligations thereunderare accelerated upon any events of default. The duration and magnitude of any negative impact from the COVID-19pandemic on ganaxolone commercialization, development or net revenues could also affect our ability to meet therequirements to draw on one or more of the Term Loan tranches and to remain in compliance with our liquidityfinancial covenant. Further, if we are unable to repay, refinance or restructure our obligations under the Term Loans,Oaktree on behalf of the Lenders could proceed to protect and enforce their rights under the Credit Agreement andother loan documents by exercising such remedies (including foreclosure on the assets securing our obligations underthe Credit Agreement and the other loan documents) as are available to Oaktree and the Lenders and in respect thereofunder applicable law, either by suit in equity or by action at law, or both, whether for specific performance of anycovenant or other agreement contained in the Credit Agreement or other loan documents or in aid of the exercise ofany power granted in the Credit Agreement or other loan documents. The foregoing would materially and adverselyaffect the ongoing viability of our business.If we are unable to satisfy certain conditions in our Credit Agreement, we will be unable to draw down theremaining amount of the term loan facility.For our Credit Agreement, we must satisfy certain conditions to be eligible to draw down the tranche B termloans of $30.0 million, the tranche C term loans of $25.0 million and the tranche D term loans of $25.0 million. WithFDA approval of ganaxolone to treat CDD, the tranche B term loans of $30.0 million may be drawn by us on orbefore December 31, 2022, provided that we satisfy certain conditions described in the Credit Agreement. The trancheC term loans of $25.0 million may be drawn by us on or before June 30, 2023, provided that we satisfy certainconditionsTable of Contents45described in the Credit Agreement, including (i) the completion of one or more financings, including through theissuance of common stock, convertible debt, subordinated debt, a synthetic royalty or a sublicense in which we receivegross proceeds in an aggregate amount of at least $40.0 million and net proceeds in an aggregate amount of at least$36.0 million and (ii) either our current Phase 3 RAISE trial or a Phase 3 trial in TSC achieving statistical significance(p value < 0.05) across all primary endpoints and ganaxolone being generally well tolerated, with a safety profilegenerally consistent with previous clinical trials. The tranche D term loans of $25.0 million may be drawn by us on or before December 31, 2023, provided that we satisfy certain conditions described in the Credit Agreement, including usearning an aggregate of at least $50 million in net product revenue in the United States for a trailing six consecutivemonths. If we are unable to satisfy those conditions, we would not be able to draw down the respective tranche ofloans and may not be able to obtain alternative financing on commercially reasonable terms or at all.Our Credit Agreement contains restrictions that limit our flexibility in operating our business.The Credit Agreement contains various covenants that limit our ability to engage in specified types oftransactions without the prior consent of Oaktree and the Lenders holding a majority of the Term Loan commitments.These covenants limit our ability to, among other things:●sell, transfer, lease or dispose of our assets;●create, incur or assume additional indebtedness;●encumber or permit liens on certain of our assets;●make restricted payments, including paying dividends on, repurchasing or making distributions withrespect to our common stock;●make specified investments (including acquisitions, loans and advances);●consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;●enter into certain transactions with our affiliates;●grant certain license rights related to our products, technology and other intellectual property rights; and●permit our cash and cash equivalents held in certain deposit accounts to at any time be less than (i) fromthe funding of the tranche A-2 term loans until the funding of the tranche B term loans, $20.0 millionand (ii) from the funding date of the tranche B term loans until the Maturity Date, $15.0 million.The covenants in our Credit Agreement and related security agreements may limit our ability to take certainactions that may be in our long-term best interests. In the event that we breach one or more covenants, Oaktree maychoose to declare an event of default and require that we immediately repay all amounts outstanding under the CreditAgreement, plus penalties and interest, terminate the Lenders’ commitments to fund any undrawn Term Loan tranchesand foreclose on the collateral granted to them to secure the obligations under the Credit Agreement and the other loandocuments. Such repayment could have a material adverse effect on our business, operating results and financialcondition.Raising additional capital could dilute our stockholders, restrict our operations or require us to relinquish rightsto ganaxolone or any other future product candidates.Until we can generate substantial revenue from product sales, if ever, we expect to seek additional capitalthrough a combination of private and public equity offerings, debt financings, government funding, collaborations,licensing arrangements and other commercial transactions and funding opportunities. To the extent that we raiseadditional capital through the sale of equity or convertible debt securities, the ownership interests of stockholders willbeTable of Contents46diluted, and the terms may include liquidation or other preferences that adversely affect the rights of stockholders.Debt financing or other commercial transactions, if available, may involve agreements that include liens or restrictivecovenants limiting our ability to take important actions, such as incurring additional debt, making capital expendituresor declaring dividends. If we raise additional funds through collaborations, licensing arrangements or other commercialwith third parties, we may have to relinquish valuable rights to ganaxolone or any other future product candidates inparticular countries, or grant licenses on terms that are not favorable to us. If we are unable to raise additional fundswhen needed, we may be required to delay, limit, reduce or terminate our product development or commercializationefforts or grant rights to develop and market ganaxolone or any other future product candidates that we wouldotherwise prefer to develop and market ourselves.We intend to expend our limited resources to pursue ganaxolone and may fail to capitalize on other technologiesor any other future product candidates that may be more profitable or for which there may be a greater likelihoodof success.Because we have limited financial and managerial resources, we are focusing on commercializing ZTALMYand on research programs relating to ganaxolone, which concentrates the risk of product failure in the eventganaxolone proves to be ineffective or inadequate for clinical development or commercialization. As a result, we mayforego or delay pursuit of opportunities for other technologies or product candidates that later could prove to havegreater commercial potential. We may be unable to capitalize on viable commercial products or profitable marketopportunities as a result of our resource allocation decisions. Our spending on proprietary research and developmentprograms relating to ganaxolone may not yield any commercially viable products. If we do not accurately evaluate thecommercial potential or target market for ganaxolone, we may relinquish valuable rights to ganaxolone throughcollaboration, licensing or other commercial arrangements in cases in which it would have been more advantageous forus to retain sole development and commercialization rights to ganaxolone.We have a limited operating history, which may make it difficult for you to evaluate the success of our business todate and to assess our future viability.Our operations to date have been limited to conducting preclinical and clinical development and regulatoryactivities for ganaxolone as well as commercialization preparation for ZTALMY. In addition, we have not yetdemonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered bycompanies in new and rapidly evolving fields, particularly in the pharmaceutical area. Nor have we demonstrated anability to commercialize any product candidate. Consequently, any predictions about our future performance may notbe as accurate as they would be if we had a history of successfully developing and commercializing pharmaceuticalproducts. Further, our budgeted expense levels are based in part on our expectations concerning the costs ofcommercialization of ZTALMY and on our research, preclinical development and clinical trials, which depend on thesuccess of such activities, and our ability to effectively and efficiently conduct such research, preclinical development,clinical trials and our expectations related to our efforts to achieve FDA or foreign regulatory approval with respect toganaxolone for additional indications. Our limited operating history and clinical trial experience make these costsdifficult to forecast accurately. We may be unable to adjust our operations in a timely manner to compensate for anyunexpected increase in costs. Further, our manufacturing costs and operating expenses may increase significantly as weexpand our operations and begin our commercial activities. Accordingly, a significant increase in costs could have animmediate and material adverse effect on our business, results of operations and financial condition.Our ability to use our net operating loss carryforwards and other tax attributes may be limited. As of December 31, 2021, we had U.S. net operating loss, or NOL, carryforwards of approximately $303.3million for U.S. federal income tax and approximately $253.0 million for state income tax purposes available to offsetfuture taxable income and U.S. federal and state research and development tax credits of approximately $16.2 million,prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of1986, as amended, or Section 382. Our U.S. NOL carryforwards begin to expire in 2023 if not utilized.Our U.S. NOL and tax credit carryforwards could expire unused and be unavailable to offset future incometax liabilities. Under Section 382, and corresponding provisions of U.S. state law, if a corporation undergoes an“ownershipTable of Contents47change,” generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change U.S. NOLs and other pre-change tax attributes, such as research and development tax credits, to offset its post-change income may be limited. We have completed several financings since our inception that may have resulted in “ownership changes” within the meaning of Section 382. We have not evaluated the ownership history of our company to determine if there were any ownership changes as defined under Section 382 and the effects any ownership change may have had. We may experience additional ownership changes in the future as a result of subsequent shifts in our stock ownership, including through completed or contemplated financings, some of which may be outside of our control. If we determine that a future ownership change has occurred and our ability to use our historical net operating loss and tax credit carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations. Furthermore, the losses could expire before we generate sufficient income to utilize them.Risks Related to the Commercialization of ZTALMY and Other Future Product CandidatesWe have no history of commercializing drugs, which may make it difficult for you to evaluate the success of ourbusiness to date and to assess our future viability.Our operations to date have been largely focused on raising capital and developing ganaxolone in severalindications, including undertaking preclinical studies and conducting clinical trials. We have only recently receivedFDA approval of ZTALMY, and as such we have not yet demonstrated our ability to successfully supply ZTALMYfor ongoing commercial sale or conduct sales, marketing and distribution activities necessary for successful productcommercialization. Consequently, any predictions about our future success or viability may not be as accurate as theycould be if we had a longer history of successfully developing and commercializing drugs.Even though we have obtained regulatory approval for ZTALMY in the U.S., we will still face extensive FDAregulatory requirements and may face regulatory difficulties.Even though we have obtained regulatory approval in the U.S. for ZTALMY, the FDA and state regulatory authorities (and, if we obtain foreign regulatory approvals, comparable foreign regulatory authorities) may still impose significant restrictions on the indicated uses or marketing of ZTALMY, or impose ongoing requirements for potential costly post-approval studies or post-marketing surveillance. For example, as part of its approval of ZTALMY for the treatment of CDD, the FDA requires that we conduct the following additional studies:●2-year carcinogenicity studies of ganaxolone and the major human unconjugated plasma metabolite, M2 inrats.●a 26-week carcinogenicity study of ganaxolone in transgenic mice.●a juvenile animal toxicity study of the major human unconjugated plasma metabolite, M2, in rats.●phase 1 renal and hepatic impairment studies and a thorough QTc study.●extractable/leachable study results on the container closure system.●a CNS distribution study with M47 metabolite, in rats.●in vitro studies to assess the drug interaction potential of M47 metabolite.These additional studies will likely require us to undergo a costly and time-consuming development process.If we do not meet our obligations, the FDA may issue a non-compliance letter and may also consider ZTALMY to bemisbranded and subject to potential enforcement action.Table of Contents48 We are also subject to ongoing FDA requirements governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, patient registry, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of ganaxolone will continue to be closely monitored by the FDA and comparable foreign regulatory authorities after approval. If new safety information becomes available after approval of ganaxolone, the FDA or comparable foreign regulatory authorities may require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on ganaxolone’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval trials or post-market surveillance. We will also be subject to continued compliance with current good manufacturing practices (cGMP) and good clinical practices (GCP) requirements for any clinical trials that we conduct post-approval.In addition, manufacturers of drug products and their facilities are subject to continual review and periodicinspections by the FDA and other regulatory authorities for compliance with cGMP and other regulations. If we or aregulatory authority discover previously unknown problems with a product, such as AEs of unanticipated severity orfrequency, or problems with the facility where the product is manufactured, a regulatory authority may imposerestrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the productfrom the market or suspension of manufacturing. If we, ganaxolone or the manufacturing facilities for ganaxolone failto comply with applicable regulatory requirements, a regulatory authority may, among other things:●issue warning letters or untitled letters;●mandate modifications to promotional materials or require us to provide corrective information tohealthcare practitioners;●require us to enter into a consent decree, which can include imposition of various fines, reimbursementsfor inspection costs, required due dates for specific actions and penalties for noncompliance;●seek an injunction or impose civil or criminal penalties or monetary fines;●suspend or withdraw regulatory approval;●suspend any ongoing clinical trials;●refuse to approve pending applications or supplements to applications filed by us;●suspend or impose restrictions on operations, including costly new manufacturing requirements; or●seize or detain products, refuse to permit the import or export of products, or require us to initiate aproduct recall.The occurrence of any event or penalty described above may inhibit or preclude our ability to commercializeganaxolone and generate revenue.The FDA’s and other regulatory authorities’ policies may change, and additional government regulations maybe enacted. We cannot predict the likelihood, nature or extent of government regulation that may arise from futurelegislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changesin existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatorycompliance, we may lose any marketing approval for ganaxolone that we may have obtained, and we may not achieveor sustain profitability, which would adversely affect our business, prospects, financial condition and results ofoperations.Advertising and promotion of ZTALMY will be heavily scrutinized by, among others, the FDA, the UnitedStates Department of Justice (DOJ), the Office of the Inspector General of the United States Department of Healthand Human Services (HHS OIG), state attorneys general, members of Congress and the public. The FDA and otherfederal regulatory agencies closely regulate the marketing and promotion of drugs through, among other things,standards andTable of Contents49regulations for direct-to-consumer advertising, advertising and promotion to healthcare professionals, communicationsregarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities involvingthe Internet. A product cannot be promoted before it is approved. After approval, product promotion can include onlythose claims relating to safety and effectiveness that are consistent with the labeling approved by the FDA. Healthcareproviders are permitted to prescribe drugs for “off-label” uses — that is, uses not approved by the FDA and notdescribed in the product’s labeling — because the FDA does not regulate the practice of medicine. However, FDAregulations impose restrictions on manufacturers’ communications regarding off-label uses. Broadly speaking, amanufacturer may not promote a drug for off-label use, but under certain conditions may engage in non-promotional,balanced, scientific communication regarding off-label use. Failure to comply with applicable FDA requirements andrestrictions in this area may subject a company to adverse publicity and enforcement action, including enforcementletters, inquiries and investigations, and civil and criminal sanctions by the FDA or other government agencies. Inaddition, advertising and promotion of ganaxolone, if approved outside of the United States, will be heavily scrutinizedby comparable foreign regulatory authorities.In the United States, promoting ganaxolone for unapproved indications can also subject us to false claimslitigation under federal and state statutes, and other litigation and/or investigation, which can lead to civil and criminalpenalties and fines and agreements that materially restrict the manner in which we promote or distribute our drugproducts. These false claims statutes include the False Claims Act (FCA), which allows any individual to bring alawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false orfraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such asMedicare or Medicaid. If the government prevails in the lawsuit, the individual will share in any fines or settlementfunds. If we do not lawfully promote our approved products, we may become subject to such litigation and/orinvestigation and, if we are not successful in defending against such actions, those actions could adversely affect ourbusiness prospects, financial condition and results of operations.In the European Union (EU), strict requirements and restrictions regarding advertising and promotion apply, the detailsof which may vary per EU Member States. Violation of those rules could subject us to litigation, investigations and/orcivil and criminal penalties, which could adversely affect our business, prospects, financial condition and results ofoperations.Our commercial success depends upon attaining significant market access and acceptance of ZTALMY amongphysicians, patients, government and private payers and others in the medical community and attaining sufficientreimbursement for ganaxolone.Even though ZTALMY received FDA approval for CDD, it may not gain market acceptance amongphysicians, patients, government and private payers, or others in the medical community. Market acceptance ofZTALMY (and of any potential future products we commercialize) depends on a number of factors, including:●clinically and commercially viable product profile as supported by clinical trials;●efficacy and safety of ganaxolone, or ganaxolone administered with other drugs, each asdemonstrated in clinical trials and post-marketing experience;●clinical indications for which ganaxolone is approved;●acceptance by physicians and patients of ganaxolone as a safe and effective treatment;●potential and perceived advantages of ganaxolone over alternative treatments;●safety of ganaxolone seen in a broader patient group, including its use outside the approvedindications should physicians choose to prescribe for such uses;Table of Contents50●prevalence and severity of any side effects and drug interactions, including any drug interactionswith Epidiolex and other antiseizure medications;●product labeling or product insert requirements of the FDA or comparable foreign regulatoryauthorities;●restrictions in distribution and use due to controlled substance laws and regulations;●timing of market introduction of ganaxolone as well as competitive products;●cost of treatment in relation to alternative treatments;●availability of coverage and adequate reimbursement and pricing by government and privatepayers;●ability to manufacture commercial quantities of ZTALMY (or any future products) at a reasonablecost and with sufficient speed to meet commercial demand;●ability to obtain and maintain appropriate state licenses in the states in which we intend to sellZTALMY (or any future products);●ability to successfully defend any challenges to our intellectual property relating to ZTALMY (orany future products);●relative convenience and ease of administration;●effectiveness of our sales and marketing strategy and efforts and effective use of promotionalresources;●adequate commercial investment; and●stability and continuity of product supply chains.If ZTALMY fails to achieve market acceptance among physicians, patients, government or private payers orothers in the medical community, or the products or product candidates that are being administered with ganaxolonecause AEs, as the case may be, we may not be able to generate significant revenues, which would compromise ourability to become profitable. Many of these matters are beyond our control and are subject to other risks describedelsewhere in this “Risk Factors” section. Accordingly, we cannot assure you that we will be able to successfullycommercialize or generate revenue from ZTALMY (or any future products).We face substantial competition, which may result in others discovering, developing or commercializing productsbefore or more successfully than we do.The development and commercialization of new drug products is highly competitive. We face competitionwith respect to ganaxolone both for the treatment of CDD and for other indications, and will face competition withrespect to any other product candidates that we may seek to develop or commercialize in the future, from majorpharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are anumber of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuingthe development of products for the treatment of the disease indications for which we are developing ganaxolone.Some of these competitive products and therapies are based on scientific approaches that are the same as, or similar to,our approach, and others are based on entirely different approaches. For example, there are several companiesdeveloping product candidates that target the same GABAA neuroreceptor that we are targeting or that are testingproduct candidates in the same indications that we are testing. Potential competitors also include academic institutions,government agencies and other public andTable of Contents51private research organizations that conduct research, seek patent protection and establish collaborative arrangements forresearch, development, manufacturing and commercialization.Ganaxolone is presently being developed as an antiepileptic therapeutic. There are a variety of marketedtherapies available for these patients.Specifically, there are more than 25 approved AEDs available in the United States and worldwide, includingthe generic products levetiracetam, lamotrigine, carbamazepine, oxcarbazepine, valproic acid and topiramate. Recentmarket entrants include branded products developed by Lundbeck, UCB (including acquisition of Zogenix), Eisai, JazzPharmaceuticals (via acquisition of GW Pharmaceuticals), SK Biopharmaceuticals and Sunovion Pharmaceuticals. Inaddition, there are several drugs in clinical development for the treatment of pediatric orphan epilepsy indications,including compounds being developed by Jazz Pharmaceuticals (via acquisition of GW Pharmaceuticals), UCB(including acquisition of Zogenix) and Takeda.Many of the approved drugs are well established therapies or products and are widely accepted byphysicians, patients and third-party payers. Insurers and other third-party payers may also encourage the use of genericproducts. These factors may make it difficult for us to achieve market acceptance at desired levels or in a timelymanner to ensure viability of our business.More established companies may have a competitive advantage over us due to their greater size, cash flowsand institutional experience. Compared to us, many of our competitors may have significantly greater financial,technical and human resources.As a result of these factors, our competitors may obtain regulatory approval of their products before we areable to, which may limit our ability to develop or commercialize ganaxolone. Our competitors may also developproducts that are safer, more effective, more widely used and cheaper than ours, and may also be more successful thanus in manufacturing and marketing their products. These appreciable advantages could render ganaxolone obsolete ornon-competitive before we can recover the expenses of ganaxolone’s development and commercialization.Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even moreresources being concentrated among a smaller number of our competitors. Smaller and other early-stage companiesmay also prove to be significant competitors, particularly through collaborative arrangements with large and establishedcompanies. These third parties compete with us in recruiting and retaining qualified scientific, management andcommercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiringtechnologies complementary to, or necessary for, our programs.If we are unable to differentiate ZTALMY from current and future products or existing methods of treatments,our ability to successfully commercialize ZTALMY would be adversely affected.We initially intend to commercialize ZTALMY for the treatment of CDD and seek FDA approval forganaxolone with respect to additional indications. Ganaxolone is the first product to receive regulatory approval forreduction of seizures specifically in patients with CDD. Patients with CDD are generally on a number of anti-epilepticmedications and physicians’ determining whether to prescribe ZTALMY to their CDD patients may add ZTALMY toexisting regimens for patients or make changes in their patients’ current medications to introduce ZTALMY. If we areunable to achieve significant differentiation for ZTALMY against these other products and treatments or futuretreatments, including on the basis of efficacy, safety and tolerability profile, reliability, convenience of administration,price and reimbursement, the opportunity for ZTALMY to be commercialized successfully would be adverselyaffected.ZTALMY is our first commercial product and our sales field force is currently being hired. If our sales andmarketing capabilities to market and sell ganaxolone are not effective, we may be unable to generate any revenue.ZTALMY is our first commercial product and we have hired experienced internal commercial leadership inour organization to support commercialization of ZTALMY, including sales, marketing, sales operations, anddistribution of pharmaceutical products. We are in the process of hiring our first field sales force which we plan tohave in place by theTable of Contents52second quarter 2022. We are competing for sales talent with companies that have extensive, well-funded marketing and sales operations and successful products in the market. We have no track record commercializing products which may make it more difficult to attract and retain an effective sales field force. If we are unable to hire and maintain an effective field sales force for our first commercial launch, we may not be successful in generating revenue. Additionally, if our sales, marketing and distribution capabilities, are not adequate, we may not be able to generate product revenue and may not become profitable. Even if we are able to attract and retain an effective sales field force, we may be unable to compete successfully against more established companies. Even if we are able to commercialize ganaxolone, it may not receive coverage and adequate reimbursement fromthird-party payers, which could harm our business.Our ability to successfully commercialize ganaxolone will depend, in part, on the extent to which coverageand adequate reimbursement for ganaxolone will be available from government health administration authorities,including Medicaid, which we expect will be a significant portion of patients prescribed ZTALMY, private healthinsurers and other organizations. Government authorities and commercial third-party payers, such as private healthinsurers and health maintenance organizations, determine which medications they will cover, the process for makingsuch decisions, and the reimbursement levels for those medications. Obtaining formulary coverage and favorablereimbursement levels for ZTALMY from government authorities or other third-party commercial payers is expected tobe a time consuming and costly process, especially in the first year of regulatory approval. It is expected that we willbe required to provide supporting clinical scientific and economic evidence in the form of cost-effectiveness and real-world data, outcomes beyond the data required to obtain marketing approval. We may not be able to gain acceptancefrom government health authorities, third-party payers or employer sponsored plans and, even if we are able to do so,the timing and the consistency in payer formulary placement or utilization management may vary greatly fromgovernment health authorities, third-party payers and by employer sponsored plans.A primary trend in the United States healthcare industry and elsewhere is budget predictability and costcontainment. Government authorities and third-party payers have attempted to control costs by limiting access throughutilization management controls, formulary placement and reimbursement amounts for particular medications andprocedures. Increasingly, third-party payers are requiring that drug companies provide them with predeterminedutilization discounts from list prices and are challenging the prices charged for drugs. Third-party payers or PMBs mayalso seek additional clinical and economic evidence, beyond the data required to obtain marketing approval, which mayinclude demonstrating clinical benefits and value in specific patient populations before covering ganaxolone for thosepatients. We cannot be sure that formulary placement, coverage and adequate reimbursement will be available forganaxolone and, if such is available, what hurdles may be put in place for prescribing physicians to navigate. Coverageand reimbursement may impact physician or institutional demand for ganaxolone, and that demand may vary by regionor by payer segment. If coverage and reimbursement is not available or is available only at limited levels, we may notbe able to successfully commercialize ganaxolone.There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, andcoverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreignregulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paidfor in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution.Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may onlybe temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it isused, may be based on formulary coverage or reimbursement levels already set for lower cost drugs and may beincorporated into existing payments for other services. Net prices for drugs will be reduced by mandatory discounts orrebates required by Medicaid government healthcare programs and may be reduced by private payers and by any futurerelaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices thanin the United States. Third-party payers and PBMs often rely upon Medicare coverage policy and payment limitationsin setting their own coverage and reimbursement policies. Our inability to obtain coverage and favorablereimbursement rates from both government-funded and private payers for ZTALMY could have a material adverseeffect on our operating results, our ability to raise capital needed to commercialize products and our overall financialcondition.Table of Contents53If the market opportunities for ZTALMY in CDD and other indications for which we obtain regulatory approval,if any, are smaller than we believe they are, our results of operations may be adversely affected and our businessmay suffer. We focus our research and product development on therapeutics to treat patients suffering from seizuredisorders. Our projections of both the number of people who have these disorders, as well as the subset of peoplewith these diseases who have the potential to benefit from treatment with ganaxolone, are based on estimates. Theseestimates may prove to be incorrect and new studies or clinical trials may change the estimated incidence or prevalenceof these disorders. The number of patients in the United States and elsewhere may turn out to be lower than expected,may not be otherwise amenable to treatment with ganaxolone, or new patients may become increasingly difficult toidentify or gain access to, all of which would adversely affect our results of operations and our business. ZTALMYhas received regulatory approval in the U.S. for CDD and our estimates of the market for ZTALMY in CDD may beincorrect. Our ability to obtain market information is limited since ZTALMY is the first drug to be approvedspecifically for use in seizures associated with CDD and the ICD10 code for CDD was established in 2020, and thereis limited market data available for CDD.A variety of risks associated with marketing ganaxolone internationally could materially adversely affect ourbusiness.We plan to seek regulatory approval for ganaxolone outside of the United States, and, accordingly, weexpect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessaryapprovals, including:●differing regulatory requirements in foreign countries;●the potential for so-called parallel importing, which is what happens when a local seller, faced with highor higher local prices, opts to import goods from a foreign market (with low or lower prices) ratherthan buying them locally;●viable pricing awarded in international markets to support commercial investment is required;●unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatoryrequirements;●economic weakness, including inflation, or political instability in particular foreign economies andmarkets;●compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;●foreign taxes, including with respect to our Irish subsidiary;●foreign currency fluctuations, which could result in increased operating expenses and reduced revenues,and other obligations incident to doing business in another country;●difficulties staffing and managing foreign operations;●workforce uncertainty in countries where labor unrest is more common than in the United States;●challenges enforcing our contractual and intellectual property rights, especially in those foreign countriesthat do not respect and protect intellectual property rights to the same extent as the United States;●production shortages resulting from any events affecting raw material supply or manufacturingcapabilities abroad; andTable of Contents54●business interruptions resulting from geo-political actions, including war and terrorism, as well as frompandemics, including the COVID-19 pandemic.These and other risks associated with our international operations may materially adversely affect our abilityto attain or maintain profitable operations.Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization ofganaxolone or other future product candidates that we may develop.We face an inherent risk of product liability exposure related to the testing of ganaxolone by us or ourinvestigators in human clinical trials and will face an even greater risk now that ZTALMY has received FDA approvaland we enter the commercial market. Product liability claims may be brought against us by patients enrolled in ourclinical trials, patients, healthcare providers or others using, administering or selling ganaxolone. If we cannotsuccessfully defend ourselves against claims that ganaxolone caused injuries, we could incur substantial liabilities.Regardless of merit or eventual outcome, liability claims may result in, for example: ●decreased demand for ganaxolone;●termination of clinical trial sites, entire clinical trials or development programs;●injury to our reputation and significant negative media attention;●withdrawal of clinical trial patients;●significant costs to defend the related litigation;●substantial monetary awards to patients;●loss of revenue;●diversion of management and scientific resources from our business operations;●the inability to commercialize ganaxolone; and●increased scrutiny and potential investigation by, among others, the FDA, the DOJ, the HHS OIG, stateattorneys general, members of Congress and the public.We currently have product liability insurance coverage, which may not be adequate to cover all liabilities thatwe may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at areasonable cost or in an amount adequate to satisfy any liability that may arise. We intend to expand our productliability insurance coverage to include the sale of ZTALMY, but we may be unable to obtain commercially reasonablelimits for product liability insurance. Large judgments have been awarded in class action lawsuits based on drugs thathad unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly ifjudgments exceed our insurance coverage, could have a material adverse effect on our business and financialcondition. If the FDA or other applicable regulatory authorities approve generic products that compete with any of ourproducts or product candidates, it could reduce our sales of those products or product candidates.In the United States, after an NDA is approved, the product generally becomes a “listed drug” which can, inturn, be relied upon by potential competitors in support of approval of an ANDA. The Federal Food, Drug, andCosmetic Act, FDA regulations and other applicable regulations and policies provide incentives to manufacturers tocreate generic, non-infringing versions of a drug to facilitate the approval of an ANDA. These manufacturers mightshow that their product has the same active ingredients, dosage form, strength, route of administration, conditions ofuse, and labeling asTable of Contents55our product candidate and might conduct a relatively inexpensive study to demonstrate that the generic product isabsorbed in the body at the same rate and to the same extent as, or is bioequivalent to, our product. These genericequivalents would be significantly less costly than ours to bring to market, and companies that produce genericequivalents are generally able to offer their products at lower prices. Thus, after the introduction of a genericcompetitor, a significant percentage of the sales of any branded product are typically lost to the generic product.Accordingly, competition from generic equivalents to our products would substantially limit our ability to generaterevenues and therefore to obtain a return on the investments we have made in our products.Risks Related to Clinical Development and Regulatory Approval of our Product CandidatesOur future success is dependent on the successful clinical development, regulatory approval andcommercialization of ganaxolone, which is being studied in several indications and will require significant capitalresources and years of additional clinical development effort.We have only recently received FDA approval of ZTALMY in CDD, and we continue to developganaxolone in several additional indications in oral and IV formulations. As a result, our business is dependent on ourability to successfully complete clinical development, scale-up manufacturing, obtain regulatory approval, and, ifapproved, commercialize ganaxolone in a timely manner. We can begin to commercialize ZTALMY in CDD once wereceive our scheduling designation under the CSA, but we cannot commercialize ganaxolone in the United States inany other indication without first obtaining regulatory approval from the FDA; similarly, we cannot commercializeganaxolone outside of the United States without obtaining regulatory approval from comparable foreign regulatoryauthorities. Before obtaining regulatory approvals for the commercial sale of ganaxolone for a target indication, wemust demonstrate with substantial evidence gathered in preclinical studies and clinical trials and, with respect toapproval in the United States, to the satisfaction of the FDA, that ganaxolone is safe and effective for use for thattarget indication and that the manufacturing facilities, processes and controls are adequate.Ganaxolone is metabolized extensively in animals and humans. During the development of CDD, one majormetabolite (M2) was present in plasma of humans that was not found in plasma of rats or dogs. The chemicalstructure of M2 has been identified. In October 2020, the FDA communicated that the characterization of the activityof the M2 metabolite would need to be included in the NDA submission for CDD. We have determined that M2 hasno functional activity on GABA receptors and have concluded that M2 does not contribute to the pharmacologicalactivity associated with ganaxolone administration. The results of the activity assay were included in the July 2021NDA submission for CDD, as required. Additionally, a dose range finding study in rats and an in vivo micronucleuswith comet analysis for the detection of genotoxicity have been conducted, with the results from the verified draftstudy report showing no genotoxicity found, as measured by formation of micronuclei in the bone marrow or cometmorphology in the liver. The final study report is expected by the end of the second quarter of 2022. Results fromadditional preclinical studies are required to the FDA as post-marketing requirement(s). These include: 2-yearcarcinogenicity studies of ganaxolone and the major human unconjugated plasma metabolite, M2, in rats; a 26-weekcarcinogenicity of ganaxolone in transgenic mice; a juvenile animal toxicity study of the major human unconjugatedplasma metabolite, M2, in rats; phase 1 renal and hepatic impairment studies and a thorough QTc study;extractable/leachable study results on the container closure system; a CNS distribution study of the M47 metabolite inrats; and in vitro studies to assess the drug interaction potential of M47 metabolite. There is a risk that these studiesmay have negative findings. We plan to complete the required FDA studies within the required FDA timeframe. In theEU, if additional studies are needed, these are usually required before or during MAA review.We are conducting the RAISE trial in RSE, which is a life threatening medical condition involvingprolonged seizure activity in seriously ill patients.The RAISE trial requires expertise in electroencephalogram (EEG)interpretation, which may be subject to variability, and the FDA or foreign regulatory authorities could find the datageneratedin this trial inadequate or difficult to interpret, which could delay, limit or prevent regulatory approval for thisindication. Additionally, the clinical trial endpoints of the RAISE trial are based on treatment outcomes, includinginitiation of anesthesia for treatment of RSE. Practice variability in the use of anesthesia for SE treatment couldadversely impact the ability to show a treatment effect with ganaxolone.Table of Contents56We have recently reported data from the CALM trial evaluating safety and efficacy of adjunctive oralganaxolone treatment in patients with TSC. The primary endpoint showed median 16.6% reduction in 28-day primaryendpoint seizure frequency relative to the four-week baseline period. In addition, data from the Phase 2 TSC trialsuggested that in patients on concomitant Epidiolex, early elevation of ganaxolone blood levels occurred and appearedto be linked to greater somnolence. We have adjusted the titration schedule in the Phase 3 TSC trial with a goal ofimproving tolerability. Undesirable side effects, including those resulting from drug interactions with Epidiolex andother antiseizure medications, could delay clinical trials and result in the FDA or other regulatory authorities requiringus to conduct additional studies or trials for our product candidate either prior or post-approval, such as additionaldrug-drug interaction studies or safety or efficacy studies, or it may object to elements of our clinical developmentprogram. There is also a risk that the Phase 3 clinical trial of ganaxolone in TSC will generate data that is notsufficient to support regulatory approvals for this indication.Even if ganaxolone were to obtain approval from the FDA and comparable foreign regulatory authoritiesfor TSC, RSE, or any other indication under development, any approval might contain significant limitations, such asrestrictions as to specified age groups, warnings, precautions or contraindications, or may be subject to burdensomepost-approval trial or risk management requirements. If we are unable to obtain regulatory approval for ganaxolone inthese additional indications in one or more jurisdictions, or any approval contains significant limitations, we may notbe able to obtain sufficient funding or generate sufficient revenue to continue the development of any other indicationsfor ganaxolone or any other product candidate that we may in-license, develop or acquire in the future. Furthermore,even with regulatory approval for ganaxolone, we will still need to develop a commercial organization, establishcommercially viable pricing and obtain adequate reimbursement from third-party and government payers. If we areunable to successfully commercialize ganaxolone, we may not be able to earn sufficient revenue to continue ourbusiness.We are conducting clinical development activities for ganaxolone across multiple indications, and such clinicaldevelopment activities may not produce favorable results, which could adversely impact our ability to achieveregulatory approval for ganaxolone in such indications.We are conducting clinical development activities for ganaxolone across multiple indications. Success inpreclinical studies and early clinical trials in one indication does not ensure that later clinical trials in such indication orother indications will generate adequate data to demonstrate the efficacy and safety of ganaxolone in one or moreindications. Furthermore, unfavorable clinical trial results in one ganaxolone indication may adversely impact ourability to continue to develop such indication or other ganaxolone indications. A number of companies in thepharmaceutical and biotechnology industries, including those with greater resources and experience, have sufferedsignificant setbacks in clinical trials, even after seeing promising results in earlier studies and clinical trials. Forexample, while ganaxolone showed statistical separation from placebo in a Phase 2 clinical trial in adjunctive treatmentof adults with focal onset seizures, ganaxolone failed to show a similar statistically significant separation in a Phase 3clinical trial for the same indication. As a result, we discontinued our program in adult focal onset seizures and beganto focus our efforts on advancing ganaxolone in RSE and pediatric orphan genetic epilepsy indications. We do notknow whether the clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatoryapproval to market ganaxolone in any particular jurisdiction or indication. If clinical trials underway or conducted inthe future do not produce favorable results, our ability to achieve regulatory approval for ganaxolone in thoseindications may be adversely impacted. Further, even if we believe the data collected from our clinical trials ofganaxolone are promising, these data may not be sufficient to support approval by the FDA or foreign regulatoryauthorities. Pre-clinical and clinical data can be interpreted in different ways. Accordingly, the FDA or foreignregulatory authorities could interpret these data in different ways from us, which could delay, limit or preventregulatory approval.Ganaxolone may cause undesirable side effects or have other properties, such as abuse potential, that could delayor prevent its regulatory approval in indications under clinical development, limit the commercial profile of anapproved label, or result in significant negative consequences following any marketing approval.Undesirable side effects caused by ganaxolone could cause us, an institutional review board (IRB), orregulatory authorities to interrupt, delay or halt clinical trials and could result in a restrictive label or the delay or denialof regulatory approval by the FDA or other comparable foreign regulatory authority. To date, a total of 1,930 patientsTable of Contents57have received at least one dose of ganaxolone across the 46 completed trials. This includes 447 patients in Phase 1 and 1,483 patients in Phase 2/3 trials. In addition, 77 patients were administered the IV formulation and 16 patients received both the IV and oral formulations. Although ganaxolone has generally been well-tolerated by patients in our clinical trials to date, in some cases there were side effects, and some of the side effects were severe. The most frequent side effects were dizziness, fatigue and somnolence (or drowsiness). More side effects of the CNS were categorized as severe as compared to side effects of other body systems. There has been one case of hepatic failure resulting in death in a pediatric patient receiving ganaxolone, which the study investigator assessed as unrelated to the medication.If these side effects are reported in future clinical trials, or if other safety or toxicity issues are reported inour future clinical trials, we may not receive approval to market ganaxolone or approval may be limited, which couldprevent us from ever generating material revenue or achieving profitability. Furthermore, although we are currentlydeveloping ganaxolone for multiple indications, negative safety findings in any one indication could force us to delayor discontinue development in other indications. Results of our clinical trials could reveal an unacceptably high severityand prevalence of side effects. In such an event, our clinical trials could be suspended or terminated, and the FDA orcomparable foreign regulatory authorities could order us to cease further development, or deny approval, ofganaxolone for any or all targeted indications. Drug-related side effects could affect trial subject recruitment or theability of enrolled patients to complete our future clinical trials and may result in potential product liability claims.Additionally, in our clinical trials ganaxolone is added to the standard of care, which includes many antiseizuremedications. Drug interactions with any of the medications could result in safety concerns or reduce the population inwhich ganaxolone may be used. For example, in our recently completed clinical trial of ganaxolone in TSC, wereported data that suggested that in patients on concomitant Epidiolex, early elevation of ganaxolone blood levelsoccurred and appeared to be linked to greater somnolence. Undesirable side effects, including those resulting from druginteractions with Epidiolex and other antiseizure medications, could delay clinical trials and result in the FDA or otherregulatory authorities requiring us to conduct additional studies or trials for our product candidate either prior to orpost-approval, such as additional drug-drug interaction studies or safety or efficacy studies or trials, or it may object toelements of our clinical development program.Ganaxolone is metabolized extensively in animals and humans. During the development of CDD, one majormetabolite (M2) was present in plasma of humans that was not found in plasma of rats or dogs. The chemicalstructure of M2 has been identified. In October 2020, the FDA communicated that the characterization of the activityof the M2 metabolite would need to be included in the NDA submission for CDD. We have determined that M2 hasno functional activity on GABA receptors and have concluded that M2 does not contribute to the pharmacologicalactivity associated with ganaxolone administration. The results of the activity assay were included in the July 2021NDA submission for CDD, as required. Additionally, a dose range finding study in rats and an in vivo micronucleuswith comet analysis for the detection of genotoxicity have been conducted, with the results from the verified draftstudy report showing no genotoxicity found, as measured by formation of micronuclei in the bone marrow or cometmorphology in the liver. The final study report is expected by the end of the second quarter of 2022. Results fromadditional preclinical studies are required to the FDA as post-marketing requirement(s). These include: 2-yearcarcinogenicity studies of ganaxolone and the major human unconjugated plasma metabolite, M2, in rats; a 26-weekcarcinogenicity of ganaxolone in transgenic mice; a juvenile animal toxicity study of the major human unconjugatedplasma metabolite, M2, in rats; phase 1 renal and hepatic impairment studies and a thorough QTc study;extractable/leachable study results on the container closure system; a CNS distribution study of the M47 metabolite inrats; and in vitro studies to assess the drug interaction potential of M47 metabolite. There is a risk that these studiesmay have negative findings. We plan to complete the required FDA studies within the required FDA timeframe. In theEU, if additional studies are needed, these are usually required before or during MAA review.If we or others identify undesirable side effects caused by ganaxolone after receiving marketing approval, anumber of potentially significant negative consequences could result, including:●we may be forced to suspend marketing of ganaxolone;●regulatory authorities may withdraw their approvals of ganaxolone;Table of Contents58●regulatory authorities may require additional warnings on the label that could diminish the usage orotherwise limit the commercial success of ganaxolone;●we may be required to conduct post-marketing trials;●we may be required to develop a Risk Evaluation and Mitigation Strategy (REMS) for ganaxolone or ifa REMS is already in place, to incorporate additional requirements under the REMS, and comparableregulatory authorities outside the United States may require similar risk management strategies;●we could be sued and held liable for harm caused to patients; and●our reputation may suffer.Any of these events could prevent us from achieving or maintaining market acceptance of ganaxolone.The FDA has recommended scheduling of ganaxolone as a controlled substance based on the abuse liabilityassessment conducted for the NDA submission. As such, the U.S. Drug Enforcement Administration (DEA) will needto determine the controlled substance schedule of the product, taking into account the recommendation of the FDA.DEA scheduling would be expected to occur within 90 days of the date of approval and will delay our ability tomarket ganaxolone until determined. As a controlled substance, the manufacture, import, export, distribution, storage,sale, dispensing, prescribing, and use will be subject to a significant degree of additional regulation by the DEA aswell as state regulatory authorities. The restrictive nature of these regulations could also limit commercialization andmarket acceptance of ganaxolone.The therapeutic efficacy and safety of ganaxolone in indications other than CDD have not been established byregulatory authorities, and we may not be able to successfully develop and commercialize ganaxolone in the otherindications under clinical development in the future.Our ability to generate revenue from ganaxolone in other indications we have under clinical development such as RSE and TSC will depend on our successful development and commercialization after regulatory approval in those indications, which is subject to many potential risks and may not occur. Ganaxolone may interact with human biological systems in unforeseen, ineffective or harmful ways. If ganaxolone is associated with undesirable side effects or has characteristics that are unexpected in these indications, we may need to limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that are approved in one indication fail to achieve regulatory approvals in additional indications. As a result of these and other risks described herein that are inherent in the development of novel therapeutic agents, we may never successfully develop ganaxolone in additional indications, which would significantly decrease the commercial potential of ganaxolone overall. Clinical development of product candidates involves a lengthy and expensive process with an uncertain outcome.Clinical trials are expensive, can take many years to complete, and are inherently uncertain as to outcome.Failure can occur at any time during the clinical development process.We may experience delays in our ongoing or future clinical trials and we do not know whether plannedclinical trials will begin or enroll patients on time, need to be redesigned or be completed on schedule, if at all. Therecan be no assurance that the FDA or other foreign regulatory authorities will not put clinical trials of ganaxolone onclinical hold now or in the future. Clinical trials may be delayed, suspended or prematurely terminated for a variety ofreasons, such as:●delay or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on atrial design that we are able to execute;Table of Contents59●delay or failure in obtaining authorization to commence a trial or inability to comply with conditionsimposed by a regulatory authority regarding the scope or design of a clinical trial;●delay or failure in reaching agreement on acceptable terms with prospective clinical researchorganizations (CROs) and clinical trial sites, the terms of which can be subject to extensive negotiationand may vary significantly among different CROs and trial sites;●any shelter-in-place orders from local, state or federal governments or clinical trial site policies resultingfrom the COVID-19 pandemic that determine essential and non-essential functions and staff, whichmay impact the ability of site staff to conduct assessments, or result in delays to the conduct of theassessments, as part of our clinical trial protocols, or the ability to enter assessment results into clinicaltrial databases in a timely manner;●delay or failure in obtaining IRB approval or the approval of other reviewing entities, includingcomparable foreign regulatory authorities, to conduct a clinical trial at each site;●withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or theineligibility of a site to participate in our clinical trials;●delay or failure in recruiting and enrolling suitable trial patients to participate in a trial;●delay or failure in trial patients completing a trial or returning for post-treatment follow-up;●clinical sites and investigators deviating from a trial protocol, failing to conduct the trial in accordancewith regulatory requirements, or dropping out of a trial;●inability to identify and maintain a sufficient number of trial sites, many of which may already beengaged in other clinical trial programs, including some that may be for competing product candidateswith the same indication;●failure of our third-party clinical trial managers to satisfy their contractual duties or meet expecteddeadlines;●limitations on our or our third-party clinical trial managers’ ability to access and verify clinical trial datacaptured at clinical trial sites through monitoring and source document verification;●delay or failure in adding new clinical trial sites;●ambiguous or negative interim results or results that are inconsistent with earlier results;●feedback from the FDA or a comparable regulatory authority outside the United States, IRBs, or datasafety monitoring boards, or results from earlier stage or concurrent preclinical studies and clinicaltrials, that might require modification to the protocol for the trial;●decision by the FDA or a comparable regulatory authority outside the United States, an IRB or us, or arecommendation by a data safety monitoring board to suspend or terminate clinical trials at any time forsafety issues or for any other reason;●unacceptable risk-benefit profile, unforeseen safety issues or adverse side effects or AEs associate witha product candidate;●failure of a product candidate to demonstrate any or enough of a benefit;Table of Contents60●difficulties in manufacturing or obtaining from third parties sufficient quantities of a product candidatefor use in clinical trials that meet internal and regulatory standards;●lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs dueto enrollment delays, requirements to conduct additional clinical trials or increased expenses associatedwith the services of our CROs and other third parties;●political developments that affect our ability to develop and obtain approval for ganaxolone or impairour license rights to develop and obtain approval for ganaxolone in other countries; or●changes in governmental regulations or administrative actions.Trial subject enrollment, which significantly impacts the timing of clinical trials, is affected by many factors including the size and nature of the subject population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, ability to obtain and maintain patient consents, risk that enrolled patients will drop out before completion, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved or product candidates that may be studied in competing clinical trials for the indications we are investigating. Some of our clinical trials are directed at small patient populations. Patient enrollment in these trials could be particularly challenging. In the past, we have experienced delays in enrolling patients in trials directed at small patient populations. We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and while we have agreements governing their committed activities, we have limited influence over their actual performance.If we experience delays in the completion of any clinical trial of ganaxolone, the commercial prospects ofganaxolone may be harmed, and our ability to generate product revenue from ganaxolone, if approved, will bedelayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our developmentand approval process for ganaxolone and jeopardize our ability to commence product sales and generate revenues. Inaddition, many of the factors that could cause a delay in the commencement or completion of clinical trials may alsoultimately lead to the denial of regulatory approval of ganaxolone.We may not be able to obtain or maintain orphan drug exclusivity for ganaxolone across all indications andmarkets, which could limit the potential profitability of ganaxolone.Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs forrelatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product asan orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patientpopulation of fewer than 200,000 people in the United States. Generally, if a product with an orphan drug designationsubsequently receives the first marketing approval for an indication for which it receives the designation, then theproduct is entitled to a period of marketing exclusivity that precludes the FDA from approving another marketingapplication for the same drug for the same indication for the exclusivity period except in limited situations. Forpurposes of small molecule drugs, the FDA defines “same drug” as a drug that contains the same active moiety and isintended for the same use as the drug in question. A designated orphan drug may not receive orphan drug exclusivityif it is approved for a use that is broader than the indication for which it received orphan designation.We have received orphan drug designation in the United States for treating Infantile Spasms, SE, CDD, TSCand PCDH19-RE with ganaxolone and expect that we may in the future pursue orphan drug designations forganaxolone for one or more additional indications. However, obtaining an orphan drug designation can be difficult andwe may not be successful in doing so for additional ganaxolone indications. Orphan drug exclusivity for a productcandidate may not effectively protect the product from the competition of different drugs for the same condition,which could be approved during the exclusivity period. In addition, after an orphan drug is approved, the FDA couldsubsequently approve another application for the same drug for the same indication if the FDA concludes that thelater drug is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusivemarketing rights in the United States also may be lost if the FDA later determines that the request for designation wasmaterially defective or if theTable of Contents61manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease orcondition. The failure to obtain or maintain an orphan drug designation for any indication of ganaxolone that we maydevelop, or the inability to obtain or maintain orphan drug exclusivity could reduce our ability to make sufficient salesof ganaxolone to balance our expenses incurred to develop it, which would have a negative impact on our operationalresults and financial condition.In the EU, we have received orphan designation for treating CDD with ganaxolone. Orphan designationwould entitle us to receive ten years of orphan market exclusivity in the EU, but only if the product continues to meetthe orphan designation criteria when the marketing authorization is granted. If a similar medicinal product (i.e., amedicinal product with an identical active substance, or an active substance with the same principal molecularstructural features and which acts via the same mechanism) receives marketing authorization for the same indicationbefore we receive marketing authorization, the other product’s orphan market exclusivity may prevent ganaxolonefrom receiving marketing authorization, unless we are able to demonstrate that ganaxolone is safer, more effective orotherwise clinically superior. In the EU, if we obtain and maintain orphan designation for ganaxolone upon marketingauthorization, the European Commission could subsequently approve a similar medicinal product for the sameindication if the European Commission, after assessment by the EMA, concludes that the similar medicinal product issafer, more effective or otherwise clinically superior. Orphan market exclusivity rights in the EU may also be lost ifwe are unable to supply sufficient quantities of the product.The failure to obtain or maintain an orphan drug designation for any indication of ganaxolone that we maydevelop, or the inability to obtain or maintain orphan drug exclusivity could reduce our ability to make sufficient salesof ganaxolone to balance our expenses incurred to develop it, which would have a negative impact on our operationalresults and financial condition.Failure to obtain regulatory approval in international jurisdictions would prevent ganaxolone from beingmarketed in these jurisdictions.In order to market and sell our products in the EU and many other jurisdictions, we must obtain separatemarketing approvals and comply with numerous and varying regulatory requirements. The approval procedure variesamong countries and can involve additional testing. The time required to obtain approval may differ substantially fromthat required to obtain FDA approval. The regulatory approval process outside the United States generally includes allof the risks associated with obtaining FDA approval. In addition, many countries outside the United States require thata product be approved for reimbursement before the product can be approved for sale in that country. We may notobtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDAdoes not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatoryauthority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictionsor by the FDA. By way of example, we submitted an MAA for ganaxolone in CDD to the EMA on October 11, 2021and expect the CHMP’s opinion on the MAA by the end of 2022. The CHMP may not approve our MAA forganaxolone in CDD even though we have received FDA approval for CDD in the United States. If we are unable toobtain approval of ganaxolone by regulatory authorities in the EU or another country or jurisdiction, the commercialprospects of ganaxolone may be significantly diminished and our business prospects could decline.ZTALMY is expected to be regulated as a controlled substance, the making, use, sale, importation, exportation, anddistribution of which is subject to significant regulation by the DEA and other regulatory agencies.The FDA and HHS have recommended controlled substance scheduling for ganaxolone. The DEA willneed to determine the controlled substance schedule taking into account the recommendation of the FDA andHHS. While we believe, based on our assessment of the abuse-related preclinical and clinical data on ganaxolone andits mechanism of action, ZTALMY to be a Schedule IV drug, the DEA will make the final determination as to thescheduling. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substancesby definition have no established medicinal use, and may not be marketed or sold in the U.S. A pharmaceutical productmay be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuseand Schedule V substances the lowest relative risk of abuse among such substances. If ganaxolone is determined to bea controlled substance, the manufacturing, shipping, distribution, import, export, packaging, storing, prescribing,dispensing, sellingTable of Contents62and use of ganaxolone will be subject to additional regulations, including under the CSA and DEA regulations.Regulations associated with controlled substances also govern production and procurement quotas, recordkeeping,reporting, handling, and disposal. Additionally, if ganaxolone is determined to be a controlled substance, facilitiesconducting research, manufacturing, distributing, importing or exporting, or dispensing ganaxolone must be registered(licensed) to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanismsrequired by the DEA. All these facilities must renew their registrations annually, except dispensing facilities, whichmust renew every three years. The DEA, and some states, also conduct periodic inspections of registeredestablishments that handle controlled substances. These regulations increase the personnel needs and the expenseassociated with commercialization of products. Because of their restrictive nature, these laws and regulations couldalso limit commercialization of ganaxolone. Failure to comply with these laws and regulations could also result in lossof DEA registrations, disruption in manufacturing and distribution activities, consent decrees, criminal and civilpenalties and state actions, among other consequences. Various states also independently regulate controlled substances. Though state controlled substances laws often mirror federal law, because states are separate jurisdictions, they may separately schedule drugs as well. While some states automatically schedule a drug when the DEA does so, in other states there must be a rulemaking or a legislative action. State scheduling may delay commercial sale of ganaxolone and adverse scheduling could impair the commercial attractiveness of ganaxolone. Many states require separate state registrations in order to be able to obtain, manufacture, handle, distribute and dispense controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise arising under federal law. Risks Related to Our Dependence on Third PartiesWe rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do notsuccessfully carry out their duties in compliance with contractual terms and/or regulatory requirements or meetexpected timelines, our development plans may be adversely affected and we may not be able to commercializeganaxolone for CDD or obtain regulatory approval for ganaxolone in other indications.We rely on third-party CROs to monitor and manage data for our ongoing preclinical and clinical programs.We also rely on third parties to assist in conducting our preclinical studies in accordance with GLP and the AnimalWelfare Act requirements, where applicable. We and our CROs are required to comply with federal regulations andGCP, which are international requirements meant to protect the rights and health of patients that are enforced by theFDA, the competent authorities of the EU Member States and comparable foreign regulatory authorities forganaxolone. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigatorsand trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinicaltrials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to performadditional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by agiven regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCPrequirements. In addition, our clinical trials must be conducted with product produced under cGMP requirements.Failure to comply with these regulations may require us to repeat or conduct additional preclinical studies and clinicaltrials, which would delay the regulatory approval process.Although we depend heavily on these parties and have contractual agreements governing their activities, wecannot control them and therefore, we cannot be assured that these third parties will devote sufficient time andresources to our ongoing clinical, nonclinical and preclinical programs. If CROs do not successfully carry out theircontractual duties or obligations or meet expected deadlines or if the quality or accuracy of the data they obtain iscompromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our preclinicalstudies and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approvalfor or successfully commercialize ganaxolone. As a result, our results of operations and the commercial prospects forganaxolone would be harmed, our costs could increase and our ability to generate revenue could be delayed.For example, we recently had a product supply interruption in our IV ganaxolone clinical supplies. After routine monitoring of stability batches of clinical supply material, it became necessary to reduce the shelf life to less than Table of Contents63the anticipated 24-months to meet product stability testing and specifications. We are working with our third-party manufacturers to resupply clinical trial material so that we can restart our RAISE trial. We are also working with our third-party manufacturers to implement improvements in the IV formulation with a goal of achieving a 24-month shelf life for our IV formulation, including changing the buffer in our IV formulation to increase stability of the formulation. We are highly dependent on our third-party manufacturers to resupply IV ganaxolone to restart the RAISE trial and to manufacture new supplies of IV ganaxolone. We do not control our third-party manufacturers and there is a risk that they could take longer than expected to resupply IV ganaxolone or to reformulate ganaxolone as planned. If any of our relations terminate, switching or adding additional CROs would involve additional cost andrequire management time and focus. Identifying, qualifying and managing performance of third-party service providerscan be difficult, time consuming and cause delays in our development programs. In addition, there is a naturaltransition period when a new CRO commences work. If any of our relationships with our third-party CROs terminate,we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms.As a result, delays my occur, which can materially impact our ability to meet our desired development timelines.In addition, the use of third-party service providers requires us to disclose our proprietary information tothese parties, which could increase the risk that this information will be misappropriated. We currently have a smallnumber of employees, which limits the internal resources we have available to monitor our third-party providers. Tothe extent we are unable to identify and successfully manage the performance of third-party service providers, ourbusiness may be adversely affected. Though we carefully manage our relationships with our CROs, there can be noassurance that we will not encounter challenges or delays in the future or that these delays or challenges will not havea material adverse impact on our business, financial condition and prospects.We have multiple ganaxolone drug products in development, and until such products are approved by regulatoryauthorities, there remains the risk that the drug product quality requirements may not support continued clinicalinvestigation and result in delays or termination of such clinical studies, and product approvals.We currently have multiple ganaxolone drug products in clinical development, including an oral suspension, IV solution and a new formulation we are preparing for Phase 1 clinical trials. We anticipate this formulation will be in a Phase 1 trial in the second quarter of 2022. While we strive to develop a full understanding of manufacturing processes used, as well as the resultant product quality attributes, there is a risk that problems may arise over the course of development which could render a given drug product non-viable. Such problems could relate to manufacturing reproducibility, scale-up challenges, drug product chemical or physical stability issues. Related quality requirements may not support continued clinical investigation and result in delays or termination of such clinical studies and product approvals. Such quality requirements can include physical and chemical attributes of the drug product, stability and shelf life, microbial and other contamination, including adverse impact of drug product packaging and administration devices. These problems could result in unacceptable manufacturing economics, or direct concerns related to drug product safety or efficacy.Our experience manufacturing ganaxolone is limited to the needs of our preclinical studies and clinical trials. Wehave no experience manufacturing ganaxolone on a commercial scale and have no manufacturing facility. We aredependent on third-party manufacturers for the manufacture of ganaxolone drug substance and drug products aswell as on third parties for our supply chain, and if we experience problems with any such third parties, themanufacturing and supply of ganaxolone could be delayed.We do not own or operate facilities for the manufacture of ganaxolone. We currently have no plans to buildour own clinical or commercial scale manufacturing capabilities. We currently rely on CMOs for the manufacture ofganaxolone APIs and other CMOs for the production of ganaxolone drug products, including capsules, liquid oralsuspension and IV solution, and we plan to rely on CMOs for the manufacture of ganaxolone for commercial use. Tomeet our projected needs for preclinical and clinical supplies to support our activities through regulatory approval andcommercial manufacturing, the CMOs with whom we currently work will need to increase the scale of production.We may need to identify additional CMOs for continued production of supply for ganaxolone. Although alternativethird-party suppliers with the necessary manufacturing and regulatory expertise and facilities exist, it could beexpensive and take a significant amount of time to arrange for alternative suppliers. If we are unable to arrange foralternative third-Table of Contents64party manufacturing sources on commercially reasonable terms, in a timely manner or at all, we may not be able tocomplete development of ganaxolone, or market or distribute ganaxolone.Reliance on third-party manufacturers entails risks to which we would not be subject if we manufacturedganaxolone ourselves, including reliance on the third party for regulatory compliance and quality assurance, thepossibility of breach of the manufacturing agreement by the third party because of factors beyond our control,including a failure to synthesize and manufacture ganaxolone, and the possibility of termination or nonrenewal of themanufacturing agreement by the third party, based on its own business priorities, at a time that is costly or damaging tous. In addition, the FDA and other regulatory authorities will require that ganaxolone be manufactured according tocGMP and similar foreign standards. Any failure by our third-party manufacturers to comply with cGMP or failure toscale up manufacturing processes, including any failure to deliver sufficient quantities of ganaxolone in a timelymanner, could lead to a delay in, or failure to obtain, regulatory approval of ganaxolone. In addition, such failure couldbe the basis for the FDA or other regulatory authorities to issue a warning letter, withdraw approvals for ganaxolonepreviously granted to us, or take other regulatory or legal action, including recall or seizure of outside supplies ofganaxolone, total or partial suspension of production, suspension of ongoing clinical trials, refusal to approve pendingapplications or supplemental applications, detention of product, refusal to permit the import or export of products,injunction, or imposing civil and criminal penalties.Any significant disruption in our supplier relationships could harm our business. Any significant delay inthe supply of ganaxolone or its key raw materials for an ongoing preclinical study or clinical trial could considerablydelay completion of such preclinical study or clinical trial, product testing and potential regulatory approval ofganaxolone. If our manufacturers or we are unable to purchase these key raw materials after regulatory approval hasbeen obtained for ganaxolone, the commercial launch of ganaxolone would be delayed or there would be a shortage insupply, which would impair our ability to generate revenues from the sale of ganaxolone.Ganaxolone drug substance is manufactured by a CMO in Taiwan, and key starting materials, including the regulatory starting material (RSM) are sourced from China. While the FDA has accepted our RSM, the EMA may ultimately not accept the RSM, which could result in a significant delay to EU approvals. In addition, the current drug substance supply chain sourcing API supply from China and Taiwan is subject to the geopolitical environment, which is difficult to predict and may become less stable, which may put our API supply from that region at risk. We will depend on Orion for the commercialization of ganaxolone in Europe, and if they terminate the OrionCollaboration Agreement, we would not have a European commercial presence.On July 30, 2021, we entered into the Orion Collaboration Agreement whereby Orion received exclusiverights to commercialize ganaxolone in the European Economic Area, United Kingdom and Switzerland in multipleseizure disorders, including CDD, TSC and RSE, if and when approved. The timing and amount of any milestone androyalty payments we receive under this agreement will depend in part on Orion’s efforts. We will also depend onOrion to comply with all applicable laws relative to the commercialization of ganaxolone in Europe. We do not controlthe individual efforts of Orion, and any failure by Orion to devote sufficient time and effort to the commercializationof ganaxolone could have a material adverse impact on our financial results and operations, such as a failure by Orionto meet its obligations to us, including future milestone and royalty payments. In addition, if Orion were to violate, orwas alleged to have violated, any laws or regulations during the performance of its obligations for us, it is possible thatwe could suffer financial and reputational harm or other negative outcomes, including possible legal consequences.Any termination, breach or expiration of the Orion Collaboration Agreement could have a material adverseeffect on our financial position by reducing or eliminating the potential for us to receive milestones and royalties. Insuch an event, we may be required to devote additional efforts and to incur additional costs associated with pursuingthe commercialization of ganaxolone in Europe. If we breach our obligations under the Orion CollaborationAgreement and are unable to cure such breach, Orion may terminate the agreement and retain all rights tocommercialize ganaxolone in Europe with no obligation to make any additional milestone or royalty payments. We agreed to provide Orion with the results of a planned genotoxicity study on the M2 metabolite of ganaxolone, a “Combined Micronucleus & Comet study in vivo.” In the event that the results of such study were Table of Contents65positive, based on the criteria set forth in the study’s protocol, Orion would have had the right to terminate the Orion Collaboration Agreement within ninety (90) days after its receipt of the final report of such study, in which case we would have been required to refund Orion seventy-five percent (75%) of the upfront fee. In the event of such termination and refund, Orion would have had no further rights pursuant to the oral and IV dose formulations of ganaxolone and the Orion Collaboration Agreement would have terminated and been of no further force or effect. In February 2022, the verified draft study report showed that no genotoxicity was found, as measured by formation of micronuclei in the bone marrow or comet morphology in the liver. As such, but subject to confirmation of such results in the final study report by the end of the second quarter of 2022, we will not be required to refund Orion any of the upfront fee and Orion will not have a right to terminate the Orion Collaboration Agreement as a result of the study’s findings.Government funding for certain aspects of our programs adds uncertainty to our research efforts with respect tothose programs and may impose requirements that increase the costs of commercialization and production ofproduct candidates developed under those government-funded programs.In September 2020, we entered into the BARDA Contract with BARDA (Biomedical Advanced Research andDevelopment Authority), a division of the U.S. Department of Health and Human Services’ Office of the AssistantSecretary for Preparedness and Response. Under the BARDA Contract, we received an award of up to an estimated$51 million for development of IV administered ganaxolone for the treatment of RSE. The BARDA Contract consistsof an approximately two-year base period-during which BARDA will provide up to approximately $21 million offunding for the Phase 3 RAISE trial on a cost share basis and funding of additional preclinical studies of ganaxolonein nerve agent exposure models. Following successful completion of the RAISE trial and preclinical studies in thebase period, the BARDA Contract provides for approximately $30 million of additional BARDA funding for threeoptions in support of ganaxolone manufacturing, supply chain, clinical, regulatory and toxicology activities. Under theBARDA Contract, we will be responsible for cost sharing in the amount of approximately $33 million and BARDAwill be responsible for approximately $51 million, if all development options are completed. The contract period-of-performance (base period plus option exercises) is up to approximately five years.Programs funded by the United States government and its agencies include provisions that confer on thegovernment substantial rights and remedies, many of which are not typically found in commercial contracts, includingpowers of the government to:●terminate agreements, in whole or in part, for any reason or no reason;●reduce or modify the government’s obligations under such agreements without the consent of the otherparty;●claim rights, including intellectual property rights, in products and data developed under suchagreements;●audit contract-related costs and fees, including allocated indirect costs;●suspend the contractor from receiving new contracts pending resolution of alleged violations ofprocurement laws or regulations;●impose United States manufacturing requirements for products that embody inventions conceived orfirst reduced to practice under such agreements;●suspend or debar the contractor from doing future business with the government; and●control and potentially prohibit the export of products.We may not have the right to prohibit the United States government from using or allowing others to usecertain technologies developed by us, and we may not be able to prohibit third-party companies, including ourcompetitors, from using those technologies in providing products and services to the United States government. TheUnited StatesTable of Contents66government generally obtains the right to royalty-free use of technologies that are developed under United Statesgovernment contracts.In addition, government contracts normally contain additional requirements that may increase our costs ofdoing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions.These requirements include, for example:●specialized accounting systems unique to government contracts;●mandatory financial audits and potential liability for price adjustments or recoupment of governmentfunds after such funds have been spent;●public disclosures of certain contract information, which may enable competitors to gain insights intoour research program; and●mandatory socioeconomic compliance requirements, including labor standards, non-discrimination andaffirmative action programs and environmental compliance requirements.If we fail to maintain compliance with these requirements, we may be subject to potential contract liabilityand to termination of our contracts. In addition, if an audit or review uncovers any improper or illegal activity, we maybe subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeitureof profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S.government. We could also suffer serious harm to our reputation if allegations of impropriety were made against us. Inaddition, under U.S. government purchasing regulations, some of our costs may not be reimbursable or allowed underthe BARDA Contract. Further, as a U.S. government contractor, we are subject to an increased risk of investigations,criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities as compared to privatesector commercial companies.Further, changes in government budgets and agendas may result in a decreased and de-prioritized emphasison supporting the RSE development program. Any reduction or delay in BARDA funding may force us to seekalternative funding in order to progress our RSE program, which may not be available on non-dilutive terms, termsfavorable to us or at all.We may elect to enter into license or collaboration agreements to partner ganaxolone in territories currentlyretained by us. Our dependence on such relationships may adversely affect our business.Because we have limited resources, we have and expect that we will continue to enter into license orcollaboration agreements with other pharmaceutical or biotechnology companies. Any failure by our partners toperform their obligations or any decision by our partners to terminate these agreements could negatively impact ourability to successfully develop, obtain regulatory approvals for and commercialize ganaxolone. In the event we grantexclusive rights to such partners, we would be precluded from potential commercialization of ganaxolone within theterritories in which we have a partner. In addition, any termination of our license or collaboration agreements willterminate the funding we may receive under the relevant license or collaboration agreement and may impair our abilityto fund further development efforts and our progress in our development programs.Our commercialization strategy for ganaxolone may depend on our ability to enter into agreements withpartners to obtain assistance and funding for the development and potential commercialization of ganaxolone in theterritories in which we seek to partner. Despite our efforts, we may be unable to secure license or collaborationagreements or other arrangements that are necessary for us to further develop and commercialize ganaxolone.Supporting diligence activities conducted by potential licensees or collaborators and negotiating the financial and otherterms of a license or collaboration agreement are long and complex processes with uncertain results. Even if we aresuccessful in entering into one or more license or collaboration agreements, such agreements may involve greateruncertainty for us, as we would have less control over certain aspects of our partnered programs than we do over ourun-partnered programs. We may determine that continuing a license or collaboration under the terms provided is not inourTable of Contents67best interest, and we may terminate the license or collaboration. Our potential future partners could delay or terminatetheir agreements, and as a result ganaxolone may never be successfully commercialized.Further, our potential future partners may develop alternative products or pursue alternative technologieseither on their own or in collaboration with others, including our competitors, and the priorities or focus of ourpartners may shift such that ganaxolone receives less attention or resources than we would like, or they may beterminated altogether. Any such actions by our potential future partners may adversely affect our business prospectsand ability to earn revenue. In addition, we could have disputes with our potential future partners, such as theinterpretation of terms in our agreements. Any such disagreements could lead to delays in the development orcommercialization of ganaxolone or could result in time-consuming and expensive litigation or arbitration, which maynot be resolved in our favor.If our third-party manufacturers use hazardous and biological materials in a manner that causes injury orviolates applicable law, we may be liable for damages.Our research and development activities involve the controlled use of potentially hazardous substances,including chemical and biological materials by our third-party manufacturers. Our manufacturers are subject to federal,state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposalof medical, radioactive and hazardous materials. We cannot completely eliminate the risk of contamination or injuryresulting from medical, radioactive or hazardous materials. As a result of any such contamination or injury we mayincur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our businessoperations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liabilitycould exceed our resources. We do not have any insurance for liabilities arising from medical radioactive or hazardousmaterials. Compliance with applicable environmental laws and regulations is expensive, and current or futureenvironmental regulations may impair our research, development and production efforts, which could harm ourbusiness, prospects, financial condition or results of operations.Risks Related to Regulatory ComplianceCurrently enacted and future legislation, including potentially unfavorable pricing regulations or other healthcarereform initiatives, may increase the difficulty and cost for us to obtain marketing approval of and commercializeganaxolone and affect the prices we may obtain.The regulations that govern, among other things, marketing approvals, coverage, pricing and reimbursementfor new drug products vary widely from country to country. In the United States and some foreign jurisdictions, therehave been a number of legislative and regulatory changes and proposed changes regarding the healthcare system thatcould prevent or delay marketing approval of ganaxolone, restrict or regulate post-approval activities and affect ourability to successfully sell ganaxolone, if we obtain marketing approval.In the United States, there have been and continue to be a number of legislative and regulatory changes andproposed changes to contain healthcare costs. For example, the Medicare Prescription Drug, Improvement, andModernization Act of 2003 (Medicare Modernization Act) changed the way Medicare covers and pays forpharmaceutical products. The legislation expanded Medicare coverage for drug purchases by eligible beneficiaries andintroduced a new reimbursement methodology based on average sales prices for physician administered drugs. Inrecent years, Congress has considered reductions in Medicare reimbursement for drugs administered by physicians.The Centers for Medicare & Medicaid Services (CMS) also has the authority to revise reimbursement rates and toimplement coverage restrictions for drugs. Cost reduction initiatives and changes in coverage implemented throughlegislation or regulation could decrease utilization of and reimbursement for any approved products, which in turnwould affect the price we can receive for those products. Any reduction in reimbursement from Medicare or othergovernment programs may result in a similar reduction in payments from private payers. The implementation of costcontainment measures or other healthcare reforms may prevent us from being able to generate revenue, attainprofitability, or commercialize our drugs. We expect that additional state and federal healthcare reform measures willbe adopted in the future, any of which could limit the amounts that federal and state governments will pay forhealthcare products and services, which could result in reduced demand for ganaxolone, if approved, or additionalpricing pressures.Table of Contents68The Patient Protection and Affordable Care Act is intended to reduce the cost of, improve the quality of, andexpand access to healthcare, among other things. Among other things, the Affordable Care Act expandedmanufacturers’ Medicaid rebate liability to include covered drugs dispensed to individuals who are enrolled in Medicaidmanaged care organizations, increased the minimum rebate due for innovator drugs from 15.1% of averagemanufacturer price (AMP) to 23.1% of AMP and capped the total rebate amount for innovator drugs at 100.0% ofAMP. The Affordable Care Act and subsequent legislation also changed the definition of AMP (which cap is set to belifted on January 1, 2024). Furthermore, the Affordable Care Act imposed a significant annual, nondeductible fee oncompanies that manufacture or import certain branded prescription drug products.Certain provisions of the Affordable Care Act have been subject to judicial challenges as well as efforts tomodify them or to alter their interpretation or implementation. Additional legislative changes, regulatory changes, andjudicial challenges related to the Affordable Care Act remain possible, but the nature and extent of such potentialchanges or challenges are uncertain at this time. The implications of the Affordable Care Act, and efforts to modify orinvalidate the Affordable Care Act or its implementing regulations, or portions thereof, and the political uncertaintysurrounding any efforts to further reform health care for our business and financial condition, if any, are not clear. Wewill continue to evaluate the effect that the Affordable Care Act as well as its possible modification or invalidation andother healthcare reform measures, has on our business.In addition, other legislative changes have been proposed and adopted since the Affordable Care Act wasenacted. The Budget Control Act of 2011, among other things, created the Joint Select Committee on DeficitReduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve atargeted deficit reduction of an amount greater than $1.2 trillion for the years 2013 through 2021, triggering thelegislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicarepayments to healthcare providers of, on average, 2.0% per fiscal year, starting in 2013 and continuing through 2030(with the exception of a temporary suspension from May 1, 2020 through March 2022). The law provides for 1%Medicare sequestration in the second quarter of 2022 and allows the full 2% sequestration thereafter until 2030. Tooffset the temporary suspension during the COVID-19 pandemic, in 2030, the sequestration will be 2.25% for thefirst half of the year, and 3% in the second half of the year. The American Taxpayer Relief Act of 2012, among otherthings, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitationsperiod for the government to recover overpayments to providers from three to five years. If we ever obtain regulatoryapproval and commercialization of ganaxolone, these laws may result in reductions in Medicare and other healthcarefunding, which could have a material adverse effect on our customers and accordingly, our financial operations.In addition, legislative and regulatory proposals have been made to expand post-approval requirements andrestrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislativechanges will be enacted, or whether regulations, guidance or interpretations will be changed, or what the impact ofsuch changes on the marketing approvals of ganaxolone may be.In the United States, the EU and other potentially significant markets for ganaxolone, there has beenincreasing legislative, regulatory, and enforcement interest with respect to drug pricing practices. There have beenseveral U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among otherthings, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review therelationship between pricing and manufacturer patient programs, and reform government program reimbursementmethodologies for drugs. Individual states in the United States have also increasingly passed legislation andimplemented regulations designed to control pharmaceutical and biological product pricing, including by requiringpharmaceutical manufacturers to report to state agencies when they introduce new drugs to market with prices over acertain threshold, or when they increase the price of a drug over a certain threshold. Government authorities and third-party payers are increasingly attempting to limit or regulate the price of medical products and services, particularly fornew and innovative products and therapies, which has resulted in lower average selling prices. Furthermore, theincreased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursementcontrols in the EU will put additional pressure on product pricing, reimbursement and usage, which may adverselyaffect our future product sales and results of operations. These pressures can arise from rules and practices ofmanaged care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid andhealthcare reform, pharmaceutical reimbursement policies and pricing in general.Table of Contents69Some countries require approval of the sale price of a drug before it can be marketed. In many countries,the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets,prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval isgranted. As a result, we might obtain marketing approval for ganaxolone in a particular country, but then be subject toprice regulations that delay our commercial launch of the product, possibly for lengthy time periods, which couldnegatively impact the revenue we are able to generate from the sale of the product in that particular country. Adversepricing limitations may hinder our ability to recoup our investment in ganaxolone even if ganaxolone obtains marketingapproval.We expect to participate in the Medicaid Drug Rebate Program and if we fail to comply with our reporting andpayment obligations under that program or other governmental pricing programs that we participate in, we couldbe subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a materialadverse effect on our business, financial condition, results of operations and growth prospects.We expect to participate in the Medicaid Drug Rebate Program. Under the Medicaid Drug Rebate Program,we are required to pay a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed toMedicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being madeavailable for our drugs under Medicaid and Medicare Part B. Those rebates are based on pricing data that we reporton a monthly and quarterly basis to CMS, the federal agency that administers the Medicaid Drug Rebate Program.These data include the average manufacturer price and, in the case of single-source and innovator multiple-sourceproducts, the best price for each drug which, in general, represents the lowest price available from the manufacturer toany entity in the United States in any pricing structure, calculated to include all sales and associated rebates, discountsand other price concessions subject to certain exclusions. The Affordable Care Act made significant changes to theMedicaid Drug Rebate Program, and CMS issued a final regulation, which became effective on April 1, 2016, toimplement the changes to the Medicaid Drug Rebate program under the Affordable Care Act. On December 21, 2020,CMS issued a final regulation that modified existing Medicaid Drug Rebate Program regulations to permit reportingmultiple Best Price figures with regard to value-based purchasing arrangements (beginning in 2022); providedefinitions for “line extension,” “new formulation,” and related terms with the practical effect of expanding the scopeof drugs considered to be line extensions (beginning in 2022); and revise AMP and Best Price exclusions with respectto manufacturer-sponsored patient benefit programs, specifically regarding inapplicability of such exclusions in thecontext of PBM “accumulator” programs (beginning in 2023). Our failure to comply with the aforementioned pricereporting and rebate payment obligations could negatively impact our financial results. In addition, statutory andregulatory changes or other agency action regarding the Medicaid Drug Rebate Program could negatively affect ourfinancial results or expand our rebate liability. For example, Congress could enact legislation that would extend rebatesunder the Medicaid Drug Rebate Program to all Children’s Health Insurance Program or CHIP utilization.Federal law requires that any company that participates in the Medicaid Drug Rebate Program alsoparticipate in the 340B program in order for federal funds to be available for the manufacturer’s drugs under Medicaidand Medicare Part B. The 340B program, which is administered by the Health Resources and Services Administration(HRSA), requires participating manufacturers to agree to charge statutorily defined covered entities no more than the340B “ceiling price” for the manufacturer’s covered outpatient drugs. These 340B covered entities include a variety ofcommunity health clinics and other entities that receive health services grants from the Public Health Service, as well ascertain hospitals that serve a disproportionate share of low-income patients. The Affordable Care Act expanded thelist of covered entities to include certain children’s hospitals, free-standing cancer hospitals, critical access hospitals,rural referral centers and sole community hospitals, but exempted “orphan drugs” from the ceiling price requirementsfor these covered entities. The 340B ceiling price is calculated using a statutory formula based on the averagemanufacturer price and unit rebate amount for the covered outpatient drug as calculated under the Medicaid DrugRebate Program, and in general, products subject to Medicaid price reporting and rebate liability are also subject to the340B ceiling price calculation and discount requirement. Any additional future changes to the definition of averagemanufacturer price and the Medicaid unit rebate amount under the Affordable Care Act or other legislation orregulation could affect our 340B ceiling price calculations and negatively impact our results of operations if wesuccessfully commercialize one or more products for which we receive regulatory approval.Table of Contents70HRSA issued a final regulation, effective January 1, 2019, regarding the calculation of the 340B ceiling priceand the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge coveredentities. HRSA also has implemented a ceiling price reporting requirement, pursuant to which manufacturers mustreport the 340B ceiling prices for their covered outpatient drugs to HRSA on a quarterly basis. HRSA then publishesthose prices to 340B covered entities. Moreover, under a final regulation effective January 13, 2021, HRSA newlyestablished an administrative dispute resolution (ADR) process for claims by covered entities that a manufacturer hasengaged in overcharging, including claims that a manufacturer has limited the covered entity’s ability to purchasecovered outpatient drugs at or below the 340B ceiling price, and by manufacturers that a covered entity violated theprohibitions against diversion or duplicate discounts, including claims that an individual does not qualify as a patientfor 340B Program purposes and claims that a covered entity is not eligible for the 340B Program. Such claims are tobe resolved through an ADR panel of government officials rendering a decision that can be appealed to a federal court.An ADR proceeding could subject a manufacturer to onerous procedural requirements and could result in additionalliability. In addition, changes to legislation, regulations, or guidance could modify 340B program compliance or expanddiscount liability.Federal law also requires that a company report average sales price information each quarter to CMS forcertain categories of drugs that are payable under the Medicare Part B program. Manufacturers calculate the averagesales price based on a statutorily defined formula as well as regulations and interpretations of the statute by CMS.CMS uses these submissions to determine payment rates for drugs under Medicare Part B. Starting in 2023,manufacturers must pay refunds to Medicare for single source drugs or biologics, or biosimilar biological products,reimbursed under Medicare Part B and packaged in single-dose containers or single-use packages, for units ofdiscarded drug reimbursed by Medicare Part B in excess of 10 percent of total allowed charges under Medicare Part Bfor that drug. Manufacturers that fail to pay refunds could be subject to civil monetary penalties of 125 percent of therefund amount. Congress further could enact a Medicare Part B inflation rebate, under which manufacturers wouldowe additional rebates if the average sales price of a drug were to increase faster than the pace of inflation. In addition, manufacturers are required to provide to CMS a 70% discount on brand name prescription drugsutilized by Medicare Part D beneficiaries when those beneficiaries are in the coverage gap phase of the Part D benefitdesign. Congress could enact legislation that sunsets this discount program and replaces it with a new manufacturerdiscount program. Under either program, civil monetary penalties could be applied if a manufacturer fails to providethese discounts in the amount of 125 percent of the discount that was due. Congress further could enact a MedicarePart D inflation rebate, under which manufacturers would owe additional rebates if the average manufacturer price ofa drug were to increase faster than the pace of inflation.Pricing and rebate calculations vary among products and programs. The calculations are complex and areoften subject to interpretation by the manufacturer, governmental or regulatory agencies, and the courts. Suchinterpretation can change and evolve over time. In the case of Medicaid pricing data, if a manufacturer becomes awarethat its reporting for a prior quarter was incorrect, or has changed as a result of recalculation of the pricing data, themanufacturer is obligated to resubmit the corrected data for up to three years after those data originally were due. Suchrestatements and recalculations increase costs for complying with the laws and regulations governing the MedicaidDrug Rebate program and could result in an overage or underage in our rebate liability for past quarters. Pricerecalculations also may affect the ceiling price at which a manufacturer is required to offer its products under the 340Bprogram. Retroactive Medicaid rebates and 340B program refunds could become due as a result of these restatements.In addition, if we are found to have knowingly submitted false average manufacturer price or best priceinformation to the government, we may be liable for significant civil monetary penalties per item of false information.Our failure to submit monthly/quarterly average manufacturer price and best price data on a timely basis also couldresult in a significant civil monetary penalty per day for each day the information is late beyond the due date. And ifwe are found to have knowingly misclassified a drug (i.e., by knowingly classifying it as a generic drug for MedicaidDrug Rebate Program purposes, which are subject to lower rebates, instead of a single-source or innovator multiple-source drug), we could be subject to civil monetary penalties no greater than two times the difference between therebates we should have paid and the rebates we actually paid, which penalties are in addition to the penalties discussedpreviously. Such failures also could be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant towhich we would be participating in the Medicaid Drug Rebate Program. In the event that CMS terminates our rebateagreement, no federal payments would be available under Medicaid or Medicare Part B for our covered outpatientdrugs.Table of Contents71If we are found to have made a misrepresentation in the reporting of our average sales price, the Medicarestatute provides for significant civil monetary penalties for each misrepresentation for each day in which themisrepresentation was applied. Civil monetary penalties can also be applied if we are found to have knowingly andintentionally charged 340B covered entities more than the statutorily mandated ceiling price. A covered entity orassociation representing covered entities can also bring claims against us through HRSA’s 340B ADR process. HRSAcould terminate our 340B program Pharmaceutical Pricing Agreement for good cause, which would cause ourMedicaid National Drug Rebate Agreement to be terminated, rendering federal funds for our covered outpatient drugsunavailable under Medicaid and Medicare Part B. Finally, we note again that civil monetary penalties could apply if amanufacturer fails to provide discounts under the Medicare Part D coverage gap discount program in the amount of125 percent of the discount that was due.CMS and the HHS OIG have pursued manufacturers that were alleged to have failed to report these data tothe government in a timely manner. Governmental agencies may also make changes in program interpretations,requirements or conditions of participation, some of which may have implications for amounts previously estimated orpaid. If we participate in the Medicaid Drug Rebate Program and consequently the 340B program, we cannot assureyou that our submissions will not be found to be incomplete or incorrect.In order to be eligible to have our products that we successfully commercialize paid for with federal fundsunder the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, we alsowould have to participate in the Department of Veterans Affairs (VA) Federal Supply Schedule (FSS) pricingprogram. As part of this program, we would be obligated to make our products available for procurement on an FSScontract under which we would be required to comply with standard government contract terms and conditions andcharge a price that is no higher than the statutory Federal Ceiling Price (FCP) to four federal agencies (VA,Department of Defense (DOD), Public Health Service, and U.S. Coast Guard).The FCP is based on the Non-Federal Average Manufacturer Price (Non-FAMP), which we would berequired to calculate and report to the VA on a quarterly and annual basis. Pursuant to applicable law and relatedcontract terms, knowing provision of false information in connection with a Non-FAMP filing can subject amanufacturer to significant civil monetary penalties for each item of false information. The FSS pricing program andcontract also contain extensive disclosure and certification requirements.If we successfully commercialize one or more products for which we receive regulatory approval, we alsowould participate in the Tricare Retail Pharmacy program, under which we would be required to pay quarterly rebateson utilization of innovator products that are dispensed through the Tricare Retail Pharmacy network to Tricarebeneficiaries. The rebates are calculated as the difference between the annual Non-FAMP and FCP. We would berequired to list our innovator products on a Tricare Agreement in order for them to be eligible for DOD formularyinclusion. If it were concluded that we had overcharged the government in connection with our FSS contract orTricare Agreement, whether due to a misstated FCP or otherwise, we would be required to refund the difference to thegovernment. Failure to make necessary disclosures and/or to identify contract overcharges could result in allegationsagainst us under the FCA and /or other laws and regulations. Unexpected refunds to the government, and/or having torespond to a government investigation or enforcement action, could be expensive and time-consuming, and could havea material adverse effect on our business, financial condition, results of operations and growth prospects.Laws and regulations governing international operations may preclude us from developing, manufacturing andselling product candidates outside of the United States and require us to develop and implement costly complianceprograms.As we seek to expand our operations outside of the United States, we must comply with numerous laws andregulations in each jurisdiction in which we plan to operate. The creation and implementation of international businesspractices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on thirdparties is required.The Foreign Corrupt Practices Act (FCPA) prohibits any United States individual or business from paying,offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, politicalTable of Contents72party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist theindividual or business in obtaining or retaining business. The FCPA also obligates companies whose securities arelisted in the United States to comply with certain accounting provisions requiring such companies to maintain books andrecords that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and todevise and maintain an adequate system of internal accounting controls for international operations. The anti-briberyprovisions of the FCPA are enforced primarily by the DOJ. The SEC is involved with enforcement of the books andrecords provisions of the FCPA.Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is arecognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, inmany countries, hospitals are operated by the government, and doctors and other hospital employees are consideredforeign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to beimproper payments to government officials and have led to FCPA enforcement actions.Various laws, regulations and executive orders also restrict the use and dissemination outside of the UnitedStates, or the sharing with certain foreign nationals, of information classified for national security purposes, as well ascertain products and technical data relating to those products. Our expanding presence outside of the United States willrequire us to dedicate additional resources to comply with these laws, and these laws may preclude us fromdeveloping, manufacturing, or selling ganaxolone outside of the United States, which could limit our growth potentialand increase our development costs.The failure to comply with laws governing international business practices may result in substantial penalties,including suspension or debarment from government contracting. Violation of the FCPA can result in significant civiland criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with theUnited States government until the pending claims are resolved. Conviction of a violation of the FCPA can result inlong-term disqualification as a government contractor. The termination of a government contract or relationship as aresult of our failure to satisfy any of our obligations under laws governing international business practices would havea negative impact on our operations and harm our reputation and ability to procure government contracts. The SECalso may suspend or bar issuers from trading securities on United States exchanges for violations of the FCPA’saccounting provisions.Our relationships with customers and third-party payers will be subject to applicable anti-kickback, fraud andabuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties,contractual damages, reputational harm and diminished profits and future earnings.Healthcare providers, physicians and others will play a primary role in the recommendation and prescriptionof any product candidates for which we obtain marketing approval. Our future arrangements with healthcareprofessionals, third-party payers, patients and others will expose us to broadly applicable fraud and abuse, anti-kickback, false claims, and other healthcare laws and regulations that may affect the business or financial arrangementsand relationships through which we would market, sell and distribute our products. Even though we do not and willnot control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, federaland state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable toour business. Restrictions under applicable federal and state healthcare laws and regulations that may affect ouroperations (including our marketing, promotion, educational programs, pricing, and relationships with healthcareproviders or other entities, among other things) and expose us to areas of risk including the following:●the federal Anti-Kickback Statute (AKS) prohibits, among other things, knowingly and willfullysoliciting, offering, or receiving remuneration, directly or indirectly, in cash or in kind, to induce orreward, or in return for, either the referral of an individual for, or the purchase, order orrecommendation of, or arranging for the purchase, lease, or order of, any healthcare item or service, forwhich payment may be made under a federal healthcare program such as Medicare & Medicaid;●the FCA prohibits, among other things, individuals or entities from, among other things, knowinglypresenting, or causing to be presented, a false or fraudulent claim for payment of government funds, orTable of Contents73knowingly making, using, or causing to be made or used a false record or statement material to anobligation to pay money to the government, or knowingly and improperly avoiding, decreasing orconcealing an obligation to pay money to the federal government;●other federal false claims laws, including, among others, federal criminal healthcare fraud and falsestatement statutes that extend to non-government health benefit programs;●the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations(collectively, HIPAA) imposes criminal and civil liability for executing a scheme to defraud anyhealthcare benefit program, including private third-party payers, and also prohibits knowingly andwillfully falsifying, concealing or covering up a material fact or making any materially false statementsin connection with the delivery of or payment for healthcare benefits, items or services;●the federal Physician Payments Sunshine Act, implemented as the Open Payments Program, requiresmanufacturers of drugs, devices, biologics and medical supplies for which payment is available underMedicare, Medicaid, or Children’s Health Insurance Program, to report annually to CMS informationrelated to payments and other transfers of value to physicians, and teaching hospitals, and starting in2022 certain other health care professionals, and ownership and investment interests held by physiciansand their immediate family members; and●analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws,which may apply to sales or marketing arrangements and claims involving healthcare items or servicesreimbursed by non-governmental third-party payers, including private insurers, as well as other statelaws and regulations governing pharmaceutical manufacturers; and●state and foreign laws and regulations govern the privacy and security of health information in specifiedcircumstances, many of which differ from each other in significant ways and often are not preemptedby HIPAA, thus complicating compliance efforts.Efforts to ensure that our business arrangements with third parties are compliant with applicable healthcarelaws and regulations will involve the expenditure of appropriate, and possibly significant, resources. Nonetheless, it ispossible that governmental authorities will conclude that our business practices may not comply with current or futurestatutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If ouroperations are found to be in violation of any of these laws or any other governmental regulations that may apply tous, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment,exclusion from government funded healthcare programs, such as Medicare & Medicaid, and the curtailment orrestructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to dobusiness are found to not be in compliance with applicable laws, they may be subject to criminal, civil oradministrative sanctions, including exclusions from government funded healthcare programs.We may be subject to data privacy and security regulations by both the federal government and the states in whichwe conduct our business, which could impose significant regulatory hurdles on our business.HIPAA imposes requirements relating to the privacy, security and transmission of individually identifiablehealth information. HIPAA imposes privacy and security obligations on covered entity health care providers, healthplans, and health care clearinghouses, as well as their “business associates”—certain persons or entities that create,receive, maintain or transmit protected health information in connection with providing a specified service on behalf ofa covered entity. We may obtain health information from third parties (including research institutions from which weobtain clinical trial data) that are subject to privacy and security requirements under HIPAA. Although we are notdirectly subject to HIPAA, other than potentially with respect to providing certain employee benefits, we couldpotentially be subject to criminal penalties if we, our affiliates, or our agents knowingly receive individuallyidentifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permittedby HIPAA. In addition, numerous other federal and state laws and regulations govern privacy and security, includingstate data breach notification laws, state health information and/or genetic privacy laws, and federal and state consumerprotection lawsTable of Contents74(e.g., Section 5 of the FTC Act, and the California Consumer Privacy Act (CCPA), many of which differ from eachother in significant ways and may not have the same effect, thus complicating compliance efforts. Compliance withthese laws is difficult, constantly evolving, and time consuming. Federal regulators, state attorneys general, andplaintiffs’ attorneys have been and will likely continue to be active in this space.Furthermore, states are constantly adopting new laws or amending existing laws relating to the data privacyand security and consumer protection, requiring attention to frequently changing regulatory requirements. For example,in California, the CCPA establishes certain requirements for data use and sharing transparency and creates new dataprivacy rights for California residents. The CCPA and its implementing regulations have already been amendedmultiple times since their enactment. In November 2020, California voters approved the California Privacy Rights Act(CPRA) ballot initiative which introduced significant amendments to the CCPA and established and funded a dedicatedCalifornia privacy regulator, the California Privacy Protection Agency (CPPA). The amendments introduced by theCPRA go into effect on January 1, 2023, and new implementing regulations are expected to be introduced by theCPPA. Failure to comply with the CCPA may result in, among other things, significant civil penalties and injunctiverelief, or potential statutory or actual damages. In addition, California residents have the right to bring a private rightof action in connection with certain types of incidents. These claims may result in significant liability and potentialdamages. We implemented processes to manage compliance with the CCPA and continue to assess the impact of theCPRA, and other state legislation, on our business as additional information and guidance becomes available.The Federal Trade Commission (FTC) also sets expectations for failing to take appropriate steps to keepconsumers’ personal information secure, or failing to provide a level of security commensurate to promises made toindividual about the security of their personal information (such as in a privacy notice) may constitute unfair ordeceptive acts or practices in violation of Section 5(a) of the Federal Trade Commission Act (FTC Act). The FTCexpects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume ofconsumer information it holds, the size and complexity of its business, and the cost of available tools to improvesecurity and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that meritsstronger safeguards. With respect to privacy, the FTC also sets expectations that companies honor the privacy promisesmade to individuals about how the company handles consumers’ personal information; any failure to honor promises,such as the statements made in a privacy policy or on a website, may also constitute unfair or deceptive acts orpractices in violation of the FTC Act. While we do not intend to engage in unfair or deceptive acts or practices, theFTC has the power to enforce promises as it interprets them, and events that we cannot fully control, such as databreaches, may be result in FTC enforcement. Enforcement by the FTC under the FTC Act can result in civil penaltiesor enforcement actions.Similarly, there are a number of legislative proposals in the EU, the United States (at both the federal andstate level), as well as in other jurisdictions that could change existing obligations, and/or impose new obligations orlimitations in areas affecting our business. These laws and regulations are evolving and subject to interpretation, andmay impose limitations on our activities or otherwise adversely affect our business. In addition, some countries areconsidering or have passed legislation implementing data protection requirements or requiring local storage andprocessing of data or similar requirements that could increase the cost and complexity of delivering our services andresearch activities. These laws and regulations, as well as any associated claims, inquiries, or investigations or anyother government actions may lead to unfavorable outcomes including increased compliance costs, delays orimpediments in the development of new products, negative publicity, increased operating costs, diversion ofmanagement time and attention, and remedies that harm our business, including fines or demands or orders that wemodify or cease existing business practices.If we, our agents, or our third party partners fail to comply or are alleged to have failed to comply with these or other applicable data protection and privacy laws and regulations, or if we were to experience a data breach involving personal information, we could be subject to government enforcement actions or private lawsuits. Any associated claims, inquiries, or investigations or other government actions could lead to unfavorable outcomes that have a material impact on our business including through significant penalties or fines, monetary judgments or settlements including criminal and civil liability for us and our officers and directors, increased compliance costs, delays or impediments in the development of new products, negative publicity, increased operating costs, diversion of management time and attention, or other remedies that harm our business, including orders that we modify or cease existing business practices.Table of Contents75In addition, the EU’s legislative and regulatory landscape for privacy and data security continues to evolve. There has been increased attention to privacy and data security issues that could potentially affect our business, including the EU General Data Protection Regulation (GDPR), which imposes penalties up to 4% of annual global turnover for breaches of related obligations. In the event we enroll patients in our ongoing or future clinical trials in the European Economic Area (EEA), we will be subject to the additional privacy restrictions imposed by the GDPR, including restrictions relating to the collection, use, storage, transfer, and other processing of personal data, including personal health data, regarding individuals in the EEA as governed by the GDPR and the related national data protection laws of the individual EEA countries. The GDPR imposes several requirements on companies that process personal data, with especially strict rules on the transfer of personal data out of the EEA, including to the U.S, and fines and penalties for failure to comply with the requirements of the GDPR and the related national data protection laws of the individual EEA countries. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. The obligations under the GDPR may be onerous and adversely affect our business, financial condition, results of operations and prospects. Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with any EEA activities. Further, the United Kingdom’s exit from the EU, often referred to as Brexit, has created uncertainty with regard to future data protection regulation in the United Kingdom. The European Commission has adopted an Adequacy Decision concerning the level of data protection in the United Kingdom. Personal data may now flow freely from the EEA to the United Kingdom, however, the European Commission may suspend the Adequacy Decision if it considers that the United Kingdom no longer provides for an adequate level of data protection.Because of the remote work policies we implemented due to the COVID-19 pandemic, information that is normally protected, including company confidential information, may be less secure. Cybersecurity and data security threats continue to evolve and raise the risk of incidents, including breaches, that could affect our operations or compromise our business information or sensitive personal information, including health data. With the ever-changing threat landscape, and while we have implemented security measures to protect our information technology systems and infrastructure, there can be no assurance that such measures will prevent service interruptions or security breaches that could adversely affect our business. We may also need to collect more extensive health-related information from our employees to manage our workforce. If we or our third party partners fail to comply or are alleged to have failed to comply with applicable data protection and privacy laws and regulations, and related employment rules, or if we were to experience a data breach involving personal information, we could be subject to government enforcement actions, fines, or private lawsuits. In addition, our business could be adversely impacted if our ability to transfer personal data outside of the EEA or Switzerland is restricted, which could adversely impact our operating results. For example, in July 2020, the Court of Justice of the European Union, or the Court of Justice, declared the Privacy Shield to be an invalid data transfer mechanism and confirmed that the Model Clauses remain valid and in June 2021, the European Commission published updated versions of the Model Clauses, which must be incorporated into new and existing agreements within prescribed timeframes in order to continue to lawfully transfer personal data outside of the EU. This Decision (Decision 2018/1250) invalid, which could adversely impact our ability to transfer personal data from the EU to the U.S. The Court of Justice further ruled that in order to transfer data outside of the EU, under the existing mechanism known as the Standard Contractual Clauses (SCCs), the exporter and the importer must ensure that the importer may guarantee a level of personal data protection in the importing country’s level of protection must be adequate that is essentially equivalent to that of the EEA. Compliance with data transfer obligations involves documenting detailed analyses of data access and protection laws in the countries in which data importers are located, which can be costly and time-consuming. Data importers must also expend resources in analyzing their ability to comply with transfer obligations, including implementing new safeguards and controls to further protect personal data. On September 8, 2020, the Federal Data Protection and Information Commissioner (FDPIC) of Switzerlandissued an opinion concluding that the Swiss-U.S. Privacy Shield Framework does not provide an adequate level ofTable of Contents76protection for data transfers from Switzerland to the United States. The FDPIC also found that SCCs may still be legally adequate at an individual level provided that they can pass a risk assessment conducted by the FDPIC. If the level of protection in the U.S. or any other importing country is called into question under the SCCs, this could further impact our ability to transfer data outside of the EU or Switzerland.The impact of Brexit on the on-going validity in the UK of current EU authorizations for medicinalproducts, whether granted through the centralized procedure, decentralized procedure, or mutual recognition, and on thefuture process for obtaining marketing authorization for pharmaceutical products manufactured or sold in the UKremains uncertain. Although the body of the UK-EU Trade and Cooperation Agreement includes general terms whichapply to medicinal products, greater detail on sector-specific issues is provided in an Annex to the Agreement. TheAnnex provides a framework for the recognition of GMP inspections and for the exchange and acceptance of officialGMP documents. The regime does not, however, extend to procedures such as batch release certification. Among thechanges that will now occur are that Great Britain, comprised of England, Scotland and Wales, will be treated as athird country. Northern Ireland will, with regard to EU regulations, continue to follow the EU regulatory rules. As partof the UK-EU Trade and Cooperation Agreement, the EU and the UK will recognize GMP inspections carried out bythe other Party and the acceptance of official GMP documents issued by the other Party. The UK-EU Trade andCooperation Agreement also encourages, although it does not oblige, the parties to consult one another on proposals tointroduce significant changes to technical regulations or inspection procedures. Among the areas of absence of mutualrecognition are batch testing and batch release. The UK has unilaterally agreed to accept EU batch testing and batchrelease for a period of at least two years until January 1, 2023. However, the EU continues to apply EU laws thatrequire batch testing and batch release to take place in the EU territory. This means that medicinal products that aretested and released in the UK must be retested and re-released when entering the EU market for commercial use. Asregards marketing authorizations, Great Britain will have a separate regulatory submission process, approval processand a separate national MA. Northern Ireland will, however, continue to be covered by the marketing authorizationsgranted by the EC.Risks Related to Intellectual PropertyIf we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate forour technology and product candidates, our competitive position could be harmed.Our commercial success will depend in large part on our ability to obtain and maintain patent and otherintellectual property protection in the United States and other countries with respect to our technology and products.We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements withemployees and third parties, all of which offer only limited protection. We seek to protect our proprietary position byfiling and prosecuting patent applications in the United States and abroad related to our novel technologies and productsthat are important to our business.The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involvecomplex legal and factual questions and have in recent years been the subject of much litigation. As a result, theissuance, scope, validity, enforceability and commercial value of our patents, including those patent rights licensed tous by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights maynot be adequate to preclude misappropriation of our proprietary information or infringement of our intellectualproperty rights, both inside and outside the United States. Further, the examination process may require us or ourlicensors to narrow the claims for our pending patent applications, which may limit the scope of patent protection thatmay be obtained if these applications issue. The rights already granted under any of our currently issued patents orthose licensed to us and those that may be granted under future issued patents may not provide us with the protectionor competitive advantages we are seeking. If we or our licensors are unable to obtain and maintain patent protectionfor our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitorscould develop and commercialize technology and products similar or superior to ours, and our ability to successfullycommercialize our technology and products may be adversely affected. It is also possible that we or our licensors willfail to identify patentable aspects of inventions made in the course of our development and commercialization activitiesbefore it is too late to obtain patent protection on them.Table of Contents77With respect to patent rights, the ganaxolone compound and its original synthesis were published in the early 1990s and we do not own or license patent rights on the ganaxolone compound. We seek patent protection in the United States and internationally for synthetic methods for making ganaxolone, ganaxolone nanoparticles, which are used in certain oral solid, oral liquid, and IV dose formulations, other injectable and oral ganaxolone formulations, and methods of treatment using ganaxolone. We do not know whether any of our granted or issued patents will, or if any of our pending patent applications will grant as patents that will, effectively prevent others from commercializing competitive technologies and products. There is a risk that others, including companies that make generic pharmaceuticals, may develop ganaxolone for the same as similar uses as us, and that our patents will not effectively prevent them from commercializing their ganaxolone products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.Our pending applications cannot be enforced against third parties practicing the technology claimed in suchapplications unless and until a patent issues from such applications. Because the issuance of a patent is not conclusiveas to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third partiesmay be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in theloss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents,which could limit our ability to stop others from using or commercializing similar or identical technology and products,or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized useof our or our licensors’ patented technology, trademarks and other intellectual property rights is expensive, difficultand may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-partyinfringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, andproving any such infringement may be even more difficult.Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights.To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend ourintellectual property rights, to protect our trade secrets or to determine the validity and scope of our own intellectualproperty rights or the proprietary rights of others. Also, third parties may initiate legal proceedings against us tochallenge the validity or scope of intellectual property rights we own or control. These proceedings can be expensiveand time consuming. Many of our current and potential competitors have the ability to dedicate substantially greaterresources to defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be ableto prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result insubstantial costs and diversion of management resources, which could harm our business and financial results. Inaddition, in an infringement proceeding, a court may decide that a patent owned or controlled by us is invalid orunenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patentsdo not cover the technology in question. An adverse result in any litigation proceeding could put one or more of ourpatents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantialamount of discovery required in connection with intellectual property litigation, there is a risk that some of ourconfidential information could be compromised by disclosure during this type of litigation. There could also be publicannouncements of the results of hearings, motions or other interim proceedings or developments. If securities analystsor investors perceive these results to be negative, it could have a material adverse effect on the price of shares of ourcommon stock.Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, theoutcome of which would be uncertain and could harm our business.Our commercial success depends upon our ability to develop, manufacture, market and sell our products, allof which contain ganaxolone, if approved, and to use our related technologies. We may become party to, or threatenedwith, adversarial proceedings or litigation regarding intellectual property rights with respect to one or more of ourproducts, including interference or derivation proceedings before the United States Patent and Trademark Office(USPTO). Third parties may assert infringement claims against us based on existing patents or patents that may begranted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required toobtain a license from such third party to continue commercializing one or more of our products. However, we may notTable of Contents78be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, wecould be forced, including by court order, to cease commercializing one or more of our products. In addition, in anysuch proceeding or litigation, we could be found liable for monetary damages. A finding of infringement could preventus from commercializing one or more of our products or force us to cease some of our business operations, whichcould materially harm our business. Any claims by third parties that we have misappropriated their confidentialinformation or trade secrets could have a similar negative impact on our business.While our product candidates are in preclinical studies and clinical trials, we believe that the use of ourproduct candidates in these preclinical studies and clinical trials falls within the scope of the exemptions provided by35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonablyrelated to the development and submission of information to the FDA (Federal Development Patent InfringementExemption). As our product candidates progress toward commercialization, the possibility of a patent infringementclaim against us increases. While ganaxolone itself is off patent, we attempt to ensure that our product candidates andthe methods we employ to manufacture ganaxolone do not infringe other parties’ patents and other proprietary rights.There can be no assurance they do not, however, and competitors or other parties may assert that we infringe theirproprietary rights in any event.In September 2020, Ovid Therapeutics, Inc. (Ovid) contacted us and disclosed that it owns a U.S. issued patent that includes claims that encompass our product candidates for the treatment of CDD. We entered into an exclusive license agreement with Ovid for their patents that include claims that encompass ganaxolone for the treatment of CDD in the United States of America, the EEA, the United Kingdom and Switzerland (including theirrespective territories).We are also aware of a pending patent application by Ovid in the same patent family that includes claims that encompass our product candidate for the treatment of SE. This pending patent application is in the early stages of examination at the USPTO. It is possible that this pending patent application may issue as a patent with claims that encompass our product candidate for the treatment of SE, in which case, if we do not license these patents and we receive FDA approval to market ganaxolone in SE, we would be subject to the risk that Ovid may file a lawsuit against us alleging infringement on any such patent that was issued.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on our product candidates and any future product candidates throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws and practices of some foreign countries, particularly those relating to pharmaceuticals, do not protect intellectual property rights to the same extent as federal and state laws in the United States. For example, novel formulations and methods of medical treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our patents, requiring us to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may develop, seek approval for, and launch generic versions of our products. Many countries, including EU countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, which could materially diminish the value of our patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from our intellectual property.We may not be able to prevent third parties from practicing our inventions in all countries outside the UnitedStates, or from selling or importing products made using our inventions into or within the United States or otherjurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection todevelop their own products, and may export otherwise infringing products to territories where we have patentprotection, but where enforcement is not as strong as that in the United States. These products may compete with ourproducts in jurisdictions where we do not have any issued patents and our patent claims or other intellectual propertyrights may not be effective or sufficient to prevent them from competing with us in these jurisdictions.Table of Contents79Many companies have encountered significant problems in protecting and defending intellectual propertyrights in certain foreign jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result insubstantial cost and divert our efforts and attention from other aspects of our business, could put our patents at risk ofbeing invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke thirdparties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or otherremedies awarded, if any, may not be commercially meaningful.Patent terms may be inadequate to protect our competitive position on our products for an adequate amount oftime.Given the amount of time required for the development, testing and regulatory review of new product candidates, such as our product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. For example, certain patents licensed to us by CyDex that relate to Captisol®, which is used in some of our product candidates, have expired, and sulfobutylether beta-cyclodextrin compounds that are similar to CyDex’s Captisol® are available from other suppliers. It is possible that others may seek to develop ganaxolone formulations using sulfobutylether beta-cyclodextrin compounds obtained from such other suppliers.We expect to seek extensions of patent terms in the United States and, if available, in other countries wherewe are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984permits under certain circumstances a patent term extension of up to five years beyond the normal expiration of apatent. However, the applicable authorities, including the FDA and the USPTO in the United States, and any analogousregulatory authority in other countries, may not agree with our assessment of whether such extensions are available,and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs,our competitors may be able to take advantage of our investment in development and clinical trials by referencing ourclinical and preclinical data and launch their product earlier than might otherwise be the case.Changes in patent laws could increase the uncertainties and costs surrounding the prosecution of our patentapplications and the enforcement or defense of our issued patents.As is the case with other pharmaceutical companies, our success is heavily dependent on intellectualproperty, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve technological andlegal complexity, and obtaining and enforcing pharmaceutical patents is costly, time-consuming, and inherentlyuncertain. Changes in either the patent laws or interpretation of the patent laws in the United States and other countriesmay diminish the value of our patents or narrow the scope of our patent protection. For example, the United StatesSupreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protectionavailable in certain circumstances or weakening the rights of patent owners in certain situations. In addition toincreasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has createduncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federalcourts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that wouldweaken our ability to obtain new patents or to enforce existing patents and patents we may obtain in the future. Recentpatent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patentapplications and the enforcement or defense of our issued patents.In addition, the Leahy-Smith America Invents Act (Leahy-Smith Act) includes a number of provisions thataffect the way patent applications are prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned to a “first to file” system in which the first inventor to file a patent applicationis entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO andmay become involved in derivation, reexamination, inter-partes review or post-grant review proceedings challengingour patent rights or the patent rights of our licensors. An adverse determination in any such submission, proceeding orlitigation could reduce the scope of, or invalidate patent rights, which could adversely affect our competitive position.Table of Contents80Obtaining and maintaining our patent protection depends on compliance with various procedural, documentsubmissions, fee payment and other requirements imposed by governmental patent agencies, and our patentprotection could be reduced or eliminated for non-compliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agenciesin several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies requirecompliance with a number of procedural, documentary, fee payment and other similar provisions during the patentapplication process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other meansin accordance with the applicable rules, there are situations in which noncompliance can result in abandonment orlapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevantjurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include,but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees andfailure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patentapplications covering our product candidates, our competitive position would be adversely affected.We may be subject to claims by third parties asserting that we have misappropriated their intellectual property, orclaiming ownership of what we regard as our own intellectual property.Some of our employees were previously employed at universities or at other biotechnology orpharmaceutical companies, including our competitors or potential competitors. Some of these employees, includingeach member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements,or similar agreements, in connection with such previous employment. Although we try to ensure that our employees donot use the proprietary information or know-how of others in their work for us, we may be subject to claims that weor these employees have used or disclosed intellectual property, including trade secrets or other proprietaryinformation, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defendingany such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights orpersonnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could berequired to obtain a license from such third party to commercialize our technology or products. Such a license may notbe available on commercially reasonable terms or at all. Even if we are successful in defending against such claims,litigation could result in substantial costs and be a distraction to management.We rely on government funding for certain aspects of our research and development activities and we may developintellectual property through such activities and therefore may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S. based companies. Compliance with suchregulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.In September 2020, we entered into the BARDA Contract for the completion of pre-clinical and clinicaldevelopment activities for IV administered ganaxolone for the treatment of RSE. We may generate intellectual propertyrights through the use of this U.S. government funding and are therefore subject to certain federal regulations. As aresult, the U.S. government may have certain rights to intellectual property embodied in our current or future productcandidates pursuant to the Bayh-Dole Act of 1980 (Bayh-Dole Act), and implementing regulations. These U.S.government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S.government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of theseinventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention;(ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meetrequirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government alsohas the right to take title to these inventions if we to disclose the invention to the government and fail to file anapplication to register the intellectual property in the specified manner and within specified time limits. These timelimits have recently been changed by regulation, and may change in the future. Intellectual property generated under agovernment funded program is also subject to certain reporting requirements, compliance with which may require us toexpend substantial resources. In addition, the U.S. government requires that any products embodying the subjectinvention or produced through the use of the subject invention be manufactured substantially in the United States. Themanufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonableTable of Contents81but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely tomanufacture substantially in the United States or that under the circumstances domestic manufacture is notcommercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. productmanufacturers for products covered by such intellectual property. To the extent any of our current or future intellectualproperty is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarlyapply.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectualproperty rights have limitations, and may not adequately protect our business, or permit us to maintain our competitiveadvantage. The following examples are illustrative:●others may be able to make compounds or ganaxolone formulations that are similar to our productcandidates but that are not covered by the claims of the patents that we own or control;●we or any strategic partners might not have been the first to make the inventions covered by the issuedpatents or pending patent applications that we own or control;●we might not have been the first to file patent applications covering certain of our inventions;●others may independently develop similar or alternative technologies or duplicate any of ourtechnologies without infringing our intellectual property rights;●it is possible that our pending patent applications will not lead to issued patents;●issued patents that we own or control may not provide us with any competitive advantages, or may beheld invalid or unenforceable as a result of legal challenges;●our competitors might conduct research and development activities in the United States and othercountries that provide a safe harbor from patent infringement claims for certain research anddevelopment activities, as well as in countries where we do not have patent rights and then use theinformation learned from such activities to develop competitive products for sale in our majorcommercial markets;●we may not develop additional proprietary technologies that are patentable; and●the patents of others may have an adverse effect on our business.Risks Related to our Business Operations and Ownership of our Common StockThe COVID-19 pandemic could continue to adversely affect our business and our ability to conduct and completeclinical trials.The continued global spread of COVID-19, including the Omicron variant, has impacted our clinical operations and timelines. For example, our Phase 3 RAISE trial is conducted in hospitals, including intensive care units and academic medical centers, which have experienced high rates of COVID-19 admissions. Several academic medical centers and intensive care units participating in the RAISE trial have experienced COVID-related difficulties, including staff turnover and the need to devote significant resources to patients with COVID-19, which has resulted in site initiation and enrollment delays for the RAISE trial. Given these COVID-19-related challenges and our recent interruption in drug supply as described above, we now expect our top-line data readout for the RAISE trial to be available in the second half of 2023. In addition, our ganaxolone clinical trials in the outpatient setting may be negatively impacted if patients and their caregivers do not want to participate while the COVID-19 pandemic persists. The duration and severity of the pandemic and its long-term impact on our business are uncertain at this time.Table of Contents82If a patient participating in one of our clinical trials contracts COVID-19, this could negatively impact thedata readouts from these trials; for example, the patient may be unable to participate further (or may have to limitparticipation) in our clinical trial, the patient may show a different efficacy assessment than if the patient had not beeninfected, or the patient could experience an AE that could be attributed to our product candidate.There is also a risk that clinical supplies of our product candidates may be significantly delayed or maybecome unavailable as a result of COVID-19 and the resulting impact on our suppliers’ labor forces and operations,including as a result of governmental restrictions on business operations and the movement of people and goods in aneffort to curtail the spread of the virus. There can be no assurance that we would be able to timely implement anymitigation plans. Disruptions in our supply chain, whether as a result of restricted travel, quarantine requirements orotherwise, could negatively impact clinical supplies of our product candidates, which could materially adversely impactour clinical trial and development timelines.The global spread of COVID-19 has also led to severe disruption and volatility in the global capital markets,which could increase our cost of capital and adversely affect our ability to access the capital markets in the future. Thepotential exists for the continued spread of COVID-19 to cause an economic slowdown or recession or cause otherunpredictable events, each of which could adversely affect our business, results of operations or financial condition.The extent to which COVID-19 impacts our business will depend on future developments, which are highlyuncertain and cannot be predicted, including new information which may emerge concerning the severity of theCOVID-19 outbreak and the actions to contain the outbreak or treat its impact, among others. Moreover, the COVID-19 outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy,and our business and results of operations could be adversely affected to the extent that COVID-19 or any otherpandemic harms the global economy generally.We will need to grow the size of our organization, and we may experience difficulties in managing this growth.As of December 31, 2021, we had 113 full-time and no part-time employees. As our development andcommercialization plans and strategies develop, or as a result of any future acquisitions, we will need additionalmanagerial, operational, sales, marketing, financial and other resources. In addition, it may become more cost effectiveto bring in house certain resources currently outsourced to consultants and other third-parties. Our management,personnel and systems currently in place may not be adequate to support our future growth. Future growth wouldimpose significant added responsibilities on members of management, including:●growing our commercial operations;●managing our clinical trials effectively;●identifying, recruiting, maintaining, motivating and integrating additional employees;●managing our internal development efforts effectively while complying with our contractual obligationsto licensors, licensees, contractors and other third parties;●improving our managerial, development, operational and finance systems; and●expanding our facilities.As our operations expand, we will need to manage additional relationships with various strategic partners,suppliers and other third parties. Our future financial performance and our ability to commercialize ZTALMY and, ifapproved, ganaxolone in other indications we are currently developing, and to compete effectively will depend, in part,on our ability to manage any future growth effectively. To that end, we must be able to manage our developmentefforts and clinical trials effectively and hire, train and integrate additional management, administrative and sales andmarketing personnel. Our failure to accomplish any of these tasks could prevent us from successfully growing ourcompany.Table of Contents83Our business and operations would suffer in the event of computer system failures, cyberattacks or a deficiency inour cybersecurity or those of any business partners.Despite the implementation of security measures, our internal computer systems, and those of our CROsand other third parties on which we rely, are vulnerable to damage from, among other things, computer viruses,unauthorized access, natural disasters, fire, terrorism, war, telecommunication and electrical failures, cyberattacks orcyber-intrusions over the Internet, loss of funds or information from phishing or other fraudulent schemes, orattachments to emails. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion,including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number,intensity and sophistication of attempted attacks and intrusions from around the world have increased. Such an eventcould cause interruption of our operations or loss of our funds and have a negative financial consequence on ourbusiness. In addition, our systems safeguard important confidential personal data regarding patients enrolled in ourclinical trials. If a disruption event were to occur and cause interruptions in our operations, it could result in a materialdisruption of our drug development programs. For example, the loss of data relating to completed, ongoing or plannedclinical trials could result in delays in our regulatory approval efforts and cause us to incur significant additional coststo recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage toour data or applications, misappropriation of funds to unintended recipients, or inappropriate disclosure of confidential,proprietary or personal information, we could incur material legal claims and liabilities and damage to our reputationand the further development of ganaxolone could be delayed. Additionally, breach remediation costs may besignificant.The market price of our stock has been, and may continue to be, highly volatile, and you could lose all or part ofyour investment.Historically, the trading price of our common stock has been highly volatile, and it is likely that such pricewill continue to be volatile in the future. The trading price of our common stock could be subject to wide fluctuationsin response to various factors, some of which are beyond our control. In addition to the factors discussed elsewhere inthis “Risk Factors” section, these factors could include:●the success of competitive products or technologies;●regulatory actions with respect to our products or our competitors’ products;●actual or anticipated changes in our growth rate relative to our competitors;●announcements by us or our competitors of significant acquisitions, strategic partnerships, jointventures, collaborations or capital commitments;●developments or disputes concerning patent applications, issued patents or other proprietary rights;●the level of expenses related to our clinical development programs;●the results of our efforts to in-license or acquire additional product candidates or products;●actual or anticipated changes in estimates as to financial results, development timelines orrecommendations by securities analysts;●variations in our financial results or those of companies that are perceived to be similar to us;●fluctuations in the valuation of companies perceived by investors to be comparable to us;●share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;●announcement or expectation of additional financing efforts;Table of Contents84●sales of our common stock by us, our insiders or our other stockholders;●changes in the structure of healthcare payment systems; and●other events or factors, many of which are beyond our control.In addition, the stock market in general, the Nasdaq Global Market and pharmaceutical and biotechnologycompanies in particular, have experienced extreme price and volume fluctuations that have often been unrelated ordisproportionate to the operating performance of these companies. Broad market and industry factors may negativelyaffect the market price of our common stock, regardless of our actual operating performance. The realization of any ofthese risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have adramatic and material adverse impact on the market price of our common stock.Insiders have substantial influence over us and could delay or prevent a change in corporate control.We estimate that our executive officers, directors and holders of 5% or more of our capital stock collectivelybeneficially own approximately 46.8% of our voting stock. Upon conversion of all our outstanding convertiblepreferred stock, as of December 31, 2021, our executive officers, directors and holders of 5% or more of our capitalstock collectively would beneficially own approximately 48.1% of our voting stock. This concentration of ownershipcould harm the market price of our common stock by delaying, deferring or preventing a strategic transaction, even ifsuch a transaction would benefit other stockholders. The interests of this group of stockholders may not alwayscoincide with your interests or the interests of other stockholders and they may act in a manner that advances theirbest interests and not necessarily those of other stockholders, including seeking a premium value for their commonstock, and might negatively affect the prevailing market price for our common stock.Our operating results may fluctuate significantly in the future, which may cause our results to fall below theexpectations of securities analysts, stockholders and investors.Our operating results may fluctuate significantly in the future as a result of a variety of factors, many ofwhich are outside of our control. These factors include, but are not limited to:●the timing, implementation and cost of our research, preclinical studies and clinical trials;●our ability to attract and retain personnel with the necessary strategic, technical and creative skillsrequired for effective operations;●introduction of new technologies;●product liability litigation, class action and derivative action litigation, or other litigation;●the amount and timing of capital expenditures and other costs relating to the expansion of ouroperations;●the state of the debt and/or equity capital markets at the time of any proposed offering we choose toinitiate;●our ability to successfully integrate new acquisitions into our operations;●government regulation and legal developments regarding ganaxolone in the United States and in theforeign countries in which we may operate in the future; and●general economic conditions.As a strategic response to changes in the competitive environment, we may from time to time make pricing,service, technology or marketing decisions or business or technology acquisitions that could have a material adverseTable of Contents85effect on our operating results. Due to any of these factors, our operating results may fall below the expectations ofsecurities analysts, stockholders and investors in any future period, which may cause our stock price to decline.Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discouragean acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may preventattempts by our stockholders to replace or remove our current management.Provisions in our fourth amended and restated certificate of incorporation, as amended (Certificate ofIncorporation) and amended and restated bylaws, as well as provisions of Delaware law, could make it more difficultfor a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, orremove our current management. These include provisions that:●permit our board of directors to issue up to 25,000,000 shares of preferred stock, with any rights,preferences and privileges as it may designate, of which 4,575 shares of Series A Preferred Stock areoutstanding;●provide that all vacancies on our board of directors, including as a result of newly created directorships,may, except as otherwise required by law, be filled by the affirmative vote of a majority of directorsthen in office, even if less than a quorum;●establish a classified board of directors such that only one of three classes of directors is elected eachyear;●provide that directors can only be removed for cause;●require that any action to be taken by our stockholders must be effected at a duly called annual orspecial meeting of stockholders and not be taken by written consent;●provide that stockholders seeking to present proposals before a meeting of stockholders or to nominatecandidates for election as directors at a meeting of stockholders must provide advance notice in writing,and also specify requirements as to the form and content of a stockholder’s notice;●not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares ofcommon stock entitled to vote in any election of directors to elect all of the directors standing forelection; and●provide that special meetings of our stockholders may be called only by the chairperson of the board ofdirectors, the chief executive officer or the board of directors.These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our currentmanagement by making it more difficult for stockholders to replace members of our board of directors, who areresponsible for appointing the members of our management. Because we are incorporated in Delaware, we aregoverned by the provisions of Section 203 of the Delaware General Corporation Law (DGCL), which prohibits, withsome exceptions, stockholders owning in excess of 15.0% of our outstanding capital stock from merging orcombining with us.Our Certificate of Incorporation contains exclusive forum provisions, which could limit our stockholders’ ability toobtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternativeforum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivativeaction or proceeding brought on our behalf, (b) any action asserting a claim of breach of a fiduciary duty owed by anyof our directors, officers, employees or agents to us or our stockholders, (c) any action asserting a claim arisingpursuant to any provision of the DGCL, or (d) any action asserting a claim that is governed by the internal affairsdoctrine, in each suchTable of Contents86case subject to such Court of Chancery’s having personal jurisdiction over the indispensable parties named asdefendants therein.For the avoidance of doubt, the exclusive forum provisions described above do not apply to any claimsarising under the Securities Act or under the Exchange Act. Section 27 of the Exchange Act creates exclusive federaljurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules andregulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courtsover all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulationsthereunder.The choice of forum provisions in our Certificate of Incorporation may limit our stockholders’ ability tobring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, employees oragents, which may discourage such lawsuits against us and our directors, officers, employees and agents even thoughan action, if successful, might benefit our stockholders. The applicable courts may also reach different judgments orresults than would other courts, including courts where a stockholder considering an action may be located or wouldotherwise choose to bring the action, and such judgments or results may be more favorable to us than to ourstockholders. With respect to the provision making the Court of Chancery the sole and exclusive forum for certaintypes of actions, stockholders who do bring a claim in the Court of Chancery could face additional litigation costs inpursuing any such claim, particularly if they do not reside in or near Delaware. Finally, if a court were to find theseprovisions of our Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of thespecified types of actions or proceedings, we may incur additional costs associated with resolving such matters in otherjurisdictions, which could have a material adverse effect on the company.Item 1B. Unresolved Staff Comments.None.Item 2. Properties.Our principal offices occupy approximately 22,500 square feet of leased office space in Radnor, Pennsylvania pursuant to a lease agreement that expires in 2025. We believe that our facilities are suitable and adequate to meet our current needs. We may add new facilities or expand existing facilities as we add employees, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.Item 3. Legal Proceedings.From time to time, we may become subject to litigation and claims arising in the ordinary course of business.We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatenedlegal proceedings against us that we believe could have a material adverse effect on our business, operating results orfinancial condition.Item 4. Mine Safety Disclosures.Not applicable.Table of Contents87PART IIItem 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationOur common stock is listed on the Nasdaq Global Market under the symbol “MRNS.”Holders of RecordAs of March 18, 2022, there were approximately 15 holders of record of shares of our common stock. Thisnumber does not reflect the beneficial holders of our common stock who hold shares in street name through brokerageaccounts or other nominees.Securities Authorized for Issuance under Equity Compensation PlansInformation regarding securities authorized for issuance under equity compensation plans is incorporated byreference into the information in Part III, Item 12 of this Form 10-K.Recent Sales of Unregistered SecuritiesWe did not issue any equity securities during the year ended December 31, 2021 that were not registeredunder the Securities Act and that have not otherwise been described in a Quarterly Report on Form 10-Q or a PeriodicReport on Form 8-K.Purchases of Equity Securities by the Issuer and Affiliated PurchasersWe did not purchase any of our registered equity securities during the period covered by this Annual Reporton Form 10-K.Item 6. ReservedTable of Contents88Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.You should read the following discussion and analysis of our financial condition and results of operationstogether with our financial statements and the related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report onForm 10-K, including information with respect to our plans and strategy for our business and related financing,includes forward-looking statements that involve risks and uncertainties. You should read “Cautionary NoteRegarding Forward-Looking Statements” and Item 1A. Risk Factors of this Annual Report on Form 10-K for adiscussion of important factors that could cause actual results to differ materially from the results described in orimplied by the forward-looking statements contained in the following discussion and analysis.OverviewWe are a pharmaceutical company focused on the development and commercialization of products for patients suffering from rare genetic epilepsies and other seizure disorders. On March 18, 2022, the U.S Food and Drug Administration (FDA) approved our new drug application (NDA) for the use of ZTALMY® (ganaxolone) oral suspension for the treatment of seizures associated with cyclin-dependent kinase-like 5 (CDKL5) deficiency disorder (CDD) in patients 2 years of age and older. This is our first FDA-approved product which we plan to commercialize inthe United States. We also plan to continue to develop ganaxolone for other rare genetic epilepsies and for a numberof additional indications including seizure disorders. While the precise mechanism by which ganaxolone exerts itstherapeutic effects in the treatment of seizures associated with CDD is unknown, its anticonvulsant effects are thoughtto result from positive allosteric modulation of the gamma-aminobutyric acid type A (GABAA) receptor in the CentralNervous System (CNS). Ganaxolone is being developed in formulations for two different routes of administration:intravenous (IV) and oral. Ganaxolone is a synthetic analog of allopregnanolone, an endogenous neurosteroid. Thedifferent formulations are intended to maximize potential therapeutic applications of ganaxolone for adult and pediatricpatient populations, in both acute and chronic care, and for both in-patient and self-administered settings. Ganaxoloneacts at both synaptic and extrasynaptic GABAA receptors, a target known for its anti-seizure, antidepressant andanxiolytic potential.Our operations to date have consisted primarily of organizing and staffing our company, developingganaxolone, including conducting preclinical studies and clinical trials, and raising capital. We have funded ouroperations primarily through sales of equity and debt securities. At December 31, 2021, we had cash and cashequivalents of $122.9 million. We have no products currently available for sale, have incurred operating losses since inception, have not generated any product sales revenue and have not achieved profitable operations. We incurred a net loss of $98.8 million for the year ended December 31, 2021. Our accumulated deficit as of December 31, 2021 was $410.7 million, and we expect to continue to incur substantial losses in future periods. We anticipate that our operating expenses will increase substantially as we continue to advance our clinical-stage product candidate, ganaxolone.We anticipate that our expenses will increase substantially as we:●conduct multiple later stage clinical trials in targeted indications;●continue the research, development and scale-up manufacturing capabilities to optimize ganaxolone anddose forms for which we may obtain regulatory approval;●establish and implement sales, marketing and distribution capabilities to commercialize ganaxolone;●conduct other preclinical studies and clinical trials to support the filing of NDAs with the FDA,marketing authorization applications (MAAs) with the European Medicines Agency (EMA) and othermarketing authorization filings with regulatory agencies in other countries;●acquire the rights to other product candidates and fund their development;Table of Contents89●maintain, expand and protect our global intellectual property portfolio;●hire additional clinical, manufacturing, scientific and commercial personnel; and●add operational, financial and management information systems and personnel, including personnel tosupport our drug development efforts.We had cash and cash equivalents of $122.9 million at December 31, 2021. We believe that our existingcash and cash equivalents on hand as of December 31, 2021, including the previously received $22 million contingentrefundable upfront fee, will be sufficient to fund our operating expenses, capital expenditure requirements, andmaintain the minimum cash balance required under our debt facility into the fourth quarter of 2022. However, we willneed to secure additional funding in the future, from one or more equity or debt financings, government funding,collaborations, licensing transactions, other commercial transactions or other sources, such as our Priority ReviewVoucher, in order to carry out all of our planned research and development activities with respect to ganaxolone.COVID-19The continued global spread of COVID-19, including the Omicron variant, has impacted our clinical operations and timelines. For example, our Phase 3 trial, the Randomized Therapy In Status Epilepticus Trial (RAISE trial), a pivotal Phase 3 trial in refractory status epilepticus (RSE) patients, is conducted in hospitals, including intensive care units and academic medical centers, which have experienced high rates of COVID-19 admissions. Several academic medical centers and intensive care units participating in the RAISE trial have experienced COVID-related difficulties, including staff turnover and the need to devote significant resources to patients with COVID-19, which has resulted in site initiation and enrollment delays for the RAISE trial. Given these COVID-19-related challenges and our recent interruption in drug supply, we now expect our top-line data readout for the RAISE trial to be available in the second half of 2023. In addition, our ganaxolone clinical trials in the outpatient setting may be negatively impacted if patients and their caregivers do not want to participate while the COVID-19 pandemic persists. The duration and severity of the pandemic and its long-term impact on our business are uncertain at this time.Reverse stock splitOn September 23, 2020, we effected a 1-for-4 reverse split of shares of our common stock (Reverse Split),as approved by our board of directors and stockholders. The par value per share of our common stock was notadjusted as a result of the Reverse Split, and our authorized shares of common stock was reduced to 150,000,000. Allof the share and per share amounts included in this Annual Report on Form 10-K have been adjusted to reflect theReverse Split.Financial OverviewFederal Contract RevenueIn September 2020, we entered into a contract (BARDA Contract) with the Biomedical Advanced Researchand Development Authority (BARDA), a division of the U.S. Department of Health and Human Services’ Office ofthe Assistant Secretary for Preparedness and Response. Under the BARDA Contract, we received an award of up toan estimated $51 million for development of RSE. The BARDA Contract provides for funding to include support, ona cost-sharing basis, for completion of the RAISE trial, funding of pre-clinical studies to evaluate IV-administeredganaxolone as an effective treatment for RSE due to chemical nerve gas agent exposure, and funding of certainganaxolone manufacturing scale-up and regulatory activities.The BARDA Contract consists of an approximately two-year base period-during which BARDA willprovide approximately $21 million of funding for the RAISE trial on a cost share basis and funding of additionalpreclinical studies of ganaxolone in nerve agent exposure models. Following successful completion of the RAISE trialand preclinical studies in the base period, the BARDA Contract provides for approximately $30 million of additionalBARDA funding for three options in support of ganaxolone manufacturing, supply chain, clinical, regulatory andtoxicology activities. Under the BARDA Contract, we will be responsible for cost sharing in the amount ofTable of Contents90approximately $33 million and BARDA will be responsible for approximately $51 million, if all development optionsare completed. The contract period-of-performance (base period plus option exercises) is up to approximately fiveyears.We recognize federal contract revenue from the BARDA Contract in the period in which the allowable research and development expenses are incurred. We expect federal contract revenue to increase as the costsassociated with our RAISE trial increase.License and Collaboration RevenueIn July 2021, we entered into a collaboration agreement (Orion Collaboration Agreement) with OrionCorporation (Orion). Under the terms of the Orion Collaboration Agreement, we granted Orion an exclusive, royalty-bearing, sublicensable license to certain our intellectual property rights with respect to commercializingbiopharmaceutical products incorporating ganaxolone (Licensed Products) in the European Economic Area, the UnitedKingdom and Switzerland (collectively, the Territory) for the diagnosis, prevention and treatment of certain humandiseases, disorders or conditions (Field), initially in the indications of CDD, tuberous sclerosis complex (TSC) andRSE.Under the terms of the Orion Collaboration Agreement, we received a €25.0 million ($29.6 million) upfront payment from Orion in July 2021. In connection with the upfront fee, we agreed to provide Orion with the results of a planned genotoxicity study on the M2 metabolite of ganaxolone, a “Combined Micronucleus & Comet study in vivo.” In the event that the results of such study were positive, based on the criteria set forth in the study’s protocol, Orion would have had the right to terminate the Orion Collaboration Agreement within ninety (90) days after its receipt of the final report of such study, in which case we would have been required to refund Orion seventy-five percent (75%) of the upfront fee. In February 2022, the verified draft study report showed that no genotoxicity was found, as measured by formation of micronuclei in the bone marrow or comet morphology in the liver. As such, but subject to confirmation of such results in the final study report expected by the end of the second quarter of 2022, we will not be required to refund Orion any of the upfront fee and Orion will not have a right to terminate the Orion Collaboration Agreement as a result of the study’s findings.We are eligible to receive up to an additional €97 million in R&D reimbursement and cash milestonepayments based on specific clinical and commercial achievements. Also, as part of the overall arrangement, we haveagreed to supply the Licensed Products to Orion at an agreed upon price.We identified the following commitments under the arrangement: (i) exclusive rights to develop, use, sell,have sold, offer for sale and import any product comprised of Licensed Product (License); (ii) development andregulatory activities (Development and Regulatory Activities); and (iii) requirement to supply Orion with the LicensedProduct at an agreed upon price (Supply of Licensed Product). We determined that these three commitments representdistinct performance obligations for purposes of recognizing revenue and will recognize license and collaborationrevenue or a reduction of expense as we fulfill each performance obligation.Research and Development ExpensesOur research and development expenses consist primarily of costs incurred for the development ofganaxolone, which include:●employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;●expenses incurred under agreements with clinical research organizations (CROs) and investigative sitesthat conduct our clinical trials and preclinical studies;●the cost of acquiring, developing and manufacturing clinical trial materials;●facilities, depreciation and other expenses, which include direct and allocated expenses for rent andmaintenance of facilities, insurance and other supplies;Table of Contents91●costs associated with preclinical activities and regulatory operations; and●costs associated with developing new formulations and prodrugs of ganaxolone.We expense research and development costs when we incur them. We record costs for some developmentactivities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data suchas patient enrollment, clinical site activations and information our vendors provide to us.We have and will incur substantial costs beyond our present and planned clinical trials in order to file anNDA and Supplemental New Drug Applications (NDAs), or an MAA outside the US, for ganaxolone for variousclinical indications, and in each case, the nature, design, size and cost of further clinical trials and other studies willdepend in large part on the outcome of preceding studies and trials and discussions with regulators. It is difficult todetermine with certainty the costs and duration of our current or future clinical trials and preclinical studies, or if, whenor to what extent we will generate revenue from the commercialization and sale of ganaxolone if we obtain regulatoryapproval. We may never succeed in achieving regulatory approval for ganaxolone. The duration, costs and timing ofclinical trials and development of ganaxolone will depend on a variety of factors, including the uncertainties of futureclinical trials and preclinical studies, uncertainties in clinical trial enrollment rate and significant and changinggovernment regulation.In addition, the probability of success for our clinical programs will depend on numerous factors, includingcompetition, manufacturing capability and commercial viability. See “Risk Factors.” Our commercial success dependsupon attaining significant market acceptance, if approved, among physicians, patients, healthcare payers and themedical community. We will determine which programs to pursue and how much to fund each program in response tothe scientific and clinical success, as well as an assessment of commercial potential.General and Administrative ExpensesGeneral and administrative expenses consist principally of salaries and related costs for executive and otheradministrative personnel and consultants, including stock-based compensation and travel expenses. Other general andadministrative expenses include professional fees for legal, patent review, consulting and accounting services. Generaland administrative expenses are expensed when incurred. We expect that our general and administrative expenses willincrease in the future as a result of employee hiring and our scaling-up of operations commensurate with supportingmore advanced clinical trials and for commercial infrastructure. These increases will likely include increased costs forinsurance, hiring of additional personnel, outside consultants, and legal counsel and accountants, among otherexpenses.Cost of collaboration revenueCost of collaboration revenue represents a one-time fee paid to Purdue Neuroscience Company related toour license agreement. This fee was paid in conjunction with the Orion Collaboration Agreement.Interest IncomeInterest income consists principally of interest income earned on cash and cash equivalent and investmentbalances.Interest ExpenseInterest expense consists of interest expense and amortization of debt discount related to our Notes Payable.Other Income (Expense)Other income and expense consists principally of gains or losses on disposal of fixed assets held for sale,foreign currency translation, and fair value adjustments.Table of Contents92Results of OperationsFederal contract revenueWe recognized $6.4 million and $1.7 million in federal contract revenue in the years ended December 31,2021 and 2020 respectively, as a result of the BARDA Contract.License RevenueLicense revenue was $9.0 million in the year ended December 31, 2021 as a result of recognizing a portionof the Orion upfront payment not subject to certain return provisions based on results of additional pre-clinical testingas defined within the agreement. We did not recognize any license revenue in the year ended December 31, 2020.Research and Development ExpensesWe allocate direct research and development expenses, consisting principally of external costs, such as feespaid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and costs relatedto manufacturing or purchasing clinical trial materials, to specific product development programs. We do not allocateemployee and contractor-related costs, costs associated with our facility expenses, including depreciation or otherindirect costs, to specific product programs because these costs are deployed across multiple product programs underresearch and development and, as such, are separately classified. The table below shows our research and developmentexpenses incurred with respect to each active program, in thousands. The primary drivers of our research anddevelopment expenditures are currently in our product development programs in RSE, CDD, TSC and PCDH19-Related Epilepsy (PCDH19-RE). We expect our research and development expenses for ganaxolone will continue toincrease during subsequent periods. We did not allocate research and development expenses to any other specificproduct development programs during the periods presented (in thousands):Year EndedDecember 31,20212020CDKL5 deficiency disorder (1) $ 8,116$ 6,482PCDH19-related epilepsy (2) 2,638 3,072Tuberous Sclerosis (3) 3,816 913Drug Development - Suspension (4) 5,854 5,215Oral Indications Subtotal 20,424 15,682Status epilepticus 5,098 4,054Drug Development - IV 6,611 3,888IV Indications Subtotal (5) 11,709 7,942Other research and development (6) 11,000 6,666Indirect research and development (7) 30,387 20,816Total$ 73,520$ 51,106Note: Certain prior year expenses have been reclassified to conform to current year presentation.(1)The increase in the year ended December 31, 2021 compared to 2020 was due primarily to an increase inregulatory and statistical analysis expenses associated with our NDA filing, partially offset by reducedclinical trial activity as 2020 costs associated with our Phase 3 Marigold study exceeded 2021 costsassociated with our on-going open label extension(2)The decrease in the year ended December 31, 2021 compared to 2020 was due primarily to 2020 includingmore active clinical development work associated with our Phase 2 Violet study and 2021 including morelimited costs associated with our on-going open label extension.Table of Contents93(3)The increase in the year ended December 31, 2021 compared to 2020 was due primarily to increased trialactivity in 2021 from the Phase 2 TSC trial and start-up activities for the Phase 3 TSC trial, as compared tomore limited Phase 2 start-up activities, including enrollment, in 2020.(4)The increase in the year ended December 31, 2021 compared to 2020 was the result of increasedmanufacturing costs associated with scale up for the NDA submission and preparation for commercialization.(5)The increase in the year ended December 31, 2021 compared to 2020 was due primarily to start-up activities,including drug manufacturing, associated with the on-going Phase 3 RAISE trial and planned Phase 2established status epilepticus (ESE) clinical trial.(6)Other research and development expenses include external expenses associated with preclinical and clinicaldevelopment of ganaxolone, including safety studies, stability studies, preclinical studies, including animaltoxicology and pharmacology studies, and other professional fees, as well as a reduction in expense related toour Development and Regulatory Activities obligation under the Orion Collaboration Agreement. Theincrease in the year ended December 31, 2021 was due primarily to safety studies.(7)The increase is related to increased personnel costs in support of our increased activity in preclinical, clinical,and manufacturing activities including increased noncash stock-based compensation.General and Administrative ExpensesGeneral and administrative expenses increased to $37.3 million for the year ended December 31, 2021 compared to $18.5 million for the year ended December 31, 2020. The primary drivers of the increase were $6.5 million in increased personnel costs, $4.7 million in increased noncash stock-based compensation, $4.9 million in increased commercialization preparation, $1.1 million contract acquisition costs related to the Orion Collaboration Agreement, $0.6 million in increased legal fees and $1.0 million of other administrative expenses. Of the increased noncash stock-based compensation, $2.1 million was due to modifications of stock options recorded in the first quarter of 2021 in connection with a severance agreement with our former Chief Financial Officer.Liquidity and Capital ResourcesSince inception, we have incurred net losses and negative cash flows from our operations. We incurred a netloss of $98.8 million for the year ended December 31, 2021. Our cash used in operating activities was $55.5 million for year ended December 31, 2021 compared to $60.9 million for the year ended December 31, 2020. Historically, we have financed our operations principally through the sale of common stock, notes payable, preferred stock and convertible debt. At December 31, 2021, we had cash and cash equivalents of $122.9 million.We believe that our existing cash and cash equivalents on hand as of December 31, 2021, including thepreviously received $22 million contingent refundable upfront fee received in connection with the Orion Agreement,will be sufficient to fund our operating expenses, capital expenditure requirements, and maintain the minimum cashbalance required under our debt facility into the fourth quarter of 2022. As a result, there is substantial doubt aboutour ability to continue as a going concern through the one-year period from the date of filing of this 10-K. However,we will need to secure additional funding in the future, from one or more equity or debt financings, governmentfunding, collaborations, licensing transactions, other commercial transactions or other sources, such as our PriorityReview Voucher, in order to carry out all of our planned commercialization and research and development activitieswith respect to ganaxolone.European Commercialization AgreementOn July 30, 2021, we entered into the Orion Collaboration Agreement, whereby Orion received exclusiverights to commercialize the oral and IV dose formulations of ganaxolone in the European Economic Area, UnitedKingdom and Switzerland in multiple seizure disorders, including CDD, TSC and RSE. Under the agreement, wereceived a €25 million ($29.6 million) upfront fee and are eligible to receive up to an additional €97 million in R&Dreimbursement andTable of Contents94cash milestone payments based on specific clinical and commercial achievements, as well as tiered royalty paymentsbased on net sales ranging from the low double digits to the high teens for the oral programs and the low double-digitsto the low twenties for the IV programs. In connection with the upfront fee, we agreed to provide Orion with theresults of an ongoing genotoxicity study on the M2 metabolite of ganaxolone, a “Combined Micronucleus & Cometstudy in vivo.” In the event that the results of such study were positive, based on the criteria set forth in the study’sprotocol, Orion would have had the right to terminate the Orion Collaboration Agreement within ninety (90) days afterits receipt of the final report of such study, in which case we would have been required to refund Orion seventy-fivepercent (75%) of the upfront fee. In February 2022, the verified draft study report showed that no genotoxicity wasfound, as measured by formation of micronuclei in the bone marrow or comet morphology in the liver. As such, butsubject to confirmation of such results in the final study report expected by the end of the second quarter of 2022, wewill not be required to refund Orion any of the upfront fee and Orion will not have a right to terminate the OrionCollaboration Agreement as a result of the study’s findings.Oaktree Credit AgreementOn May 11, 2021 (Closing Date), we entered into a Credit Agreement and Guaranty (as amended by thatcertain letter agreement on May 17, 2021, the Credit Agreement) with Oaktree Fund Administration, LLC, asadministrative agent and the lenders party thereto that provides for a five-year senior secured term loan facility in anaggregate original principal amount of up to $125.0 million available to us in five tranches (collectively, the TermLoans):●$15.0 million of tranche A-1 term loans advanced on the Closing Date.●Through December 31, 2021, $30.0 million of tranche A-2 term loans subject to written acceptance bythe FDA of an NDA filing relating to the use of ganaxolone in the treatment of CDD. This $30.0million tranche was drawn in September 2021 after formal acceptance of the NDA filing.●Through December 31, 2022, $30.0 million of tranche B term loans have become available for draw asa result of FDA approval of ZTALMY for CDD in March 2022 (FDA Approval).●Through June 30, 2023, $25.0 million of tranche C term loans subject to the completion of one or more financings, including through the issuance of common stock, convertible debt, subordinated debt, a synthetic royalty or a sublicense in which we receive gross proceeds in an aggregate amount of at least $40.0 million and net proceeds in an aggregate amount of at least $36.0 million. In addition, the availability of this tranche is subject to either our current Phase 3 trial in RSE or a Phase 3 trial in TSC achieving statistical significance (p value < 0.05) across all primary endpoints and ganaxolone must be generally well tolerated, with a safety profile generally consistent with previous clinical trials.●Through December 31, 2023, $25 million of tranche D term loans subject us earning an aggregate of atleast $50 million in net product revenue in the United States for a trailing six consecutive months.The Term Loans will bear interest at a fixed per annum rate (subject to increase during an event of default)of 11.50% and are scheduled to mature on the fifth anniversary of the Closing Date (Maturity Date). In addition, at thetime of funding of any tranche of the Term Loans, we are required to pay an upfront fee of 2.0% of the aggregateprincipal amount being funded. We are required to make quarterly interest payments until the Maturity Date. We arealso required to make principal payments, which are payable in quarterly installments beginning on the last day of thefirst quarter ending after the third anniversary of the Closing Date in an amount equal to 5.0% of the aggregateamount of the Term Loans outstanding on the date of the first such quarterly principal payment and continuing untilthe Maturity Date, on which date all outstanding Term Loans and other amounts owed under the Credit Agreementwill be required to be paid in full. A commitment fee of 75 basis points per annum will accrue on each of the trancheB, C and D commitments for the period beginning 120 days after the funding date of the tranche A-2 term loans untilthe applicable tranche is either funded or terminated.Table of Contents95BARDA ContractIn September 2020, we entered into the BARDA Contract with BARDA. Under the BARDA Contract, wereceived an award of up to an estimated $51 million for development of IV-administered ganaxolone for the treatmentof RSE. The BARDA Contract provides for funding to support, on a cost-sharing basis, the completion of a Phase 3clinical trial of IV-administered ganaxolone in patients with RSE, which covers the RAISE trial, funding of pre-clinicalstudies to evaluate IV-administered ganaxolone as an effective treatment for RSE due to chemical nerve gas agentexposure, and funding of certain ganaxolone manufacturing scale-up and regulatory activities.The BARDA Contract consists of an approximately two-year base period during which BARDA willprovide up to approximately $21 million of funding for the RAISE trial on a cost share basis and funding ofadditional preclinical studies of ganaxolone in nerve agent exposure models. Following successful completion of theRAISE trial and preclinical studies in the base period, the BARDA Contract provides for approximately $30 million ofadditional BARDA funding for three options in support of ganaxolone manufacturing, supply chain, clinical,regulatory and toxicology activities. Under the BARDA Contract, we will be responsible for cost sharing in theamount of approximately $33 million and BARDA will be responsible for approximately $51 million, if alldevelopment options are completed. The contract period-of-performance (base period plus option exercises) is up toapproximately five years.Equity FinancingsIn connection with the closing of an equity financing in December 2020, we issued a total of 5,000,000shares of common stock in an underwritten public offering resulting in aggregate net proceeds, after underwritingdiscounts and commissions in the public offering and other estimated offering expenses, of $64.8 million.In connection with the closing of an equity financing in June 2020, we issued a total of 4,600,000 shares ofcommon stock in an underwritten public offering resulting in aggregate net proceeds, after underwriting discounts andcommissions in the public offering and other estimated offering expenses, of $43.0 million.Cash FlowsOperating Activities. Cash used in operating activities decreased to $55.5 million for the year ended December 31, 2021 compared to $60.9 million for the same period in 2020. The decrease was driven by the upfront payment related to our Orion Collaboration Agreement, increase in stock-based compensation expenses, and increase in the change in accounts payable, accrued expenses and other long term-liabilities, offset by increase in net loss.Investing Activities. Cash used in investing activities during the year ended December 31, 2021 represents the maturities of $1.5 million of short-term investments, offset by $2.9 million related to investments in property and equipment. Cash used by investing activities during the year ended December 31, 2020 represents the maturities of $8.2 million of short-term investments, offset by $8.9 million in in purchases of short-term investments.Financing Activities. Cash provided by financing activities during the year ended December 31, 2021 includes $40.3 million in proceeds from notes payable net of issuance costs, and $1.2 million in proceeds from the exercise of stock options. Cash provided by financing activities during the year ended December 31, 2020 includes $108.2 million in net proceeds from follow-on public offerings, the sale of common stock in connection with an equity distribution agreement and $1.0 million in proceeds from the exercise of stock options. Funding RequirementsWe have not achieved profitability since our inception, and we expect to continue to incur net losses for theforeseeable future. We expect our cash expenditures to increase in the near term as we fund the commercialization ofZTALMY and our continuing and planned clinical trials for ganaxolone.Table of Contents96We believe that our existing cash and cash equivalents on hand as of December 31, 2021, including thepreviously received $22 million contingent refundable upfront fee, will be sufficient to fund our operating expenses,capital expenditure requirements, and maintain the minimum cash balance required under our debt facility into thefourth quarter of 2022. However, we will need to secure additional funding in the future, from one or more equity ordebt financings, government funding, collaborations, licensing transactions, other commercial transactions or othersources, such as our Priority Review Voucher, in order to carry out all of our planned research and developmentactivities with respect to ganaxolone. In order to meet these additional cash requirements, we may seek to selladditional equity or convertible debt securities that may result in dilution to our stockholders. If we raise additionalfunds through the issuance of convertible debt securities, these securities could have rights senior to those of ourcommon stock and could contain covenants that restrict our operations. There can be no assurance that we will be ableto obtain additional equity or debt financing on terms acceptable to us, if at all. Further, the continued spread ofCOVID-19 has also led to severe disruption and volatility in the global capital markets, which could increase our costof capital and adversely affect our ability to access the capital markets in the future. Our failure to obtain sufficientfunds on acceptable terms when needed could have a negative impact on our business, results of operations, andfinancial condition.Our future capital requirements will depend on many factors, including:●the effects of the COVID-19 pandemic on our business, the medical community and the globaleconomy;●the results of our preclinical studies and clinical trials;●the development, formulation and commercialization activities related to ganaxolone;●the scope, progress, results and costs of researching and developing ganaxolone or any other futureproduct candidates, and conducting preclinical studies and clinical trials;●the timing of, and the costs involved in, obtaining regulatory approvals for ganaxolone or any otherfuture product candidates;●the cost of commercialization activities if ganaxolone or any other future product candidates areapproved for sale, including marketing, sales and distribution costs;●the cost of manufacturing and formulating ganaxolone, or any other future product candidates, tointernal and regulatory standards for use in preclinical studies, clinical trials and, if approved,commercial sale;●our ability to establish and maintain strategic collaborations, licensing or other arrangements and thefinancial terms of such agreements;●our ability to receive funding under the BARDA Contract;●our expectations regarding the amount and timing of milestone and royalty payments pursuant to ourexclusive license agreement with Orion for the commercialization of ganaxolone in Europe;●our obligation to reimburse the upfront payment under the Collaboration Agreement to Orion in theevent of a positive genotoxicity study;●our eligibility for additional debt tranches under the Credit Agreement with Oaktree;●any product liability, infringement or other lawsuits related to our product candidates and, if approved,products;●capital needed to attract and retain skilled personnel;Table of Contents97●the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims,including litigation costs and the outcome of such litigation; and●the timing, receipt and amount of sales of, or royalties on, future approved products, if any.Please see “Risk Factors” for additional risks associated with our substantial capital requirements.Critical Accounting Policies and EstimatesWe base this management’s discussion and analysis of our financial condition and results of operations onour financial statements, which we have prepared in accordance with accounting principles generally accepted in theUnited States (GAAP). The preparation of our financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets andliabilities in our financial statements. We evaluate our estimates and judgments, including those related to accruedclinical trial expenses on an ongoing basis. We base our estimates on historical experience, known trends and eventsand various other factors that we believe to be reasonable under the circumstances, the results of which form the basisfor making judgments about the carrying values of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates under different assumptions or conditions. You shouldconsider your evaluation of our financial condition and results of operations with these policies, judgments andestimates in mind.While we describe our significant accounting policies in the notes to our financial statements appearingelsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are the most critical tothe judgments and estimates we use in the preparation of our financial statements.Clinical Trial ExpensesAs part of the process of preparing our financial statements, we are required to estimate our clinical trialexpenses. Our clinical trial accrual process seeks to account for expenses resulting from our obligations undercontracts with vendors, consultants and CROs and clinical site agreements in connection with conducting clinical trials.The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may resultin payment flows that do not match the periods over which materials or services are provided to us under suchcontracts. Our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching theappropriate expenses with the period in which services and efforts are expended. We account for these expensesaccording to the progress of the trial as measured by subject progression and the timing of various aspects of the trial.We determine accrual estimates based on estimates of the services received and efforts expended that takeinto account discussion with applicable personnel and outside service providers as to the progress or state ofcompletion of trials. During the course of a clinical trial, we adjust our clinical expense recognition if actual resultsdiffer from our estimates. We make estimates of our accrued expenses and prepaid assets as of each balance sheet datein our financial statements based on the facts and circumstances known to us at that time. Our clinical trial accrual andprepaid assets are dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. Although we do not expect our estimates to differ materially from amounts we actually incur, ourunderstanding of the status and timing of services performed relative to the actual status and timing of servicesperformed may vary and may result in us reporting amounts that are too high or too low for any particular period.Orion Collaboration AgreementThe recognition of revenue related to the Orion Collaboration Agreement requires significant judgement andestimates. As discussed in Note 11 to the Consolidated Financial Statements, we are required to identify distinctperformance obligations and subsequently allocate a portion of the transaction price to each performance obligation.We will recognize such revenue or expense, as applicable, as we fulfill these performance obligations. We identifiedthree commitments in the Orion Collaboration Agreement that represent distinct performance obligations for purposesof recognizing revenue or reducing expense: (i) exclusive rights to develop, use, sell, have sold, offer for sale andimport any product comprised of Licensed Product (License) (ii) development and regulatory activities (DevelopmentandTable of Contents98Regulatory Activities), and (iii) requirement to supply Orion with the Licensed Product at an agreed upon price (Supplyof Licensed Product). We allocated the transaction price to the three performance obligations based on the estimatedstand-alone selling prices at contract inception and we reevaluate the transaction price and the total estimated costsexpected to be incurred to satisfy the performance obligations and adjust the deferred revenue at the end of eachreporting period. Such changes will result in a change to the amount of collaboration revenue recognized and deferredrevenue.Significant estimates were used in the determination of the stand-along selling prices. The stand-alone sellingprice of the License was based on a discounted cash flow approach and considered several factors including, but notlimited to, discount rate, development timeline, regulatory risks, estimated market demand and future revenue potentialusing an adjusted market approach. The stand-alone selling price of the Development and Regulatory Activities and theSupply of Licensed Product was estimated using the expected cost-plus margin approach.Item 7A. Quantitative and Qualitative Disclosures About Market Risk.We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 andare not required to provide the information under this item.Item 8. Financial Statements and Supplementary Data.Our financial statements, accompanying notes and Reports of Independent Registered Public AccountingFirm are included in this Annual Report on Form 10-K beginning on page F-1, which are incorporated in this Item 8by reference.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, hasevaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K toensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Actis recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and thatinformation required to be disclosed in the reports we file or submit under the Exchange Act is accumulated andcommunicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timelydecisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving their objectives and managementnecessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Basedon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosurecontrols and procedures were effective at the reasonable assurance level as of December 31, 2021.Management’s Annual Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financialreporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.Our internal control over financial reporting is a process designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles in the United States. Because of its inherent limitations, internal control overTable of Contents99financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.Management utilized the criteria established in the Internal Control – Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO) to assess the effectiveness of ourinternal control over financial reporting as of December 31, 2021. Based on the assessment, management hasconcluded that, as of December 31, 2021, our internal control over financial reporting was effective.Changes in Internal Control Over Financial ReportingThere was no change in our internal control over financial reporting identified in connection with theevaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter endedDecember 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control overfinancial reporting.Item 9B. Other Information.NoneItem 9C. Disclosure Regarding Foreign Jurisdictions that Prevent InspectionsNot applicable.PART IIIItem 10. Directors and Executive Officers and Corporate Governance.We incorporate the information required by this Item 10 by reference to the definitive proxy statement forour 2022 annual meeting of shareholders, to be filed with the SEC.We have adopted a written Code of Business Conduct and Ethics (Code of Business Conduct) that applies toall of our employees, officers and directors. This Code of Business Conduct is designed to ensure that our business isconducted with integrity and in compliance with SEC regulations and Nasdaq listing standards. The Code of BusinessConduct covers adherence to laws and regulations as well as professional conduct, including employment policies,conflicts of interest and the protection of confidential information. The Code of Business Conduct is available under“Governance Documents” within the “Investors & Media – Governance” section of our website atwww.marinuspharma.com.We intend to disclose any future amendments to, or waivers from, the Code of Business Conduct and Ethicsthat affect our directors or senior financial and executive officers within four business days of the amendment orwaiver by posting such information on the website address and location specified aboveItem 11. Executive Compensation.We incorporate the information required by this Item 11 by reference to the definitive proxy statement forour 2022 annual meeting of shareholders, to be filed with the SEC.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters.We incorporate the information required by this Item 12 by reference to the definitive proxy statement forour 2022 annual meeting of shareholders, to be filed with the SEC.Table of Contents100Item 13. Certain Relationships and Related Transactions and Director Independence.We incorporate the information required by this Item 13 by reference to the definitive proxy statement forour 2022 annual meeting of shareholders, to be filed with the SEC.Item 14. Principal Accountants Fees and Services.We incorporate the information required by this Item 14 by reference to the definitive proxy statement forour 2022 annual meeting of shareholders, to be filed with the SEC.PART IVItem 15. Exhibits and Financial Statement Schedules.(a) Documents filed as part of this report:1. Financial Statements. The financial statements as set forth under Item 8 of this Annual Report onForm 10-K are incorporated herein.2. Financial Statement Schedules. All financial statement schedules have been omitted because theyare not applicable, not required, or the information is shown in the financial statements or related notes.3. Exhibits. See (b) below.ExhibitNo. Description of Exhibit3.1Fourth Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 toForm 8-K current report filed on August 7, 2014.)3.2Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation.(Incorporated by reference to Exhibit 3.1 to Form 8-K current report filed on April 2, 2020.)3.3Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation.(Incorporated by reference to Exhibit 3.1 to Form 8-K current report filed on May 27, 2020.)3.4Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation.(Incorporated by reference to Exhibit 3.1 to Form 8-K current report filed on September 22, 2020.)3.5Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation.(Incorporated by reference to Exhibit 3.2 to Form 8-K current report filed on September 22, 2020.)3.6Amended and Restated By-laws. (Incorporated by reference to Exhibit 3.2 to Form 8-K current reportfiled on August 7, 2014.)3.7Certificate of Designations, Preferences and Rights of Series A Participating Convertible Preferred Stock.(Incorporated by reference to Exhibit 3.1 to Form 8-K current report filed on December 13, 2019.)4.1Specimen Certificate evidencing shares of the Company’s common stock. (Incorporated by reference toExhibit 4.1 to Form S-1/A registration statement filed on July 18, 2014.)4.2Form of Third Amended and Restated Investors’ Rights Agreement by and among the Company and theparties listed therein. (Incorporated by reference to Exhibit 4.2 to Form S-1/A registration statement filedon July 9, 2014.)4.3Description of the Registrant’s Securities. (Filed herewith.)10.1+Marinus Pharmaceuticals, Inc. 2005 Stock Option and Incentive Plan, as amended. (Incorporated byreference to Exhibit 10.1 to Form S-1 registration statement filed on May 12, 2014.)10.2+Forms of Stock Option Agreement under the 2005 Stock Option and Incentive Plan. (Incorporated byreference to Exhibit 10.2 to Form S-1 registration statement filed on May 12, 2014.)10.3+Separation and Consulting Agreement and General Release, dated as of March 9, 2021, between theCompany and Edward F. Smith. (Incorporated by reference to Exhibit 10.3 to Form 10-K annual reportfiled on March 9, 2021.)Table of Contents101ExhibitNo. Description of Exhibit10.4+Employment Agreement, effective as of April 12, 2021, between the Company and Steven Pfanstiel(Incorporated by reference to Exhibit 10.4 to Form 10-K annual report filed on March 9, 2021.)10.5+First Amendment to Executive Employment Agreement, by and between Marinus Pharmaceuticals, Inc.and Steven Pfanstiel, MBA, CMA dated April 9, 2021. (Incorporated by reference to Exhibit 10.1 toForm 8-K current report filed on April 13, 2021.)10.6*Technology Transfer Agreement dated December 4, 2012 between Domain Russia Investments Limitedand the Company. (Incorporated by reference to Exhibit 10.6 to Form S-1 registration statement filed onMay 12, 2014.)10.7Assignment and Assumption Agreement dated as of December 4, 2012 among Domain RussiaInvestments Limited, the Company and NovaMedica, LLC. (Incorporated by reference to Exhibit 10.7 toForm S-1 registration statement filed on May 12, 2014.)10.8Clinical Development and Collaboration Agreement dated as of June 25, 2013 between NovaMedica,LLC and the Company. (Incorporated by reference to Exhibit 10.8 to Form S-1 registration statementfiled on May 12, 2014.)10.9Form of Amended and Restated Indemnification Agreement (VC Directors). (Incorporated by referenceto Exhibit 10.10 to Form S-1 registration statement filed on May 12, 2014.)10.10Form of Amended and Restated Indemnification Agreement (Non-VC Directors). (Filed herewith.)10.11*Amended and Restated Agreement dated as of May 23, 2008 between the Company and PurdueNeuroscience Company. (Incorporated by reference to Exhibit 10.12 to Form S-1 registration statementfiled on May 12, 2014.)10.12+Marinus Pharmaceuticals, Inc. 2014 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.1 toForm 10-Q quarterly report filed on November 9, 2020.)10.13+Marinus Pharmaceuticals, Inc. Change in Control Severance Plan effective November 7, 2016.(Incorporated by reference to Exhibit 10.1 to Form 10-Q quarterly report filed on November 8, 2016.)10.14First Amendment to Lease agreement dated as of December 28, 2015 between Radnor Properties-SDC,L.P. and Marinus Pharmaceuticals, Inc. amending Lease agreement dated as of October 14, 2014 betweenRadnor Center Associates and Marinus Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.1to Form 8-K current report filed on January 4, 2016.)10.15License Agreement by and between Marinus Pharmaceuticals, Inc. and CyDex Pharmaceuticals, Inc.,dated March 31, 2017. (Incorporated by reference to Exhibit 10.1 to Form 8-K current report filed onApril 6, 2017.)10.16Supply Agreement by and between Marinus Pharmaceuticals, Inc. and CyDex Pharmaceuticals, Inc.,dated March 31, 2017. (Incorporated by reference to Exhibit 10.2 to Form 8-K current report filed onApril 6, 2017.)10.17Second Amendment to Lease agreement dated as of December 7, 2018 between Radnor Properties-SDC,L.P., Radnor Center Associates and Marinus Pharmaceuticals, Inc, amending Lease agreement, asamended, dated as of December 28, 2015 between Radnor Properties-SDC, L.P. and MarinusPharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.1 to Form 8-K current report filed onDecember 7, 2018.)10.18+Amended and Restated Employment Agreement dated as of August 6, 2019, between the Company andScott Braunstein, M.D. (Incorporated by reference to Exhibit 10.1 to Form 8-K current report filed onAugust 8, 2019).10.19+Employment Agreement dated as of October 25, 2019, between Joe Hulihan, M.D. and MarinusPharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.1 to Form 8-K current report filed onOctober 29, 2019).10.20+Employment Agreement dated as of June 15, 2020 between the Company and Martha Manning.(Incorporated by reference to Exhibit 10.22 to Form 10-K annual report filed on March 9, 2021).10.21Securities Purchase Agreement, dated December 11, 2019, by and between the Company and theInvestors listed therein. (Incorporated by reference to Exhibit 10.1 to Form 8-K current report filed onDecember 13, 2019).10.22Equity Distribution Agreement, dated July 9, 2020, by and between the Company and JMP SecuritiesLLC. (Incorporated by reference to Exhibit 1.1 to Form S-3 registration statement filed on July 9, 2020.)Table of Contents102ExhibitNo. Description of Exhibit10.23*Contract, dated September 8, 2020, by and between the Company and the Biomedical AdvancedResearch and Development Authority, a division of the U.S. Department of Health and HumanServices’ Office of the Assistant Secretary for Preparedness and Response. (Incorporated by referenceto Exhibit 10.3 to Form 10-Q quarterly report filed on November 9, 2020.)10.24Credit Agreement and Guaranty, dated May 11, 2021, by and among Marinus Pharmaceuticals, Inc., asBorrower, Oaktree Fund Administration, LLC, as Administrative Agent, and the other lenders partythereto. (Incorporated by reference to Exhibit 10.1 to Form 10-Q quarterly report filed on May 17, 2021.)10.25Security Agreement, dated May 11, 2021, by and among Marinus Pharmaceuticals, Inc., as Grantor, andOaktree Fund Administration, LLC, as Administrative Agent. (Incorporated by reference to Exhibit 10.2to Form 10-Q quarterly report filed on May 17, 2021.)10.26Letter Agreement, dated May 17, 2021, by and among Marinus Pharmaceuticals, Inc., as Borrower,Oaktree Fund Administration, LLC, as Administrative Agent, and the other lenders party thereto.(Incorporated by reference to Exhibit 10.3 to Form 10-Q quarterly report filed on May 17, 2021.)10.27*Collaboration Agreement, dated as of July 30, 2021, by and between Marinus Pharmaceuticals, Inc. andOrion Corporation. (Incorporated by reference to Exhibit 10.1 to Form 10-Q quarterly report filed onNovember 9, 2021.)10.28+Form of Incentive Stock Option Agreement for Employees under the Marinus Pharmaceuticals, Inc.2014 Equity Incentive Plan, as amended. (Incorporated by reference to Exhibit 10.2 to Form 10-Qquarterly report filed on November 9, 2021.)10.29+Form of Nonqualified Stock Option Agreement for Employees under the Marinus Pharmaceuticals, Inc.2014 Equity Incentive Plan, as amended. (Incorporated by reference to Exhibit 10.3 to Form 10-Qquarterly report filed on November 9, 2021.)10.30+Form of Nonqualified Stock Option Agreement for Non-Employee Directors under the MarinusPharmaceuticals, Inc. 2014 Equity Incentive Plan, as amended. (Incorporated by reference to Exhibit 10.4to Form 10-Q quarterly report filed on November 9, 2021.)10.31+Form of Nonqualified Stock Option Agreement for Employees granted as an Inducement Award.(Incorporated by reference to Exhibit 10.5 to Form 10-Q quarterly report filed on November 9, 2021.)10.32+Form of Restricted Stock Unit Agreement for Employees under the Marinus Pharmaceuticals, Inc. 2014Equity Incentive Plan, as amended. (Incorporated by reference to Exhibit 10.6 to Form 10-Q quarterlyreport filed on November 9, 2021.)10.33+Form of Restricted Stock Unit Agreement for Non-Employee Directors under the MarinusPharmaceuticals, Inc. 2014 Equity Incentive Plan, as amended. (Incorporated by reference to Exhibit 10.7to Form 10-Q quarterly report filed on November 9, 2021.)10.34+Form of Restricted Stock Unit Agreement containing a Sell to Cover Election for Employees under theMarinus Pharmaceuticals, Inc. 2014 Equity Incentive Plan, as amended. (Filed herewith.)10.35+Form of Restricted Stock Unit Agreement for Employees granted as an Inducement Award, under theMarinus Pharmaceuticals, Inc. 2014 Equity Incentive Plan, as amended. (Filed herewith)10.36+Form of Restricted Stock Unit Agreement containing a Sell to Cover Election for Employees granted asan Inducement Award, under the Marinus Pharmaceuticals, Inc. 2014 Equity Incentive Plan, as amended.(Filed herewith)10.37*License Agreement, dated March 1, 2022, by and between Marinus Pharmaceuticals, Inc. and OvidTherapeutics Inc. (Incorporated by reference to Exhibit 10.1 to Form 8-K current report filed on March 3,2022.)16.1Letter of KPMG LLC dated as of June 17, 2020 to the Securities and Exchange Commission.(Incorporated by reference to Exhibit 16.1 to Form 8-K current report filed on June 17, 2020.)21Subsidiaries of the Registrant. (Filed herewith.)23.1Consent of Ernst & Young LLP. (Filed herewith.)31.1Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)31.2Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)32.1Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Furnished herewith.)Table of Contents103ExhibitNo. Description of Exhibit101.INSXBRL Instance Taxonomy – the instance document does not appear in the Interactive Data file becauseits XBRL tags are embedded within the Inline XBRL document.101.SCHXBRL Taxonomy Extension Schema Document101.CALXBRL Taxonomy Extension Calculation Linkbase Document101.DEFXBRL Taxonomy Extension Definition Linkbase Document101.LABXBRL Taxonomy Extension Labels Linkbase Document101.PREXBRL Taxonomy Extension Presentation Linkbase Document104Cover Page Interactive Data File formatted as Inline XBRL and contained in Exhibit 101+ Indicates management contract or compensatory plan.* Portions of this exhibit (indicated by asterisks) have been omitted in compliance with Item 601 of Regulation S-K.(c) None.Item 16. Form 10-K SummaryNone.Table of Contents104SIGNATURESIn accordance with the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.Marinus Pharmaceuticals, Inc.Date:March 24, 2022By:/s/ Scott BraunsteinScott BraunsteinChief Executive Officer and DirectorPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on the dates indicated:Name Capacity Date/s/ Scott Braunstein, M.D.President, Chief Executive OfficerMarch 24, 2022Scott Braunstein, M.D.(Principal Executive Officer) and Director/s/ Steven PfanstielVice President, Chief Financial OfficerMarch 24, 2022Steven Pfanstieland Treasurer (Principal Financialand Accounting Officer)/s/ Nicole VitulloChairman of the Board and DirectorMarch 24, 2022Nicole Vitullo/s/ Santiago Arroyo, M.D.,Ph.D.DirectorMarch 24, 2022Santiago Arroyo, M.D., Ph.D./s/ Charles AustinDirectorMarch 24, 2022Charles Austin/s/ Michael R. DoughertyDirectorMarch 24, 2022Michael R. Dougherty/s/ Elan EzicksonDirectorMarch 24, 2022Elan Ezickson/s/ Seth H.Z. FischerDirectorMarch 24, 2022Seth H.Z. Fischer/s/ Tim M. MaylebenDirectorMarch 24, 2022Tim M. Mayleben/s/ Saraswathy V. Nochur, Ph.D.DirectorMarch 24, 2022Saraswathy V. Nochur, Ph.D.Table of ContentsF-1CONSOLIDATED FINANCIAL STATEMENTSMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYINDEX TO FINANCIAL STATEMENTSCONTENTS PageReport of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID:42)F-2Consolidated Balance SheetsF-5Consolidated Statements of Operations and Comprehensive LossF-6Consolidated Statements of Stockholders’ EquityF-7Consolidated Statements of Cash FlowsF-8Notes to Consolidated Financial StatementsF-9Table of ContentsF-2Report of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Marinus Pharmaceuticals, Inc.,Opinion on Financial StatementsWe have audited the accompanying consolidated balance sheets of Marinus Pharmaceuticals, Inc. and subsidiaries (theCompany) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensiveloss, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all materialrespects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations andits cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.The Company’s Ability to Continue as a Going ConcernThe accompanying consolidated financial statements have been prepared assuming that the Company will continue as agoing concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses fromoperations and has stated that substantial doubt exists about the Company’s ability to continue as a going concern.Management's evaluation of the events and conditions and management’s plans regarding these matters are alsodescribed in Note 1. The consolidated financial statements do not include any adjustments that might result from theoutcome of this uncertainty.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on the Company’s financial statements based on our audits. We are a public accounting firm registered withthe Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations ofthe Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,an audit of its internal control over financial reporting. As part of our audits, we are required to obtain anunderstanding of internal control over financial reporting but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the financial statements,whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits alsoincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluatingthe overall presentation of the financial statements. We believe that our audits provide a reasonable basis for ouropinion.Critical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the financialstatements that were communicated or required to be communicated to the audit committee and that: (1) relate toaccounts or disclosures that are material to the financial statements and (2) involved our especially challenging,subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinionon the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersbelow, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.Table of ContentsF-3Clinical Trial Prepaid and Accrued ExpensesDescription of theMatterAs disclosed in Note 2 to the consolidated financial statements, the Company expenses researchand development costs as incurred, which include costs relating to contracts with vendors,clinical research organizations and consultants and under clinical site agreements. TheCompany estimates the prepaid and accrued expenses based on the services received and effortsexpended in relation to amounts invoiced by and paid to contract research organizations andother third-party vendors at the balance sheet date. The Company’s clinical trial prepaidexpenses at December 31, 2021 are included in prepaid expenses and other current assets of$5.6 million on the consolidated balance sheet, the Company’s clinical trial accrued expenses atDecember 31, 2021 of $8.2 million are included in accrued expenses on the consolidatedbalance sheet, and the Company’s related 2021 clinical trial expenses are included in researchand development expenses of $73.5 million on the consolidated statement of operations andcomprehensive loss for the year ended December 31, 2021.Auditing the Company’s clinical trial prepaid and accrued expenses involved complex andsubjective auditor judgment due to the estimation required by management in determining theprogress to completion of services that have been performed by the service providers and theassociated costs that will be invoiced by the service providers subsequent to the date that thefinancial statements are issued.How We Addressedthe Matter in OurAuditTo test the clinical trial prepaid and accrued expenses, our audit procedures included, amongothers, reviewing a sample of agreements with the service providers to corroborate keyfinancial and contractual terms, and testing the accuracy and completeness of the underlyingdata used in the prepaid and accrued expense computations. We also evaluated management’sestimates of the progress of a sample of clinical trials by making direct inquiries of theCompany’s operations personnel that oversee the clinical trials and obtaining informationdirectly from certain service providers about the service providers’ estimate of costs that hadbeen incurred through December 31, 2021. Additionally, we assessed the historical accuracy ofmanagement’s estimates when evaluating the current period estimates. To evaluate thecompleteness of the prepaid and accrued expenses, we also examined subsequent invoices fromthe service providers and cash disbursements to the service providers, to the extent suchinvoices were received, or payments were made prior to the date that the financial statementswere issued.Table of ContentsF-4Accounting of Orion Collaboration AgreementDescription of theMatterAs described in Notes 1 and 11 to the consolidated financial statements, the Company enteredinto a collaboration agreement with Orion Corporation (Orion) in July 2021, under which itidentified three distinct performance obligations: (i) exclusive rights to develop, use, sell, havesold, offer for sale and import any product comprised of Licensed Product (the “License”) (ii)development and regulatory activities, and (iii) requirement to supply Orion with the LicensedProduct at an agreed upon price (the “Supply of Licensed Product”) (collectively, the “distinctperformance obligations”). The Company allocated the transaction price to each distinctperformance obligation on a relative standalone selling price basis and is recognizing revenuewhen control of each distinct performance obligation is transferred. The Company recognizedcollaboration revenue related to the arrangement of $9 million for the year ended December 31,2021 on the consolidated statement of operations and comprehensive loss. The Company’scontract asset, presented net of any contract liability, related to this arrangement is $0.6 millionas of December 31, 2021 and is included in contract asset on the consolidated balance sheet.Auditing the Company’s accounting for the collaboration agreement with Orion involvedcomplex and subjective auditor judgment due to the significant estimation uncertainty involvedin determining the standalone selling price for each distinct performance obligation. For theLicense, this included estimating the probability and timing of successfully completing clinicaltrials and obtaining product approval, estimating the amount of future product sales andapplying an appropriate discount rate. For the development and regulatory activities and theSupply of Licensed Product, this included estimating future costs to be incurred.How We Addressedthe Matter in OurAuditTo test the estimated standalone selling price of the distinct performance obligations includedin the Orion agreement, we performed audit procedures that included, among others, testing thesignificant assumptions used to develop the estimates and evaluating the completeness andaccuracy of the underlying data used by the Company in its analyses. For example, to test theestimated amount of future product sales, we compared the estimated size of the addressablepatient population to industry data that tracks healthcare information, and we compared theanticipated pricing information to a third-party market analysis. We compared the probability ofsuccessfully completing clinical trials and obtaining product approval to studies published inmedical journals evaluating clinical advancement and approval rates for similar products. Totest the projected product cost assumptions, we inspected the underlying cost build-up andcompared the underlying costs to third-party price quotes. To test the projected cost ofdevelopment and regulatory activities, we compared management’s estimates to the Company’shistorical spending on similar projects. We also involved internal valuation specialists to assistin our evaluation of the discount rates used by the Company./s/ Ernst & Young LLPWe have served as the Company’s auditor since 2020.Philadelphia, PennsylvaniaMarch 24, 2022Table of ContentsF-5MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts)December 31, December 31,20212020ASSETS Current assets:Cash and cash equivalents$122,927$138,509Short-term investments—1,474Accounts receivable2,6291,646Contract asset557—Prepaid expenses and other current assets 5,565 4,638Total current assets 131,678 146,267Property and equipment, net 2,499 1,945Other assets 2,663 2,250Total assets$136,840$150,462LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Accounts payable$3,126$2,211Refund liability 21,233 —Accrued expenses16,2078,518Total current liabilities 40,566 10,729Notes payable, net of deferred financing costs40,809—Other long-term liabilities1,9792,534Total liabilities83,35413,263Stockholders’ equity:Series A convertible preferred stock, $0.001 par value; 25,000,000 sharesauthorized, 4,575 shares issued and outstanding at December 31, 2021 and4,753 issued and outstanding at December 31, 20204,3024,469Common stock, $0.001 par value; 150,000,000 shares authorized,36,797,561 issued and 36,790,254 outstanding at December 31, 2021 and36,585,767 issued and 36,578,460 outstanding at December 31, 2020 37 37Additional paid-in capital 459,852 444,622Treasury stock at cost, 7,307 shares at December 31, 2021 and 2020 — —Accumulated deficit (410,705) (311,929)Total stockholders’ equity 53,486 137,199Total liabilities and stockholders’ equity$136,840$150,462See accompanying notes to financial statements.Table of ContentsF-6MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(In thousands, except share and per share amounts)Year Ended December 31,20212020Revenue: Federal contract revenue $6,358 $1,718Collaboration revenue 8,987 —Total revenue15,3451,718Expenses:Research and development73,52051,106General and administrative37,27818,549Cost of collaboration revenue 1,478 —Total expenses 112,276 69,655Loss from operations (96,931) (67,937)Interest income 80 499Interest expense (2,582) —Other income (expense), net 657 (37)Net loss and comprehensive loss$(98,776)$(67,475)Deemed dividends on convertible preferred stock—(8,880)Net loss applicable to common shareholders$(98,776)$(76,355)Per share information:Net loss per share of common stock—basic and diluted$(2.69)$(2.80)Basic and diluted weighted average shares outstanding 36,697,171 27,270,055See accompanying notes to financial statements.Table of ContentsF-7MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In thousands, except share and per share amounts)Accumulated Series AAdditionalOtherTotal Convertible Preferred StockCommon StockPaid-in Treasury StockComprehensiveAccumulated Stockholders’ Shares Amount Shares Amount Capital Shares Amount Income Deficit EquityBalance, December 31, 2019—$—21,617,781$22$295,1217,307$—$—$(235,574)$59,569Stock-based compensation expense————7,642————7,642Exercise of stock options——198,475—1,020————1,020Issuance of restricted stock——33,997———————Deemed dividend on beneficial conversionfeature - Series A convertible preferred stock————8,880———(8,880)—Issuance of common stock under equitydistribution agreement, net of expenses of$161——78,807—489————489Issuance of common stock in connection withfollow-on public offering ($10 per share), netof expenses of $3,025 ——4,600,000542,956————42,961Transfer of convertible preferred stock intoequity 9,3038,745———————8,745Conversion of convertible preferred stock intocommon (4,550)(4,276)5,049,400523,727————19,456Issuance of common stock in connection withfollow-on public offering ($14 per share), netof expenses of $5,208——5,000,000564,787————64,792Net loss————————(67,475)(67,475)Balance, December 31, 20204,753$4,46936,578,460$37$444,6227,307$—$—$(311,929)$137,199Stock-based compensation expense————13,867————13,867Exercise of stock options——176,194—1,199————1,199Financing costs————(3)————(3)Conversion of convertible preferred stock intocommon(178)(167)35,600—167—————Net loss————————(98,776)(98,776)Balance, December 31, 20214,575$4,302 36,790,254$37$459,852 7,307$— $—$(410,705)$53,486See accompanying notes to financial statements.Table of ContentsF-8MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)Year Ended December 31, 20212020 Cash flows from operating activities Net loss$(98,776)$(67,475)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization 355 334Amortization of debt issuance costs549—Stock-based compensation expense 13,867 7,642Noncash contract asset(105)—Noncash lease expense 312 264Noncash lease liability309362Loss on fixed assets held for sale243—Unrealized gain on foreign currency transactions(930)Amortization of discount on investments—3Changes in operating assets and liabilities:Refund liability22,163—Contract asset (452) —Prepaid expenses and other current assets, non-current assets, andaccounts receivable (853) (3,919)Accounts payable, accrued expenses and other long term-liabilities 7,841 1,877Net cash used in operating activities (55,477) (60,912)Cash flows from investing activitiesMaturities of short-term investments 1,474 8,193Purchases of short-term investments—(8,931)Deposit on property and equipment(1,793)—Purchases of property and equipment (1,096) —Net cash used in investing activities (1,415) (738)Cash flows from financing activitiesProceeds from exercise of stock options 1,199 1,020Proceeds from notes payable, net of issuance costs40,259—Financing costs, paid(148)—Proceeds from equity offerings, net of offering costs—108,196Net cash provided by financing activities 41,310 109,216Net (decrease) increase in cash and cash equivalents (15,582) 47,566Cash and cash equivalents—beginning of period 138,509 90,943Cash and cash equivalents—end of period$122,927$138,509Supplemental disclosure of cash flow informationContractual exit fee included in notes payable$900$—Property and equipment in accrued expenses$43$—Financing in accounts payable and accrued expenses$—$148See accompanying notes to financial statements.Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-91. Organization and Description of the BusinessWe are a pharmaceutical company focused on the development and commercialization of products for patients suffering from rare genetic epilepsies and other seizure disorders. On March 18, 2022, the U.S Food and Drug Administration (FDA) approved our new drug application (NDA) for the use of ZTALMY® (ganaxolone) oral suspension for the treatment of seizures associated with cyclin-dependent kinase-like 5 (CDKL5) deficiency disorder (CDD) in patients 2 years of age and older. This is our first FDA-approved product which we plan to commercialize inthe United States. We also plan to continue to develop ganaxolone for other rare genetic epilepsies and for a numberof additional indications including seizure disorders.The continued global spread of COVID-19, including the Omicron variant, has impacted our clinical operations and timelines. For example, our Phase 3 Randomized Therapy In Status Epilepticus (SE) Trial (RAISE trial) in refractory status epilepticus (RSE) is conducted in hospitals, including intensive care units and academic medical centers, which have experienced high rates of COVID-19 admissions. Several academic medical centers and intensive care units participating in the RAISE trial have experienced COVID-related difficulties, including staff turnover and the need to devote significant resources to patients with COVID-19, which has resulted in site initiation and enrollment delays for the RAISE trial. Given these COVID-19-related challenges and a temporary pause beginning in February 2022 of the RAISE trial after routine monitoring of stability batches of clinical supply material indicated that it became necessary to reduce the shelf life to less than the anticipated 24-months to meet product stability testing specifications, we now expect our top-line data readout for the RAISE trial to be available in the second half of 2023. In addition, our ganaxolone clinical trials in the outpatient setting may be negatively impacted if patients and their caregivers do not want to participate while the COVID-19 pandemic persists. The duration and severity of the pandemic and its long-term impact on our business are uncertain at this time.LiquidityWe have not generated any product revenues and have incurred operating losses since inception, includinglosses of $98.8 million for the year ended December 31, 2021. There is no assurance that profitable operations will ever be achieved, and if achieved, could be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing, and commercialization of ganaxolone will require significant additional financing. Our accumulated deficit as of December 31, 2021 was $410.7 million and we expect to incur substantial losses in future periods. We plan to finance our future operations with a combination of proceeds from the issuance of equity securities, the issuance of debt, government funding, collaborations, licensing transactions and other commercial transactions or other sources, such as our Priority Review Voucher, and revenues from future product sales, if any. We have not generated positive cash flows from operations, and there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of ganaxolone. On July 30, 2021, we entered into a collaboration agreement (Orion Collaboration Agreement) with Orion Corporation (Orion), whereby Orion received exclusive rights to commercialize the oral and IV dose formulations of ganaxolone in the European Economic Area, United Kingdom and Switzerland in multiple seizure disorders, including CDD, tuberous sclerosis complex (TSC) and RSE. Under the agreement, we received a €25 million ($29.6 million)upfront fee and are eligible to receive up to an additional €97 million in R&D reimbursement and cash milestonepayments based on specific clinical and commercial achievements, as well as tiered royalty payments based on net salesranging from the low double digits to the high teens for the oral programs and the low double-digits to the lowtwenties for the IV programs. In connection with the upfront fee, we agreed to provide Orion with the results of anongoing genotoxicity study on the M2 metabolite of ganaxolone, a “Combined Micronucleus & Comet study in vivo.”In the event that the results of such study were positive, based on the criteria set forth in the study’s protocol, Orionwould have had the right to terminate the Orion Collaboration Agreement within ninety (90) days after its receipt ofthe final report of such study, in which case we would have been required to refund Orion seventy-five percent (75%)of the upfront fee. In the event of such termination and refund, Orion would have had no further rights pursuant to theoral and IV dose formulations of ganaxolone and the Orion Collaboration Agreement would have terminated and beenof no further forceTable of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-10or effect. In February 2022, the verified draft study report showed that no genotoxicity was found, as measured byformation of micronuclei in the bone marrow or comet morphology in the liver. As such, but subject to confirmationof such results in the final study report expected by the end of the second quarter of 2022, and subsequent to the dateof these financial statements, we will not be required to refund Orion any of the upfront fee and Orion will not have aright to terminate the Orion Collaboration Agreement as a result of the study’s findings.On May 11, 2021 (Closing Date), we entered into a Credit Agreement and Guaranty (as amended by thatcertain letter agreement on May 17, 2021, the Credit Agreement) with Oaktree Fund Administration, LLC, asadministrative agent and the lenders party thereto that provides for a five-year senior secured term loan facility in anaggregate original principal amount of up to $125.0 million available to us in five tranches (collectively, the Term Loans). Refer to Note 9. Notes Payable for additional information.In September 2020, we entered into a contract (BARDA Contract) with the Biomedical Advanced Researchand Development Authority (BARDA), a division of the U.S. Department of Health and Human Services’ Office ofthe Assistant Secretary for Preparedness and Response. Under the BARDA Contract, we received an award of up toan estimated $51 million for development of IV-administered ganaxolone for the treatment of RSE. The BARDAContract provides for funding to support, on a cost-sharing basis, the completion of a Phase 3 clinical trial of IV-administered ganaxolone in patients with RSE, which covers the RAISE trial, funding of pre-clinical studies toevaluate IV-administered ganaxolone as an effective treatment for RSE due to chemical nerve gas agent exposure, andfunding of certain ganaxolone manufacturing scale-up and regulatory activities.The BARDA Contract consists of an approximately two-year base period during which BARDA willprovide up to approximately $21 million of funding for the RAISE trial on a cost share basis and funding ofadditional preclinical studies of ganaxolone in nerve agent exposure models. Following successful completion of theRAISE trial and preclinical studies in the base period, the BARDA Contract provides for approximately $30 million ofadditional BARDA funding for three options in support of ganaxolone manufacturing, supply chain, clinical,regulatory and toxicology activities. Under the BARDA Contract, we will be responsible for cost sharing in theamount of approximately $33 million and BARDA will be responsible for approximately $51 million, if alldevelopment options are completed. The contract period-of-performance (base period plus option exercises) is up toapproximately five years.In connection with the closing of an equity financing in December 2020, we issued a total of 5,000,000shares of common stock in an underwritten public offering resulting in aggregate net proceeds, after underwritingdiscounts and commissions in the public offering and other estimated offering expenses, of $64.8 million.In connection with the closing of an equity financing in June 2020, we issued a total of 4,600,000 shares ofcommon stock in an underwritten public offering resulting in aggregate net proceeds, after underwriting discounts andcommissions in the public offering and other estimated offering expenses, of $43.0 million.Management’s operating plan which underlies the analysis of our ability to continue as a going concerninvolves the estimation of the amount and timing of future cash inflows and outflows. Actual results could vary fromthe operating plan. We follow the provisions of Financial Accounting Standards Board (FASB) Accounting StandardsCodification (ASC) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires managementto assess our ability to continue as a going concern within one year after the date the financial statements are issued.Our balance of cash and cash equivalents on hand as of December 31, 2021, excluding the $20.0 million liquidity requirement associated with our Note Payable (Note 10), is not sufficient to fund operations for the one-year period after the date the financial statements are issued. As a result, there is substantial doubt about our ability to continue as a going concern through the one-year period from the date these financial statements are issued. Management’s plans that are intended to mitigate this risk include the monetization of our Priority Review Voucher and additional financing or strategic transactions. Management’s plans may also include drawing down Tranche B ($30.0 million) associatedwith our Note Payable and the possible deferral of certain operating expenses unless additional capital is received. WehaveTable of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-11and will continue to evaluate available alternatives to extend our operations beyond the one-year period after the datethe financial statements are issued.Reverse stock splitOn September 23, 2020, we effected a 1-for-4 reverse split of shares of our common stock (Reverse Split),as approved by our board of directors and stockholders. The par value per share of our common stock was notadjusted as a result of the Reverse Split, and our authorized shares of common stock was reduced to 150,000,000. All of the share and per share amounts included in the accompanying financial statements and these notes have been adjusted to reflect the Reverse Split.2. Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe financial statements include the accounts of Marinus Pharmaceuticals, Inc. (the Company) and itswholly-owned subsidiary as of December 31, 2021. During the year ended December 31, 2020, a wholly-ownedsubsidiary was liquidated. In February 2021, a new wholly-owned subsidiary was established in Ireland. Allintercompany accounts and transactions have been eliminated.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles (GAAP)requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from such estimates.Segment InformationOperating segments are defined as components of an enterprise about which separate discrete information isavailable for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocateresources and in assessing performance. We view our operations and manage our business in one segment, which isthe identification and development of innovative therapeutics to treat rare seizure disorders.Fair Value of Financial Instruments and Credit RiskAt December 31, 2021, our financial instruments included cash equivalents, accounts payable, accruedexpenses, and notes payable. At December 31, 2020, our financial instruments included cash equivalents, short-terminvestments, accounts payable and accrued expenses. The carrying amount of cash equivalents, accounts payable andaccrued expenses approximated fair value, given their short-term nature. The carrying amounts of short-terminvestments are recorded at amortized cost, which for U.S. Treasury securities is based on the current market price ofeach security at the measurement date. The carrying value of the notes payable approximates fair value as the interestrate is reflective of current market rates on debt with similar terms and conditions.Cash equivalents and certificates of deposit subject us to concentrations of credit risk. However, we investour cash in accordance with a policy objective that seeks to ensure both liquidity and safety of principal. The policylimits investments to instruments issued by the U.S. government, certain Securities and Exchange Commission (SEC)-registered money market funds that invest only in U.S. government obligations and various other low-risk liquidinvestment options, and places restrictions on portfolio maturity terms.Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-12Cash and Cash EquivalentsWe consider all highly liquid investments that have maturities of three months or less when acquired to becash equivalents. As of December 31, 2021 and 2020, we invested a portion of our cash balances in money marketinvestments, which we have included as cash equivalents on our balance sheets.InvestmentsWe did not have any investments as of December 31, 2021. As of December 31, 2020, our investmentsconsisted of certificates of deposit with various financial institutions, with original maturities ranging from six to ninemonths. All investments were classified as held-to-maturity and were recorded at amortized cost. Interest incomeincludes interest and dividends, realized gains and losses on sales of securities, if any.Accounts ReceivableAccounts receivable represents amounts due to us under the BARDA contract for valid expendituresexpected to be reimbursed to us under the terms of the BARDA contract and current amounts due to us from OrionCorporation under our collaboration agreement (Note 11).Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets generally represent payments made for goods or services to bereceived within one year, and are expensed as the related benefit is received.Property and EquipmentProperty and equipment consist of laboratory and office equipment and are recorded at cost. Property andequipment are depreciated on a straight-line basis over their estimated useful lives. We estimate a life of three yearsfor computer equipment, including software, five years for office equipment and furniture, five to fifteen years forlaboratory equipment, and six years for leasehold improvements. When property and equipment are sold or otherwisedisposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or lossis included in operating expenses.Impairment of Long-Lived AssetsWe review long-lived assets, including property and equipment, for impairment whenever events or changesin business circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the estimatedundiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than itscarrying amount an impairment loss would be recognized if the carrying value of the asset exceeded its fair value. Fairvalue is generally determined using discounted cash flows.Income TaxesWe recognize deferred tax assets and liabilities for temporary differences between the financial reportingbasis and the tax basis of our assets and liabilities and the expected benefits of net operating loss carryforwards. Theimpact of changes in tax rates and laws on deferred taxes, if any, applied during the years in which temporarydifferences are expected to be settled, is reflected in the financial statements in the period of enactment. Themeasurement of deferred tax assets is reduced, if necessary, if, based on weight of the evidence, it is more likely thannot that some, or all, of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in the period that such tax rate changes are enacted. At December 31, 2021 and 2020,we have concluded thatTable of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-13a full valuation allowance is necessary for our net deferred tax assets. We had no material amounts recorded foruncertain tax positions, interest or penalties in the accompanying financial statements.Debt Issuance CostsDebt issuance costs incurred in connection with Note payable (Note 10) are amortized to interest expenseover the term of the respective financing arrangement using the effective-interest method. Debt issuance costs, net ofrelated amortization are deducted from the carrying value of the related debt.Contract LiabilityWhen consideration is received, or such consideration is unconditionally due, from a customer prior tocompleting our performance obligation to the customer under the terms of a contract, a contract liability is recorded.Contract liabilities expected to be recognized as revenue or a reduction of expense within the 12 months following thebalance sheet date are classified as current liabilities. Contract liabilities not expected to be recognized as revenuewithin the 12 months following the balance sheet date are classified as long-term liabilities. In accordance with ASC210-20, our contract liability is offset by a contract asset as further discussed in Note 11.Federal Contract RevenueWe recognize federal contract revenue from the BARDA Contract in the period in which the allowable research and development expenses are incurred, and receivables associated with this revenue are included within accounts receivable on our balance sheets. This revenue is not within the scope of Accounting Standards Codification (ASC) 606 – Revenue from contracts with customers.Collaboration and Licensing RevenueWe may enter into collaboration and licensing arrangements for research and development, manufacturing,and commercialization activities with counterparties for the development and commercialization of our productcandidates. These arrangements may contain multiple components, such as (i) licenses, (ii) research and developmentactivities, and (iii) the manufacturing of certain material. Payments pursuant to these arrangements may include non-refundable and refundable payments, payments upon the achievement of significant regulatory, development andcommercial milestones, sales of product at certain agreed-upon amounts, and royalties on product sales. The amount ofvariable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in afuture period.In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under acollaboration agreement, we perform the following steps: (i) identification of the promised goods or services in thecontract; (ii) determination of whether the promised goods or services are performance obligations, including whetherthey are capable of being distinct; (iii) measurement of the transaction price, including the constraint on variableconsideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue aswe satisfy each performance obligation.We must develop estimates and assumptions that require judgment to determine the underlying stand-aloneselling price for each performance obligation, which determines how the transaction price is allocated among theperformance obligations. The estimation of the stand-alone selling price may include such estimates as forecastedrevenues and costs, development timelines, discount rates and probabilities of regulatory and commercial success. Wealso apply significant judgment when evaluating whether contractual obligations represent distinct performanceobligations, allocating transaction price to performance obligations within a contract, determining when performanceobligations have been met, assessing the recognition and future reversal of variable consideration and determining andapplying appropriate methods of measuring progress for performance obligations satisfied over time.Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-14Research and DevelopmentResearch and development costs are expensed as incurred. Costs for certain development activities, such asclinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such assubject enrollment, monitoring visits, clinical site activations, or information provided to us by our vendors withrespect to their actual costs incurred. Payments for these activities are based on the terms of the individualarrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements asprepaid or accrued research and development expense, as the case may be.Clinical Trial ExpensesAs part of the process of preparing our financial statements, we are required to estimate our expensesresulting from our obligations under contracts with vendors, clinical research organizations and consultants and underclinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subjectto negotiations, which vary from contract to contract and may result in payment flows that do not match the periodsover which materials or services are provided under such contracts. Our objective is to reflect the appropriate trialexpenses in our financial statements by matching those expenses with the period in which services are performed andefforts are expended. We account for these expenses according to the progress of the trial as measured by patientprogression and the timing of various aspects of the trial. We determine accrual estimates based on estimates ofservices received and efforts expended that take into account discussion with applicable personnel and outside serviceproviders as to the progress or state of consummation of trials. During the course of a clinical trial, we adjust ourclinical expense recognition if actual results differ from its estimates. We make estimates of our accrued expenses asof each balance sheet date based on the facts and circumstances known at that time. Our clinical trial accruals aredependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.Although we do not expect our estimates to be materially different from amounts actually incurred, our understandingof the status and timing of services performed relative to the actual status and timing of services performed may varyand may result in reporting amounts that are too high or too low for any particular period. For the years endedDecember 31, 2021 and 2020 there were no material adjustments to our prior period estimates of accrued expenses forclinical trials.Stock-Based CompensationWe account for stock-based compensation in accordance with the provisions of Accounting StandardsCodification (ASC) Topic 718, Compensation—Stock Compensation, or ASC 718, which requires the recognition ofexpense related to the fair value of stock-based awards in the statements of operations. For stock options issued toemployees, non-employees and members of our board of directors for their services on our board of directors, weestimate the grant-date fair value of options using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of theoption, the expected volatility of the common stock consistent with the expected life of the option, risk-free interestrates, and, for grants prior to our initial public offering, the value of the common stock. For restricted stock awards,the grant date fair value is determined by the closing market price of our common stock on the date of grant. Forawards subject to time-based vesting, we recognize stock-based compensation expense, on a straight-line basis overthe requisite service period, which is generally the vesting term of the award. For awards subject to performance-basedvesting conditions, we recognize stock-based compensation expense when it is probable that the performancecondition will be achieved.Loss Per Share of Common StockBasic loss per share is computed by dividing net loss applicable to common stockholders by the weightedaverage number of shares of common stock outstanding during each period. Diluted loss per share includes the effect,if any, from the potential exercise or conversion of securities, such as convertible preferred stock, stock options, andunvested restricted stock, which would result in the issuance of incremental shares of common stock. In computing thebasic and diluted netTable of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-15loss per share applicable to common stockholders, the weighted average number of shares remains the same for bothcalculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation. Thesepotentially dilutive securities are more fully described in Note 8.The following table sets forth the computation of basic and diluted earnings per share for the years endedDecember 31, 2021 and 2020 (in thousands, except share and per share amounts):Year Ended December 31, 2021 2020Basic and diluted net loss per share of common stock: Net loss$(98,776)$(67,475)Deemed Dividends—(8,880)Net loss applicable to common stockholders$(98,776)$(76,355)Weighted average shares of common stock outstanding 36,697,171 27,270,055Net loss per share of common stock—basic and diluted$(2.69)$(2.80)The following potentially dilutive securities (common stock equivalents) have been excluded from thecomputation of diluted weighted average shares outstanding, as they would be antidilutive:December 31, 20212020Convertible preferred stock 915,000 950,600 Restricted stock 26,025 24,625 Stock options 4,738,855 3,507,638 Total 5,679,880 4,482,863 The convertible preferred stock meets the definition of a participating security; however, the holders are notobligated to share in our losses. As of December 31, 2021 and 2020, we had no other potentially dilutive securities.3. Fair Value MeasurementsFASB accounting guidance defines fair value as the price that would be received to sell an asset or paid totransfer a liability (exit price) in an orderly transaction between market participants at the measurement date. Theaccounting guidance outlines a valuation framework and creates a fair value hierarchy in order to increase theconsistency and comparability of fair value measurements and the related disclosures. In determining fair value, we usequoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing theasset or liability based on market data obtained from independent sources.The fair value hierarchy is broken down into three levels based on the source of inputs as follows:●Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets orliabilities.●Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assetsand liabilities.●Level 3—Valuations based on inputs that are unobservable and models that are significant to the overallfair value measurement.Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-16If the inputs used to measure fair value fall within different levels of the hierarchy, the category level isbased on the lowest priority level input that is significant to the fair value measurement of the instrument. As ofDecember 31, 2021 and 2020, all of our financial assets and liabilities were classified as Level 1 valuations.The following fair value hierarchy table presents information about each major category of our financialassets and liabilities measured at fair value on a recurring basis (in thousands): Level 1 Level 2 Level 3 Total December 31, 2021AssetsCash$2,360$—$—$2,360Money market funds (cash equivalents)120,567——120,567Total assets$122,927$—$—$122,927December 31, 2020AssetsMoney market funds (cash equivalents)$138,509$—$—$138,509Certificates of deposit1,474——1,474Total assets$139,983$—$—$139,9834. Property and EquipmentProperty and equipment consisted of the following (in thousands):December 31, December 31, 20212020 Laboratory equipment $2,565 $1,777Leasehold improvements899899Office furniture and equipment 429 401Total property and equipment 3,893 3,077Less: accumulated depreciation (1,394) (1,132)Total property and equipment, net$2,499$1,945Depreciation expense was $0.3 million and $0.3 million for the years ended December 31, 2021 and 2020,respectively. In 2021, we determined certain of our laboratory equipment was not required and now held for sale. Theresulting write-down of $0.2 million of net equipment was recorded as a loss and included in Other income (expense),net on the Statement of operations.5. Accrued ExpensesAccrued expenses consisted of the following (in thousands):December 31, December 31, 20212020Payroll and related costs$5,830$4,097 Clinical trials and drug development8,2172,452Professional fees1,311927Short-term lease liabilities556510Other293532Total accrued expenses$16,207$8,518Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-176. LeasesWe have entered into one operating lease for real estate. This lease has a term of 78 months, and includesrenewal terms which can extend the lease term by 60 months, which is included in the lease term when it is reasonablycertain that we will exercise the option. As of December 31, 2021, our operating lease had a weighted averageremaining lease term of 45 months. The right-of-use (ROU) asset is included in "Other assets" on our balance sheetsas of December 31, 2021 and 2020, and represents our right to use the underlying asset for the lease term. Ourobligations to make lease payments are included in "Accrued expenses" and "Other long-term liabilities" on ourbalance sheets as of December 31, 2021 and 2020. The ROU asset was initially measured at cost, which comprises theinitial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plusany initial direct costs incurred, less any lease incentives received. The ROU asset is subsequently measuredthroughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid(accrued) lease payments, less the unamortized balance of lease incentives received.As of December 31, 2021 and 2020, ROU assets were $1.7 million and $2.0 million, respectively, andoperating lease liabilities were $2.5 million and $3.0 million, respectively. We have entered into various short-termoperating leases, primarily for clinical trial equipment, with an initial term of twelve months or less. These leases arenot recorded on our balance sheets. All operating lease expense is recognized on a straight-line basis over the leaseterm. During the years ended December 31, 2021 and 2020, we recognized $0.6 million and $0.6 million, respectively,in total lease costs, which included less than $0.1 million in short-term lease costs related to short-term operating leasesin each year.Because the rate implicit in the lease is not readily determinable, we use our incremental borrowing rate todetermine the present value of the lease payments. The weighted average incremental borrowing rate used todetermine the initial value of the ROU asset and lease liability was 11.0%, derived from a corporate yield curve basedon a synthetic credit rating model using a market signal analysis. We have certain contracts for real estate which maycontain lease and non-lease components which we have elected to treat as a single lease component.ROU assets for operating leases are periodically reduced by impairment losses. We use the long-lived assetsimpairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether anROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of December 31, 2021 and2020, we have not recognized any impairment losses for our ROU assets.We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in our statements of operations and comprehensive loss. Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-18Maturities of operating lease liabilities as of December 31, 2021 were as follows (in thousands): 2022$8072023 8232024 840Thereafter 6433,113Less: imputed interest(578)Total lease liabilities$2,535Current operating lease liabilities$556Non-current operating lease liabilities1,979Total lease liabilities$2,5357. InvestmentsWe did not have any investments as of December 31, 2021. As of December 31, 2020, our investmentsconsisted of certificates of deposit with various financial institutions with original maturities of six to ninemonths. Investments are classified as short- or long-term investments on our balance sheets based on originalmaturity. Certificates of deposits were classified as held-to-maturity and were recorded at amortized cost, whichapproximated fair value. We have never experienced a credit loss on the principal or interest receivable of our cashequivalents or short-term investments. Our certificates of deposit are each individually and fully insured by the FDIC. Accordingly, we did not record any allowance for potential credit losses as of December 31, 2020. 8. Stockholders’ EquityIn 2005, we adopted the 2005 Stock Option and Incentive Plan (2005 Plan) that authorizes us to grantoptions, restricted stock and other equity-based awards. As of December 31, 2021, 577 options to purchase shares of common stock were outstanding pursuant to grants in connection with the 2005 Plan. No additional shares are available for issuance under the 2005 Plan. The amount, terms of grants, and exercisability provisions are determined and set by our board of directors.Effective August 2014, we adopted our 2014 Equity Incentive Plan, as amended (2014 Plan) that authorizes us to grant options, restricted stock, and other equity-based awards, subject to adjustment in accordance with the 2014 Plan. As of December 31, 2021, 3,268,048 options to purchase shares of common stock and 26,025 restricted sharesof common stock were outstanding pursuant to grants in connection with the 2014 Plan, and 1,012,869 shares ofcommon stock were available for future issuance. The amount, terms of grants, and exercisability provisions aredetermined and set by our board of directors. In accordance with the 2014 Plan, on January 1, 2022, the shares of common stock available for future grants under the 2014 Plan was increased to 2,521,079.In addition, during the years ended December 31, 2021 and 2020, we granted 772,117 and 852,024 options,respectively, to purchase shares of common stock outside of our 2014 Plan as inducement grants material to newemployees entering into employment agreements with us pursuant to Nasdaq Listing Rule 5635(c)(4). The amount,terms of grants, and exercisability provisions of these grants are determined and set by our board of directors, and arelargely consistent with the terms and exercisability provisions of grants under our 2014 Plan.Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-19Stock OptionsTotal compensation cost recognized for all stock option awards in the statements of operations is as follows(in thousands):Year Ended December 31,20212020Research and development $4,482 $2,938 General and administrative 9,106 4,521Total$13,588$7,459Options issued under both the 2005 Plan and 2014 Plan and the inducement grants have a contractual life ofup to 10 years and may be exercisable in cash or as otherwise determined by the board of directors. Vesting generallyoccurs over a period of not greater than four years. A summary of activity for the years ended December 31, 2021 and2020 is presented below (in thousands, except share and per share amounts): Weighted‑ AverageAggregate Exercise PriceIntrinsic SharesPer ShareValue Outstanding—December 31, 2019 2,135,070$15.80Granted 1,905,850 9.17Exercised(198,475) 5.16Forfeited(180,107)11.04Expired(154,700)25.16Outstanding—December 31, 2020 3,507,638$12.64Granted 1,868,066 13.49Exercised (176,194) 6.80Forfeited(225,726)11.85Expired(234,929)32.81Outstanding—December 31, 2021 4,738,855$12.23$9,531Exercisable—December 31, 2021 2,450,061$12.56$6,521The weighted average remaining contractual term of options outstanding and exercisable as ofDecember 31, 2021 is 8.2 years and 7.6 years, respectively.Intrinsic value in the table above was determined by calculating the difference between the market value ofour common stock on the last trading day of 2021 of $11.88 per share and the exercise price, for any in-the-moneyoptions.Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-20The weighted-average grant date fair value of options granted was $11.54 and $7.81 per share in 2021 and2020, respectively, and was estimated at the date of grant using the Black-Scholes option-pricing model with thefollowing ranges of weighted-average assumptions: 2021 2020 Expected stock price volatility 115-124% 116-122% Expected term of options 5.0-6.1years 5.3-6.1yearsRisk‑free interest rate 0.44-1.33% 0.31-1.73% Expected annual dividend yield 0% 0% The weighted-average valuation assumptions were determined as follows:●Expected stock price volatility: The expected volatility is based on historical volatility of our stock price. ●Expected term of options: We estimated the expected term of our stock options with service-basedvesting using the “simplified” method, as prescribed in SAB No. 107, whereby the expected life equalsthe average of the vesting tranches and the original contractual term of the option due to our lack ofsufficient historical data.●Risk-free interest rate: We base the risk-free interest rate on the interest rate payable on U.S. Treasurysecurities in effect at the time of grant for a period that is commensurate with the assumed expectedoption term.●Expected annual dividend yield: The estimated annual dividend yield is 0% because we have nothistorically paid, and do not expect for the foreseeable future to pay, a dividend on our common stock.As of December 31, 2021, there was $21.0 million of total unrecognized compensation expense related tounvested stock options. That expense is expected to be recognized over the next four years as follows, in thousands:2022 $9,7162023 7,3152024 3,1862025 768$20,985Restricted StockAll issued and outstanding restricted shares of common stock are time-based and become vested within twoyears after the grant date, pursuant to the 2014 Plan. Compensation expense is recorded ratably over the requisite service period. Compensation expense related to restricted stock is measured based on the fair value using the closing market price of our common stock on the date of the grant. Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-21A summary of activity for the years ended December 31, 2021 and 2020 is presented below: Weighted‑averageGrant DateSharesFair Value per ShareOutstanding—December 31, 2019 8,100$4.84Granted 34,00012.93Vested (17,475)10.04Outstanding—December 31, 202024,62511.41Granted18,40013.48Vested(17,000)12.93Outstanding—December 31, 2021 26,025$12.75Expected to vest—December 31, 2021 26,025$12.75As of December 31, 2021, there was $0.3 million in unrecognized compensation cost related to unvestedrestricted stock.Total compensation cost recognized for all restricted stock awards in the statements of operations for theyears ended December 31, 2021 and 2020 is as follows (in thousands):Year EndedDecember 31,20212020Research and development $3 $—General and administrative 276 183Total$279$183Equity Distribution AgreementIn October 2017, we entered into an Equity Distribution Agreement (Prior EDA) with JMP Securities LLC(JMP), under which JMP, as our exclusive agent, at our discretion and at such times that we may determine from timeto time, may sell over a three-year period from the execution of the agreement up to a maximum of $50 million ofshares of our common stock. During the year ended December 31, 2020, we issued 78,807 shares of its commonstock pursuant to the Prior EDA for aggregate net proceeds of $0.5 million. On July 9, 2020, we entered into a new Equity Distribution Agreement (New EDA) with JMP to create an at the market equity program under which we from time to time may offer and sell shares of our common stock having an aggregate offering price of up to $60.0 millionthrough or to JMP. Subject to the terms and conditions of the New EDA, JMP will use its commercially reasonableefforts to sell shares of our common stock from time to time, based upon our instructions. JMP will be entitled to acommission of up to 3.0% of the gross proceeds from each sale of shares of our common stock. The New EDAsuperseded and terminated the Prior EDA effective immediately upon effectiveness of our shelf registration statementon Form S-3 (File No. 333-239780) filed with the Securities and Exchange Commission on July 9, 2020 and declaredeffective by the Securities and Exchange Commission on July 27, 2020. We did not sell any shares of our commonstock during the year ended December 31, 2021 under the New EDA.Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-22Public OfferingsIn connection with the closing of an equity financing in December 2020, we issued a total of 5,000,000shares of common stock in an underwritten public offering resulting in aggregate net proceeds, after underwritingdiscounts and commissions in the public offering and other estimated offering expenses, of $64.8 million.In connection with the closing of an equity financing in June 2020, we issued a total of 4,600,000 shares ofcommon stock in an underwritten public offering resulting in aggregate net proceeds, after underwriting discounts andcommissions in the public offering and other estimated offering expenses, of $43.0 million.9. Convertible Preferred StockConcurrent with the 2019 Public Offering, we entered into a Securities Purchase Agreement (PurchaseAgreement), by and among us and the investors listed therein. Pursuant to the terms of the Purchase Agreement, wesold to the investors an aggregate of 30,000 shares of Series A Participating Convertible Preferred Stock, par value$0.001 per share (Series A Preferred Stock), at a per share price of $1,000 in a private placement (Private Placement),and received net proceeds of $28.2 million, after deducting underwriting discounts and commissions of $1.8 million.Each share of Series A Preferred Stock will be convertible into 200 shares of common stock, reflecting a conversionprice equal to $5.00 per share, subject to customary anti-dilution adjustments. The shares of Series A Preferred Stock will be mandatorily convertible into shares of common stock, subject to a beneficial ownership limitation (described below), in partial or in full, thereof from and after filing the certificate of amendment to our charter with the Secretary of State of the State of Delaware to increase our authorized shares of common stock (Exercise Contingency). The holders of the Series A Preferred Stock had a feature that allowed the holders to have a liquidationpreference to our common stockholders. Because such a potential redemption-triggering event was not solely withinour control, the Series A Preferred Stock was presented as "Convertible Preferred Stock" on our December 31, 2019balance sheet in a manner consistent with temporary equity under applicable accounting standards.During the year ended December 31, 2021, 178 shares of our Series A Preferred Stock converted into35,600 shares of our common stock, pursuant to the terms of the Purchase Agreement. As of December 31, 2021,4,575 shares of our Series A Preferred Stock remained outstanding, convertible into 915,000 shares of our common stock. In May 2020, a registration statement covering the resale of shares of our common stock underlying ourSeries A Preferred Stock was declared effective by the Securities and Exchange Commission (SEC). In accordance with the securities purchase agreements underlying the Series A Preferred Stock, the liquidation preference wasterminated at that time, and we reclassified the Series A Preferred Stock into permanent equity. The holders of the Series A Preferred Stock also have the right to receive discretionary dividends paid to common shareholders. Except as required by law, the Series A Preferred Stock is non-voting stock. The holders of the Series A Preferred Stock eachhave a beneficial ownership limitation of 9.99% of total outstanding shares of common stock, including an option forthe holder to increase this percentage to 19.99%.The difference between the conversion price and the fair value of our common stock on the commitmentdate (transaction date) resulted in a beneficial conversion feature the amount of $8.9 million. 10. Notes PayableOn May 11, 2021 (Closing Date) and as amended on May 17, 2021, we entered into the Credit Agreementwith Oaktree Fund Administration, LLC as administrative agent (Oaktree) and the lenders party thereto (collectively,theTable of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-23Lenders) that provides for a five-year senior secured term loan facility in an aggregate original principal amount of upto $125.0 million, available to us in five tranches (collectively, the Term Loans). Upon entering into the Credit Agreement in May 2021, we borrowed $15.0 million in term loans from theLenders (Tranche A-1 Term Loan) and upon receipt of written acceptance by the FDA of our NDA filing relating tothe use of ganaxolone in CDD in September 2021, we borrowed $30.0 million of tranche A-2 term loans from theLenders (Tranche A-2 Term Loan). Under the terms of the Credit Agreement, we may, at our sole discretion, borrowfrom the Lenders up to an additional $80.0 million in term loans subject to certain milestone events, as follows:●Through December 31, 2022, $30.0 million of tranche B term loans became available for draw uponFDA approval of ZTALMY for CDD in March 2022.●Through June 30, 2023, $25.0 million of tranche C term loans will be available for draw if wecomplete one or more financings (including through the issuance of common stock, convertible debt,subordinated debt, a synthetic royalty, or a sublicense) resulting in gross proceeds to us of at least $40.0million and net proceeds to us of at least $36.0 million. In addition, the availability of this tranche issubject to certain clinical outcomes.●Through December 31, 2023, $25.0 million of tranche D term loans will be available for draw if weearn an aggregate of at least $50 million in net product revenue in the U.S. for a trailing six consecutivemonths.In addition, the Credit Agreement contains a minimum liquidity covenant that requires us to maintain cashand cash equivalents of at least $20.0 million from the funding of the tranche A- 2 term loans until the funding of thetranche B term loans, and at least $15.0 million from the funding date of the tranche B term loans until the maturity ofthe Term Loans.The Term Loans will be guaranteed by certain of our future subsidiaries (Guarantors). Our obligationsunder the Credit Agreement are secured by a pledge of substantially all of our assets and will be secured by a pledgeof substantially all of the assets of the Guarantors.The Term Loans mature on May 11, 2026 (Maturity Date). The Term Loans bear interest at a fixed per annum rate (subject to increase during an event of default) of 11.50%, and we are required to make quarterly interest payments until the Maturity Date. We are also required to make quarterly principal payments beginning on June 30, 2024 in an amount equal to 5.0% of the aggregate amount of the Term Loans outstanding on June 30, 2024, and continuing until the Maturity Date. On the Maturity Date, we are required to pay in full all outstanding Term Loans and other amounts owed under the Credit Agreement. At the time of borrowing any tranche of the Term Loans, we are required to pay an upfront fee of 2.0% of the aggregate principal amount borrowed at that time. In addition, a commitment fee of 75 basis points per annumwill accrue on each of the tranche B, C, and D commitments for the period beginning 120 days after the funding dateof the tranche A-2 term loans until the applicable tranche is either funded or terminated.We may prepay all or any portion of the Term Loans, and are required to make mandatory prepayments of the Term Loans from the proceeds of asset sales, casualty and condemnation events, and prohibited debt issuances, subject to certain exceptions. All mandatory and voluntary prepayments of the Term Loans are subject to prepayment premiums equal to (i) 4% of the principal prepaid plus a “make-whole” amount equal to the interest that would haveaccrued through May 11, 2023 if prepayment occurs on or before May 11, 2023, (ii) 4% of the principal prepaid ifprepayment occurs after May 11, 2023 but on or before May 11, 2024, or (iii) 2% of the principal prepaid if prepayment occurs after May 11, 2024 but on or before May 11, 2025. If prepayment occurs after May 11, 2025, no prepayment premium is due. Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-24We are also required to make mandatory prepayments of the Term Loans upon an event of default under the Credit Agreement resulting from the occurrence of a change of control. These mandatory prepayments are subject to a prepayment premium equal to (i) 12.5% of the principal prepaid if such prepayment occurs on or before May 11,2022 or (ii) 10.0% of the principal prepaid if the prepayment occurs after May 11, 2022 but on or before May 11,2023.In addition, we are required to pay an exit fee in an amount equal to 2.0% of all principal repaid, whether asa mandatory prepayment, voluntary prepayment, or a scheduled repayment.In addition to the minimum liquidity covenant, we are subject to a number of affirmative and restrictive covenants under the Credit Agreement, including limitations on its ability and its subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, and enter into affiliate transactions, subject to certain exceptions. As of December 31, 2021, we were in compliance with all covenants.Upon the occurrence of certain events, including but not limited to our failure to satisfy our paymentobligations under the Credit Agreement, the breach of certain of our other covenants under the Credit Agreement, theoccurrence of cross defaults to other indebtedness, or defaults related to enforcement action by the FDA or otherRegulatory Authority or recall of ganaxolone, Oaktree and the Lenders will have the right, among other remedies, toaccelerate all amounts outstanding under the Term Loans and declare all principal, interest, and outstanding feesimmediately due and payable.In September 2021, we borrowed $30.0 million upon receipt of written acceptance by the FDA of our NDAfiling relating to the use of ganaxolone in the treatment of CDD and incurred debt issuance costs of $1.2 million,including the exit fee of $0.6 million, that are classified as contra-liability on our consolidated balance sheets and arebeing recognized as interest expense over the term of the loan using the effective-interest method.In May 2021, we borrowed $15.0 million upon entering into the Credit Agreement and incurred debtissuance costs of $4.4 million, including the exit fee of $0.3 million, that are classified as a contra-liability on theconsolidated balance sheet and are being recognized as interest expense over the term of the loan using the effective-interest method.For the year ended December 31, 2021, we recognized interest expense of $2.6 million, of which $2.0million was interest on the Term Loans and $0.6 million was non-cash interest expense related to the amortization ofdebt issuance costs.The following table summarizes the composition of Notes payable as reflected on the consolidated balancesheet as of December 31, 2021 (in thousands):Gross proceeds$45,000Contractual exit fee 900Unamortized debt discount and issuance costs (5,091)Total$40,809The aggregate maturities of Notes payable as of December 31, 2021 are as follows (in thousands):2022$—2023—20246,8252025 and thereafter38,175Total$45,000Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-2511. License and Collaboration RevenueIn July 2021, we entered into a collaboration agreement (Orion Collaboration Agreement) with OrionCorporation (Orion). The Orion Collaboration Agreement falls under the scope of ASC Topic 808, CollaborativeArrangements (ASC 808) as both parties are active participants in the arrangement that are exposed to significant risksand rewards. While this arrangement is in the scope of ASC 808, we analogize to ASC 606 for some aspects of thisarrangement, including for the delivery of a good or service (i.e., a unit of account). Revenue recognized byanalogizing to ASC 606 is recorded as collaboration revenue on the statements of operations.Under the terms of the Orion Collaboration Agreement, we granted Orion an exclusive, royalty-bearing,sublicensable license to certain of our intellectual property rights with respect to commercializing biopharmaceuticalproducts incorporating our product candidate ganaxolone (Licensed Products) in the European Economic Area, theUnited Kingdom and Switzerland (collectively, the Territory) for the diagnosis, prevention and treatment of certainhuman diseases, disorders or conditions (Field), initially in the indications of CDD, tuberous sclerosis complex (TSC)and refractory status epilepticus (RSE). We will be responsible for the continued development of Licensed Productsand regulatory interactions related thereto, including conducting and sponsoring all clinical trials, provided that Orionmay conduct certain post-approval studies in the Territory. Orion will be responsible, at Orion’s sole cost and expense,for the commercialization of any Licensed Product in the Field in the Territory.Under the terms of the Orion Collaboration Agreement, we received a €25.0 million ($29.6 million) upfrontpayment from Orion in July 2021. In connection with the upfront fee, we agreed to provide Orion with the results of aplanned genotoxicity study on the M2 metabolite of ganaxolone, a “Combined Micronucleus & Comet study in vivo.”In the event that the results of such study were positive, based on the criteria set forth in the study’s protocol, Orionwould have had the right to terminate the Collaboration Agreement within ninety (90) days after its receipt of the finalreport of such study, in which case we would have been required to refund Orion seventy-five percent (75%) of theupfront fee. In the event of such termination and refund, Orion would have had no further rights pursuant to the oraland IV dose formulations of ganaxolone and the Orion Collaboration Agreement would have terminated and been ofno further force or effect. In February 2022, the verified draft study report showed that no genotoxicity was found, asmeasured by formation of micronuclei in the bone marrow or comet morphology in the liver. As such, but subject toconfirmation of such results in the final study report expected by the end of the second quarter of 2022, we will notbe required to refund Orion any of the upfront fee and Orion will not have a right to terminate the Orion CollaborationAgreement as a result of the study’s findings.We are eligible to receive up to an additional €97 million in R&D reimbursement and cash milestonepayments based on specific clinical and commercial achievements, as well as tiered royalty payments based on net salesranging from the low double-digits to high teens for the oral programs and the low double-digits to low 20s for the IVprogram. Also, as part of the overall arrangement, we have agreed to supply the Licensed Products to Orion at anagreed upon price.The Orion Collaboration Agreement shall remain effective until the date of expiration of the last to expireRoyalty Term, which is defined as the period beginning on the date of the first commercial sale Licensed Product insuch country and ending on the latest to occur of (a) the tenth (10th) anniversary of the first commercial sale ofLicensed Product in such country, (b) the expiration of the last-to-expire licensed patent covering the manufacture, useor sale of such Licensed Product in such country, and (c) the expiration of regulatory exclusivity period, if any, forsuch Licensed Product in such country. The Orion Collaboration Agreement has a term of at least ten (10) years sincea commercial sale has yet to occur. The Orion Collaboration Agreement allows for termination in certain specificevents, such as material breach, in the event Orion challenges the validity, enforceability or scope of the licensed patentrights, termination for forecast failure, insolvency and force majeure, none of which are probable at contract inception.In accordance with the guidance, we identified the following commitments under the arrangement: (i)exclusive rights to develop, use, sell, have sold, offer for sale and import any product comprised of Licensed Product(License) (ii)Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-26development and regulatory activities (Development and Regulatory Activities), and (iii) requirement to supply Orionwith the Licensed Product at an agreed upon price (Supply of Licensed Product). We determined that these threecommitments represent distinct performance obligations for purposes of recognizing revenue or reducing expense,which it will recognize such revenue or expense, as applicable, as it fulfills these performance obligations.We determined that the non-refundable portion of the upfront payment plus the research and development reimbursement constitutes the transaction price as of the outset of the Orion Collaboration Agreement. The refundable portion of the upfront payment and the future potential regulatory and development milestone payments were fully constrained at contract inception as the risk of significant revenue reversal related to these amounts has not yet been resolved. The achievement of the future potential milestones is not within our control and is subject to certain research and development success and therefore carry significant uncertainty. We will reevaluate the likelihood of achieving these milestones at the end of each reporting period and adjust the transaction price in the period the risk is resolved. In addition, we will recognize any consideration related to sales-based milestones and royalties when the subsequent sales occur since those payments relate primarily to the License, which was delivered by us to Orion upon entering into the Orion Collaboration Agreement. The €18.8 million ($21.2 million) refundable portion of the upfront payment isrecorded as a Refund liability as of December 31, 2021.The transaction price was allocated to the three performance obligations based on the estimated stand-aloneselling prices at contract inception. The stand-alone selling price of the License was based on a discounted cash flowapproach and considered several factors including, but not limited to, discount rate, development timeline, regulatoryrisks, estimated market demand and future revenue potential using an adjusted market approach. The stand-aloneselling price of the Development and Regulatory Activities and the Supply of Licensed Product was estimated usingthe expected cost-plus margin approach.Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-27As of the agreement date in July 2021, we allocated the transaction price to the performance obligations asdescribed below and recorded the $9.0 million transaction price associated with the License as Revenue. During 2021,we amortized $0.1 million of the transaction price associated with the Development and Regulatory Services as areduction of research and development costs. These reductions to transaction price resulted in a total contract liabilityof $6.6 million.CumulativeTransactionCollaborationContractPrice Recognized LiabilityLicense$8,987$8,987$-Development and Regulatory Services2,7871062,681Supply of License Product3,943-3,943Total contract liability$15,717$9,0936,624Less current portion of contract liability(869)Total long-term contract liability$5,755In accordance with ASC 210-20, the above contract liability of $6.6 million is offset by a contract asset of$7.2 million related to the reimbursement of research and development costs, resulting in a net Contract asset of $0.6million.We incurred $2.0 million of incremental costs in obtaining the Orion Collaboration Agreement. Thesecontract acquisition costs were allocated consistent with the transaction price, resulting in $1.1 million of expenserecorded to General and administrative expense commensurate with the recognition of the License performanceobligation and $0.9 million recorded as capitalized contract costs, included in Other current assets and Other assets,which will be amortized as Development and Regulatory Services and Supply of License Product obligations are met.Cost of collaboration revenue of $1.5 million represents a one-time fee paid to Purdue Neuroscience Company relatedto our license agreement and was paid in conjunction with the €25.0 million upfront fees received from Orion.We reevaluate the transaction price and the total estimated costs expected to be incurred to satisfy theperformance obligations and adjusts the deferred revenue at the end of each reporting period. Such changes will resultin a change to the amount of collaboration revenue recognized and deferred revenue.12. Commitments and ContingenciesEmployee Benefit PlanWe maintain a Section 401(k) retirement plan for all employees. The plan allows employees to makecontributions up to a specified percentage of their compensation, subject to maximum amounts allowed under law.Beginning January 1, 2021, we contribute 3% of compensation to each employee’s 401(k) retirement account. Wecontributed $0.7 million for the year ending December 31, 2021. We also can make discretionary profit sharingcontributions, which would vest over a period of four years from each employee’s commencement of employment with us. We have not made any discretionary contributions.License AgreementsWe are obligated to pay royalties pursuant to a license agreement with Purdue Neuroscience Company(Purdue) as a percentage of net product sales for direct licensed products, such as ganaxolone. The obligation to payroyalties expires, on a country-by-country basis, 10 years from the first commercial sale of a licensed product in eachcountry. The agreement also requires that we pay Purdue a percentage of the non-royalty consideration that we receivefrom a sublicensee and a percentage of milestone payments for indications other than seizure disorders and vascularmigraineTable of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-28headaches not associated with mood disorders. Under the license agreement, we are committed to use commerciallyreasonable efforts to develop and commercialize at least one licensed product.In March 2017, we and CyDex Pharmaceuticals, Inc. (CyDex) entered into a License Agreement and aSupply Agreement. Under the terms of the License Agreement, CyDex has granted us an exclusive license to usesulfobutylether beta-cyclodextrin, CyDex’s Captisol® drug formulation system, and related intellectual property inconnection with the development and commercialization of ganaxolone in any and all therapeutic uses in humans, withsome exceptions.As consideration for this license, we paid an upfront fee which was recorded as research and developmentexpense in 2017, and are required to make additional payments in the future upon achievement of various specifiedclinical and regulatory milestones. We will also be required to pay royalties to CyDex on sales of ganaxolone, ifsuccessfully developed, in the low-to-mid single digits based on levels of annual net sales. To date, we have achievedone milestone under the License Agreement, which occurred and was paid in the first quarter of 2021. Certain patentsrelating to Captisol®, including some that were licensed to us by CyDex, have expired, while other patents that arelicensed to us remain in force.Under the terms of the Supply Agreement, we are required to purchase all of our requirements for Captisolwith respect to ganaxolone from CyDex, and CyDex is required to supply us with Captisol for such purposes, subjectto certain limitations.13. Income TaxesLoss before income taxes is allocated as follows (in thousands):Year Ended December 31,20212020U.S. operations$98,776$67,475Foreign operations — —Loss before income taxes$98,776$67,475As of December 31, 2021 and 2020, we had approximately $303.3 million and $212.0 million, respectively,of net operating loss (NOL) carry forwards available to offset future federal taxable income, $128.1 million of whichwill expire beginning in 2023, and the remaining amount can be carried forward indefinitely. As of December 31, 2021and 2020, we had approximately $253.0 million and $209.5 million, respectively, of NOL carry forwards available tooffset future state taxable income that will expire beginning in 2023. As of December 31, 2021, we also have federalresearch and development credit carryovers of approximately $15.8 million and state credit carryovers of approximately$0.4 million, which expire beginning in 2023.The NOL carry forwards are subject to review and possible adjustment by the Internal Revenue Service andstate tax authorities. NOL and tax credit carry forwards may become subject to an annual limitation in the event ofcertain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, as wellas similar state tax provisions. This could limit the amount of NOLs that we can utilize annually to offset futuretaxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value ofour company immediately prior to an ownership change. Subsequent ownership changes may further affect thelimitation in future years. In addition, U.S. tax laws limit the time during which these carry forwards may be appliedagainst future taxes, therefore, we may not be able to take full advantage of these carry forwards for federal incometax purposes. WeTable of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-29have not evaluated the ownership history of our company to determine if there were any ownership changes as definedunder Section 382(g) of the Code and the effects any ownership change may have had.The components of the net deferred tax asset are as follows (in thousands):December 31,20212020Gross deferred tax assets: Net operating loss carryforwards$81,719$59,819Accrued expenses 272 219Amortization of intangible251—Stock‑based compensation 5,944 4,270Research and development and other credits and othercarryforwards 16,216 11,906Lease liability610879Capitalized research and development expenses11,43715,891Unrealized income—12Other94Total gross deferred tax assets$116,458$93,000Gross deferred tax liabilities:ROU Asset(399)(569)Depreciation(99)(252)Unrealized income (212) —Total gross deferred tax liabilities(710)(821)Net deferred tax assets 115,748 92,179Less: valuation allowance (115,748) (92,179)Net deferred tax assets after valuation allowance$—$—In assessing the realizability of deferred tax assets, management considers whether it is more likely than notthat some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferredincome tax assets is dependent upon the generation of future taxable income during the periods in which thosetemporary differences become deductible. Management considers the scheduled reversal of deferred income taxliabilities, projected future taxable income, and tax planning strategies in making this assessment. Based onconsideration of these items, management has determined that enough uncertainty exists relative to the realization of thedeferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2021and 2020. The valuation allowance increased by $23.6 million and $39.7 million during the years endedDecember 31, 2021 and 2020, respectively. The increase for the year ended December 31, 2021 was due primarily to our increase in net operating loss carryovers and an increase in tax attributes. The increase for the year ended December 31, 2020 was due primarily to our increase in net operating loss carryovers and an increase in tax attributes.We did not have unrecognized tax benefits as of December 31, 2021 and 2020, and do not expect this tochange significantly over the next twelve months. We recognize tax positions in the financial statements only when itis more likely than not that the position will be sustained on examination by the relevant taxing authority based on thetechnical merits of the position. A position that meets this standard is measured at the largest amount of benefit thatwill more likely than not be realized on settlement. A liability is established for differences between positions taken in atax return and amounts recognized in the financial statements. Accrued interest and penalties, where appropriate, arerecorded in income tax expense. We did not have uncertain tax positions as of December 31, 2021 and 2020. As ofDecember 31, 2021 and 2020, we had not accrued interest or penalties related to any uncertain tax positions.Table of ContentsMARINUS PHARMACEUTICALS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSF-30A reconciliation of income tax expense (benefit) at the statutory federal income tax rate and income taxes asreflected in the financial statements is as follows:Year Ended December 31,20212020Federal income tax expense at statutory rate 21.0% 21.0% Permanent items (0.7)(0.7)State income tax, net of federal benefit 2.27.6R&D tax credits 4.34.7Change in state tax rate(2.8)—Foreign income tax effect——Capitalized research and development expenses—26.2Other——Change in valuation allowance (24.0)(58.8)Effective income tax rate 0.0% 0.0% For all years through December 31, 2021, we generated research and development credits but have notconducted a study to document the qualified activities. This study may result in an adjustment to our research anddevelopment credit carryforwards; however, until a study is completed and any adjustment is known, no amounts arebeing presented as an uncertain tax position for these years. A full valuation allowance has been provided against ourresearch and development credits and, if an adjustment is required, this adjustment to the deferred tax asset establishedfor the research and development credit carryforwards would be offset by an adjustment to the valuation allowance.We file income tax returns in the United States, the State of Connecticut, and the Commonwealth ofPennsylvania. The federal and state income tax returns are generally subject to tax examinations for the tax years endedDecember 31, 2018 through December 31, 2020. To the extent we have tax attribute carryforwards, the tax years inwhich the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state taxauthorities to the extent utilized in a future period.EXHIBIT 4.3 DESCRIPTION OF THE REGISTRANT’S SECURITIESREGISTERED PURSUANT TO SECTION 12 OF THESECURITIES EXCHANGE ACT OF 1934 As of the date of the Annual Report on Form 10-K of which this exhibit forms a part, theonly class of securities of Marinus Pharmaceuticals, Inc. (“we,” “us” and “our”) registered underSection 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is ourcommon stock, $0.001 par value per share. CAPITAL STOCK The following description of our capital stock summarizes provisions of our fourthamended and restated certificate of incorporation, as amended (“Certificate of Incorporation”),our amended and restated by-laws (“Bylaws”) and the Delaware General Corporation Law (the“DGCL”). For a complete description, refer to our Certificate of Incorporation and our Bylaws,which are incorporated by reference as exhibits to the Annual Report on Form 10-K of which thisexhibit is a part, and to the applicable provisions of the DGCL. Classes of Stock Our Certificate of Incorporation authorizes 175,000,000 shares of stock, of which150,000,000 shares are common stock with a par value of $0.001 per share, and 25,000,000 sharesare preferred stock with a par value of $0.001 per share. Rights of Common Stock Voting Rights. Holders of our common stock are entitled to cast one vote for each share of common stockheld of record on all matters submitted to a vote of the stockholders, including in all elections fordirectors. Stockholders are not entitled to cumulative voting in the election for directors. Ourstockholders may vote either in person or by proxy. Certain matters identified in our Certificate ofIncorporation and our Bylaws, including amending our charter, require the approval of a majority ofour issued and outstanding shares of common stock. Our directors shall be elected by a plurality ofvotes cast. All other questions shall be decided by a majority of the shares present in person, byremote communication or represented by proxy. Dividends. Holders of our common stock are entitled to receive dividends ratably, as may be lawfullydeclared from time to time by our board of directors, subject to any preferential rights of holders ofany outstanding shares of preferred stock. Liquidation. Holders of our common stock are entitled in the event of our liquidation, dissolution orwinding up, whether voluntary or involuntary, after payment of our debts and other liabilities andmaking provision for the holders of outstanding shares of preferred stock, if any, to share ratably inthe remainder of our assets. Other Rights and Preferences.Holders of our common stock do not have any preemptive, cumulative voting, subscription,conversion, redemption, or sinking fund rights. Our common stock is not subject to future calls orassessments by us.Fully Paid and Nonassessable. All of our outstanding shares of common stock are fully paid and nonassessable. Preferred Stock Under our Certificate of Incorporation, our board of directors has the authority, withoutfurther action by our stockholders, to issue up to 25,000,000 shares of preferred stock, $0.001 parvalue per share, in one or more series and to fix the designations, powers, preferences, rights of theshares of each such series and to fix the qualifications, limitations, and restrictions of each series,including, but not limited to, dividend rights, terms of redemption, conversion rights, voting rights,and sinking fund terms, any or all of which may be greater than the rights of common stock, and thenumber of shares constituting such series. On December 12, 2019, we filed a Certificate of Designations, Preferences and Rights ofSeries A Participating Convertible Preferred Stock (the “Certificate of Designations”) with theSecretary of State of the State of Delaware to establish the terms, rights, obligations and preferencesof our Series A Participating Convertible Preferred Stock, par value $0.001 per share (“Series APreferred Stock”). The number of shares of Series A Preferred Stock designated is 30,000, and eachshare of Series A Preferred Stock has a stated value equal to $1,000. Voting Rights. Except as otherwise provided by the DGCL, other applicable law or as provided in theCertificate of Designations, the holders of the Series A Preferred Stock are not entitled to vote (orrender written consents) on any matter submitted for a vote (or written consents in lieu of a vote aspermitted by the DGCL, the Certificate of Incorporation and the Bylaws) of holders of commonstock. The consent of the holders of at least a majority of the outstanding shares of Series A PreferredStock will be required to, among other matters, alter or change adversely the terms of the Series APreferred Stock. The express prior written consent of Oppenheimer & Co., Inc. or its respectivedesignees will be required to directly or indirectly amend, alter, modify or repeal the Certificate ofDesignations in any manner adverse to the interests of the holders of our common stock (as soreasonably determined by such underwriters or their respective designees). Dividends. If our board of directors declares a dividend or other distribution payable upon the commonstock, then the holders of the outstanding shares of Series A Preferred Stock will be entitled to theamount of dividends as would be payable in respect of the number of shares of common stock intowhich the shares of Series A Preferred Stock could be converted, such number to be determined as ofthe record date for the dividend or, if no such record date is established, as of the date of suchdividend. Dividends are payable at the same time as and when dividends on the common stock arepaid to the holders of common stock. Liquidation Preference. The liquidation preference applicable to the Series A Preferred Stock terminated in May2020 upon the effectiveness of the registration statement covering the resale of the shares of commonstock into which the shares of Series A Preferred Stock are convertible under the Securities Act of1933, as amended (the “Securities Act”). Conversion. The number of shares of common stock into which each share of Series A Preferred Stock isinitially convertible is equal to the number obtained by dividing (i) the sum of $1,000, being theinitial purchase price per share of the Series A Preferred Stock, and the amount of any accrued butunpaid dividends thereon by (ii) $5.00, being the conversion price per share of Series A PreferredStock, subject to customary anti-dilution adjustments. All shares of Series A Preferred Stock may be converted, at the option of the holder thereof,into the number of fully paid and nonassessable shares of common stock equal to the numberobtained by dividing (i) the stated value of such Series A Preferred Stock, plus the amount of anyaccrued but unpaid dividends as of the conversion date by (ii) the conversion price in effect on theconversion date (determined as provided in the Certificate of Designations), provided that we maynot effect, and the holder of Series A Preferred Stock does not have the right to, convert any portionof the Series A Preferred Stock to the extent that such conversion would result in the holder owningin excess of the Beneficial Ownership Limitation (as described below). The Certificate ofDesignations contains certain mandatory conversion features, customary anti-dilution adjustments tothe conversion price in the event of stock dividends, subdivisions or splits and upon stockcombinations, as well as customary requirements regarding our obligation to effect conversions anddeliver common stock shares certificates and for the payment by us of damages for our failure tocomply with such requirements. The “Beneficial Ownership Limitation” is 9.99% of the number of shares of our commonstock outstanding immediately after giving effect to the issuance of shares of common stock issuableupon conversion of Series A Preferred Stock held by the applicable holder; provided that, subject tocertainlimitations, by written notice to us, a holder of Series A Preferred Stock may from time to timeincrease (but not decrease) the Beneficial Ownership Limitation to any other percentage not in excessof 19.99% specified in such notice. In the event of (A) a capital reorganization of our common stock, (B) a reclassification ofour common stock (other than a subdivision, split-up or combination of shares) or (C) a merger orconsolidation of us with or into another corporation, or the sale of all or substantially all of ourproperties and assets to any other person, then, as a part of such reorganization, reclassification,merger, or consolidation or sale, provision will be made so that holders of Series A Preferred Stock,as the case may be, shall thereafter be entitled to receive upon conversion of the Series A PreferredStock, the kind and amount of shares of stock or other securities or property of our company, or ofthe successor corporation resulting from such merger, consolidation or sale, to which such holderwould have been entitled if such holder had converted its shares of Series A Preferred Stockimmediately prior to such capital reorganization, reclassification, merger, consolidation or sale. Ranking. The Series A Preferred Stock ranks senior to our common stock with respect to distributionsupon any liquidation, on parity to any class or series of our capital stock hereafter createdspecifically ranking by its terms on parity with the Series A Preferred Stock and junior to any class orseries of our capital stock hereafter created specifically ranking by its terms senior to the Series APreferred Stock. Anti-Takeover Effect of Our Charter and Bylaw ProvisionsOur Certificate of Incorporation and Bylaws contain provisions that could make it moredifficult to complete an acquisition of us by means of a tender offer, a proxy contest or otherwise orthe removal and replacement of our incumbent officers and directors. Staggered Board; Removal of Directors; Board Vacancies; Board Size; No CumulativeVoting in Election of Directors. Our Certificate of Incorporation divides our board of directors into three classes with staggered three-year terms. Moreover, it provides for the removal of any of our directors only for cause and requires a stockholder vote of at least a majority of the voting power of the then outstanding voting stock. In addition, our Certificate of Incorporation provides that any vacancy occurring on our board of directors may be filled by a majority of directors then in office, even if less than a quorum, unless the board of directors determines that such vacancy shall be filled by the stockholders. Under our Bylaws, the authorized number of directors may be changed only by a resolution of adopted by a majority of the board of directors. Finally, our Certificate of Incorporation does not allow cumulative voting in the election of directors. This system of a staggered board, removing directors, filling vacancies, fixing the size of the board, and not allowing for cumulative voting makes it more difficult for stockholders to replace a majority of the directors. Special Stockholder Meetings; No Written Consent Allowed. Our Bylaws provide that aspecial meeting of stockholders may be called only by the board of directors pursuant to a resolutionadopted by a majority of our board of directors, by our chief executive officer, or by the chairpersonof the board. All stockholder actions must be effected at a duly called annual or special meeting ofstockholders and not by written consent. Stockholder Advance Notice Procedure. Our Bylaws establish an advance notice procedurefor stockholders to make nominations of candidates for election as directors or to bring otherbusiness before an annual meeting of our stockholders. The Bylaws provide that any stockholderwishing to nominate persons for election as directors at, or bring other business before, an annualmeeting must deliver to our secretary a written notice of the stockholder’s intention to do so. To be timely, the stockholder’snotice must be delivered to or mailed and received by us not more than 120 days, and not less than90 days before the anniversary date of the preceding annual meeting, except that if the annualmeeting is set for a date that is not within 30 days before or 60 days after such anniversary date, wemust receive the notice not earlier than the close of business on the 120th day prior to the annualmeeting and not later than the close of business on the later of (i) the 90th day prior to the annualmeeting or (ii) the tenth day following the day on which we first made public announcement of thedate of meeting. The notice must include the following information:●as to director nominations, all information relating to each director nominee that is requiredby the rules of the Securities and Exchange Commission to be disclosed in solicitations ofproxies, or is otherwise required by Regulation 14 of the Exchange Act;●as to any other business that the stockholder proposes to bring before the meeting, a briefdescription of the business to be proposed, the reasons for conducting such business at themeeting and, if any, the stockholder’s material interest in the proposed business; and●(A) the name and address of the stockholder proponent, (B) the class, series, and number ofour shares beneficially owned of record, (C) a description of any agreement, arrangement orunderstanding with respect to such nomination or proposal, (D) a representation that theproponent is a holder of record of our voting shares and intends to appear in person or byproxy atthe stockholder meeting, (E) a representation as to whether the proponent intends to delivera proxy statement and form of proxy, (F) to the extent known by the proponent, the nameand address of any other stockholder supporting the proposal on the date of suchstockholder’s notice, and (G) a description of all derivative transactions by the proponentduring the previous twelve-month period, including the date of the transactions and theclass, series and number of securities involved in such transactions. Undesignated Preferred Stock. The ability to authorize and issue undesignated preferredstock makes it possible for our board of directors to issue preferred stock, without stockholderapproval, with voting or other rights or preferences that could have the effect of delaying, deferring,preventing, or otherwise impeding any attempt to change control of us. Indemnification. Our Certificate of Incorporation and our Bylaws provide that we willindemnify officers and directors against losses as they incur them in investigations and legalproceedings resulting from their services to us, which may include service in connection with a takeover. Delaware Anti-Takeover Statute. We are subject to Section 203 of the DGCL, whichprohibits persons deemed “interested stockholders” from engaging in a “business combination” witha publicly traded Delaware corporation for three years following the date these persons becomeinterested stockholders unless the business combination is, or the transaction in which the personbecame an interested stockholder was, approved in a prescribed manner or another prescribedexception applies. Generally, an “interested stockholder” is a person who, together with affiliates andassociates, owns, or within three years prior to the determination of interested stockholder status didown, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes amerger, asset or stock sale, or other transaction resulting in a financial benefit to the interestedstockholder. The existence of this provision may have an anti-takeover effect with respect totransactions not approved in advance by the board of directors, such as discouraging takeoverattempts that might result in a premium over the market price of our common stock. We anticipatethat the provisions of Section 203 might encourage companies interested in acquiring us to negotiatein advance with our board of directors since the stockholder approval requirement would be avoidedif a majority of the directors then in office approve either the “business combination” or the transaction that resulted in the stockholder becoming an “interestedstockholder.” Exclusive Forum. Our Certificate of Incorporation provides that, unless we consent inwriting to the selection of an alternative forum, the Court of Chancery of the State of Delaware (the“Court of Chancery”) shall be the sole and exclusive forum for (a) any derivative action orproceeding brought on our behalf, (b) any action asserting a claim of breach of a fiduciary duty owedby any of our directors, officers, employees or agents to us or our stockholders, (c) any actionasserting a claim arising pursuant to any provision of the DGCL, or (d) any action asserting a claimthat is governed by the internal affairs doctrine, in each such case subject to such Court ofChancery’s having personal jurisdiction over the indispensable parties named as defendants therein.For the avoidance of doubt, the exclusive forum provisions described above do not apply toany claims arising under the Securities Act or under the Exchange Act. Section 27 of the ExchangeAct creates exclusive federal jurisdiction over all suits brought to enforce any duty or liabilitycreated by the Exchange Act or the rules and regulations thereunder, and Section 22 of the SecuritiesAct creates concurrent jurisdiction for federal and state courts over all suits brought to enforce anyduty or liability created by the Securities Act or the rules and regulations thereunder.The choice of forum provisions in our Certificate of Incorporation may limit ourstockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with usor our directors,officers, employees or agents, which may discourage such lawsuits against us and our directors,officers, employees and agents even though an action, if successful, might benefit our stockholders.The applicable courts may also reach different judgments or results than would other courts,including courts where a stockholder considering an action may be located or would otherwisechoose to bring the action, and such judgments or results may be more favorable to us than to ourstockholders. With respect to the provision making the Court of Chancery the sole and exclusiveforum for certain types of actions, stockholders who do bring a claim in the Court of Chancery couldface additional litigation costs in pursuing any such claim, particularly if they do not reside in ornear Delaware. Finally, if a court were to find these provisions of our Certificate of Incorporationinapplicable to, or unenforceable in respect of, one or more of the specified types of actions orproceedings, we may incur additional costs associated with resolving such matters in otherjurisdictions, which could have a material adverse effect on the company. Listing Our common stock is listed on the Nasdaq Global Market under the symbol “MRNS.” Transfer Agent and Registrar The transfer agent and registrar for our common stock is American Stock Transfer & TrustCompany, LLC. Its address is 6201 15th Avenue, Brooklyn, NY 11219.EXHIBIT 10.10 AMENDED AND RESTATED INDEMNIFICATION AGREEMENT This Amended and Restated Indemnification Agreement (the “Agreement”) is entered into as of , by and among Marinus Pharmaceuticals, Inc., a Delaware corporation (the “Company”) and theundersigned party (the “Indemnitee”). RECITALS A. The Company and (“Director”) previously entered into that certainIndemnification Agreement dated September 30, 2005 (the “Original Indemnification Agreement”). B. Section 20 of the Original Indemnification Agreement provided that the OriginalIndemnification Agreement could be amended by written agreement executed by each of the parties hereto. C. The Company and the Director desire to amend and restate the Original IndemnificationAgreement as set forth herein. D. The Company and the Indemnitee recognize the substantial increase in corporate litigation ingeneral, subjecting directors, officers, employees, controlling persons, agents and fiduciaries to expensive litigationrisks at the same time as the availability and coverage of liability insurance has been severely limited. E. The Indemnitee does not regard the current protection available as adequate under the presentcircumstances, and the Indemnitee and other directors, officers, employees, controlling persons, agents andfiduciaries of the Company may not be willing to serve in such capacities without additional protection. F. The Company: (i) desires to attract and retain the involvement of highly qualified individualsand entities, such as the Indemnitee, to serve the Company and, in part, to induce the Indemnitee to be involvedwith the Company and (ii) wishes to provide for the indemnification and advancing of expenses to the Indemniteeto the maximum extent permitted by law. G. Although the bylaws of the Company require indemnification of the officers and directors ofthe Company, and the Indemnitee may also be entitled to indemnification pursuant to the General Corporation Lawof the State of Delaware (the “DGCL”), the bylaws and the DGCL expressly provide that the indemnificationprovisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into betweenthe Company and members of the board of directors, officers and other persons with respect to indemnification. H. This Agreement is a supplement to and in furtherance of the bylaws of the Company and anyresolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogateany rights of the Indemnitee thereunder. I. In view of the considerations set forth above, the Company desires that the Indemnitee beindemnified by the Company as set forth herein. NOW, THEREFORE, the Company and the Indemnitee hereby agree as follows: 1. Indemnification. a. Indemnification of Expenses. The Company shall indemnify and holdharmless the Indemnitee (including his or her respective directors, officers, partners, employees, agents andspouses, if any) and each person who controls any of them or who may be liable within the meaning of Section 15of the Securities Act of 1933, as amended (the “Securities Act”), or Section 20 of the Securities Exchange Act of1934, as amended (the “Exchange Act”) to the fullest extent permitted by law if the Indemnitee was or is orbecomes a party to or witness or other participant in, or are threatened to be made a party to or witness or otherparticipant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolutionmechanism, or anyhearing, inquiry or investigation that the Indemnitee believes might lead to the institution of any such action, suit,proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative orother (hereinafter a “Claim”) (i) by reason of (or arising in part or in whole out of) any event or occurrence relatedto the fact that the Indemnitee is, was or may be deemed a director, officer, stockholder, employee, controllingperson, agent or fiduciary of the Company, or any subsidiary of the Company, or is, was or may be deemed to beserving at the request or consent of the Company as a director, officer, stockholder, employee, controlling person,agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or otherenterprise, or (ii) by reason of any action or inaction on the part of such Indemnitee while serving in such capacityincluding, without limitation, any and all losses, claims, damages, expenses and liabilities, joint or several(including any investigation, legal and other expenses incurred in connection with, and any amount paid insettlement of, any action, suit, proceeding or any claim asserted) under the Securities Act, the Exchange Act orother federal or state statutory law or regulation, at common law or otherwise, that relate directly or indirectly tothe registration, purchase, sale or ownership of any securities of the Company or to any fiduciary obligation owedor alleged to be owed to the Company or its stockholders or any other constituency of the Company with respectthereto (hereinafter an “Indemnifiable Event”), against any and all expenses (including attorneys’ fees and all othercosts, expenses and obligations incurred in connection with investigating, defending a witness in or participating in(including on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding,alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties andamounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall notbe unreasonably withheld) of such Claim and any federal, state, local or foreign taxes imposed on the Indemniteeas a result of the actual or deemed receipt of any payments under this Agreement (collectively, hereinafter“Expenses”), including all interest, assessments and other charges paid or payable in connection with or in respectof such Expenses. Such payment of Expenses shall be made by the Company as soon as practicable but in anyevent no later than twenty (20) days after written demand by the Indemnitee therefor is presented to the Company. b. Reviewing Party. Notwithstanding the foregoing, (i) the obligations of theCompany under Section 1(a) shall be subject to the condition that the Reviewing Party (as described inSection 10(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent LegalCounsel referred to in Section 10(d) hereof is involved) that the Indemnitee would not be permitted to beindemnified under applicable law, and (ii) the Indemnitee acknowledges and agrees that the obligation of theCompany to make an advance payment of Expenses to the Indemnitee pursuant to Section 2(a) (an “ExpenseAdvance”) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determinesthat the Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall beentitled to be reimbursed by the Indemnitee (who hereby agrees to reimburse the Company) for all such amountstheretofore paid; provided, however, that if the Indemnitee has commenced or thereafter commences legalproceedings in a court of competent jurisdiction to secure a determination that the Indemnitee should beindemnified under applicable law, any determination made by the Reviewing Party that the Indemnitee would notbe permitted to be indemnified under applicable law shall not be binding and the Indemnitee shall not be requiredto reimburse the Company for any Expense Advance until a final judicial determination is made with respectthereto (as to which all rights of appeal therefrom have been exhausted or lapsed). The Indemnitee’s obligation toreimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. Ifthere has not been a Change in Control (as defined in Section 10(c) hereof), the Reviewing Party shall be selectedby the Board of Directors, and if there has been such a Change in Control (other than a Change in Control thathas been approved by a majority of the Company’s Board of Directors who were directors immediately prior tosuch Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to inSection 10(d) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Partydetermines that the Indemnitee substantively would not be permitted to be indemnified in whole or in part underapplicable law, the Indemnitee shall have the right to commence litigation seeking an initial determination by thecourt or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal orfactual bases therefor, and the Company hereby consents to service of process and to appear in any suchproceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on theCompany and the Indemnitee. c. Contribution. If the indemnification provided for in Section 1(a) above forany reason is held by a court of competent jurisdiction to be unavailable to an Indemnitee in respect of any losses,claims, damages, expenses or liabilities referred to therein, then the Company, in lieu of indemnifying theIndemnitee thereunder, shall contribute to the amount paid or payable by the Indemnitee as a result of such losses,claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the relative benefitsreceived by the Company and the Indemnitee, or (ii) if the allocation provided by clause (i) above is not permittedby applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause(i) above but also the relative fault of the Company and the Indemnitee in connection with the action or inactionthat resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitableconsiderations. In connection with the registration of the Company’s securities, the relative benefits received bythe Company and the Indemnitee shall be deemed to be in the same respective proportions that the net proceedsfrom the offering (before deducting expenses) received by the Company and the Indemnitee, in each case as setforth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of thesecurities so offered. The relative fault of the Company and the Indemnitee shall be determined by reference to,among other things, whether the untrue or alleged untrue statement of a material fact or the omission or allegedomission to state a material fact relates to information supplied by the Company or the Indemnitee and the parties’relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Indemnitee agree that it would not be just and equitable if contributionpursuant to this Section 1(c) were determined by pro rata or per capita allocation or by any other method ofallocation that does not take account of the equitable considerations referred to in the immediately precedingparagraph. In connection with theregistration of the Company’s securities, in no event shall an Indemnitee be required to contribute any amountunder this Section 1(c) in excess of the lesser of: (i) that proportion of the total of such losses, claims, damages orliabilities that are indemnified against, equal to the proportion of the total securities sold under such registrationstatement that is being sold by the Indemnitee or (ii) the proceeds received by the Indemnitee from its sale ofsecurities under such registration statement. No person found guilty of fraudulent misrepresentation (within themeaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was notfound guilty of such fraudulent misrepresentation. d. Survival Regardless of Investigation. The indemnification andcontribution provided for in this Section 1 will remain in full force and effect regardless of any investigation madeby or on behalf of any Indemnitee or any officer, director, employee, agent or controlling person of an Indemnitee. e. Change in Control. The Company agrees that if there is a Change inControl of the Company (other than a Change in Control that has been approved by a majority of the Company’sBoard of Directors who were directors immediately prior to such Change in Control) then, with respect to allmatters thereafter arising concerning the rights of an Indemnitee to payments of Expenses under this Agreement orany other agreement or under the Company’s certificate of incorporation or bylaws as now or hereafter ineffect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee andapproved by the Company (which approval shall not be unreasonably withheld). Such counsel, among otherthings, shall render its written opinion to the Company and the Indemnitee as to whether and to what extent theIndemnitee would be permitted to be indemnified under applicable law. The Company agrees to abide by suchopinion and to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnifysuch counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out ofor relating to this Agreement or its engagement pursuant hereto. f. Mandatory Payment of Expenses. Notwithstanding any other provision ofthis Agreement, to the extent that an Indemnitee has been successful on the merits or otherwise, including, withoutlimitation, the dismissal of an action without prejudice, in the defense of any action, suit, proceeding, inquiry orinvestigation referred to in Section 1(a) hereof or in the defense of any claim, issue or matter therein, theIndemnitee shall be indemnified against all Expenses incurred by the Indemnitee in connection herewith. 2. Expenses; Indemnification Procedure. a. Advancement of Expenses. The Company shall advance all Expensesincurred by an Indemnitee. The advances to be made hereunder shall be paid by the Company to the Indemniteeas soon aspracticable but in any event no later than twenty (20) days after written demand by the Indemnitee therefor to theCompany. b. Notice/Cooperation by the Indemnitee. The Indemnitee shall give theCompany notice in writing as soon as practicable of any Claim made against the Indemnitee for whichindemnification will or could be sought under this Agreement. Notice to the Company shall be directed to theChief Executive Officer of the Company at the Company’s address (or such other address as the Company shalldesignate in writing to the Indemnitee). c. No Presumptions; Burden of Proof. For purposes of this Agreement, thetermination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction,or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that the Indemnitee did notmeet any particular standard of conduct or have any particular belief or that a court has determined thatindemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to havemade a determination as to whether the Indemnitee has met any particular standard of conduct or had anyparticular belief, nor an actual determination by the Reviewing Party that the Indemnitee has not met such standardof conduct or did not have such belief, prior to the commencement of legal proceedings by the Indemnitee tosecure a judicial determination that the Indemnitee should be indemnified under applicable law, shall be a defenseto the Indemnitee’s claim or create a presumption that the Indemnitee has not met any particular standard ofconduct or did not have any particular belief. In connection with any determination by the Reviewing Party orotherwise as to whether an Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on theCompany to establish that the Indemnitee is not so entitled. d. Notice to Insurers. If, at the time of the receipt by the Company of anotice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect that may coversuch Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers inaccordance with the procedures set forth in each of the policies. The Company shall thereafter take all necessaryor desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result ofsuch Claim in accordance with the terms of such policies. e. Selection of Counsel. If the Company shall be obligated hereunder to paythe Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim, with counselapproved by the Indemnitee (which approval shall not be unreasonably withheld), upon the delivery to theIndemnitee of written notice of its election todo so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of suchcounsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees ofcounsel subsequently incurred by the Indemnitee with respect to the same Claim; provided that, (i) the Indemniteeshall have the right to employ the Indemnitee’s counsel in any such Claim at the Indemnitee’s expense and (ii) if(A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) theIndemnitee shall have reasonably concluded that there is a conflict of interest between the Company and theIndemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel todefend such Claim, then the fees and expenses of the Indemnitee’s counsel shall be at the expense of theCompany. 3. Additional Indemnification Rights; Nonexclusivity. a. Scope. The Company hereby agrees to indemnify the Indemnitee to thefullest extent permitted by law, even if such indemnification is not specifically authorized by the other provisionsof this Agreement, the Company’s certificate of incorporation, the Company’s bylaws or by statute. In the eventof any change after the date of this Agreement in any applicable law, statute or rule that expands the right of aDelaware corporation to indemnify a member of its Board of Directors or an officer, stockholder, employee,controlling person, agent or fiduciary, it is the intent of the parties hereto that the Indemnitee shall enjoy by thisAgreement the greater benefits afforded by such change. In the event of any change in any applicable law, statuteor rule that narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or anofficer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute orrule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligationshereunder except as set forth in Section 8(a) hereof. b. Nonexclusivity. The indemnification provided by this Agreement shall bein addition to any rights to which the Indemnitee may be entitled under the Company’s certificate of incorporation,its bylaws, any agreement, any vote of stockholders or disinterested directors, the DGCL, or otherwise. Theindemnification provided under this Agreement shall commence upon the date an Indemnitee first serves in anindemnified capacity and shall continue as to the Indemnitee for any action the Indemnitee took or did not takewhile serving in an indemnified capacity even though the Indemnitee may have ceased to serve in such capacity.The Company hereby acknowledges that the Indemnitee may have other sources of indemnification or insurance,whether currently in force or established in the future (collectively, the “Outside Indemnitors”). The Companyhereby agrees: (i) that it is the indemnitor of first resort (i.e., its obligations to the Indemnitee are primary and anyobligation of the Outside Indemnitors to advance expenses or to provide indemnification for the same expenses orliabilities incurred by the Indemnitee are secondary); (ii) that it shall be required to advance the full amount ofexpenses incurred by the Indemnitee and shall be liable in full for all indemnifiable amounts to the extent legallypermitted and as required by the certificate of incorporation and bylaws (or any agreement between the Companyand the Indemnitee), without regard to any rights the Indemnitee may have against the Outside Indemnitors and(iii) that it irrevocably waives, relinquishes and releases the Outside Indemnitors from any and all claims againstthe Outside Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. TheCompany further agrees that no advancement or payment by the Outside Indemnitors on behalf of the Indemniteewith respect to any claim for which the Indemnitee have sought indemnification from the Company shall affectthe foregoing and the Outside Indemnitors shall have a right of contribution and/or be subrogated to the extent ofsuch advancement or payment to all of the rights of recovery of the Indemnitee against the Company. TheCompany and the Indemnitee agree that the Outside Indemnitors are express third party beneficiaries of the termshereof. 4. No Duplication of Payments. Except as otherwise set forth in Section 3(b) above,the Company shall not be liable under this Agreement to make any payment in connection with any Claim madeagainst an Indemnitee to the extent the Indemnitee has otherwise actually received payment (under any insurancepolicy, certificate of incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 5. Partial Indemnification. If an Indemnitee is entitled under any provision of thisAgreement to indemnification by the Company for any portion of Expenses incurred in connection with any Claim,but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify the Indemnitee forthe portion of such Expenses to which the Indemnitee is entitled. 6. Mutual Acknowledgement. The Company and the Indemnitee acknowledge that incertain instances, Federal law or applicable public policy may prohibit the Company from indemnifying itsdirectors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise. TheIndemnitee understands and acknowledges that the Company has undertaken or may be required in the future toundertake with the Securities and Exchange Commission to submit the question of indemnification to a court incertain circumstances for a determination of the Company’s rights under public policy to indemnify an Indemnitee. 7. Liability Insurance. To the extent the Company maintains liability insuranceapplicable to directors, officers, employees, control persons, agents or fiduciaries, the Indemnitee shall be coveredby such policies in sucha manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured(i) of the Company’s directors, if the Indemnitee is a director, or (ii) of the Company’s officers, if the Indemniteeis not a director of the Company but is an officer; or (iii) of the Company’s key employees, controlling persons,agents or fiduciaries, if the Indemnitee is not an officer or director but is a key employee, agent, control person orfiduciary. 8. Exceptions. Any other provision herein to the contrary notwithstanding, theCompany shall not be obligated pursuant to the terms of this Agreement: a. Claims Initiated by an Indemnitee. To indemnify or advance expenses toan Indemnitee with respect to Claims initiated or brought voluntarily by the Indemnitee and not by way of defense,except: (i) with respect to actions or proceedings to establish or enforce a right to indemnify under this Agreementor any other agreement or insurance policy or under the Company’s certificate of incorporation or bylaws now orhereafter in effect relating to Claims for Indemnifiable Events; (ii) in specific cases if the Board of Directors hasapproved the initiation or bringing of such Claim; or (iii) as otherwise required under Section 145 of the DGCL,regardless of whether the Indemnitee ultimately is determined to be entitled to such indemnification, advanceexpense payment or insurance recovery, as the case may be; or b. Claims Under Section 16(b). To indemnify an Indemnitee for expensesand the payment of profits arising from the purchase and sale by the Indemnitee of securities in violation ofSection 16(b) of the Exchange Act or any similar successor statute; or c. Claims Excluded Under Section 145 of the DGCL. To indemnify theIndemnitee if: (i) the Indemnitee did not act in good faith and in a manner reasonably believed to be in or notopposed to the best interests of the Company or (ii) with respect to any criminal action or proceeding, theIndemnitee had reasonable cause to believe the conduct was unlawful or (iii) the Indemnitee shall have beenadjudged to be liable to the Company unless and only to the extent the court in which such action was broughtshall permit indemnification as provided in Section 145(b) of the DGCL. 9. Period of Limitations. No legal action shall be brought and no cause of action shallbe asserted by or in the right of the Company against an Indemnitee or an Indemnitee’s estate, spouse, heirs,executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of suchcause of action, and any claim or cause of action of the Company shall be extinguished and deemed releasedunless asserted by the timely filing of a legal action within such five (5)-year period; provided, however, that ifany shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shallgovern. 10. Construction of Certain Phrases. a. For purposes of this Agreement, references to the “Company” shallinclude, in addition to the resulting corporation, any constituent corporation (including any constituent of aconstituent) absorbed in a consolidation or merger that, if its separate existence had continued, would have hadpower and authority to indemnify its directors, officers, stockholders, employees, agents or fiduciaries, so that if anIndemnitee is, was or may be deemed a director, officer, stockholder, employee, agent, control person, or fiduciaryof such constituent corporation, or is or was serving at the request of such constituent corporation as a director,officer, employee, control person, agent or fiduciary of another corporation, partnership, limited liability company,joint venture, employee benefit plan, trust or other enterprise, the Indemnitee shall stand in the same positionunder the provisions of this Agreement with respect to the resulting or surviving corporation as the Indemniteewould have with respect to such constituent corporation if its separate existence had continued. b. For purposes of this Agreement, references to “other enterprises” shallinclude employee benefit plans; references to “fines” shall include any excise taxes assessed on an Indemnitee withrespect to an employee benefit plan; and references to “serving at the request of the Company” shall include anyservice as a director, officer, employee, agent or fiduciary of the Company that imposes duties on, or involvesservices by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, itsparticipants or its beneficiaries; and if an Indemnitee acted in good faith and in a manner the Indemnitee reasonablybelieved to be in the interest of the participants and beneficiaries of an employee benefit plan, the Indemnitee shallbe deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in thisAgreement. c. For purposes of this Agreement a “Change in Control” shall be deemed tohave occurred if: (i) any “person” (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act),other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or acorporation owned directly or indirectly by the stockholders of the Company in substantially the same proportionsas their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, ofsecurities of the Company representing twenty percent (20%) or more of the combined voting power of theCompany’s then outstanding Voting Securities, increases his beneficial ownership of such securities by fivepercent (5%) or more over the percentage so owned by such person, or (B) becomes the “beneficialowner” (as defined in Rule 13d-3 under said Exchange Act), directly or indirectly, of securities of the Companyrepresenting more than thirty percent (30%) of the total voting power represented by the Company’s thenoutstanding Voting Securities, (ii) during any period of two (2) consecutive years, individuals who at the beginningof such period constitute the Board of Directors of the Company and any new director whose election by theBoard of Directors or nomination for election by the Company’s stockholders was approved by a vote of at leasttwo-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period orwhose election or nomination for election was previously so approved, cease for any reason to constitute amajority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company withany other corporation other than a merger or consolidation that would result in the Voting Securities of theCompany outstanding immediately prior thereto continuing to represent (either by remaining outstanding or bybeing converted into Voting Securities of the surviving entity) at least eighty percent (80%) of the total votingpower represented by the Voting Securities of the Company or such surviving entity outstanding immediately aftersuch merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of theCompany or an agreement for the sale or disposition by the Company of (in one transaction or a series oftransactions) all or substantially all of the Company’s assets. d. For purposes of this Agreement, “Independent Legal Counsel” shall meanan attorney or firm of attorneys, selected in accordance with the provisions of Section 2(e) hereof, who shall nothave otherwise performed services for the Company or the Indemnitee within the last three (3) years (other thanwith respect to matters concerning the right of the Indemnitee under this Agreement, or of other indemniteesunder similar indemnity agreements). e. For purposes of this Agreement, a “Reviewing Party” shall mean anyappropriate person or body consisting of a member or members of the Company’s Board of Directors or anyother person or body appointed by the Board of Directors who is not a party to the particular Claim for which theIndemnitee is seeking indemnification, or Independent Legal Counsel. f. For purposes of this Agreement, “Voting Securities” shall mean anysecurities of the Company that vote generally in the election of directors. 11. Counterparts. This Agreement may be executed in one or more counterparts, each ofwhich shall constitute an original. 12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon andinure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, includingany direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of thebusiness and/or assets of the Company, spouses, heirs and personal and legal representatives. The Company shallrequire and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all,substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in formand substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the samemanner and to the same extent that the Company would be required to perform if no such succession had takenplace. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardlessof whether the Indemnitee continues to serve as a director, officer, employee, agent, controlling person or fiduciaryof the Company or of any other enterprise, including subsidiaries of the Company, at the Company’s request. 13. Attorneys’ Fees. In the event that any action is instituted by an Indemnitee underthis Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any ofthe terms hereof or thereof, the Indemnitee shall be entitled to be paid all Expenses incurred by the Indemniteewith respect to such action if the Indemnitee is ultimately successful in such action, and shall be entitled to theadvancement of Expenses with respect to such action, except, in the case of both payment and advancement ofExpenses, as and solely to the extent of Expenses incurred with respect to a material assertion made by theIndemnitee as a part of such action which a court of competent jurisdiction over such action determines was notmade in good faith or was frivolous. In the event of an action instituted by or in the name of the Company underthis Agreement to enforce or interpret any of the terms of this Agreement, an Indemnitee shall be entitled to bepaid Expenses incurred by such Indemnitee in defense of such action (including costs and expenses incurred withrespect to his or its counterclaims and cross-claims made in such action), and shall be entitled to the advancementof Expenses with respect to such action, except, in the case of both payment and advancement of Expenses, as andsolely to the extent of Expenses incurred with respect to a material assertion made by the Indemnitee as a part ofsuch action which a court of competent jurisdiction over such action determines was not made in good faith or wasfrivolous. 14. Notice. All notices and other communications required or permitted hereunder shallbe in writing, shall be effective when given, and shall in any event be deemed to be given: (a) five (5) days afterdeposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postageprepaid; (b) upon delivery, if delivered by hand; (c) one (1) business day after the business day of deposit withFederal Express or similar overnight courier, freight prepaid; or (d) one (1) day after the business day of deliveryby facsimile transmission, if deliverable byfacsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to an Indemnitee, atthe Indemnitee’s address as set forth beneath the Indemnitee’s signature to this Agreement and if to the Companyat the address of its principal corporate offices (attention: Secretary) or at such other address as such party maydesignate by ten (10) days’ advance written notice to the other party hereto. 15. Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocablyconsent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action orproceeding that arises out of or relates to this Agreement and agree that any action instituted under this Agreementshall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and forNew Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. 16. Severability. The provisions of this Agreement shall be severable in the event thatany of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by acourt of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shallremain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, theprovisions of this Agreement (including, without limitations, each portion of this Agreement containing anyprovision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shallbe construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 17. Choice of Law. This Agreement shall be governed by and its provisions construedand enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delawareresidents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict oflaws principles thereof. 18. Subrogation. In the event of payment under this Agreement, the Company shall besubrogated to the extent of such payment to all of the rights of recovery of the Indemnitee who shall execute alldocuments required and shall do all acts that may be necessary to secure such rights and to enable the Companyeffectively to bring suit to enforce such rights. 19. Amendment and Termination. No amendment, modification, termination orcancellation of this Agreement shall be effective unless it is in writing signed by all parties hereto. No waiver ofany of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisionshereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 20. Integration and Entire Agreement. This Agreement sets forth the entireunderstanding between the parties hereto and supersedes and merges all previous written and oral negotiations,commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 21. No Construction as Employment Agreement. Nothing contained in this Agreementshall be construed as giving the Indemnitee any right to be retained in the employ of the Company or any of itssubsidiaries. 22. Board and Stockholder Approval. The Company represents that this Agreement hasbeen approved by the Company’s board of directors and stockholders. 23. Amendment and Restatement. Effective and contingent upon execution of thisAgreement, the Company and the Director agree that the Original Indemnification Agreement is hereby amendedand restated in its entirety to read as set forth in this Agreement, and the Company and the parties hereto herebyagree to be bound by the provisions hereof. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated IndemnificationAgreement on and as of the day and year first above written. COMPANY: MARINUS PHARMACEUTICALS, INC.,a Delaware corporation By:Chief Executive Officer and President Address for Notice: 5 Radnor Corporate Center, Suite 500100 Matsonford RdRadnor, PA 19087 INDEMNITEE: Address: Signature Page to Amended and Restated Indemnification Agreement Schedule of Material Differences to Exhibit 10.10 The following directors and executive officers are parties to an Indemnification Agreement with the Company, eachof which are substantially identical in all material respects to the representative Indemnification Agreement filedherewith as Exhibit 10.10 except as to the name of the signatory and the date of each signatory’s IndemnificationAgreement. The name of each signatory is listed below. The actual Indemnification Agreements are omittedpursuant to Instruction 2 to Item 601 of Regulation S-K. Indemnitee Scott Braunstein, M.D., Chief Executive Officer and Director Nicole Vitullo, Chairman of the BoardCharles Austin, Director Michael R. Dougherty, Director Elan Ezickson, Director Seth H.Z. Fischer, Director Tim M. Mayleben, Director Santiago Arroyo, M.D., Ph.D., DirectorSaraswathy V. Nochur, Ph.D., Director Exhibit 10.34MARINUS PHARMACEUTICALS, INC.2014 EQUITY INCENTIVE PLANRESTRICTED STOCK UNIT AGREEMENTMarinus Pharmaceuticals, Inc., a Delaware corporation (the “Company”), hereby grantsrestricted Stock Units (the “RSUs”) representing the right to receive shares of its common stock, parvalue $0.001 (the “Stock”), to the recipient (the “Grantee”) set forth on the Schedule to RestrictedStock Unit Agreement attached hereto (the “Schedule”), subject to the vesting and other conditionsset forth below and in the Schedule. The terms and conditions of the RSUs are set forth in thisRestricted Stock Unit Agreement and the Schedule (collectively, the “Agreement”), as well as in theCompany’s 2014 Equity Incentive Plan (as it may be amended from time to time, the “Plan”). Allcapitalized terms that are used in this Agreement and not otherwise defined herein shall have themeanings ascribed to them in the Plan.Restricted Stock UnitsThis Agreement evidences an award of RSUs in the number set forthon the Schedule. Each RSU represents the right to receive one shareof Stock, subject to the vesting and other conditions set forth in thisAgreement and in the Plan. VestingThe RSUs shall vest in accordance with the vesting schedule set forthon the Schedule; provided, however, that for purposes of vesting,fractional numbers of shares of Stock shall be rounded to the nearestwhole number, and the number of RSUs that shall vest on the finalvesting date shall be rounded up or down as necessary such that thetotal number of RSUs that vest pursuant to the vesting schedule shallbe equal to the number of RSUs covered by this grant as set forth onthe Schedule. Unless the termination of your service as an Employee (“Service”)triggers accelerated vesting or other treatment of the RSUs pursuant tothe terms of this Agreement or the Plan, you shall immediately andautomatically forfeit the unvested RSUs to the Company in the eventyour Service terminates for any reason. No RSUs shall vest after yourtermination of Service.Change of ControlIn the event of a Change of Control, the RSUs will be treated in themanner provided in Section 13 of the Plan. Notwithstanding theforegoing, if, within twelve (12) months following the consummationof a Change of Control, your Service is terminated (i) by theCompany or any of its subsidiaries (or by the acquiring or successorentity in the Change of Control transaction) without Cause (as definedbelow) or, (ii) if you have an employment agreement with theCompany (an “Employment Agreement”) which has a definition of“good reason,” by you for good reason (as defined in yourEmployment Agreement), the unvested RSUs will become fully vestedas of the date of your termination of employment. For purposes of this Agreement, the term “Cause” shall have themeaning set forth in the Plan, or, if you have an EmploymentAgreement which has a definition of “Cause,” then it shall have themeaning set forth in your Employment Agreement.2Termination due to deathor DisabilityIf your Service terminates due to your death or Disability, theunvested RSUs shall become immediately vested as of the date ofyour termination of Service.Leaves of AbsenceFor purposes of the RSUs, your Service does not terminate when yougo on a bona fide employee leave of absence that was approved bythe Company in writing, if the terms of the leave provide forcontinued service crediting, or when continued service crediting isrequired by applicable law. However, in all other cases, your Servicewill be treated as terminating ninety (90) days after you went onemployee leave, unless your right to return to active work isguaranteed by law or by a contract. Your Service terminates in anyevent when the approved leave ends, unless you immediately return toactive employee work.The Company determines, in its sole discretion, which leaves countfor this purpose, and when your Service terminates for all purposesunder the Plan.IssuanceSubject to the satisfaction of the Withholding Obligation (as definedbelow), the issuance of the shares of Stock underlying any RSUs thatbecome vested hereunder shall be made within thirty (30) days afterthe applicable vesting date. For the avoidance of doubt, the actualdate of issuance shall be determined by the Company in its solediscretion. Any such issuance shall be evidenced in such a manner asthe Company, in its discretion, will deem appropriate, including,without limitation, book-entry, direct registration or issuance of oneor more Stock certificates.Sell to Cover ElectionBy electronically accepting this grant of RSUs, you hereby:●elect, effective as of the date you electronically accept this grantof RSUs, to sell shares of Stock issued in respect of the RSUs inan amount determined in accordance with part (a) of the sectionof this Agreement titled “Withholding Obligation,” and to allowthe Agent (as defined below) to remit the cash proceeds of suchsale to the Company as more specifically set forth in part (a) ofthe section of this Agreement titled “Withholding Obligation” (a“Sell to Cover”);●direct the Company to make a cash payment to satisfy theWithholding Obligation from the cash proceeds of such saledirectly to the appropriate taxing authorities;●represent and warrant that (i) you have carefully reviewed part (a)of the section of this Agreement titled “Withholding Obligation,”and (ii) on the date you accept this grant of RSUs you are notaware of any material, nonpublic information with respect to theCompany or any securities of the Company, are not subject toany legal, regulatory or contractual restriction that would preventthe Agent from conducting sales, do not have, and will notattempt to exercise, authority, influence or control over any salesof Stock effected by the Agent pursuant to this Agreement, andare entering into this Agreement and this election to Sell to Coverin good faith and not as part of a plan or scheme to evade theprohibitions of Rule 10b5-1 (regarding trading of the Company’ssecurities on the basis of material nonpublic information)3under the Securities Exchange Act of 1934, as amended (the“Exchange Act”); and●acknowledge that you are adopting a 10b5-1 Plan (as definedbelow) to permit you to conduct Sell to Cover transactions tosatisfy the Withholding Obligation as more specifically set forthin part (a) of the section of this Agreement titled “WithholdingObligation.”Withholding Obligation(a)By accepting this grant of RSUs, you hereby (i) acknowledge andagree that you have elected a Sell to Cover to permit you tosatisfy any sums required to satisfy the federal, state, local andforeign tax withholding obligations of the Company or any of itssubsidiaries which arise in connection with this award of RSUs(the “Withholding Obligation”) and that the WithholdingObligation shall be satisfied pursuant to this section (a) and (ii)further acknowledge and agree to the following provisions:(i)You hereby irrevocably appoint [Insert ApplicableBroker Name] or such other registered broker-dealer that is a memberof the Financial Industry Regulatory Authority as the Company mayselect, as your agent (the “Agent”), and you authorize and direct theAgent to:(1)Sell on the open market at the thenprevailing market price(s), on your behalf, as soon as practicableon or after the date on which the shares of Stock are delivered toyou pursuant to the section of this Agreement titled “Issuance” inconnection with the vesting of the RSUs, the number of shares ofStock expected to generate sufficient proceeds to cover (A) thesatisfaction of the Withholding Obligation arising from thevesting of those RSUs and the related issuance of shares of Stockto you and (B) all applicable fees and commissions due to, orrequired to be collected by, the Agent with respect thereto;(2)Remit directly to the Company and/or anysubsidiary of the Company the proceeds from the sale of theshares of Stock referred to in clause (1) above to apply to theWithholding Obligation;(3)Retain the amount required to cover allapplicable fees and commissions due to, or required to becollected by, the Agent, relating directly to the sale of the sharesof Stock referred to in clause (1) above; and(4)Remit any remaining funds to you or applythem as additional tax withholdings.(ii)You acknowledge that your election to Sell toCover and the corresponding authorization and instruction to theAgent set forth in this section (a) to sell Stock to satisfy theWithholding Obligation is intended to comply with the requirementsof Rule 10b5-1(c)(1)4under the Exchange Act and to be interpreted to comply with therequirements of Rule 10b5-1(c) under the Exchange Act (yourelection to Sell to Cover and the provisions of this section (a),collectively, the “10b5-1 Plan”). You acknowledge that by accepting this grant of RSUs, you are adopting the 10b5-1 Plan to permit you to satisfy the Withholding Obligation. You hereby authorize the Company and the Agent to cooperate and communicate with one another to determine the number of shares of Stock that must be sold pursuant to section (a)(i) above to satisfy your obligations hereunder.(iii)You acknowledge that the Agent is under noobligation to arrange for the sale of Stock at any particular priceunder this 10b5-1 Plan and that the Agent may effect sales as providedin this 10b5-1 Plan in one or more sales and that the average price forexecutions resulting from bunched orders may be assigned to youraccount. You further acknowledge that you will be responsible for allbrokerage fees and other costs of sale associated with this 10b5-1Plan, and you agree to indemnify and hold the Company harmlessfrom any losses, costs, damages, or expenses relating to any such sale.In addition, you acknowledge that it may not be possible for theAgent to sell shares of Stock as provided for in this 10b5-1 Plan dueto (i) a legal or contractual restriction applicable to you or the Agent,(ii) a market disruption, (iii) a sale effected pursuant to this 10b5-1Plan that would not comply (or in the reasonable opinion of theAgent’s counsel is likely not to comply) with the Securities Act of1933, as amended, (iv) the Company’s determination that sales maynot be effected under this 10b5-1 Plan or (v) rules governing orderexecution priority on the national exchange where the Stock may betraded. In the event of the Agent’s inability to sell shares of Stock,you will continue to be responsible for the timely payment to theCompany of all federal, state, local and foreign taxes that are requiredby applicable laws and regulations to be withheld, including but notlimited to those amounts specified in section (a)(i)(1) above.(iv)You acknowledge that regardless of any other termor condition of this 10b5-1 Plan, the Agent will not be liable to youfor (A) special, indirect, punitive, exemplary, or consequentialdamages, or incidental losses or damages of any kind, or (B) anyfailure to perform or for any delay in performance that results from acause or circumstance that is beyond its reasonable control.(v)You hereby agree to execute and deliver to theAgent any other agreements or documents as the Agent reasonablydeems necessary or appropriate to carry out the purposes and intent ofthis 10b5-1 Plan.(vi)Your election to Sell to Cover and to enter into this10b5-1 Plan is irrevocable. Upon acceptance of this grant of RSUs,you have elected to Sell to Cover and to enter into this 10b5-1 Plan,and you acknowledge that you may not change this election at anytime in the future. This 10b5-1 Plan shall terminate on the date onwhich the5Withholding Obligation arising from the vesting of all of theRSUs and the related issuance of shares of Stock has been satisfied.(b)In addition to or in combination with the Sell to Cover providedfor under section (a) above, you authorize the Company, at itsdiscretion, to satisfy the Withholding Obligation by the followingmeans (or by a combination of the following means):(i)Requiring you to pay to the Company any portionof the Withholding Obligation in cash;(ii)Withholding from any compensation otherwisepayable to you by the Company; and/or(iii)Withholding shares of Stock from the shares ofStock issued or otherwise issuable to you in connection with thisaward of RSUs with a Fair Market Value (measured as of the dateshares of Stock are issued pursuant to the section of thisAgreement titled “Issuance”) equal to the amount of theWithholding Obligation; provided, however, that the number ofsuch shares of Stock so withheld shall not exceed the amountnecessary to satisfy the Company’s required tax withholdingobligations using the minimum statutory withholding rates forfederal, state, local and foreign tax purposes, including payrolltaxes, that are applicable to supplemental taxable income.(c)Unless the Withholding Obligation of the Company and/or anysubsidiary of the Company are satisfied, the Company shall haveno obligation to deliver to you any Stock.(d)In the event the Withholding Obligation of the Company arisesprior to the delivery to you of Stock or it is determined after thedelivery of Stock to you that the amount of the WithholdingObligation was greater than the amount withheld by theCompany, you agree to indemnify and hold the Companyharmless from any failure by the Company to withhold the properamount.The Company has no duty or obligation to minimize the taxconsequences to you of this award of RSUs and shall not be liable toyou for any adverse tax consequences to you arising in connectionwith this award of RSUs. You are hereby advised to consult withyour own personal tax, financial and/or legal advisors regardingthe tax consequences of this award of RSUs and by accepting awardgrant of RSUs, you have agreed that you have done so orknowingly and voluntarily declined to do so. You understand thatyou (and not the Company) shall be responsible for your own taxliability that may arise as a result of this investment or thetransactions contemplated by this Agreement.Transfer of RSUsThe RSUs are not transferable by you other than to a designatedbeneficiary upon your death or by will or the laws of descent anddistribution. No6assignment or transfer of the RSUs, or the rights represented thereby,whether voluntary or involuntary, by operation of law or otherwise(except to a designated beneficiary upon death by will or the laws ofdescent or distribution) will vest in the assignee or transferee anyinterest or right herein whatsoever, but immediately upon suchassignment or transfer the RSUs will terminate and become of nofurther effect.Retention RightsNeither the RSUs nor this Agreement gives you the right to beretained or employed by the Company (or any subsidiary of theCompany) in any capacity. Unless otherwise specified in any writtenemployment or other agreement between the Company and you, theCompany reserves the right to terminate your Service at any time andfor any reason.Stockholder RightsYou, or your estate or heirs, have no rights as a stockholder of theCompany until the shares of Stock have been issued to you uponvesting of the RSUs and either a certificate evidencing your shares ofStock has been issued or an appropriate entry has been made on theCompany’s books. No adjustments are made for dividends or otherrights if the applicable record date occurs before your stock certificateis issued (or an appropriate book entry has been made).ClawbackThe RSUs are subject to mandatory repayment by you to the Companyto the extent you are or in the future become subject to (i) any“clawback” or recoupment policy that is adopted by the Company ora subsidiary of the Company to comply with the requirements of anyapplicable laws, or (ii) any applicable laws which impose mandatoryrecoupment, under circumstances set forth in such applicable laws.AdjustmentsThe number of shares subject to issuance upon vesting of the RSUs issubject to adjustment in accordance with Section 3(d) of the Plan. The RSUs shall be subject to the terms of any applicable agreementof merger, liquidation or reorganization in the event the Company issubject to such corporate activity.Applicable LawThis Agreement will be interpreted and enforced under the laws ofDelaware other than any conflicts or choice of law rule or principlethat might otherwise refer construction or interpretation of thisAgreement to the substantive law of another jurisdiction.The Plan The text of the Plan is incorporated into this Agreement by reference. This Agreement and the Plan constitute the entire understandingbetween you and the Company regarding the RSUs. Any prioragreements, commitments or negotiations concerning this grant aresuperseded; except that any written employment, consulting,confidentiality, non-solicitation, non-competition, and/or severanceagreement between you and the Company or any subsidiary of theCompany shall supersede this Agreement with respect to its subjectmatter.Data PrivacyIn order to administer the Plan, the Company may process personaldata about you. Such data includes, but is not limited to theinformation provided in this Agreement and any changes thereto,other appropriate7personal and financial data about you such as home address andbusiness addresses and other contact information, payroll informationand any other information that might be deemed appropriate by theCompany to facilitate the administration of the Plan.By accepting this grant of RSUs, you give explicit consent to theCompany to process any such personal data. You also give explicitconsent to the Company to transfer any such personal data outside thecountry in which you work or are employed, including, with respect tonon-U.S. resident grantees, to the United States, to transferees whoshall include the Company and other persons who are designated bythe Company to administer the PlanConsent to ElectronicDeliveryBy accepting this grant of RSUs, you consent to receive documentsrelated to the RSUs by electronic delivery (including e-mail orreference to a website or other URL) and, if requested, agree toparticipate in the Plan through an on-line or electronic systemestablished and maintained by the Company or another third partydesignated by the Company, and your consent shall remain in effectthroughout your term of Service and thereafter until you withdrawsuch consent in writing to the Company.Code Section 409AThe RSUs are intended to be exempt from, or to comply with, CodeSection 409A to the extent subject thereto, and, accordingly, to themaximum extent permitted, this Agreement will be interpreted andadministered to be in compliance with Code Section 409A.Notwithstanding anything to the contrary in the Plan or thisAgreement, neither the Company, any subsidiaries of the Company,the Board, nor the Committee will have any obligation to take anyaction to prevent the assessment of any excise tax or penalty on youunder Code Section 409A, and neither the Company, any subsidiariesof the Company, the Board, nor the Committee will have any liabilityto you for such tax or penalty.For purposes of this Agreement, a termination of Service only occursupon an event that would be a “separation from service” (within themeaning of Code Section 409A and the regulations thereunder). Notwithstanding anything in this Agreement to the contrary, if at thetime of your separation from service, (i) you are a “specifiedemployee” (within the meaning of Code Section 409A and theregulations thereunder, and using the identification methodologyselected by the Company from time to time), and (ii) the Companymakes a good faith determination that an amount payable to you onaccount of such separation from service constitutes deferredcompensation (within the meaning of Code Section 409A) thepayment of which is required to be delayed pursuant to the six (6)-month delay rule set forth in Code Section 409A in order to avoidtaxes or penalties under Section 409A (the “Delay Period”), then theCompany will not pay such amount on the otherwise scheduledpayment date but will instead pay it in a lump sum on the first payrolldate after such Delay Period (or upon your death, if earlier), withoutinterest thereupon.8Successors and AssignsThis Agreement shall inure to the successors and assigns of theparties; provided, however, that neither this Agreement nor any rightshereunder may be assigned by you, except to the extent expresslypermitted herein.SeverabilityIf any provision of this Agreement is held invalid or unenforceable byany court of competent jurisdiction, the other provisions of thisAgreement will remain in full force and effect. Any provision of thisAgreement held invalid or unenforceable only in part or degree willremain in full force and effect to the extent not held invalid orunenforceable.You must accept this Agreement electronically pursuant to the online acceptanceprocedure established by the Company. By accepting this Agreement, you agree to all of the termsand conditions described in this Agreement and in the Plan, a copy of which has been provided ormade available to you. You acknowledge that you have carefully reviewed the Plan, and agree thatthe Plan will control in the event any provision of this Agreement should appear to be inconsistentwith the Plan. Schedule to Restricted Stock Unit Agreement(See Attachment) Recipient ID[●]Recipient Name[●]Recipient Address[●]Type of AwardRestricted Stock UnitsNumber of Shares[●]Grant Date[●]Vesting Start Date[●]Vesting Schedule:[Insert vesting schedule] Exhibit 10.35MARINUS PHARMACEUTICALS, INC.INDUCEMENT AWARDRESTRICTED STOCK UNIT AGREEMENTMarinus Pharmaceuticals, Inc., a Delaware corporation (the “Company”), hereby grantsrestricted Stock Units (the “RSUs”) representing the right to receive shares of its common stock, parvalue $0.001 (the “Stock”), to the recipient (the “Grantee”) set forth on the Schedule to RestrictedStock Unit Agreement attached hereto (the “Schedule”), subject to the vesting and other conditionsset forth below and in the Schedule. The RSUs are granted to the Grantee in connection with theGrantee’s entering into employment with the Company and are regarded by the parties as aninducement material to the Grantee’s entering into employment within the meaning of NasdaqListing Rule 5635(c)(4). The RSUs are made and granted as a stand-alone award, separate and apartfrom, and outside of, the Company’s 2014 Equity Incentive Plan (as it may be amended from time totime, the “Plan”), and shall not constitute an award granted under or pursuant to the Plan. Notwithstanding the foregoing, the terms, conditions and definitions set forth in the Plan shall applyto the RSUs, and the RSUs shall be subject to such terms, conditions and definitions, which arehereby incorporated into this Restricted Stock Unit Agreement and the Schedule (collectively, the“Agreement”) by reference. For the avoidance of doubt, the RSUs shall not reduce the number ofshares of Stock available for issuance under awards issued pursuant to the Plan. The terms andconditions of the RSUs are set forth in this Agreement and in the Plan. All capitalized terms that areused in this Agreement and not otherwise defined herein shall have the meanings ascribed to them inthe Plan.Restricted Stock UnitsThis Agreement evidences an award of RSUs in the number set forthon the Schedule. Each RSU represents the right to receive one shareof Stock, subject to the vesting and other conditions set forth in thisAgreement and in the Plan. VestingThe RSUs shall vest in accordance with the vesting schedule set forthon the Schedule; provided, however, that for purposes of vesting,fractional numbers of shares of Stock shall be rounded to the nearestwhole number, and the number of RSUs that shall vest on the finalvesting date shall be rounded up or down as necessary such that thetotal number of RSUs that vest pursuant to the vesting schedule shallbe equal to the number of RSUs covered by this grant as set forth onthe Schedule. Unless the termination of your service as an Employee (“Service”)triggers accelerated vesting or other treatment of the RSUs pursuant tothe terms of this Agreement or the Plan, you shall immediately andautomatically forfeit the unvested RSUs to the Company in the eventyour Service terminates for any reason. No RSUs shall vest after yourtermination of Service.Change of ControlIn the event of a Change of Control, the RSUs will be treated in themanner provided in Section 13 of the Plan. Notwithstanding theforegoing, if, within twelve (12) months following the consummationof a Change of Control, your Service is terminated (i) by theCompany or any of its subsidiaries (or by the acquiring or successorentity in the Change of Control transaction) without Cause (as definedbelow) or, (ii) if you have an employment agreement with theCompany (an “Employment Agreement”) which has a definition of“good reason,” by you for good2 reason (as defined in your Employment Agreement), the unvestedRSUs will become fully vested as of the date of your termination ofemployment. For purposes of this Agreement, the term “Cause” shall have themeaning set forth in the Plan, or, if you have an EmploymentAgreement which has a definition of “Cause,” then it shall have themeaning set forth in your Employment Agreement.Termination due to deathor DisabilityIf your Service terminates due to your death or Disability, theunvested RSUs shall become immediately vested as of the date ofyour termination of Service.Leaves of AbsenceFor purposes of the RSUs, your Service does not terminate when yougo on a bona fide employee leave of absence that was approved bythe Company in writing, if the terms of the leave provide forcontinued service crediting, or when continued service crediting isrequired by applicable law. However, in all other cases, your Servicewill be treated as terminating ninety (90) days after you went onemployee leave, unless your right to return to active work isguaranteed by law or by a contract. Your Service terminates in anyevent when the approved leave ends, unless you immediately return toactive employee work.The Company determines, in its sole discretion, which leaves countfor this purpose, and when your Service terminates for all purposesunder this Agreement.IssuanceThe issuance of the shares of Stock underlying any RSUs that becomevested hereunder shall be made within thirty (30) days after theapplicable vesting date. Any such issuance shall be evidenced in sucha manner as the Company, in its discretion, will deem appropriate,including, without limitation, book-entry, direct registration orissuance of one or more Stock certificates.Withholding TaxesThe Company’s obligation to deliver shares of Stock upon vesting ofthe RSUs shall be subject to the satisfaction of all applicable incomeand employment tax withholding requirements. The Company shall, except to the extent that you request otherwise inwriting at least thirty (30) days prior to the applicable vesting date ofthe RSUs, satisfy any applicable income and employment taxwithholding requirements by having vested shares of Stock otherwisedeliverable to you under this Agreement in respect of your vestedRSUs withheld up to an amount that does not exceed your minimumapplicable withholding tax rate for federal (including FICA), state andlocal tax liabilities. In the event and to the extent that you timelyrequest in writing that the Company not withhold otherwisedeliverable shares of Stock, then you may elect to make a cashpayment to the Company at the time of the vesting of the RSUs equalto the required withholding taxes. To the extent that you do not makea cash payment to the Company as set forth in the preceding sentence,then the Company shall withhold from your next immediate paymentsof salary,3 wages or fees amounts as necessary to satisfy all applicablewithholding tax requirements.Transfer of RSUsThe RSUs are not transferable by you other than to a designatedbeneficiary upon your death or by will or the laws of descent anddistribution. No assignment or transfer of the RSUs, or the rightsrepresented thereby, whether voluntary or involuntary, by operationof law or otherwise (except to a designated beneficiary upon death bywill or the laws of descent or distribution) will vest in the assignee ortransferee any interest or right herein whatsoever, but immediatelyupon such assignment or transfer the RSUs will terminate and becomeof no further effect.Retention RightsNeither the RSUs nor this Agreement gives you the right to beretained or employed by the Company (or any subsidiary of theCompany) in any capacity. Unless otherwise specified in any writtenemployment or other agreement between the Company and you, theCompany reserves the right to terminate your Service at any time andfor any reason.Stockholder RightsYou, or your estate or heirs, have no rights as a stockholder of theCompany until the shares of Stock have been issued to you uponvesting of the RSUs and either a certificate evidencing your shares ofStock has been issued or an appropriate entry has been made on theCompany’s books. No adjustments are made for dividends or otherrights if the applicable record date occurs before your stock certificateis issued (or an appropriate book entry has been made).ClawbackThe RSUs are subject to mandatory repayment by you to the Companyto the extent you are or in the future become subject to (i) any“clawback” or recoupment policy that is adopted by the Company ora subsidiary of the Company to comply with the requirements of anyapplicable laws, or (ii) any applicable laws which impose mandatoryrecoupment, under circumstances set forth in such applicable laws.AdjustmentsThe number of shares subject to issuance upon vesting of the RSUs issubject to adjustment in accordance with Section 3(d) of the Plan. The RSUs shall be subject to the terms of any applicable agreementof merger, liquidation or reorganization in the event the Company issubject to such corporate activity.Applicable LawThis Agreement will be interpreted and enforced under the laws ofDelaware other than any conflicts or choice of law rule or principlethat might otherwise refer construction or interpretation of thisAgreement to the substantive law of another jurisdiction.AdministrationThe Committee shall have the power to interpret this Agreement andto adopt such rules for the administration, interpretation andapplication of this Agreement as are consistent therewith and tointerpret or revoke any such rules. All actions taken and allinterpretations and determinations made by the Committee in goodfaith shall be final and binding upon you, the Company and all otherinterested persons. No member of the Committee shall be personallyliable for any action, determination or interpretation made in goodfaith with respect to the RSUs. In its absolute4 discretion, the Board may at any time and from time to time exerciseany and all rights and duties of the Committee under this Agreement.The Plan The text of the Plan is incorporated into this Agreement by reference. This Agreement and the Plan constitute the entire understandingbetween you and the Company regarding the RSUs. Any prioragreements, commitments or negotiations concerning this grant aresuperseded; except that any written employment, consulting,confidentiality, non-solicitation, non-competition, and/or severanceagreement between you and the Company or any subsidiary of theCompany shall supersede this Agreement with respect to its subjectmatter.Data PrivacyIn order to administer this Agreement, the Company may processpersonal data about you. Such data includes, but is not limited to theinformation provided in this Agreement and any changes thereto,other appropriate personal and financial data about you such as homeaddress and business addresses and other contact information, payrollinformation and any other information that might be deemedappropriate by the Company to facilitate the administration of thisAgreement.By accepting this grant of RSUs, you give explicit consent to theCompany to process any such personal data. You also give explicitconsent to the Company to transfer any such personal data outside thecountry in which you work or are employed, including, with respect tonon-U.S. resident grantees, to the United States, to transferees whoshall include the Company and other persons who are designated bythe Company to administer this Agreement.Consent to ElectronicDeliveryBy accepting this grant of RSUs, you consent to receive documentsrelated to the RSUs by electronic delivery (including e-mail orreference to a website or other URL) and, if requested, agree toparticipate in this Agreement through an on-line or electronic systemestablished and maintained by the Company or another third partydesignated by the Company, and your consent shall remain in effectthroughout your term of Service and thereafter until you withdrawsuch consent in writing to the Company.Code Section 409AThe RSUs are intended to be exempt from, or to comply with, CodeSection 409A to the extent subject thereto, and, accordingly, to themaximum extent permitted, this Agreement will be interpreted andadministered to be in compliance with Code Section 409A.Notwithstanding anything to the contrary in the Plan or thisAgreement, neither the Company, any subsidiaries of the Company,the Board, nor the Committee will have any obligation to take anyaction to prevent the assessment of any excise tax or penalty on youunder Code Section 409A, and neither the Company, any subsidiariesof the Company, the Board, nor the Committee will have any liabilityto you for such tax or penalty.For purposes of this Agreement, a termination of Service only occursupon an event that would be a “separation from service” (within themeaning of Code Section 409A and the regulations thereunder). Notwithstanding5 anything in this Agreement to the contrary, if at the time of yourseparation from service, (i) you are a “specified employee” (within themeaning of Code Section 409A and the regulations thereunder, andusing the identification methodology selected by the Company fromtime to time), and (ii) the Company makes a good faith determinationthat an amount payable to you on account of such separation fromservice constitutes deferred compensation (within the meaning ofCode Section 409A) the payment of which is required to be delayedpursuant to the six (6)-month delay rule set forth in Code Section409A in order to avoid taxes or penalties under Section 409A (the“Delay Period”), then the Company will not pay such amount on theotherwise scheduled payment date but will instead pay it in a lumpsum on the first payroll date after such Delay Period (or upon yourdeath, if earlier), without interest thereupon.Successors and AssignsThis Agreement shall inure to the successors and assigns of theparties; provided, however, that neither this Agreement nor any rightshereunder may be assigned by you, except to the extent expresslypermitted herein.SeverabilityIf any provision of this Agreement is held invalid or unenforceable byany court of competent jurisdiction, the other provisions of thisAgreement will remain in full force and effect. Any provision of thisAgreement held invalid or unenforceable only in part or degree willremain in full force and effect to the extent not held invalid orunenforceable.You must accept this Agreement electronically pursuant to the online acceptanceprocedure established by the Company. By accepting this Agreement, you agree to all of the termsand conditions described in this Agreement and in the Plan, a copy of which has been provided ormade available to you. You acknowledge that you have carefully reviewed the Plan, and agree thatthe Plan will control in the event any provision of this Agreement should appear to be inconsistentwith the Plan. Schedule to Restricted Stock Unit Agreement(See Attachment) Recipient ID[●]Recipient Name[●]Recipient Address[●]Type of AwardRestricted Stock UnitsNumber of Shares[●]Grant Date[●]Vesting Start Date[●]Vesting Schedule:[Insert vesting schedule] Exhibit 10.36MARINUS PHARMACEUTICALS, INC.INDUCEMENT AWARDRESTRICTED STOCK UNIT AGREEMENTMarinus Pharmaceuticals, Inc., a Delaware corporation (the “Company”), hereby grantsrestricted Stock Units (the “RSUs”) representing the right to receive shares of its common stock, parvalue $0.001 (the “Stock”), to the recipient (the “Grantee”) set forth on the Schedule to RestrictedStock Unit Agreement attached hereto (the “Schedule”), subject to the vesting and other conditionsset forth below and in the Schedule. The RSUs are granted to the Grantee in connection with theGrantee’s entering into employment with the Company and are regarded by the parties as aninducement material to the Grantee’s entering into employment within the meaning of NasdaqListing Rule 5635(c)(4). The RSUs are made and granted as a stand-alone award, separate and apartfrom, and outside of, the Company’s 2014 Equity Incentive Plan (as it may be amended from time totime, the “Plan”), and shall not constitute an award granted under or pursuant to the Plan. Notwithstanding the foregoing, the terms, conditions and definitions set forth in the Plan shall applyto the RSUs, and the RSUs shall be subject to such terms, conditions and definitions, which arehereby incorporated into this Restricted Stock Unit Agreement and the Schedule (collectively, the“Agreement”) by reference. For the avoidance of doubt, the RSUs shall not reduce the number ofshares of Stock available for issuance under awards issued pursuant to the Plan. The terms andconditions of the RSUs are set forth in this Agreement and in the Plan. All capitalized terms that areused in this Agreement and not otherwise defined herein shall have the meanings ascribed to them inthe Plan.Restricted Stock UnitsThis Agreement evidences an award of RSUs in the number set forthon the Schedule. Each RSU represents the right to receive one shareof Stock, subject to the vesting and other conditions set forth in thisAgreement and in the Plan. VestingThe RSUs shall vest in accordance with the vesting schedule set forthon the Schedule; provided, however, that for purposes of vesting,fractional numbers of shares of Stock shall be rounded to the nearestwhole number, and the number of RSUs that shall vest on the finalvesting date shall be rounded up or down as necessary such that thetotal number of RSUs that vest pursuant to the vesting schedule shallbe equal to the number of RSUs covered by this grant as set forth onthe Schedule. Unless the termination of your service as an Employee (“Service”)triggers accelerated vesting or other treatment of the RSUs pursuant tothe terms of this Agreement or the Plan, you shall immediately andautomatically forfeit the unvested RSUs to the Company in the eventyour Service terminates for any reason. No RSUs shall vest after yourtermination of Service.Change of ControlIn the event of a Change of Control, the RSUs will be treated in themanner provided in Section 13 of the Plan. Notwithstanding theforegoing, if, within twelve (12) months following the consummationof a Change of Control, your Service is terminated (i) by theCompany or any of its subsidiaries (or by the acquiring or successorentity in the Change of Control transaction) without Cause (as definedbelow) or, (ii) if you have an employment agreement with theCompany (an “Employment Agreement”) which has a definition of“good reason,” by you for good2 reason (as defined in your Employment Agreement), the unvestedRSUs will become fully vested as of the date of your termination ofemployment. For purposes of this Agreement, the term “Cause” shall have themeaning set forth in the Plan, or, if you have an EmploymentAgreement which has a definition of “Cause,” then it shall have themeaning set forth in your Employment Agreement.Termination due to deathor DisabilityIf your Service terminates due to your death or Disability, theunvested RSUs shall become immediately vested as of the date ofyour termination of Service.Leaves of AbsenceFor purposes of the RSUs, your Service does not terminate when yougo on a bona fide employee leave of absence that was approved bythe Company in writing, if the terms of the leave provide forcontinued service crediting, or when continued service crediting isrequired by applicable law. However, in all other cases, your Servicewill be treated as terminating ninety (90) days after you went onemployee leave, unless your right to return to active work isguaranteed by law or by a contract. Your Service terminates in anyevent when the approved leave ends, unless you immediately return toactive employee work.The Company determines, in its sole discretion, which leaves countfor this purpose, and when your Service terminates for all purposesunder this Agreement.IssuanceSubject to the satisfaction of the Withholding Obligation (as definedbelow), the issuance of the shares of Stock underlying any RSUs thatbecome vested hereunder shall be made within thirty (30) days afterthe applicable vesting date. For the avoidance of doubt, the actualdate of issuance shall be determined by the Company in its solediscretion. Any such issuance shall be evidenced in such a manner asthe Company, in its discretion, will deem appropriate, including,without limitation, book-entry, direct registration or issuance of oneor more Stock certificates.Sell to Cover ElectionBy electronically accepting this grant of RSUs, you hereby:●elect, effective as of the date you electronically accept this grantof RSUs, to sell shares of Stock issued in respect of the RSUs inan amount determined in accordance with part (a) of the sectionof this Agreement titled “Withholding Obligation,” and to allowthe Agent (as defined below) to remit the cash proceeds of suchsale to the Company as more specifically set forth in part (a) ofthe section of this Agreement titled “Withholding Obligation” (a“Sell to Cover”);●direct the Company to make a cash payment to satisfy theWithholding Obligation from the cash proceeds of such saledirectly to the appropriate taxing authorities;●represent and warrant that (i) you have carefully reviewed part (a)of the section of this Agreement titled “Withholding Obligation,”and (ii) on the date you accept this grant of RSUs you are notaware of any3 material, nonpublic information with respect to the Company orany securities of the Company, are not subject to any legal,regulatory or contractual restriction that would prevent the Agentfrom conducting sales, do not have, and will not attempt toexercise, authority, influence or control over any sales of Stockeffected by the Agent pursuant to this Agreement, and areentering into this Agreement and this election to Sell to Cover ingood faith and not as part of a plan or scheme to evade theprohibitions of Rule 10b5-1 (regarding trading of the Company’ssecurities on the basis of material nonpublic information) underthe Securities Exchange Act of 1934, as amended (the “ExchangeAct”); and●acknowledge that you are adopting a 10b5-1 Plan (as definedbelow) to permit you to conduct Sell to Cover transactions tosatisfy the Withholding Obligation as more specifically set forthin part (a) of the section of this Agreement titled “WithholdingObligation.”Withholding Obligation(a)By accepting this grant of RSUs, you hereby (i) acknowledge andagree that you have elected a Sell to Cover to permit you tosatisfy any sums required to satisfy the federal, state, local andforeign tax withholding obligations of the Company or any of itssubsidiaries which arise in connection with this award of RSUs(the “Withholding Obligation”) and that the WithholdingObligation shall be satisfied pursuant to this section (a) and (ii)further acknowledge and agree to the following provisions:(i)You hereby irrevocably appoint [Insert ApplicableBroker Name] or such other registered broker-dealer that is a memberof the Financial Industry Regulatory Authority as the Company mayselect, as your agent (the “Agent”), and you authorize and direct theAgent to:(1)Sell on the open market at the thenprevailing market price(s), on your behalf, as soon as practicableon or after the date on which the shares of Stock are delivered toyou pursuant to the section of this Agreement titled “Issuance” inconnection with the vesting of the RSUs, the number of shares ofStock expected to generate sufficient proceeds to cover (A) thesatisfaction of the Withholding Obligation arising from thevesting of those RSUs and the related issuance of shares of Stockto you and (B) all applicable fees and commissions due to, orrequired to be collected by, the Agent with respect thereto;(2)Remit directly to the Company and/or anysubsidiary of the Company the proceeds from the sale of theshares of Stock referred to in clause (1) above to apply to theWithholding Obligation;(3)Retain the amount required to cover allapplicable fees and commissions due to, or required to becollected4 by, the Agent, relating directly to the sale of the shares of Stockreferred to in clause (1) above; and(4)Remit any remaining funds to you or applythem as additional tax withholdings.(ii)You acknowledge that your election to Sell toCover and the corresponding authorization and instruction to theAgent set forth in this section (a) to sell Stock to satisfy theWithholding Obligation is intended to comply with the requirementsof Rule 10b5-1(c)(1) under the Exchange Act and to be interpreted tocomply with the requirements of Rule 10b5-1(c) under the ExchangeAct (your election to Sell to Cover and the provisions of this section(a), collectively, the “10b5-1 Plan”). You acknowledge that by accepting this grant of RSUs, you are adopting the 10b5-1 Plan to permit you to satisfy the Withholding Obligation. You hereby authorize the Company and the Agent to cooperate and communicate with one another to determine the number of shares of Stock that must be sold pursuant to section (a)(i) above to satisfy your obligations hereunder.(iii)You acknowledge that the Agent is under noobligation to arrange for the sale of Stock at any particular priceunder this 10b5-1 Plan and that the Agent may effect sales as providedin this 10b5-1 Plan in one or more sales and that the average price forexecutions resulting from bunched orders may be assigned to youraccount. You further acknowledge that you will be responsible for allbrokerage fees and other costs of sale associated with this 10b5-1Plan, and you agree to indemnify and hold the Company harmlessfrom any losses, costs, damages, or expenses relating to any such sale.In addition, you acknowledge that it may not be possible for theAgent to sell shares of Stock as provided for in this 10b5-1 Plan dueto (i) a legal or contractual restriction applicable to you or the Agent,(ii) a market disruption, (iii) a sale effected pursuant to this 10b5-1Plan that would not comply (or in the reasonable opinion of theAgent’s counsel is likely not to comply) with the Securities Act of1933, as amended, (iv) the Company’s determination that sales maynot be effected under this 10b5-1 Plan or (v) rules governing orderexecution priority on the national exchange where the Stock may betraded. In the event of the Agent’s inability to sell shares of Stock,you will continue to be responsible for the timely payment to theCompany of all federal, state, local and foreign taxes that are requiredby applicable laws and regulations to be withheld, including but notlimited to those amounts specified in section (a)(i)(1) above.(iv)You acknowledge that regardless of any other termor condition of this 10b5-1 Plan, the Agent will not be liable to youfor (A) special, indirect, punitive, exemplary, or consequentialdamages, or incidental losses or damages of any kind, or (B) anyfailure to perform or for any delay in performance that results from acause or circumstance that is beyond its reasonable control.5 (v)You hereby agree to execute and deliver to theAgent any other agreements or documents as the Agent reasonablydeems necessary or appropriate to carry out the purposes and intent ofthis 10b5-1 Plan.(vi)Your election to Sell to Cover and to enter into this10b5-1 Plan is irrevocable. Upon acceptance of this grant of RSUs,you have elected to Sell to Cover and to enter into this 10b5-1 Plan,and you acknowledge that you may not change this election at anytime in the future. This 10b5-1 Plan shall terminate on the date onwhich the Withholding Obligation arising from the vesting of all ofthe RSUs and the related issuance of shares of Stock has beensatisfied.(b)In addition to or in combination with the Sell to Cover providedfor under section (a) above, you authorize the Company, at itsdiscretion, to satisfy the Withholding Obligation by the followingmeans (or by a combination of the following means):(i)Requiring you to pay to the Company any portionof the Withholding Obligation in cash;(ii)Withholding from any compensation otherwisepayable to you by the Company; and/or(iii)Withholding shares of Stock from the shares ofStock issued or otherwise issuable to you in connection with thisaward of RSUs with a Fair Market Value (measured as of the dateshares of Stock are issued pursuant to the section of thisAgreement titled “Issuance”) equal to the amount of theWithholding Obligation; provided, however, that the number ofsuch shares of Stock so withheld shall not exceed the amountnecessary to satisfy the Company’s required tax withholdingobligations using the minimum statutory withholding rates forfederal, state, local and foreign tax purposes, including payrolltaxes, that are applicable to supplemental taxable income.(c)Unless the Withholding Obligation of the Company and/or anysubsidiary of the Company are satisfied, the Company shall haveno obligation to deliver to you any Stock.(d)In the event the Withholding Obligation of the Company arisesprior to the delivery to you of Stock or it is determined after thedelivery of Stock to you that the amount of the WithholdingObligation was greater than the amount withheld by theCompany, you agree to indemnify and hold the Companyharmless from any failure by the Company to withhold the properamount.The Company has no duty or obligation to minimize the taxconsequences to you of this award of RSUs and shall not be liable toyou for any adverse tax consequences to you arising in connectionwith this award of RSUs. You are hereby advised to consult with6 your own personal tax, financial and/or legal advisors regardingthe tax consequences of this award of RSUs and by accepting awardgrant of RSUs, you have agreed that you have done so orknowingly and voluntarily declined to do so. You understand thatyou (and not the Company) shall be responsible for your own taxliability that may arise as a result of this investment or thetransactions contemplated by this Agreement.Transfer of RSUsThe RSUs are not transferable by you other than to a designatedbeneficiary upon your death or by will or the laws of descent anddistribution. No assignment or transfer of the RSUs, or the rightsrepresented thereby, whether voluntary or involuntary, by operationof law or otherwise (except to a designated beneficiary upon death bywill or the laws of descent or distribution) will vest in the assignee ortransferee any interest or right herein whatsoever, but immediatelyupon such assignment or transfer the RSUs will terminate and becomeof no further effect.Retention RightsNeither the RSUs nor this Agreement gives you the right to beretained or employed by the Company (or any subsidiary of theCompany) in any capacity. Unless otherwise specified in any writtenemployment or other agreement between the Company and you, theCompany reserves the right to terminate your Service at any time andfor any reason.Stockholder RightsYou, or your estate or heirs, have no rights as a stockholder of theCompany until the shares of Stock have been issued to you uponvesting of the RSUs and either a certificate evidencing your shares ofStock has been issued or an appropriate entry has been made on theCompany’s books. No adjustments are made for dividends or otherrights if the applicable record date occurs before your stock certificateis issued (or an appropriate book entry has been made).ClawbackThe RSUs are subject to mandatory repayment by you to the Companyto the extent you are or in the future become subject to (i) any“clawback” or recoupment policy that is adopted by the Company ora subsidiary of the Company to comply with the requirements of anyapplicable laws, or (ii) any applicable laws which impose mandatoryrecoupment, under circumstances set forth in such applicable laws.AdjustmentsThe number of shares subject to issuance upon vesting of the RSUs issubject to adjustment in accordance with Section 3(d) of the Plan. The RSUs shall be subject to the terms of any applicable agreementof merger, liquidation or reorganization in the event the Company issubject to such corporate activity.Applicable LawThis Agreement will be interpreted and enforced under the laws ofDelaware other than any conflicts or choice of law rule or principlethat might otherwise refer construction or interpretation of thisAgreement to the substantive law of another jurisdiction.AdministrationThe Committee shall have the power to interpret this Agreement andto adopt such rules for the administration, interpretation andapplication of this Agreement as are consistent therewith and tointerpret or revoke any7 such rules. All actions taken and all interpretations anddeterminations made by the Committee in good faith shall be finaland binding upon you, the Company and all other interested persons.No member of the Committee shall be personally liable for anyaction, determination or interpretation made in good faith with respectto the RSUs. In its absolute discretion, the Board may at any time andfrom time to time exercise any and all rights and duties of theCommittee under this Agreement.The Plan The text of the Plan is incorporated into this Agreement by reference. This Agreement and the Plan constitute the entire understandingbetween you and the Company regarding the RSUs. Any prioragreements, commitments or negotiations concerning this grant aresuperseded; except that any written employment, consulting,confidentiality, non-solicitation, non-competition, and/or severanceagreement between you and the Company or any subsidiary of theCompany shall supersede this Agreement with respect to its subjectmatter.Data PrivacyIn order to administer this Agreement, the Company may processpersonal data about you. Such data includes, but is not limited to theinformation provided in this Agreement and any changes thereto,other appropriate personal and financial data about you such as homeaddress and business addresses and other contact information, payrollinformation and any other information that might be deemedappropriate by the Company to facilitate the administration of thisAgreement.By accepting this grant of RSUs, you give explicit consent to theCompany to process any such personal data. You also give explicitconsent to the Company to transfer any such personal data outside thecountry in which you work or are employed, including, with respect tonon-U.S. resident grantees, to the United States, to transferees whoshall include the Company and other persons who are designated bythe Company to administer this Agreement.Consent to ElectronicDeliveryBy accepting this grant of RSUs, you consent to receive documentsrelated to the RSUs by electronic delivery (including e-mail orreference to a website or other URL) and, if requested, agree toparticipate in this Agreement through an on-line or electronic systemestablished and maintained by the Company or another third partydesignated by the Company, and your consent shall remain in effectthroughout your term of Service and thereafter until you withdrawsuch consent in writing to the Company.Code Section 409AThe RSUs are intended to be exempt from, or to comply with, CodeSection 409A to the extent subject thereto, and, accordingly, to themaximum extent permitted, this Agreement will be interpreted andadministered to be in compliance with Code Section 409A.Notwithstanding anything to the contrary in the Plan or thisAgreement, neither the Company, any subsidiaries of the Company,the Board, nor the Committee will have any obligation to take anyaction to prevent the assessment of any excise tax or penalty on youunder Code Section 409A, and neither the Company, any8 subsidiaries of the Company, the Board, nor the Committee will haveany liability to you for such tax or penalty.For purposes of this Agreement, a termination of Service only occursupon an event that would be a “separation from service” (within themeaning of Code Section 409A and the regulations thereunder). Notwithstanding anything in this Agreement to the contrary, if at thetime of your separation from service, (i) you are a “specifiedemployee” (within the meaning of Code Section 409A and theregulations thereunder, and using the identification methodologyselected by the Company from time to time), and (ii) the Companymakes a good faith determination that an amount payable to you onaccount of such separation from service constitutes deferredcompensation (within the meaning of Code Section 409A) thepayment of which is required to be delayed pursuant to the six (6)-month delay rule set forth in Code Section 409A in order to avoidtaxes or penalties under Section 409A (the “Delay Period”), then theCompany will not pay such amount on the otherwise scheduledpayment date but will instead pay it in a lump sum on the first payrolldate after such Delay Period (or upon your death, if earlier), withoutinterest thereupon.Successors and AssignsThis Agreement shall inure to the successors and assigns of theparties; provided, however, that neither this Agreement nor any rightshereunder may be assigned by you, except to the extent expresslypermitted herein.SeverabilityIf any provision of this Agreement is held invalid or unenforceable byany court of competent jurisdiction, the other provisions of thisAgreement will remain in full force and effect. Any provision of thisAgreement held invalid or unenforceable only in part or degree willremain in full force and effect to the extent not held invalid orunenforceable.You must accept this Agreement electronically pursuant to the online acceptanceprocedure established by the Company. By accepting this Agreement, you agree to all of the termsand conditions described in this Agreement and in the Plan, a copy of which has been provided ormade available to you. You acknowledge that you have carefully reviewed the Plan, and agree thatthe Plan will control in the event any provision of this Agreement should appear to be inconsistentwith the Plan. Schedule to Restricted Stock Unit Agreement(See Attachment) Recipient ID[●]Recipient Name[●]Recipient Address[●]Type of AwardRestricted Stock UnitsNumber of Shares[●]Grant Date[●]Vesting Start Date[●]Vesting Schedule:[Insert vesting schedule]Exhibit 21SUBSIDIARIES OF THE REGISTRANTMarinus Pharmaceuticals Emerald Limited, an Ireland company and wholly owned subsidiary.Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following RegistrationStatements: 1.Registration Statement (Form S-3 No. 333-239780) of Marinus Pharmaceuticals,Inc.;2.Registration Statement (Form S-3 No. 333-237903) of Marinus Pharmaceuticals,Inc.;3.Registration Statement (Form S-8 No. 333-258677) pertaining to the MarinusPharmaceuticals, Inc. 2014 Equity Incentive Plan, as amended, and IndividualNonqualified Stock Option Awards;4.Registration Statement (Form S-8 No. 333-239785) pertaining to the MarinusPharmaceuticals, Inc. 2014 Equity Incentive Plan, as amended, and IndividualNonqualified Stock Option Awards;5.Registration Statement (Form S-8 No. 333-233131) pertaining to the MarinusPharmaceuticals, Inc. 2014 Equity Incentive Plan, as amended, and IndividualNonqualified Stock Option Awards;6.Registration Statement (Form S-8 No. 333-219613) pertaining to the MarinusPharmaceuticals, Inc. 2014 Equity Incentive Plan; and7.Registration Statement (Form S-8 No. 333-200701) pertaining to the MarinusPharmaceuticals, Inc. 2014 Equity Incentive Plan;of our report dated March 24, 2022, with respect to the financial statements ofMarinus Pharmaceuticals, Inc. included in this Annual Report (Form 10-K) of MarinusPharmaceuticals, Inc. for the year ended December 31, 2021./s/ Ernst & Young LLPPhiladelphia, PAMarch 24, 2022Exhibit 31.1Certification of Chief Executive Officer Pursuant toExchange Act Rules 13a-14(a) or 15d-14(a)I, Scott Braunstein, certify that:1.I have reviewed this annual report on Form 10-K of Marinus Pharmaceuticals, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in thisreport, fairly present in all material respects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controlover financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controlsand procedures to be designed under our supervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal controlover financial reporting to be designed under our supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of the disclosure controls and procedures, asof the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financialreporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarterin the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recentevaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation ofinternal control over financial reporting which are reasonably likely to adversely affect the registrant’s abilityto record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal control over financial reporting.Date: March 24, 2022/s/ Scott BraunsteinScott Braunstein,Chief Executive Officer and Director(Principal Executive Officer)Exhibit 31.2Certification of Chief Financial Officer Pursuant toExchange Act Rules 13a-14(a) or 15d-14(a)I, Steven Pfanstiel, certify that:1.I have reviewed this annual report on Form 10-K of Marinus Pharmaceuticals, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in thisreport, fairly present in all material respects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controlover financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controlsand procedures to be designed under our supervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal controlover financial reporting to be designed under our supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control overfinancial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recentevaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation ofinternal control over financial reporting which are reasonably likely to adversely affect the registrant’s abilityto record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal control over financial reporting.Date: March 24, 2022/s/ Steven PfanstielSteven Pfanstiel,Vice President, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)Exhibit 32.1Certification Pursuant to 18 U.S.C. Section 1350In connection with the annual report of Marinus Pharmaceuticals, Inc. (the “Company”) on Form 10-K forthe year ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the“Report”), each of the undersigned, in the capacities and on the date indicated below, hereby certifies, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company.Date: March 24, 2022/s/ Scott BraunsteinChief Executive Officer and Director(Principal Executive Officer)Date: March 24, 2022/s/ Steven PfanstielVice President, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)

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