Form 10-Q VIVUS INC For: Sep 30

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM�10-Q

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

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For The Quarterly Period Ended September�30, 2014

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OR

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o�������� TRANSITION REPORT PURSUANT TO SECTION�13 OR 15(d)�OF THE SECURITIES EXCHANGE ACT OF 1934

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For the transition period from ������������ to ������������

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Commission File Number 001-33389

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VIVUS,�INC.

(Exact name of registrant as specified in its charter)

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(650) 934-5200

(Registrant�s telephone number, including area code)

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N/A

(Former name, former address and former fiscal year, if changed since last report)

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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�o

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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�o

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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):

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

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At October�29, 2014, 103,678,036 shares of common stock, par value $.001 per share, were outstanding.

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VIVUS,�INC.

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Quarterly Report on Form�10-Q

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INDEX

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PART�I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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VIVUS,�INC.

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CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

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See accompanying notes to unaudited condensed consolidated financial statements.

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VIVUS,�INC.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

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See accompanying notes to unaudited condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

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See accompanying notes to unaudited condensed consolidated financial statements.

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VIVUS,�INC.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

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See accompanying notes to unaudited condensed consolidated financial statements.

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VIVUS,�INC.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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SEPTEMBER�30, 2014

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1. BASIS OF PRESENTATION

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The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, for interim financial information and with the instructions to Form�10-Q and Article�10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September�30, 2014, are not necessarily indicative of the results that may be expected for the year ending December�31, 2014. Management has evaluated all events and transactions that occurred after September�30, 2014, through the date these unaudited condensed consolidated financial statements were filed. There were no events or transactions during this period that require recognition or disclosure in these unaudited condensed consolidated financial statements. The condensed consolidated balance sheet as of December�31, 2013 has been derived from the audited financial statements, but does not include all of the disclosures required by U.S. GAAP.

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The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company�s Annual Report on Form�10-K for the year ended December�31, 2013 as filed on February�28, 2014 and as amended by the Form�10-K/A filed on April�30, 2014, with the Securities and Exchange Commission, or SEC. The unaudited condensed consolidated financial statements include the accounts of VIVUS,�Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

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When we refer to �we,� �our,� �us,� the �Company� or �VIVUS� in this document, we mean the Delaware corporation, or VIVUS,�Inc., and its California predecessor, as well as all of our consolidated subsidiaries.

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Reclassifications

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Certain prior year amounts in the unaudited condensed consolidated financial statements have been reclassified to conform to the current year presentation.

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Significant Accounting Policies

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There have been no changes to the Company�s significant accounting policies since the Company�s Annual Report on Form�10-K for the year ended December�31, 2013.

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Use of Estimates

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The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, the Company evaluates its estimates, including critical accounting policies or estimates related to available-for-sale securities, debt instruments, research and development expenses, income taxes, inventories, revenues, contingencies and litigation and share-based compensation. The Company bases its estimates on historical experience, information received from third-parties and on various market specific and other relevant assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions or conditions.

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Recent Accounting Pronouncements

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In May�2014, the Financial Accounting Standards Board, or FASB, issued ASU No.�2014-09, Revenue from Contracts with Customers (ASU 2014-09). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. ASU 2014-09 is effective for annual reporting periods beginning after December�15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment.�The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

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2. SHARE-BASED COMPENSATION

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The Company accounts for share-based compensation arrangements in accordance with the FASB�s Accounting Standards Codification, or ASC, Topic 718, Compensation�Stock Compensation, or ASC 718, and ASC 505-50, Equity � Equity Based Payments to Non-Employees.

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Total share-based compensation expense for all of the Company�s share-based awards is as follows (in thousands):

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The Company did not capitalize any share-based compensation cost as part of the cost of inventory during the three and nine months ended September�30, 2014, because there was no manufacturing activity during these periods.� The Company capitalized share-based compensation costs of $75,000 and $467,000 during the three and nine months ended September�30, 2013, respectively, as part of the cost of inventory.

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3. CASH, CASH EQUIVALENTS, AND AVAILABLE-FOR-SALE SECURITIES

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The fair value and the amortized cost of cash, cash equivalents, and available-for-sale securities by major security type at September�30, 2014 and December�31, 2013, are presented in the tables that follow.

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As of September�30, 2014, all of the Company�s available-for-sale securities have original contractual maturities up to 24 months. However, the Company may or may not hold securities with stated maturities greater than 12 months until maturity. In response to changes in the availability of and the yield on alternative investments as well as liquidity requirements, the Company may sell these securities prior to their stated maturities. As these securities are viewed by the Company as available to support current operations, securities with maturities beyond 12 months are classified as current assets. Due to their short-term maturities, the Company believes that the fair value of its bank deposits approximate their carrying value.

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Fair Value Measurements

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As of September�30, 2014 and December�31, 2013, all of the Company�s cash and cash equivalents and available-for-sale securities were measured at fair value on a recurring basis, and classified as Level 1 in the fair value hierarchy. There were no assets or liabilities measured on a recurring basis where Level�2 or Level�3 valuation techniques were used.

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4. ACCOUNTS RECEIVABLE

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Accounts receivable consist of (in thousands):

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5. INVENTORIES

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Inventories consist of (in thousands):

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As of September�30, 2014 and December�31, 2013, raw materials inventories consist primarily of the active pharmaceutical ingredients, or API, for the commercialization of Qsymia (phentermine and topiramate extended release) capsules CIV and finished goods. Deferred costs inventories consist of both Qsymia and STENDRA (avanafil). The Qsymia deferred costs represents Qsymia product shipped to the Company�s wholesalers, certified retail pharmacies and certified home delivery pharmacy services networks, but not yet dispensed to patients through prescriptions, net of prompt payment discounts, and for which recognition of revenue has been deferred. The STENDRA deferred costs represent certain initial orders of STENDRA or SPEDRA product with the right of return or credit, which have not met the required specifications of one of the Company�s partners, and for which recognition of revenue has been deferred.

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Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for all inventories, which are valued using a weighted average cost method calculated for each production batch. The Company periodically evaluates the carrying value of inventory on hand for potential excess amount over demand using the same lower of cost or market approach as that used to value the inventory. As a result of this evaluation, in both the three and nine months ended September�30, 2014, the Company recorded a charge of $2.2 million for finished goods and certain non-API raw materials on hand in excess of demand. During the three months ended September�30, 2013, there was no inventory impairment charge.� During the nine months ended September�30, 2013, the Company recorded a charge of $10.2 million for inventories on hand in excess of demand. These charges are included in inventory impairment and other non-recurring charges on the condensed consolidated statement of operations.

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6. PREPAID EXPENSES AND OTHER ASSETS

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Prepaid expenses and other assets consist of (in thousands):

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The amounts included in prepaid expenses and other assets consist primarily of interest income receivable and prepayments for future services. These and other prepayment amounts represent probable future economic benefits obtained or controlled by the Company as a result of past transactions or events, which meet the definition of an asset under FASB Concept Statement 6. As such, these costs have been deferred as prepaid expenses and other assets on the condensed consolidated balance sheets and will be either (i)�charged to expense accordingly when the related prepaid services are rendered to the Company, or (ii)�converted to cash when the receivables are collected by the Company.

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7. NON-CURRENT ASSETS

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Non-current assets consist of (in thousands):

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The amounts included in non-current assets primarily consist of patent acquisition and assignment costs (see Note 10),� and debt issuance costs related to the Convertible Notes and the Senior Secured Notes offerings (see Note 13).

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8. ACCRUED AND OTHER LIABILITIES

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Accrued and other liabilities consist of (in thousands):

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The amounts included in other accrued liabilities consist of obligations primarily related to sales, marketing, research, clinical development, corporate activities and royalties.

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9. NON-CURRENT ACCRUED AND OTHER LIABILITIES

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Non-current accrued and other liabilities at September�30, 2014 and December�31, 2013, were $1.6 million and $3.0�million, respectively, primarily comprised of costs associated with the exit of certain operating leases and employee termination costs related to a cost reduction plan implemented in the fourth quarter of 2013 (see Note�10).

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10. INVENTORY IMPAIRMENT AND OTHER NON-RECURRING CHARGES

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Inventory impairment and other non-recurring charges for the three and nine months ended September�30, 2014 and 2013 consist of (in thousands):

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As discussed in Note 5, in both the three and nine months ended September�30, 2014, the Company recorded a charge of $2.2 million for finished goods and certain non-API raw materials on hand in excess of demand. During the three months ended September�30, 2013, there was no inventory impairment charge.� During the nine months ended September�30, 2013, the Company recorded a charge of $10.2 million, for inventories on hand in excess of demand.

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In September�2014, the Company paid $5.0 million in connection with the transfer and assignment of certain patents from Janssen Pharmaceuticals,�Inc. Of the $5.0 million, approximately $1.9 million was recognized as a non-recurring expense in the condensed consolidated statements of operations as it related to a legal settlement during the quarter ended September�30, 2014. The remaining balance of approximately $3.1 million is recorded as an intangible asset and being amortized as cost of goods sold over the period in which the Company expects to benefit from the patents through their expiration dates. Of the $3.1 million, $0.1 million was recorded in cost of goods sold during the three months ended September�30, 2014, and the remaining $3.0 million is included in non-current assets on the condensed consolidated balance sheet and will be amortized over an estimated period of approximately 5.5 years.

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The following table presents activities related to a cost reduction plan during the three and nine months ended September�30, 2014 (in thousands):

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(1)�������� The accrued facilities-related costs at September�30, 2014 represent estimated losses, net of expected subleases, on space vacated as part of the Company�s cost reduction plan. The noncancelable operating leases and scheduled payments against the amounts accrued extend through May�2020, unless the Company is able to negotiate earlier terminations.

(2)�������� In addition to the above non-recurring charges, as previously presented in Note 2, the Company incurred non-cash share-based compensation expense of $0.3 million in the nine months ended September�30, 2014.

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Commencing on May�1, 2014, the Company subleased a portion of its Evelyn Lease consisting of approximately 14,105 square feet of space for a term of 36 months at a starting annual rental rate of $42 per square feet (subject to agreed increases). The sublessee is entitled to abatement of monthly installments of rents for months one through four. Minimum rents expected to be received under this sublease as of September�30, 2014 are $146,000, $601,000, $626,000 and $212,000 in fiscal years 2014 (remaining three months), 2015, 2016 and 2017, respectively. Upon the completion of the sublease for this space, the Company expects to either find usage or to locate a suitable sublessee for the duration of the Company�s Evelyn Lease.

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Commencing on September�1, 2014, the Company subleased the expansion space relating to the Castro Lease.� The sublease consists of approximately 4,914 square feet of space for a term of 31 months at a starting annual rental rate of $53 per square feet (subject to agreed increases). The sublessee is entitled to abatement of the first monthly installment. Minimum rents expected to be received under this sublease as of September�30, 2014 are $65,000, $261,000, $266,000 and $68,000 in fiscal years 2014 (remaining three months), 2015, 2016 and 2017, respectively.

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Of the total accrued employee severance and facilities-related costs as of September�30, 2014, $3.8�million is included under current liabilities in �Accrued and other liabilities� and $1.3�million is included in �Non-current accrued and other liabilities.�

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The balance of the accrued employee severance and facilities-related costs at September�30, 2014 is anticipated to be paid out as follows (in thousands):

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11. DEFERRED REVENUE

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Qsymia Deferred Revenue

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At September�30, 2014, the Company had $16.3 million in current deferred revenue, which represents Qsymia product shipped to the Company�s wholesalers, certified retail pharmacies and certified home delivery pharmacy services networks, but not yet dispensed to patients through prescriptions, net of prompt payment discounts.

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STENDRA or SPEDRA Deferred Revenue

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At September�30, 2014, the Company had $3.9 million and $9.5 million in current and non-current deferred revenue, respectively, relating to prepayment for future royalties on sales of SPEDRA. Additionally, the Company supplied certain initial orders of STENDRA or SPEDRA product with a right of return or credit, which have not met the required specifications of one of the Company�s partners and for which the Company had $2.8�million in current deferred revenue at September�30, 2014.

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12. LICENSE, COMMERCIALIZATION AND SUPPLY AGREEMENTS

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During 2013, the Company entered into license and commercialization agreements and commercial supply agreements with the Menarini Group, through its subsidiary Berlin-Chemie AG, or Menarini, Auxilium Pharmaceuticals,�Inc., or Auxilium, and Sanofi and its affiliate, or Sanofi, to commercialize and promote STENDRA or SPEDRA in their respective territories. Menarini�s territory is comprised of over 40 European countries, including the EU, plus Australia and New Zealand. Auxilium�s territory is comprised of the United States and Canada and their respective territories. Sanofi�s territory is comprised of Africa, the Middle East, Turkey and Eurasia.

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For the three months ended September�30, 2014, the Company recognized $15.1 million in license and milestone revenue primarily attributable to milestone revenue related to the approval of the Time of Onset Claim in the U.S. For the nine months ended September�30, 2014, the Company recognized $38.6 million in license and milestone revenue primarily attributable to product launches in certain EU countries and milestone revenue related to the approval of the Time of Onset Claim in the U.S.� For the three and nine months ended September�30, 2014, the Company recognized $5.3 million and $18.3 million, respectively, in supply revenue relating to STENDRA or SPEDRA delivered under the various commercial supply agreements with Menarini, Auxilium and Sanofi. Additionally, for the three and nine months ended September�30, 2014, the Company recognized $1.1 million and $2.9 million, respectively, in royalty revenue based on net sales reported by Menarini and Auxilium.

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13. LONG-TERM DEBT

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Convertible Senior Notes Due 2020

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On May�21, 2013, the Company closed an offering of $220.0�million in 4.5% Convertible Senior Notes due May�1, 2020, or the Convertible Notes. The Convertible Notes are governed by an indenture, dated as of May�21, 2013, between the Company and Deutsche Bank National Trust Company, as trustee. On May�29, 2013, the Company closed on an additional $30.0�million of Convertible Notes upon exercise of an option by the initial purchasers of the Convertible Notes. Total net proceeds from the Convertible Notes were approximately $241.8�million. For the three and nine months ended September�30, 2014, total interest expense related to the Convertible Notes was $6.3�million and $18.6 million, respectively, including amortization of $3.7�million and $10.9 million of the debt discount and $202,000 and $584,000 of deferred financing costs, respectively. For the three and nine months ended September�30, 2013, total interest expense related to the Convertible Notes was $5.7�million and $8.1 million, respectively, including amortization of $3.4�million and $5.9 million of the debt discount and $182,000 and $260,000 of deferred financing costs, respectively.

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Senior Secured Notes Due 2018

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On March�25, 2013, the Company entered into the Purchase and Sale Agreement between the Company and BioPharma Secured Investments III Holdings Cayman�LP, a Cayman Islands exempted limited partnership, providing for the purchase of a debt-like instrument, or the Senior Secured Notes. Under the agreement, the Company received $50�million, less $500,000 in funding and facility payments, at the initial closing on April�9, 2013. The Company had the option, but elected not to exercise it, to receive an additional $60�million, less $600,000 in a funding payment, at a secondary closing no later than January�15, 2014. For the three and nine months ended September�30, 2014, the interest expense related to the Senior Secured Notes was $1.9�million and $5.7 million, respectively, including amortization of deferred financing costs amounting to $116,000 and $354,000, respectively. For the three and nine months ended September�30, 2013, the interest expense related to the Senior Secured Notes was $1.7�million and $3.2 million, respectively, including amortization of deferred financing costs amounting to $106,000 and $212,000, respectively.

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The following table summarizes information on the debt (in thousands):

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(1)�������� Approximately $6.9 million was classified as current and included in accrued and other current liabilities in the Condensed Consolidated Balance Sheet as of September�30, 2014.

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14. NET INCOME (LOSS) PER SHARE

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The Company computes basic net income (loss) per share applicable to common stockholders based on the weighted average number of common shares outstanding during the period. Diluted net income per share is based on the weighted average number of common and common equivalent shares, which represent shares that may be issued in the future upon the exercise of outstanding stock options or upon a net share settlement of the Company�s Convertible Notes. Common share equivalents are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the price exceeds the average market price over the period have an anti-dilutive effect on net income per share and, accordingly, are excluded from the calculation. The triggering conversion conditions that allow holders of the Convertible Notes to convert have not been met. If such conditions are met and the note holders opt to convert, the Company may choose to pay in cash, common stock, or a combination thereof; however, if this occurs, the Company has the intent and ability to net share settle this debt security; thus the Company uses the treasury stock method for earnings per share purposes. Due to the effect of the capped call instrument purchased in relation to the Convertible Notes, there would be no net shares issued until the market value of the Company�s stock exceeds $20 per share, and thus no impact on diluted net income per share. Further, when there is a net loss, potentially dilutive common equivalent shares are not included in the calculation of net loss per share since their inclusion would be anti-dilutive.

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As the Company recognized a net loss for the three and nine months ended September�30, 2014 and 2013, all potential common equivalent shares were excluded for these periods as they were anti-dilutive. For the three and nine months ended September�30, 2014, awards and options outstanding of 8,069,865 and 8,494,903, respectively, were excluded in the computation of diluted net loss per share for the Company because the effect would be anti-dilutive. For the three and nine months ended September�30, 2013, awards and options outstanding of 5,626,000 and 6,026,000, respectively, were excluded in the computation of diluted net loss per share because the effect would be anti-dilutive.

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15. INCOME TAXES

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For the three and nine months ended September�30, 2014, the Company recorded a tax benefit of $222,000 and $660,000, respectively. For the three and nine months ended September�30, 2013, the Company recorded provisions for income taxes of $33,000 and $46,000, respectively.� The tax benefit for the three months ended September�30, 2014 primarily relates to tax liabilities in certain states, offset by a reduction to the Company�s unrecognized tax benefits as a result of the California Franchise Tax Board audit that was favorably settled.

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The tax benefit for the nine months ended September�30, 2014 primarily relates to tax liabilities in certain states, offset by a tax refund received from the State of New Jersey as a result of a settlement of an audit and acceptance of a refund claim for the tax year ended December�31, 2007 and a reduction of the Company�s unrecognized tax benefits as a result of the California Franchise Tax Board audit that was favorably settled. The tax provision for the three and nine months ended September�30, 2013 relates to state tax liabilities.

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The Company assesses the likelihood that it will be able to recover its deferred tax assets on a quarterly basis. The Company considers all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is not more likely than not that the Company will recover its deferred tax assets, the Company will increase its provision for taxes by recording a valuation allowance against the deferred tax assets that the Company estimates will not ultimately be recoverable. As a result of the Company�s analysis of all available evidence, both positive and negative, as of December�31, 2013, it was considered more likely than not that the Company�s deferred tax assets would not be realized. However, should there be a change in the Company�s ability to recover its deferred tax assets, the Company would recognize a benefit to its tax provision in the period in which the Company determines that it is more likely than not that it will recover its deferred tax assets.

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There were changes to the Company�s unrecognized tax benefits in the three months ended September�30, 2014 as a result of the favorable settlement with the California Franchise Tax Board. We do not expect to have any further significant changes to unrecognized tax benefits through the end of the fiscal year, because of our history of tax losses, and certain tax years that remain open to tax audit.

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16. LEGAL MATTERS

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Securities Related Class�Action and Shareholder Derivative Lawsuits

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The Company, a current officer and a former officer were defendants in a putative class action captioned Kovtun v. VIVUS,�Inc., et al., Case No.�4:10-CV-04957-PJH, in the U.S. District Court, Northern District of California. The action, filed in November�2010, alleged violations of Section�10(b)�and 20(a)�of the federal Securities Exchange Act of 1934 based on allegedly false or misleading statements made by the defendants in connection with the Company�s clinical trials and New Drug Application, or NDA, for Qsymia as a treatment for obesity. The Court granted defendants� motions to dismiss both plaintiff�s Amended Class�Action Complaint and Second Amended Class�Action Complaint; by order dated September�27, 2012, the latter dismissal was with prejudice and final judgment was entered for defendants the same day. On October�26, 2012, plaintiff filed a Notice of Appeal to the U.S. Court of Appeals for the Ninth Circuit. Briefing of the appeal is complete, and the Court of Appeals has set oral argument for January 16, 2015.

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Additionally, certain of the Company�s former officers and directors and a current director are defendants in a shareholder derivative lawsuit captioned Turberg v. Logan, et al., Case No.�CV-10-05271-PJH, pending in the same federal court. In the plaintiff�s Verified Amended Shareholder Derivative Complaint filed June�3, 2011, the plaintiff largely restated the allegations of the Kovtun action and alleged that the directors breached fiduciary duties to the Company by purportedly permitting the Company to violate the federal securities laws as alleged in the Kovtun action. The same individuals are also named defendants in consolidated shareholder derivative suits pending in the California Superior Court, Santa Clara County, under the caption In re VIVUS,�Inc. Derivative Litigation, Master File No.�11 0 CV188439. The allegations in the state court derivative suits are substantially similar to the other lawsuits. The Company is named as a nominal defendant in these actions, neither of which seeks any recovery from the Company. The parties have agreed to stay the derivative lawsuits pending the outcome of the appeal of the securities class action.

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On July�12, 2013, various current and former officers and directors of the Company were named as defendants in a separate shareholder derivative lawsuit filed in the California Superior Court, Santa Clara County, and captioned Ira J. Gaines IRA, et al. v. Leland F. Wilson, et al., Case No.1-13-CV-249436. The lawsuit generally alleged breaches of the fiduciary duty of care in connection with the launch of Qsymia, breaches of the duty of loyalty and insider trading by some defendants for selling Company stock while purportedly being aware that the Qsymia launch would be less successful than predicted and corporate waste. On March�14, 2014, the Court sustained a demurrer and dismissed the complaint with leave to amend. An order memorializing the Court�s ruling was entered March�21, 2014. On April�21, 2014, derivative plaintiffs filed an Amended Shareholder Derivative Complaint alleging substantially similar breaches of duty. On May�21, 2014, the Company filed a demurrer to the Amended Complaint. With that demurrer pending, derivative plaintiffs asked the Court in July�2014 to dismiss the action with prejudice as to the named plaintiffs and otherwise without prejudice. The Court did so by order entered July�17, 2014, and the matter is now concluded.

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On March�27, 2014, Mary Jane and Thomas Jasin, who purport to be purchasers of VIVUS common stock, filed an Amended Complaint in Santa Clara County Superior Court alleging securities fraud against the Company and three of its former officers and directors.� In that complaint, captioned Jasin v. VIVUS,�Inc., Case No.�114-cv-261427, plaintiffs asserted claims under California�s securities and consumer protection securities statutes.��� Plaintiffs alleged generally that defendants misrepresented the prospects for the Company�s success, including with respect to the launch of Qsymia, while purportedly selling VIVUS stock for personal profit. Plaintiffs alleged losses of �at least� $2.8 million, and sought damages and other relief.� On June�5, 2014, the Company and the other defendants filed a demurrer to the Amended Complaint seeking its dismissal.� With the demurrer pending, on July�18, 2014, the same plaintiffs filed a complaint in the United States District Court for the Northern District of California, captioned Jasin v. VIVUS,�Inc., Case No.�5:14-cv-03263.� The Jasins� federal complaint alleges violations of Sections 10(b)�and 20(a)�of the Securities Exchange Act of 1934, based on facts substantially similar to those alleged in their state court action.� On September�15, 2014, pursuant to an agreement between the parties, plaintiffs moved to voluntarily dismiss, with prejudice, the state court action.� In the federal action, the parties have filed a briefing stipulation providing for briefing on the Company�s and the other defendants� anticipated motion to dismiss in November�2014-January�2015, with a court hearing on the motion thereafter.�� The Company maintains directors� and officers� liability insurance that it believes affords coverage for much of the anticipated cost of the remaining Jasin action, subject to payment of our self-insured retention and the policies� terms and conditions.

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The Company and its directors cannot predict the outcome of the various shareholder lawsuits, but they believe the various shareholder lawsuits are without merit and intend to continue vigorously defending them.

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Qsymia ANDA Litigation

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On May�7, 2014, the Company received a Paragraph IV certification notice from Actavis Laboratories FL indicating that it filed an abbreviated new drug application, or ANDA, with the U.S. Food and Drug Administration, or FDA, requesting approval to market a generic version of Qsymia and contending that all six patents listed for Qsymia in the FDA Orange Book (U.S. Patents 7,056,890, 7,553,818, 7,659,256, 7,674,776, 8,580,298, and 8,580,299 (collectively �patents-in-suit�)) are invalid, unenforceable and/or will not be infringed by the manufacture, use, sale or offer for sale of a generic form of Qsymia as described in their ANDA. On June�12, 2014, the Company filed a lawsuit in the U.S District Court for the District of New Jersey against Actavis Laboratories FL,�Inc., Actavis,�Inc., and Actavis PLC, collectively referred to as Actavis. The lawsuit (Case No.�14-3786 (FSH)(MAH)) was filed on the basis that Actavis� submission of their ANDA to obtain approval to manufacture, use, sell or offer for sale generic versions of Qsymia prior to the expiration of the patents-in-suit constitutes infringement of one or more claims of those patents.

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In accordance with the Hatch-Waxman Act, as a result of having filed a timely lawsuit against Actavis, FDA approval of Actavis� ANDA will be stayed until the earlier of (i)�November�7, 2016 which is 30 months from the Company�s May�7, 2014 receipt of Actavis� Paragraph IV certification notice or (ii)�a District Court decision finding that the identified patents are invalid, unenforceable or not infringed. The Company intends to vigorously enforce its intellectual property rights relating to Qsymia, but the Company cannot predict the outcome of this matter.

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Janssen Litigation

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On August�22, 2014, the Company was named as a defendant in a complaint filed by Janssen Pharmaceuticals,�Inc., or Janssen, in the United States District Court of Delaware. In the complaint, the plaintiff alleged that the Company was infringing U.S. Patent No.�6,071,537, or the�537 patent, by selling Qsymia. ��The plaintiff sought a permanent injunction enjoining the Company from further infringement and unspecified monetary damages.�On August�24, 2014, the Company entered into a Patent Assignment Agreement with Janssen that included assignment of the �537 patent to the Company. As a result, Janssen voluntarily dismissed the lawsuit on August�24, 2014.

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17. SEGMENT INFORMATION

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The Company operates in one reportable segment�the development and commercialization of novel therapeutic products. The Company has identified its Chief Executive Officer as the Chief Operating Decision Maker, or CODM, who manages the Company�s operations on a consolidated basis for purposes of allocating resources. When evaluating financial performance, the CODM reviews product information, while other financial information is reviewed on a consolidated basis. Therefore, results of operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Disclosures about revenues by product and by geographic area are presented below.

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Geographic Information

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Outside the United States, or ROW, the Company sells products through a commercialization licensee principally in the EU. The geographic classification of product sales was based on the location of the customer. The geographic classification of supply, license and milestone revenue was based on the domicile of the entity from which the revenue was earned.

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Table of Contents

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Net product revenue by geographic region was as follows (in thousands):

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