10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2013

or

¨ TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                      to                     

Commission File Number: 001-35614

HYPERION THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	61-1512713
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

601 Gateway Boulevard, Suite 200

South San Francisco, California 94080

(650) 745-7802

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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 of 1934 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 filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of 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 and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2)    Yes  ¨    No  x

As of August 5, 2013, the number of outstanding shares of the registrant’s common stock was 20,087,200.

   

TABLE OF CONTENTS

		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			i
PART I. FINANCIAL INFORMATION			1
Item 1.	Condensed Consolidated Financial Statements (Unaudited)		1
	Condensed Consolidated Balance Sheets		1
	Condensed Consolidated Statements of Operations		2
	Condensed Consolidated Statements of Cash Flows		3
	Notes to Condensed Consolidated Financial Statements		4-16
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 4.	Controls and Procedures		27
PART II. OTHER INFORMATION			28
Item 1.	Legal Proceedings		28
Item 1A.	Risk Factors		28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		48
Item 3.	Defaults Upon Senior Securities		48
Item 4.	Mine Safety Disclosures		48
Item 5.	Other Information		49
Item 6.	Exhibits		49

In this report, unless otherwise stated or the context otherwise indicates, references to “Hyperion,” “we,” “us,” “our” and similar references refer to Hyperion Therapeutics, Inc. and our wholly owned subsidiary. The names Hyperion Therapeutics, Inc.^TM , RAVICTI and BUPHENYL are our trademarks. All other trademarks, trade names and service marks appearing in this report are the property of their respective owners.

       

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

·   the commercial launch and future sales of or any other future products or product candidates;

·   our expectations regarding the commercial supply of our UCD products;

·   third-party payor reimbursement for RAVICTI and BUPHENYL;

·   our estimates regarding anticipated capital requirements and our needs for additional financing;

·   the UCD or HE patient market size and market adoption of RAVICTI by physicians and patients;

·   the timing or cost of a Phase III trial in HE;

·   the development and approval of the use of RAVICTI for additional indications or in combination therapy;

·   our expectations regarding licensing, acquisitions and strategic operations;

·   impact of accounting standards; and

·   repayment of notes payable.

These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this report in greater detail under the heading “Risk Factors” and elsewhere in this report. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this report.

       

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Hyperion Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

	June 30, 2013			December 31, 2012
Assets
Current assets
Cash and cash equivalents	$	109,727		$	49,853
Accounts receivable, net		1,723			—
Inventories		4,992			—
Prepaid expenses and other current assets		599			1,155
Total current assets		117,041			51,008
Property and equipment, net		431			49
Intangible asset, net		16,171			—
Other non-current assets		57			147
Total assets	$	133,700		$	51,204
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,057		$	2,177
Accrued liabilities		4,612			2,540
Deferred revenue		110			—
Notes payable, current portion		5,406			4,348
Total current liabilities		12,185			9,065
Notes payable, net of current portion		5,248			7,750
Total liabilities		17,433			16,815
Commitments and contingencies (Note 11)
Stockholders’ equity
Preferred stock, par value $0.0001 — 10,000,000 shares authorized; none issued and outstanding		—			—
Common stock, par value $0.0001 — 100,000,000 shares authorized at June 30, 2013 and December 31, 2012; 20,087,200 and 16,646,269 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively		2			2
Additional paid-in capital		239,215			173,384
Accumulated deficit		(122,950	)		(138,997	)
Total stockholders’ equity		116,267			34,389
Total liabilities and stockholders’ equity	$	133,700		$	51,204

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

       

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Hyperion Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenues:
Product revenue, net	$	7,305		$	—		$	8,088		$	—
Total revenues		7,305			—			8,088			—
Costs and expenses:
Cost of sales		875			—			943			—
Research and development		2,562			2,732			4,401			11,640
Selling, general and administrative		9,220			2,023			17,164			4,340
Amortization of intangible asset		329			—			329			—
Total costs and expenses		12,986			4,755			22,837			15,980
Loss from operations		(5,681	)		(4,755	)		(14,749	)		(15,980	)
Interest income		11			3			12			7
Interest expense		(387	)		(1,282	)		(795	)		(2,322	)
Gain from settlement of retention option (Note 4)		31,079			—			31,079			—
Other income (expense)  - net		—			(1,128	)		500			(753	)
Net income (loss)	$	25,022		$	(7,162	)	$	16,047		$	(19,048	)
Net income (loss) per share attributable to common stockholders:
Basic	$	1.25		$	(15.26	)	$	0.86		$	(40.59	)
Diluted	$	1.17		$	(15.26	)	$	0.80		$	(40.59	)
Weighted average number of shares used to compute net income (loss) per share of common stock:
Basic		20,050,987			469,319			18,716,332			469,319
Diluted		21,358,275			469,319			19,978,089			469,319

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

   

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Hyperion Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities
Net income (loss)	$	16,047		$	(19,048	)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization		51			7
Amortization of debt discount		261			822
Re-measurement of warrants liability		—			1,445
Re-measurement of call option liability and preferred stock liability		—			(737	)
Stock-based compensation expense		1,756			320
Amortization of debt issuance costs		17			48
Amortization of intangible asset		329			—
Gain from settlement of retention option (Note 4)		(31,079	)		—
Changes in assets and liabilities
Accounts receivable		(1,723	)		—
Inventories, net of acquisition		(1,065	)		—
Prepaid expenses and other current assets		272			266
Other non-current assets		73			(137	)
Accounts payable		(120	)		(267	)
Deferred revenue		110			—
Accrued liabilities and other non-current liabilities		2,072			786
Net cash used in operating activities		(12,999	)		(16,495	)
Cash flows from investing activities
Acquisition of property and equipment		(433	)		(13	)
Option to purchase rights to BUPHENYL and AMMONUL (Notes 3 and 4)		—			(283	)
Acquisition of rights to BUPHENYL, net of AMMONUL option (Note 4)		10,962			—
Change in restricted cash		—			329
Net cash provided by investing activities		10,529			33
Cash flows from financing activities
Proceeds from issuance of common stock in follow-on offering, net of underwriting discounts		64,488			—
Proceeds from issuance of common stock		337			48
Proceeds from issuance of convertible notes payable		—			7,504
Proceeds from issuance of notes payable		—			10,000
Payments of offering costs		(776	)		(809	)
Principal payments under notes payable		(1,705	)		—
Net cash provided by financing activities		62,344			16,743
Net increase in cash and cash equivalents		59,874			281
Cash and cash equivalents, beginning of period		49,853			7,018
Cash and cash equivalents, end of period	$	109,727		$	7,299
Supplemental cash flow information
Cash paid for interest	$	532		$	105
Supplemental disclosure of noncash investing and financing activities
Stock-based compensation capitalized into inventories		26			—
Option to purchase rights to BUPHENYL and AMMONUL (Note 4)		283			—
Warrants issued in connection with notes payable		—			1,228
Deferred offering costs in accounts payable and accrued liabilities		—			566

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

   

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Hyperion Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Formation and Business of the Company

Hyperion Therapeutics, Inc. (the “Company”) was incorporated in the state of Delaware on November 1, 2006. The Company was in the development stage from inception through March 31, 2013. During this period, the Company’s activities consisted primarily of raising capital, negotiating a promotion and drug development collaboration agreement, establishing a management team and performing drug development activities. The Company launched RAVICTI^® (glycerol phenylbutyrate) Oral Liquid during the quarter ended March 31, 2013 and acquired BUPHENYL^® (sodium phenylbutyrate) Tablets and Powder in May 2013. During the quarter ended June 30, 2013, the Company had significant revenues from principal operations and therefore, ceased being a development stage company.

The Company is a commercial stage biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat disorders in the areas of orphan diseases and hepatology. The Company has developed RAVICTI to treat the most prevalent urea cycle disorders (“UCD”) and is developing glycerol phenylbutyrate (“GPB”) for the potential treatment of hepatic encephalopathy (“HE”). UCD and HE are generally characterized by elevated levels of ammonia in the bloodstream. Elevated levels of ammonia are potentially toxic and can lead to severe medical complications which may include death. The Company’s product, RAVICTI, is designed to lower ammonia in the blood. UCD are inherited rare genetic diseases caused by a deficiency of one or more enzymes or transporters that constitute the urea cycle, which in a healthy individual removes ammonia through conversion of ammonia to urea. HE is a serious but potentially reversible neurological disorder that can occur in patients with liver scarring, known as cirrhosis, or acute liver failure. On February 1, 2013, the U.S. Food and Drug Administration (“FDA”), granted approval of RAVICTI for the use as a nitrogen-binding agent for chronic management of adult and pediatric UCD patients greater than two years of age who cannot be managed by dietary protein restriction and/or amino acid supplementation alone. On May 31, 2013, the Company acquired BUPHENYL, an FDA-approved therapy for treatment of the most prevalent UCD, from Ucyclyd Pharma Inc. (“Ucyclyd”), a subsidiary of Valeant Pharmaceuticals International, Inc. (“Valeant”). Subsequent to the acquisition on May 31, 2013, the Company started selling BUPHENYL Tablets and Powder within and outside the United States.

Hyperion Therapeutics Limited was formed in January 2008 as a private limited company under the Companies Act 1985 for England and Wales and is wholly owned by the Company. Since formation, there has been no activity in Hyperion Therapeutics Limited.

On July 31, 2012, the Company completed its initial public offering (“IPO”) and the shares began trading on the NASDAQ Global Market on July 26, 2012. The Company received net proceeds from the IPO of $51.3 million, after deducting underwriting discounts and commissions of $4.0 million and expenses of $2.2 million.

On March 13, 2013, the Company completed its follow-on offering and issued 2,875,000 shares of its common stock at an offering price of $20.75 per share. In addition, the Company sold an additional 431,250 shares of common stock directly to its underwriters when they exercised their over-allotment option in full at the offering price of $20.75 per share. The Company received net proceeds from the offering of $63.7 million, after deducting underwriting discounts and commissions of $4.1 million and expenses of $0.8 million.

Since inception, the Company has incurred recurring net operating losses and negative cash flows from operations. During the six months ended June 30, 2013, the Company incurred a loss from operations of $14.7 million and used $13.0 million of cash in operations. At June 30, 2013, the Company had an accumulated deficit of $123.0 million. The Company expects to incur increased research and development expenses when the Company initiates a Phase III trial of GPB for the treatment of patients with episodic HE. In addition, the Company expects to incur increased sales and marketing expenses for RAVICTI and BUPHENYL in UCD. Management’s plans with respect to these matters include utilizing a substantial portion of the Company’s capital resources and efforts in completing the development and obtaining regulatory approval of GPB in HE, expanding the Company’s organization, and commercialization of RAVICTI and marketing of BUPHENYL.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and on a basis consistent with the annual consolidated financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of the results to be expected for the year ending December 31, 2013, or for any other future annual or interim

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period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2012.

Use of Estimates

The preparation of the interim condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to fair value of assets, intangible asset valuation, preclinical and clinical trial accruals, research and development expenses, stock-based compensation expense, income taxes, revenue recognition and product sales allowances. Management bases its estimates on historical experience or on various other assumptions, including information received from its service providers, which it believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts in the interim condensed consolidated financial statements have been reclassified to conform to the current year’s presentation. In particular, certain sales and marketing expenses have been combined with general and administrative expenses in the condensed consolidated statement of operations. The result of this reclassification had no impact on the previously reported net loss or condensed consolidated balance sheet.

Segment Reporting

The Company operates as one operating segment and uses one measurement of profitability to manage its business. All long-lived assets are maintained in the United States.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid for to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. See Note 5, Fair Value Measurements, regarding the fair value of the Company’s notes payable.

Business Combinations

The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred.

Accounts Receivable

Trade accounts receivable are recorded net of product sales allowances for prompt-payment discounts, chargebacks, and doubtful accounts. Estimates for chargebacks and prompt-payment discounts are based on contractual terms, historical trends and our expectations regarding the utilization rates for these programs.

Inventories

Inventories are stated at the lower of cost or market value with cost determined under the first-in-first-out (FIFO) cost method and consists of raw materials and supplies, work in process and finished goods. Costs to be capitalized as inventories include third party manufacturing costs, associated compensation related costs of personnel indirectly involved in the manufacturing process and other overhead costs such as ancillary supplies.

Subsequent to FDA approval of RAVICTI on February 1, 2013, the Company began capitalizing RAVICTI inventories as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to the FDA approval of RAVICTI have been recorded as research and development expense in the condensed consolidated statements of operations. If

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information becomes available that suggest that inventories may not be realizable, the Company may be required to expense a portion or all of the previously capitalized inventories.

Products that have been approved by the FDA or other regulatory authorities, such as RAVICTI are also used in clinical programs, to assess the safety and efficacy of the products for usage in diseases that have not been approved by the FDA or other regulatory authorities. The form of RAVICTI utilized for both commercial and clinical programs is identical and, as a result, the inventory has an “alternative future use” as defined in authoritative guidance. Raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and, therefore, does not have an “alternative future use”.

On May 31, 2013, the Company acquired BUPHEYNY including inventory from Ucyclyd (see Note 4). The Company recorded these inventories at fair value in the amount of $3.9 million on the acquisition date. The Company will expense the difference between the fair value and book value of inventory as that inventory is sold. The Company evaluates for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. The Company builds demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage.

Intangible Assets

Intangible assets are recorded at acquisition cost less accumulated amortization and impairment.  Intangible assets with finite lives are amortized over their estimated useful lives. The Company’s intangible asset pertains to BUPHENYL product rights (see Note 7). Intangible assets are amortized over the estimated useful life using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated. The pattern of consumption of the economic benefits is estimated using the future projected cash flows of  the intangible asset.

Impairment of Long-lived Assets

The Company reviews its property and equipment, intangible assets subject to amortization and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable. Recoverability is measured by comparing the carrying amount to the future net undiscounted cash flows that the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value determined using projected discounted future net cash flows arising from the assets.

Revenue Recognition

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed; the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. The Company determines that persuasive evidence of an arrangement exists based on written contracts that defined the terms of the arrangements. In addition, the Company determines that services have been delivered in accordance with the arrangement. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenue, net: The Company’s product revenue represents sales of RAVICTI and BUPHENYL which are recognized once all four revenue recognition criteria described above are met. The Company recognizes revenue net of product sales allowances. Product shipping and handling costs are included in cost of sales.

• During 2013, the Company began distributing RAVICTI to two specialty pharmacies through a specialty distributor. The specialty pharmacies then in turn dispensed RAVICTI to patients in fulfillment of prescriptions. As RAVICTI is a new product, and the Company’s first commercial product, the Company could not reasonably assess potential product sales allowances at the time of sale to the specialty distributor. As a result, the price of RAVICTI was not deemed fixed or determinable. The Company does not record revenue on shipments of RAVICTI to the specialty distributor, until the product was shipped to patients by the specialty pharmacies at which time the related product sales allowances could be reasonably estimated.

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• As discussed in Note 1, on May 31, 2013, the Company acquired BUPHENYL from Ucyclyd. The Company sells BUPHENYL in the United States to a specialty distributor who in turn sells this product to retail pharmacies, hospitals and other dispensing organizations. The Company records revenue on product shipments to the specialty distributor upon receipt by the specialty distributor. For product sales of BUPHENYL outside the United States, revenue is recognized once the product is accepted by the customer or their acceptance period has expired whichever comes first.

Product Sales Allowances: The Company establishes reserves for prompt-payment discounts, government and commercial rebates, product returns and chargebacks. Allowances relate to prompt-payment discounts and are recorded at the time of revenue recognition, resulting in a reduction in product sales revenue and a decrease in trade accounts receivables. Accruals related to government rebates, product returns and other applicable allowances such as distributor fees are recognized at the time of revenue recognition, resulting in a reduction in product sales and an increase in accrued expenses or a reduction in the related accounts receivable.

	• Prompt-payment discounts: The specialty distributor and specialty pharmacies are offered prompt payment discounts. The Company expects the specialty distributor and specialty pharmacies will earn prompt payment discounts and, therefore deduct the full amount of these discounts from total product sales when revenues are recognized. The Company records prompt-payment discounts as allowances against accounts receivable on the condensed consolidated balance sheet.
	• Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program. Rebate amounts are based upon contractual agreements or legal requirements with public sector (e.g. Medicaid) benefit providers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The allowance for rebates is based on statutory discount rates and expected utilization. The Company estimates for expected utilization of rebates based on historical data and data received from the specialty pharmacies. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarter’s unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment. Allowance for rebates are recorded in accrued liabilities on the condensed consolidated balance sheet.
	• Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a specialty distributor. Contracted customers, which primarily consist of Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price. The specialty distributor, in turn, charges back to the Company the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by the customer. For BUPHENYL, the allowance for chargebacks is based on historical sales data and known sales to contracted customers. For RAVICTI, the allowance for chargebacks is based on known sales to contracted customers. For qualified programs that can purchase the Company’s products through distributors at a lower contractual government price, the distributors charge back to the Company the difference between their acquisition cost and the lower contractual government price.
	• Medicare Part D Coverage Gap: Medicare Part D prescription drug benefit mandates manufacturers to fund 50% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. The Company estimates for the expected Medicare Part D coverage gap are based on historical invoices received and in part from data received from the specialty pharmacies. Funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters. If actual future funding varies from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment. Estimates of the Medicare Part D coverage Gap are recorded in accrued liabilities on the condensed consolidated balance sheet.
	• Distribution Service Fees: The Company has a written contract with the specialty distributor that includes terms for distribution-related fees. Distributor fees are calculated at percentage of gross sales based upon agreed contracted rate. The Company accrues distributor fees at the time of the revenue recognition, resulting in reduction of product sales revenue and the recording of accrued liabilities on the condensed consolidated balance sheets. The Company records distribution and other fees paid to its customers as a reduction of revenue, unless it receives an identifiable and separate benefit for the consideration and it can reasonably estimate the fair value of the benefit received. If both conditions are met, the Company records the consideration paid to the customer as an operating expense. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.
	• Product Returns: Consistent with industry practice, the Company generally offers customers a limited right to return. The Company accepts returns of products from patients resulting from breakage as defined within the Company’s returns policy. Additionally, the Company considers several other factors in the estimation process including the expiration dates of product shipped, third party data in monitoring channel inventory levels, shelf life of the product, prescription trends and other relevant factors. Provisions for estimated product returns are recorded as accrued liabilities on the condensed consolidated balance sheet.
Co-payment assistance: The Company provides a cash donation to a non-profit third party organization which supports patients, who have commercial insurance and meet certain financial eligibility requirements, with co-payment assistance and travel costs. The amount of co-payment assistance is accounted for by the Company as a reduction of revenues.

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Cost of sales

Cost of sales includes third-party manufacturing cost of products sold, royalty fees, and other indirect costs related to personnel compensation, shipping and supplies.

Costs incurred prior to FDA approval of RAVICTI have been recorded as research and development expense in the Company’s condensed consolidated statement of operations. The Company expects that cost of RAVICTI sales as a percentage of revenue will increase in future periods as product manufactured prior to FDA approval, and therefore fully expensed, is utilized.

Cost of BUPHENYL sales as a percentage of revenue was higher and not indicative cost of sales in future periods due to the recording of the step-up value on BUPHENYL inventories acquired from Ucyclyd which will be expensed to cost of sales as that inventory is sold. (See Notes 4 and 6).

Comprehensive Loss

For all periods presented, the comprehensive income (loss) was equal to the net income (loss); therefore, a separate statement of comprehensive income (loss) is not included in the accompanying interim condensed consolidated financial statements.

Net Income (Loss) per Share of Common Stock

Basic earnings per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the periods presented. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and other potentially dilutive securities using the treasury stock method unless the effect is antidilutive.

Recent Accounting Pronouncements

In February 2013, FASB issued Accounting Standard Update (“ASU”) No. 2013-02, Comprehensive Income: Reporting of amounts reclassified out of other comprehensive income. Under the amendments of this update an entity is required to present either parenthetically on the face of the financial statements or in the notes, significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. However, an entity would not need to show the income statement line item affected for certain components that are not required to be reclassified in their entirety to net income, such as amounts amortized into net periodic pension cost. The standard was effective prospectively for public entities for fiscal years, and interim periods with those years, beginning after December 15, 2012. Early adoption was permitted. The Company adopted this guidance on January 1, 2013. The implementation did not have an impact on the Company’s financial statements.

In July 2013, FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under the amendments of this update an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For example, an entity should not evaluate whether the deferred tax asset expires before the statute of limitations on the tax position or whether the deferred tax asset may be used prior to the unrecognized tax benefits being settled. The provisions of this update will be effective prospectively for the Company in fiscal years beginning after December 15, 2013, and for the interim periods within fiscal years with early adoption and retrospective application permitted. The Company believes the adoption of this new guidance will not have a material impact on its consolidated results of operations or financial position.

3. Collaboration Agreement with Ucyclyd Pharma, Inc.

In March 2012, the Company entered into the purchase agreement with Ucyclyd under which the Company purchased the worldwide rights to RAVICTI and the amended and restated collaboration agreement (the “restated collaboration agreement”) under which Ucyclyd granted the Company an option to purchase all of Ucyclyd’s worldwide rights to BUPHENYL and AMMONUL at a fixed price at a future defined date, plus subsequent milestone and royalty payments, subject to Ucyclyd’s right to retain AMMONUL for a predefined price. The restated collaboration agreement superseded the collaboration agreement with Ucyclyd, dated August 23,

 8 

2007, as amended. The entry into the purchase agreement and the restated collaboration agreement resolved a dispute that the two parties had with respect to their rights under the prior collaboration agreement.

Under the purchase agreement, the Company made a payment of $6.0 million of which (i) $5.7 million was allocated to the worldwide rights to RAVICTI and (ii) $0.3 million was allocated to the option to purchase rights to BUPHENYL and AMMONUL, based on their relative fair values. The allocated amount to the rights to RAVICTI of $5.7 million was recorded to research and development expense in the consolidated statements of operations for the period ended March 31, 2012 due to the uncertainty of an alternative future use. The allocated amount for the option to purchase rights to BUPHENYL and AMMONUL in the amount of $0.3 million was included within other current assets and was subsequently offset against the gain recognized from the settlement of retention option (see Note 4).

The Company will also pay tiered mid to high single digit royalties on global net sales of RAVICTI and may owe regulatory milestones of up to $15.8 million related to approval of GPB in HE, regulatory milestones of up to $7.3 million per indication for approval of GPB in indications other than UCD or HE, and net sales milestones of up to $38.8 million if GPB is approved for use in indications other than UCD (such as HE) and all annual sales targets are reached.

In addition, the intellectual property license agreements executed between Ucyclyd and Dr. Marshall L. Summar, (“Summar”) and Ucyclyd and Brusilow Enterprises, LLC, (“Brusilow”) were assigned to the Company, and the Company has assumed the royalty and milestone obligations under the Brusilow agreement for sales of RAVICTI in any indication and the royalty obligations under the Summar agreement on sales of GPB to treat HE. The Brusilow and Summar agreements provide that royalty obligations will continue, without adjustment, even if generic versions of the licensed products are introduced and sold in the relevant country.

Under the terms of the restated collaboration agreement, the Company had an option to purchase all of Ucyclyd’s worldwide rights in BUPHENYL and AMMONUL, subject to Ucyclyd’s option to retain rights to AMMONUL. The Company was permitted to exercise this option for 90 days beginning on the earlier of the date of the approval of RAVICTI for the treatment of UCD and June 30, 2013, but in no event earlier than January 1, 2013. The upfront purchase price for AMMONUL and BUPHENYL will be $22.0 million. If the RAVICTI New Drug Application (“NDA”) for UCD was not approved by January 1, 2013, then Ucyclyd will be obligated to make monthly payments of $0.5 million to the Company until the earliest of (1) FDA approval of the RAVICTI NDA for UCD, (2) June 30, 2013 and (3) the Company’s written notification of the decision not to purchase Ucyclyd’s worldwide rights to BUPHENYL and AMMONUL.

On February 1, 2013, the FDA approved RAVICTI for the treatment of UCD in adult and pediatric patients two years of age and older. In accordance with the restated collaboration agreement, Ucyclyd made a payment of $0.5 million during the quarter ended March 31, 2013.

On April 29, 2013, the Company exercised its option to purchase BUPHENYL and AMMONUL. Ucyclyd subsequently exercised its time-limited right to elect to retain all rights to AMMONUL for a contractual purchase price of $32.0 million (“retention amount”). Upon closing of the transaction, Ucyclyd paid the Company a net payment of $13.0 million, which reflects the Company’s contractual purchase price for Ucyclyd’s worldwide rights to BUPHENYL in the amount of $19.0 million being off set against Ucyclyd’s retention amount for AMMONUL. The Company has retained a right of first negotiation should Ucyclyd later decide to sell, exclusively license, or otherwise transfer the AMMONUL assets to a third party.

4.  Acquisition of BUPHENYL from Ucyclyd Pharma, Inc.  

Description of the Transaction

As discussed in Note 3, under the terms of the restated collaboration agreement, on April 29, 2013, the Company exercised its option to purchase all of Ucyclyd’s worldwide rights in BUPHENYL and AMMONUL. On May 17, 2013 Ucyclyd exercised it’s time-limited right to elect to retain all rights to AMMONUL. On May 31, 2013 (the “Acquisition Date”), the Company completed the acquisition of BUPHENYL. Accordingly, BUPHENYL results are included in Hyperion’s consolidated financial statements from the date of the acquisition. For the period from June 1, 2013 to June 30, 2013, BUPHENYL net revenue was $1.1 million and net income was not material.

The Company acquired BUPHENYL to enhance its commercial product portfolio and to allow the Company an opportunity to serve the entire UCD patient population, including those less than two years of age or for those patients who may prefer BUPHENYL.

 9 

Purchase Consideration and Assets Acquired

The Company accounted for the acquisition of BUPHENYL as a business combination under the acquisition method of accounting. On the Acquisition Date, the Company received a net payment of $11.0 million, which reflected the $32.0 million retention amount for AMMONUL due to the Company less the $19.0 million contractual purchase price for BUPHENYL due to Ucyclyd and a $2.0 million payment due to Ucyclyd for inventory that the Company purchased from Ucyclyd.

The fair value of purchase consideration was estimated based upon the fair value of assets acquired. The estimated fair value attributed to the BUPHENYL product rights was determined on a discounted forecast of the estimated net future cash flows to be generated from the product rights (see Note 7) and has an expected useful life of 10 years. The following table summarizes the provisional allocation of purchase price to the fair values of the assets acquired as of the acquisition date:

	(in thousands)
Inventories	$	3,900
Intangible Asset – BUPHENYL Product rights		16,500
Total	$	20,400

The amounts above are considered preliminary and are subject to change once Hyperion finalizes its determination of the fair value of assets acquired under the acquisition method. Thus, these amounts are subject to refinement and final determination of the values of assets acquired and may result in adjustments to the values presented above.

Gain from settlement of retention option

In connection with the allocation between the BUPHENYL acquistion described above and Ucyclyd’s exercise of its retention option, the Company recorded a gain of approximately $31.1 million. The amount of gain is comprised of (i) fair value of BUPHENYL of $20.4 million and (ii) net cash received from Ucyclyd of $10.9 million off-set by (iii) the $0.3 million carrying value of the option to purchase the rights to BUPHENYL and AMMONUL. The following table summarizes the results of the Company’s allocation:

	(in thousands)
Ucyclyd’s retention option amount	$	32,000
Amount due to Ucyclyd for BUPHENYL product rights		(19,000	)
Amount due to Ucyclyd for inventory		(2,038	)
Net payment received from Ucyclyd		10,962
Option to purchase the rights to BUPHENYL and AMMONUL		(283	)
Fair value of BUPHENYL		20,400
Gain from settlement of retention option	$	31,079

Pro forma Impact of Business Combination

The following consolidated pro forma information is based on the assumption that the acquisition occurred on January 1, 2012.  The unaudited pro forma information is presented for comparative purposes only and is not necessarily indicative of the financial position or results of operations which would have been reported had the Company completed the acquisition during these periods or which might be reported in the future. The unaudited pro forma information reflects primarily the application of the following adjustments:

·   elimination of the historical intangible asset amortization expense of this acquisition;

·   amortization expense related to the fair value of intangible asset acquired;

·   the exclusion of acquisition-related costs, incurred for this acquisition; and

·   the exclusion of the step-up value related to inventory sold that was acquired as part of the acquisition. Such amounts was included in the applicable comparative period for purposes of pro forma financial information.

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The unaudited pro forma information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition been completed on January 1, 2012. In addition, the unaudited pro forma information does not purport to project the future results of operations of the Company.

	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
	(in thousands)
Net revenues	$	9,152	$	7,439		$	18,784	$	13,622
Net income (loss)		25,627		(2,804	)		20,806		(13,513	)

Acquisition-related Costs

Acquisition related expenses consist of transaction costs which represent external costs directly related to the acquisition of BUPHENYL and primarily include expenditures for professional fees such as legal, accounting and other directly related incremental costs incurred to close the acquisition. Acquisition related expenses for the three and six months ended June 30, 2013 were $0.3 million and $0.4 million, respectively.

5. Fair Value Measurements

The Company follows ASC 820-10, “Fair Value Measurements and Disclosures,” which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

·   Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

·   Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

·   Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 (in thousands):

	June 30, 2013
	Quoted prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	38,005	$	—	$	—
	$	38,005	$	—	$	—

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	December 31, 2012
	Quoted prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	45,003	$	—	$	—
	$	45,003	$	—	$	—

The following table presents the carrying value and estimated fair value of the Company’s notes payable as of June 30, 2013 (in thousands):

	June 30, 2013
	Carrying Value		Estimated Fair Value
April and September 2012 Notes	$	10,654	$	11,362

The fair value of the April and September 2012 Notes is based on the present value of expected future cash flows and assumptions about current interest rates and the credit worthiness of the Company. The notes payable are classified within Level 3 of the hierarchy of fair value measurements.

6. Inventories

The following table represents the components of inventories (in thousands):

	June 30, 2013		December 31, 2012
Raw Materials	$	1,080	$	—
Work in process		72		—
Finished goods		3,840		—
Total	$	4,992	$	—

As discussed in Note 4, on May 31, 2013, the Company acquired BUPHENYL from Ucyclyd. As part of the acquisition, the Company purchased inventories from Ucyclyd and the Company recorded these inventories at fair value in the amount of $3.9 million on the Acquisition Date (see Note 4).

7. Intangible Asset

As discussed in Notes 3 and 4, the Company acquired BUPHENYL and as part of this transaction, the Company recognized $16.5 million of an intangible asset relating to BUPHENYL product rights. The estimated fair value attributed to the BUPHENYL product rights was determined on a discounted forecast of the estimated net future cash flows to be generated from the product rights. Intangible assets are amortized over the estimated useful life using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated. The pattern of consumption of the economic benefits is estimated using the future projected cash flows of the intangible asset. The Company estimated the useful life of the BUPHENYL product rights to be 10 years.

Intangible asset amortization expense was $0.3 million for the three and six months ended June 30, 2013.

Estimated aggregate amortization expense for each of the five succeeding years ending December 31 is as follows (in thousands):

	2013		2014		2015		2016		2017
Amortization expense	$	2,312	$	4,548	$	2,412	$	1,372	$	1,243

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8. Accrued Liabilities

The following table represents the components of accrued liabilities (in thousands):

	June 30, 2013		December 31, 2012
Pre-clinical and clinical trial expenses	$	514	$	583
Payroll and related expenses		1,918		1,457
Sales related accruals		1,499		—
Interest payable		80		93
Other		601		407
	$	4,612	$	2,540

9. Notes Payable

In April 2012, the Company borrowed $10.0 million (the “April 2012 Notes”) pursuant to a loan and security agreement (the “Loan Agreement”) with Silicon Valley Bank and Leader Lending, LLC—Series B (the “Lenders”). The loan carries an interest rate of 8.88%, with interest only payments for the period of 9 months from May 1, 2012. The loan is then payable in equal monthly principal payments plus interest over a period of 27 months from February 1, 2013. In connection with the Loan Agreement, the Company granted a security interest in all of its assets, except intellectual property. The Company’s obligations to the Lenders include restrictions on borrowing, asset transfers, placing liens or security interest on its assets including the Company’s intellectual property, mergers and acquisitions and distributions to stockholders. The Loan Agreement also requires the Company to provide the Lenders monthly financials and compliance certificate within 30 days of each month end, annual audited financials within 180 days of each fiscal year-end and annual approved financial projections. The Company issued warrants to the Lenders to purchase a total of 75,974 shares of common stock with an exercise price of $4.08 per share. The Loan Agreement requires immediate repayment of amounts outstanding upon an event of default, as defined in the Loan Agreement, which includes events such as a payment default, a covenant default or the occurrence of a material adverse change, as defined in the Loan Agreement. In addition, a final payment equal to 6.5% of the principal loan amount is due on the earlier of (i) maturity date, (ii) prepayment of the loan or (iii) an event of default.

Pursuant to the terms of the Loan Agreement, once the Company raises at least $30.0 million from the sale of equity securities or subordinated debt, the Lenders also agreed to lend the Company a one-time single loan in the amount of $2.5 million (the “Bank Term Loan”). In September 2012, the Company borrowed an additional $2.5 million (the “September 2012 Note”) from Silicon Valley Bank pursuant to the terms of the Bank Term Loan. In addition, the Company issued warrants to Silicon Valley Bank to purchase a total of 8,408 shares of common stock with an exercise price of $5.05 per share. A final payment equal to 6.5% of the principal loan amount is due on the earlier of (i) maturity date, (ii) prepayment of the loan or (iii) an event of default. The principal amount outstanding under the Bank Term Loan accrues interest at a per annum rate equal to the greater of (i) 8.88% and (ii) the Treasury Rate, as defined in the Loan Agreement, on the date the loan is funded plus 8.50%, with interest only payments for the period of 9 months from the date the loan is funded. The loan is then payable in equal monthly principal payments plus interest over a period of 27 months from the date the loan is funded.

For the three and six months ended June 30, 2013, the Company recorded amortization of debt discount of $0.1 million and $0.3 million, respectively, related to the April 2012 Notes and September 2012 Note.

10. Warrants

October 2007 Common Stock Warrants

In connection with a Loan and Security Agreement entered into in October 2007, the Company issued warrants to purchase 274 shares of Series B convertible preferred stock. In June 2009, as part of the recapitalization, these warrants were converted into warrants to purchase shares of common stock. The warrants are exercisable at $1,913.05 per share and will expire in October 2017 (the “October 2007 common stock warrants”).

April 2012 Common Stock Warrants

In connection with the Loan Agreement entered into in April 2012 (Note 9), the Company issued warrants to the Lenders to purchase a total of 75,974 shares of common stock. The warrants are exercisable at $4.08 per share and expire in April 2022 (the “April 2012 common stock warrants”). As of June 30, 2013, the April 2012 common stock warrants had been fully exercised.  

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September 2012 Common Stock Warrants

In connection with the September 2012 Note, the Company issued warrants to the Lender to purchase a total of 8,408 shares of common stock. The warrants are exercisable at $5.05 per share and expire in September 2022 (the “September 2012 common stock warrants”). As of June 30, 2013, the September 2012 common stock warrants had been fully exercised.

The following table summarizes the outstanding warrants and the corresponding exercise price as of June 30, 2013 and December 31, 2012:

	Number of Shares Outstanding
	June 30, 2013		December 31, 2012		Per Share Exercise Price
October 2007 common stock warrants		274		274	$	1,913.05
April 2012 common stock warrants		—		75,974		4.08
September 2012 common stock warrants		—		8,408		5.05
Total		274		84,656

11. Commitments and Contingencies

Contingencies

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. Further, the Company may be subject to certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

In accordance with the Company’s amended and restated certificate of incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date and the Company has a director and officer insurance policy that may enable it to recover a portion of any amounts paid for future claims.

The Company is contingently committed for development milestone payments as well as sales-related milestone payments and royalties relating to potential future product sales under the restated collaboration agreement and purchase agreement with Ucyclyd (Note 3). The amount, timing and likelihood of these payments are unknown as they are dependent on the occurrence of future events that may or may not occur, including approval by the FDA of GPB for HE.

12. Stockholders’ Equity

On March 13, 2013, the Company completed its follow-on offering and issued 2,875,000 shares of its common stock at an offering price of $20.75 per share. In addition, the Company sold an additional 431,250 shares of common stock directly to its underwriters when they exercised their over-allotment option in full at an offering price of $20.75 per share. The Company received net proceeds from the offering of $63.7 million, after deducting underwriting discounts and commissions of $4.1 million and expenses of $0.8 million. As a result of these transactions, the Company issued a total of 3,306,250 shares of its common stock during the three months ended March 31, 2013.

13. Stock Option Plan

In April 2012, the board of directors of the Company adopted the 2012 Omnibus Incentive Plan (the “2012 Plan”). The Company’s stockholders approved the 2012 Plan in July 2012. The 2012 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units, dividend equivalent rights, other equity-based awards and cash bonus awards. The 2012 Plan became effective on July 25, 2012

As of June 30, 2013, the Company had 749,611 shares of common stock available for issuance and 1,079,747 options and 21,000 restricted stock units (“RSU’s”) outstanding under the 2012 Plan. During the six months ended June 30, 2013, the board of directors approved the grants of 839,515 stock options at exercise prices in the range of $18.24—$25.82 and 21,000 RSU’s under the 2012 Plan. In addition, pursuant to the provisions of the 2012 Plan providing for an annual automatic increase in the number of shares of common stock reserved for issuance under the plan on January 1, 2013, the shares available for issuance under the 2012 Plan increased by 665,850 shares.

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On July 25, 2012, the effective date of the 2012 Plan, the 2006 Plan was frozen and no additional awards will be made under the 2006 Plan. Any shares remaining available for future grant were allocated to the 2012 Plan and any shares underlying outstanding options that terminate by expiration, forfeiture, cancellation, or otherwise without issuance of such shares, will be allocated to the 2012 Plan. As of June 30, 2013, there were 1,584,977 options outstanding under the 2006 Plan.

During the quarter ended June 30, 2013, the Company modified certain stock options and recorded an expense of $0.2 million related to this modification in its condensed consolidated statements of operations.

Stock-Based Compensation

The Company estimates the fair value of stock options using the Black-Scholes option valuation model. The fair value of employee stock options and RSU’s is being amortized on a straight-line basis over the requisite service period of the awards.

Total stock-based compensation expense related to options granted was allocated as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of sales	$	2	$	—	$	3	$	—
Research and development		143		102		235		139
Selling general and administrative		1,108		140		1,521		181
Total	$	1,253	$	242	$	1,759	$	320

Stock-based compensation of $17,000 and $26,000 was capitalized into inventories for the three and six months ended June 30, 2013. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold. Allocations to research and development, selling, general and administrative expenses are based upon the department to which the associated employee reported. No related tax benefits of the stock-based compensation expense have been recognized.

14. Income Taxes

The Company was granted orphan drug designation in 2009 by the FDA for its products currently under development. The orphan drug designation allows the Company to claim increased federal tax credits for its research and development activities. The Company had $16.4 million of federal credit carryforwards of which $15.9 million relates to Orphan Drug Credit claims for 2009 through 2012. These federal credit carryforwards were fully provided with 100% valuation allowance.

The Company did not record any income tax expense for the three and six month periods ended June 30, 2013. Expected taxable income in 2013 will be offset by federal and state net operating losses and credits.

There was no interest or penalties accrued through June 30, 2013. The Company’s policy is to recognize any related interest or penalties in income tax expense. The material jurisdiction in which the Company is subject to potential examination by tax authorities for tax years ended 2006 through the current period include the United States and California. The Company is not currently under income tax examinations by any tax authorities.

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15. Net Income (Loss) per Share of Common Stock

The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the periods indicated (in thousands, except share and per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
Historical net income (loss) per share
Numerator:
Net income (loss) attributable to common stockholders	$	25,022	$	(7,162	)	$	16,047	$	(19,048	)
Denominator:
Weighted-average number of common shares outstanding — basic		20,050,987		469,319			18,716,332		469,319
Dilutive effect of stock-options and awards		1,307,288		—			1,261,757		—
Weighted average common shares outstanding — dilutive		21,358,275		469,319			19,978,089		469,319
Net income (loss) per share:
Basic	$	1.25	$	(15.26	)	$	0.86	$	(40.59	)
Diluted	$	1.17	$	(15.26	)	$	0.80	$	(40.59	)

The following outstanding potentially dilutive securities were excluded from the computation of diluted net income (loss) per share, as the effect of including them would have been antidilutive:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Convertible preferred stock		—		6,575,637		—		6,575,637
Stock options		675,969		1,717,337		380,745		1,717,337
October 2007, April 2008 and 2012 common stock warrants		274		76,270		274		76,270
Total		676,243		8,369,244		381,019		8,369,244

16. Related Party Transaction

As  part of the Company’s acquisition of BEPHENYL (see Note 4), the Company assumed the existing BUPHENYL distributors agreements, including the distribution agreement with Swedish Orphan Biovitrum AB (“SOBI”). SOBI’s chairman, Bo Jesper Hansen, is member of the Company’s Board of Directors. During the first half of 2013 there have been no revenues recognized or expenses incurred related to this agreement.

   

 16 

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

You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2012, included in our Annual Report on Form 10-K/A, filed with the U.S. Securities and Exchange Commission (“SEC”).

Overview

We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat disorders in the areas of orphan diseases and hepatology. We have developed our product, RAVICTI^® (glycerol phenylbutyrate) Oral Liquid, to treat the most prevalent urea cycle disorders (“UCD”) and are developing glycerol phenylbutyrate (“GPB”) to treat hepatic encephalopathy (“HE”), two different diseases in which blood ammonia is elevated. UCD are inherited rare genetic diseases caused by a deficiency of one or more enzymes or protein transporters that constitute the urea cycle, which in a healthy individual removes ammonia through the conversion of ammonia to urea. HE may develop in some patients with liver scarring, known as cirrhosis, or acute liver failure and is a chronic disease which fluctuates in severity and may lead to serious neurological damage. On February 1, 2013, the U.S. Food and Drug Administration (“FDA”), granted approval of RAVICTI for use as a nitrogen-binding agent for chronic management of UCD in adult and pediatric patients greater than two years of age who cannot be managed by dietary protein restriction and/or amino acid supplementation alone. Limitations of use for RAVICTI include treatment of patients with acute hyperammonemia (“HA”) crises for whom urgent intervention is typically necessary, patients with N-acetylglutamate synthetase deficiency for whom the safety and efficacy of RAVICTI has not been established, and UCD patients under two months of age for whom RAVICTI is contraindicated due to uncertainty as to whether newborns, who may have immature pancreatic function, can effectively digest RAVICTI. We commercially launched RAVICTI during the first quarter of 2013. On May 1, 2013, we received notification from the FDA that RAVICTI qualified for orphan drug exclusivity.

We originally obtained rights to develop RAVICTI in 2007 pursuant to a collaboration agreement with Ucyclyd Pharma, Inc. (“Ucyclyd”), a subsidiary of Valeant Pharmaceuticals International, Inc. (“Valeant”). In March 2012, we purchased the worldwide rights to RAVICTI for an upfront payment of $6.0 million, future payments based upon the achievement of regulatory milestones in indications other than UCD, sales milestones, and mid to high single digit royalties on global net sales of RAVICTI. Pursuant to an amended and restated collaboration agreement (the “restated collaboration agreement”), with Ucyclyd entered into in March 2012, we had an option to purchase all of Ucyclyd’s worldwide rights to BUPHENYL^® (sodium phenylbutyrate) Tablets and Powder, an FDA approved therapy for treatment of the most prevalent UCDs and AMMONUL^® (sodium phenylacetate and sodium benzoate) injection 10%/10%, the only adjunctive therapy currently FDA-approved for the treatment of HA crises in UCD patients, for an upfront payment of $22.0 million, plus subsequent milestone and royalty payments. On April 29, 2013, we exercised our option to acquire BUPHENYL and AMMONUL from Ucyclyd and subsequently, Ucyclyd exercised its option to retain AMMONUL. On May 31, 2013, we completed the acquisition of BUPHENYL and we received a net payment of $11.0 million which reflected the $32.0 million contractual purchase price for AMMONUL due to us less the $19.0 million contractual purchase price for BUPHENYL due to Ucyclyd and $2.0 million payment due to Ucyclyd for inventory we purchased from Ucyclyd.

As of June 30, 2013, we had an accumulated deficit of $123.0 million. We recorded losses from operations of $14.7 million and $16.0 million for the six months ended June 30, 2013 and 2012, respectively. During the second quarter of 2013, we had significant revenues from our principal operations and therefore, ceased being a development s stage company. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval of GPB in HE, expanding our organization, commercialization of RAVICTI and marketing of BUPHENYL.

On March 13, 2013, we completed a follow-on offering and issued 2,875,000 shares of our common stock at an offering price of $20.75 per share. In addition, we sold an additional 431,250 shares of common stock directly to our underwriters when they exercised their over-allotment option in full at an offering price of $20.75 per share. We received net proceeds from the offering of $63.7 million, after deducting underwriting discounts and commissions of $4.1 million and expenses of $0.8 million.

On July 31, 2012, we completed our initial public offering (“IPO”) and issued 5,000,000 shares of our common stock at an initial offering price of $10.00 per share. We sold an additional 750,000 shares of common stock directly to our underwriters when they exercised their over-allotment option in full at the initial offering price of $10.00 per share. Our shares began trading on the NASDAQ Global Market on July 26, 2012. We received net proceeds from the IPO of $51.3 million, after deducting underwriting discounts and commissions of $4.0 million and expenses of $2.2 million.

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In April 2012, our Phase II HE trial data was unblinded and the trial met its primary endpoint, which was to demonstrate that the proportion of patients experiencing an HE event was significantly lower on GPB versus placebo, both administered in addition to a standard of care, including lactulose and/or rifaximin. We expect our research and development expenses to increase when we initiate a Phase III trial of GPB in HE. We will likely continue to incur significant commercial, sales, marketing and outsourced manufacturing expenses in connection with the commercialization of RAVICTI and BUPHENYL in UCD. These increased expenses, as compared to prior years, include payroll related expenses due to the addition of employees in the commercial, manufacturing and regulatory departments, costs related to the initiation and operation of our distribution network, and marketing costs and general infrastructure expenses as we expand our organization.

Financial Overview

Revenues

Our product revenues consist of the following:

·   revenues from the sale of our first commercial product, RAVICTI which was approved by the FDA on February 1, 2013 and was commercially launched in the U.S. during the period ended March 31, 2013 and

·   revenues from the sale of BUPHENYL which we acquired from Ucyclyd on May 31, 2013, pursuant to the restated collaboration agreement, and we currently distribute BUPHENYL in the U.S. and certain countries outside the U.S.

See “Results of Operations” below for more detailed discussion on revenues.

Cost of sales

Our cost of sales includes third-party manufacturing costs, royalty fees payable under our restated collaboration agreement with Ucyclyd, and other indirect costs including compensation cost of personnel, shipping and supplies.

The manufacturing costs we incurred prior to FDA approval of RAVICTI have been recorded as research and development expenses in our condensed consolidated statement of operations. For RAVICTI, we expect that cost of sales as a percentage of sales will increase in future periods as product manufactured prior to FDA approval is utilized as these products have been fully expensed as research and development expenses in prior periods.

As a result of the business combination related to the purchase of BUPHENYL, cost of sales was higher and not indicative of cost of sales in future periods due to the recording of the step-up value on BUPHENYL inventories acquired from Ucyclyd which will be expensed to cost of sales as that inventory is sold. Since the inventories we purchased were part of the business combination, the inventories were recorded at fair value on the acquisition date. For additional information see Note 4 to our unaudited condensed consolidated financial statements appearing elsewhere in this report.

Research and Development Expenses

We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:

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

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

·   other consulting fees paid to third parties;

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

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

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

·   depreciation and other allocated expenses; and

·   expenses incurred to manufacture RAVICTI prior to FDA approval.

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We expense both internal and external research and development expenses as they are incurred. We did not begin tracking our research and development expenses on a program-by-program basis until January 1, 2010. We develop RAVICTI in UCD and GPB for HE in parallel, and we typically use our employees, consultants and infrastructure resources across our two programs. Thus, some of our research and development expenses are not attributable to an individual program, but rather are allocated across our two clinical stage programs and these costs are included in unallocated costs as detailed below. In 2012, unallocated costs included $5.7 million incurred in connection with the purchase of RAVICTI from Ucyclyd. Allocated expenses include salaries, stock-based compensation and related benefit expenses for our employees, consulting fees and fees paid to clinical suppliers. The following table shows our research and development expenses for the three and six months ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(unaudited)				(unaudited)
UCD Program	$	1,618	$	948	$	2,545	$	2,052
HE Program		235		745		549		1,620
Unallocated		709		1,039		1,307		7,968
Total	$	2,562	$	2,732	$	4,401	$	11,640

We expect our research and development expenses to increase when we initiate our Phase III trial of GPB for the treatment of patients with episodic HE. Due to the inherently unpredictable nature of product development, we are currently unable to estimate the expenses we will incur.

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

·   the number of trials required for approval;

·   the number of sites included in the trials;

·   the length of time required to enroll suitable patients;

·   the number of patients that participate in the trials;

·   the drop-out or discontinuation rates of patients;

·   the duration of patient follow-up;

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

·   the phase of development of the product candidate; and

·   the efficacy and safety profile of the product candidate.

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

As a result of the uncertainties discussed above, we are unable to determine with certainty the duration and completion costs of our RAVICTI and GPB development programs.

Selling, General and Administrative Expenses

Selling general and administrative expenses consist primarily of salaries, benefits and stock-based compensation for employees in administration, finance and business development, legal, investor relations, marketing, commercial and sales functions, including fees to third party vendors providing customer support services. Other significant expenses include consulting fees, allocated facilities expenses and professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents. We expect that our selling, general and administrative expenses will increase with the continued commercialization of

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RAVICTI and marketing of BUPHENYL. We expect these increases will likely include increased expenses for insurance, expenses related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants.

Amortization of intangible asset

In 2013, the amortization of intangible asset pertains to the amortization expense of BUPHENYL product rights acquired on May 31, 2013. For additional information, see Notes 4 and 7 to our unaudited condensed consolidated financial statements appearing elsewhere in this report.  

Interest Income

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

Interest Expense

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

Gain from settlement of retention option

The amount of gain is comprised of (i) fair value of BUPHENYL of $20.4 million and (ii) net cash received from Ucyclyd of $10.9 million off-set by (iii) the $0.3 million carrying value of the option to purchase the rights to BUPHENYL and AMMONUL. Accordingly, we recorded the resulting net settlement of $31.1 million as gain from our settlement of the retention option on our condensed consolidated statements of operations. For additional information, see Note 4 to our unaudited condensed consolidated financial statements appearing elsewhere in this report.

Other Income (Expense), net

During the six months ended June 30, 2013 other income (expense), net consisted of a $0.5 million payment from Ucyclyd in accordance with the restated collaboration agreement. During the three and six months ended June 30, 2012, other income (expense), net consisted primarily of the changes in the fair value of the common and preferred stock warrants liability and call option liability associated with the issuance of approximately $32.5 million of convertible notes. Under ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity, we account for the common stock warrants issued in 2011 and preferred stock warrants issued in 2012 and 2011, at fair value and recorded each as liabilities on the date of each issuance. The fair value was determined and subsequently re-measured using the Black-Scholes option-pricing model on each reporting date. On July 31, 2012, upon closing our IPO, we performed a final re-measurement of the common stock warrants issued in 2011 and preferred stock warrants issued in 2012 and 2011, and recorded the impact of the re-measurement to other income (expense), net. These warrants automatically net exercised into shares of common stock on July 31, 2012. As a result, these warrants will no longer be re-measured after July 31, 2012.

Income Taxes

We were granted orphan drug designation in 2009 by the FDA for our products currently under development. The orphan drug designation allowed us to claim increased federal tax credits for its research and development activities. We have $16.4 million of federal credit carryforwards of which $15.9 million relates to Orphan Drug Credit claims for 2009 through 2012. These federal credit carryforwards were fully provided with 100% valuation allowance.

We did not record income tax expense for the three and six month periods ended June 30, 2013. Our expected taxable income in 2013 will be offset by federal and state net operating losses and credits.

Critical Accounting Policies and Estimates

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

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Critical accounting estimates are necessary in the application of certain accounting policies and procedures, and are particularly susceptible to significant change. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. For additional information on our critical accounting policies, please refer to the information contained in Note 2 of the accompanying unaudited condensed consolidated financial statements and the Critical Accounting Policies and Estimates section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Annual Report on Form 10-K/A for the year ended December 31, 2012.

In relation to our commercial launch of RAVICTI during the period ended March 31, 2013 and our acquisition of BUPHENYL on May 31, 2013, we implemented the following critical accounting policies and estimates:

Business Combination

We allocate the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. The purchase price allocation process requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred.

Accounts Receivable

Our trade accounts receivable are recorded net of product sales allowances for prompt-payment discounts, chargebacks and doubtful accounts. We estimate chargebacks and prompt-payment discounts based on contractual terms, historical trends and our expectations regarding the utilization rates for these programs.

Inventories

Our inventories are stated at the lower of cost or market value with cost determined under the first-in-first-out (FIFO) cost method. Our inventories consist of raw materials, supplies, and work in process and finished goods. Subsequent to the FDA approval of RAVICTI on February 1, 2013, we began capitalizing inventories as the related costs were expected to be recoverable through the commercialization of the product. Prior to the FDA approval of RAVICTI, we recorded the costs incurred as research and development expenses in the condensed consolidated statements of operations. If information becomes available that suggest that our inventories may not be realizable, we may be required to expense a portion or all of the previously capitalized inventories.

The costs of our inventories consists mainly of third party manufacturing costs, associated compensation related costs of personnel indirectly involved in the manufacturing process and other overhead costs attributable to the manufacture of inventories.

Products that have been approved by the FDA or other regulatory authorities, such as RAVICTI are also used in clinical programs, to assess the safety and efficacy of the products for usage in diseases that have not been approved by the FDA or other regulatory authorities. The form of RAVICTI utilized for both commercial and clinical programs is identical and, as a result, the inventory has an “alternative future use”. Raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and, therefore, does not have an “alternative future use”.

On May 31, 2013, we acquired BUPHENYL including inventory from Ucyclyd (see Note 4 to our unaudited condensed consolidated financial statements appearing elsewhere in this report). We recorded these inventories at fair value in the amount of $3.9 million on the acquisition date. We will expense the difference between the fair value and book value of inventory as that inventory is sold.

We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. We classified inventory as current on the consolidated balance sheets when we expect inventory to be consumed for commercial use within the next 12 months.

Intangible Asset

We record intangible assets at acquisition cost less accumulated amortization and impairment. We amortize intangible assets with finite lives over their estimated useful lives. Our intangible asset pertains to BUPHENYL product rights acquired on May 31, 2013. We calculate the amortization of our intangible asset over its estimated useful life using the economic use method, which reflects the pattern that the economic benefits of the intangible asset is consumed as revenue is generated. The pattern of consumption of the economic benefits is estimated using the future projected cash flows of the intangible asset.

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Impairment of Long-lived Assets

We review our property and equipment and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable. Recoverability is measured by comparing the carrying amount to the future net undiscounted cash flows that the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value determined using projected discounted future net cash flows arising from the assets.

Revenue Recognition

We recognize revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed; and the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. We determine that persuasive evidence of an arrangement exists based on written contracts that define the terms of our arrangements. In addition, we determine that services have been delivered in accordance with the arrangement. We assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenue

During the three month and six month period ended June 30, 2013, our product revenues represent sales of RAVICTI and BUPHENYL in the U.S. and a limited amount of BUPHENYL sales outside the U.S. We recognized revenue once all four revenue recognition criteria described above are met.

During the first quarter of 2013, we began distributing RAVICTI to two specialty pharmacies through a specialty distributor. The specialty pharmacies, then in turn dispense RAVICTI to patients in fulfillment of prescriptions. As RAVICTI is a new product, and our first commercial product, we could not reasonably assess potential product sales allowances at the time of sale to the specialty distributor. As a result, the price of RAVICTI was not deemed fixed or determinable. We deferred the recognition of revenues on product shipments of RAVICTI to the specialty distributor until the product was shipped to patients by the specialty pharmacies at which time our related product sales allowances could be reasonably estimated. In future periods, once we have sufficient historical information to reasonably estimate our product sales allowances, we will re-evaluate our revenue recognition policy to determine whether the Company has sufficient information to recognize revenue upon receipt of RAVICTI by the specialty distributor.

On May 31, 2013, we acquired BUPHENYL from Ucyclyd. We sell BUPHENYL in the United States to a specialty distributor, who in turn sells this product to retail pharmacies, hospitals and other dispensing organizations. We recognized revenue from BUPHENYL sales upon receipt by the specialty distributor. For product sales of BUPHENYL outside the United States, revenue is recognized once the product is accepted by the customer or once their acceptance period has expired whichever comes first.

We recognize revenue net of product sales allowances, including estimated rebates, chargebacks, prompt-payment discounts, returns, distribution service fees and Medicare Part D coverage gap reimbursements. Product shipping and handling costs are included in cost of sales.

Product Sales Allowances

We establish reserves for prompt-payment discounts, government and commercial rebates, product returns and chargebacks. Allowances relating to prompt-payment discounts and chargebacks are recorded at the time of revenue recognition, resulting in a reduction in product sales revenue and a decrease in trade accounts receivables. Accruals related to government rebates, product returns and other applicable allowances such as distributor fees are recognized at the time of revenue recognition, resulting in a reduction in product sales and an increase in accrued expenses or a reduction in the related accounts receivable depending on the nature of the sales deduction.

Co-payment assistance

We provide cash donation to an independent non-profit third party organization (which supports patients who have commercial insurance and meet certain financial eligibility requirements) with co-payment assistance and travel costs. We account for the amount of co-payment assistance as a reduction of product revenues.

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Cost of Sales

Our cost of sales during the quarter ended June 30, 2013 consist mainly of third party manufacturing cost of products sold, royalty fees and other indirect costs related to personnel compensation, shipping and supplies.

We recorded costs incurred prior to the FDA approval of RAVICTI as research and development expenses in our condensed consolidated statement of operations. We expect that cost of sales relating to RAVICTI as a percentage of revenue will increase in future periods as product manufactured prior to FDA approval, and therefore fully expensed, is utilized. The cost of BUPHENYL sales as a percentage of revenue was higher and not indicative of future cost of sales in future periods due to the recording of the step-value on BUPHENYL inventories acquired from Ucyclyd which will be expensed to cost of sales as the inventory is sold.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2013 and 2012

	Three Months Ended June  30,						Increase/ (Decrease)			% Increase/ (Decrease)			Six Months Ended June 30,						Increase/ (Decrease)			% Increase/ (Decrease)
(in thousands, except for percentages)	2013				2012								2013				2012
	(unaudited)												(unaudited)
Product revenue, net	$	7,305		$	—		$	7,305			100	%	$	8,088		$	—		$	8,088			100	%
Cost of sales		875			—			875			100			943			—			943			100
Research and development		2,562			2,732			(170	)		(6	)		4,401			11,640			(7,239	)		(62	)
Selling general and administrative		9,220			2,023			7,197			356			17,164			4,340			12,824			295
Amortization of intangible asset		329			—			329			100			329			—			329			100
Interest income		11			3			8			267			12			7			5			71
Interest expense		(387	)		(1,282	)		(895	)		70			(795	)		(2,322	)		(1,527	)		(66	)
Gain from settlement of retention option		31,079			—			31,079			100			31,079			—			31,079			100
Other income (expense), net		—			(1,128	)		(1,128	)		(100	)		500			(753	)		1,253			166

Revenues

During the three and six months ended June 30, 2013, we generated $7.3 million and $8.1 million of net product revenues. Product revenues from the sale of RAVICTI and BUPHENYL are recorded net of sales returns and estimated product sales allowances including government rebates , chargebacks, prompt -payment discounts and distributor fees.

For the three months period ended June 30, 2013, net product revenues consisted of the following:

·   net U.S. sales from RAVICTI in the amount of $6.2 million; and

·   net sales from BUPHENYL in the amount of $1.1 million (of which amount $0.1 million relates to sales outside the U.S. and $1.0 million sales in the U.S.).

For the six months period ended June 30, 2013, net product revenues consisted of the following:

·   net U.S. sales from RAVICTI in the amount of $7.0 million; and

·   net sales from BUPHENYL in the amount of $1.1 million (of which amount $0.1 million relates to sales outside the U.S. and $1.0 million sales in the U.S.).

Cost of Sales

Cost of sales of $0.9 million for the three and six months ended June 30, 2013 consisted of BUPHENYL product costs of $0.3 million and RAVICTI product costs of $0.6 million.

We began capitalizing inventory costs after FDA approval of RAVICTI as the related costs were expected to be recoverable through the commercialization of the product. We recorded costs incurred prior to FDA approval of RAVICTI as research and development expenses in our 2012 consolidated statement of operations. As a result, cost of sales for RAVICTI for the next several quarters will reflect a lower average per unit cost of materials.

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For BUPHENYL, cost of sales was higher and not indicative of cost of sales in future periods due to the recording of the step-up value on BUPHENYL inventories acquired from Ucyclyd which will be expensed to cost of sales as the inventory is sold. Since the inventories were purchased as part of a business combination, they were recorded at fair value on the acquisition date. For additional information, see Note 4 to our unaudited condensed consolidated financial statements appearing elsewhere in this report.

Research and Development Expenses

Research and development expenses decreased by $0.2 million, or 6%, to $2.6 million for the three months ended June 30, 2013, from $2.7 million for the three months ended June 30, 2012. This decrease was primarily due to decreases in clinical development costs due to completion of our HE Phase II trial in 2012.

Research and development expenses decreased by $7.2 million, or 62%, to $4.4 million for the six months ended June 30, 2013, from $11.6 million for the six months ended June 30, 2012. This decrease was primarily due to decreases of $1.1 million in clinical development costs due to completion of our HE Phase II trial in 2012 and a $5.7 million expense recognized pertaining to purchase of RAVICTI which occurred in the first quarter of 2012.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $7.2 million, or 356%, to $9.2 million for the three months ended June 30, 2013, from $2.0 million for the three months ended June 30, 2012. This increase was primarily due to increases of $3.8 million in compensation expense as a result of hiring additional employees in the sales and marketing departments and $0.5 million in insurance and other office and administrative related expenses, $1.5 million in selling and marketing expenses pertaining to commercialization of RAVICTI and $1.4 million increase in consulting costs.

Selling, general and administrative expenses increased by $12.8 million, or 295%, to $17.2 million for the six months ended June 30, 2013, from $4.3 million for the six months ended June 30, 2012. This increase was primarily due to increases of $6.1 million in compensation expense as a result of hiring additional employees in the sales and marketing departments and $1.0 million in insurance and other office and administrative related expenses, $3.3 million in selling and marketing expenses pertaining to the product launch and commercialization of RAVICTI and $1.8 million increase in consulting costs.

Amortization of intangible asset

For the three and six months ended June 30,  2013, amortization of intangible asset in the amount of $0.3 million pertains to the amortization expense for BUPHENYL product rights acquired as part of the BUPHENYL acquisition on May 31, 2013.

Interest Income

The changes in interest income were not significant for the three and six months ended June 30, 2013 and 2012.

Interest Expense

Interest expense decreased by $0.9 million, or 70%, to $0.4 million for the three months ended June 30, 2013, from $1.3 million for the three months ended June 30, 2012. The interest expense decreased for the three months ended June 30, 2013, compared to the same period in 2012, primarily due to the conversion of our April 2011 Notes and October 2011 Notes to common stock upon the closing of our IPO in July 2012.

Interest expense decreased by $1.5 million, or 66%, to $0.8 million for the six months ended June 30, 2013, from $2.3 million for the six months ended June 30, 2012. The interest expense decreased for the six months ended June 30, 2013, compared to the same period in 2012, primarily due to the conversion of our April 2011 Notes and October 2011 Notes to common stock upon the closing of our IPO in July 2012.

Gain from settlement of retention option

The amount of gain is comprised of (i) fair value of BUPHENYL of $20.4 million and (ii) net cash received from Ucyclyd of $10.9 million off-set by (iii) the $0.3 million carrying value of the option to purchase the rights to BUPHENYL and AMMONUL. Accordingly, we recorded the resulting net settlement of $31.1 million as gain from our settlement of the retention option on our condensed consolidated statements of operations. For additional information, see Note 4 to our unaudited condensed consolidated financial statements appearing elsewhere in this report.  

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Other Income (Expense), net

During the six months ended June 30, 2013, we recorded $0.5 million in income related to Ucyclyd’s payment to us in relation to our restated collaboration agreement.

During the three months ended June 30, 2012, we recorded a change in fair value of $1.3 million of expense and $0.2 million of income related to the common stock warrants and the preferred stock warrants, respectively. During the six months ended June 30, 2012, we recorded a change in fair value of $1.8 million of expense and $0.3 million of income related to the common stock warrants and the preferred stock warrants, respectively. Additionally, we recorded $0.7 million to other income relating to the change in the fair value of our call option liability upon the issuance of our convertible notes in February 2012.

Liquidity and Capital Resources

During the six months ended June 30, 2013, we raised net proceeds of $63.7 from our follow-on offering and generated net revenues of $8.1 million.

As of June 30, 2013 and December 31, 2012, our principal sources of liquidity were our cash and cash equivalents, which totaled $109.7 million and $49.9 million, respectively.

In July 2012, we raised $51.3 million in net proceeds in our IPO. On March 13, 2013, we completed our follow-on offering and issued 2,875,000 shares of our common stock at an offering price of $20.75 per share. In addition, we sold an additional 431,250 shares of common stock directly to our underwriters when they exercised their over-allotment option in full at an offering price of $20.75 per share. We received net proceeds from the offering of $63.7 million, after deducting underwriting discounts and commissions of $4.1 million and expenses of $0.8 million.

We began generating revenues due to the commercialization of RAVICTI during the period ended March 31, 2013 and the acquisition of BUPHENYL on May 31, 2013. We believe that our existing cash and cash equivalents as of June 30, 2013, and our future expected product revenues will be sufficient to fund our operations for at least the next 12 months.

Cash Flows

The following table sets forth the major sources and uses of cash for the periods set forth below (in thousands):

	Six Months Ended June 30,
(In thousands)	2013			2012
	(unaudited)
Net cash (used in) provided by:
Operating activities	$	(12,999	)	$	(16,495	)
Investing activities		10,529			33
Financing activities		62,344			16,743
Net increase in cash and cash equivalents	$	59,874		$	281

Cash used in operating activities of $13.0 million for the six months ended June 30, 2013 included our net income of $16.0 million, adjusted for non-cash items such as $31.1 million of gain from the settlement of retention option, $0.3 million of amortization of debt discount, $0.3 million of amortization of intangible asset, $1.8 million of stock-based compensation expense, a net cash outflow of $2.4 million related to changes in operating assets partially offset by a net cash inflow of $2.1 million related to changes in operating liabilities. For the six months ended June 30, 2012, the primary use of cash was to fund our operations related to the development of RAVICTI for the treatment of UCD and GPB for the treatment of HE. Cash used in operating activities of $16.5 million for the six months ended June 30, 2012, included net loss of $19.0 million, adjusted for non-cash items such as $0.8 million of amortization of debt discount, $0.3 million of stock-based compensation expense, $1.4 million for re-measurement of warrants liability, $0.7 million for re-measurement of call option and preferred stock liability and $0.6 million of net cash inflow related to changes in operating assets and liabilities. In addition, for the six months ended June 30, 2012, cash used in operating activities included the $5.7 million of expense we incurred for the purchase of RAVICTI.

Net cash provided by investing activities was $10.5 million and $33,000 for the six months ended June 30, 2013 and 2012, respectively. Net cash provided by investing activities for the six months ended June 30, 2013 includes a net payment of $11.0 million received from Ucyclyd partially offset by additions made to property and equipment of $0.4 million. For the six months ended June 30, 2012, net cash provided by investing activities consisted of an increase in restricted cash of $0.3 million, option to purchase the rights to BUPHENYL and AMMONUL of $0.3 million and acquisitions of property and equipment of $13,000.

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Net cash provided by financing activities was $62.3 million and $16.7 million for the six months ended June 30, 2013 and 2012, respectively. Net cash provided by financing activities for the six months ended June 30, 2013 related primarily to the proceeds from our follow-on offering of $64.5 million (net of underwriting discounts and commissions) and proceeds from issuance of common stock due to exercise of stock options of $0.3 million partially offset by our payments of notes payable of $1.7 million and payments of deferred offering costs of $0.8 million. For the six months ended June 30, 2012, net cash provided by financing activities related primarily to the issuance of the February 2012 notes in the amount of $7.5 million and the proceeds from the loan agreement with Silicon Valley Bank and Leader Lending, LLC – Series B in the amount of $10.0 million, partially offset by our payments of deferred offering costs in the amount of $0.8 million.

Future Funding Requirements

We will likely need to obtain additional financing to fund our future operations, supporting sales and marketing activities related to RAVICTI and BUPHENYL, a Phase III trial in HE, as well as the development of any additional product candidates we might acquire or develop on our own. Our future funding requirements will depend on many factors, including, but not limited to

·   our ability to successfully commercialize RAVICTI and market BUPHENYL;

·   the amount of sales and other revenues from products that we may commercialize, if any, including the selling prices for such products and the availability of adequate third-party reimbursement;

·   selling and marketing costs associated with our UCD products, including the cost and timing of expanding our marketing and sales capabilities and establishing a network of specialty pharmacies;

·   the progress, timing, scope and costs of our nonclinical studies and clinical trials, including the ability to timely enroll patients in our planned and potential future clinical trials;

·   the time and cost necessary to obtain regulatory approvals and the costs of post-marketing studies that may be required by regulatory authorities;

·   the costs of obtaining clinical and commercial supplies of RAVICTI and BUPHENYL;

·   payments of milestones and royalties to third parties, including Ucyclyd;

·   cash requirements of any future acquisitions of product candidates;

·   the time and cost necessary to respond to technological and market developments:

·   the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

·   any new collaborative, licensing and other commercial relationships that we may establish.

We only started to generate product revenue during the quarter ended March 31, 2013 and otherwise had not generated revenue from the sale of products in the last three years. We expect our continuing operating losses to result in increases in cash used in operations over the next several years.

We believe that our current cash and cash equivalents, which include the net proceeds from our IPO and follow-on offering will be sufficient to fund our operations for at least the next 12 months.

We have based these estimates on a number of assumptions that may prove to be wrong, and changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate. For example, we may not achieve the revenues we anticipated and our HE Phase III clinical trial may cost more than we expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials.

Additional financing may not be available when we need it or may not be available on terms that are favorable to us. We may seek to raise additional capital through a combination of private and public equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends.

If adequate funds are not available to us on a timely basis, or at all, we may be required to terminate or delay clinical trials or other development activities for RAVICTI and GPB, or delay our establishment of sales and marketing capabilities or other activities that may be necessary to successfully market BUPHENYL. We may elect to raise additional funds even before we need them if the conditions for raising capital are favorable.

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Off-Balance Sheet Arrangements

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.

Jumpstart Our Business Startups Act of 2012

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include risk related to interest rate sensitivities. During the three months ended June 30, 2013, our market risks have not changed materially from those discussed in Item 7A of our Form 10-K/A for the year ended December 31, 2012.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the period covered by this report. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.

Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. On April 1, 2013, we completed the first of two phases of the implementation of our corporate-wide Enterprise Resource Planning (“ERP”) system. Our new ERP system is expected to standardize and automate business processes, to improve operational and financial performance, and to enhance internal controls.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any material legal proceedings.

Item 1A. Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking information based on our current expectations. Because our actual results may differ materially from any forward-looking statements made by or on behalf of us, this section includes a discussion of important factors that could affect our actual future results, including, but not limited to, our revenues, expenses, net loss and loss per share. You should carefully consider these risk factors, together with all of the other information included in this Quarterly Report on Form 10-Q as well as our other publicly available filings with the SEC.

Risks Related to our UCD products including Commercialization of RAVICTI and Our Development Programs

We depend substantially on the commercial success of our product, RAVICTI, and we may not be able to successfully commercialize it.

We have invested a significant portion of our efforts and financial resources in the development of RAVICTI. As a result, our business is substantially dependent on our ability to successfully commercialize RAVICTI. We launched RAVICTI in March 2013 and are in the early stages of marketing. As a result, we may be unable to commercialize RAVICTI successfully.

Our ability to commercialize RAVICTI successfully will depend on our ability to:

• achieve market acceptance and generate product sales through executing and maintaining agreements with a third-party logistics company and specialty pharmacies on commercially reasonable terms;

• obtain and maintain adequate levels of reimbursement for RAVICTI;

• hire, train, deploy and maintain a qualified commercial organization and field force;

• create market demand for RAVICTI through education, marketing and sales activities;

• comply with requirements established by the FDA, including post-marketing requirements and label restrictions; and

• comply with other healthcare regulatory requirements.

The commercial success of RAVICTI will depend upon the degree of market acceptance among physicians, patients, patient advocacy groups, third-party payors and the medical community.

RAVICTI may not gain market acceptance among physicians, patients, patient advocacy groups, third-party payors and the medical community. The degree of market acceptance of RAVICTI will depend on a number of factors, including:

• the effectiveness, or perceived effectiveness, of RAVICTI as compared with any branded or generic forms of sodium phenylbutyrate;

• the prevalence and severity of any side effects;

• potential advantages over BUPHENYL or any generic versions of BUPHENYL;

• the perception among physicians and patients as to the relative price differences between RAVICTI and BUPHENYL;

• sufficient third-party coverage or reimbursement;

• relative convenience and ease of administration;

• willingness of patients to adopt RAVICTI as a replacement for sodium phenylbutyrate or any other UCD treatment options;

• the strength of our sales and marketing organizations and our third-party distributors; and

• the quality of our relationship with patient advocacy groups and the medical community.

If we fail to achieve market acceptance of RAVICTI, our revenue will be limited and it will be more difficult to achieve profitability, or profitability may not occur at all.

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If we are unable to maintain agreements with, and effectively manage, third parties to distribute our UCD products to patients, our results of operations and business could be adversely affected.

We rely on third parties to distribute our UCD products to patients. We have contracted with a third-party logistics company to warehouse our UCD products. For RAVICTI, we contracted with two specialty pharmacies to sell and distribute to patients. A specialty pharmacy is a pharmacy that specializes in the dispensing of medications for complex or chronic conditions that require a high level of patient education and ongoing management. For BUPHENYL, which we acquired on May 31, 2013, we operate under a contract with a wholesaler who distributes and sells to retail pharmacies, hospitals and other dispensing organizations. We have also contracted with a third-party call center to coordinate prescription intake and distribution, reimbursement adjudication, patient financial support, and ongoing compliance support for our UCD products. This distribution network requires significant coordination with our sales and marketing and finance organizations. Failure to coordinate financial systems could negatively impact our ability to accurately report product revenue from sales of RAVICTI and BUPHENYL. If we are unable to effectively manage the distribution process, the sales of our UCD products, as well as any future products we may commercialize, will be delayed or severely compromised and our results of operations may be harmed.

In addition, since we use specialty pharmacies and heavily rely on our third-party call center to support RAVICTI, we are subject to certain risks, including, but not limited to, risks that these organizations may:

• not provide us with accurate or timely information regarding their inventories, the number of patients who are using our UCD products, or complaints regarding those drugs;

• not effectively sell or support our UCD products;

• reduce or discontinue their efforts to sell or support our UCD products;

• not devote the resources necessary to sell our UCD products in the volumes and within the time frames that we expect;

• be unable to satisfy financial obligations to us or others; or

• cease operations.

         Any such events may result in decreased product sales and lower product revenue, which would harm our results of operations and business.

If we are unable to successfully maintain internal commercialization capabilities, we will be unable to successfully commercialize our UCD products.

We need to commit significant time and financial and managerial resources to develop and maintain adequate marketing capabilities and a sales force with technical expertise in addition to supporting distribution capabilities. Factors that may inhibit our efforts to develop our commercialization capabilities include:

• our inability to retain adequate numbers of effective commercial personnel;

• our inability to train sales personnel, who may have limited experience with our company or UCD products, to deliver an effective message regarding our UCD products  that results in patients being treated with our UCD products by their treating physicians;

• our inability to equip sales personnel with effective materials, including medical and sales literature to help them educate physicians and other healthcare providers regarding our UCD products and its proper administration; and

• unforeseen costs and expenses associated with sustaining an independent sales and marketing organization.

If we are not successful in maintaining effective sales and marketing infrastructure, we will have difficulty commercializing our UCD products, which would adversely affect our business and financial condition.

If we are unable to maintain orphan drug exclusivity for RAVICTI in the United States, we may face increased competition.

Under the Orphan Drug Act of 1983, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition affecting fewer than 200,000 people in the United States. A company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketing exclusivity for that drug for a period of seven years from the date of its approval. This orphan drug exclusivity prevents the approval of another drug containing the same active ingredient and used for the same orphan indication except in very limited circumstances, based upon the FDA’s determination that a subsequent drug is safer, more effective or makes a major contribution to patient care, or if the orphan drug manufacturer is unable to assure that a sufficient quantity of the orphan drug is available to meet the needs of patients with the rare disease or condition. Orphan drug exclusivity may also be lost if the FDA later determines that the initial request for designation was materially defective. RAVICTI was granted orphan drug exclusivity by the FDA in May 2013, which we expect will provide the drug with orphan drug marketing exclusivity in the United States until February 2020, seven years from the date of its approval. However, such exclusivity may not effectively protect the product from competition if the FDA determines that a subsequent drug for the same

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indication is safer, more effective or makes a major contribution to patient care, or if we are unable to assure the FDA that sufficient quantities of RAVICTI are available to meet patient demand. In addition, orphan drug exclusivity does not prevent the FDA from approving competing drugs for the same or similar indication containing a different active ingredient. If a subsequent drug is approved for marketing for the same or a similar indication we may face increased competition, and our revenues from the sale of RAVICTI will be adversely affected. RAVICTI does not have orphan drug exclusivity in the European Union or other regions of the world.

We have a history of net losses and may not achieve or maintain profitability.

We have a limited operating history and only recently received FDA approval for RAVICTI, which we initiated commercial sales of during the first quarter of 2013. On May 31, 2013, we completed the acquisition of BUPHENYL from Ucyclyd. We have funded our operations primarily from sales of our equity and debt securities. We have incurred losses from operations in each year since our inception, had an accumulated deficit totaling $123.0 million. Our losses, among other things, have had and will continue to have an adverse effect on our cash flow, stockholders’ equity and working capital. We may not generate sufficient sales of RAVICTI and BUPHENYL for us to achieve or maintain profitability on a timely basis, or at all.

We expect to incur increased selling, general and administrative expenses during the remainder of this year versus comparable periods last year due to higher sales and marketing expenses related to the commercialization of RAVICTI and the marketing of BUPHENYL, as well as additional full-year expenses related to operating as a public company. In addition, we expect increased research and development expenses related to our expected HE Phase III trial and for required post-marketing studies for UCD. We also expect to continue to incur significant losses for the foreseeable future. Additionally, our operating expenses may increase significantly if we in-license or acquire other products or product candidates. Further, because of the numerous risks and uncertainties associated with developing and commercializing therapeutic drugs, we may experience larger than expected future losses and may not become profitable.

If we fail to obtain and sustain an adequate level of reimbursement for our UCD products by third-party payors, sales would be adversely affected.

The course of treatment for UCD patients is and will continue to be expensive. We currently expect that the average price per patient year for RAVICTI will be between $250,000 and $290,000. We expect UCD patients to need treatment throughout their lifetimes. Most families of patients are not capable of paying for this treatment themselves. There will be no commercially viable market for RAVICTI and BUPHENYL without reimbursement from third-party payors. Even if there is a commercially viable market, if the level of reimbursement is below our expectations, our revenue and gross margins will be adversely affected. In addition, we expect to provide RAVICTI and BUPHENYL at no cost to qualified patients without insurance or without coverage for RAVICTI or BUPHENYL. If the numbers of patients that qualify for these programs is higher than our current estimates, our revenues and gross margins will be adversely affected.

Third-party payors, such as government or private health care insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for, drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. A current trend in the United States health care industry is toward cost containment. Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, are questioning the coverage of, and challenging the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved health care products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. If the prices for our products decrease or if governmental and other third-party payors do not provide adequate coverage and reimbursement levels, our revenue and prospects for profitability will suffer. Additionally, there may be delays in obtaining appropriate documentation and securing reimbursement coverage from third-party payors, which may also have a significant impact on our revenue and profitability. Reimbursement systems in international markets, including the European Union, vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries the product cannot be commercially launched until reimbursement is approved. The negotiation process in some countries can exceed 12 months.

We are required to complete post-marketing studies mandated by the FDA for RAVICTI and such studies may be costly and time consuming. If the results of these studies reveal unacceptable safety risks, we may be required to withdraw RAVICTI from the market.

As part of the FDA approval of RAVICTI to treat UCD, we made a Phase IV commitment to conduct a long-term (approximately 10 years) outcomes study (or Registry), which is noted on the FDA-approved label. The FDA also imposed several post-marketing requirements which includes obligations to conduct:

• two separate studies in UCD patients during the first two months of life and from 2 months to 2 years of age, including a study of the pharmacokinetics in both age groups;

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• a study to determine whether metabolites are present in human breast milk;

• a study to determine whether the metabolites of RAVICTI affect the metabolism of other drugs that these patients might be given concurrently; and

• a randomized study to determine the safety and efficacy in UCD patients who are treatment naïve to phenylbutyrate treatment.

If we are unable to complete these studies or the results of the studies reveal unacceptable safety risks, we could be required to perform additional studies, which may be costly, and even lose marketing approval of RAVICTI. In addition to these studies, the FDA may also require us to commit to perform other lengthy post-marketing studies, for which we would have to expend significant additional resources, which could have an adverse effect on our operating results, financial condition and stock price.

The patient population suffering from UCD is small and has not been established with precision. If the actual number of patients is smaller than we estimate or if we are unable to convert patients from sodium phenylbutyrate to RAVICTI, our revenue and ability to achieve profitability may be adversely affected.

We estimate that the number of individuals in the United States with UCD is approximately 2,100, of which approximately 1,100 are currently diagnosed and approximately 600 patients are treated with FDA-approved pharmaceuticals, including sodium phenylbutyrate and RAVICTI. Of these, we estimate that approximately 60% are children and 40% are adults. Our estimate of the size of the patient population is based on published studies as well as internal analyses. If the results of these studies or our analysis of them do not accurately reflect the number of patients with UCD, our assessment of the market may be inaccurate, making it difficult or impossible for us to meet our revenue goals, or to obtain and maintain profitability. In addition, if existing patients do not use our therapies, it will be more difficult to achieve profitability, or profitability may not occur at all.

The number of patients in the United States who might be prescribed RAVICTI could be significantly less than the 600 currently estimated to be on either RAVICTI or sodium phenylbutyrate. Since RAVICTI and sodium phenylbutyrate target diseases with small patient populations, the per-patient drug pricing must be high in order to recover our development and manufacturing costs, fund adequate patient support programs and achieve profitability. We may be unable to maintain or obtain sufficient sales volume at a price high enough to justify our product development efforts and our sales and marketing and manufacturing expenses.

To obtain regulatory approval to market GPB in HE, costly and lengthy clinical trials may be required, and the results of the studies and trials are highly uncertain.

As part of the regulatory approval process, we must conduct, at our own expense, clinical trials on humans for each indication that we intend to pursue. We expect the number of nonclinical studies and clinical trials that the regulatory authorities will require will vary depending on the disease or condition the drug is being developed to address and regulations applicable to the particular drug. Generally, the number and size of clinical trials required for approval varies based on the nature of the disease and size of the expected patient population that may be treated with a drug, and we are still in discussions with the FDA as to the design of any HE clinical trials. We must demonstrate that our drug products are safe and efficacious for use in the targeted human patients in order to receive regulatory approval for commercial sale.

Serious adverse events or other safety risks could require us to abandon development and preclude or limit approval of GPB to treat HE.

We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants or if preliminary data demonstrate that the product is unlikely to receive regulatory approval or unlikely to be successfully commercialized. In addition, regulatory agencies, institutional review boards and data safety monitoring boards may at any time order the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. If we elect or are forced to suspend or terminate a clinical trial of GPB to treat HE, the commercial prospects for GPB will be harmed and our ability to generate additional product revenues from RAVICTI may be delayed or eliminated.

We may never obtain approval for or commercialize RAVICTI outside of the United States, which would limit our ability to realize its full market potential.

We only have approval to market RAVICTI in the United States at this time. In order to market RAVICTI outside of the United States, we must comply with regulatory requirements of and obtain required regulatory approvals in, other countries. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could require additional nonclinical studies or clinical trials, which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of RAVICTI in those countries. We

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do not have any products approved for sale in any jurisdiction outside the United States. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.

If we obtain approval to commercialize RAVICTI outside of the United States and continue to maintain the existing Ucyclyd distribution agreements for BUPHENYL outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If RAVICTI is approved for commercialization outside the United States, we will likely enter into agreements with third parties to market RAVICTI outside the United States. On May 31, 2013, we acquired worldwide rights to BUPHENYL from Ucyclyd. As part of the acquisition of BUPHENYL, we assumed Ucyclyd’s rights and obligations under its existing agreements for distribution of BUPHENYL outside the United States, including Ucyclyd’s obligation to provide Swedish Orphan Biovitrum AB with a right of first refusal for the distribution of RAVICTI and other newly developed products for urea cycle disorders on terms and conditions reasonably satisfactory to us. We expect that we will be subject to additional risks related to entering into or maintaining these international business relationships, including:

• different regulatory requirements for drug approvals in foreign countries;

• differing United States and foreign drug import and export rules;

• reduced protection for intellectual property rights in foreign countries;

• unexpected changes in tariffs, trade barriers and regulatory requirements;

• different reimbursement systems;

• economic weakness, including inflation, or political instability in particular foreign economies and markets;

• compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

• foreign taxes, including withholding of payroll taxes;

• foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

• workforce uncertainty in countries where labor unrest is more common than in the United States;

• production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

• potential liability resulting from development work conducted by these distributors; and

• business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.

Even if we successfully commercialize RAVICTI and BUPHENYL, we will continue to face extensive development and regulatory requirements.

Even after a drug is FDA-approved, regulatory authorities may still impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing studies. Furthermore, any new legislation addressing drug safety issues could result in delays or increased costs to assure compliance.

BUPHENYL and RAVICTI are subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information, including both federal and state requirements in the United States. In addition, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMP. As such, we and our contract manufacturers are subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they do not have FDA approval.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing, or labeling of a product, a regulatory agency may impose restrictions on that product use, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may:

• issue warning letters;

• impose civil or criminal penalties;

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• suspend regulatory approval;

• suspend any of our ongoing clinical trials;

• refuse to approve pending applications or supplements to approved applications submitted by us;

• impose restrictions on our operations, including closing our contract manufacturers’ facilities; or

• seize or detain products or require a product recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues from RAVICTI and BUPHENYL. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate revenues from the sale of RAVICTI and BUPHENYL our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.

If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.

Contract manufacturers must obtain and maintain regulatory approval of their manufacturing facilities, processes and quality systems. In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and foreign regulatory authorities, before and after product approval. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost effective manner.

If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our financial results and financial condition.

If our competitors are able to develop and market products that are preferred over RAVICTI or BUPHENYL, our commercial opportunity will be reduced or eliminated.

We face competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat UCD or HE. During the lifetime of the United States patents covering RAVICTI, and for any longer period of market exclusivity granted by the FDA for RAVICTI, Ucyclyd and its affiliates are contractually prohibited from developing or commercializing new products, anywhere in the world, for the treatment of UCD or HE that are chemically similar to RAVICTI, except for products delivered parenterally for the treatment of HE. In countries outside the United States, this contractual restriction will continue, on a country-by-basis, for the lifetime of patents covering RAVICTI in each such country and for any longer period of regulatory exclusivity granted for RAVICTI in each such country. Since this restriction only applies to specific indications and products that are chemically similar to RAVICTI, it may not prevent Ucyclyd or its affiliates from developing and commercializing products that compete with RAVICTI. Moreover, products approved for indications other than UCD and HE may compete with RAVICTI if physicians prescribe such products off-label for UCD or HE. Ucyclyd may develop and commercialize such products and, under the purchase agreement, has a time-limited option to acquire the right to use and reference certain RAVICTI data for the development and commercialization of products (other than RAVICTI) for the treatment of a specific indication that we are not pursuing. RAVICTI

In November 2011, Ampolgen Pharmaceuticals, LLC received FDA approval for a generic version of sodium phenylbutyrate tablets and in March 2013, Sigmapharm Laboratories, LLC received FDA approval for a generic version of sodium phenylbutyrate powder both of which may compete with RAVICTI and BUPHENYL in treating UCD. We are aware that Lucane Pharma has requested market authorization from the European Medicines Agency for taste-masked sodium phenylbutyrate and we believe they are also seeking approval via an abbreviated new drug application (“ANDA”) in the United States. If this ANDA is approved, this formulation may compete with RAVICTI and BUPHENYL in treating UCD. We are also aware that Orphan Europe is conducting a clinical trial of carglumic acid to treat some of the UCD enzyme deficiencies for which RAVICTI was approved. Carglumic acid is approved for maintenance therapy for chronic hyperammonemia and to treat HA crises in NAGS deficiency, a rare UCD subtype, and is sold under the name Carbaglu. If the results of this trial are successful and Orphan Europe is able to complete development and obtain approval of Carbaglu to treat additional UCD enzyme deficiencies, we would face competition from this compound. In addition, if we complete development, obtain regulatory approval and commercialize GPB to treat HE, we will face competition from Salix Pharmaceuticals, Inc., the manufacturer of rifaximin, as well as generic manufacturers of lactulose. In addition to currently marketed treatments for HE, Ocera Therapeutic,Inc. has conducted two Phase II trials of one of their compounds to treat mild HE and is conducting a Phase II trial of a second compound delivered intravenously to patients with cirrhosis in which they are assessing ammonia control versus placebo. In addition, researchers are continually learning more about UCD and HE and new discoveries may lead to new therapies. As a result, RAVICTI and BUPHENYL may be rendered less competitive, or even obsolete, at any time. Other

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early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects, are more convenient or are less expensive than RAVICTI and BUPHENYL. We expect that our ability to compete effectively will depend upon, among other things, our ability to:

• successfully and rapidly complete clinical trials and obtain all requisite regulatory approvals in a timely and cost-effective manner;

• maintain patent protection for RAVICTI and otherwise prevent the introduction of generics of RAVICTI;

• attract and retain key personnel;

• build an adequate sales and marketing infrastructure;

• obtain adequate reimbursement from third-party payors; and

• maintain positive relationships with patient advocacy groups.

If GPB is approved to treat HE in the future, the cost of RAVICTI to treat UCD may decline significantly, which could materially affect our UCD revenues.

The same active ingredient underlies RAVICTI to treat UCD and GPB which we have in trials for HE. Given the relative differences in the size of the affected patient populations in UCD and HE, respectively, the number of requests third-party payors receive to reimburse drugs for the treatment of HE is significantly greater than the number of requests for UCD. As a result, and given the common active ingredient we will likely experience greater pricing pressure for RAVICTI if GPB is approved by the FDA to treat HE. We do not currently have a plan to differentiate the formulations for UCD and HE, nor can we guarantee success if we attempt to differentiate the formulation. We expect the required dosing volume to be similar for UCD and HE. If GPB is approved by the FDA for HE , we may need to significantly decrease the price for RAVICTI from that established with respect to UCD in order to gain third-party reimbursement for broad use in HE patients. This would result in a significant decrease in revenues generated by the UCD patient population. We believe GPB revenue potential for HE is much larger than RAVICTI is for UCD; however, if the market for GPB in HE is significantly smaller than we anticipate, or if we are unsuccessful in any commercial launch of GPB for the treatment of HE, total RAVICTI revenues may decrease significantly and we may be unable to achieve or maintain profitability. If the RAVICTI price is decreased with the introduction of the drug for HE, we may need to decrease our UCD specialty pharmacy and patient support service offerings. This may result in lower UCD revenues due to fewer UCD patients electing to begin use of RAVICTI and/or remain compliant.

If we are unable to maintain an effective direct sales force in the United States, our business may be harmed.

We market RAVICTI and BUPHENYL directly to physicians in the United States through our own sales force. We will need to continue to incur significant expenses and commit significant management resources to train our sales force to market and sell RAVICTI and BUPHENYL. We may not be able to effectively maintain these capabilities despite these expenditures. We will also have to compete with other pharmaceutical and life sciences companies to recruit, hire, train and retain sales and marketing personnel. In the event we are unable to successfully market and promote RAVICTI and BUPHENYL, our business may be harmed.

If we are found to be in violation of federal or state “fraud and abuse” laws, we may be required to pay a penalty and/or be suspended from participation in federal or state health care programs, which may adversely affect our business, financial condition and results of operation.

In the United States, we are subject to various federal and state health care “fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended to reduce fraud and abuse in federal and state health care programs. The federal Medicare-Medicaid Anti-Fraud and Abuse Act, as amended (the “Anti-Kickback Statute”), makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription of a particular drug for which payment may be made under a federal health care program, such as Medicare or Medicaid. Under federal government regulations, some arrangements, known as safe harbors, are deemed not to violate the federal Anti-Kickback Statute. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the federal Anti-Kickback Statute. False claims laws prohibit anyone from knowingly and willfully presenting or causing to be presented for payment to third-party payors, including government payors, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims for medically unnecessary items or services. Cases have been brought under false claims laws alleging that off-label promotion of pharmaceutical products or the provision of kickbacks has resulted in the submission of false claims to governmental health care programs. Under the Health Insurance Portability and Accountability Act of 1996, we are prohibited from knowingly and willfully executing a scheme to

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defraud any health care benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and/or exclusion or suspension from federal and state health care programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.

Many states have adopted laws similar to the federal anti-kickback statute, some of which apply to the referral of patients for health care services reimbursed by any source, not just governmental payors. In addition, California and a few other states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals. In addition, several states impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement we could be subject to penalties.

Neither the government nor the courts have provided definitive guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. While we believe we have structured our business arrangements to comply with these laws, it is possible that the government could allege violations of or convict us of violating, these laws. If we are found in violation of one of these laws, we could be required to pay a penalty and could be suspended or excluded from participation in federal or state health care programs, and our business, financial condition and results of operations may be adversely affected.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may obtain.

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell our products for which we obtain marketing approval.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, “PPACA”), a law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among other things, the PPACA expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs, effective the first quarter of 2010 and revising the definition of “average manufacturers price,” (“AMP”), for reporting purposes, which could increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates, which previously had been payable only on fee-for-service utilization, to Medicaid managed care utilization, and created an alternative rebate formula for certain innovator products that qualify as line extensions of certain existing products that is intended to increase the rebates due on those drugs. CMS, which administers the Medicaid Drug Rebate Program, has issued proposed regulations to implement the changes to the Medicaid Drug Rebate program under PPACA and subsequent legislation but has not yet issued final regulations. CMS has proposed to expand Medicaid rebates to the utilization that occurs in the territories of the United States, such as Puerto Rico and the Virgin Islands. Federal law requires that any company that participates in the Medicaid rebate program also participate in the Public Health Service’s 340B drug pricing discount program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. Also effective in 2010, PPACA expanded the types of entities eligible to receive discounted 340B pricing, although, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs. In addition, as 340B drug pricing is determined based on AMP and Medicaid rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discount to increase. Further, as of 2011, PPACA imposed a significant annual branded prescription drug fee on companies that manufacture or import branded prescription drug products and requires manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole.” Substantial new provisions affecting compliance have also been enacted, which may require us to modify our business practices with healthcare practitioners. Notably, a significant number of provisions are not yet, or have only recently become effective. Although it is too early to determine the full effect of PPACA, the new law appears likely to continue the downward pressure on pharmaceutical pricing, especially under the Medicaid program, and may also increase our regulatory burdens and operating costs.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, in August 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automatic

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reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013.

We expect that the PPACA, as well as other healthcare reform measures that have and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products. In addition, increased scrutiny by the United States Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. Furthermore, the concerns raised by patients, patient advocacy groups and congressional representatives about the recent pricing of orphan drugs, could result in changes to the Orphan Drug Act or limitations in the approval pathway or pricing and reimbursement of orphan drugs.

Risks Related to Our Financial Position and Need for Additional Capital

We currently have a limited source of revenue and may never become profitable.

We have generated no revenue in the last three years; however, we have generated product revenue during the first half of 2013 due to the FDA approval and commercialization of RAVICTI and acquisition of BUPHENYL. Our ability to generate continued product revenue depends on a number of factors, including our ability to:

• set an acceptable price for our UCD products;

• achieve market acceptance for RAVICTI as an alternative to BUPHENYL;

• obtain commercial quantities of our UCD products at acceptable cost levels;

• obtain adequate reimbursement from third-party payors;

• successfully market and sell our UCD products in the United States;

• delay the introduction and impact of generic versions of our UCD products;

• maintain our licenses or sublicenses to intellectual property rights to RAVICTI; and

• maintain existing distribution agreements for BUPHENYL outside the United States.

In addition, because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability.  

Even as we are able to generate revenues from the sale of our products, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.

We have incurred net losses since inception and anticipate that we will continue to incur net losses for the foreseeable future.

We have incurred losses from operations in each year since our inception on November 1, 2006. As of June 30, 2013, we had an accumulated deficit of $123.0 million. We have devoted most of our financial resources to research and development, including our nonclinical development activities and clinical trials. To date, we have financed our operations primarily through the sale of equity securities and debt. RAVICTI will require significant marketing efforts and substantial investment before it can provide us with sustained revenues. We expect our research and development expenses to continue to be significant in connection with our ongoing and planned clinical trials for RAVICTI and any other clinical trials or nonclinical testing that we may initiate. In addition, we expect to incur increased sales and marketing expenses. As a result, we expect to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have an adverse effect on our stockholders’ deficit and working capital.

We may need to obtain additional financing to fund our operations.

We may need to obtain additional financing to fund the Phase III HE trial if the design is materially different from what we currently expect and for the commercial launch of GPB in HE if we are approved in this indication. We will likely need to obtain additional financing for development of any additional products or product candidates we might acquire. Our future funding requirements will depend on many factors, including, but not limited to:

• our ability to successfully commercialize RAVICTI and BUPHENYL for the treatment of UCD;

• the amount of sales and other revenues from products that we may commercialize, if any, including the selling prices for such products and the availability of adequate third-party reimbursement;

• selling and marketing costs associated with our UCD products, including the cost and timing of expanding our marketing and sales capabilities and establishing a network of specialty pharmacies;

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• the progress, timing, scope and costs of our nonclinical studies and clinical trials, including the ability to timely enroll patients in our planned and potential future clinical trials;

• the time and cost necessary to obtain regulatory approvals and the costs of post-marketing studies that may be required by regulatory authorities;

• the costs of obtaining clinical and commercial supplies of RAVICTI and BUPHENYL;

• payments of milestones and royalties to third parties, including Ucyclyd;

• cash requirements of any future acquisitions of products or product candidates;

• the time and cost necessary to respond to technological and market developments;

• the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

• changes to the design of our clinical trials; and

• any changes made to, or new developments in, our restated collaboration agreement with Ucyclyd or any new collaborative, licensing and other commercial relationships that we may establish.

Until we can generate a sufficient amount of revenue, we expect to finance future cash needs through public or private equity offerings or debt financings. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our inability to obtain additional funding when we need it could seriously harm our business.

We may sell additional equity or debt securities to fund our operations, which may result in dilution to our stockholders and impose restrictions on our business.

In order to raise additional funds to support our operations, we may sell additional equity or debt securities, which would result in dilution to all of our stockholders or impose restrictive covenants that adversely impact our business. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected.

Risks Related to Our Reliance on Third Parties

We have no manufacturing capacity and anticipate continued reliance on third-party manufacturers for the development and commercialization of our products.

We do not currently operate manufacturing facilities for clinical or commercial production of RAVICTI or BUPHENYL. We have no experience in drug formulation and we lack the resources and the capabilities to manufacture RAVICTI or BUPHENYL on a clinical or commercial scale. We do not intend to develop facilities for the manufacture of products for clinical trials or commercial purposes in the foreseeable future. We rely on third-party manufacturers to produce bulk drug substance and drug products required for our clinical trials. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners, to manufacture commercial quantities of RAVICTI and BUPHENYL. We have clinical and commercial supplies of RAVICTI manufactured for us by two alternate drug substance suppliers, Helsinn Advanced Synthesis SA and DSM Fine Chemicals Austria on a purchase order basis. We have commercial supplies of BUPHENYL manufactured for us by Pharmaceutics International, Inc. on a purchase order basis. We believe our commercial requirements of drug substance can be satisfied without significant delay or material additional costs. Lyne Laboratories provides fill/finish services for RAVICTI on a purchase order basis under a clinical supply agreement. We have an agreement in place to initiate process transfer and development at HALO Pharmaceutical, Inc., an identified secondary fill/finish supplier for RAVICTI. We do not have a long-term commercial supply arrangement in place with any of our contract manufacturers. If we need to identify an additional fill/finish manufacturer, we would not be able to do so without significant delay and likely significant additional cost. We have not secured commercial supply agreements with any contract manufacturers and can give no assurance that we will enter commercial supply agreements with any contract manufacturers on favorable terms or at all.

Our contract manufacturers’ failure to achieve and maintain high manufacturing standards, in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury or death, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel. For example, in the fourth quarter of 2011, we discovered a contaminated lot of RAVICTI, which we believe was caused by a failure in a filtration step by one of our third-party drug substance manufacturers which was subsequently resolved. Our existing manufacturers and any future contract manufacturers may not perform as agreed or may not

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remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we may be unable to replace a third-party manufacturer in a timely manner and the production of our UCD products would be interrupted, resulting in delays and additional costs.

In addition, because our contract manufacturers of the RAVICTI bulk drug substance are located outside of the United States, we may face difficulties in importing RAVICTI bulk product into the United States as a result of, among other things, FDA import inspections, incomplete or inaccurate import documentation or defective packaging.

Some of the intellectual property necessary for the commercialization of our UCD products is or will be licensed from third parties, which will require us to pay milestones and royalties.

Ucyclyd has granted us a license to use some of the technology developed by Ucyclyd in connection with the manufacturing of RAVICTI. The purchase agreement under which we purchased the worldwide rights to RAVICTI further obligates us to pay Ucyclyd regulatory and sales milestone payments relating to RAVICTI, as well as royalties on the net sales of RAVICTI. On May 31, 2013, when we acquired BUPHENYL, under the restated collaboration agreement with Ucyclyd, we received a license to use some of the manufacturing technology developed by Ucyclyd in connection with the manufacturing of BUPHENYL. The restated collaboration agreement further obligates us to pay Ucyclyd regulatory and sales milestone payments, as well as royalties on net sales of BUPHENYL.

We may become obligated to make a milestone or royalty payments when we do not have the cash on hand to make these payments, or have budgeted cash for our development efforts. This could cause us to delay our development efforts, curtail our operations, scale back our commercialization and marketing efforts or seek additional capital to meet these obligations, which could be on terms unfavorable to us. Additionally, if we fail to make a required payment to Ucyclyd and do not cure the failure with the required time period, Ucyclyd may be able to terminate our license to use its manufacturing technology for our UCD products.

We also license intellectual property necessary for commercialization of RAVICTI from Brusilow Enterprises, LLC (“Brusilow”). Brusilow may be entitled to terminate our license if we breach that agreement or do not meet specified diligence obligations in our development and commercialization of RAVICTI and do not cure the failure within the required time period. If our license from Brusilow is terminated, it may be difficult or impossible for us to commercialize RAVICTI.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and potential future product candidates.

We may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of our current and potential future product candidates. We may enter into these arrangements on a selective basis depending on the merits of retaining commercialization rights for ourselves as compared to entering into selective collaboration arrangements with leading pharmaceutical or biotechnology companies for each product candidate, both in the United States and internationally. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaboration or other arrangements that we may establish may not be favorable to us.

Any future collaboration that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations.

Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters, can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision making authority.

Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.

We currently depend on third parties to conduct some of the operations of our clinical trials.

We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to oversee some of the operations of our clinical trials and to perform data collection and analysis. As a result, we may face additional delays outside of our control if these parties do not perform their obligations in a timely fashion or in accordance with regulatory requirements. If these third parties do not successfully carry out their contractual duties or obligations and meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, our financial results and the commercial prospects for RAVICTI or our potential

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future product candidates could be harmed, our costs could increase and our ability to obtain regulatory approval and commence product sales could be delayed.

Risks Related to Our Intellectual Property

We may not be able to protect our proprietary technology in the marketplace.

Where appropriate, we seek patent protection for certain aspects of our technology. Patent protection may not be available for some of the products or technology we are developing. If we must spend significant time and money protecting or enforcing our patents, our business and financial prospects may be harmed. We may not develop additional proprietary products which are patentable. Further competitors may obtain patents covering compositions or methods that encompass our products or uses thereof. In such a situation ownership may be determined by first to invent or first to file depending on when the applications were submitted.The patent positions of pharmaceutical products are complex and uncertain. The scope and extent of patent protection for RAVICTI and our future products and product candidates are particularly uncertain. Publication of information related to RAVICTI and our future products and product candidates may prevent us from obtaining or enforcing patents relating to these products and product candidates, including without limitation composition-of-matter patents, which are generally believed to offer the strongest patent protection.

We have licensed patents in the United States and in certain foreign jurisdictions related to RAVICTI, including U.S. Patent 5,968,979, which covers the composition of matter of RAVICTI, which we license from Brusilow. Our Brusilow license may be terminated if we do not comply with the terms of the applicable license. Patents that we own or license do not ensure protection of our intellectual property for a number of reasons, including without limitation the following:

• our patents may not be broad or strong enough to prevent competition from other products including identical or similar products;

• U.S. Patent 5,968,979 covering RAVICTI composition of matter expires February 7, 2015, unless its term is successfully extended;

• upon expiration of U.S. Patent 5,968,979, we do not at this time own or control a granted U.S. Patent that prevents generic entry into the United States market for RAVICTI;

• we may be required to disclaim part of the term of one or more patents;

• there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim;

• there may be prior art of which we are aware, which we do not believe affects the validity or enforceability of a patent claim, but which, nonetheless ultimately may be found to affect the validity or enforceability of a patent claim;

• there may be other patents existing in the patent landscape for RAVICTI that will affect our freedom to operate;

• if our patents are challenged, a court could determine that they are not valid or enforceable;

• a court could determine that a competitor’s technology or product does not infringe our patents; and

• our patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations, or could be subject to compulsory licensing.

We also own one issued and several pending patent applications in the United States and in foreign jurisdictions relating to methods of using, administering, and adjusting the dosage of RAVICTI. These applications do not ensure the protection of our intellectual property. Additionally, these pending applications may not issue or may issue with claims significantly narrower than we currently seek. Similarly, our issued patent may be successfully challenged and invalidated. Unless and until our pending applications issue, their protective scope is impossible to determine, and even after issuance their protective scope may be limited. For example, we may not have developed a method for determining dosing for RAVICTI before others developed identical, similar methods or distinct methods, in which case we may not receive a granted patent or any granted patent may not cover potential competition.

If we encounter delays in our development or clinical trials, the period of time during which we could market our products under patent protection would be reduced.

Additional competitors could enter the market, including with generic versions of our products, and sales of affected products may decline materially.

Our composition of matter patent covering RAVICTI expires in the United States in 2015. Based on current projections, we expect to receive an extension of this patent under the Drug Price Competition and Patent Term Restoration Act, or Hatch-Waxman Act, which we expect to extend this patent coverage for approximately an additional four years.

We own a first family of pending patent applications in the United States, Europe, Japan, and Canada, and three additional families of pending patent applications in the United States and internationally pursuant to the Patent Cooperation Treaty (“PCT”). These applications are directed to methods of using, administering, and adjusting the effective dosage of a PAA prodrug including RAVICTI. If granted, these applications could extend patent protection until 2029 to 2032; however, there is a significant risk that

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these applications will not issue timely, or that they may not issue at all. In particular, claims directed to dosing and dose adjustment may be substantially less likely to issue in light of the recent Supreme Court decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. Further, any patents issuing from these applications could be vulnerable to future validity challenges based on Mayo and subsequent court decisions that further clarify the scope of Mayo. In Mayo, the Court held that claims directed to methods of determining whether to adjust drug dosing levels based on drug metabolite levels in the blood were not patent eligible because they were directed to a law of nature. This decision may have wide-ranging implications on the validity and scope of pharmaceutical method claims, although its full impact will not be known for many years. Moreover, even if granted these applications may not provide protection sufficient to protect against the use of generic forms of RAVICTI. We own one patent  related to fasting ammonia levels and directed to methods of using, administering and adjusting the effective dose of a PAA prodrug including RAVICTI. This patent and any subsequent patents issued may be subject to challenge by competitors and invalidated.

Even if the patents for our products are invalidated or become unenforceable, however, we still may have protection under two different forms of regulatory exclusivity, prohibits the FDA from approving another product with the same active ingredient for the same use for seven years from the date of approval. RAVICTI has orphan drug exclusivity until February 2020.

Orphan exclusivity will not, however, bar approval of another product under certain circumstances. One such circumstance is if a product with the same active ingredient is proven safe and effective for a different indication. Another circumstance is if a subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care. FDA may also approve another product with the same active ingredient and the same indication if the company with orphan drug exclusivity is not able to meet market demand. Further, FDA may approve more than one product for the same orphan indication or disease as long as the products contain different active ingredients. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease. All of the above circumstances could create a more competitive market for us.

Even if patent protection and orphan drug exclusivity become unavailable, our products may still have limited protection against generic completion under a second form of regulatory exclusivity, which derives from the Hatch-Waxman Act. Under the Hatch-Waxman Act provisions of the FDCA, a pharmaceutical manufacturer may file an abbreviated new drug application, (“ANDA”), seeking approval of a generic copy of an approved innovator product once all patent protection for the approved product has expired or been determined by a court to be invalid or unenforceable. Under the Hatch-Waxman Act, a manufacturer may also submit an NDA under section 505(b)(2) of the FDCA that references the FDA’s prior approval of the innovator product. A 505(b)(2) NDA product may be for a new or improved version of the original innovator product, but similarly is only available when no patent protection remains. To maintain sufficient incentives for innovators to develop new drugs and to improve existing drugs, however, the Hatch-Waxman Act also provides for certain periods of regulatory exclusivity, which preclude FDA approval (or in some circumstances, FDA filing and reviewing) of an ANDA or 505(b)(2) NDA.

When an innovator NDA holder has patents claiming the active ingredient, product formulation or an approved use of the drug, those patents are listed with the product in the FDA publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the “Orange Book.” If there are patents listed in the Orange Book, a generic or 505(b)(2) applicant that seeks to market its product before expiration of the patents must include in its ANDA what is known as a “Paragraph IV certification,” challenging the validity or enforceability of, or claiming non-infringement of, the listed patent or patents. Notice of the certification must also be given to the innovator, and if within 45 days of receiving notice the innovator sues to protect its patents, approval of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.

RAVICTI was granted a three-year period of exclusivity under the Hatch-Waxman Act, which expires on February 1, 2016. That exclusivity means that, even in the absence of any patent protection or orphan drug exclusivity, FDA could not grant final approval to an ANDA for a generic version of RAVICTI until February 1, 2016. That exclusivity does not delay a generic competitor submitting an ANDA, or the FDA reviewing it, or granting it “tentative approval.” The exclusivity also prohibits FDA from approving a 505(b)(2) NDA that references FDA’s approval of RAVICTI or includes the same active ingredient and uses as RAVICTI.

Accordingly, competitors may now file ANDAs for generic versions of RAVICTI, or 505(b)(2) NDAs that reference RAVICTI. For each patent listed for RAVICTI in the Orange Book, those ANDAs and 505(b)(2) NDAs must include a certification as to each listed patent indicating whether the ANDA applicant does or does not intend to challenge the patent, and the grounds for the challenge. To date we have not received any notices of Paragraph IV certifications, nor any indications that a competitor intends to challenge RAVICTI’s orphan drug exclusivity. We cannot predict, however, whether or how any competitor might challenge the patents or orphan drug exclusivity protecting RAVICTI, or the outcome of any such challenges.

The composition of matter patent and orphan drug exclusivity for BUPHENYL has expired. Because BUPHENYL has no regulatory exclusivity or listed patents, a competitor could at any time submit an ANDA for a generic version of BUPHENYL and request immediate approval. We are aware of one ANDA for sodium phenylbutyrate tablets, which was approved in the fourth quarter of 2011 and one for sodium phenylbutyrate powder which was approved in the first quarter of 2013. The ANDA process is a confidential one, so there may be other BUPHENYL ANDAs pending.

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In the absence of any additional patent protection or even if U.S. Patents issued from our pending patent applications, a competitor may seek and obtain FDA approval for, and subsequently sell, a generic version of BUPHENYL. For example, in November 2011, FDA approved a generic version of BUPHENYL tablets. Such a generic product may be priced at a discount to BUPHENYL and RAVICTI, and physicians, patients, or payors may decide that this less expensive alternative is preferable to either of our drugs. If this occurs, our UCD product sales could be materially reduced, but we would nevertheless be required to make royalty payments to Ucyclyd and Brusilow at the same royalty rates.

We may not be successful in securing or maintaining proprietary patent protection for products we currently market or for products and technologies we develop or license. Moreover, if any patents that are granted and listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation, the affected product could more immediately face generic competition and its sales would likely decline materially. Should sales decline, we may have to write off a portion or all of the intangible assets associated with the affected product and our results of operations and cash flows could be materially and adversely affected.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our in-licensed patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our products.

Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be issued patents of which we are not aware that our products infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our product infringes.

Third parties may assert that we are employing their proprietary technology without authorization. If a court held that any third-party patents are valid, enforceable and cover our products or their use, the holders of any of these patents may be able to block our ability to commercialize our products unless we obtained a license under the applicable patents, or until the patents expire. We may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

We rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary information to develop products that compete with our products or cause additional, material adverse effects upon our competitive business position.

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Any lawsuits relating to infringement of intellectual property rights necessary to defend ourselves or enforce our rights will be costly and time consuming.

Our ability to defend our intellectual property may require us to initiate litigation to enforce our rights or defend our activities in response to alleged infringement of a third party. In addition, we may be sued by others who hold intellectual property rights who claim that their issued patents are infringed by RAVICTI, BUPHENYL or any future products or product candidates. These lawsuits can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally.

In addition, our patents and patent applications, or those of our licensors, could face other challenges, such as interference proceedings, opposition proceedings, and re-examination proceedings. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management’s time and attention.

Risks Related to Our Business Operations and Industry

We depend upon our key personnel and our ability to attract and retain employees.

Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. The loss of the services of any member of our senior management or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.

Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. In particular, the loss of one or more of our senior executive officers could be detrimental to us if we cannot recruit suitable replacements in a timely manner. We do not currently carry “key person” insurance on the lives of members of senior management. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.

Failure to build our financial infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

As a public company, we operate in an increasingly challenging regulatory environment which requires us to comply with the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and the related rules and regulations of the SEC expanded disclosures, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. We are required to disclose material changes made in our internal controls and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an “emerging growth company” as defined in the JOBS Act, because we are availing ourselves of the exemptions contained in the JOBS Act.

To build this infrastructure, we will need to hire additional accounting personnel and improve our accounting systems, disclosure policies, procedures and controls. We are currently in the process of:

• initiating our plans to upgrade our computer systems, including hardware and software;

• establishing written policies and procedures; and

• enhancing internal controls and our financial statement review process.

If we are unsuccessful in building an appropriate financial infrastructure, we may not be able to prepare and disclose, in a timely manner, our financial statements and other required disclosures, or comply with existing or new reporting requirements. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

Forecasting sales of RAVICTI and BUPHENYL may be difficult and revenue recognition may be deferred. If our revenue projections are inaccurate or revenue is deferred and our business forecasting and planning decisions are not reflected in our actual results, our business may be harmed and our future prospects may be adversely affected.

Our management must make forecasting decisions regarding future revenue in the course of business planning despite this uncertainty, and actual results of operations may deviate materially from projected results. This may lead to inefficiencies and increased difficulties in operational planning. If our revenues are lower than we anticipate or revenue is deferred, we will incur costs in the short term that will result in losses that are unavoidable. A shortfall in our revenue would have a direct impact on our cash flow

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and on our business generally. In addition, fluctuations in our quarterly results can adversely and significantly affect the market price of our common stock.

There are inherent uncertainties involved in the estimates, judgments and assumptions used in the preparation of our financial statements, and any changes in those estimates, judgments and assumptions could have a material adverse effect on our financial condition and results of operations.

The consolidated financial statements that we file with the SEC are prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP involves making estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. A summary of our significant accounting practices is included in Note 2—”Summary of Significant Accounting Policies” of the notes to unaudited condensed consolidated financial statements included in this report. We periodically evaluate estimates used in the preparation of the consolidated financial statements for reasonableness, including estimates provided by third parties. Appropriate adjustments to the estimates will be made prospectively, as necessary, based on such periodic evaluations. We base our estimates on, among other things, currently available information, market conditions, historical experience and various assumptions, which together form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although we believe that our assumptions are reasonable under the circumstances, estimates would differ if different assumptions were utilized and these estimates may prove in the future to have been inaccurate.

Our financial results depend on management’s selection of accounting methods and certain assumptions and estimates.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect management’s judgment of the most appropriate manner to report our financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in our reporting materially different results than would have been reported under a different alternative.

Certain accounting policies are critical to presenting our financial condition and results. The preparation of our financial statements require us to make significant estimates, assumptions and judgments that affect the amounts of assets, liabilities, revenues and expenses and related disclosures. Significant estimates made by us include assumptions used in the determination of revenue recognition and the calculation of reserves, the fair value of marketable securities, revenue from the collaboration agreement, multiple element arrangements, fair value measurement of tangible and intangible assets and liabilities, goodwill and other intangible assets, fair value of convertible senior notes, research and development expenses, stock-based compensation and the provision for income taxes. Although we base our estimates and judgments on historical experience, our interpretation of existing accounting literature and on various other assumptions that we believe to be reasonable under the circumstances, if our interpretation or application of existing accounting literature is deemed to be materially incorrect, actual results may differ materially from these estimates. A failure to maintain optimal inventory levels to meet commercial demand for our products could harm our reputation and subject us to financial losses.

Because accurate product planning is necessary to ensure that we maintain optimal inventory levels, significant differences between our current estimates and judgments and future estimated demand for our products and the useful life of inventory may result in significant charges for excess inventory or purchase commitments in the future. If we are required to recognize charges for excess inventories, such charges could have a material adverse effect on our financial condition and results of operations. Our ability to maintain optimal inventory levels also depends on the performance of third-party contract manufacturers. If our manufacturers are unsuccessful in either obtaining raw materials or manufacture, if we are unable to release inventory on a timely and consistent basis, if we fail to maintain an adequate level of product inventory, if inventory is destroyed or damaged, or if our inventory reaches its expiration date, patients might not have access to our products, our reputation and brands could be harmed, and physicians may be less likely to prescribe our products in the future, each of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.

We are a small company with 52 employees as of June 30, 2013. In order to commercialize our products, we will need to maintain our employee base of managerial, operational and financial personnel. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Our future financial performance and our ability to commercialize our products 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 clinical trials and the regulatory process effectively;

• manage the manufacturing and distribution of products for commercial and clinical use;

• integrate current and additional management, administrative, financial and sales and marketing personnel;

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• hire new personnel necessary to effectively commercialize product candidates we in-license or acquire;

• develop our administrative, accounting and management information systems and controls; and

• hire and train additional qualified personnel.

Product candidates that we may acquire in the future may be intended for patient populations that are significantly larger than those for UCD and HE. In order to continue development and marketing of these products, if approved, we would need to significantly expand our operations. Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to manage successfully future market opportunities or our relationships with customers and other third parties.

If we engage in acquisitions, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.

We may attempt to acquire businesses, technologies, services, products or product candidates that we believe are a strategic fit with our business. On May 31, 2013, we acquired BUPHENYL Powder and Tablets from Ucyclyd. Currently, we have no agreement regarding any material acquisitions. However, if we do undertake any acquisitions, the process of integrating an acquired business, technology, service, products or product candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.

If we acquire additional products or technologies, we will incur a variety of costs, may have integration difficulties and may experience numerous other risks that could adversely affect our business.

To remain competitive, we may decide to acquire additional products or technologies. On May 31, 2013, we acquired BUPHENYL from Ucyclyd. We have no experience in successfully acquiring and integrating products into our current infrastructure. We may not be able to successfully integrate BUPHENYL or other technologies or products without a significant expenditure of operating, financial and management resources. Furthermore, sales of BUPHENYL may not generate sufficient revenue to offset the costs of acquisition. In addition, other acquisitions of products or technologies could require significant capital infusions and could involve many risks, including, but not limited to the following:

• an acquisition may negatively impact our results of operations because it may require us to incur large one-time charges to earnings, amortize or write down amounts related to goodwill and other intangible assets, or incur or assume substantial debt or liabilities, or it may cause adverse tax consequences or substantial depreciation;

• we may encounter difficulties in assimilating and integrating the technologies or products that we acquire;

• acquisitions may require significant capital infusions and the acquired products or technologies may not generate sufficient revenue to offset acquisition costs;

• an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; and

• acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience.

Any of the foregoing risks could have a significant adverse effect on our business, financial condition and results of operations.

Our business is affected by macroeconomic conditions.

Various macroeconomic factors such as pricing of ultra-orphan drugs in the U.S. could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from the current and future conditions in the global financial markets. For instance, if inflation or other factors were to significantly increase our business costs, it may not be feasible to pass through price increases to patients. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the value of our investments and our ability to liquidate our investments in order to fund our operations.

Interest rates and the ability to access credit markets could also adversely affect the ability of patients and distributors to purchase, pay for and effectively distribute our products. Similarly, these macroeconomic factors could affect the ability of our contract manufacturers, sole-source or single-source suppliers to remain in business or otherwise manufacture or supply product. Failure by any of them to remain a going concern could affect our ability to manufacture and/or supply products.

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If product liability lawsuits are successfully brought against us, we will incur substantial liabilities and may be required to limit the commercialization of RAVICTI, BUPHENYL or other products.

We face potential product liability exposure related to marketing and distributing our products commercially as well as testing of our product candidates in human clinical trials. An individual may bring a liability claim against us alleging that one of our products or product candidates caused an injury. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

• decreased demand for our products;

• injury to our reputation;

• withdrawal of clinical trial participants;

• costs of related litigation;

• substantial monetary awards to patients and others;

• loss of revenues; and

• the inability to commercialize our products.

In addition, while we continue to take what we believe are appropriate precautions, we may be unable to avoid significant liability if any product liability lawsuit is brought against us.

If product liability lawsuits are successfully brought against us our insurance may be inadequate.

We are exposed to the potential product liability risks inherent in the testing, manufacturing and marketing of human pharmaceuticals. We plan to maintain insurance against product liability lawsuits for commercial sale of RAVICTI and BUPHENYL. We currently maintain insurance for the clinical trials and commercial sale of RAVICTI and BUPHENYL. Biopharmaceutical companies must balance the cost of insurance with the level of coverage based on estimates of potential liability. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, we may be subject to claims for which our insurance coverage may not be adequate. If we are the subject of a successful product liability claim that exceeds the limits of any insurance coverage we obtain, we may incur substantial charges that would adversely affect our earnings and require the commitment of capital resources that might otherwise be available for the development and commercial launch of our product programs.

Business interruptions could delay us in the process of developing our products and could disrupt our sales.

Our headquarters is located in the San Francisco Bay Area, near known earthquake fault zones and is vulnerable to significant damage from earthquakes. We are also vulnerable to other types of natural disasters and other events that could disrupt our operations. We do not carry insurance for earthquakes or other natural disasters and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our business operations.

Risks Related to Ownership of Our Common Stock

The market price of our common stock has been and will likely continue to be highly volatile.

The trading price of our common stock has been and is likely to continue to be volatile. Our closing stock price as reported on the NASDAQ Global Stock Market has ranged from $10.04 to $26.79, through August 5, 2013. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:

• announcements of therapeutic innovations or new products by us or our competitors;

• adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

• changes or developments in laws or regulations applicable to RAVICTI and BUPHENYL ;

• any adverse changes to our relationship with Ucyclyd or other licensors, manufacturers or suppliers;

• the success of our testing and clinical trials;

• the success of our efforts to acquire or in-license additional products or product candidates;

• any intellectual property infringement actions in which we may become involved;

• announcements concerning our competitors or the pharmaceutical industry in general;

• achievement of expected product sales and profitability;

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• manufacture, supply or distribution shortages;

• actual or anticipated fluctuations in our operating results;

• changes in financial estimates or recommendations by securities analysts;

• trading volume of our common stock;

• sales of our common stock by us, our executive officers and directors or our stockholders in the future;

• general global economic and market conditions and overall fluctuations in the United States equity markets;

• changes in accounting principles; and

• the loss of any of our key scientific or management personnel.

In addition, the stock market in general, and The NASDAQ Stock Market in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Further, the decline in the financial markets and related factors beyond our control, including the credit and mortgage crisis in the United States and worldwide, may cause our stock price to decline rapidly and unexpectedly.

We may be subject to securities litigation, which is expensive and could divert management attention.

Our share price may be volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.

Our principal stockholders, executive officers and directors own a significant percentage of our common stock and will be able to exert a significant control over matters submitted to our stockholders for approval.

Our officers and directors, and stockholders who own more than 5% of our outstanding common stock, own approximately 75% of our common stock. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. As a result, these stockholders, if they acted together, could significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of these stockholders may not always coincide with our interests or the interests of other stockholders.

Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could depress the market price of our common stock. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

Some of the holders of our securities are entitled to rights with respect to the registration of their shares under the Securities Act of 1933, as amended (the “Securities Act”). Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

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Because we do not intend to declare cash dividends on our shares of common stock in the foreseeable future, stockholders must rely on appreciation of the value of our common stock for any return on their investment.

We have never declared or paid cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. As a result, only appreciation of the price of our common stock, if any, will provide a return to investors.

Our ability to use our net operating loss carryforwards may be limited.

As of December 31, 2012, we had net operating losses of approximately $96.4 million and $117.5 million for both U.S. federal and California income tax purposes, respectively, which begin to expire in 2026 for U.S. federal income tax purposes and 2016 for California income tax purposes. If we experience an “ownership change” for purposes Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), we may be subject to annual limits on our ability to utilize net operating loss carryforwards. An ownership change is, as a general matter, triggered by sales or acquisitions of our stock in excess of 50% on a cumulative basis during a three-year period by persons owning 5% or more of our total equity value. We are not currently subject to any annual limits on our ability to utilize net operating loss carryforwards. Our deferred tax assets have been fully offset by a valuation allowance as of December 31, 2012.

The requirements associated with being a public company require significant company resources and management attention.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the listing requirements of the securities exchange on which our common stock is traded, and other applicable securities rules and regulations. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules implemented by the SEC, and The NASDAQ Stock Market may also impose various additional requirements on public companies. As a result, we will incur additional legal, accounting and other expenses that we did not incur as a nonpublic company, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act. Further, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy. We have made, and will continue to make, changes to our corporate governance standards, disclosure controls and financial reporting and accounting systems to meet our reporting obligations. However, the measures we take may not be sufficient to satisfy our obligations as a public company, which could subject us to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

The JOBS Act allows us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of our common stock.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:

• the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

• the “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Act and some of the disclosure requirements of the Dodd-Frank Act relating to compensation of its chief executive officer;

• the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Exchange Act, and instead provide a reduced level of disclosure concerning executive compensation; and

• any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.

We may take advantage of these exemptions until we are no longer an “emerging growth company.” We would cease to be an “emerging growth company” upon the earliest of: (i) the first fiscal year following the fifth anniversary of our IPO; (ii) the first fiscal year after our annual gross revenues are $1 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; or (iv) as of the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.

We currently take advantage of some, but not all, of the reduced regulatory and reporting requirements that are available to us so long as we qualify as an “emerging growth company.” For example, we have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an “emerging growth company,” which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an “emerging growth

 47 

company,” we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile and may decline.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our restated certificate of incorporation and our bylaws, as well as provisions of the Delaware General Corporation Law (“DGCL”), could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

• authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

• prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

• limiting the removal of directors by the stockholders;

• eliminating the ability of stockholders to call a special meeting of stockholders; and

• establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On July 31, 2012, we completed our IPO and issued 5,000,000 shares of our common stock at an initial offering price of $10.00 per share. We sold an additional 750,000 shares of common stock directly to our underwriters when they exercised their over-allotment option in full at the initial offering price of $10.00 per share. We received net proceeds from the IPO of $51.3 million, after deducting underwriting discounts and commissions of $4.0 million and expenses of $2.2 million. None of the expenses associated with the IPO were paid to directors, officers, persons owning 10% or more of any class of equity securities, or to their associates, or to our affiliates. Leerink Swann LLC and Cowen and Company, LLC acted as joint book-running managers and Needham & Company, LLC acted as co-manager for the offering.

The shares were registered under the Securities Act on a Registration Statement on Form S-1 (Registration No. 333-180694). The SEC declared the registration statement effective on July 25, 2012. Shares of our common stock began trading on the NASDAQ Global Market on July 26, 2012. On July 31, 2012, following the sale of 5,750,000 shares of common stock, the offering terminated.

As of June 30, 2013, we have used a portion of the proceeds from the sale of these securities to fund operations, capital expenditures, working capital and other general corporate purposes.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

 48 

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which are incorporated herein by reference.

 49 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Hyperion Therapeutics, Inc.
Date: August 14, 2013	/s/ Donald J. Santel
	Donald J. Santel
	Chief Executive Officer and President
	(Principal Executive Officer)
Date: August 14, 2013	/s/ Jeffrey S. Farrow
	Jeffrey S. Farrow
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

   

EXHIBIT INDEX

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on July 31, 2012).
3.2	Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.4 to the Company’s Registration Statement on Form S-1/A (File No. 333-180694), as filed with the SEC on May 24, 2012).
4.1	Specimen Common Stock Certificate of the Company (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A (File No. 333-180694), as filed with the SEC on July 5, 2012).
4.2	Amended and Restated Warrant issued pursuant to the Loan and Security Agreement by and between the Company and Comerica Bank, dated October 2, 2007, and as amended on July 6, 2012 (incorporated herein by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1/A (File No. 333-180694), as filed with the SEC on July 13, 2012).
4.3	Form of Secured Promissory Note issued pursuant to the Loan and Security Agreement by and among the Company, Silicon Valley Bank and the Lenders listed therein, dated April 19, 2012 (the “SVB Loan and Security Agreement”) (incorporated herein by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-1/A (File No. 333-180694), as filed with the SEC on May 24, 2012).
4.4	Form of Warrant to Purchase Stock issued pursuant to the SVB Loan and Security Agreement (incorporated herein by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-1/A (File No. 333-180694), as filed with the SEC on May 24, 2012).
31.1*	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1*	Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1*	Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2013.
101**	Financial statements from the Quarterly Report on Form 10-Q of Hyperion Therapeutics, Inc. for the quarter ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) Notes to Condensed Consolidated Financial Statements.

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

   

EX-31

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Donald J. Santel, hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hyperion Therapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements 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 this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, 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) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 14, 2013

 /s/ Donald J. Santel

Donald J. Santel

Chief Executive Officer and President

(Principal Executive Officer)

EX-31

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey S. Farrow, hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hyperion Therapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements 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 this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, 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) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 14, 2013

 /s/ Jeffrey S. Farrow

Jeffrey S. Farrow

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Hyperion Therapeutics, Inc. (“Hyperion”) for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald J. Santel, Chief Executive Officer and President of Hyperion, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Hyperion.

Dated: August 14, 2013

 /s/ Donald J. Santel

Donald J. Santel

Chief Executive Officer and President

(Principal Executive Officer)

EX-32

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Hyperion Therapeutics, Inc. (“Hyperion”) for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey S. Farrow, Chief Financial Officer of Hyperion, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Hyperion.

Dated: August 14, 2013

 /s/ Jeffrey S. Farrow

Jeffrey S. Farrow

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-99

Exhibit 99.1

Hyperion Therapeutics, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the six months ended June 30, 2013

On May 31, 2013, Hyperion Therapeutics, Inc. (“Hyperion”) completed its acquisition of BUPHENYL^® (sodium phenylbutyrate) Tablets and Powder, an FDA-approved therapy for treatment of the most prevalent urea cycle disorders (“UCD”), from Ucyclyd Pharma, Inc. (“Ucyclyd”), a wholly owned subsidiary of Medics Pharmaceutical Corporation (“Medicis”), and as of December 11, 2012 a subsidiary of Valeant Pharmaceuticals International, Inc. (the “Acquisition”). Hyperion received a net payment of $11.0 million from Ucyclyd at closing, which represents the $19.0 million payment due to Ucyclyd as a result of Hyperion’s exercise of the option to purchase BUPHENYL and a $32.0 million retention amount due to Hyperion as a result of Ucyclyd ’s exercise of its option to retain AMMONUL^® (sodium phenylacetate and sodium benzoate) Injection 10%/10%, a hospital-based product used for the treatment of acute hyperammonemia in UCD patients, less costs of approximately $2.0 million in inventory due to Ucyclyd.

The following unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2013, gives effect to Hyperion’s Acquisition and as if the Acquisition had occurred on January 1, 2012, and include all adjustments that give effect to events that are directly attributable to the Acquisition, are expected to have a continuing impact, and are factually supportable.

For the purposes of the pro forma information, Hyperion’s consolidated statement of operations for the six months ended June 30, 2013 has been combined with BUPHENYL Product Line’s results of operations for the period from January 1, 2013 to May 31, 2013 (acquisition date). Hyperion’s financial information was derived from its unaudited financial statements for the six months ended June 30, 2013, contained in Hyperion’s Form 10-Q for the quarter ended June 30, 2013. BUPHENYL Product Line’s financial information for the period January 1, 2013 through acquisition date has been derived from its unaudited internal financial statements.

The unaudited pro forma condensed combined statement of operations has been prepared to assist in the analysis of the financial effects of the acquisition of BUPHENYL and has been presented in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The unaudited pro forma condensed combined statement of operations is presented for informational purposes only and is not intended to represent or to be indicative of the results of operations that Hyperion would have reported had the Acquisition been completed as of the date set forth in the unaudited pro forma condensed combined statement of operations.

Hyperion Therapeutics, Inc.

Unaudited Pro Forma Condensed Combined Statements of Operations

For the six months ended June 30, 2013

(In thousands, except share and per share amounts)

	Hyperion			BUPHENYL Product Line*		Proforma Adjustments			Hyperion Pro Forma
Revenues	$	8,088		$	10,696	$	—		$	18,784
Costs and expenses:
Cost of sales		943			3,722		—			4,665
Research and development		4,401			—		—			4,401
Selling, general and administrative		17,164			835		(360	) A		17,639
Amortization of intangible asset		329			1,114		831	B		2,274
Total costs and expenses		22,837			5,671		471			28,979
Income (Loss) from operations		(14,749	)		5,025		(471	)		(10,195	)
Interest income		12			—		—			12
Interest expense		(795	)		—		—			(795	)
Gain from settlement of retention option		31,079			—		(31,079	) C		—
Other income (expense), net		500			—		—			500
Net income (loss)	$	16,047		$	5,025	$	(31,550	)	$	(10,478	)
Net income (loss) per share:
Basic	$	0.86							$	(0.56	)
Diluted	$	0.80							$	—	**
Weighted average number of shares outstanding:
Basic		18,716,332								18,716,332
Diluted		19,978,089								—	**

*Statement of Operations for the period from January 1, 2013 through May 31, 2013, the acquisition date.

**Diluted net income per share was not calculated due to pro forma net loss

See the accompanying Notes to Unaudited Pro Forma Condensed Combined Statement of Operations, which are an integral part of these financial statements.

Hyperion Therapeutics, Inc.

Notes to Unaudited Pro Forma Condensed Combined Statements of Operations

For the six months ended June 30, 2013

1. Basis of Presentation

The unaudited pro forma condensed combined statement of operations have been prepared based on Hyperion’s and BUPHENYL Product Line’s historical financial information, giving effect to the acquisition and related adjustments described in these notes, and is presented as if the acquisition had occurred on January 1, 2012.

BUPHENYL has not historically been accounted for as a separate entity, subsidiary or division of Medicis. While BUPHENYL Product Line’s historical financial results have been derived from the accounting records of Ucyclyd and other Medicis subsidiaries (and Valeant and its subsidiaries for periods subsequent to Valeant’s acquisition of Medicis) using historical results of operations which includes revenues and direct expenses, including certain allocated expenses, of the BUPHENYL product line. The historical financial information does not necessarily represent the revenues and direct expenses as if BUPHENYL had been operating as a separate, stand-alone entity during the period presented.

2. Pro Forma Adjustments

The following are the pro forma adjustments as reflected into Hyperion’s Pro Forma Condensed Combined Statement of Operations:
A.	Represents nonrecurring transaction related expenses incurred by Hyperion totaling $0.4 million for the six months ended June 30, 2013.
B.	Reflects the pro forma amortization expense adjustment based on an estimated useful life of 10 years based on the economic benefit as calculated using future projected cash flows.
C.	In connection with the allocation between the BUPHENYL acquisition and Ucyclyd's exercise of its retention option, the Company recorded a gain of approximately $31.1 million. The amount of gain is comprised of (i) fair value of BUPHENYL of $20.4 million and (ii) net cash received from Ucyclyd of $10.9 million off-set by (iii) the $0.3 million carrying value of the option to purchase the rights to BUPHENYL and AMMONUL. The following table summarizes the results of the Company's allocation (in thousands):

Ucyclyd’s retention option amount	$	32,000
Amount due to Ucyclyd for BUPHENYL product rights		(19,000	)
Amount due to Ucyclyd for inventory		(2,038	)
Net payment received from Ucyclyd		10,962
Option to purchase the rights to BUPHENYL and AMMONUL		(283	)
Fair value of BUPHENYL (D)		20,400
Gain from settlement of retention option	$	31,079

D. The fair value of purchase consideration was estimated based upon the fair value of assets acquired. The estimated fair value attributed to the BUPHENYL product rights was determined on a discounted forecast of the estimated net future cash flows to be generated from the product rights and has an expected useful life of 10 years. The following table summarizes the provisional allocation of purchase price to the fair values of the assets acquired as of the acquisition date (in thousands):    

Inventories	$	3,900
BUPHENYL product rights		16,500
Total	$	20,400

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Stockholders' Equity

6 Months Ended

Jun. 30, 2013

Stockholders' Equity

12. Stockholders’ Equity

On March13, 2013, the Company completed its follow-on offering and issued 2,875,000 shares of its common stock at an offering price of $20.75 per share. In addition, the Company sold an additional 431,250 shares of common stock directly to its underwriters when they exercised their over-allotment option in full at an offering price of $20.75 per share. The Company received net proceeds from the offering of $63.7 million, after deducting underwriting discounts and commissions of $4.1 million and expenses of $0.8 million. As a result of these transactions, the Company issued a total of 3,306,250 shares of its common stock during the three months ended March31, 2013.

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Antidilutive Securities Excluded from Computation of Earnings per Share (Detail)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Potentially dilutive securities excluded from the computation of diluted net loss per share	676,243	8,369,244	381,019	8,369,244
Convertible preferred stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Potentially dilutive securities excluded from the computation of diluted net loss per share		6,575,637		6,575,637
Stock options
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Potentially dilutive securities excluded from the computation of diluted net loss per share	675,969	1,717,337	380,745	1,717,337
Common stock warrants
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Potentially dilutive securities excluded from the computation of diluted net loss per share	274	76,270	274	76,270

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Condensed Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues:
Product revenue, net	$ 7,305		$ 8,088
Total revenues	7,305		8,088
Costs and expenses:
Cost of sales	875		943
Research and development	2,562	2,732	4,401	11,640
Selling, general and administrative	9,220	2,023	17,164	4,340
Amortization of intangible asset	329		329
Total costs and expenses	12,986	4,755	22,837	15,980
Loss from operations	(5,681)	(4,755)	(14,749)	(15,980)
Interest income	11	3	12	7
Interest expense	(387)	(1,282)	(795)	(2,322)
Gain from settlement of retention option (Note 4)	31,079		31,079
Other income (expense) - net		(1,128)	500	(753)
Net income (loss)	$ 25,022	$ (7,162)	$ 16,047	$ (19,048)
Net income (loss) per share attributable to common stockholders:
Basic	$ 1.25	$ (15.26)	$ 0.86	$ (40.59)
Diluted	$ 1.17	$ (15.26)	$ 0.80	$ (40.59)
Weighted average number of shares used to compute net income (loss) per share of common stock:
Basic	20,050,987	469,319	18,716,332	469,319
Diluted	21,358,275	469,319	19,978,089	469,319

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Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements

5. Fair Value Measurements

The Company follows ASC 820-10, “Fair Value Measurements and Disclosures,” which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
• Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
• Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of June30, 2013 and December31, 2012 (in thousands):

	June30, 2013
	Quotedpricesin Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	38,005	$	—	$	—
	$	38,005	$	—	$	—

	December31, 2012
	Quotedpricesin Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level3)
Assets:
Money market funds	$	45,003	$	—	$	—
	$	45,003	$	—	$	—

The following table presents the carrying value and estimated fair value of the Company’s notes payable as of June30, 2013 (in thousands):

	June 30, 2013
	Carrying Value		Estimated FairValue
April and September 2012 Notes	$	10,654	$	11,362

The fair value of the April and September 2012 Notes is based on the present value of expected future cash flows and assumptions about current interest rates and the credit worthiness of the Company. The notes payable are classified within Level 3 of the hierarchy of fair value measurements.

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Hierarchy for Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of June30, 2013 and December31, 2012 (in thousands):

	June30, 2013
	Quotedpricesin Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	38,005	$	—	$	—
	$	38,005	$	—	$	—

	December31, 2012
	Quotedpricesin Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level3)
Assets:
Money market funds	$	45,003	$	—	$	—
	$	45,003	$	—	$	—

Carrying Value and Estimated Fair Value of Company's Notes Payable

The following table presents the carrying value and estimated fair value of the Company’s notes payable as of June30, 2013 (in thousands):

	June 30, 2013
	Carrying Value		Estimated FairValue
April and September 2012 Notes	$	10,654	$	11,362

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Stock Option Plan

6 Months Ended

Jun. 30, 2013

Stock Option Plan

13. Stock Option Plan

In April 2012, the board of directors of the Company adopted the 2012 Omnibus Incentive Plan (the “2012 Plan”). The Company’s stockholders approved the 2012 Plan in July 2012. The 2012 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units, dividend equivalent rights, other equity-based awards and cash bonus awards. The 2012 Plan became effective on July25, 2012

As of June30, 2013, the Company had 749,611 shares of common stock available for issuance and 1,079,747options and 21,000 restricted stock units (“RSU’s”) outstanding under the 2012 Plan. During the six months ended June30, 2013, the board of directors approved the grants of 839,515 stock options at exercise prices in the range of $18.24 - $25.82 and 21,000 RSU’s under the 2012 Plan. In addition, pursuant to the provisions of the 2012 Plan providing for an annual automatic increase in the number of shares of common stock reserved for issuance under theplan on January 1, 2013, the shares available for issuance under the 2012 Plan increased by 665,850 shares.

On July25, 2012, the effective date of the 2012 Plan, the 2006 Plan was frozen and no additional awards will be made under the 2006 Plan. Any shares remaining available for future grant were allocated to the 2012 Plan and any shares underlying outstanding options that terminate by expiration, forfeiture, cancellation, or otherwise without issuance of such shares, will be allocated to the 2012 Plan. As of June 30, 2013, there were 1,584,977 options outstanding under the 2006 Plan.

During the quarter ended June 30, 2013, the Company modified certain stock options and recorded an expense of $0.2 million related to this modification in its condensed consolidated statements of operations.

Stock-Based Compensation

The Company estimates the fair value of stock options using the Black-Scholes option valuation model. The fair value of employee stock options and RSU’s is being amortized on a straight-line basis over the requisite service period of the awards.

Total stock-based compensation expense related to options granted was allocated as follows (in thousands):

	ThreeMonthsEnded June30,					SixMonthsEnded June30,
	2013		2012		2013			2012
Cost of sales	$	2	$	—	$		3	$	—
Research and development		143		102			235		139
Selling general and administrative		1,108		140			1,521		181
Total	$	1,253	$	242	$		1,759	$	320

Stock-based compensation of $17,000and $26,000was capitalized into inventories for the three and six months ended June 30, 2013. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold. Allocations to research and development, selling, general and administrative expenses are based upon the department to which the associated employee reported. No related tax benefits of the stock-based compensation expense have been recognized.

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Stockholders Equity - Additional Information (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended	1 Months Ended
	Mar. 31, 2013	Mar. 13, 2013 Follow-On Offering
Common Stock [Line Items]
Common stock, shares issued	3,306,250	2,875,000
Offering price per share		$ 20.75
Additional shares issued for over-allotment		431,250
Net proceeds from public offering		$ 63.7
Underwriting discounts and commissions		4.1
Other offering expenses		$ 0.8

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Hierarchy for Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Significant Other Observable Inputs (Level 2)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets
Significant Other Observable Inputs (Level 2) | Money market funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets
Significant Unobservable Inputs (Level 3)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets
Significant Unobservable Inputs (Level 3) | Money market funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets
Quoted prices in Active Markets for Identical Items (Level 1)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets	38,005	45,003
Quoted prices in Active Markets for Identical Items (Level 1) | Money market funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total assets	$ 38,005	$ 45,003

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Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2013

Components of Accrued Liabilities

The following table represents the components of accrued liabilities (in thousands):

	June30, 2013			December31, 2012
Pre-clinical and clinical trial expenses	$	514	$		583
Payroll and related expenses		1,918			1,457
Sales related accruals		1,499			—
Interest payable		80			93
Other		601			407
	$	4,612	$		2,540

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Intangible Asset (Tables)

6 Months Ended

Jun. 30, 2013

Schedule of Expected Amortization Expense

Estimated aggregate amortization expense for each of the five succeeding years ending December31 is asfollows (in thousands):

	2013			2014			2015			2016			2017
Amortization expense	$	2,312	$		4,548	$		2,412	$		1,372	$		1,243

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Warrants - Additional Information (Detail)	6 Months Ended		6 Months Ended		6 Months Ended
	Jun. 30, 2013 October 2007 Common Stock Warrants	Oct. 31, 2007 October 2007 Common Stock Warrants	Jun. 30, 2013 April 2012 Common Stock Warrants	Apr. 30, 2012 April 2012 Common Stock Warrants	Jun. 30, 2013 September 2012 Common Stock Warrants	Sep. 30, 2012 September 2012 Common Stock Warrants
Class Of Warrant Or Right [Line Items]
Number of warrants issued		274		75,974		8,408
Exercise price of warrants	1,913.05		4.08	4.08	5.05	5.05
Expiration date of warrants	October 2017		April 2022		September 2022

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Provisional Allocation of Purchase Price (Detail) (USD $)	Jun. 30, 2013
Business Acquisition [Line Items]
Inventories	$ 3,900,000
Intangible Asset – BUPHENYL Product rights	16,500,000
Purchase Price and Fair Values of Assets Acquired, Total	$ 20,400,000

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Components of Inventories (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Components of inventories
Raw Materials	$ 1,080
Work in process	72
Finished goods	3,840
Total	$ 4,992

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Stock Option Plan - Additional Information (Detail) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Shares available for issuance under plan	749,611	749,611
Options granted during period		839,515
Increase in shares approved for issuance under plan		665,850
Stock-based compensation capitalized into inventories	$ 17,000	$ 26,000
Share-based Compensation Arrangement by Share-based Payment Award Accelerated Compensation Cost	$ 200,000
Minimum
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Option exercise price		$ 18.24
Maximum
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Option exercise price		$ 25.82
2012 Plan
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Share options outstanding under plan	1,079,747	1,079,747
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		21,000
2006 Plan
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Share options outstanding under plan	1,584,977	1,584,977

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Formation and Business of Company - Additional Information (Detail) (USD $)	3 Months Ended			6 Months Ended			1 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jul. 31, 2012 Initial Public Offering	Mar. 13, 2013 Follow-On Offering
Nature Of Operations [Line Items]
Net proceeds from public offering							$ 51,300,000	$ 63,700,000
Underwriting discounts and commissions							4,000,000	4,100,000
Other offering expenses							2,200,000	800,000
Common stock, shares issued		3,306,250						2,875,000
Offering price per share								$ 20.75
Additional shares issued for over-allotment								431,250
Loss from operations	(5,681,000)		(4,755,000)	(14,749,000)	(15,980,000)
Cash used in operations				(12,999,000)	(16,495,000)
Accumulated deficit	$ (122,950,000)			$ (122,950,000)		$ (138,997,000)

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Intangible Asset - Additional Information (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Finite Lived Intangible Assets [Line Items]
Intangible Asset – BUPHENYL Product rights	$ 16,500	$ 16,500
Finite-lived intangible asset, useful life		10 years
Amortization of intangible asset	$ 329	$ 329

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Inventories (Tables)

6 Months Ended

Jun. 30, 2013

Components of Inventories

The following table represents the components of inventories (in thousands):

	June 30, 2013		December31, 2012
Raw Materials	$	1,080	$	—
Work in process		72		—
Finished goods		3,840		—
Total	$	4,992	$	—

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Formation and Business of the Company

6 Months Ended

Jun. 30, 2013

Formation and Business of the Company

1. Formation and Business of the Company

Hyperion Therapeutics, Inc. (the “Company”) was incorporated in the state of Delaware on November1, 2006. The Company was in the development stage from inception through March 31, 2013. During this period, the Company’s activities consisted primarily of raising capital, negotiating a promotion and drug development collaboration agreement, establishing a management team and performing drug development activities. The Company launched RAVICTI®(glycerol phenylbutyrate) Oral Liquid during the quarter ended March 31, 2013 and acquired BUPHENYL®(sodium phenylbutyrate) Tablets and Powder in May 2013. During the quarter ended June 30, 2013, the Company had significant revenues from principal operations and therefore, ceased being a development stagecompany.

The Company is a commercial stage biopharmaceutical company focused on the development and commercialization of novel therapeutics to treat disorders in the areas of orphan diseases and hepatology. The Company has developed RAVICTIto treat the most prevalent urea cycle disorders (“UCD”) and is developing glycerol phenylbutyrate (“GPB”) for the potential treatment of hepatic encephalopathy (“HE”). UCD and HE are generally characterized by elevated levels of ammonia in the bloodstream. Elevated levels of ammonia are potentially toxic and can lead to severe medical complications which may include death. The Company’s product, RAVICTI, is designed to lower ammonia in the blood. UCD are inherited rare genetic diseases caused by a deficiency of one or more enzymes or transporters that constitute the urea cycle, which in a healthy individual removes ammonia through conversion of ammonia to urea. HE is a serious but potentially reversible neurological disorder that can occur in patients with liver scarring, known as cirrhosis, or acute liver failure. On February1, 2013, the U.S. Food and Drug Administration (“FDA”), granted approval of RAVICTI for the use as a nitrogen-binding agent for chronic management of adult and pediatric UCD patients greater than two years of age who cannot be managed by dietary protein restriction and/or amino acid supplementation alone. On May 31, 2013, the Company acquired BUPHENYL, an FDA-approved therapy for treatment of the most prevalent UCD,from UcyclydPharma Inc. (“Ucyclyd”), a subsidiary of Valeant Pharmaceuticals International, Inc. (“Valeant”). Subsequent to the acquisition on May 31, 2013, the Company started selling BUPHENYL Tablets and Powder within and outside the United States.

Hyperion Therapeutics Limited was formed in January 2008 as a private limited company under the Companies Act 1985 for England and Wales and is wholly owned by the Company.Since formation,there has been no activity in Hyperion Therapeutics Limited.

On July31, 2012, the Company completed its initial public offering (“IPO”) and the shares began trading on the NASDAQ Global Market on July26, 2012. The Company received net proceeds from the IPO of $51.3 million, after deducting underwriting discounts and commissions of $4.0 million and expenses of $2.2 million.

On March13, 2013, the Company completed its follow-on offering and issued 2,875,000 shares of its common stock at an offering price of $20.75 per share. In addition, the Company sold an additional 431,250 shares of common stock directly to its underwriters when they exercised their over-allotment option in full at the offering price of $20.75 per share. The Company received net proceeds from the offering of $63.7 million, after deducting underwriting discounts and commissions of $4.1 million and expenses of $0.8 million.

Since inception, the Company has incurred recurring net operating losses and negative cash flows from operations. During the six months ended June30, 2013, the Company incurred a loss from operations of $14.7 million and used $13.0 million of cash in operations. At June30, 2013, the Company had an accumulated deficit of $123.0 million. The Company expects to incur increased research and development expenses when the Company initiates a Phase III trial of GPBfor the treatment of patients with episodic HE. In addition, the Company expects to incur increased sales and marketing expenses for RAVICTIand BUPHENYL in UCD. Management’s plans with respect to these matters includeutilizing a substantial portion of the Company’s capital resources and efforts in completing the development and obtaining regulatory approval of GPB in HE, expanding the Company’s organization, and commercialization ofRAVICTI and marketing of BUPHENYL.

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Collaboration Agreement with Ucyclyd Pharma, Inc.

6 Months Ended

Jun. 30, 2013

Collaboration Agreement with Ucyclyd Pharma, Inc.

3. Collaboration Agreement with Ucyclyd Pharma, Inc.

In March 2012, the Company entered into the purchase agreement with Ucyclyd under which the Company purchased the worldwide rights to RAVICTI and the amended and restated collaboration agreement (the “restated collaboration agreement”) under which Ucyclyd granted the Company an option to purchase all of Ucyclyd’s worldwide rights to BUPHENYL and AMMONUL at a fixed price at a future defined date, plus subsequent milestone and royalty payments, subject to Ucyclyd’s right to retain AMMONUL for a predefined price. The restated collaboration agreement superseded the collaboration agreement with Ucyclyd, dated August23, 2007, as amended. The entry into the purchase agreement and the restated collaboration agreement resolved a dispute that the two parties had with respect to their rights under the prior collaboration agreement.

Under the purchase agreement, the Company made a payment of $6.0 million of which (i)$5.7 million was allocated to the worldwide rights to RAVICTI and (ii)$0.3 million was allocated to the option to purchase rights to BUPHENYL and AMMONUL, based on their relative fair values. The allocated amount to the rights to RAVICTI of $5.7 million was recorded to research and development expense in the consolidated statements of operations for the period ended March31, 2012 due to the uncertainty of an alternative future use. The allocated amount for the option to purchase rights to BUPHENYL and AMMONUL in the amount of $0.3 million was included within other current assets and was subsequently offset against the gain recognized from the settlement of retention option (see Note 4).

The Company will also pay tiered mid to high single digit royalties on global net sales of RAVICTI and may owe regulatory milestones of up to $15.8 million related to approval of GPB in HE, regulatory milestones of up to $7.3 million per indication for approval of GPB in indications other than UCD or HE, and net sales milestones of up to $38.8 million if GPB is approved for use in indications other than UCD (such as HE) and all annual sales targets are reached.

In addition, the intellectual property license agreements executed between Ucyclyd and Dr.MarshallL. Summar, (“Summar”) and Ucyclyd and Brusilow Enterprises, LLC, (“Brusilow”) were assigned to the Company, and the Company has assumed the royalty and milestone obligations under the Brusilow agreement for sales of RAVICTI in any indication and the royalty obligations under the Summar agreement on sales of GPB to treat HE. The Brusilow and Summar agreements provide that royalty obligations will continue, without adjustment, even if generic versions of the licensed products are introduced and sold in the relevant country.

Under the terms of the restated collaboration agreement, the Company had an option to purchase all of Ucyclyd’s worldwide rights in BUPHENYL and AMMONUL, subject to Ucyclyd’s option to retain rights to AMMONUL. The Company was permitted to exercise this option for 90 days beginning on the earlier of the date of the approval of RAVICTI for the treatment of UCD and June30, 2013, but in no event earlier than January1, 2013. The upfront purchase price for AMMONUL and BUPHENYL will be$22.0 million.If the RAVICTINew Drug Application (“NDA”) for UCD was not approved by January1, 2013, then Ucyclyd will be obligated to make monthly payments of $0.5 million to the Company until the earliest of (1)FDA approval of the RAVICTI NDA for UCD, (2)June30, 2013 and (3)the Company’s written notification of the decision not to purchase Ucyclyd’s worldwide rights to BUPHENYL and AMMONUL.

On February1, 2013, the FDA approved RAVICTI for the treatment of UCD in adult and pediatric patients two years of age and older. In accordance with the restated collaboration agreement, Ucyclyd made a payment of $0.5 million during the quarter ended March31, 2013.

On April 29, 2013, the Company exercised its option to purchase BUPHENYL and AMMONUL. Ucyclyd subsequently exercised its time-limited right to elect to retain all rights to AMMONUL for a contractual purchase price of $32.0 million (“retention amount”). Upon closing of the transaction, Ucyclyd paid the Company a net payment of $13.0 million, which reflects theCompany’s contractual purchase price for Ucyclyd’s worldwide rights to BUPHENYL in the amount of $19.0 million being off setagainst Ucyclyd’s retention amount for AMMONUL. The Company has retained a right of first negotiation should Ucyclyd later decide to sell, exclusively license, or otherwise transfer the AMMONUL assets to a third party.

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Inventories

6 Months Ended

Jun. 30, 2013

Inventories

6. Inventories

The following table represents the components of inventories (in thousands):

	June 30, 2013		December31, 2012
Raw Materials	$	1,080	$	—
Work in process		72		—
Finished goods		3,840		—
Total	$	4,992	$	—

As discussed in Note 4,on May 31, 2013, the Company acquired BUPHENYL from Ucyclyd. As part of the acquisition, the Company purchased inventories from Ucyclyd and the Company recorded these inventories at fair value in the amount of $3.9 million on the Acquisition Date (see Note 4).

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Acquisition of BUPHENYL from Ucyclyd Pharma Inc

6 Months Ended

Jun. 30, 2013

Acquisition of Buphenyl from Ucyclyd Pharma, Inc.

4.  Acquisition of BUPHENYL from UcyclydPharma, Inc. 

Description of the Transaction

As discussed in Note 3, under the terms of the restated collaboration agreement, on April 29, 2013, the Company exercised its option to purchase all of Ucyclyd’s worldwide rights in BUPHENYL and AMMONUL. On May 17, 2013Ucyclydexercised it’s time-limited right to elect to retain all rights to AMMONUL. On May 31, 2013 (the “Acquisition Date”), the Company completed the acquisition of BUPHENYL. Accordingly, BUPHENYL results are included in Hyperion’s consolidated financial statements from the date of the acquisition. For the period from June 1, 2013 to June 30, 2013, BUPHENYL net revenue was $1.1 million and net income was not material.

The Company acquired BUPHENYL to enhance its commercial product portfolio and to allow the Company an opportunity to serve the entire UCD patient population, including those less than two years of age or for those patients who may prefer BUPHENYL.

Purchase Consideration and Assets Acquired

The Company accounted for the acquisition of BUPHENYL as a business combination under the acquisition method of accounting. On the Acquisition Date, the Company received a net payment of $11.0 million, which reflected the $32.0 million retention amount for AMMONUL due to the Company less the $19.0 million contractual purchase price for BUPHENYL due to Ucyclyd and a $2.0 million payment due to Ucyclyd for inventory that the Company purchased from Ucyclyd.

The fair value of purchase consideration was estimated based upon the fair value of assets acquired. The estimated fair value attributed to the BUPHENYL product rights was determined on a discounted forecast of the estimated net future cash flows to be generated from the product rights (see Note 7) and has an expected useful life of 10 years. The following table summarizes the provisional allocation of purchase price to the fair values of the assets acquired as of the acquisition date:

	(in thousands)
Inventories	$	3,900
Intangible Asset – BUPHENYL Product rights		16,500
Total	$	20,400

The amounts above are considered preliminary and are subject to change once Hyperion finalizes its determination of the fair value of assets acquired under the acquisition method. Thus, these amounts are subject to refinement and final determination of the values of assets acquired and may result in adjustments to the values presented above.

Gain from settlement of retention option

In connection with the allocation between the BUPHENYL acquistion described above and Ucyclyd's exercise of its retention option, the Company recorded a gain of approximately $31.1 million. The amount of gain is comprised of (i) fair value of BUPHENYL of $20.4 million and (ii) net cash received from Ucyclyd of $10.9 million off-set by (iii) the $0.3 million carrying value of the option to purchase the rights to BUPHENYL and AMMONUL. The following table summarizes the results of the Company's allocation:

	(in thousands)
Ucyclyd’sretention option amount	$	32,000
Amount due to Ucyclyd for BUPHENYL product rights		(19,000	)
Amount due to Ucyclyd for inventory		(2,038	)
Net payment received from Ucyclyd		10,962
Option to purchase the rights to BUPHENYL and AMMONUL		(283	)
Fair valueof BUPHENYL		20,400
Gain from settlement of retention option	$	31,079

Pro forma Impact of Business Combination

The following consolidated pro forma information is based on the assumption that the acquisition occurred on January 1, 2012.  The unaudited pro forma information is presented for comparative purposes only and is not necessarily indicative of the financial position or results of operations which would have been reported had the Company completed the acquisition during these periods or which might be reported in the future. The unaudited pro forma information reflects primarily the application of the following adjustments:

elimination of the historical intangible asset amortization expense of this acquisition;

amortization expense related to the fair value of intangible asset acquired;

the exclusion of acquisition-related costs, incurred for this acquisition;and

the exclusion of the step-up value related to inventory sold that was acquired as part of the acquisition.Such amounts was included in the applicable comparative period for purposes of pro forma financial information.

The unaudited pro forma information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition been completed on January 1, 2012. In addition, the unaudited pro forma information does not purport to project the future results of operations of the Company.

	ThreeMonthsEnded June 30,					Six Months Ended June 30,
	2013		2012				2013		2012
	(in thousands)
Net revenues	$	9,152	$	7,439			$	18,784	$	13,622
Net income (loss)		25,627		(2,804	)			20,806		(13,513	)

Acquisition-related Costs

Acquisition related expenses consist of transaction costs which represent external costs directly related to the acquisition of BUPHENYL and primarily include expenditures for professional fees such as legal, accounting and other directly related incremental costs incurred to close the acquisition. Acquisition related expenses for the three and six months ended June 30, 2013 were $0.3 million and $0.4 million, respectively.

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Inventories - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013
Disclosure - Inventories - Additional Information (Detail) [Line Items]
Inventories	$ 3.9

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Warrants (Tables)

6 Months Ended

Jun. 30, 2013

Summary of Outstanding Warrants and Corresponding Exercise Price

The following table summarizes the outstanding warrants and the corresponding exercise price as of June30, 2013 and December31, 2012:

	NumberofSharesOutstanding
	June30, 2013		December31, 2012		Per Share ExercisePrice
October 2007 common stock warrants		274		274	$	1,913.05
April 2012 common stock warrants		—		75,974		4.08
September 2012 common stock warrants		—		8,408		5.05
Total		274		84,656

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Summary of Significant Accounting Policies - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013 Segment
Summary Of Significant Accounting Policies [Line Items]
Number of operating segments	1
Inventories	$ 3.9
Percentage of Medicare Part D insurance coverage gap to eligible patients	50.00%

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Pro Forma Earnings (Loss) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Disclosure - Pro Forma Earnings (Loss) (Detail) [Line Items]
Net revenues	$ 9,152	$ 7,439	$ 18,784	$ 13,622
Net income (loss)	$ 25,627	$ (2,804)	$ 20,806	$ (13,513)

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Allocation of Stock-Based Compensation Expense (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expenses related to employees	$ 1,253	$ 242	$ 1,759	$ 320
Cost of sales
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expenses related to employees	2		3
Research and development
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expenses related to employees	143	102	235	139
Selling general and administrative
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expenses related to employees	$ 1,108	$ 140	$ 1,521	$ 181

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Notes Payable - Additional Information (Detail) (USD $)	6 Months Ended				1 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 April 2012 Notes Payable	Apr. 30, 2012 April 2012 Notes Payable	Sep. 30, 2012 September 2012 Notes Payable	Jun. 30, 2013 September 2012 Notes Payable	Jun. 30, 2013 April 2012 and September 2012 Notes Payable	Jun. 30, 2013 April 2012 and September 2012 Notes Payable
Debt Instrument [Line Items]
Aggregate principal amount of notes issued				$ 10,000,000
Stated interest rate on notes			8.88%			8.88%
Interest only payment period			9 months			9 months
Payment of loan principal and interest			27 months			27 months
Period for monthly financials and compliance certificate			30 days
Period for annual audited financial report			180 days
Number of warrants issued				75,974	8,408
Exercise price of warrants				4.08	5.05
Final payment due as a percentage of principal loan amount			6.50%			6.50%
Sale of equity securities or debt, minimum amount for term loan			30,000,000
Bank Term Loan			2,500,000
Additional borrowing					2,500,000
Percentage in addition to Treasury rate, term loan						8.50%
Amortization of debt discount	$ 261,000	$ 822,000					$ 100,000	$ 300,000

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, issued
Preferred stock, outstanding
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	20,087,200	16,646,269
Common stock, shares outstanding	20,087,200	16,646,269

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Notes Payable

6 Months Ended

Jun. 30, 2012

Notes Payable

9. Notes Payable

In April 2012, the Company borrowed $10.0 million (the “April 2012 Notes”) pursuant to a loan and security agreement (the “Loan Agreement”) with Silicon Valley Bank and Leader Lending, LLC—Series B (the “Lenders”). The loan carries an interest rate of 8.88%, with interest only payments for the period of 9 months from May1, 2012. The loan is then payable in equal monthly principal payments plus interest over a period of 27 months from February1, 2013. In connection with the Loan Agreement, the Company granted a security interest in all of its assets, except intellectual property. The Company’s obligations to the Lenders include restrictions on borrowing, asset transfers, placing liens or security interest on its assets including the Company’s intellectual property, mergers and acquisitions and distributions to stockholders. The Loan Agreement also requires the Company to provide the Lenders monthly financials and compliance certificate within 30 days of each month end, annual audited financials within 180 days of each fiscal year-end and annual approved financial projections. The Company issued warrants to the Lenders to purchase a total of 75,974 shares of common stock with an exercise price of $4.08 per share. The Loan Agreement requires immediate repayment of amounts outstanding upon an event of default, as defined in the Loan Agreement, which includes events such as a payment default, a covenant default or the occurrence of a material adverse change, as defined in the Loan Agreement. In addition, a final payment equal to 6.5% of the principal loan amount is due on the earlier of (i)maturity date, (ii)prepayment of the loan or (iii)an event of default.

Pursuant to the terms of the Loan Agreement, once the Company raises at least $30.0 million from the sale of equity securities or subordinated debt, the Lenders also agreed to lend the Company a one-time single loan in the amount of $2.5 million (the “Bank Term Loan”). In September 2012, the Company borrowed an additional $2.5 million (the “September 2012 Note”) from Silicon Valley Bank pursuant to the terms of the Bank Term Loan. In addition, the Company issued warrants to Silicon Valley Bank to purchase a total of 8,408 shares of common stock with an exercise price of $5.05 per share. A final payment equal to 6.5% of the principal loan amount is due on the earlier of (i)maturity date, (ii)prepayment of the loan or (iii)an event of default. The principal amount outstanding under the Bank Term Loan accrues interest at a per annum rate equal to the greater of (i)8.88% and (ii)the Treasury Rate, as defined in the Loan Agreement, on the date the loan is funded plus 8.50%, with interest only payments for the period of 9 months from the date the loan is funded. The loan is then payable in equal monthly principal payments plus interest over a period of 27 months from the date the loan is funded.

For the three and six months ended June 30, 2013, the Company recorded amortization of debt discount of $0.1millionand $0.3 million, respectively, related to the April 2012 Notes and September 2012 Note.

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities
Net income (loss)	$ 16,047	$ (19,048)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization	51	7
Amortization of debt discount	261	822
Re-measurement of warrants liability		1,445
Re-measurement of call option liability and preferred stock liability		(737)
Stock-based compensation expense	1,756	320
Amortization of debt issuance costs	17	48
Amortization of intangible asset	329
Gain from settlement of retention option (Note 4)	(31,079)
Changes in assets and liabilities
Accounts receivable	(1,723)
Inventories, net of acquisition	(1,065)
Prepaid expenses and other current assets	272	266
Other non-current assets	73	(137)
Accounts payable	(120)	(267)
Deferred revenue	110
Accrued liabilities and other non-current liabilities	2,072	786
Net cash used in operating activities	(12,999)	(16,495)
Cash flows from investing activities
Acquisition of property and equipment	(433)	(13)
Option to purchase rights to BUPHENYL and AMMONUL (Notes 3 and 4)	283	(283)
Acquisition of rights to BUPHENYL, net of AMMONUL option (Note 4)	10,962
Change in restricted cash		329
Net cash provided by investing activities	10,529	33
Cash flows from financing activities
Proceeds from issuance of common stock in follow-on offering, net of underwriting discounts	64,488
Proceeds from issuance of common stock	337	48
Proceeds from issuance of convertible notes payable		7,504
Proceeds from issuance of notes payable		10,000
Payments of offering costs	(776)	(809)
Principal payments under notes payable	(1,705)
Net cash provided by financing activities	62,344	16,743
Net increase in cash and cash equivalents	59,874	281
Cash and cash equivalents, beginning of period	49,853	7,018
Cash and cash equivalents, end of period	109,727	7,299
Supplemental cash flow information
Cash paid for interest	532	105
Supplemental disclosure of noncash investing and financing activities
Stock-based compensation capitalized into inventories	26
Warrants issued in connection with notes payable		1,228
Deferred offering costs in accounts payable and accrued liabilities		$ 566

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current assets
Cash and cash equivalents	$ 109,727	$ 49,853
Accounts receivable, net	1,723
Inventories	4,992
Prepaid expenses and other current assets	599	1,155
Total current assets	117,041	51,008
Property and equipment, net	431	49
Intangible asset, net	16,171
Other non-current assets	57	147
Total assets	133,700	51,204
Current liabilities
Accounts payable	2,057	2,177
Accrued liabilities	4,612	2,540
Deferred revenue	110
Notes payable, current portion	5,406	4,348
Total current liabilities	12,185	9,065
Notes payable, net of current portion	5,248	7,750
Total liabilities	17,433	16,815
Commitments and contingencies (Note 11)
Stockholders’ equity
Preferred stock, par value $0.0001 — 10,000,000 shares authorized; none issued and outstanding
Common stock, par value $0.0001 — 100,000,000 shares authorized at June 30, 2013 and December 31, 2012; 20,087,200 and 16,646,269 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	2	2
Additional paid-in capital	239,215	173,384
Accumulated deficit	(122,950)	(138,997)
Total stockholders’ equity	116,267	34,389
Total liabilities and stockholders’ equity	$ 133,700	$ 51,204

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Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013
Tax Credit Carryforward [Line Items]
Income Tax Expense
Federal | Research And Development Tax Credit Carryforward
Tax Credit Carryforward [Line Items]
Tax credit carryforward	16.4	16.4
Federal Orphan Drug Credit | Federal | Research And Development Tax Credit Carryforward
Tax Credit Carryforward [Line Items]
Tax credit carryforward	$ 15.9	$ 15.9
Valuation Allowance, Tax Credit Carryforward | Federal | Research And Development Tax Credit Carryforward
Tax Credit Carryforward [Line Items]
Percentage of valuation allowance		100.00%

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Stock Option Plan (Tables)

6 Months Ended

Jun. 30, 2013

Allocation of Stock-Based Compensation Expense

Total stock-based compensation expense related to options granted was allocated as follows (in thousands):

	ThreeMonthsEnded June30,					SixMonthsEnded June30,
	2013		2012		2013			2012
Cost of sales	$	2	$	—	$		3	$	—
Research and development		143		102			235		139
Selling general and administrative		1,108		140			1,521		181
Total	$	1,253	$	242	$		1,759	$	320

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Acquisition of BUPHENYL from Ucyclyd Pharma, Inc (Tables)

6 Months Ended

Jun. 30, 2013

Schedule of Purchase Price Allocation

	(in thousands)
Inventories	$	3,900
Intangible Asset – BUPHENYL Product rights		16,500
Total	$	20,400

Total gain from BUPHENYL acquisition

	(in thousands)
Ucyclyd’sretention option amount	$	32,000
Amount due to Ucyclyd for BUPHENYL product rights		(19,000	)
Amount due to Ucyclyd for inventory		(2,038	)
Net payment received from Ucyclyd		10,962
Option to purchase the rights to BUPHENYL and AMMONUL		(283	)
Fair valueof BUPHENYL		20,400
Gain from settlement of retention option	$	31,079

Consolidated pro forma information

The following consolidated pro forma information is based on the assumption that the acquisition occurred on January 1, 2012.  The unaudited pro forma information is presented for comparative purposes only and is not necessarily indicative of the financial position or results of operations which would have been reported had the Company completed the acquisition during these periods or which might be reported in the future. The unaudited pro forma information reflects primarily the application of the following adjustments:

• elimination of the historical intangible asset amortization expense of this acquisition;
• amortization expense related to the fair value of intangible asset acquired;

• the exclusion of acquisition-related costs, incurred for this acquisition;and
• the exclusion of the step-up value related to inventory sold that was acquired as part of the acquisition.Such amounts was included in the applicable comparative period for purposes of pro forma financial information.

The unaudited pro forma information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition been completed on January 1, 2012. In addition, the unaudited pro forma information does not purport to project the future results of operations of the Company.

	ThreeMonthsEnded June 30,					Six Months Ended June 30,
	2013		2012				2013		2012
	(in thousands)
Net revenues	$	9,152	$	7,439			$	18,784	$	13,622
Net income (loss)		25,627		(2,804	)			20,806		(13,513	)

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Components of Accrued Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Schedule Of Accrued Liabilities [Line Items]
Pre-clinical and clinical trial expenses	$ 514	$ 583
Payroll and related expenses	1,918	1,457
Sales related accruals	1,499
Interest payable	80	93
Other	601	407
Accrued liabilities	$ 4,612	$ 2,540

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Carrying Value and Estimated Fair Value of Company's Notes Payable (Detail) (April and September 2012 Notes, USD $) In Thousands, unless otherwise specified	Jun. 30, 2013
Carrying value
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Total	$ 10,654
Estimated fair value
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Total	$ 11,362

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Gain Arising from Acquisition (Detail) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Business Acquisition [Line Items]
Ucyclyd’s retention option amount	$ 32,000,000
Amount due to Ucyclyd for BUPHENYL product rights	(19,000,000)
Amount due to Ucyclyd for inventory	(2,038,000)
Net payment received from Ucyclyd	10,962,000
Option to purchase the rights to BUPHENYL and AMMONUL	(283,000)	283,000
Fair value of BUPHENYL	20,400,000
Gain from settlement of retention option	$ 31,079,000

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Acquisition of BUPHENYL from Ucyclyd Pharma, Inc - Additional Information (Detail) (USD $)	1 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2013	Mar. 31, 2012	Jun. 30, 2013	Jun. 30, 2013
Business Acquisition [Line Items]
Business acquisition period results included in combined entity	$ 1,100,000
Ucyclyd’s retention option amount				32,000,000
Net payment received from Ucyclyd				10,962,000
Cash paid to Ucyclyd for BUPHENYL product rights				19,000,000
Cash due to Ucyclyd for inventory				2,038,000
Business Combination Acquisition Related Costs			400,000	400,000
Expected useful life of acquired product rights				10 years
Fair value of BUPHENYL	20,400,000		20,400,000	20,400,000
Payment for option to purchase product rights		$ 300,000		$ (283,000)

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Accrued Liabilities

6 Months Ended

Jun. 30, 2013

Accrued Liabilities

8. Accrued Liabilities

The following table represents the components of accrued liabilities (in thousands):

	June30, 2013			December31, 2012
Pre-clinical and clinical trial expenses	$	514	$		583
Payroll and related expenses		1,918			1,457
Sales related accruals		1,499			—
Interest payable		80			93
Other		601			407
	$	4,612	$		2,540

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Net Loss per Share of Common Stock (Tables)

6 Months Ended

Jun. 30, 2013

Net Loss per Share of Common Stock

The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the periods indicated (in thousands, except share and per share amounts):

	ThreeMonthsEnded June30,						SixMonthsEnded June30,
	2013		2012				2013			2012
Historical net income(loss) per share
Numerator:
Net income(loss) attributable to common stockholders	$	25,022		$	(7,162	)		$	16,047		$	(19,048	)
Denominator:
Weighted-average number of common shares outstanding — basic		20,050,987			469,319				18,716,332			469,319
Dilutive effect of stock-options and awards		1,307,288			—				1,261,757			—
Weighted average common shares outstanding—dilutive		21,358,275			469,319				19,978,089			469,319
Net income (loss) per share:
Basic	$	1.25		$	(15.26	)		$	0.86		$	(40.59	)
Diluted	$	1.17		$	(15.26	)		$	0.80		$	(40.59	)

Antidilutive Securities Excluded from Computation of Earnings Per Share

The following outstanding potentially dilutive securities were excluded from the computation of diluted net income (loss) per share, as the effect of including them would have been antidilutive:

	ThreeMonthsEnded June30,				SixMonthsEnded June30,
	2013		2012		2013		2012
Convertible preferred stock		—		6,575,637		—		6,575,637
Stock options		675,969		1,717,337		380,745		1,717,337
October 2007, April 2008 and 2012 common stock warrants		274		76,270		274		76,270
Total		676,243		8,369,244		381,019		8,369,244

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Intangible Asset (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Finite Lived Intangible Assets [Line Items]
2013	$ 2,312
2014	4,548
2015	2,412
2016	1,372
2017	$ 1,243

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies

11. Commitments and Contingencies

Contingencies

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. Further, the Company may be subject to certain contingent liabilities that arise in the ordinary course of its business activities.The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

In accordance with the Company’s amended and restated certificate of incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity.There have been no claims to date and the Company has a director and officer insurance policy that may enable it to recover a portion of any amounts paid for future claims.

The Company is contingently committed for development milestone payments as well as sales-related milestone payments and royalties relating to potential future product sales under the restated collaboration agreement and purchase agreement with Ucyclyd (Note 3). The amount, timing and likelihood of these payments are unknown as they are dependent on the occurrence of future events that may or may not occur, including approval by the FDA of GPB for HE.

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Intangible Asset

6 Months Ended

Jun. 30, 2013

Intangible Asset

7. Intangible Asset

As discussed in Notes 3 and 4, the Company acquired BUPHENYL and as part of this transaction, the Company recognized $16.5 million of an intangible asset relating to BUPHENYL product rights. The estimated fair value attributed to the BUPHENYL product rights was determined on a discounted forecast of the estimated net future cash flows to be generated from the product rights.Intangible assetsare amortized over the estimated useful life using the economic use method, which reflects the pattern that the economic benefits of the intangible assetsare consumed as revenue is generated. The pattern of consumption of the economic benefits is estimated using the future projected cash flows of the intangible asset. The Company estimated the useful life of the BUPHENYL product rights to be 10 years.

Intangible asset amortization expense was $0.3 million for the three and six months ended June 30, 2013.

Estimated aggregate amortization expense for each of the five succeeding years ending December31 is asfollows (in thousands):

	2013			2014			2015			2016			2017
Amortization expense	$	2,312	$		4,548	$		2,412	$		1,372	$		1,243

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and on a basis consistent with the annual consolidated financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of the results to be expected for the year ending December31, 2013, or for any other future annual or interim period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December31, 2012.

Use of Estimates

The preparation of the interim condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to fair value of assets, intangible asset valuation, preclinical and clinical trial accruals, research and development expenses, stock-based compensation expense, income taxes,revenue recognition and product sales allowances. Management bases its estimates on historical experience or on various other assumptions, including information received from its service providers, which it believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts in the interim condensed consolidated financial statements have been reclassified to conform to the current year’s presentation. In particular, certain sales and marketing expenses have been combined with general and administrative expenses in the condensed consolidated statement of operations. The result of this reclassification had no impact on the previously reported net loss or condensed consolidated balance sheet.

Segment Reporting

The Company operates as one operating segment and uses one measurement of profitability to manage its business. All long-lived assets are maintained in the United States.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid for to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. See Note 5, Fair Value Measurements, regarding the fair value of the Company’s notes payable.

Business Combinations

The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. The purchase price allocation process requires managementto make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred.

Accounts Receivable

Trade accounts receivable are recorded net of product sales allowances for prompt-payment discounts, chargebacks, and doubtful accounts. Estimates for chargebacks and prompt-payment discounts are based on contractual terms, historical trends and our expectations regarding the utilization rates for these programs.

Inventories

Inventories are stated at the lower of cost or market value with cost determined under the first-in-first-out (FIFO) cost method and consists of raw materials and supplies, work in process and finished goods. Costs to be capitalized as inventories include third party manufacturing costs, associated compensation related costs of personnel indirectly involved in the manufacturing process and other overhead costs such as ancillary supplies.

Subsequent to FDA approval of RAVICTI on February 1, 2013, the Company began capitalizing RAVICTI inventories as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to the FDA approval of RAVICTI have been recorded as research and development expense in the condensed consolidated statements of operations. If information becomes available that suggest that inventories may not be realizable, the Company may be required to expense a portion or all of the previously capitalized inventories.

Products that have been approved by theFDA or other regulatory authorities, such as RAVICTI are also used in clinical programs, to assess the safety and efficacy of the products for usage in diseases that have not been approved by the FDA or other regulatory authorities. The form of RAVICTI utilized for both commercial and clinical programs is identical and, as a result, the inventory has an “alternative future use” as defined in authoritative guidance. Raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and, therefore, does not have an “alternative future use”.

On May 31, 2013, the Company acquired BUPHEYNY including inventory from Ucyclyd (see Note 4). The Company recorded these inventories at fair value in the amount of $3.9 million on the acquisition date. The Company will expense the difference between the fair value and book value of inventory as that inventory is sold.The Company evaluates for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. The Company builds demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage.

Intangible Assets

Intangible assets are recorded at acquisition cost less accumulated amortization and impairment.  Intangible assets with finite lives are amortized over their estimated useful lives. The Company’s intangible asset pertains to BUPHENYL product rights (see Note 7). Intangible assetsare amortized over the estimated useful life using the economic use method, which reflects the pattern that the economic benefits of the intangible assetsare consumed as revenue is generated. The pattern of consumption of the economic benefits is estimated using the future projected cash flows of  the intangible asset.

Impairment of Long-lived Assets

The Company reviews its property and equipment, intangible assets subject to amortization and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable. Recoverability is measured by comparing the carrying amount to the future net undiscounted cash flows that the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value determined using projected discounted future net cash flows arising from the assets.

Revenue Recognition

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed; the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. The Company determines that persuasive evidence of an arrangement exists based on written contracts that defined the terms of the arrangements. In addition, the Company determines that services have been delivered in accordance with the arrangement. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenue, net: The Company’s product revenue represents sales of RAVICTIand BUPHENYL which are recognized once all four revenue recognition criteria described above are met. The Company recognizes revenue net of product sales allowances. Product shipping and handling costs are included in cost of sales.

●During 2013, the Company began distributing RAVICTI to two specialty pharmacies through a specialty distributor. The specialty pharmacies then in turn dispensed RAVICTI to patients in fulfillment of prescriptions. As RAVICTI is a new product, and the Company’s first commercial product, the Company could not reasonably assess potential product sales allowances at the time of sale to the specialty distributor. As a result, the price of RAVICTI was not deemed fixed or determinable. The Company does not recordrevenue on shipments of RAVICTI to the specialty distributor, until the product was shipped to patients by the specialty pharmacies at which time the related product sales allowances could be reasonably estimated.

●As discussed in Note 1, on May 31, 2013, the Company acquired BUPHENYL from Ucyclyd. The Company sells BUPHENYL in the United States to a specialty distributor who in turn sells this product to retail pharmacies, hospitals and other dispensing organizations. The Company records revenue on product shipments to the specialty distributor upon receipt by the specialty distributor. For product sales of BUPHENYL outside the United States, revenue is recognized once the product is accepted by the customer or their acceptance period has expired whichever comes first.

Product Sales Allowances: The Company establishes reserves for prompt-payment discounts, government and commercial rebates, product returns and chargebacks. Allowances relate to prompt-payment discounts and are recorded at the time of revenue recognition, resulting in a reduction in product sales revenue and a decrease in trade accounts receivables. Accruals related to government rebates, product returns and other applicable allowances such as distributor fees are recognized at the time of revenue recognition, resulting in a reduction in product sales and an increase in accrued expenses or a reduction in the related accounts receivable.

	●Prompt-payment discounts: The specialty distributor and specialty pharmacies are offered prompt payment discounts. The Company expects the specialty distributor and specialty pharmacies will earn prompt payment discounts and, therefore deduct the full amount of these discounts from total product sales when revenues are recognized. The Company records prompt-payment discounts as allowances against accounts receivable on the condensed consolidated balance sheet.
	●Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program. Rebate amounts are based upon contractual agreements or legal requirements with public sector (e.g. Medicaid) benefit providers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The allowance for rebates is based on statutory discount rates and expected utilization. The Company estimates for expected utilization of rebates based on historical data and data received from the specialty pharmacies. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarter’s unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment. Allowance for rebates are recorded in accrued liabilities on the condensed consolidated balance sheet.
	●Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a specialty distributor. Contracted customers, which primarily consist of Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price. The specialty distributor, in turn, charges back to the Company the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by the customer. For BUPHENYL, the allowance for chargebacks is based on historical sales data and known sales to contracted customers. For RAVICTI, the allowance for chargebacks is based on known sales to contracted customers. For qualified programs that can purchase the Company’s products through distributors at a lower contractual government price, the distributors charge back to the Company the difference between their acquisition cost and the lower contractual government price.
	●Medicare Part D Coverage Gap: Medicare Part D prescription drug benefit mandates manufacturers to fund 50% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. The Company estimates for the expected Medicare Part D coverage gap are based on historical invoices received and in part from data received from the specialty pharmacies. Funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters. If actual future funding varies from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment. Estimates of the Medicare Part D coverage Gap are recorded in accrued liabilities on the condensed consolidated balance sheet.
	●Distribution Service Fees: The Company has a written contract with the specialty distributor that includes terms for distribution-related fees. Distributor fees are calculated at percentage of gross sales based upon agreed contracted rate. The Company accrues distributor fees at the time of the revenue recognition, resulting in reduction of product sales revenue and the recording of accrued liabilities on the condensed consolidated balance sheets. The Company records distribution and other fees paid to its customers as a reduction of revenue, unless it receives an identifiable and separate benefit for the consideration and it can reasonably estimate the fair value of the benefit received. If both conditions are met, the Company records the consideration paid to the customer as an operating expense. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.
	●Product Returns: Consistent with industry practice, the Company generally offers customers a limited right to return. The Company accepts returns of products from patients resulting from breakage as defined within the Company’s returns policy. Additionally, the Company considers several other factors in the estimation process including the expiration dates of product shipped, third party data in monitoring channel inventory levels, shelf life of the product, prescription trends and other relevant factors. Provisions for estimated product returns are recorded as accrued liabilities on the condensed consolidated balance sheet.
Co-payment assistance:The Company provides a cash donation to a non-profit third party organization which supports patients, who have commercial insurance and meet certain financial eligibility requirements, with co-payment assistance and travel costs. The amount of co-payment assistance isaccounted for by the Company as a reduction of revenues.

Cost of sales

Cost of sales includes third-party manufacturing cost of products sold, royalty fees, and other indirect costs related to personnel compensation, shipping and supplies.

Costs incurred prior to FDA approval of RAVICTI have been recorded as research and development expense in the Company’s condensed consolidated statement of operations. The Company expects that cost of RAVICTI sales as a percentage of revenue will increase in future periods as product manufactured prior to FDA approval, and therefore fully expensed, is utilized.

Cost of BUPHENYL sales as a percentage of revenue was higher and not indicative cost of sales in future periods due to the recording of the step-up value on BUPHENYL inventories acquired from Ucyclydwhich will be expensed to cost of sales as that inventory is sold. (See Notes 4 and 6).

Comprehensive Loss

For all periods presented, the comprehensive income (loss) was equal to the net income (loss); therefore, a separate statement of comprehensive income (loss) is not included in the accompanying interim condensed consolidated financial statements.

Net Income (Loss) per Share of Common Stock

Basic earnings per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the periods presented. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and other potentially dilutive securities using the treasury stock method unless the effect is antidilutive.

Recent Accounting Pronouncements

In February 2013, FASB issued Accounting Standard Update (“ASU”) No. 2013-02, Comprehensive Income: Reporting of amounts reclassified out of other comprehensive income.Under the amendments of this updatean entity is required to present either parenthetically on the face of the financial statements or in the notes, significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. However, an entity would not need to show the income statement line item affected for certain components that are not required to be reclassified in their entirety to net income, such as amounts amortized into net periodic pension cost. The standard was effective prospectively for public entities for fiscal years, and interim periods with those years, beginning after December15, 2012. Early adoption was permitted. The Company adopted this guidance on January1, 2013. The implementation did not have an impact on the Company’s financial statements.

In July 2013, FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under the amendments of this update an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefitin the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward,except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For example, an entity should not evaluate whether the deferred tax asset expires before the statute of limitations on the tax position or whether the deferred tax asset may be used prior to the unrecognized tax benefits being settled.The provisions of this update will be effective prospectively for the Company in fiscal years beginning after December 15, 2013, and for the interim periods within fiscal years with early adoption and retrospective application permitted. The Company believes the adoption of this new guidance will not have a material impact on its consolidated results of operations or financial position.

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Net Loss Per Share of Common Stock (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net loss per share Numerator:
Net income (loss) attributable to common stockholders	$ 25,022	$ (7,162)	$ 16,047	$ (19,048)
Denominator:
Basic	20,050,987	469,319	18,716,332	469,319
Dilutive effect of stock-options and awards	1,307,288		1,261,757
Diluted	21,358,275	469,319	19,978,089	469,319
Net income (loss) per share:
Basic	$ 1.25	$ (15.26)	$ 0.86	$ (40.59)
Diluted	$ 1.17	$ (15.26)	$ 0.80	$ (40.59)

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Summary of Outstanding Warrants and Corresponding Exercise Price (Detail)	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 October 2007 Common Stock Warrants	Dec. 31, 2012 October 2007 Common Stock Warrants	Jun. 30, 2013 April 2012 Common Stock Warrants	Dec. 31, 2012 April 2012 Common Stock Warrants	Apr. 30, 2012 April 2012 Common Stock Warrants	Jun. 30, 2013 September 2012 Common Stock Warrants	Dec. 31, 2012 September 2012 Common Stock Warrants	Sep. 30, 2012 September 2012 Common Stock Warrants
Class Of Warrant Or Right [Line Items]
Number of Shares Outstanding	274	84,656	274	274		75,974			8,408
Per Share Exercise Price			1,913.05		4.08		4.08	5.05		5.05

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Collaboration Agreement with Ucyclyd Pharma, Inc. - Additional Information (Detail) (USD $)	1 Months Ended	3 Months Ended	6 Months Ended
	Mar. 31, 2012	Mar. 31, 2013	Jun. 30, 2013
Collaboration Agreements [Line Items]
Payment under purchase agreement	$ 6,000,000
Payment for worldwide rights to product	5,700,000
Payment for option to purchase product rights	300,000		(283,000)
Maximum amount of regulatory milestones, product approval	15,800,000
Maximum amount of regulatory milestones, approval in other indications	7,300,000
Maximum amount of net sales milestones, approval in other indications	38,800,000
Purchase option exercise period	90 days
Purchase price for AMMONUL and BUPHENYL	22,000,000
Monthly payments		500,000
Purchase price to retain product rights	32,000,000
Net payment to be received for purchase transaction			13,000,000
Cash paid to Ucyclyd for BUPHENYL product rights			$ 19,000,000

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Income Taxes

6 Months Ended

Jun. 30, 2013

Income Taxes

14. Income Taxes

The Company was granted orphan drug designation in 2009 by the FDA for its products currently under development. The orphan drug designation allows the Company to claim increased federal tax credits for its research and development activities. The Company had $16.4 million of federal credit carryforwards of which $15.9 million relates to Orphan Drug Credit claims for 2009 through 2012. These federal credit carryforwards were fully provided with 100% valuation allowance.

The Company did not record any income tax expense for the three and six month periods ended June 30, 2013. Expected taxable income in 2013will be offset by federal and state net operating losses and credits.

There was no interest or penalties accrued through June 30, 2013. The Company’s policy is to recognize any related interest or penalties in income tax expense. The material jurisdiction in which the Company is subject to potential examination by tax authorities for tax years ended 2006 through the current period include the United States and California. The Company is not currently under income tax examinations by any tax authorities.

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Warrants

6 Months Ended

Jun. 30, 2013

Warrants

10. Warrants

October 2007 Common Stock Warrants

In connection with a Loan and Security Agreement entered into in October 2007, the Company issued warrants to purchase 274 shares of Series B convertible preferred stock. In June 2009, as part of the recapitalization, these warrants were converted into warrants to purchase shares of common stock. The warrants are exercisable at $1,913.05 per share and will expire in October 2017 (the “October 2007 common stock warrants”).

April 2012 Common Stock Warrants

In connection with the Loan Agreement entered into in April 2012 (Note 9), the Company issued warrants to the Lenders to purchase a total of 75,974 shares of common stock. The warrants are exercisable at $4.08 per share and expire in April 2022 (the “April 2012 common stock warrants”). As of June 30, 2013, the April 2012 common stock warrants had been fully exercised.

September 2012 Common Stock Warrants

In connection with the September 2012 Note, the Company issued warrants to the Lender to purchase a total of 8,408 shares of common stock. The warrants are exercisable at $5.05 per share and expire in September 2022 (the “September 2012 common stock warrants”). As of June30, 2013, the September 2012 common stock warrants had been fully exercised.

The following table summarizes the outstanding warrants and the corresponding exercise price as of June30, 2013 and December31, 2012:

	NumberofSharesOutstanding
	June30, 2013		December31, 2012		Per Share ExercisePrice
October 2007 common stock warrants		274		274	$	1,913.05
April 2012 common stock warrants		—		75,974		4.08
September 2012 common stock warrants		—		8,408		5.05
Total		274		84,656

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Basis of Presentation

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and on a basis consistent with the annual consolidated financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of the results to be expected for the year ending December31, 2013, or for any other future annual or interim period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December31, 2012.

Use of Estimates

Use of Estimates

The preparation of the interim condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to fair value of assets, intangible asset valuation, preclinical and clinical trial accruals, research and development expenses, stock-based compensation expense, income taxes,revenue recognition and product sales allowances. Management bases its estimates on historical experience or on various other assumptions, including information received from its service providers, which it believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Reclassifications

Reclassifications

Certain prior year amounts in the interim condensed consolidated financial statements have been reclassified to conform to the current year’s presentation. In particular, certain sales and marketing expenses have been combined with general and administrative expenses in the condensed consolidated statement of operations. The result of this reclassification had no impact on the previously reported net loss or condensed consolidated balance sheet.

Segment Reporting

Segment Reporting

The Company operates as one operating segment and uses one measurement of profitability to manage its business. All long-lived assets are maintained in the United States.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid for to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. See Note 5, Fair Value Measurements, regarding the fair value of the Company’s notes payable.

Business Combinations

Business Combinations

The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. The purchase price allocation process requires managementto make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred.

Accounts Receivable

Accounts Receivable

Trade accounts receivable are recorded net of product sales allowances for prompt-payment discounts, chargebacks, and doubtful accounts. Estimates for chargebacks and prompt-payment discounts are based on contractual terms, historical trends and our expectations regarding the utilization rates for these programs.

Inventories

Inventories

Inventories are stated at the lower of cost or market value with cost determined under the first-in-first-out (FIFO) cost method and consists of raw materials and supplies, work in process and finished goods. Costs to be capitalized as inventories include third party manufacturing costs, associated compensation related costs of personnel indirectly involved in the manufacturing process and other overhead costs such as ancillary supplies.

Subsequent to FDA approval of RAVICTI on February 1, 2013, the Company began capitalizing RAVICTI inventories as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to the FDA approval of RAVICTI have been recorded as research and development expense in the condensed consolidated statements of operations. If information becomes available that suggest that inventories may not be realizable, the Company may be required to expense a portion or all of the previously capitalized inventories.

Products that have been approved by theFDA or other regulatory authorities, such as RAVICTI are also used in clinical programs, to assess the safety and efficacy of the products for usage in diseases that have not been approved by the FDA or other regulatory authorities. The form of RAVICTI utilized for both commercial and clinical programs is identical and, as a result, the inventory has an “alternative future use” as defined in authoritative guidance. Raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and, therefore, does not have an “alternative future use”.

On May 31, 2013, the Company acquired BUPHEYNY including inventory from Ucyclyd (see Note 4). The Company recorded these inventories at fair value in the amount of $3.9 million on the acquisition date. The Company will expense the difference between the fair value and book value of inventory as that inventory is sold.The Company evaluates for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. The Company builds demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage.

Intangible Assets

Intangible Assets

Intangible assets are recorded at acquisition cost less accumulated amortization and impairment.  Intangible assets with finite lives are amortized over their estimated useful lives. The Company’s intangible asset pertains to BUPHENYL product rights (see Note 7). Intangible assetsare amortized over the estimated useful life using the economic use method, which reflects the pattern that the economic benefits of the intangible assetsare consumed as revenue is generated. The pattern of consumption of the economic benefits is estimated using the future projected cash flows of  the intangible asset.

Impairment of Long-lived Assets

Impairment of Long-lived Assets

The Company reviews its property and equipment, intangible assets subject to amortization and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable. Recoverability is measured by comparing the carrying amount to the future net undiscounted cash flows that the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value determined using projected discounted future net cash flows arising from the assets.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed; the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. The Company determines that persuasive evidence of an arrangement exists based on written contracts that defined the terms of the arrangements. In addition, the Company determines that services have been delivered in accordance with the arrangement. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenue, net: The Company’s product revenue represents sales of RAVICTIand BUPHENYL which are recognized once all four revenue recognition criteria described above are met. The Company recognizes revenue net of product sales allowances. Product shipping and handling costs are included in cost of sales.

●During 2013, the Company began distributing RAVICTI to two specialty pharmacies through a specialty distributor. The specialty pharmacies then in turn dispensed RAVICTI to patients in fulfillment of prescriptions. As RAVICTI is a new product, and the Company’s first commercial product, the Company could not reasonably assess potential product sales allowances at the time of sale to the specialty distributor. As a result, the price of RAVICTI was not deemed fixed or determinable. The Company does not recordrevenue on shipments of RAVICTI to the specialty distributor, until the product was shipped to patients by the specialty pharmacies at which time the related product sales allowances could be reasonably estimated.

●As discussed in Note 1, on May 31, 2013, the Company acquired BUPHENYL from Ucyclyd. The Company sells BUPHENYL in the United States to a specialty distributor who in turn sells this product to retail pharmacies, hospitals and other dispensing organizations. The Company records revenue on product shipments to the specialty distributor upon receipt by the specialty distributor. For product sales of BUPHENYL outside the United States, revenue is recognized once the product is accepted by the customer or their acceptance period has expired whichever comes first.

Product Sales Allowances: The Company establishes reserves for prompt-payment discounts, government and commercial rebates, product returns and chargebacks. Allowances relate to prompt-payment discounts and are recorded at the time of revenue recognition, resulting in a reduction in product sales revenue and a decrease in trade accounts receivables. Accruals related to government rebates, product returns and other applicable allowances such as distributor fees are recognized at the time of revenue recognition, resulting in a reduction in product sales and an increase in accrued expenses or a reduction in the related accounts receivable.

	●Prompt-payment discounts: The specialty distributor and specialty pharmacies are offered prompt payment discounts. The Company expects the specialty distributor and specialty pharmacies will earn prompt payment discounts and, therefore deduct the full amount of these discounts from total product sales when revenues are recognized. The Company records prompt-payment discounts as allowances against accounts receivable on the condensed consolidated balance sheet.
	●Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program. Rebate amounts are based upon contractual agreements or legal requirements with public sector (e.g. Medicaid) benefit providers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The allowance for rebates is based on statutory discount rates and expected utilization. The Company estimates for expected utilization of rebates based on historical data and data received from the specialty pharmacies. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarter’s unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment. Allowance for rebates are recorded in accrued liabilities on the condensed consolidated balance sheet.
	●Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a specialty distributor. Contracted customers, which primarily consist of Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price. The specialty distributor, in turn, charges back to the Company the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by the customer. For BUPHENYL, the allowance for chargebacks is based on historical sales data and known sales to contracted customers. For RAVICTI, the allowance for chargebacks is based on known sales to contracted customers. For qualified programs that can purchase the Company’s products through distributors at a lower contractual government price, the distributors charge back to the Company the difference between their acquisition cost and the lower contractual government price.
	●Medicare Part D Coverage Gap: Medicare Part D prescription drug benefit mandates manufacturers to fund 50% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. The Company estimates for the expected Medicare Part D coverage gap are based on historical invoices received and in part from data received from the specialty pharmacies. Funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters. If actual future funding varies from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment. Estimates of the Medicare Part D coverage Gap are recorded in accrued liabilities on the condensed consolidated balance sheet.
	●Distribution Service Fees: The Company has a written contract with the specialty distributor that includes terms for distribution-related fees. Distributor fees are calculated at percentage of gross sales based upon agreed contracted rate. The Company accrues distributor fees at the time of the revenue recognition, resulting in reduction of product sales revenue and the recording of accrued liabilities on the condensed consolidated balance sheets. The Company records distribution and other fees paid to its customers as a reduction of revenue, unless it receives an identifiable and separate benefit for the consideration and it can reasonably estimate the fair value of the benefit received. If both conditions are met, the Company records the consideration paid to the customer as an operating expense. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.
	●Product Returns: Consistent with industry practice, the Company generally offers customers a limited right to return. The Company accepts returns of products from patients resulting from breakage as defined within the Company’s returns policy. Additionally, the Company considers several other factors in the estimation process including the expiration dates of product shipped, third party data in monitoring channel inventory levels, shelf life of the product, prescription trends and other relevant factors. Provisions for estimated product returns are recorded as accrued liabilities on the condensed consolidated balance sheet.
Co-payment assistance:The Company provides a cash donation to a non-profit third party organization which supports patients, who have commercial insurance and meet certain financial eligibility requirements, with co-payment assistance and travel costs. The amount of co-payment assistance isaccounted for by the Company as a reduction of revenues.

Cost of Sales

Cost of sales

Cost of sales includes third-party manufacturing cost of products sold, royalty fees, and other indirect costs related to personnel compensation, shipping and supplies.

Costs incurred prior to FDA approval of RAVICTI have been recorded as research and development expense in the Company’s condensed consolidated statement of operations. The Company expects that cost of RAVICTI sales as a percentage of revenue will increase in future periods as product manufactured prior to FDA approval, and therefore fully expensed, is utilized.

Cost of BUPHENYL sales as a percentage of revenue was higher and not indicative cost of sales in future periods due to the recording of the step-up value on BUPHENYL inventories acquired from Ucyclydwhich will be expensed to cost of sales as that inventory is sold. (See Notes 4 and 6).

Comprehensive Loss

Comprehensive Loss

For all periods presented, the comprehensive income (loss) was equal to the net income (loss); therefore, a separate statement of comprehensive income (loss) is not included in the accompanying interim condensed consolidated financial statements.

Net Income (Loss) per Share of Common Stock

Net Income (Loss) per Share of Common Stock

Basic earnings per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the periods presented. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and other potentially dilutive securities using the treasury stock method unless the effect is antidilutive.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2013, FASB issued Accounting Standard Update (“ASU”) No. 2013-02, Comprehensive Income: Reporting of amounts reclassified out of other comprehensive income.Under the amendments of this updatean entity is required to present either parenthetically on the face of the financial statements or in the notes, significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. However, an entity would not need to show the income statement line item affected for certain components that are not required to be reclassified in their entirety to net income, such as amounts amortized into net periodic pension cost. The standard was effective prospectively for public entities for fiscal years, and interim periods with those years, beginning after December15, 2012. Early adoption was permitted. The Company adopted this guidance on January1, 2013. The implementation did not have an impact on the Company’s financial statements.

In July 2013, FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under the amendments of this update an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefitin the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward,except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For example, an entity should not evaluate whether the deferred tax asset expires before the statute of limitations on the tax position or whether the deferred tax asset may be used prior to the unrecognized tax benefits being settled.The provisions of this update will be effective prospectively for the Company in fiscal years beginning after December 15, 2013, and for the interim periods within fiscal years with early adoption and retrospective application permitted. The Company believes the adoption of this new guidance will not have a material impact on its consolidated results of operations or financial position.

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Net Loss per Share of Common Stock

6 Months Ended

Jun. 30, 2013

Net Loss per Share of Common Stock

15. Net Income(Loss) per Share of Common Stock

The following table sets forth the computation of basic and diluted net income (loss) per share of common stock for the periods indicated (in thousands, except share and per share amounts):

	ThreeMonthsEnded June30,						SixMonthsEnded June30,
	2013		2012				2013			2012
Historical net income(loss) per share
Numerator:
Net income(loss) attributable to common stockholders	$	25,022		$	(7,162	)		$	16,047		$	(19,048	)
Denominator:
Weighted-average number of common shares outstanding — basic		20,050,987			469,319				18,716,332			469,319
Dilutive effect of stock-options and awards		1,307,288			—				1,261,757			—
Weighted average common shares outstanding—dilutive		21,358,275			469,319				19,978,089			469,319
Net income (loss) per share:
Basic	$	1.25		$	(15.26	)		$	0.86		$	(40.59	)
Diluted	$	1.17		$	(15.26	)		$	0.80		$	(40.59	)

The following outstanding potentially dilutive securities were excluded from the computation of diluted net income (loss) per share, as the effect of including them would have been antidilutive:

	ThreeMonthsEnded June30,				SixMonthsEnded June30,
	2013		2012		2013		2012
Convertible preferred stock		—		6,575,637		—		6,575,637
Stock options		675,969		1,717,337		380,745		1,717,337
October 2007, April 2008 and 2012 common stock warrants		274		76,270		274		76,270
Total		676,243		8,369,244		381,019		8,369,244

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 05, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Trading Symbol	HPTX
Entity Registrant Name	HYPERION THERAPEUTICS INC
Entity Central Index Key	0001386858
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		20,087,200

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Related Party Transaction

6 Months Ended

Jun. 30, 2013

Related Party Transactions Disclosure

16. Related Party Transaction

As  part of the Company’s acquisition of BEPHENYL (see Note 4), the Company assumed the existing BUPHENYL distributors agreements, including the distribution agreement with Swedish Orphan Biovitrum AB (“SOBI”). SOBI’schairman, Bo Jesper Hansen, is member of the Company’s Board of Directors. During the first half of 2013 there have been no revenues recognized or expenses incurred related to this agreement.