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Item 9A. Controls and Procedures

2024-02-27 compared with 2023-03-09 · 41 added, 69 removed, 202 unchanged (35% of the section changed)

7 unchanged sentences

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023, the end of the period covered by this report.

Based on that evaluation, under the supervision and with the participation of our management, including our CEO and CFO, we concluded that our disclosure controls and procedures were not effective as of December 31, 2022 due to the material weaknesses described below.

In light of the identified material weaknesses, we performed additional analyses and other procedures to ensure that the Consolidated Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company's financial position, results of operations and cash flows for the periods disclosed in conformity with U.S.

generally accepted accounting principles (U.S.

Management's Report on Internal Control over Financial Reporting

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Under the supervision and with the participation of our management, including our CEO and CFO, and under the oversight of our Board of Directors, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023 based on criteria related to internal control over financial reporting described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 Framework).

Based on management's assessment using the criteria set forth above, management concluded that the Company's internal control over financial reporting was not effective as of December 31, 2022.

The Company disclosed material weaknesses in our internal control over financial reporting as described in our Annual Report on Form 10-K as of December 31, 2021.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

During the fourth quarter of 2022, we have identified that material weaknesses still remain specific to 1) the lack of qualified resources and an adequate risk assessment over design and effective operation of controls in our inventory and cost of goods sold processes and 2) the lack of an adequate risk assessment over the design and effective operation of controls that would affect our estimation of accrued product rebates.

Our independent registered public accounting firm KPMG LLP, who audited our consolidated financial statements included in this Annual Report on Form 10-K, issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Based on management's assessment using the criteria set forth above, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2023.

Our independent registered public accounting firm KPMG LLP, who audited our consolidated financial statements included in this Annual Report on Form 10-K, issued an opinion on the effectiveness of the Company’s internal control over financial reporting.

KPMG LLP’s report is included in this Annual Report on Form 10-K.

Remediation Plan

As previously disclosed in our Quarterly Reports on Form 10-Q as of March 31, 2022, June 30, 2022 and September 30, 2022, we took several steps to remediate the previously disclosed material weaknesses in the Annual Report on Form 10-K as of December 31, 2021, including the following:

(a) Implementation of a new ERP system which went live during the second quarter of 2022;

(b) Performance or risk assessment procedures and reevaluation of control design and control procedures;

(d) Conducted training on internal control over financial reporting to employees and contractors.

We are committed to continuing the remedial steps that are intended to address the material weaknesses in the inventory, cost of goods sold, and accrued commercial product rebates estimation processes.

Our remediation process for inventory and cost of goods sold included but is not limited to reevaluation of controls and control procedures, performing risk assessment procedures as well as adding new controls as necessary.

We have hired new inventory personnel during the fourth quarter of 2022 and redesigned certain controls and control procedures, but there was not a sufficient number of occurrences for certain of those controls to operate to allow management to conclude these controls are properly designed and operating effectively.

Our remediation process for estimating accrued commercial product rebates includes but is not limited to performing additional risk assessment procedures, reevaluation of controls and control procedures, and redesigning controls as necessary.

While the audit committee of our board of directors and senior management are closely monitoring the remediation efforts, until the remediation efforts discussed in this section, including any additional remediation efforts that our senior management identifies as necessary, are complete, tested and determined effective, we will not be able to conclude that the material weaknesses have been remediated.

The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively.

Remediation of Previously Disclosed Material Weakness in Internal Control over Financial Reporting

As previously disclosed in “Item 4.

Controls and Procedures” in our Quarterly Report on Form 10-Q as of March 31, 2023, we remediated the material weaknesses in our internal control over financial reporting that were reported in Item 9A.

Controls and Procedures” in our Annual Report on Form 10-K as of December 31, 2022.

These material weaknesses were due to 1) the lack of qualified resources and an adequate risk assessment over the design and effective operation of controls in our inventory and cost of goods sold processes and 2) the lack of an adequate risk assessment over the design and effective operation of controls that would affect our estimation of accrued product rebates.

Management took several steps to remediate the previously disclosed material weaknesses including the following:

1) For the inventory and cost of goods sold processes, we hired new inventory personnel during the fourth quarter of 2022, performed risk assessment procedures, and redesigned certain controls and procedures.

2) For our estimation of accrued commercial product rebates, we performed additional risk assessment procedures and redesigned controls as necessary.

As of March 31, 2023, Management completed their remediation efforts described above and has concluded through testing, that the controls are operating effectively, and the material weaknesses in our internal controls over financial reporting have been remediated.

Changes in Internal Control over Financial Reporting

Our management, including our CEO and CFO, evaluated changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2023.

In the fourth quarter 2022, we have taken additional steps to remediate the previously disclosed material weaknesses in the Annual Report on Form 10-K as of December 31, 2021 by hiring key finance and IT personnel.

Additionally, we completed the process to integrate the operations and financial reporting systems and processes of the business acquired through the Adamas Acquisition into ours.

1) the above noted and previously reported material weaknesses and the related ongoing remediation activities described above, and 2) the integration of Adamas, there were no other changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 that occurred during the quarter ended December 31, 2022 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 that occurred during the quarter ended December 31, 2023, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION.

Not applicable.

Insider Trading Arrangements and Policies.

There were no insider trading arrangements adopted or terminated during the quarter.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

54 unchanged sentences

333-171375, as amended on March 16, 2012).

Indenture, dated as of March 19, 2018, between Supernus Pharmaceuticals, Inc.

and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on March 20, 2018, File No.

Form of 0.625% Convertible Senior Note due 2023 (included in Exhibit 4.2).

Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1, File No.

2 unchanged sentences

333-171375, as amended on December 23, 2010).

Third Amendment to Lease, dated as of November 24, 2010, by and between ARE-East Gude Lease, LLC and the Registrant (successor-in-interest to Shire Laboratories Inc.) (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, File No.

333-171375, as amended on December 23, 2010).

10.3 †* Asset Purchase and Contribution Agreement, dated as of December 22, 2005, by and among the Registrant, Shire Laboratories Inc.

22 unchanged sentences

Commercial Supply Agreement dated December 15, 2012 by and among Catalent Pharma Solutions, LLC and the Company (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on August 21, 2013, File No.

10.22 *+ Compensatory Arrangements of Certain Executive Officers for 2021 (incorporated by reference to Item 5.02 of the Form 8-K filed on February 24, 2021, File No.

Royalty Interest Acquisition Agreement, dated July 1, 2014, by and between Supernus Pharmaceuticals, Inc.

4 unchanged sentences

(incorporated by reference to Exhibit 10.2 to the Form 8-K filed on July 8, 2014, File No.

Form of Executive Retention Agreement (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on September 18, 2014, File No.

Form of Executive Retention Agreement.

Amendment to Amended and Restated Employment Agreement, dated August 8, 2014, by and between Supernus Pharmaceuticals, Inc.

13 unchanged sentences

(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2017, filed on May 9, 2017, File No.

Base Convertible Bond Hedge Transaction, dated March 14, 2018, between Deutsche Bank AG, London Branch and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.1 to the Form 8-K filed on March 20, 2018, File No.

Base Convertible Bond Hedge Transaction, dated March 14, 2018, between Bank of America, N.A.

and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.2 to the Form 8-K filed on March 20, 2018, File No.

Base Convertible Bond Hedge Transaction, dated March 14, 2018, between JPMorgan Chase Bank, National Association, London Branch and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.3 to the Form 8-K filed on March 20, 2018, File No.

Base Issuer Warrant Transaction, dated March 14, 2018, between Deutsche Bank AG, London Branch and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.4 to the Form 8-K filed on March 20, 2018, File No.

Base Issuer Warrant Transaction, dated March 14, 2018, between Bank of America, N.A.

and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.5 to the Form 8-K filed on March 20, 2018, File No.

Base Issuer Warrant Transaction, dated March 14, 2018, between JPMorgan Chase Bank, National Association, London Branch and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.6 to the Form 8-K filed on March 20, 2018, File No.

Additional Convertible Bond Hedge Transaction, dated March 15, 2018, between Deutsche Bank AG, London Branch and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.7 to the Form 8-K filed on March 20, 2018, File No.

Additional Convertible Bond Hedge Transaction, dated March 15, 2018, between Bank of America, N.A.

and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.8 to the Form 8-K filed on March 20, 2018, File No.

Additional Convertible Bond Hedge Transaction, dated March 15, 2018, between JPMorgan Chase Bank, National Association, London Branch and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.9 to the Form 8-K filed on March 20, 2018, File No.

Additional Issuer Warrant Transaction, dated March 15, 2018, between Deutsche Bank AG, London Branch and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.10 to the Form 8-K filed on March 20, 2018, File No.

Additional Issuer Warrant Transaction, dated March 15, 2018, between Bank of America, N.A.

and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.11 to the Form 8-K filed on March 20, 2018, File No.

Additional Issuer Warrant Transaction, dated March 15, 2018, between JPMorgan Chase Bank, National Association, London Branch and Supernus Pharmaceuticals, Inc.

(incorporated by reference to Exhibit 10.12 to the Form 8-K filed on March 20, 2018, File No.

Third Amendment to Amended and Restated Employment Agreement, dated May 8, 2018, between Supernus Pharmaceuticals, Inc.

and Jack Khattar (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 11, 2018, File No.

Form of Amendment to Executive Retention Agreement (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on May 11, 2018, File No.

Lease Agreement, dated January 31, 2019, between Advent Key West, LLC and Supernus Pharmaceuticals, Inc.

21 unchanged sentences

2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Form 10-Q filed on August 6, 2021, File No.

Form of Time-Based Incentive Stock Option Agreement, for awards issued after 2023 under the Supernus Pharmaceuticals, Inc.

2021 Equity Incentive Plan .

10.39 +* Form of Non-Statutory Time-Based Stock Option Agreement, under the Supernus Pharmaceuticals, Inc.

2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Form 10-Q filed on August 6, 2021, File No.

Form of Non-Statutory Time-Based Stock Option Agreement, for awards issued after 2023 under the Supernus Pharmaceuticals, Inc.

2021 Equity Incentive Plan.

10.41 +* Form of Restricted Stock Unit Award Agreement, under the Supernus Pharmaceuticals, Inc.

2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Form 10-Q filed on August 6, 2021, File No.

Form of Restricted Stock Unit Award Agreement, for awards issued after 2023 under the Supernus Pharmaceuticals, Inc.

2021 Equity Incentive Plan .

10.43 +* Form of Performance Share Unit Award Agreement, under the Supernus Pharmaceuticals, Inc.

2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Form 10-Q filed on August 6, 2021, File No.

Form of Performance Share Unit Award Agreement, for awards issued after 2023 under the Supernus Pharmaceuticals, Inc.

2021 Equity Incentive Plan.

10.45 ††* Amendment to Deed of Lease, August 23, 2021, by and between Supernus Pharmaceuticals, Inc.

5 unchanged sentences

and Zydus Lifesciences Limited.

(incorporated by reference to Exhibit 10.71 to the Form 10-K filed on March 9, 2023, File No.

10.48 ††** Settlement Agreement, dated as of June 21, 2023, by and between Supernus Pharmaceuticals, Inc.

with Apotex Inc.

and Apotex Corp.

10.49 ††* Credit Line Agreement between UBS Bank USA and Supernus Pharmaceuticals, Inc.

1 unchanged sentence

Code of Ethics (incorporated by reference to Exhibit 14 to the Company's Annual Report on Form 10-K for the period ended December 31, 2012, filed on March 15, 2013, File No.

Policy St atement on Sec urities Trades by Directors, Officer s , and Emplo yees .

Subsidiaries of the Registrant.

4 unchanged sentences

Certification of Chief Financial Officer pursuant to 18 U.S.C.

I ncentiv e Compensation Recoup ment Polic y.

The following financial information from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, formatted in Inline XBRL:

20 unchanged sentences

President and Chief Executive Officer

March 9, 2023

February 27, 2024

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and the dates indicated below:

Signature Title Date

KHATTAR President and Chief Executive Officer and Director (Principal Executive Officer) March 9, 2023

KHATTAR President and Chief Executive Officer and Director (Principal Executive Officer) February 27, 2024

/s/ TIMOTHY C.

DEC Senior Vice-President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 9, 2023

DEC Senior Vice-President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) February 27, 2024

/s/ CHARLES W.

NEWHALL, III.

Director and Chairman of the Board March 9, 2023

/s/ CARROLEE BARLOW, M.D., PH.D.

Director March 9, 2023

Director and Chairman of the Board February 27, 2024

CARROLEE BARLOW, M.D., PH.D.

Director February 27, 2024

/s/ GEORGES GEMAYEL, PH.D.

Director March 9, 2023

Director February 27, 2024

/s/ FREDERICK M.

HUDSON Director March 9, 2023

HUDSON Director February 27, 2024

/s/ BETHANY SENSENIG

Director February 27, 2024

SIEBERT, PH.D.

Director March 9, 2023

Director February 27, 2024

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures