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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K





(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2009

Or



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

For the transition period from
                     to

Commission file number 001-33415





OREXIGEN THERAPEUTICS, INC.

(Exact name of
registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 65-1178822                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|3344 N. Torrey Pines Ct., Suite 200 La Jolla, California       |  | 92037                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

(858) 875-8600

(Registrants Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



|                              |  |                                     
|----------------------------- |  | ------------------------------------
|Title of Each Class           |  | Name of Exchange on Which Registered
|Common Stock, $.001 par value |  | The NASDAQ Global Market            

Securities registered pursuant to Section 12(g) of the Act: None





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes   ̈    No  x

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   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈

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

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

As of June 30, 2009, the aggregate market value of voting stock held by nonaffiliates of the registrant was approximately $88.6 million based on the closing stock price as reported by the NASDAQ
Global Market for such date. Shares of common stock held by each officer and director and by each person or group who owns 5% or more of the outstanding common stock have been excluded in that such persons or groups may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of
March 8, 2010, the Registrant had 47,215,479 shares of its $0.001 par value common stock outstanding.

DOCUMENTS
INCORPORATED BY REFERENCE

Portions of the registrants Definitive Proxy Statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrants 2010 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. Such proxy statement will be filed with
the Securities and Exchange Commission subsequent to the date hereof but not later than 120 days after registrants fiscal year ended December 31, 2009.









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OREXIGEN THERAPEUTICS, INC.

FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

TABLE OF CONTENTS



|              |  |                                                                                                              |  |     
|------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|              |  |                                                                                                              |  | Page
|PART I        |  |                                                                                                              |  |     
|Item 1.       |  | Business                                                                                                     |  | 1   
|Item 1A.      |  | Risk Factors                                                                                                 |  | 25  
|Item 1B.      |  | Unresolved Staff Comments                                                                                    |  | 55  
|Item 2.       |  | Properties                                                                                                   |  | 55  
|Item 3.       |  | Legal Proceedings                                                                                            |  | 55  
|Item 4.       |  | Reserved                                                                                                     |  | 55  
|              |  |                                                                                                             
|PART II       |  |                                                                                                              |  |     
|Item 5.       |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 56  
|Item 6.       |  | Selected Financial Data                                                                                      |  | 58  
|Item 7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 59  
|Item 7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 69  
|Item 8.       |  | Financial Statements and Supplementary Data                                                                  |  | 70  
|Item 9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 96  
|Item 9A.      |  | Controls and Procedures                                                                                      |  | 97  
|Item 9B.      |  | Other Information                                                                                            |  | 99  
|              |  |                                                                                                             
|PART III      |  |                                                                                                              |  |     
|Item 10.      |  | Directors, Executive Officers and Corporate Governance                                                       |  | 99  
|Item 11.      |  | Executive Compensation                                                                                       |  | 99  
|Item 12.      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 99  
|Item 13.      |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 99  
|Item 14.      |  | Principal Accounting Fees and Services                                                                       |  | 99  
|              |  |                                                                                                             
|PART IV       |  |                                                                                                              |  |     
|Item 15.      |  | Exhibits, Financial Statement Schedules                                                                      |  | 100 
|              | 
|Signatures    |  | 103                                                                                                         
|              | 
|EXHIBIT 10.23 |  |                                                                                                             
|EXHIBIT 23.1  |  |                                                                                                             
|EXHIBIT 31.1  |  |                                                                                                             
|EXHIBIT 31.2  |  |                                                                                                             
|EXHIBIT 32.1  |  |                                                                                                             



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PART 1

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and the information incorporated herein by reference contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and is subject to the Safe Harbor provisions created by that statute.Forward-looking statements are based on our managements beliefs and assumptions and on information currently available to our management. All
statements other than statements of historical facts are forward-looking statements for purposes of these provisions. Forward-looking statements can be identified by the use of forward-looking words such as believes,
expects, hopes, may, will, plans, intends, indicates, suggests, assuming, designed, estimates, could,
should, would, continue, seeks, aims, projects, predicts, pro forma, anticipates, potential or other similar expressions that are
intended to qualify forward-looking statements. These statements include but are not limited to statements regarding the progress and timing of clinical trials, the progress and timing of the filing of a new drug application with the United States
Food and Drug Administration, or FDA, the safety and efficacy of our product candidates, the goals of our development activities, the scope of our intellectual property protection, estimates of the potential markets for our product candidates,
estimates of the capacity of manufacturing and other facilities to support our products, our operating and growth strategies, our industry, our projected cash needs, liquidity and capital resources and our expected future revenues, operations and
expenditures. For example, we make forward-looking statements regarding the timing and potential to obtain regulatory approval for, and effectively treat obesity with, Contrave and Empatic, our future clinical development plans for Empatic and the
issuance of patents extending intellectual property protection for Contrave and Empatic. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements
to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Annual Report on
Form 10-K in greater detail under the heading Item 1ARisk Factors.

Given these risks
and uncertainties, we urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should read this Annual Report on Form 10-K completely and with the understanding that our
actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. We undertake no obligation to update publicly any forward-looking statements or to update the
reasons actual results could differ materially from those anticipated in these forward-looking statements, whether as a result of new information, future events, or for any other reason.

Item 1. Business.

Overview

Orexigen® Therapeutics, Inc. (Orexigen, we, our and us) is a biopharmaceutical company focused on the development of
pharmaceutical product candidates for the treatment of obesity. Our lead combination product candidates targeted for obesity are Contrave®, which has completed Phase III clinical trials, and Empatic, which has completed Phase II clinical trials. Contrave is a combination of two
well-established drugs, bupropion and naltrexone, in a sustained release, or SR, formulation. Bupropion is a widely prescribed antidepressant and smoking cessation medication; naltrexone is a treatment for alcohol and opioid addiction. Empatic is a
combination of bupropion SR and zonisamide SR. Zonisamide, in an immediate release formulation, was approved in the United States for the adjunctive treatment of partial seizures, a form of epilepsy. Each of the components of our product candidates
has already received regulatory approval and has been commercialized previously. We are developing these combinations in an effort to demonstrate adequate efficacy and safety for potential regulatory approval. We have not yet received regulatory
approval for either product candidate.

These product candidates regulate appetite and energy expenditure
through the central nervous system, or CNS. Results from our clinical trials to date for both Contrave and Empatic have supported our understanding



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regarding CNS regulation of appetite and energy expenditure. All four Phase III clinical trials evaluating Contrave met their co-primary endpoints as well as key secondary endpoints, showing a
significant reduction in body weight, improvements in cardiovascular and metabolic risk factors and reductions in selected food craving measures. In these four trials, which together form our Contrave Obesity Research, or COR, program, Contrave was
generally well tolerated by patients, with an overall safety profile that was consistent with its individual components. Results from our Phase II and Phase IIb clinical trials evaluating Empatic have also demonstrated what we believe to be robust
efficacy and acceptable safety and tolerability.

We maintain an aggressive intellectual property strategy,
which includes patent and trademark filings in multiple jurisdictions including the United States and other commercially significant markets. We hold patents in the United States and Europe that cover the composition of Contrave (bupropion and
naltrexone, both in an SR formulation), as well as the use of Contrave for the treatment of obesity. These U.S. patents expire in 2025 and 2024, respectively. We also hold an exclusive license to an issued U.S. patent covering the Empatic
composition and methods of use in obesity. This patent expires in 2023. In addition, we own or have exclusive rights to numerous patent applications currently pending in the United States and in jurisdictions outside of the United States with
respect to various compositions, methods of use and formulations relating to Contrave and/or Empatic.

Based
on feedback from the U.S. Food and Drug Administration, or FDA, we conducted clinical trials for Contrave and Empatic to provide substantial evidence of their safety and effectiveness in treating obesity. All four clinical trials in the COR program
were 56 week, randomized, double-blinded, placebo-controlled trials. We believe the results from the COR program of more than 4,500 patients exceed the FDAs categorical efficacy benchmark for clinically significant weight loss, supporting our
plan to file a New Drug Application, or NDA, by the end of April 2010. Our latest Phase IIb clinical trial for Empatic was a 24 week, double-blind, randomized, placebo-controlled trial that evaluated 729 patients. This Phase IIb trial met its
primary efficacy endpoint by demonstrating statistically significant greater weight loss for both Empatic doses administered in the trial compared to monotherapies and placebo. We plan to meet with the FDA for an End of Phase II meeting to discuss
these data with the goal of defining a Phase III plan for Empatic.

We currently retain worldwide marketing
rights for both Contrave and Empatic. If approved, we may consider marketing these product candidates to select specialists; however, we expect that Contrave and Empatic have the potential to be prescribed to a significant extent by primary care
physicians. In order to target this large group of potential prescribers, we may consider entering into a collaboration with a pharmaceutical company with the sales force and marketing resources to adequately address this physician audience. We may
also consider utilizing the resources of a contract sales organization or other third-party vendor to optimize our sales and marketing efforts.

The Obesity Epidemic

Obesity is a serious condition that is growing in prevalence and afflicts
populations worldwide. In 1980, approximately 15% of the adult population in the United States was obese, according to the National Health and Nutrition Examination Survey, or NHANES. By 2006, the obesity rate had more than doubled to approximately
33% of the U.S. adult population, according to the United States Centers for Disease Control and Prevention, or the CDC. In addition, according to NHANES, in 2006, 33% of U.S. adults were overweight.

The growing prevalence of obesity has increasingly been recognized as a significant public health problem. In 2004, the CDC
identified obesity as the number one health threat and one of the leading causes of preventable deaths in the United States. Approximately 300,000 deaths per year in the United States are associated with obesity, according to the Department of
Health and Human Services, or HHS. Obesity is also a significant health problem outside of the United States. According to the World Health Organization, there are as many as 1.6 billion people worldwide considered to be overweight, of whom at
least 400 million are estimated to be obese.



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Excessive body weight is also associated with various physical complications
that are often present and exacerbated by the obese condition. Diabetes, cancer, hypertension, high cholesterol, coronary artery disease, sleep apnea, liver and pulmonary disease, among others, are seen in greater prevalence among the obese than the
general population, according to HHS and The Obesity Society. Beyond these consequences, a number of co-morbidities involving the CNS may be complicated by obesity. These co-morbidities include anxiety, depression, substance abuse, chronic pain and
insomnia. According to our market research, physicians in the United States report that approximately 63% of their obese patients have been diagnosed with depression or display signs and symptoms of untreated depression. We believe there is a
growing recognition within the medical community that obesity significantly exacerbates these conditions and other co-morbidities.

Obesity and its co-morbidities are believed to cause significant added cost to the health care system. According to a 2009 study by researchers at RTI International, the Agency for Healthcare Research and
Quality and the CDC, annual medical expenditures attributable to obesity may be as high as $147 billion per year. A 2009 study examining the future impact of obesity on direct healthcare expenses projected these expenditures to further increase to
approximately $344 billion per year by 2018. We expect that more effective treatment of obesity may also be a cornerstone in managing its co-morbidities.

While there has been a broad recognition of obesity as a public health crisis, we believe that the obesity epidemic will continue to be a major cause of morbidity, mortality and excess healthcare costs in
the United States. Despite the obesity rate, increasing public interest in the obesity epidemic and significant medical repercussions and economic costs associated with obesity, there continues to be a significant unmet need for more effective
pharmacological interventions.

Limitations of Current Obesity Therapies

Treatments for obesity consist of behavioral modification, pharmaceutical therapies and surgical interventions including
device implantation. Modifications to diet and exercise are the preferred initial treatment in obesity according to the National Institutes of Health, or NIH. However, the rigors of behavioral modification often cause significant attrition over time
and thus often results in regaining weight. When pharmaceutical therapies are recommended, it is generally after behavioral modification alone has failed. Bariatric surgery, including gastric bypass and gastric banding procedures, is employed in
more extreme cases, typically for obese individuals with a Body Mass Index, or BMI, over 40. Surgery can be associated with significant side effects, potential complications including mortality, and substantial costs and recovery time. Certain
device implantations used as therapies, such as neuromodulation, are not yet approved by the FDA.

Several
pharmaceutical products have been approved for obesity marketing in the United States. Approved obesity drugs are generally prescribed for short-term use; only a select few have been approved for longer-term maintenance therapy. Several older drugs,
indicated for short-term administration, have an amphetamine-like profile, including phentermine, phendimetrazine, benzphetamine and diethylpropion, according to the FDA approved product information. However, according to that same product
information, these drugs have an increased risk for abuse potential and may be associated with adverse cardiovascular or CNS effects. Of these drugs, phentermine, a Class IV controlled substance indicated for short-term use, is the most widely
used.

Two drugs approved in the United States for long-term use in the treatment of
obesity are sibutramine and orlistat. Sibutramine is marketed in the United States by Abbott Laboratories under the brand name Meridia®. An extensive meta-analysis of various clinical trials published in The Annals of Internal Medicine in April 2005 indicates that sibutramine produces average weight
loss in patients of approximately 4.5 kg; however, patients typically experience a weight loss plateau after approximately 12 weeks. Sibutramine has been associated with increased risk of hypertension and tachycardia as evidenced in the FDA
approved product information. Sibutramine was recently studied in a large outcomes trial (SCOUT) to investigate long-term cardiovascular effects of sibutramine treatment in a population with high cardiovascular risk. Preliminary data for this trial
suggests that patients using sibutramine had a higher number of cardiovascular events (heart attack, stroke, resuscitated cardiac arrest, or death) than patients using a placebo.



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Orlistat is marketed in the United States by Roche
Laboratories, Inc. under the brand name Xenical®. The above meta-analysis reported that orlistat produces
average weight loss of approximately 2.75 kg. Orlistat is associated with gastrointestinal side effects, the nature of which can be socially constraining, as evidenced in the FDA approved product information. These include flatulence, fecal
incontinence and urgency. Orlistat was also launched in 2007 by GlaxoSmithKline in over-the-counter form at half the prescribed dose under the brand name allí®.

Less than 2% of the obese
population in the United States was treated with a pharmaceutical intervention in 2005, according to a September 2006 report by Frost & Sullivan. This represented approximately five million total U.S. prescriptions, which we believe
substantially understates the potential demand for effective treatments. By 2008, the number of total U.S. prescriptions for obesity products had increased to only approximately 7.8 million. In the mid-1990s, fenfluramine or dexfenfluramine were
used off-label in combination with phentermine, together known as fen-phen, and demonstrated significant weight loss. At its peak in 1996, before fenfluramine and dexfenfluramine were withdrawn for safety issues, fen-phen, along with
other prescribed pharmaceuticals, represented over 20 million total U.S. prescriptions, according to IMS Health. We believe this history, combined with the substantial economic cost associated with obesity, underscores the unmet need and
the potential for novel therapeutics to dramatically grow the market for obesity therapies.

The Orexigen Solution for Obesity

We believe and our research suggests that the CNS plays an important role in the regulation of appetite
and energy expenditure. The brain, specifically the hypothalamus, plays a critical role in governing many fundamental processes throughout the body. The hypothalamus receives chemical and hormonal stimuli from various sources, including glucose,
insulin, leptin and the peptides secreted by the gut as it processes food. These inputs govern a persons appetite, satiety and energy expenditure.

The brain contains numerous redundant circuits and compensatory mechanisms to preserve body weight, which should not be surprising given that maintenance of body weight is essential to survival. Such
mechanisms are invoked in the presence of weight loss whether intentional (in the case of diet) or not (in the case of starvation). Moreover, in order to appropriately motivate humans to seek food, reward circuitries in the brain stimulate the urge
to consume higher calorie food and in turn reward that behavior. The craving cycle is particularly intense with highly palatable foods, such as sweets.

Existing products cause some weight loss for most patients. We believe their modest effect stems from their failure to address these natural compensatory mechanisms in the body. As a result, most of these
products have been vulnerable to a weight loss plateau typically seen after several months of therapy. In addition, they generally do not address the behavioral elements that contribute to unhealthy eating behaviors and, ultimately, obesity. Our
product candidates sustain weight loss by preventing the bodys natural tendency to counteract efforts to lose weight. In addition, with Contrave in particular, we are attempting to target the underlying behavioral mechanisms of craving and
reward that drive excess consumption.

Our Product Candidates

Contrave

Contrave is a fixed dose combination of bupropion SR and naltrexone SR. We chose these constituents based on our understanding of the circuitries in the brain that regulate appetite and energy balance. In
particular, naltrexone was chosen as a complement to bupropion in order to block compensating mechanisms that attempt to prevent long-term, sustained weight loss. We hold patents in the United States that cover the composition of Contrave (bupropion
SR and naltrexone SR), as well as the use of Contrave for the treatment of obesity. We have also filed additional U.S. patents covering various aspects of Contrave. In addition, we own or have exclusive rights to numerous patent applications
currently pending in various jurisdictions outside of the United States with respect to compositions, methods of use and formulations relating to Contrave.

Naltrexone was approved in the United States in 1984 for the treatment of opioid addiction and in 1995 for the treatment of alcoholism. It is marketed under the brand names
Trexan®, Depade®, ReVia®, and in an



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injectable extended release formulation, Vivitrol®.
Naltrexone immediate release formulation became available in generic form in the United States in 1998. Naltrexone works by blocking opioid receptors in the brain and inhibits the reinforcing aspects of addictive substances, reducing their perceived
reward. Naltrexone was evaluated in the 1980s for weight loss and was shown to have negligible effects in clinical trials. However, it has been shown to negatively alter the palatability of many foods, particularly sweets, including, for example, in
a study published in the October 2002 issue of Neuroscience and Biobehavioral Reviews. Nausea is a well-known side effect associated with naltrexone immediate release that affects its tolerability. In our Contrave Phase II clinical trials, we
used the generic immediate release formulation of naltrexone. In our Phase III clinical trials, naltrexone was delivered in our proprietary SR formulation in order to improve its tolerability.

Bupropion was approved for marketing in the United States in 1985 for depression, marketed under the
brand name Wellbutrin®, and in 1997 for smoking cessation, marketed under the brand name Zyban®. The immediate release version became available in generic form in the United States in 1999. Bupropion SR became
available in generic form in the United States in 2004 and bupropion XL became available in generic form in the United States in December 2006. Bupropion is active at the neuronal uptake site for the neurotransmitters dopamine and norepinephrine.
Functionally, bupropion is thought to increase the level of dopamine activity at specific receptors in the brain, which appears to lead to a reduction in appetite and increase in energy expenditure. Bupropion is currently among the most commonly
prescribed antidepressants in the United States; in 2009, its prescriptions totaled approximately 20.1 million, representing approximately 12% of the total prescriptions written for depression, according to IMS Health. Bupropion has become
popular in the treatment of depression not only for its clinical efficacy, but also its attractive side effect profile relative to other antidepressants on the market. One of the reported side effects of bupropion in clinical trials for the
treatment of depression was modest weight loss. Subsequently, bupropion has been studied for weight loss; results have shown approximately 3% weight loss before reaching plateau, according to a study published in the October 2002 issue of Obesity
Research.

Scientific Rationale

The two drug constituents of Contrave were chosen in order to leverage the brains normal circuitry and biochemistry to reduce appetite, expend more calories, diminish food
craving and food-based reward, and block compensating mechanisms that attempt to prevent long-term, sustained weight loss. Bupropion has been shown in studies to activate the proopiomelanocortin, or POMC, neurons within an area in the hypothalamus
known as the arcuate nucleus. Increased firing of POMC neurons appears to lead to a reduction of appetite and an increase in energy expenditure. This is a major pathway by which naturally occurring peptides regulate body weight. Bupropion-induced
stimulation of POMC activates this weight loss pathway.

Stimulation of POMC also produces beta-endorphin, an
opioid occurring naturally in the body. Our early research identified a receptor on the POMC neuron that recognizes beta-endorphin. We discovered that by binding to this receptor, beta-endorphin serves as a brake on the POMC system. Left unchecked,
this braking system acts to reduce POMC firing rates, thus moderating potential weight loss and likely explaining the characteristic plateau in weight loss. Based on this discovery, we chose naltrexone as the second component in Contrave. Naltrexone
is a potent opioid receptor antagonist which competes with beta-endorphin, thus limiting its access at the receptor on the POMC neuron. When bupropion and naltrexone are co-administered, they both induce an increase in POMC firing that is maintained
for an extended duration. This is expected to translate into a greater weight loss that should be sustained over an extended time period.

As a second benefit, both bupropion and naltrexone are known to act on the reward pathways in the brain that have been implicated in addiction to a number of substances, including food. These reward
pathways are primarily regulated by dopamine and endogenous opioids, which are the targets of bupropion and naltrexone, respectively. Given that both drugs are approved for addiction-related disorders, we expect that together they may attenuate food
craving and reward. As a result, we expect that Contrave may have an additional therapeutic benefit in patients who report food craving or obsession, which drives them to eat even when not hungry.



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The COR Program

We have conducted Phase II and Phase IIb clinical trials for Contrave in 657 patients across 16 U.S. centers. Based on the
results of these trials, we concluded that Contrave showed sufficient efficacy as compared to each individual monotherapy and placebo and an acceptable safety and tolerability profile to warrant continued development in pivotal Phase III clinical
trials.

At our End of Phase II meeting with the FDA in October 2007, we confirmed our understanding of the
NDA filing requirements for Contrave and designed our Phase III program accordingly. This understanding was further confirmed in our pre-NDA filing communications with the FDA. Our Phase III program for Contrave was comprised of four distinct
clinical trials that evaluated more than 4,500 patients. Based on our Phase II and Phase IIb trial results and feedback from the FDA, these four Phase III clinical trials in the COR program were designed to assess three doses of naltrexone
SR (16mg, 32mg and 48mg) in combination with a 360mg dose of bupropion SR. All trials in the COR program were 56 week, randomized, double-blind, placebo-controlled trials.

The four Phase III clinical trials in the COR program are described as follows:



| |  |  | COR-I (formerly NB-301): A trial designed to assess the safety, tolerability and efficacy of Contrave32 (32mg naltrexone SR plus 360mg
bupropion SR) and Contrave16 (16mg naltrexone SR plus 360mg bupropion SR) versus placebo in 1,742 obese patients. This trial incorporated a typical diet and exercise regimen and was conducted across 34 U.S. centers.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | COR-II (formerly NB-303): A trial designed to assess the safety, tolerability and efficacy of Contrave32 versus placebo in 1,496 obese
patients. This trial incorporated a typical diet and exercise regimen and was conducted across 36 U.S. centers. After week 28, patients not achieving 5% weight loss were re-randomized in a blinded fashion to assess whether increasing the dose to
Contrave48 (48mg naltrexone SR plus 360mg bupropion SR) would result in additional weight loss.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | COR-Diabetes (formerly NB-304): A trial designed to assess the safety, tolerability and efficacy of Contrave32 versus placebo in 505 obese
patients with Type 2 diabetes. This trial incorporated a typical diet and exercise regimen and was conducted across 53 U.S. centers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | COR-BMOD (formerly NB-302): A trial designed to assess the safety, tolerability and efficacy of Contrave32 versus placebo in 793 obese
patients in combination with an intensive behavior modification protocol, including dietary counseling, behavioral therapy and exercise. This trial was conducted across nine U.S. centers. This trial included the most intensive behavior modification
regimen of the COR program, which resulted, as expected, in a high degree of weight loss among placebo patients.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The co-primary endpoints for all four clinical trials in the COR program were the proportion of patients achieving at least 5% weight loss and percent change in body weight compared to placebo. The
co-primary endpoints for COR-I, COR-Diabetes and COR-BMOD were all measured at 56 weeks. The co-primary endpoints for COR-II were measured at 28 weeks. These endpoints were analyzed using a modified intent-to-treat, or ITT, last observation carried
forward on treatment, or LOCF, of all randomized patients who had at least one post-baseline observation while on study drug. Contrave was administered twice a day with a four week titration period in COR-I, COR-Diabetes and COR-BMOD. Contrave was
administered twice a day with a five week titration period in COR-II. All four clinical trials met their co-primary endpoints.

The 56-week results for all four clinical trials in the COR program are as follows:



|                                             |  |                   |    |  |                |   |  |                   |    |  |                |  
|-------------------------------------------- |  | ----------------- | -- |  | -------------- | - |  | ----------------- | -- |  | -------------- | -
|                                             |  | COR-I             |   
|                                             |  | ITT               |    |  | Completers    |  
|                                             |  | 56 weeks          |    |  | 56 weeks       |  
|                                             |  | Contrave32(n=471) |    |  | Placebo(n=511) |   |  | Contrave32(n=296) |    |  | Placebo(n=290) |  
|Mean Weight Loss (%)                         |  | 6.1               | %* |  | 1.3            | % |  | 8.1               | %* |  | 1.8            | %
|Mean Weight Loss (lbs)                       |  | 13.3              | *  |  | 3.0            |   |  | 17.5              | *  |  | 4.1            |  
|Greater than or equal to 5% weight loss (%)  |  | 48.0              | %* |  | 16.4           | % |  | 61.8              | %* |  | 23.1           | %
|Greater than or equal to 10% weight loss (%) |  | 24.6              | %* |  | 7.4            | % |  | 34.5              | %* |  | 10.7           | %



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|* | Difference from placebo, p<0.001
|- | --------------------------------

| | Those patients completing 56 weeks of treatment.
|- | ------------------------------------------------

ITT, LOCF patients administered Contrave16 (n=471) experienced mean weight loss from baseline of 5.0% at 56 weeks; 39.5% of patients lost greater than or equal to 5% of their body
weight at 56 weeks and 20.2% of patients lost greater than or equal to 10% of their body weight at 56 weeks.



|                                             |  |                   |    |  |                |   |  |                   |    |  |                |  
|-------------------------------------------- |  | ----------------- | -- |  | -------------- | - |  | ----------------- | -- |  | -------------- | -
|                                             |  | COR-II            |   
|                                             |  | ITT              |    |  | Completers**   |  
|                                             |  | 56 weeks         |    |  | 56 weeks      |  
|                                             |  | Contrave32(n=702) |    |  | Placebo(n=456) |   |  | Contrave32(n=434) |    |  | Placebo(n=267) |  
|Mean Weight Loss (%)                         |  | 6.4               | %* |  | 1.2            | % |  | 8.2               | %* |  | 1.4            | %
|Mean Weight Loss (lbs)                       |  | 13.8              | *  |  | 2.9            |   |  | 17.5              | *  |  | 3.4            |  
|Greater than or equal to 5% weight loss (%)  |  | 56.3              | %* |  | 17.1           | % |  | 75.8              | %* |  | 21.7           | %
|Greater than or equal to 10% weight loss (%) |  | 32.9              | %* |  | 5.7            | % |  | 48.2              | %* |  | 7.9            | %



| | Co-primary endpoints for COR-II were the proportion of patients achieving at least 5% weight loss and percent change in body weight compared to
placebo at 28 weeks. ITT patients (n=1,281) at 28 weeks experienced mean weight loss from baseline of 6.5% versus 1.9% for placebo; 55.6% of patients lost greater than or equal to 5% of their body weight at 28 weeks versus 17.5% for placebo and
27.3% of patients lost greater than or equal to 10% of their body weight at 28 weeks versus 7.0% for placebo.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Those patients completing 56 weeks of treatment.
|-- | ------------------------------------------------

| | Pre-specified exploratory analysis; Contrave32 patients not achieving 5% weight loss double weighted because Contrave 48 patients were excluded from
efficacy analysis. There was no statistical difference between patients re-randomized to Contrave32 or Contrave48.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Difference from placebo, p<0.001
|- | --------------------------------



|                                             |  |                   |    |  |                |   |  |                   |    |  |                |  
|-------------------------------------------- |  | ----------------- | -- |  | -------------- | - |  | ----------------- | -- |  | -------------- | -
|                                             |  | COR-BMOD          |   
|                                             |  | ITT               |    |  | Completers    |  
|                                             |  | 56 weeks          |    |  | 56 weeks       |  
|                                             |  | Contrave32(n=482) |    |  | Placebo(n=193) |   |  | Contrave32(n=301) |    |  | Placebo(n=106) |  
|Mean Weight Loss (%)                         |  | 9.3               | %* |  | 5.1            | % |  | 11.5              | %* |  | 7.3            | %
|Mean Weight Loss (lbs)                       |  | 20.3              | *  |  | 11.0           |   |  | 25.0              | *  |  | 16.0           |  
|Greater than or equal to 5% weight loss (%)  |  | 66.4              | %* |  | 42.5           | % |  | 80.4              | %* |  | 60.4           | %
|Greater than or equal to 10% weight loss (%) |  | 41.5              | %* |  | 20.2           | % |  | 55.2              | %* |  | 30.2           | %



|* | Difference from placebo, p<0.001
|- | --------------------------------

| | Those patients completing 56 weeks of treatment.
|- | ------------------------------------------------



|                                             |  |                   |    |  |                |   |  |                   |    |  |                |  
|-------------------------------------------- |  | ----------------- | -- |  | -------------- | - |  | ----------------- | -- |  | -------------- | -
|                                             |  | COR-DIABETES      |   
|                                             |  | ITT               |    |  | Completers    |  
|                                             |  | 56 weeks          |    |  | 56 weeks       |  
|                                             |  | Contrave32(n=265) |    |  | Placebo(n=159) |   |  | Contrave32(n=175) |    |  | Placebo(n=100) |  
|Mean Weight Loss (%)                         |  | 5.0               | %* |  | 1.8            | % |  | 5.9               | %* |  | 2.2            | %
|Mean Weight Loss (lbs)                       |  | 11.6              | *  |  | 4.2            |   |  | 13.5              | *  |  | 5.1            |  
|Greater than or equal to 5% weight loss (%)  |  | 44.5              | %* |  | 18.9           | % |  | 53.1              | %* |  | 24.0           | %
|Greater than or equal to 10% weight loss (%) |  | 18.5              | %* |  | 5.7            | % |  | 26.3              | %* |  | 8.0            | %



|* | Difference from placebo, p<0.001
|- | --------------------------------

| | Those patients completing 56 weeks of treatment.
|- | ------------------------------------------------



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Secondary endpoints included multiple measures of cardiometabolic risk, food
cravings and eating control. Measures of hemoglobin A1c, or HbA1c, and other measures of glycemic control were also key secondary endpoints in the COR-Diabetes trial. Secondary endpoints that demonstrated clinically and statistically significant
improvements over placebo across the entire COR program included cardiometabolic risk factors such as waist circumference, HDL cholesterol and triglycerides. Patients enrolled in the COR program also experienced reductions in the frequency and
strength of food cravings and an increased ability to control their eating compared to placebo. In the COR-Diabetes trial, patients administered Contrave showed a reduction in HbA1c of 0.6% from baseline, compared to a 0.1% reduction in placebo.

The overall discontinuation rates across the COR program ranged from 42% to 51% for the Contrave treated
groups compared to 41% to 50% for the placebo groups. The discontinuation rates due to adverse events across the COR program ranged from 19% to 29% for the Contrave treated groups compared to 10% to 15% for the placebo groups. The most frequent
adverse events leading to discontinuation for patients taking Contrave were nausea, headache, vomiting and dizziness. Nausea was the leading adverse event resulting in discontinuation; however, for the majority of patients experiencing nausea, it
was mild to moderate, transient and manageable. The most frequently observed treatment-emergent adverse events were nausea, constipation and headache. Across the entire COR program, seven serious adverse events were attributed by investigators as
possibly related to Contrave treatment. These included cholecystitis (gallbladder inflammation) (2), seizure (2), palpitations (1), paresthesia (1) and vertigo (1). In addition, there was one death of a patient on Contrave that was not
attributed by investigators as related to Contrave treatment, but rather was attributed to a cardiovascular serious adverse event. At week 56, mean blood pressure was generally unchanged from baseline for Contrave patients compared to placebo
patients, who tended to experience a slight decrease (approximately 2 mm Hg) from baseline. Contrave treatment did not appear to disrupt the normal circadian pattern of blood pressure. There was a slight increase in pulse (approximately 1 beat per
minute) in Contrave patients compared to placebo patients, whose pulse was generally unchanged. There were no meaningful treatment effects on ECGs or laboratory measures including liver function tests. Treatment with Contrave was not associated with
increases in symptoms of depression or suicidal ideation.

We believe that our clinical trial experience with
Contrave has demonstrated and replicated the validity of our naltrexone hypothesis, specifically, that the addition of naltrexone to bupropion permits greater weight loss than bupropion alone and sustains weight loss beyond 24 weeks. Moreover,
in our Phase II clinical trials, Contrave has demonstrated significantly greater weight loss than naltrexone alone as well as placebo. The rate of response (greater than 5% and 10% reduction in body weight from baseline) has also favored Contrave
and provides additional support for our belief that Contrave will provide a clinically relevant alternative for clinicians and obese patients. The results from the COR program exceed the FDA categorical efficacy benchmark for clinically significant
weight loss, and we believe the design of the COR program is consistent with the recommendations included in the draft guidance issued by the FDA in February 2007, thereby supporting our plan to file an NDA with the FDA by the end of April 2010.

Mechanistic Study. As part of the exploration of the putative effect of Contrave on food craving,
we are conducting a study utilizing functional magnetic resonance imaging, or fMRI. This technique is a brain imaging technology that permits the regional localization and quantification of changes in neuronal activation. Based on emerging
literature demonstrating that the brains basic reward mechanisms are activated when exposed to food cues, we believe the potential exists to demonstrate such a regional activation with visual food cues, and in turn, the ability of Contrave to
reduce this activation relative to placebo. The constituents of Contrave have been shown individually to be effective in attenuating craving-associated behaviors (bupropion in smoking under the brand name Zyban, and naltrexone in alcoholism and
opioid drug addiction under the brand names Vivitrol, Trexan and ReVia). This study is being conducted in a randomized, double-blind fashion at an academic neuroimaging center. Patients receiving either Contrave or placebo obtain an fMRI at baseline
and at study termination at week four. It is anticipated that this study, to the extent that it substantiates our hypothesis, may be useful in positioning Contrave as a treatment that reduces the craving-based consumption of select high calorie
foods among obese individuals.



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Open-Label Study for Smoking Cessation. We have conducted an
exploratory, open-label 24-week clinical trial of Contrave32 for smoking cessation in overweight or obese patients. This trial was conducted in 30 patients across three U.S. centers. The primary endpoint for this trial was the rate of smoking
cessation as defined by patient-reported continuous abstinence during weeks 4-12. Secondary endpoints, which were measured at Week 12 and 24, included: rate of smoking cessation as defined by patient-reported continuous abstinence during weeks 4-24;
percent change from baseline in total body weight; and a number of other key measures. Additionally, measures of safety and tolerability were evaluated. The endpoints were analyzed using ITT, LOCF.

In this trial, Contrave32 significantly reduced cigarette use among obese patients trying to quit smoking and was not
associated with clinically meaningful weight gain. The smoking cessation rates as measured by patient-reported continuous abstinence were 48.1% and 40.7% at Week 12 and 24, respectively. Improvements were also seen in a number of key secondary
endpoints. The most frequent adverse events were nausea, insomnia and constipation. These tended to be transient and mild or moderate in severity. No serious adverse events occurred. Five subjects withdrew from this trial due to adverse events.

Open-Label Study for Obese Depressed Patients. We have conducted an exploratory, open-label
24-week clinical trial assessing the safety and efficacy of Contrave32 in overweight or obese patients with major depression. This trial was a single-center trial conducted in 25 patients. The primary endpoint for this trial was the change
from baseline in the Montgomery-Asberg Depression Rating Scale, or MADRS, total score at Week 12. Secondary endpoints included change from baseline in the MADRS total score at Week 24, as well a number of other key measures. Additionally,
measures of safety and tolerability were evaluated. The endpoints were analyzed using ITT, LOCF.

In this
trial, Contrave32 showed a clinically significant reduction in depressive symptoms in the study population, as evidenced by mean decreases from baseline in MADRS total scores of more than 50% at Weeks 12 and 24. Improvements were also seen in a
number of key secondary endpoints. The most frequent adverse events were nausea, constipation, headache and insomnia. These adverse events tended to be moderate in severity. No serious adverse events occurred during the trial that were attributed to
treatment with Contrave32. Ten subjects withdrew from the trial due to adverse events.

Empatic

Empatic is a fixed dose combination of bupropion SR and zonisamide SR. The combination of bupropion and zonisamide, in our
screening model, suggested a synergistic increase in POMC neuronal firing, indicating that this drug combination would enhance satiety and energy expenditure. We have also validated this synergy in rodent models of obesity. Based on the strength of
these results and the unique mechanism of action of Empatic, we selected this product combination to complement our Contrave clinical development program. We hold an exclusive license to an issued U.S. patent covering the Empatic composition
and methods of use in obesity, and we have filed additional patents covering various compositions, methods of use and formulations.

Zonisamide immediate release was approved in the United States in 2000 for the adjunctive treatment of partial seizures, a form of epilepsy. It is marketed under the brand name Zonegran® by Eisai Inc., which acquired the rights to the product from Elan Pharmaceuticals in 2004. Zonegran became available
in generic form in the United States in 2005, and at its peak produced approximately $177 million in annual sales, according to IMS Health. The precise mechanism of zonisamide is unknown; however, it is believed that zonisamide has a number of
pharmacologic mechanisms including sodium-channel modulation and enhancement of dopamine and serotonin neurotransmission. Zonisamide, given alone, has also shown weight loss in prior clinical trials conducted at Duke University, or Duke.

Scientific Rationale

Like Contrave, Empatic employs bupropion to stimulate POMC. The second component in Empatic, zonisamide, has been shown in our research to increase the firing rate of POMC neurons by up to eightfold in
the



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presence of bupropion. We also believe that zonisamide may have one or more additional effects. Within the hypothalamus, a set of neurons acts in a reciprocal way to POMC. These are referred to
as the Neuropeptide Y/Agouti-related peptide, or NPY/AgRP, neurons. Stimulation of NPY/AgRP neurons results in the release of AgRP, which binds to the melanocortin-4, or MC-4, receptor, resulting in an increase in appetite and energy conservation.
The pharmacology of zonisamide has been hypothesized to also inhibit the firing of NPY/AgRP neurons. Strategies that minimize AgRP competition for the MC-4 receptor thus may have the potential to lead to substantive weight loss.

Empatic Clinical Results

Phase IIb Clinical Trial (ZB-201). Based on the results of an initial Phase II proof-of-concept clinical trial for Empatic that enrolled 127 patients across five U.S. centers, we
concluded that Empatic showed sufficient efficacy and an acceptable safety and tolerability profile to warrant continued development. In June 2006, we proceeded to study Empatic in a larger randomized, double-blind, placebo-controlled Phase IIb
clinical trial exploring several different dosage combinations of bupropion and zonisamide in 623 patients with a BMI between 30 and 43 across 15 U.S. centers.

The primary endpoint for this trial was percent change in body weight measured 24 weeks after the start of treatment. Data were analyzed using ITT, LOCF. For the ITT population,
the mean weight loss at 24 weeks ranged from 4.5% of body weight for the lowest dosage tested to 8.6% for the highest dosage tested, versus 1.1% for placebo. Based on these results, as well as the fact that Empatic appeared safe and generally
well tolerated, we decided to take two dosages into further clinical testing.

Additional Phase IIb
Clinical Trial (ZB-202). We submitted to the FDA the results of the initial Phase IIb clinical trial (ZB-201) at 24 weeks, the primary endpoint. In subsequent correspondence, the FDA confirmed the design of our next Phase IIb clinical
trial. We announced the results of this trial in September 2009. This trial was designed to evaluate Empatic at two different dosages (based on the results of our initial Phase IIb clinical trial (ZB-201)) against the individual monotherapies and
placebo.

This 24-week, double-blind, placebo-controlled, randomized trial evaluated 729 patients across 20
U.S. centers and incorporated a typical diet and exercise regimen. Patients enrolled in this trial had a BMI between 30 and 45, or as low as 27 in the presence of controlled hypertension or dyslipidemia. The trial studied six arms: placebo, one dose
of bupropion monotherapy, two doses of zonisamide monotherapy and two doses of Empatic (360 mg zonisamide SR and 360 mg bupropion SR, or Empatic360/360; and 120 mg of zonisamide SR and 360 mg of bupropion SR, or Empatic120/360).

The primary objective of this trial was to show greater weight loss with Empatic compared to its individual monotherapies
and placebo, in accordance with the FDA guidance for combination products. Data were analyzed using ITT, LOCF. This Phase IIb clinical trial met its primary efficacy endpoint by demonstrating statistically significantly greater weight loss for both
Empatic doses compared to monotherapies and placebo. Results showed mean weight loss for Empatic360/360 was 7.5% of body weight versus 1.4% for placebo, 2.3% for bupropion 360 and 5.3% for zonisamide 360. Mean weight loss for Empatic120/360 was
6.1% of body weight versus 1.4% for placebo, 2.3% for bupropion 360 and 3.2% for zonisamide 120. For the completer population, the mean weight loss at 24 weeks was 9.9% for Empatic360/360 and 7.7% for Empatic120/360 versus 1.7% for placebo.

The overall discontinuation rates for patients treated with Empatic360/360 and Empatic120/360 were 40.2% and
41.9%, respectively, compared to 40.4% for the placebo group. The discontinuation rates due to adverse events for patients treated with Empatic360/360 and Empatic120/360 was 23.4% and 24.7%, respectively, compared to 13.5% for the placebo group. The
most frequent adverse events, as well as those resulting in discontinuation, were headache, nausea and insomnia. Adverse events and laboratory findings appeared to be consistent with the individual components of Empatic. There were no serious
adverse events attributed by investigators to study drug. There were no statistically or clinically meaningful differences between Empatic and placebo on measures of cognitive function, depression, suicidality or anxiety. We plan to meet with the
FDA for an End of Phase II meeting to discuss these data with the goal of defining a Phase III plan for Empatic.



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Sales and Marketing

We maintain worldwide commercial rights to our product candidates, and may determine to build a sales force to market and sell these products independently. We may also choose to
leverage the resources of a contract sales organization or other third-party vendor. However, we expect that Contrave and Empatic, if approved, will be prescribed predominantly by primary care physicians, including general practitioners, family
practitioners and internists. In order to target this large group of potential prescribers, we may consider entering into a collaboration, either in the United States, outside the United States or both, with a pharmaceutical company that has the
sales force and marketing resources to adequately address this physician audience. We may also consider a collaboration with a pharmaceutical company that has greater development resources than we do to expand or accelerate one or both of our
clinical development programs. However, we cannot assure you that we will complete any collaboration or other strategic transaction, or that, if completed, any collaboration or other strategic transaction will be successful or on attractive terms.
For the foreseeable future, we expect to maintain commercial rights to our product candidates and to continue to develop them independently while we actively explore partnership opportunities.

While both Contrave and Empatic are designed to produce weight loss, we expect to position them in a complementary manner.
Our market research has indicated that physicians are dissatisfied with the obesity treatments that are currently available, and that growth in the commercial market for obesity therapeutics will be driven by the introduction of new therapeutics.
Additional market research with key prescribers has shown that Contraves safety and efficacy profile positions it well for the majority of the obesity market and we believe it has the potential to be used as a first-line therapy in the
treatment of obesity. We believe that Empatic, given its profile, may be more effective than Contrave in reducing weight. The overall tolerability and safety profile of Empatic has yet to be determined. However, it is likely to have labeling which
would recommend appropriate birth control for women of childbearing age and to be contraindicated in women who are pregnant or breast feeding. We expect that the experience gained from future clinical trials will enable us to further refine the
positioning and brand characteristics of both products.

To date, we have focused our clinical development
efforts exclusively in the United States. This appears to be the largest commercial market for obesity therapeutics and the market which we believe we best understand. However, we have also sought to establish intellectual property covering our
obesity product candidates, primarily in the form of issued patents and patent application filings, in various foreign markets. We recognize that there is a significant emerging obesity market in Europe, Asia and Latin America. We believe that
conducting the necessary supplemental trials, engaging in local regulatory dialogue and conducting local market research is likely best done through strategic collaborators in territories outside the United States or possibly in partnership with a
global pharmaceutical company. We will continue to consider international opportunities, and appropriately prioritize these opportunities in the context of the opportunity in the United States.

Intellectual Property

We rely on a combination of in-licensed patent rights, our own patent rights, trademarks, trade secrets and know-how to protect Contrave and Empatic. We own or have exclusive rights to several patent
application families currently pending in the United States with respect to various compositions, methods of use and formulations relating to Contrave and/or Empatic. We also have a number of patent applications currently pending in various foreign
countries that correspond to some of the pending U.S. applications. We also seek to protect our trade secrets and our know-how relating to our products and our business. These intellectual property rights are in addition to any regulatory
exclusivity that we may be able to obtain.

Contrave is currently protected, in part, by U.S. patent
number 5,512,593 issued in April 1996 and U.S. patent number 5,817,665 issued in October 1998, which we have licensed on an exclusive basis from Dr. Lee Dante pursuant to a license agreement described in further detail below and which we
collectively refer to as the Dante patents. Provided maintenance fees are paid, U.S. patent number 5,512,593 is expected to expire in April 2013 and U.S. patent number 5,817,665 is expected to expire in March 2013. The Dante patents do not



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protect Contrave outside of the United States. The Dante patents cover compositions of certain specified opioid antagonists (including naltrexone) combined with certain specified antidepressants
(including bupropion), and thus provide coverage for Contrave.

In addition to the Dante patents, Contrave is
also currently protected by U.S. patent number 7,375,111, which we refer to as the Weber/Cowley composition patent, and U.S. patent number 7,462,626, which we refer to as the Weber/Cowley methods patent. Provided maintenance fees are paid, the
Weber/Cowley composition patent is expected to expire in March 2025, and the Weber/Cowley methods patent is expected to expire in July 2024. Collectively, we refer to the Weber/Cowley composition patent and the Weber/Cowley methods patent as the
Weber/Cowley patents. Each of these stems from a provisional patent application that we own but that is the subject of agreements with OHSU and Duke requiring us to pay them specified royalties on sales of products covered by the patent
applications. These agreements are described in further detail below. The Weber/Cowley patents cover the current composition of Contrave and methods of administering it to treat obesity. We have also filed a number of international counterparts to
these patent applications in foreign countries. The European Patent Office, or EPO, has granted the European version of the Weber/Cowley patent, which published as EP1617832 B1. This EP patent has issued in numerous countries throughout the European
Union and provides coverage for Contrave until at least 2024. Additional patent applications related to Contrave remain pending in the U.S. and throughout the world.

We have also filed patent applications in the United States and certain foreign countries under the Patent Cooperation Treaty, or PCT, which is an international treaty providing a
unified procedure under which the initial filing of a single patent application can provide an effective filing date in each participating country in which appropriate steps are subsequently taken. Such steps have been taken in Europe and Japan with
respect to our PCT filing directed to formulations and use of SR oral naltrexone, an ingredient in Contrave. Thus, we now have patent applications pending in those countries (along with our previous filings in the United States and certain non-PCT
countries). These filings seek to protect the formulations and use of SR oral naltrexone, but we cannot provide assurance that the claims in these patent applications will issue in their current form or at all.

We have received U.S. trademark registration number 3393576 for the mark CONTRAVE for use in connection with pharmaceutical
preparations for use in the treatment of obesity and inducing weight loss. An application for the CONTRAVE mark remains pending in the United States in connection with certain printed materials and medical information services. We have also obtained
foreign trademark registrations for the mark CONTRAVE in Europe and Japan and an application for this mark is pending in Canada.

Empatic is currently protected in the United States by U.S. Patent Number 7,109,198, which is based on the work of Dr. Kishore Gadde, and which we refer to as the Gadde patent and have licensed
on an exclusive basis from Duke pursuant to a patent license described in further detail below. The Gadde patent, which is expected to expire in 2023, provides basic composition of matter coverage for the Empatic zonisamide/bupropion combination and
also covers methods of using Empatic to treat obesity and to reduce the risk of hypertension, diabetes or dyslipidemia. A continuation patent application, related to the Gadde patent and also exclusively licensed to us, issued as U.S. Patent
Number 7,425,571. This patent covers methods of using zonisamide (including in combination with bupropion) to cause weight loss, and provides additional coverage for methods of using Empatic to treat obesity until 2023. We have also exclusively
licensed from Duke an international patent application that was filed as a counterpart to the Gadde patent in foreign countries, and this international application has now matured into national applications pending in several foreign countries. Our
filings directed to formulations and use of SR zonisamide, an ingredient in Empatic, include pending patent application in the United States, certain non-PCT countries, Europe and Japan. We have received a Notice of Allowance from the U.S. Patent
and Trademark Office for the intent-to-use trademark application for the mark EMPATIC for use in connection with pharmaceutical preparations for the treatment of obesity and inducing weight loss, various printed materials, and medical information
services. Foreign trademark registrations have issued in Europe and Japan for the mark EMPATIC, and an application remains pending in Canada.



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We have received U.S. trademark registration number 3396021 for our
corporate logo for use in connection with pharmaceutical preparations and substances for the treatment of obesity, inducement of weight loss and prevention of weight gain. We have obtained trademark registrations in Canada, Europe and Japan for
the same mark. In addition, we have received U.S. trademark registration number 3396807 for our corporate name OREXIGEN for use in connection with pharmaceutical preparations for the treatment of disorders of the CNS, printed instructional,
educational and teaching materials in the field of treatment and management of disorders of the CNS, and providing medical information in the field of disorders of the CNS. We have obtained trademark registrations in Canada, Europe and
Japan for the same mark. We have obtained foreign trademark registrations for the corporate name Orexigen Therapeutics, Inc. in Europe and Japan.

Licensing Agreements

Oregon Health & Science University License Agreement

In June 2003, we entered into a license agreement with OHSU whereby we acquired an assignment of any rights OHSU may have
to a U.S. provisional patent application that we filed, which formed the basis for the Weber/Cowley patents. These patents, as discussed above, cover the current composition of Contrave, including our SR formulation of naltrexone and methods
for using that composition to effect weight loss. OHSU and the inventors have assigned all rights in the underlying invention to us. This license agreement was amended in November 2003, December 2006 and December 2007.

As consideration for this license agreement, we paid an upfront fee of $65,000 and issued 76,315 shares of our common
stock to OHSU. We are also obligated to pay a royalty to OHSU on net sales for Contrave and any other products covered by the assigned patent rights.

The term of the agreement generally extends until the last of the subject patent rights expire, which is expected to occur in 2025. We may unilaterally terminate the agreement and/or any licenses in any
country upon specified written notice to OHSU. OHSU may terminate the agreement upon delivery of written notice if we commit a material breach of our obligations and fail to remedy the breach within a specified period or may immediately terminate
the agreement upon the delivery of written notice concerning the occurrence of specified bankruptcy proceedings. In addition, upon written notice and our failure to remedy any of the following breaches within a specified period, OHSU may terminate
or modify the agreement: if we cannot demonstrate to OHSUs satisfaction that we have taken, or can be expected to take within a reasonable time, effective steps to achieve practical application of the licensed products and/or licensed
processes; or if we have willfully made a false statement of, or willfully omitted, a material fact in any report required by the agreement; or if we commit a substantial breach of a covenant or agreement contained in the license. Under the terms of
the agreement, we are responsible for all prosecution and maintenance (including all costs associated with the enforcement) of any patent applications that stem from the assigned rights, and for any patents that have or may issue with respect
thereto, including the Weber/Cowley patents.

In addition to assigning us any rights it had in our provisional
patent application directed to the Contrave combination of naltrexone and bupropion, OHSU has licensed to us, on an exclusive basis, the issued patent underlying the in vitromodel that we have used for screening combination therapies
for impact on neuronal activity. Our rights to this model extend through the expiration of the patent, which is expected to occur in 2024. We have the right to grant sublicenses to third parties for this patented technology, subject to our
obligation to pay OHSU a royalty on revenue received by us from the sale of any products covered under such sublicensing arrangements. Under the terms of the agreement, OHSU is solely responsible for the prosecution, maintenance and enforcement
(including all costs associated therewith) of this patent; however, we are required to pay 100% of the prosecution and maintenance expenses incurred by OHSU in connection with these patent rights. As of December 31, 2009, we have paid a total
of approximately $113,000 in connection with the maintenance and prosecution of this patent. In addition, OHSU has the right to not file any patent application or to abandon any patent or patent application included in the patent rights, in which
case it must provide us 60 days prior written notice and, in response, we may elect at our sole cost to pursue these actions.



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Lee Dante License Agreement

In June 2004, we entered into a patent license agreement with Lee G. Dante, M.D., whereby we acquired an exclusive
worldwide license to two U.S. patents covering compositions of specified opioid antagonists (including naltrexone) combined with specified antidepressants (including bupropion) and, as such, provide basic composition of matter coverage for the
Contrave naltrexone/bupropion combination.

As consideration for this license, we paid upfront fees totaling
$100,000 and granted Dr. Dante an option to purchase 73,448 shares of our common stock at an exercise price of $0.10 per share which expires in April 2014. As of December 31, 2009, Dr. Dante has exercised all 73,448 shares of
common stock underlying this option grant. We are also obligated to pay a royalty on net sales of products covered by the license. We will be required to make a one-time milestone payment to Dr. Dante in the amount of $1.0 million upon the
occurrence of a specified regulatory event. We have the right to grant sublicenses of the patented technology to third parties, subject to our obligation to pay Dr. Dante a royalty on any revenue we receive from such arrangements.

The term of the agreement generally extends until the last licensed patent right expires, which is expected to occur in
2013. Either party may terminate the agreement upon delivery of written notice if the other party commits fraud, willful misconduct, or illegal conduct with respect to the subject matter of the agreement. In addition, either party may terminate the
agreement upon delivery of written notice if the other party commits a material breach of its obligations and fails to remedy the breach within a specified period. We may also voluntarily terminate the agreement upon delivery of written notice
within a specified time period. In addition, Dr. Dante may terminate the agreement upon specified bankruptcy, liquidation or receivership proceedings.

Under this agreement, we have the responsibility to defend and/or settle any third-party patent infringement claims, assume all costs associated therewith and, to the extent these
claims result from our activities or those of our sublicensees and not from Dr. Dantes activities, indemnify him for any damages resulting therefrom. In the case of third-party infringement of the licensed patents, we have the right, but
not the obligation, to either settle or prosecute at our own expense any such infringement. Dr. Dante has the right, but not the obligation, to join any suit we commence at our expense and, if we do not undertake action within three months of
being made aware of infringing activity, the right to commence his own suit at his expense.

Duke University License
Agreement

In March 2004, we entered into a patent license agreement with Duke whereby we acquired an
exclusive worldwide license to the Gadde patent. The Gadde patent is a U.S. patent covering the composition of Empatic and methods for using Empatic to treat obesity and reduce the risk of hypertension, diabetes or dyslipidemia. Under the
agreement, we also acquired a license to an issued patent covering methods of using zonisamide (including in combination with bupropion) to cause weight loss and an international patent application, and any patents or patent applications that
ultimately issue therefrom. The license agreement was amended in December 2004 and July 2006.

As
consideration for this license, we issued 442,624 shares of our common stock to Duke and may be required to make future milestone payments totaling $1.7 million upon the achievement of various milestones related to regulatory or commercial
events. We are also obligated to pay a royalty on net sales of products covered by the license. We have the right to grant sublicenses to third parties, subject to our obligation to pay Duke a royalty on any revenue we receive from such sublicensing
arrangements. In addition, under this agreement we are obligated to pay Duke a specified royalty on sales of products covered by the Weber/Cowley patent applications.

The term of the agreement generally extends until the last licensed patent right expires, which is expected to occur in 2023. Either party may terminate the agreement upon delivery
of written notice if the other party commits fraud, willful misconduct, or illegal conduct of the other party with respect to the subject matter of the agreement. In addition, either party may terminate the agreement upon delivery of written notice
if the other



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party commits a material breach of its obligations and fails to remedy the breach within a specified period. We may also voluntarily terminate the agreement upon delivery of written notice within
a specified time period. Duke may terminate the agreement upon delivery of written notice if we fail to meet certain specified milestones of the agreement and fail to remedy such a breach within the specified period. In addition, Duke may terminate
the agreement upon specified bankruptcy, liquidation or receivership proceedings.

Under this agreement, we
have the responsibility to defend and/or settle any third-party patent infringement claims, assume all costs associated therewith and, to the extent these claims result from our activities or those of our sublicensees and not from Dukes
activities, indemnify Duke for any damages resulting therefrom. In the case of third-party infringement of the licensed patents, we have the right, but not the obligation, to either settle or prosecute at our own expense any such infringement. Duke
has the right, but not the obligation, to join in any suit we commence at our expense and, if we do not undertake action within three months of being made aware of infringing activity, the right to commence its own suit at Dukes expense.

SmithKline Beecham Corporation and Glaxo Group Limited License Agreement

In June 2009, we entered into a license agreement with SmithKline Beecham Corporation and Glaxo
Group Limited, or collectively GSK, pursuant to which we obtained a non-exclusive worldwide license from GSK to certain patents covering various formulations of bupropion hydrochloride for use in the development and commercialization of Contrave for
the treatment of obesity and disorders of weight management.

As consideration for this license, we paid GSK
an upfront payment and may be required to make a future milestone payment upon the earliest achievement of certain milestones primarily related to regulatory or commercial events. We have the right to sublicense, without the right to further
sublicense, any or all of our rights under the license agreement in connection with specified regulatory or commercial events.

The term of the agreement generally extends on a country-by-country basis until the date of the expiration, lapse or invalidation of the last remaining patent or patent application within the licensed
patents in such country. We may terminate the agreement with respect to any particular country or in its entirety at any time upon specified written notice to GSK. However, if we have not yet paid the potential future milestone payment, we may only
exercise this termination right if we determine in good faith that the patent, medical/scientific, technical, regulatory or commercial profile of Contrave or a similar product candidate covered under the license agreement does not justify continued
development and/or commercialization. Either party may terminate the agreement upon delivery of written notice if the other party is in material default or breach of its obligations and fails to remedy the breach within a specified period. In
addition, either party may terminate the agreement upon specified bankruptcy, liquidation or receivership proceedings, and the agreement may be terminated by the mutual written agreement of both parties.

Under the license agreement, GSK has the responsibility for and control over, at its sole cost and expense, the filing,
prosecution and maintenance of the licensed patents. GSK also has the sole right to, but is not obligated to, bring, at its own expense, an infringement action against any third party, and has full control over its conduct, including settlement
thereof.

Manufacturing

To date, our products used in clinical trials have been produced by outside contractors under our supervision.

Patheon Pharmaceuticals, Inc., or Patheon, is currently, and we expect going forward will continue to be, the manufacturer of our long-term clinical and commercial quantities of
bupropion SR, naltrexone SR and finished Contrave tablets. Patheon currently provides our clinical quantities on a proposal-by-proposal basis under a master agreement for pharmaceutical development services that we entered into in February 2007.
Either party may terminate the agreement upon notice if the other party commits a material breach of its obligations and fails to remedy the breach within 30 days. In addition, we may terminate the agreement immediately for any business reason.



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Patheon has produced and will produce Contrave using naltrexone and
bupropion API supplied from various sources, including but not limited to Cilag GMBH International, or Cilag, and Chemi, S.p.A, or Chemi. We are currently in discussions with several contractors that have the capability to package our future
clinical and commercial supplies of Contrave and Empatic.

In January 2009, we entered
into a supply agreement with Cilag pursuant to which Cilag will manufacture commercial supplies of naltrexone for use in our drug products. Pursuant to the terms of the supply agreement, we shall pay certain specified prices for such supplies based
on the volumes purchased, which prices may be adjusted, subject to specified limitations. In addition, from the period beginning on the first December 31stfollowing marketing approval by the FDA for our drug product containing naltrexone and continuing through the term of
the supply agreement, we are required to purchase from Cilag a specified percentage of our requirements for naltrexone intended for commercial sale in our drug products containing naltrexone, provided that certain terms and conditions are met.

The term of the supply agreement commenced in January 2009 and shall continue in effect
until the date that is four years from the period beginning on the first December 31stfollowing marketing approval by the FDA for our drug product containing naltrexone. Either party may terminate the agreement effective immediately upon written notice to the other in the event that
(a) the other party dissolves, is declared insolvent or bankrupt by a court of competent jurisdiction, (b) a voluntary or involuntary petition of bankruptcy is filed in any court of competent jurisdiction, or (c) the agreement is
assigned for the benefit of creditors. In addition, we may terminate the agreement effective immediately upon written notice in the event that (a) any regulatory agency takes any action, or raises any objection that prevents us from importing,
exporting, purchasing or selling naltrexone, (b) our drug product containing naltrexone fails during clinical trials and we withdraw our NDA, (c) we determine, in our sole discretion, to no longer pursue the development and/or
commercialization of a drug product containing naltrexone, or (d) a legal proceeding shall be instituted against Cilag, which is reasonably likely to materially adversely affect Cilags ability to properly perform under the agreement or
subject us to any material risk of liability or loss. Moreover, either party may terminate the agreement upon specified written notice to the other party of a failure by that party to perform or observe any material covenant, condition or agreement
to be performed or observed by it under the supply agreement, unless such breach has been cured within the specified notice period.

During any period during the term of the supply agreement in which Cilag for any reason, including, without limitation, a force majeure, fails to deliver the requisite quantities of naltrexone included in
any firm commitment purchase order placed by us, within a specified period after the date of delivery confirmed in writing by Cilag or if Cilag otherwise anticipates or notifies us that it will be unable to make delivery of all or a portion of the
ordered naltrexone within a specified period after the confirmed date of delivery, then we may refuse such late shipment of naltrexone from Cilag and purchase such quantities under such firm commitment purchase order through a substitute third party
supplier. In the event Cilag regains its ability to resume supplying under the supply agreement, our right to purchase naltrexone from the substitute supplier shall terminate.

In December 2009, we entered into a supply agreement with Chemi pursuant to which Chemi will manufacture commercial supplies of bupropion for use in our drug products. Pursuant to
the terms of the supply agreement, we shall pay certain specified prices for such supplies based on the volumes purchased, which prices may be adjusted, subject to specified limitations. The supply agreement does not require us to purchase any
minimum percentage of our total requirements for bupropion from Chemi.

The initial term of the supply
agreement commenced retroactively in November 2009 and shall continue in effect until the date that is four years from the date we first received marketing approval for from the FDA or other governmental agency, or similar regulatory agency or
commission in any foreign state or territory for our drug product containing bupropion. This initial term shall be automatically renewed for additional two year terms unless we provide specified written notice of our intent to terminate to Chemi
prior to the expiration of the initial term or any extension term, as applicable. Either party may terminate the supply agreement effective immediately upon written notice to the other in the event that (a) the other party dissolves, is
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or bankrupt by a court of competent jurisdiction, (b) a voluntary or involuntary petition of bankruptcy is filed in any court of competent jurisdiction, (c) the supply agreement is
assigned for the benefit of creditors, (d) any regulatory agency takes any action, or raises any objection that prevents us from importing, exporting, purchasing or selling bupropion or our drug product containing bupropion, (e) our drug
product containing bupropion fails during clinical trials and we withdraw our NDA, (f) we determine, in our sole discretion, to no longer pursue the development and/or commercialization of our drug product containing bupropion, or (g) a
legal proceeding shall be instituted against Chemi, which is reasonably likely to materially adversely affect Chemis ability to properly perform under the supply agreement or subject us to any material risk of liability or loss. Moreover,
either party may terminate the supply agreement upon specified written notice to the other party of a failure by that party to perform or observe any material covenant, condition or agreement to be performed or observed by it under the supply
agreement, unless such breach has been cured within the specified notice period.

Other than our supply
agreements with Cilag and Chemi, we have no long-term commitments or supply agreements with any of our API suppliers. Although we may seek to establish additional long-term supply commitments in the future, we may be required to agree to minimum
volume requirements, exclusivity arrangements or other restrictions. We may not be able to enter into additional long-term agreements on commercially reasonable terms, or at all.

In the future, if we are able to achieve approval in the United States or other countries to market and sell our products,
we intend to continue to rely on outside contractors for the production of necessary supplies. We do not currently intend to establish our own manufacturing capabilities.

Competition

Treatments for obesity consist of behavioral
modification (diet and exercise), pharmaceutical therapies, surgery and device implantation. Modifications to diet and exercise are the preferred initial treatment in obesity. However, the demands of behavioral modification tend to cause significant
attrition over time, often resulting in regaining weight. When pharmaceutical therapies are recommended it is generally after behavioral modification alone has failed.

Several pharmaceutical products are approved for marketing in the United States with an obesity indication. These pharmaceutical products generally are prescribed for short-term use;
fewer agents have been approved for longer-term maintenance therapy. Several older agents, indicated for short-term administration, are amphetamine-like compounds including phentermine, phendimetrazine, benzphetamine and diethylpropion. Of these,
phentermine is the most widely used, accounting for approximately 6.2 million prescriptions in the United States in 2009, or approximately $53 million in sales, according to IMS Health.

Sibutramine is marketed in the United States by Abbott Laboratories under the brand name Meridia. Sibutramine appears to
suppress appetite by inhibiting the reuptake of serotonin, norepinephrine and dopamine in the brain. In 2009, Meridia accounted for approximately 287,000 prescriptions in the United States, or approximately $36 million in sales, according to IMS
Health.

Orlistat is marketed in the United States by Roche Laboratories, Inc. under the brand name Xenical.
Orlistat works by inhibiting lipase, an enzyme that aids in the absorption of fat in the gastrointestinal tract. In 2009, Xenical accounted for approximately 151,000 prescriptions in the United States, or approximately $43 million in sales,
according to IMS Health. Orlistat was launched in 2007 over-the-counter in the United States at half the prescribed dose by GlaxoSmithKline under the brand name allí. According to GlaxoSmithKline, in 2008, allí accounted for
approximately $105 million in sales.

Despite the large market opportunity for anti-obesity agents, there are
relatively few competitive products in late stage clinical development. Companies pursuing pharmaceutical treatments for obesity include Arena Pharmaceuticals, Inc., Amylin Pharmaceuticals, Inc., Alizyme plc, Athersys, Inc., Genaera Corporation,
Neurosearch A/S, Novo Nordisk A/S, Sanofi-Aventis, and Vivus, Inc., among others. Arena and Vivus have both filed an NDA seeking approval of their respective product candidates in December 2009 and received



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Prescription Drug User Fee Act dates in October 2010. With the exception of Amylin and Vivus, most of these other developmental efforts are directed toward a monotherapeutic approach which we
would expect to be subject to the same early plateau of weight loss typically seen. In addition, several agents in a new therapeutic class called cannabanoid antagonists have recently failed or been withdrawn from the market.

There are also surgical approaches to treat severe obesity that are becoming increasingly accepted and could become
competitors against our product candidates. Bariatric surgery, including gastric bypass and gastric banding procedures, is employed in more extreme cases, typically for patients with a BMI exceeding 40 or those with a BMI greater than 35 who are
experiencing obesity-related complications such as diabetes. Surgery is associated with significant side effects, potential complications and substantial costs and recovery time. Certain device implantations used as therapies, such as
neuromodulation, are not yet approved by the FDA. In addition, other potential approaches which utilize various implantable devices or surgical tools are in development. Some of these approaches are in late stage development and may be approved for
marketing. Companies such as Allergan, Inc., Boston Scientific, Covidien Ltd., EnteroMedics, Inc., GI Dynamics, Inc., Johnson & Johnson, Leptos Biomedical, Inc., Medtronic, Inc., and Satiety, Inc. are all active in the surgical and device
space and may have substantially greater resources than we have.

In addition, we may face competition from
generic products. Each of bupropion, naltrexone and zonisamide is available in generic form. However, we have undertaken strategies which we believe may impede potential competition from generic products. Supplementing our existing composition
patents and patent applications, we have developed formulations and dosages of Contrave and Empatic that we believe may improve patient outcomes and provide further barriers to entry, including intellectual property protection, for potential
competitors. We believe there cannot be an AB-equivalence designation for the generic versions of the constituents comprising Contrave and Empatic because of differences in pharmacokinetics between the existing generically available formulations and
doses and the formulations and doses we plan to use. For naltrexone and zonisamide, we have selected dosages and are using formulations that are not currently available in generic form and create a different pharmacokinetic profile from the generic
forms of these drugs. For bupropion, we are utilizing dosages that are not currently generically available. We believe that our issued, composition and methods-of-use patents will prevent generic firms from manufacturing comparable formulations and
from marketing the constituent compounds together. In addition, we believe that practitioners who are seeking to prescribe safe and effective therapy are not likely to prescribe off-label generics in place of Contrave or Empatic because the dosages,
pharmacokinetic profile and titration regimens for Contrave and Empatic would not be available using existing generic preparations. Moreover, while general practitioners are the primary prescribers of anti-obesity therapies and are generally
familiar with bupropion, they are not the primary prescribers of the other constituents of our product candidates, naltrexone and zonisamide. Accordingly, we believe that general practitioners will be unlikely to prescribe generic compounds with
which they are unfamiliar. As a result, we believe that we have established a position with both Contrave and Empatic that will limit generic competition.

Third-Party Reimbursement

Despite the recognition of
obesity as a chronic disease and its enormous cost to our health care system, universal coverage of and reimbursement for drugs to treat obesity by both public and private payors is lacking. However, third-party reimbursement for anti-obesity drugs
appears to be evolving, including among state Medicaid programs and private commercial plans and pharmacy benefit managers.

Medicaid

The Medicaid program provides health insurance coverage for individuals who
are poor and meet certain other eligibility criteria. The program is a federal and state partnership. Within broad federal parameters, each state designs and administers its own program. The federal government shares in the cost of the program by
reimbursing states a percentage of their costs.



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All states currently provide outpatient prescription drug coverage under
their Medicaid programs. States that elect to offer outpatient prescription drug coverage must, with certain exceptions, provide coverage for all FDA-approved drugs of every manufacturer that has entered into a rebate agreement with HHS under the
Medicaid Rebate Program. For example, states may exclude coverage for certain drugs including drugs to treat anorexia, weight gain and weight loss. In 2000, 32 out of 44 Medicaid programs surveyed by the Kaiser Commission excluded these drugs. More
recent data suggests that state Medicaid programs may have increased coverage for certain anti-obesity drugs. For example, Meridia (sibutramine) and Xenical (orlistat) are listed on the formularies of 52% and 58% of state Medicaid programs,
respectively.

Medicare

The Medicare program provides health insurance for individuals aged 65 and over and those with serious disability or end-stage renal disease, regardless of income. However, Medicare
coverage of obesity treatments is limited. Current policy authorizes coverage of non-pharmacologic obesity treatments but only when such treatments are an integral and necessary part of a course of treatment for a co-morbid medical condition.
Pursuant to this policy, in February 2006, Medicare began covering certain designated bariatric surgical services for Medicare patients with a BMI equal to or greater than 35, who have at least one co-morbidity and have been previously unsuccessful
with the medical treatment of obesity. However, the policy reiterates that treatments for obesity alone are not covered because such treatments are not considered reasonable and necessary. In addition, by statute, Medicares prescription drug
benefit does not cover either outpatient prescription weight loss drugs or over-the-counter drugs.

Private Commercial
Plans

There is a wide range of coverage by private commercial plans for Meridia and Xenical. Based on
data obtained from Fingertip Formulary databases, almost half of commercial plans reviewed (excluding Blue Cross Blue Shield) listed Meridia and Xenical on their formularies, typically in a Tier 3 position. In general, plans offer coverage for oral
weight loss products only if the benefit is selected by employer groups. Many plans require prior authorization. Thus, our product candidates for obesity, if approved, may not achieve broad coverage. Moreover, the amount of any coverage provided
under the various plans may be minimal. Medicare is a key player in setting trends for coverage of obesity treatments. Private payers may be more likely to add coverage of weight loss products if Medicare provides coverage. We do not expect the
success of our obesity product candidates to be entirely contingent on third-party payer coverage and reimbursement, but rather, on acceptance by physicians and people who want to lose weight and are willing to pay for the drugs out of pocket.

Government Regulation

Prescription drug products are subject to extensive pre- and post-market regulation by the FDA, including regulations that govern the testing, manufacturing, safety, efficacy, labeling, storage, record
keeping, advertising and promotion of such products under the Federal Food Drug and Cosmetic Act, or FFDCA, and its implementing regulations, and by comparable agencies and laws in foreign countries. Failure to comply with applicable FDA or other
requirements may result in civil or criminal penalties, recall or seizure of products, partial or total suspension of production or withdrawal of the product from the market.

FDA approval is required before any new drug, including a new dosage form or use of a previously approved drug, can be marketed in the United States.

New Drug Approval (NDA)

A new drug approval by the FDA is generally required before a drug may be marketed in the United States. This process generally involves:



| |  |  | completion of preclinical laboratory and animal testing in compliance with the FDAs good laboratory practice, or GLP, regulations;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



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| |  |  | submission to the FDA of an investigational new drug, or IND, application for human clinical testing which must become effective before human
clinical trials may begin;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug product for each
intended use;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product is produced to assess compliance with
the FDAs current Good Manufacturing Practice, or cGMP, regulations; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | submission to and approval by the FDA of an NDA application.
| | - |  | ------------------------------------------------------------

The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we
cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.

Preclinical tests include laboratory evaluation, as well as animal studies to evaluate pharmacology and toxicity. The results of preclinical tests, together with manufacturing information and analytical data, are submitted as part of an IND
application to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial, including concerns that human
research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Our submission of an IND may not result in FDA authorization to
commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development. Further, an independent institutional review board, or IRB, for each medical center
proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center and it must monitor the study until completed. The FDA, the IRB, or the sponsor may suspend a clinical trial at any
time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive Good Clinical Practice, or GCP, regulations, including regulations for informed
consent.

For purposes of an NDA submission and approval, human clinical trials are typically conducted in the
following three sequential phases, which may overlap:



| |  |  | Phase I: Studies are initially conducted in a limited population to test the product candidate for safety, dose tolerance, absorption,
metabolism, distribution and excretion in healthy humans or, on occasion, in patients, such as cancer patients.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phase II: Studies are generally conducted in a limited patient population to identify possible adverse effects and safety risks, to
determine the efficacy of the product for specific targeted indications and to determine dose tolerance and optimal dosage. Multiple Phase II clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and
more expensive Phase III clinical trials.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phase III: These are commonly referred to as pivotal studies. When Phase II evaluations demonstrate that a dose range of the
product is effective and has an acceptable safety profile, Phase III clinical trials are undertaken in large patient populations to further evaluate dosage, to provide substantial evidence of clinical efficacy and to further test for safety in
an expanded and diverse patient population at multiple, geographically-dispersed clinical trial sites.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phase IV: In some cases, FDA may condition approval of an NDA for a product candidate on the sponsors agreement to conduct
additional clinical trials after NDA approval. Such post approval trials are typically referred to as Phase IV studies.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because our product candidates are fixed-combination prescription drugs, we will need to comply with the FDAs regulation that requires each component of each product to make a contribution to the
claimed effects. This means that our clinical trials for our product candidates will need to evaluate the combination as compared



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to each component separately and to placebo. In addition, in designing our clinical trials, we will also need to consider draft guidance for developing products for weight management issued by
the FDA in February 2007, which includes recommendations on the design of clinical trials evaluating the efficacy and safety of products intended to treat obesity. The results of product development, preclinical studies and clinical trials are
submitted to the FDA as part of an NDA. NDAs must also contain extensive manufacturing information.

The cost
of preparing and submitting an NDA is substantial. The Prescription Drug User Fee Act, which has been reauthorized three times by Congress, requires the payment of user fees with the submission of NDAs, including 505(b)(2) NDAs. These application
fees are substantial ($1,405,000 in the FDAs Fiscal Year 2010) and will likely increase in future years. The statute provides for waiver of the application fee for the first NDA for a small business under certain circumstances. In
February 2010, we were granted a waiver of this application fee. Manufacturers and sponsors of approved drugs are subject to annual product and establishment fees currently exceeding $457,000 per manufacturing establishment and $79,000 per product.
The FDA has agreed to certain performance goals in the review of NDAs. It is likely that the NDAs, if any, for Contrave and Empatic will be reviewed on a ten-month cycle by the FDA. The review process is often extended by the submission of
additional information or clarification during the review. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the
recommendation of an advisory committee, but it generally follows such recommendations. The FDA may deny approval of an NDA if the applicable regulatory criteria are not satisfied, or it may require additional data including additional pivotal
Phase III clinical trials. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and FDA may interpret data differently than
we do.

Section 505(b)(2) New Drug Applications

As an alternate path to FDA approval for modifications to products previously approved by the FDA, an applicant may file an
NDA under Section 505(b)(2) of the FFDCA. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act. This statutory provision permits the filing of an
NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The Hatch-Waxman Act permits the applicant to rely upon the
FDAs findings of safety and effectiveness for previously approved products. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new
indication for which the Section 505(b)(2) applicant has submitted its own data. The FDA requires companies to perform additional studies or measurements to support the change from the approved product. We intend to submit our initial NDAs for
Contrave and Empatic under Section 505(b)(2), based on the extensive safety information that has been collected for the approved drug products that are incorporated in these product candidates. To the extent that a Section 505(b)(2)
application relies on the FDAs finding of safety and effectiveness of a previously-approved drug, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDAs publication called
Approved Drug Products with Therapeutic Equivalence Evaluations, otherwise known as the Orange Book. Specifically, the applicant must certify when the application is submitted that: (1) there is no patent information
listed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid or will not be infringed by the
manufacture, use or sale of the studies conducted for an approved product. A certification that the new product will not infringe the already approved products Orange Book listed patents or that such patents are invalid is called a
paragraph IV certification. If the applicant has provided a paragraph IV certification to the FDA, the applicant must also send notice of the paragraph IV certification to the patent holder and the NDA holder. If and when we submit
our NDAs for Contrave and Empatic, we intend to make paragraph IV certifications that our product candidates do not infringe the bupropion patents listed in the Orange Book and send the appropriate notice to the patent holder and NDA holder
once we receive confirmation from the FDA that our NDA is sufficiently complete to permit a substantive review. In the event that the patent holder or NDA holder files a patent infringement lawsuit against



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us within 45 days of its receipt of our paragraph IV notification, such lawsuit would automatically prevent the FDA from approving our Section 505(b)(2) NDA until the earliest of
30 months, expiration of the patent (2013), settlement of the lawsuit or a decision in the infringement case that is favorable to us. Any such patent infringement lawsuit could be costly, take a substantial amount of time to resolve and divert
management resources.

If we obtain FDA approval for either Contrave or Empatic, we could obtain three years
of Hatch-Waxman marketing exclusivity for such product, assuming we conduct or sponsor a new clinical investigation that is essential to approval of our NDA. Under this form of exclusivity, the FDA would be precluded from approving a generic drug
application or, in some cases, another 505(b)(2) application for a drug product for the protected conditions of approval (for example, a product that incorporates the change or innovation represented by our product) for a period of three years,
although the FDA may accept and commence review of such applications. However, this form of exclusivity would not prevent the FDA from approving an NDA that relies on its own clinical data to support the change or innovation. Further, if another
company obtains approval for either product candidate for the same indication we are studying before we do, our approval could be blocked until the other companys Hatch-Waxman marketing exclusivity expires.

Post-Approval Requirements

We and our contract manufacturers are required to comply with applicable FDA manufacturing requirements contained in the FDAs current Good Manufacturing Practice, or cGMP, regulations. cGMP
regulations require, among other things, quality control, and quality assurance as well as the corresponding maintenance of records and documentation. The manufacturing facilities for our products must meet cGMP requirements to the satisfaction of
the FDA pursuant to a pre-approval inspection before we can use them to manufacture our products for commercial distribution. We and our third-party manufacturers are also subject to periodic inspections of facilities by the FDA and other
authorities, including procedures and operations used in the testing and manufacture of our products to assess our compliance with applicable regulations.

Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including Warning Letters, the seizure or recall of products, injunctions,
consent decrees placing significant restrictions on or suspending manufacturing operations, and civil and criminal penalties. Adverse experiences with the product must be reported to the FDA and could result in the imposition of market restrictions
through labeling changes or in product removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.

With respect to post-market product advertising and promotion, the FDA prohibits, restricts or otherwise imposes regulatory
requirements on certain activities, including direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the internet. The FDA has very broad enforcement
authority under the FFDCA, and failure to abide by these regulations can result in penalties, including the issuance of a Warning Letter directing entities to correct deviations from FDA standards, a requirement that future advertising and
promotional materials be pre-cleared by the FDA, and federal civil and criminal investigations and prosecutions. State enforcement actions relating to promotional violations are also becoming more common.

Other Regulatory Requirements

The recently enacted Food and Drug Administration Amendments Act of 2007, or FDAAA, gives the FDA the authority to require a drug-specific risk evaluation and mitigation strategy, or REMS, to ensure the
benefits of the drug outweighs the risks. In determining whether a REMS is necessary, the FDA must consider the size of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the
drug, the duration of treatment, the seriousness of known or potential adverse events and whether the drug is



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a new molecular entity. If the FDA determines a REMS is necessary, a sponsor must submit a proposed REMS as part of its application, or if the request is made post-approval, not later than 120
days after the FDA notifies the drug sponsor. A REMS may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the drugs risks, limitations on
how a drug may be prescribed or dispensed or other measures that the FDA deems necessary to assure the safe use of the drug.

FDAAA also expands the FDAs authority to require post-approval studies and clinical trials if the FDA finds, after approving the drug, that scientific data, including information regarding related
drugs, deem it appropriate. The purpose of such studies would be to assess a known serious risk or signals of serious risk related to the drug or to identify an unexpected serious risk when available data indicates the potential for a serious risk.
The FDA may also require a labeling change if it becomes aware of new safety information that it believes should be included in the labeling of a drug.

We are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances in connection
with our research. In each of these areas, as above, the federal government has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and
withdraw approvals, any one or more of which could have a material adverse effect on us.

Outside the United
States, our ability to market a product is contingent upon receiving marketing authorization from the appropriate regulatory authorities. The requirements governing marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a national level, although within the European Union registration procedures are available to companies wishing to market a product in more than one European Union member
state. The regulatory authority generally will grant marketing authorization if it is satisfied that we have presented it with adequate evidence of safety, quality and efficacy.

DEA Regulation

Naltrexone, one of the components of Contrave, is manufactured from semi-synthetic opiates. Although naltrexone is not a narcotic or a controlled substance, manufacturing of naltrexone active
pharmaceutical ingredient, or API, is subject to regulation by the U.S. Drug Enforcement Administration, or DEA, because the starting material is regulated. Controlled substances are those drugs that appear on one of five schedules promulgated
and administered by the DEA under the Controlled Substances Act, or CSA. The CSA governs, among other things, the distribution, recordkeeping, handling, security, and disposal of controlled substances. Our third-party suppliers of naltrexone must be
registered by the DEA in order to engage in these activities, and are subject to periodic and ongoing inspections by the DEA and similar state drug enforcement authorities to assess ongoing compliance with the DEAs regulations. The
manufacturers must also obtain an annual quota from the DEA to obtain sufficient material to manufacture substances derived from opiates. Any failure to comply with these regulations could lead to a variety of sanctions, including the revocation, or
a denial of renewal, of DEA registration, injunctions, or civil or criminal penalties. The failure to obtain adequate quota can also limit the manufacturing capacity of the manufacturer.

Employees

As of March 8, 2010, we had 61 full-time
employees and one part-time employee, consisting of clinical development, medical affairs, regulatory affairs, marketing, technical operations and administration. We consider our relations with our employees to be good.



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About Orexigen

We were incorporated in Delaware in September 2002. Our principal offices are located at 3344 N. Torrey Pines Court, Suite 200, La Jolla, California 92037, and our telephone
number is (858) 875-8600. Our website address is www.orexigen.com. Information found on, or accessible through, our website is not a part of, and is not incorporated into, this Annual Report on Form 10-K.

Available Information

We file electronically with the U.S. Securities and Exchange Commission our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
reports filed pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. We make available on our website at www.orexigen.com, free of charge, copies of these reports, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. Copies of our annual report will also be made available, free of charge, upon written request.

The public may read and copy any materials filed by us with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.



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Item 1A. Risk Factors.

You should carefully consider the following risk factors, as well as the other information in this report, before deciding
whether to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially
from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the factors described when evaluating our business.

Risks Related to Our Business and Industry

Our success depends substantially on our product candidates, Contrave® (naltrexone/bupropion, each in a sustained release, or SR, formulation) and Empatic (zonisamide/bupropion, each in a SR formulation). We cannot be certain that
either product candidate will receive regulatory approval or be successfully commercialized.

We
currently have only a limited number of product candidates in development, and our business currently depends entirely on their successful development and commercialization. We currently have no drug products approved for sale and we may never be
able to develop marketable drug products. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, and
other regulatory authorities in the United States and other countries, whose regulations differ from country to country. We are not permitted to market our product candidates in the United States until we receive approval of a new drug application,
or NDA, from the FDA, or in any foreign countries until we receive the requisite approval from the regulatory authorities of such countries. We have not submitted an NDA or received marketing approval for any of our product candidates. Obtaining
approval of an NDA is a lengthy, expensive and uncertain process. The FDA also has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example:



| |  |  | the FDA may not deem a product candidate safe and effective;
| | - |  | ------------------------------------------------------------



| |  |  | the FDA may not find the data from preclinical studies and clinical trials sufficient to support approval;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | the FDA may not agree with our interpretation and characterization of efficacy and safety data from our clinical trials;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | the FDA may require additional preclinical or clinical studies;
| | - |  | ---------------------------------------------------------------



| |  |  | the FDA may not approve of our third-party manufacturers processes and facilities; or
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the FDA may change its approval policies, adopt new regulations or provide new guidance.
| | - |  | ----------------------------------------------------------------------------------------

Moreover, FDA may refuse to accept our NDA. For example, we intend to submit six months primary stability data from
three registration batches from each dose with our NDA along with supporting clinical batches with 24 months of stability data. FDA could request additional stability data at time of submission. Any refusal to file will delay the approval
process for Contrave.

Contrave has been evaluated in Phase III clinical trials for the treatment of obesity.
We anticipate submitting an NDA with respect to Contrave to the FDA for potential approval by the end of April 2010. Empatic has been evaluated in Phase II clinical trials and it will need to successfully complete two or more pivotal trials, as well
as potential additional non-pivotal clinical trials we may be required to conduct based on feedback we may receive at the End of Phase II meeting we plan to conduct with the FDA, prior to our submission of an NDA to the FDA for potential approval.
Our product candidates may not be approved even if they achieve their specified endpoints in these and future clinical trials. For example, Contrave may not be approved even though it achieved its specified endpoints in the Phase III clinical trials
and met the FDA guidance on the general efficacy benchmarks



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required in pivotal trials for comparison against placebo. The FDA may disagree with our trial design and our interpretation of efficacy and safety data from the Phase III clinical trials, or may
change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. The FDA may also approve Contrave for fewer or more limited indications than we request, may request additional clinical trials
prior to approval, or may grant approval contingent on the performance of costly additional clinical trials, including cardiovascular outcomes studies which may be required prior to or after approval. The risk of an outcomes study may be more likely
depending on the results of the large sibutramine outcomes, or SCOUT, trial, the preliminary data for which suggests that patients using sibutramine have a higher number of cardiovascular events (heart attack, stroke, resuscitated cardiac arrest, or
death) than patients using a placebo. In response to the preliminary data from the SCOUT trial, the European Medicines Agency recently recommended suspension of market authorizations for sibutramine across the European Union.

In addition, the FDA may not approve the labeling that we believe is necessary or desirable for the successful
commercialization of Contrave. We may also submit a risk evaluation and mitigation strategy, or REMS, to the FDA along with our NDA submission that may include a Medication Guide and/or communication plan. It is possible that a REMS submission may
delay the drug approval process for our NDA submission. Any failure to obtain regulatory approval of Contrave would limit our ability to ever generate revenues (and any failure to obtain such approval for all of the indications and labeling claims
we deem desirable could reduce our potential revenue) and would have a material and adverse impact on our business.

Our
clinical trials may fail to demonstrate acceptable levels of safety or efficacy of our product candidates, which could prevent or significantly delay their regulatory approval.

Our product candidates are prone to the risks of failure inherent in drug development. Before obtaining regulatory approvals
for the commercial sale of Contrave, Empatic or any other product candidate for a target indication, we must demonstrate with substantial evidence gathered in well-controlled clinical trials, and, with respect to approval in the United States, to
the satisfaction of the FDA and, with respect to approval in other countries, similar regulatory authorities in those countries, that the product candidate is safe and effective for use for that target indication.

The FDA issued draft guidance on developing products for weight management in February 2007. The draft guidance provides
recommendations on the design of studies evaluating the efficacy and safety of products intended to treat obesity. It also provides guidance on the general efficacy benchmarks required in pivotal trials for comparison against placebo. While we
believe the design of our pivotal clinical trials for Contrave is consistent with the recommendations made by the FDA in the draft guidance and that the pivotal clinical trials have met the efficacy and safety requirements, the FDA may not agree
with our interpretation of the results from the Contrave pivotal Phase III clinical trials.

With respect to
Empatic, in September 2009, we announced the results of our latest Phase IIb clinical trial which we believe established that the combination of Empatics components is more effective than the individual components. It is not clear what
magnitude of superiority the FDA will require Empatic to demonstrate versus the most active individual component in order to agree that Phase III clinical trials may be conducted against placebo only. We plan to meet with the FDA for an End of Phase
II meeting to discuss the Phase IIb data with the goal of defining a Phase III plan for Empatic. We have not yet commenced any Phase III clinical trials for this product candidate.

In addition, before we can submit an NDA to the FDA for potential regulatory approval, we may need to complete additional
preclinical testing of our product candidates to evaluate safety and toxicity. The results from the preclinical and clinical trials that we have completed for Contrave and Empatic may not be replicated in future trials, or we may be unable to
demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for either product candidate. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier



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trials. If our drug candidates are not shown to be safe and effective in clinical trials, our clinical development programs could be delayed or terminated. Any delays could also result in the
need for additional financing, and our failure to adequately demonstrate the efficacy and safety of Contrave, Empatic or any other product candidates that we may develop, in-license or acquire would prevent receipt of regulatory approval and,
ultimately, the commercialization of that product candidate.

Our product candidates may cause undesirable side effects
or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or
halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. Contrave has now been evaluated in four completed Phase III clinical trials, which we refer
to collectively as the Contrave Obesity Research, or COR, program. Across the entire COR program, seven serious adverse events were attributed by investigators as possibly related to Contrave treatment. These include cholecystitis (gallbladder
inflammation) (2), seizure (2), palpitations (1), paresthesia (1) and vertigo (1). The most frequently observed treatment-emergent adverse events were nausea, constipation, vomiting, dizziness and dry mouth. Nausea was the leading adverse event
resulting in discontinuation; however, for the majority of patients experiencing nausea, it was mild to moderate, transient and manageable. In September 2009, we announced the results from our latest Phase IIb clinical trial for Empatic. The most
frequent side effects observed in this clinical trial were headache, nausea and insomnia. Adverse events and laboratory findings appeared to be consistent with the individual components of Empatic, bupropion and zonisamide.

The safety data we have disclosed to date represents our interpretation of the data at the time of disclosure and it is
subject to our further review and analysis. Serious adverse events have been reported to the FDA and study investigators as required in accordance with current guidelines and standards. Serious adverse events that are not characterized by clinical
investigators as possibly related to our study drug or adverse events that occur in small numbers may not be disclosed to the public until such time the various documents submitted to the FDA as part of the approval process are made public. We are
unable to determine if the subsequent disclosure of adverse events, severe or otherwise will have an adverse effect on our stock price. In addition, our interpretation of the data from our clinical trials is contingent upon the review and ultimate
approval of the FDA. The FDA may not agree with our methods of analysis or our interpretation of the results.

In addition, the constituent drugs of each of our product candidates each has its own side effect profile that is included in the respective current product label. If our product candidates are approved by the FDA, we would anticipate that
their labels would include the side effect profiles of each of the constituent drugs. Moreover, patients in our clinical trials may experience side effects that are indicated in the constituent drugs labels. In addition, while the constituent
drugs that make up Contrave and Empatic have post-marketing safety records and while we have tested these constituent drugs in combination in our clinical trials of Contrave and Empatic to date, the combination of these constituent drugs is still
being tested and has not received regulatory approval. Accordingly, the safety of their combined use is not yet fully known. The approvability and eventual labeling of Contrave and Empatic will be determined by the safety experience with the drugs
in the context of their relative merits (efficacy) in an obese population. For example, the Endocrinologic and Metabolic Drugs Advisory Committee convened by the FDA reviewed another companys obesity product candidate, rimonabant, and
determined not to recommend approval of the product candidate to the FDA, based on concerns regarding the safety profile of the product candidate (in particular, depression, suicidality and seizures) and the potential for long-term use of the
product by patients. Any of the side effects of Contrave or Empatic, or their individual constituent drugs, could delay or prevent their regulatory approval or limit the commercial profile of an approved label.



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Further, if any of our product candidates receives marketing approval and we
or others identify undesirable side effects caused by the product, a number of potentially significant negative consequences could result, including:



| |  |  | regulatory authorities may withdraw their approval of the product;
| | - |  | ------------------------------------------------------------------



| |  |  | regulatory authorities may require the addition of labeling statements, such as a black box warning with Contrave or Empatic or a
contraindication;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may decide to remove the products from the marketplace;
| | - |  | ----------------------------------------------------------



| |  |  | we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | our reputation may suffer.
| | - |  | --------------------------

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates
and significantly impact our ability to generate revenues.

There are known adverse side effects to the individual use
of bupropion, naltrexone and zonisamide.

A key constituent of Contrave and Empatic
is bupropion, which has been approved by the FDA for the treatment of depression and to assist smoking cessation. The FDA has directed manufacturers of all antidepressant drugs to include in their product labels a black box warning and
expanded warning statements regarding an increased risk of suicidal thinking and behavior in children and adolescents being treated with these drugs. The package insert for bupropion includes such a black box warning statement. In
December 2006, the FDA held an advisory committee meeting regarding suicidal thinking and behavior in adults being treated with antidepressant drugs. The advisory committee recommended that the black box warning be extended to cover
adults up to their mid-20s. We expect that any additional warnings or other labeling changes related to suicidal thinking and behavior in adults will be required on labeling for both Contrave and Empatic. In July 2009, the FDA issued a news
release announcing that it was requiring manufacturers to put a black box warning on the prescribing information for smoking cessation drugs including Zyban®, which is a branded form of bupropion. The warning will highlight the risk of serious mental health events including changes in behavior, depressed mood, hostility,
and suicidal thoughts. Although neither Contrave nor Empatic is intended to be promoted for or used in the treatment of major depression or smoking cessation, we expect that a similar warning statement will be required on labeling for both Contrave
and Empatic, particularly because it is likely that there will be obese patients who smoke or depressed obese patients who will use these product candidates, if approved.

The FDA has also directed manufacturers of antidepressant drugs to create Medication Guides to be distributed to patients regarding the risk of suicidal thinking and behavior in
children and adolescents. Although we have not designed either the Contrave or Empatic programs for the treatment of children or adolescents, it is possible that the FDA will require a Medication Guide for both Contrave and Empatic. We may submit a
REMS to the FDA along with our NDA submission for Contrave that may include a Medication Guide and/or communication plan. These warnings and other requirements may have the effect of limiting the market acceptance by our targeted physicians and
patients of Contrave and Empatic, if these product candidates are approved.

The other constituent of
Contrave, naltrexone, has been approved by the FDA for the treatment of alcohol and opioid dependence. The FDA has directed the manufacturers of naltrexone for these indications to include in their product labels a black box warning and
expanded warnings statements regarding hepatotoxicity, or liver toxicity. A similar warning statement may be required on labeling for Contrave.



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In addition, each of the constituent drugs included in the Contrave and
Empatic combinations has in its package insert a Category C pregnancy precaution. This means that animal studies have shown that each of these constituent drugs has the potential to cause birth defects and that there have been no
adequate and well-controlled studies of the constituent drugs in pregnant women, but that the FDA has determined that the benefits from the use of such drugs in pregnant women may be acceptable despite the potential risks.

Zonisamide, a constituent drug of Empatic, also has a warning that women of childbearing age should be advised to use
contraception due to the teratogenicity seen in animal studies. In addition, because of published concerns in academic journals regarding the possible developmental effects of zonisamide in animals as well as reports from Japan in which women
receiving zonisamide combined with other anticonvulsants had children with birth defects, it is likely that Empatic, if approved, will receive a Category X pregnancy precaution and thus, would be contraindicated for use by pregnant or
nursing women with warnings about use of Empatic in women of childbearing age. This means that there could be a limitation on the use of Empatic without adequate contraception or perhaps a prohibition on the use of Empatic by all women of
childbearing age. Although we have designed our clinical trials to educate women about the necessity of using adequate contraception while taking, and for a period of time after taking, our product candidates, women may not take the necessary
precautions to prevent pregnancy and as a result, women taking our product candidates may risk bearing children with birth defects. For example, during the first Phase IIb trial, four women on Empatic became pregnant and carried the pregnancies to
term. Three of the pregnancies resulted in normal infants at birth. In the fourth case there were birth abnormalities, one of which, a cardiac abnormality, was corrected surgically. Although this case is a complicated one with a number of plausible,
alternative etiologies, it has been reported by the investigator as a serious adverse event and possibly related to Empatic.

The FDA has issued an alert based on updated clinical data that treatment with zonisamide can cause metabolic acidosis in some patients. Metabolic acidosis is a disturbance in the bodys acid-base
balance that results in excessive acidity in the blood. The FDA recommended that healthcare professionals monitor for metabolic acidosis at the start of treatment with zonisamide and periodically during treatment with zonisamide even in the absence
of symptoms. We have been monitoring for metabolic acidosis in all of our Empatic clinical trials, and we have not observed any clinically meaningful cases of metabolic acidosis. A warning statement about metabolic acidosis may be required on
labeling for Empatic.

The FDA has analyzed reports of suicidal behavior or ideation from placebo-controlled
clinical studies of eleven anticonvulsants (including zonisamide). In the FDAs analysis, patients receiving anticonvulsants had approximately twice the risk of suicidal behavior or ideation compared to patients receiving placebo. The relative
risk for suicidal behavior or ideation was higher in the patients with epilepsy compared to patients who were given one of the anticonvulsants for conditions other than epilepsy. The FDA has indicated that it will be working with manufacturers of
marketed anticonvulsants to include this new information in the labeling of these products. It is possible that any changes related to suicidal behavior or ideation that occur to the labels of these anticonvulsants will be required on the labeling
for Empatic.

Any of these known side effects and any associated warning statements may limit the commercial
profile of an approved label for our product candidates and prevent us from achieving or maintaining market acceptance of our product candidates.

Delays in the commencement or completion of clinical testing could result in increased costs to us and delay or limit our ability to generate revenues.

Delays in the commencement or completion of clinical testing could significantly affect our product development costs. We do
not know whether clinical trials will begin on time or be completed on schedule, if at all. In addition, clinical trials may not be completed on schedule, or at all. The commencement and completion of clinical trials can be delayed for a number of
reasons, including delays related to:



| |  |  | obtaining regulatory approval to commence a clinical trial;
| | - |  | -----------------------------------------------------------



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| |  |  | reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject
to extensive negotiation and may vary significantly among different CROs and trial sites;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | manufacturing sufficient quantities of a product candidate for use in clinical trials;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective site;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including competition from other clinical trial
programs for the treatment of obesity or similar indications;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or
personal issues, or who are lost to further follow-up; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | collecting, reviewing and analyzing our clinical trial data.
| | - |  | ------------------------------------------------------------

Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, a clinical trial may
be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:



| |  |  | failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical
hold;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unforeseen safety issues; and
| | - |  | -----------------------------



| |  |  | lack of adequate funding to continue the clinical trial.
| | - |  | --------------------------------------------------------

Additionally, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes or initiate new clinical trials to
account for these changes. For instance, the FDA may issue final guidance on developing products for weight management. While we believe the designs of our pivotal clinical trials for Contrave are consistent with the current recommendations made by
the FDA in the draft guidance and the advisory committees discussions with respect to rimonabant, we cannot guarantee that in the final guidance the FDA will not require different designs or data to be generated. In addition, at the time of
approval the FDA may request one or more additional clinical trials or studies to support regulatory approval. For example, the FDA has indicated that it may require cardiovascular outcomes studies for compounds in development for the treatment of
diabetes, if the safety observed in development programs raises concerns. The FDA has not provided guidance on outcome studies for compounds in development for the treatment of obesity. However, we are unable to predict whether the FDA may extend
this requirement to obesity development programs. If the FDA does impose such a requirement, we may need to conduct additional studies on our product candidates before or subsequent to approval. If we are required to conduct substantial clinical
trials, including, for example, cardiovascular outcomes trials, prior to approval, we may not have the resources to successfully commercialize our product candidates. Moreover, amendments to ongoing clinical trials in response to changes in
regulatory requirements or guidance may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of or we
terminate any of our clinical trials, or if we have to conduct additional clinical trials, the commercial prospects for our product candidates may be harmed and our ability to generate product revenues will be delayed. In addition, many of the
factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.

We rely primarily on third parties to conduct our clinical trials and assist us in the preparation of our regulatory applications. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates within our expected timeframes or at all.

We may depend on CROs and independent clinical investigators to conduct our clinical trials in the future. We currently rely
on Octagon Research Solutions, Inc., or Octagon, to assist us with a variety of matters related



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to the preparation of our regulatory applications. In addition, we utilize the services of inVentiv Clinical Solutions LLC to conduct our data management in connection with our clinical trials,
as well as the preparation of our regulatory applications. The third parties with which we contract for execution of our clinical trials and preparation of our regulatory applications play a significant role in the conduct of our clinical trials,
the subsequent collection, review and analysis of data and the preparation of regulatory applications. These third parties, including CROs and investigators, are not our employees, and we have limited ability to control the amount or timing of
resources that they devote to our programs. If Octagon, inVentiv, other CROs, consultants or independent investigators fail to devote sufficient time and resources to our drug development programs and related regulatory applications, or if their
performance is substandard, it may delay the submission and potential approval of our regulatory applications and the commercialization of our product candidates. In addition, the execution of clinical trials; the subsequent compilation, review and
analysis of the data produced and the preparation of regulatory applications requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties provide the
necessary resources and communicate and coordinate with one another. If these third parties are unable to provide the necessary resources or coordinate and communicate with one another, our clinical trials may be delayed or the completion and
analysis of the data and the related regulatory applications may be delayed or compromised. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. If these third parties also
contract to provide services for our competitors, it could adversely affect our business.

We expect intense competition
in the obesity marketplace for Contrave and Empatic, and new products may emerge that provide different or better therapeutic alternatives for obesity and weight loss.

If approved and commercialized, both Contrave and Empatic will compete with well established prescription
drugs for the treatment of obesity, including Xenical® (orlistat), marketed by Roche Laboratories Inc., and
Meridia® (sibutramine), marketed by Abbott Laboratories. Orlistat has also been launched by GlaxoSmithKline in
over-the-counter form under the brand name allí®, which represents additional competition and potential
negative pricing pressure. Both orlistat and sibutramine are marketed by pharmaceutical companies with substantially greater resources than we have. In addition, a number of generic pharmaceutical products are prescribed for obesity, including
phentermine, phendimetrazine, benzphetamine and diethylpropion. Some of these generic drugs, and others, are prescribed in combinations that have shown anecdotal evidence of efficacy. These products are sold at much lower prices than we intend to
charge for our product candidates, if approved. The availability of a large number of branded prescription products, including drugs that are prescribed off-label, generic products and over-the-counter products could limit the demand for, and the
price we are able to charge for, our product candidates.

Currently there are a number of drug products in
development for obesity which could become competitors against our product candidates. These include products being developed by Arena Pharmaceuticals, Inc., Amylin Pharmaceuticals, Inc., Alizyme plc, Athersys, Inc., Genaera Corporation, Neurosearch
A/S, Novo Nordisk A/S, Sanofi-Aventis, and Vivus, Inc., among others. Arena and Vivus have both filed an NDA seeking approval of their respective product candidates in December 2009 and received Prescription Drug User Fee Act dates in October 2010.
If either Arena or Vivus is successful at obtaining FDA approval prior to us, they may achieve a significant competitive advantage prior to the time we are able to market our product candidates, if approved.

There are also surgical approaches to treat severe obesity that are becoming increasingly accepted and could become
competitors against our product candidates. Two of the most well established surgical procedures are gastric bypass surgery and adjustable gastric banding. In addition, other potential approaches which utilize various implantable devices or surgical
tools are in development, including an endoscopic approach for treating obesity. Some of these approaches are in late stage development and may be approved for marketing. Companies such as Allergan, Inc., Boston Scientific, Covidien Ltd,
EnteroMedics, Inc., GI Dynamics, Inc., Johnson & Johnson, Leptos Biomedical, Inc., Medtronic Inc., and Satiety, Inc. are all active in this space and may have substantially greater resources than we have.



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New developments, including the development of other drug technologies and
methods of preventing the incidence of disease, occur in the nutritional, pharmaceutical and medical technology industries at a rapid pace. These developments may render our product candidates less competitive. Some of our potential competitors are
large pharmaceutical or device firms and have substantially greater resources than we have. These resources could be directed toward the obesity market and include:



| |  |  | research and development resources, including personnel and technology;
| | - |  | -----------------------------------------------------------------------



| |  |  | regulatory experience;
| | - |  | ----------------------



| |  |  | drug development and clinical trial experience;
| | - |  | -----------------------------------------------



| |  |  | experience and expertise in exploitation of intellectual property rights; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | capital resources.
| | - |  | ------------------

As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we do or may obtain patent protection or other intellectual property rights that limit our
ability to develop or commercialize our product candidates. Our competitors may also develop drugs or surgical approaches that are more effective, more useful and less costly than ours and may also be more successful in manufacturing and marketing
their products. In addition, our competitors may be more effective in commercializing their products. We currently outsource our manufacturing and therefore rely on third parties for that competitive expertise. There can be no assurance that we will
be able to develop or contract for these capabilities on acceptable economic terms, or at all. In addition, should both Contrave and Empatic be approved to treat obesity, these product candidates may compete with one another. We are developing
Contrave to treat mild to moderate obesity, especially in women with food craving. We are developing Empatic to treat more severe obesity, especially in men and in women beyond the childbearing years. While we intend to direct each product candidate
to specific segments of the obesity marketplace, the FDA does not distinguish between these types of obesity and, if approved, any potential label for Contrave and Empatic would be expected to refer to obesity generally. There is no guarantee that
we will be successful in marketing Contrave and Empatic to their respective target markets or minimizing competition between them.

Our product candidates are combinations of generically-available pharmaceutical products, and our success is dependent on our ability to compete against off-label generic substitutes and demonstrate the advantages of our proprietary
combination products.

Off-label use occurs when physicians prescribe a drug that is approved by the
FDA for one indication for a different, unapproved indication. We believe that a practitioner seeking safe and effective therapy is not likely to prescribe such off-label generics in place of Contrave or Empatic because the dosage strengths,
pharmacokinetic profiles and titration regimens recommended for Contrave and Empatic are not available using existing generic preparations of immediate release, or IR, naltrexone, zonisamide IR and bupropion SR, and there are no oral generic SR
formulations of naltrexone or zonisamide. However, a physician could seek to prescribe off-label generics in place of Contrave or Empatic. Such off-label prescriptions could significantly diminish the market potential of our products and
significantly impact our ability to generate revenues.

With regard to off-label substitution at the pharmacy
level, we expect to rely on the novel dose ratios and novel pharmacokinetic properties of our product candidates, as well as the differences in their approved indications, to provide sufficient distinction such that generic preparations are not
considered therapeutic equivalents by the FDA. State pharmacy laws in many instances only permit pharmacists to substitute generic products for branded products if the products are therapeutic equivalents. Therefore, the lack of therapeutic
equivalency should limit generic substitution by pharmacies and/or pharmacy benefit managers. However, we cannot be certain that pharmacists and/or pharmacy benefit managers will not seek prescriber authorization to substitute generics in place of
Contrave and Empatic, which could significantly diminish their market potential and significantly impact our ability to generate revenues.



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In addition, although we believe the current market prices for the generic
forms of naltrexone and zonisamide make generic substitution by physicians, pharmacists or pharmacy benefit managers unlikely, should the prices of the generic forms decline, the motivation for generic substitution may become stronger. Wide scale
generic substitution by physicians and at the pharmacy level could have substantial negative consequences to our business.

We have limited sales and marketing experience and resources, and if we do not enter into collaboration or co-promotion arrangements, we may not be able to effectively market and sell our products and our ability to generate revenues
may be delayed or limited.

We are developing our obesity product candidates for large markets
traditionally served by general and family practitioners and internists. Generalist physicians number in the several hundred thousand in the United States. Traditional pharmaceutical companies employ groups of sales representatives numbering in the
thousands to call on this large generalist physician population. In order to adequately address these physician groups, we must either establish sales and marketing collaborations or co-promotion arrangements or expend significant resources to
develop our own sales and marketing presence. We currently possess limited resources and may not be successful in developing our own sales and marketing presence. We also may not be able to enter into collaboration or co-promotion arrangements on
acceptable terms, if at all. If we are unable to enter into collaboration or co-promotion arrangements for our product candidates, and we must develop our own sales and marketing presence to address the large market of general and family
practitioners and internists, we will require additional capital and our ability to market and sell our product candidates and generate revenues from our product candidates may be delayed or limited. We also face competition in our search for
collaborators, co-promoters and sales force personnel. If our competitors are able to establish collaboration or co-promotion arrangements with pharmaceutical companies who have substantially greater resources than we have, our ability to
successfully commercialize our product candidates will be limited and as a result our competitors may be more successful in marketing and selling their products. Even if we do enter into collaboration or co-promotion arrangements with third parties,
we will be reliant on such third parties to successfully develop and/or commercialize our product candidates. These third parties may fail to develop or effectively commercialize our product candidates because they cannot obtain the necessary
regulatory approvals, decide to pursue a competitive potential product that may be developed outside of the collaboration or fail to devote the resources necessary to realize the full commercial potential of our product candidates. Any such failures
would negatively affect our ability to generate revenues.

Our development and commercialization strategy depends upon
access to findings of safety and effectiveness based on data not developed by us but which the FDA may reference in reviewing our U.S. marketing applications. In territories outside the United States, we must either negotiate access to these safety
and effectiveness findings or develop them ourselves.

The Drug Price Competition and Patent Term
Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval
comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. This statutory provision expressly allows the FDA to rely, for purposes of approving an NDA, on findings of safety and
effectiveness based on data not developed by the filer of the NDA. Under these guidelines, we were able to move directly into Phase II clinical trials for each of our drug combinations, because our planned NDAs will rely, in part, upon the
FDAs findings of safety and effectiveness for the previously-approved products that are incorporated into Contrave and Empatic. Analogous legislation does not exist in other countries. In territories where data are not freely available, we may
not have the ability to commercialize our products without negotiating rights from third parties to refer to their clinical data in our regulatory applications, which could require the expenditure of significant additional funds to generate our own
data. We may be unable to obtain rights to the necessary clinical data and may be required to develop our own proprietary safety and manufacturing dossiers. In addition, even though we can take advantage of Section 505(b)(2) to support
potential U.S. approval for Contrave and Empatic, the FDA may also require us to perform additional studies or measurements to support changes from the previously-approved products incorporated into our product candidates.



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To the extent that a Section 505(b)(2) application relies on the
FDAs finding of safety and effectiveness of a previously-approved drug, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDAs publication called Approved Drug Products
with Therapeutic Equivalence Evaluations, otherwise known as the Orange Book. Specifically, the applicant must certify when the application is submitted that: (1) there is no relevant patent information listed; (2) the
listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid or will not be infringed by the manufacture, use, or
sale of the new product. A certification that the new product will not infringe the already approved products Orange Book listed patents or that such patents are invalid is called a paragraph IV certification. If the applicant has
provided a paragraph IV certification to the FDA, the applicant must also send notice of the paragraph IV certification to the NDA holder and patent owner. When we submit our NDAs for Contrave and Empatic, we intend to make
paragraph IV certifications that our products do not infringe the bupropion SR formulation patents listed in the Orange Book, and send the appropriate notice to the patent holder and NDA holder once we receive confirmation from the FDA that our
NDA is sufficiently complete to permit a substantive review. In the event that the patent holder or NDA holder files a patent infringement lawsuit against us within 45 days of its receipt of our paragraph IV certification, such lawsuit
would automatically prevent the FDA from approving our Section 505(b)(2) NDA until the earliest of 30 months, expiration of the patent (2013), settlement of the lawsuit or a decision in the infringement case that is favorable to us. Any
such patent infringement lawsuit could be costly, take a substantial amount of time to resolve and divert management resources. If we obtain FDA approval for either Contrave or Empatic, we could obtain three years of Hatch-Waxman marketing
exclusivity for such product, since we have conducted a substantial clinical program that is essential to approval of our NDA. Under this form of exclusivity, the FDA would be precluded from approving a marketing application for the same drug
product for the protected indication (for example, a product that incorporates the change or innovation represented by our product) for a period of three years, although the FDA may accept and commence review of such applications. However, this form
of exclusivity might not prevent the FDA from approving an NDA of different active ingredients that relies on its own clinical data to support the change or innovation. Further, if another company obtains approval for an identical product candidate
for the same indication we are studying before we do, our approval could be blocked until the other companys Hatch-Waxman marketing exclusivity expires.

Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties.

Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a products
indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. For example, the label ultimately approved for Contrave or Empatic, if any, may include restrictions on use, including restrictions based on
pregnancy status, level of obesity and duration of treatment or a black box warning related to concerns regarding antidepressants, anticonvulsants, products for smoking cessation, naltrexone or otherwise. The FDA may also require the
distribution of a Medication Guide to patients outlining the increased risk of suicidal thinking or behavior in children and adolescents or other populations. We may submit a Medication Guide and/or communication plan for Contrave pursuant to a REMS
along with our anticipated NDA submission with the FDA. The FDA could also require a registry to track the patients utilizing the product. Our product candidates will also be subject to ongoing FDA requirements governing the labeling, packaging,
storage, advertising, promotion, recordkeeping and submission of safety and other post-market information. In addition, the FDA has indicated that it may require cardiovascular outcomes studies for compounds in development for the treatment of
diabetes, if the safety observed in development programs raises concerns. The FDA has not provided guidance on outcome studies for compounds in development for the treatment of obesity. However, we are unable to predict whether the FDA may extend
this requirement to obesity development programs. If the FDA does impose such a requirement, we may need to conduct additional studies on our product candidates. If we are required to conduct substantial clinical trials, including, for example,
cardiovascular outcomes trials, prior to approval, we may not have the resources to successfully commercialize our product candidates.



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Manufacturers of drug products and their facilities are also subject to
continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practices, or cGMP, regulations. If we or a regulatory agency discover 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, a regulatory agency may impose restrictions on that product, the manufacturer or us, including requiring withdrawal of
the product from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:



| |  |  | issue Warning Letters or untitled letters;
| | - |  | ------------------------------------------



| |  |  | impose civil or criminal penalties;
| | - |  | -----------------------------------



| |  |  | suspend regulatory approval;
| | - |  | ----------------------------



| |  |  | suspend any ongoing clinical trials;
| | - |  | ------------------------------------



| |  |  | refuse to approve pending applications or supplements to applications filed by us;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | impose restrictions on operations, including costly new manufacturing requirements; or
| | - |  | --------------------------------------------------------------------------------------



| |  |  | seize or detain products or require us to initiate a product recall.
| | - |  | --------------------------------------------------------------------

Even if our product candidates receive regulatory approval in the United States, we may never receive approval or commercialize our products outside of the United States.

In order to market any products outside of the United States, we must establish and comply with
numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to
obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as other
risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain
regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed above regarding FDA approval in the United States. As described above, such effects include the risks that our
product candidates may not be approved for all indications requested, which could limit the uses of our product candidates and have an adverse effect on their commercial potential or require costly, post-marketing follow-up studies.

If the suppliers upon whom we rely for active pharmaceutical ingredients, or API, fail to produce such ingredients in the volumes that
we require on a timely basis, or to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the development or commercial launch of our product candidates.

We do not manufacture any of our API nor do we plan to develop any capacity to do so. Instead, we rely on suppliers of API to
provide component materials to our other contract manufacturers, who produce finished pharmaceutical products incorporating the API for use in our clinical trials. The failure or inability of our API suppliers to satisfy our API requirements on a
timely basis could delay our development programs.

Although naltrexone itself is not addictive, synthesis of
naltrexone is a multi-step process with a natural opiate starting material that has the potential for abuse and is therefore regulated as a controlled substance under the federal Controlled Substances Act. As such, manufacturers of naltrexone API
must be registered by the Drug Enforcement Administration, or DEA. Manufacturers making naltrexone also must obtain annual quotas from the DEA for the opiate starting material. Because of the DEA-related requirements and modest current demand for



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naltrexone API, there exist few current manufacturers of this API. Therefore, API costs for naltrexone are greater than for the other constituents of our product candidates. Demand for Contrave
may require amounts of naltrexone greater than the currently available worldwide supply. Any lack of sufficient quantities of naltrexone would limit our ability to complete our clinical trials and commercially launch Contrave. Although we are
evaluating additional possible manufacturers to supplement our current naltrexone manufacturing capacity, including those in the United States, Europe and Asia, we may not be successful in accessing additional manufacturing supply of naltrexone API
or other necessary components of our product candidates at the appropriate quantities, quality or price.

Historically, all of our purchases of API have been completed by purchase orders. In January 2009, we entered into a supply agreement with Cilag GmbH International, or Cilag, pursuant to which Cilag will
manufacture commercial supplies of naltrexone for use in our drug products. The supply agreement shall continue in effect until four years from the period beginning on the first December 31stfollowing marketing approval by the FDA for a drug product of ours containing naltrexone. Either party
may terminate the supply agreement effective immediately upon written notice to the other in the event that (a) the other party dissolves, is declared insolvent or bankrupt by a court of competent jurisdiction, (b) a voluntary or
involuntary petition of bankruptcy is filed in any court of competent jurisdiction, or (c) the supply agreement is assigned for the benefit of creditors. In addition, we may terminate the supply agreement effective immediately upon written
notice in the event that (a) any regulatory agency takes any action, or raises any objection that prevents us from importing, exporting, purchasing or selling a finished product containing naltrexone, (b) the product containing naltrexone
fails during clinical trials and we withdraw our NDA, (c) we determine, in our sole discretion, to no longer pursue the development and/or commercialization of a product containing naltrexone, or (d) a legal proceeding shall be instituted
against Cilag, which is reasonably likely to materially adversely affect Cilags ability to properly perform under the supply agreement or subject us to any material risk of liability or loss. Moreover, either party may terminate the agreement
upon specified written notice of a failure by the other party to perform or observe any material covenant, condition or agreement to be performed or observed by it under the supply agreement, unless such breach has been cured within the specified
notice period.

In December 2009, we entered into a supply agreement with Chemi, S.p.A, or Chemi, pursuant to
which Chemi will manufacture commercial supplies of bupropion for use in our drug products. The initial term of the supply agreement commenced retroactively in November 2009 and shall continue in effect until the date that is four (4) years
from the date we first received marketing approval for from the FDA or other governmental agency, or similar regulatory agency or commission in any foreign state or territory for our drug product containing bupropion. This initial term shall be
automatically renewed for additional two (2) year terms unless we provide specified written notice of our intent to terminate to Chemi prior to the expiration of the initial term or any extension term, as applicable. Either party may terminate
the supply agreement effective immediately upon written notice to the other in the event that (a) the other party dissolves, is declared insolvent or bankrupt by a court of competent jurisdiction, (b) a voluntary or involuntary petition of
bankruptcy is filed in any court of competent jurisdiction, (c) the supply agreement is assigned for the benefit of creditors, (d) any regulatory agency takes any action, or raises any objection that prevents us from importing, exporting,
purchasing or selling bupropion or our drug product containing bupropion, (e) our drug product containing bupropion fails during clinical trials and we withdraw our NDA, (f) we determine, in our sole discretion, to no longer pursue the
development and/or commercialization of our drug product containing bupropion, or (g) a legal proceeding shall be instituted against Chemi, which is reasonably likely to materially adversely affect Chemis ability to properly perform under
the supply agreement or subject us to any material risk of liability or loss. Moreover, either party may terminate the supply agreement upon specified written notice to the other party of a failure by that party to perform or observe any material
covenant, condition or agreement to be performed or observed by it under the supply agreement, unless such breach has been cured within the specified notice period.

We have no other long-term commitments or supply agreements with any of our other API suppliers. Although we may seek to establish additional long-term supply commitments in the
future, we may be required to agree to minimum volume requirements, exclusivity arrangements or other restrictions. We may not be able to



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enter into additional long-term agreements on commercially reasonable terms, or at all. Consequently, even if and when our product candidates are approved, we may not be able to successfully
commercialize these product candidates if we are unable to secure long-term supply commitments for all of their API components.

If the contract manufacturers upon whom we rely fail to produce our product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we
may face delays in the development and commercialization of our product candidates.

We do not
currently possess nor do we plan to implement manufacturing processes internally. We currently utilize the services of contract manufacturers to manufacture our clinical supplies. These clinical supplies include the formulations of our product
candidates components using the API from our API suppliers, the tablets combining those components and the Contrave titration packs, Empatic titration packs and bottles used to package these tablets for use in clinical trials. To date, all of
these contract manufacturers have performed services under short-term purchase orders or similar arrangements. We have no long-term commitments or supply agreements with these contract manufacturers. For example, Patheon manufactured bupropion SR as
well as finished Contrave tablets for our Contrave Phase III clinical trials on a proposal by proposal basis under a master agreement for pharmaceutical development services that we entered into in February 2007. Either party may terminate the
agreement upon notice if the other party commits a material breach of its obligations and fails to remedy the breach within 30 days. In addition, we may terminate the agreement immediately for any business reason.

With respect to the manufacturing for our commercial scale product, we intend to eventually pursue long-term agreements with
our current manufacturers or transfer the manufacturing to other larger manufacturers. There can be no assurance we will be able to transfer any manufacturing processes to other larger manufacturers. Furthermore, we may be required to agree to
minimum volume requirements, exclusivity arrangements or other restrictions. We may not be able to enter into long-term agreements on commercially reasonable terms, or at all. If we change to other manufacturers, the FDA and comparable foreign
regulators must approve these manufacturers facilities and processes prior to use, which would require new testing and compliance inspections, and the new manufacturers would have to be educated in or independently develop the processes
necessary for the production of our product candidates.

The manufacture of pharmaceutical products requires
significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up for
commercial production. These problems include difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing, shortages of qualified personnel, as well as compliance with
strictly enforced federal, state and foreign regulations. If our manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations to us, our ability to provide product candidates to patients in our
clinical trials or to commercially launch a product candidate would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials, increase the costs associated with maintaining
our clinical trial program and, depending upon the period of delay, require us to commence new trials at significant additional expense or terminate the trials completely.

In addition, all manufacturers of our products must comply with cGMP requirements enforced by the FDA through its facilities inspection program. These requirements include, among
other things, quality control, quality assurance and the generation and maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory
requirements. We have little control over our manufacturers compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in
product approval, product seizure or recall, or withdrawal of product approval. If the safety of any product supplied is compromised due to our manufacturers failure to adhere to applicable laws or for other reasons, we may not be able to
obtain regulatory approval for or successfully commercialize our



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products, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of
our product candidates, entail higher costs or result in our being unable to effectively commercialize our products. Furthermore, if our manufacturers fail to deliver the required commercial quantities on a timely basis, pursuant to provided
specifications and at commercially reasonable prices, we may be unable to meet demand for our products and would lose potential revenues.

Bupropion, which is an API in both Contrave and Empatic, is known to have issues with stability.

Bupropion, which is an API in both Contrave and Empatic, is known to have issues with stability that require manufacturing processes that minimize exposure to moisture and limit oxidation. We are
performing stability testing to ensure that our combination tablet of Contrave has sufficient stability to provide the customary stability characteristics and shelf life expected of a conventional pharmaceutical product. Although we are currently
conducting stability studies, we cannot be sure that either Contrave or Empatic will be stable, and we may not be able to demonstrate sufficient long-term stability, which could result in the delay or denial of regulatory approval by the FDA or
jeopardize our ability to bring such product candidates to market.

We face potential product liability exposure, and,
if successful claims are brought against us, we may incur substantial liability.

The use of our
product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers,
pharmaceutical companies or others selling or otherwise coming into contact with our products. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or
eventual outcome, product liability claims may result in:



| |  |  | decreased demand for our product candidates;
| | - |  | --------------------------------------------



| |  |  | impairment of our business reputation;
| | - |  | --------------------------------------



| |  |  | withdrawal of clinical trial participants;
| | - |  | ------------------------------------------



| |  |  | costs of related litigation;
| | - |  | ----------------------------



| |  |  | distraction of managements attention from our primary business;
| | - |  | ----------------------------------------------------------------



| |  |  | substantial monetary awards to patients or other claimants;
| | - |  | -----------------------------------------------------------



| |  |  | loss of revenues; and
| | - |  | ---------------------



| |  |  | the inability to commercialize our product candidates.
| | - |  | ------------------------------------------------------

We have obtained product liability insurance coverage for our clinical trials with a $10.0 million annual aggregate coverage limit. Our insurance coverage may not be sufficient
to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect
us against losses due to liability. If and when we obtain marketing approval for any of our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain this product
liability insurance on commercially reasonable terms. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought
against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.



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If any of our product candidates for which we receive regulatory approval does not
achieve broad market acceptance, the revenues that we generate from their sales will be limited.

The
commercial success of our product candidates for which we obtain marketing approval from the FDA or other regulatory authorities will depend upon the acceptance of these products by both the medical community and patient population. Coverage and
reimbursement of our product candidates by third-party payors, including government payors, generally is also necessary for optimal commercial success. The degree of market acceptance of any of our approved products will depend on a number of
factors, including:



| |  |  | our ability to provide acceptable evidence of safety and efficacy;
| | - |  | ------------------------------------------------------------------



| |  |  | the relative convenience and ease of administration;
| | - |  | ----------------------------------------------------



| |  |  | the prevalence and severity of any adverse side effects;
| | - |  | --------------------------------------------------------



| |  |  | limitations or warnings contained in a products FDA-approved labeling, including, for example, potential black box warnings or
pregnancy precautions associated with the APIs in Contrave and/or Empatic;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | availability of alternative treatments, including, in the case of Contrave and/or Empatic, a number of competitive products already approved for the
treatment of weight loss or expected to be commercially launched in the near future;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pricing and cost effectiveness;
| | - |  | -------------------------------



| |  |  | the effectiveness of our or any future collaborators sales and marketing strategies;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | our ability to obtain sufficient third-party coverage or reimbursement; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | the willingness of patients to pay out of pocket in the absence of third-party coverage.
| | - |  | ----------------------------------------------------------------------------------------

If our product candidates are approved but do not achieve an adequate level of acceptance by physicians, health care payors
and patients, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our product candidates may
require significant resources and may never be successful.

We are subject to uncertainty relating to reimbursement
policies which, if not favorable to our product candidates, could hinder or prevent our product candidates commercial success.

Our ability to commercialize our product candidates successfully will depend in part on the extent to which governmental authorities, private health insurers and other third-party payors establish
appropriate coverage and reimbursement levels for our product candidates and related treatments. As a threshold for coverage and reimbursement, third-party payors generally require that drug products have been approved for marketing by the FDA.
Third-party payors also are increasingly challenging the effectiveness of and prices charged for medical products and services. We cannot provide any assurances that we will be able to obtain third-party coverage or reimbursement for our product
candidates in whole or in part.

The obesity market, in particular, continues to be marked by limited coverage
and reimbursement from health insurers and other payors, who have historically viewed obesity as a lifestyle issue. For example, state Medicaid programs, administered by individual states for qualifying low income individuals, are permitted to
exclude coverage for weight loss drugs. In addition, weight loss drugs are excluded from coverage under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 designed for eligible seniors and disabled individuals and which went
into effect on January 1, 2006.

Currently, our competitors drug products have limited third-party
payor coverage. This means that individuals prescribed such drug products often either have significant out-of-pocket costs or pay for the products entirely by themselves. If our product candidates do not receive adequate coverage or reimbursement,
the market acceptance and commercial success of our products may be limited.



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The Medicare program, a federal governmental third-party payor whose
policies often are emulated or adopted by other payors, has removed longstanding policy language that obesity itself cannot be considered an illness. This deletion did not alter the statutory prohibition on drug reimbursement by Medicare or result
in a change to coverage for particular obesity-related procedures, and treatment for obesity alone remains uncovered. However, the Medicare program has since issued a national policy recognizing coverage for bariatric surgery for co-morbid
conditions associated with obesity. Although third-party payor attitudes regarding obesity-related products and services appear to be changing, as exemplified by Medicare changes, we may continue to face a poor coverage and reimbursement
environment.

Healthcare reform measures could hinder or prevent our product candidates commercial success.

Among policy makers and payors in the United States and elsewhere, there is significant interest in
promoting changes in health care systems to contain health care costs and improve quality. While reform proposals often involve expanding coverage to more individuals, health care reform may also involve increased government price controls,
additional regulatory mandates and other measures designed to lower medical and pharmaceutical costs (such as private health insurance expansion, the creation of competing public health insurance plans, a variety of proposals that would reduce
government expenditures for prescription drugs to help finance healthcare reform, or the eventual transition of the U.S. multiple payer system to a single payer system). Within the United States, the pharmaceutical industry has been a particular
focus of both the U.S. Congress, as well as state governments. Proposed reforms include, but are not limited to, increasing regulation of pharmaceutical representatives, restricting direct to consumer advertising and off-label uses, an
accelerated approval process for follow-on biologics, involuntary approval of medicines for over-the-counter use, limiting manufacturers access to marketing data, requiring greater reliance on comparative effectiveness reviews of
competing drugs, increasing use of electronic prescribing and authorizing the re-importation of drugs from Canada and other foreign countries to lower pharmaceutical costs to U.S. consumers.

We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance
companies, managed care organizations and other payors of health care services to contain or reduce costs of health care may adversely affect:



| |  |  | our ability to set a price we believe is fair for our products;
| | - |  | ---------------------------------------------------------------



| |  |  | our ability to generate revenues and achieve or maintain profitability; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | the availability of capital.
| | - |  | ----------------------------

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

As of March 8, 2010, we had 61 full-time employees and one part-time employee. We will need to continue to expand our managerial, operational, financial and other resources
in order to manage our operations, continue our development activities and commercialize our current and any of our future product candidates. Our management and personnel and systems currently in place may not be adequate to support this future
growth. Our need to effectively execute our growth strategy requires that we:



| |  |  | manage our clinical trials effectively, including any future trials of Contrave or Empatic;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | manage the manufacturing and development of Contrave and Empatic;
| | - |  | -----------------------------------------------------------------



| |  |  | manage our internal development efforts and potential commercialization efforts effectively while carrying out our contractual obligations to
licensors, contractors, collaborators and other third parties;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | build a marketing and sales organization if Contrave is approved and we do not either enter into a collaboration with or outsource such functions to
a third party;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | continue to improve our operational, financial and management controls, reporting systems; and procedures; and
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | attract and retain the breadth and depth of sufficient numbers of talented employees.
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We outsource many key functions of our business and therefore rely on a
number of consultants, and we will need to be able to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. However, if we are unable to effectively manage our
outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials or other development activities may be extended, delayed or terminated, and we may not be able to obtain
regulatory approval for our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically
reasonable terms, or at all.

Our failure to successfully acquire, develop and market additional product candidates or
approved products would impair our ability to grow.

As part of our growth strategy, we may acquire,
in-license, develop and/or market additional products and product candidates. Because our internal research capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to
sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select and acquire promising pharmaceutical product candidates and products.

The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product
is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to
identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities
that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.

In addition, future acquisitions may entail numerous operational and financial risks, including:



| |  |  | exposure to unknown liabilities;
| | - |  | --------------------------------



| |  |  | disruption of our business and diversion of our managements time and attention to develop acquired products or technologies;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | higher than expected acquisition and integration costs;
| | - |  | -------------------------------------------------------



| |  |  | increased amortization expenses;
| | - |  | --------------------------------



| |  |  | difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | inability to retain key employees of any acquired businesses.
| | - |  | -------------------------------------------------------------

Further, any product candidate that we acquire may require additional development efforts prior to commercial sale,
including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product
candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we develop or approved products that we may acquire will be commercialized
profitably or achieve market acceptance.

We may not be able to manage our business effectively if we are unable to
attract and retain key personnel.

We may not be able to attract or retain qualified management and
scientific and clinical personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other



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businesses, particularly in the San Diego, California area. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract,
retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our ability to
implement our business strategy.

We are highly dependent on the development, regulatory, commercial and
financial expertise of our senior management, particularly Michael A. Narachi, our President and Chief Executive Officer. Although we have employment agreements with each of our executive officers, these agreements are terminable at will at any time
with or without notice and, therefore, we may not be able to retain their services as expected. If we lose any members of our senior management team, including Mr. Narachi, we may not be able to find suitable replacements, and our business may
be harmed as a result. We are not aware of any key personnel who have plans to retire or leave our company in the near future. In addition to the competition for personnel, the San Diego area in particular is characterized by a high cost of
living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts.

In addition, we have scientific and clinical advisors who assist us in formulating our product development and clinical
strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the
development of products that may compete with ours.

We will need to obtain FDA approval of our proposed product names,
Contrave and Empatic, and any failure or delay associated with such approval may adversely impact our business.

Any name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office, or PTO. The FDA typically conducts
a rigorous review of proposed product names, including an evaluation of potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies medical claims. If the FDA objects to
the product names Contrave or Empatic, we may be required to adopt an alternative name for our initial product candidates. If we adopt an alternative name, we would lose the benefit of our existing trademark applications for Contrave and/or Empatic
and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We
may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.

If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

As a manufacturer of pharmaceuticals, even though we do not and will not control referrals of healthcare
services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients rights are and will be applicable to our business. We could be
subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business, without limitation. The laws that may affect our ability to operate include:



| |  |  | the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving or providing
remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and
Medicaid programs;
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| |  |  | federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims
for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us which promote pharmaceutical products and provide coding and billing advice to customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a scheme to defraud any healthcare
benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug product marketing, prohibits manufacturers from
marketing drug products for off-label use and regulates the distribution of drug samples; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed
by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA,
thus complicating compliance efforts.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additionally, the compliance environment is changing,
with more states, such as California and Massachusetts, mandating implementation of compliance programs, compliance with industry ethics codes, and spending limits, and other states, such as Vermont, Maine, and Minnesota requiring reporting to state
governments of gifts, compensation, and other remuneration to physicians. Federal legislation, the Physician Payments Sunshine Act of 2009, has been proposed. This legislation would require disclosure to the federal government of payments to
physicians. These laws all provide for penalties for non-compliance. The shifting regulatory environment, along with the requirement to comply with multiple jurisdictions with different compliance and/or reporting requirements, increases the
possibility that a pharmaceutical company may run afoul of one or more laws.

If our operations are found to
be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations.
Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution
for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our managements
attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

Our business involves the use of hazardous materials and we and our third-party manufacturers must comply with environmental laws and regulations, which can be expensive and
restrict how we do business.

Our third-party manufacturers activities involve the controlled
storage, use and disposal of hazardous materials owned by us, including the components of our product candidates and other hazardous compounds. We and our manufacturers are subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of these hazardous materials. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials comply with the standards prescribed by
these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, state or federal authorities may curtail the use of these materials and interrupt our business
operations. We do not currently maintain hazardous materials insurance coverage. If we are subject to any liability as a result of our third-party manufacturers activities involving hazardous materials, our business and financial condition may
be adversely affected. In the future we may seek to establish longer term third-party manufacturing arrangements, pursuant to which we would seek to obtain contractual indemnification protection from such third-party manufacturers potentially
limiting this liability exposure.



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Our business and operations would suffer in the event of system failures.

Despite the implementation of security measures, our internal computer systems and those of our CROs and other
contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or
security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing
clinical trials for Contrave or Empatic could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of
or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.

Risks Related to Intellectual Property

Our market opportunity for Contrave and Empatic may be limited by the relatively small number of issued U.S. patents and foreign patents that we own or in-license. In addition, although we have
additional U.S. and international patent applications pending which seek further protection of our product candidates, these applications may not issue on a timely basis or at all.

Contrave is currently protected, in part, by U.S. patent number 5,512,593 issued in April 1996 and U.S. patent
number 5,817,665 issued in October 1998, which we have licensed on an exclusive basis from Dr. Lee Dante and which we collectively refer to as the Dante patents. Provided maintenance fees are paid, U.S. patent number 5,512,593 is expected
to expire in April 2013 and U.S. patent number 5,817,665 is expected to expire in March 2013. The Dante patents do not protect Contrave outside of the United States. The Dante patents cover compositions of certain specified opioid antagonists
(including naltrexone) combined with certain specified antidepressants (including bupropion), and thus provide coverage for Contrave.

In addition to the Dante patents, Contrave is also currently protected by U.S. patent number 7,375,111, which we refer to as the Weber/Cowley composition patent, and U.S. patent number 7,462,626,
which we refer to as the Weber/Cowley methods patent. Provided maintenance fees are paid, the Weber/Cowley composition patent is expected to expire in March 2025, and the Weber/Cowley methods patent is expected to expire in July 2024. Collectively,
we refer to the Weber/Cowley composition patent and the Weber/Cowley methods patent as the Weber/Cowley patents. We own the Weber/Cowley patents, but they are subject to our license agreement with Oregon Health & Science University, or OHSU
and our license agreement with Duke University, or Duke. The Weber/Cowley patents cover the current composition of Contrave and methods of administering it to treat obesity. We and/or our licensors have filed a number of international counterparts
to the Weber/Cowley patents in foreign countries. A European counterpart application to the Weber/Cowley patent has issued in the European Patent Office, or EPO, and provides protection for Contrave in the various EPO countries in which the patent
has been registered. However, we cannot provide assurance that other pending international counterparts will issue on a timely basis or at all. There is also no assurance that the currently pending claims in those foreign countries will not be
rejected, that any such rejections and any future rejections will ultimately be overcome, nor that any claims that may issue will be sufficiently broad to protect Contrave in those foreign countries. Furthermore, we cannot be certain that the scope
of any issued foreign patent will be consistent with the currently pending claims, as there is a significant likelihood that the scope of the currently pending claims will be modified.

We have also filed patent applications in the United States and certain foreign countries under the Patent Cooperation
Treaty, or PCT, which is an international treaty providing a unified procedure under which the initial filing of a single patent application can provide an effective filing date in each participating country in which appropriate steps are
subsequently taken. Such steps have been taken in Europe and Japan with respect to our PCT filing directed to formulations and use of SR oral naltrexone, an ingredient in Contrave. Thus, we now have patent applications pending in those countries
(along with our previous filings in the United States and



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certain non-PCT countries). These filings seek to protect the formulations and use of SR oral naltrexone, but we cannot provide assurance that the claims in these patent applications will issue
in their current form or at all. If a competitor is willing to challenge the scope or validity of the Dante patents and/or the Weber/Cowley patents, the competitor could file an NDA seeking approval any time before we obtain approval from the FDA of
an NDA for Contrave and three years after we obtain such approval.

Our intellectual property protection for
Empatic derives from U.S. patent number 7,109,198, which was issued in September 2006 and which we refer to as the Gadde patent, and from U.S. patent number 7,425,571, which was issued in September 2008. We have in-licensed these patents on an
exclusive basis from Duke together with several related patent applications. The Gadde patent provides composition coverage for the Empatic zonisamide/bupropion combination and also covers methods for using Empatic to treat obesity and to reduce the
risk of hypertension, diabetes or dyslipidemia. Provided maintenance fees are paid, the Gadde patent is also expected to expire in 2023. U.S. patent number 7,425,571 covers methods of using zonisamide (including combinations with bupropion) to
cause weight loss. Provided maintenance fees are paid, this patent is expected to expire in 2023. In addition, Duke has filed international counterparts to the Gadde patent that are currently pending; however, there is no assurance that the claims
in these applications will issue in their currently pending form or at all. We have also filed patent applications in the United States, under the PCT and in certain foreign countries with the goal of protecting the formulations and use of
zonisamide SR, an ingredient in Empatic. The PCT filing has matured into patent applications in Europe and Japan, and thus we now have patent applications pending in those countries (along with certain other foreign countries and the United States).
However, we cannot provide assurance that the claims in these patent applications will issue in their currently pending form or at all.

We may face additional competition outside of the United States as a result of a lack of patent enforcement in foreign countries and off-label use of other dosage forms of the generic components in
our product candidates.

While we have filed patent applications in many countries outside the United
States, and have obtained some patent coverage for certain of our product candidates in certain foreign countries, we do not currently have widespread patent protection for Contrave and Empatic outside the United States and have no protection in
many foreign jurisdictions. Even if international patent applications ultimately issue or receive approval, it is likely that the scope of protection provided by such patents will be different from, and possibly less than, the scope provided by our
corresponding U.S. patents. The success of our international market opportunity is dependent upon the enforcement of patent rights in various other countries. A number of countries in which we have filed or intend to file patent applications
have a history of weak enforcement and/or compulsory licensing of intellectual property rights. Even if we have patents issued in these jurisdictions, there can be no assurance that our patent rights will be sufficient to prevent generic competition
or unauthorized use.

We may face competition from the off-label use of other dosage forms of the generic
components in our product candidates. In addition, others may attempt to commercialize our product candidate combinations in the countries of the European Union, Canada, Mexico, Japan or other markets where we do not have patent protection for our
product candidates. Due to the lack of patent protection for these combinations in territories outside the United States and the potential for correspondingly lower prices for the drugs in those markets, it is possible that patients will seek to
acquire the generic IR components of our product candidates (naltrexone IR and zonisamide IR), in those other territories. The off-label use of the generic IR components in the United States or the importation of the generic IR components from
foreign markets could adversely affect the commercial potential for our product candidates and adversely affect our overall business and financial results.

We have in-licensed all or a portion of the rights to our product candidates from third parties. If we default on any of our material obligations under those licenses, we could lose rights to our
product candidates.

We have in-licensed and otherwise contracted for rights to our product candidates,
and we may enter into similar licenses in the future to supplement our product candidate pipeline. Under the relevant agreements, we



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are subject to commercialization, development, sublicensing, royalty, insurance and other obligations. If we fail to comply with any of these requirements, or otherwise breach these license
agreements, the licensor may have the right to terminate the license in whole or to terminate the exclusive nature of the license. Loss of any of these licenses or the exclusive rights provided therein could harm our financial condition and
operating results. For example, our license agreement with Dr. Dante requires us to use commercially reasonable efforts to develop, obtain regulatory approval of and commercialize Contrave. To the extent we are unable to comply with these
obligations, the license may be terminated.

Restrictions on our patent rights relating to our product candidates may
limit our ability to prevent third parties from competing against us.

Our success will depend on our
ability to obtain and maintain patent protection for our product candidates, preserve our trade secrets, prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others.
Composition of matter patents on APIs are generally considered to be the strongest form of intellectual property protection for pharmaceutical products as they apply without regard to any method of use. Entirely new individual chemical compounds,
often referred to as new chemical entities, are typically entitled to composition of matter coverage. Current law also allows novel and unobvious combinations of old compounds to receive composition of matter coverage for the combination. However,
we cannot be certain that the current law will remain the same, or that our product candidates will be considered novel and unobvious by the PTO and courts.

In addition to composition of matter patents and patent applications, we also have issued and filed method of use patents and patent applications. This type of patent protects the
use of the product only for the specified method. However, this type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method.
Moreover, even if these competitors do not actively promote their product for our targeted indication, physicians may prescribe these products off-label. Although off-label prescriptions may infringe or contribute to the infringement of
method of use patents, the practice is common and such infringement is difficult to prevent or prosecute.

Although we believe we and our licensors have conducted appropriate prior art searches relating to our key patents and patent applications, there is no assurance that all of the potentially relevant prior art has been found. Moreover,
because the constituents of our combination product candidates have been on the market as separate monotherapeutic products for many years, it is possible that these monotherapies have previously been used off-label in such a manner that such prior
usage would affect the validity of our method of use patents.

Patent applications in the United States and
most other countries are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, we cannot be certain
that we and the inventors of the issued patents and applications that we in-licensed were the first to conceive inventions covered by the patents and pending patent applications or that we and those inventors were the first to file patent
applications for such inventions.

We also rely upon unpatented trade secrets, unpatented know-how and
continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants, some of whom assist with the development
of other obesity drugs. We also have agreements with our employees and selected consultants that obligate them to assign their inventions to us. It is possible that technology relevant to our business will be independently developed by a person that
is not a party to such an agreement. Furthermore, if the employees and consultants that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could
lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors.



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If we are sued for infringing intellectual property rights of third parties, it will
be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing
the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing products. As the
biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates and/or proprietary technologies may give rise to claims of infringement of the patent rights of others. There may be
issued patents of third parties of which we are currently unaware that may be infringed by our product candidates or proprietary technologies. Because patent applications can take many years to issue, there may be currently pending applications,
unknown to us, which may later result in issued patents that our product candidates or proprietary technologies may infringe.

We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product candidates and/or proprietary technologies
infringe their intellectual property rights. If one of these patents is found to cover our product candidates, proprietary technologies or their uses, we or our collaborators could be enjoined by a court and required to pay damages and could be
unable to commercialize our product candidates or use our proprietary technologies unless we or they obtained a license to the patent. A license may not be available to us or our collaborators on acceptable terms, if at all. In addition, during
litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us from making, using or selling our products, technologies or methods pending a trial on the merits, which could be years away.

There is a substantial amount of litigation involving patent and other intellectual property rights in the
biotechnology and pharmaceutical industries generally. If a third party claims that we or our collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:



| |  |  | infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our
managements attention from our core business;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on or violates the third
partys rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owners attorneys fees;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a court prohibiting us from selling or licensing the product unless the third party licenses its product rights to us, which it is not required to
do;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if a license is available from a third party, we may have to pay substantial royalties and fees and/or grant cross-licenses to intellectual property
rights for our products; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | redesigning our products or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

We will be obtaining our bupropion SR, zonisamide SR, naltrexone SR, our finished Contrave
and Empatic tablets combining these components, and our Contrave titration packs, Empatic titration packs and bottles used to package these tablets from third-party manufacturers. Each aspect of product design, formulation, manufacturing, packaging,
and use has the potential to implicate third-party patent rights. We have taken various measures to reduce the potential for infringement. For example, we have in-licensed from GlaxoSmithKline certain formulation patents related to bupropion that
expand our formulation options as we develop our commercial formulation of Contrave. However, we could be exposed to potential patent infringement liability from other third parties who hold patents on various formulations of bupropion and
naltrexone.

No assurance can be given that patents do not exist, have not been filed, or could not be filed
or issued, which contain claims covering these or other aspects of our products, technology or methods, as implemented by



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us or by third-party manufacturers with whom we contract. Because of the large number of patents issued and patent applications filed in our field, we believe there is a risk that third parties
may allege they have patent rights encompassing our products, technology or methods. Such third-party patent rights, if relevant, could prevent us from adopting or marketing a particular formulation or product, or could expose us to patent
infringement liability.

Obtaining and maintaining our patent protection depends on compliance with various procedural,
document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on the Gadde patents covering Empatic and the Weber/Cowley patents covering Contrave are due to be
paid to the PTO in several stages over the lifetimes of the patents. Future maintenance fees will also need to be paid on one of the Dante patents. We have systems in place to remind us to pay these fees, and we employ an outside firm, Computer
Patent Annuities, to pay annuity fees due to foreign patent agencies on our issued and pending foreign patent applications. The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee
payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in
accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.

We have received U.S. trademark registration number 3396021 for our corporate logo for use in connection with pharmaceutical
preparations and substances for the treatment of obesity, inducement of weight loss and prevention of weight gain. We have obtained trademark registrations in Canada, Europe and Japan for the same mark. In addition, we have received federal
trademark registration number 3396807 for our corporate name OREXIGEN for use in connection with pharmaceutical preparations for the treatment of disorders of the central nervous system, or CNS, printed instructional, educational and teaching
materials in the field of treatment and management of disorders of the CNS, and providing medical information in the field of disorders of the CNS. We have obtained trademark registrations in Canada, Europe and Japan for the same mark. We have
obtained foreign trademark registrations for the corporate name Orexigen Therapeutics, Inc. in Europe and Japan. We have received federal trademark registration number 3393576 for the mark CONTRAVE for use in connection with pharmaceutical
preparations for use in the treatment of obesity and inducing weight loss. An application for the CONTRAVE mark remains pending in the United States in connection with certain printed materials and medical information services. We have also obtained
foreign trademark registrations for the mark CONTRAVE in Europe and Japan and an application for this mark is pending in Canada. We have an intent-to-use trademark application pending in the United States for the mark EMPATIC for use in connection
with pharmaceutical preparations for the treatment of obesity and inducing weight loss, various printed materials, and medical information services. Foreign trademark registrations have issued in Europe and Japan for the mark EMPATIC, and an
application remains pending in Canada. However, no assurance can be given that our allowed trademark applications will actually become registered, or that our registered trademarks can be maintained or enforced. During trademark registration
proceedings in the various countries, we have received and expect to receive rejections. Although we are given an opportunity to respond to those rejections, there can be no assurance that the rejections can be successfully overcome. In addition, in
the PTO and in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to cancel registered trademarks. For example, another pharmaceutical company opposed the registration of EXCALIA, the
prior mark for the product candidate that we now call EMPATIC. No assurance can be given that opposition or cancellation proceedings will not be filed against our trademarks, nor can there be any assurance that our trademarks would survive such
proceedings.



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We may be subject to claims that our employees have wrongfully used or disclosed
alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical
industries, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims
that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial costs and be a distraction to management.

Risks Related to Our
Finances and Capital Requirements

We have incurred significant operating losses since our inception and anticipate
that we will incur continued losses for the foreseeable future.

We are a development stage company
with a limited operating history. We have focused primarily on developing our first two product candidates, Contrave and Empatic, with the goal of supporting regulatory approval for these product candidates. We have financed our operations almost
exclusively through the sale of our preferred and common stock and debt and have incurred losses in each year since our inception in September 2002. As of December 31, 2009, we had an accumulated deficit of $266.7 million. These losses,
combined with expected future losses, have had and will continue to have an adverse effect on our stockholders equity and working capital. We expect our development expenses to decrease in 2010 due to the completion of our Contrave Phase III
clinical trial program, as well as the completion of our Phase II clinical trial for Empatic. We expect increases in pre-commercialization expenses as we seek approval for and prepare for the launch of Contrave. In addition, if we obtain regulatory
approval for any of our product candidates, we may incur significant sales, marketing and outsourced manufacturing expenses as well as continued development expenses. As a result, we expect to continue to incur significant and increasing operating
losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

We have not generated any revenue from our product candidates and may never be profitable.

Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue
from our development-stage product candidates, and we do not know when, or if, we will generate any revenue. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:



| |  |  | successfully complete future trials for Contrave, if any, and future clinical trials for Empatic;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | obtain regulatory approval for Contrave and Empatic;
| | - |  | ----------------------------------------------------



| |  |  | manufacture commercial quantities of our product candidates at acceptable cost levels if regulatory approvals are received; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | identify and enter into one or more strategic collaborations to effectively market and sell our product candidates.
| | - |  | -------------------------------------------------------------------------------------------------------------------

Even if one or more of our product candidates is approved for commercial sale, which we do not expect to occur for several
years (we currently expect to file our first NDA by the end of April 2010), we anticipate incurring significant costs associated with commercializing any approved product. We may not achieve profitability soon after generating product sales, if
ever. If we are unable to generate product revenues, we will not become profitable and may be unable to continue operations without continued funding.



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Our short operating history makes it difficult to evaluate our business and prospects.

We were incorporated in September 2002. Our operations to date have been limited to organizing and
staffing our company and conducting product development activities primarily for our first two product candidates, Contrave and Empatic. We have not yet demonstrated an ability to obtain regulatory approval for or commercialize a product candidate.
Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.

We may need additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or
commercialization efforts.

Developing products for the obesity market, conducting clinical trials,
establishing outsourced manufacturing relationships and successfully manufacturing and marketing drugs that we may develop is expensive. We believe that our existing cash, cash equivalents and short-term investments will be sufficient to meet our
projected operating requirements through at least the next 12 months. However, we have based these estimates on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect.
Further, we will need to raise additional capital to:



| |  |  | fund our operations and continue to conduct clinical trials to support potential regulatory approval of marketing applications;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | qualify and outsource the commercial-scale manufacturing of our products under cGMPs; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | commercialize Contrave, Empatic or any other product candidates that we may develop, in-license or acquire, if any of these product candidates
receive regulatory approval.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amount and timing of our future funding requirements will
depend on many factors, including, but not limited to:



| |  |  | the rate of progress and cost of our clinical trials and other product development programs for Contrave, to the extent additional clinical trials
need to be conducted, Empatic and any other product candidates that we may develop, in-license or acquire;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with our product
candidates;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the costs and timing of completion of outsourced commercial manufacturing supply arrangements for each product candidate;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing of regulatory approval of our product candidates, if at all;
| | - |  | -----------------------------------------------------------------------



| |  |  | the costs of establishing sales, marketing and distribution capabilities, should we elect to do so;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | the effect of competing technological and market developments; and
| | - |  | ------------------------------------------------------------------



| |  |  | the terms and timing of any collaborative, licensing, co-promotion or other arrangements that we may establish.
| | - |  | ---------------------------------------------------------------------------------------------------------------

Future capital requirements will also depend on the extent to which we acquire or invest in additional complementary
businesses, products and technologies. We currently have no commitments or agreements relating to any of these types of transactions.

Until we can generate a sufficient amount of product revenue and achieve profitability, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate
collaboration and licensing arrangements, as well as through interest income earned on cash and investment balances. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available,
we may be required to delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts.



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Our quarterly operating results may fluctuate significantly.

We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be
affected by numerous factors, including:



| |  |  | variations in the level of expenses related to our two existing product candidates or future development programs;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | addition or termination of clinical trials or funding support;
| | - |  | --------------------------------------------------------------



| |  |  | any intellectual property infringement lawsuit in which we may become involved;
| | - |  | -------------------------------------------------------------------------------



| |  |  | regulatory developments affecting our product candidates or those of our competitors;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these
arrangements; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if any of our product candidates receives regulatory approval, the level of underlying demand for our product candidates and wholesalers
buying patterns.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

If our quarterly operating results fall below the expectations of
investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that
quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

Raising additional funds by issuing securities may cause dilution to existing stockholders and raising funds through lending and licensing arrangements may restrict our operations or require us to
relinquish proprietary rights.

To the extent that we raise additional capital by issuing equity
securities, our existing stockholders ownership will be diluted. Debt financing typically contains covenants that restrict operating activities. Our credit and security agreement, as amended, with GE Healthcare Financial Services is secured by
a pledge of all of our assets other than, subject to certain limited exceptions, intellectual property, and contains a variety of operational covenants, including limitations on our ability to incur liens or additional debt, pay dividends, redeem
our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions, among other restrictions. Any future debt financing we enter into may involve similar or more onerous covenants that restrict our operations.
Any borrowings under the credit and security agreement, as amended, with GE Healthcare Financial Services or any future debt financing will need to be repaid, which creates additional financial risk for our company, particularly if our business or
prevailing financial market conditions are not conducive to paying off or refinancing our outstanding debt obligations.

If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our current product candidates, potential
products or proprietary technologies, or grant licenses on terms that are not favorable to us. If adequate funds are not available, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and we may
be required to delay, significantly curtail or eliminate the development of one or more of our product candidates.

We
incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to public company compliance initiatives.

As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules
subsequently implemented by the Securities and Exchange Commission, or the SEC, and the Nasdaq Stock Market, Inc., have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial
controls and



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changes in corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations result in
increased legal and financial compliance costs and will make some activities more time-consuming and costly.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure. In particular, we are required to perform system and process evaluation and testing of our internal
controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.
Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. We have incurred and continue to expect
to incur significant expense and devote substantial management effort toward ensuring compliance with Section 404. We currently do not have an internal audit function, and we may need to hire additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge. Moreover, if we do not comply with the requirements of Section 404, or if we or our independent registered public accounting firm identifies deficiencies in our internal
controls that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would entail expenditure of additional
financial and management resources.

Our results of operations and liquidity needs could be materially negatively
affected by market fluctuations and economic downturn.

Our results of operations could be
materially negatively affected by economic conditions generally, both in the U.S. and elsewhere around the world. Domestic and international equity markets have experienced and may continue to experience heightened volatility and turmoil based on
domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue and the markets continue to remain volatile, our results of operations could be adversely affected by those factors in many
ways, including making it more difficult for us to raise funds if necessary, and our stock price may further decline. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are not
federally insured. If economic instability continues, we cannot provide assurance that we will not experience losses on these investments.

Risks Relating to Securities Markets and Investment in Our Stock

The market price of our common stock has fluctuated and is likely to continue to fluctuate, which could reduce the market price of our common stock.

The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of particular companies. Over the last several years, the overall capital markets have been highly volatile. Since the commencement of trading in connection with our
initial public offering, or IPO, the publicly traded shares of our common stock have themselves experienced significant price and volume fluctuations. During the year ended December 31, 2009, the price per share for our common stock on the
Nasdaq Global Market has ranged from a low sale price of $1.78 to a high sale price of $10.83. This market volatility is likely to continue and could reduce the market price of our common stock, regardless of our operating performance. In addition,
the trading price of our common stock could change significantly over short periods of time in response to many factors, including:



| |  |  | announcements concerning our NDA for Contrave;
| | - |  | ----------------------------------------------



| |  |  | announcements regarding results of our competitors clinical trials;
| | - |  | --------------------------------------------------------------------



| |  |  | FDA or international regulatory actions, including failure to receive regulatory approval for any of our product candidates;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



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| |  |  | The results from our clinical trials, including future required trials, if any, for Contrave and future clinical trials for Empatic;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements regarding manufacturing or supply developments for Contrave or Empatic;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | failure of any of our product candidates, if approved, to achieve commercial success;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | developments concerning current or future strategic collaborations;
| | - |  | -------------------------------------------------------------------



| |  |  | announcements of the introduction of new products by us or our competitors;
| | - |  | ---------------------------------------------------------------------------



| |  |  | market conditions in the pharmaceutical and biotechnology sectors;
| | - |  | ------------------------------------------------------------------



| |  |  | announcements concerning product development results or intellectual property rights of others;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | litigation or public concern about the safety of our potential products;
| | - |  | ------------------------------------------------------------------------



| |  |  | actual and anticipated fluctuations in our quarterly operating results;
| | - |  | -----------------------------------------------------------------------



| |  |  | deviations in our operating results from the estimates of securities analysts or other analyst comments;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | additions or departures of key personnel;
| | - |  | -----------------------------------------



| |  |  | third-party coverage and reimbursement policies; and
| | - |  | ----------------------------------------------------



| |  |  | discussion of us or our stock price by the financial and scientific press and in online investor communities.
| | - |  | -------------------------------------------------------------------------------------------------------------

The realization of any of the risks described in these Risk Factors could also have a dramatic and
material adverse impact on the market price of our common stock.

Future sales of our common stock may
depress our stock price.

In July 2009, we completed a public offering of 11,500,000 shares of
common stock at a public offering price of $7.50 per share. This sale and any future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the price of
our common stock. We cannot predict the effect, if any, that market sales of those shares of common stock or the availability of those shares of common stock for sale will have on the market price of our common stock.

In addition, persons who were our stockholders prior to the sale of shares in our IPO continue to hold a substantial number
of shares of our common stock that they may be able to sell in the public market, subject to the limitations of Rule 144 of the Securities Act of 1933, as amended. Significant portions of these shares are held by a small number of stockholders.
Sales by our current stockholders of a substantial number of shares, or the expectation that such sales may occur, could significantly reduce the market price of our common stock. For example, certain of our executive officers have established
selling plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for the purpose of effecting specified sales of our common stock over a specified period of time. Moreover, the holders of a substantial
number of shares of common stock may have rights, subject to certain conditions, to require us to file registration statements to permit the resale of their shares in the public market or to include their shares in registration statements that we
may file for ourselves or other stockholders.

We have also registered all common stock that we may issue
under our employee benefits plans. As a result, these shares can be freely sold in the public market upon issuance, subject to restrictions under the securities laws. In addition, our directors and executive officers may in the future establish
programmed selling plans under Rule 10b5-1 of the Exchange Act for the purpose of effecting sales of our common stock, in addition to the already established plans. If any of these events cause a large number of our shares to be sold in the
public market, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.



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Our executive officers and directors and their affiliates will exercise significant
influence over stockholder voting matters in a manner that may not be in the best interests of all of our stockholders.

As of March 8, 2010, our executive officers and directors and their affiliates together controlled approximately 34% of our outstanding common stock. As a result, these stockholders will collectively
be able to significantly influence all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions. The concentration of ownership may delay, prevent or deter a change in
control of our company even when such a change may be in the best interests of some stockholders, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might
affect the prevailing market price of our common stock.

Anti-takeover provisions under our charter documents and
Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or
prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:



| |  |  | a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one
time;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a prohibition on stockholder action through written consent;
| | - |  | ------------------------------------------------------------



| |  |  | a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, the
president or by a majority of the total number of authorized directors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | advance notice requirements for stockholder proposals and nominations;
| | - |  | ----------------------------------------------------------------------



| |  |  | a requirement of approval of not less than 662/3% of all outstanding shares of our capital stock entitled to vote to
amend any bylaws by stockholder action, or to amend specific provisions of our certificate of incorporation; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

In addition, we are governed by the provisions of Section 203 of the Delaware General
Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws
and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including to delay or impede a merger,
tender offer or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

We have never paid dividends on our capital stock, and because we do not anticipate paying any cash dividends in the foreseeable
future, capital appreciation, if any, of our common stock will be your sole source of gain on an investment in our stock.

We have paid no cash dividends on any of our classes of capital stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not
anticipate paying any cash dividends on our common stock in the foreseeable future. Furthermore, our credit and security agreement, as amended, with GE Healthcare Financial Services restricts our ability to pay dividends. As a result, capital
appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.



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We may become involved in securities class action litigation that could divert
managements attention and harm our business.

The stock markets have from time to time
experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical companies. These broad market fluctuations may cause the market price of our common stock to decline. In the past,
securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced
significant stock price volatility in recent years. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts managements attention and resources, which could adversely affect our business.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

In December 2007, we entered into a lease agreement covering approximately
22,229 square feet of office space which we use as our corporate headquarters in La Jolla, California. In September 2008, we entered into an amendment to lease an additional 9,312 square feet bringing the total leased space to 31,541
square feet. In addition, we lease approximately 4,369 square feet of space in San Diego, California under a lease that expires in October 2011. We have subleased these premises. We have no laboratory, research or manufacturing facilities.
We believe that our current facilities are adequate for our needs for the immediate future and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations on commercially reasonable terms.

Item 3. Legal Proceedings.

None.

Item 4. Reserved.



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PART II

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock has been traded on the Nasdaq Global Market under the symbol OREX since April 26, 2007. Prior to that time, there was no public market for our common stock.

The following table sets forth the high and low sales price of our common stock, as reported by the Nasdaq Global Market
for the period indicated.



|                              |  |      |       |     |   |     
|----------------------------- |  | ---- | ----- | --- | - | ----
|                              |  | High |       | Low
|Year Ended December 31, 2009: |  |      |       |     |   |     
|Fourth Quarter                |  | $    | 10.03 |     | $ | 6.10
|Third Quarter                 |  |      | 10.83 |     |   | 5.00
|Second Quarter                |  |      | 5.40  |     |   | 1.78
|First Quarter                 |  |      | 6.94  |     |   | 2.14
|                              |  |     
|Year Ended December 31, 2008: |  |      |       |     |   |     
|Fourth Quarter                |  | $    | 11.04 |     | $ | 1.55
|Third Quarter                 |  |      | 12.28 |     |   | 7.25
|Second Quarter                |  |      | 11.84 |     |   | 6.89
|First Quarter                 |  |      | 14.34 |     |   | 9.80

On
March 8, 2010, the last reported sale price of our common stock on the Nasdaq Global Market was $6.71. As of March 8, 2010, there were 44 holders of record of our common stock.

Dividend Policy

We have never declared or paid any cash
dividends on our capital stock and we do not currently intend to pay any cash dividends on our common stock. We expect to retain future earnings, if any, to fund the development and growth of our business. The payment of dividends by us on our
common stock is limited by our credit and security agreement, as amended, with GE Healthcare Financial Services. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon,
among other factors, our results of operations, financial condition, capital requirements and contractual restrictions.

Equity
Compensation Plan Information

The following table summarizes securities available under our equity
compensation plans as of December 31, 2009.



|                                                            |  |                                                  |     |  |                              |      |                                                |        
|----------------------------------------------------------- |  | ------------------------------------------------ | --- |  | ---------------------------- | ---- | ---------------------------------------------- | -------
|Plan Category                                               |  | Shares IssuableUpon Exerciseof OutstandingAwards |     |  | WeightedAverageExercisePrice |      | Number ofSecuritiesAvailable forFutureIssuance
|Equity compensation plans approved by security holders:     |  | 6,744,037                                        | (1) |  | $                            | 6.07 |                                                | 79,157 
|Equity compensation plans not approved by security holders: |  | 264,000                                          | (2) |  | $                            | 7.75 |                                                | 236,000
|                                                            |  |                                                  |     |  |                              |      |                                                |        
|Total                                                       |  | 7,008,037                                        |     |  | $                            | 6.13 |                                                | 315,157
|                                                            |  |                                                  |     |  |                              |      |                                                |        



|(1) | Represents shares reserved for issuance under the 2004 Stock Plan and the 2007 Equity Incentive Award Plan, as amended, or the 2007 Plan. The 2007
Plan was adopted at the time of our initial public offering
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | which coincided with our discontinuation of granting awards under the 2004 Stock Plan. Stock options under the 2007 Plan have an exercise price equal to the fair market value of the underlying
common stock at the date of grant, generally vest over a period of four years, and have a ten-year life. The 2007 Plan contains an evergreen provision which allows for annual increases in the number of shares available for future
issuance on January 1 of each year during the ten-year term of the plan, beginning on January 1, 2008. The annual increase in the number of shares shall be equal to the lesser of (i) 5% of our outstanding common stock on the
applicable January 1, (ii) 2,000,000 shares of common stock, or (iii) a lesser amount determined by our board of directors.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents shares reserved for issuance under the 2007 Plan to individuals not previously an employee or non-employee director of ours (or following
a bona fide period of non-employment with us), as an inducement material to each individuals entering into employment with us, or the Inducement Reserve, within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules, or Rule 5635(c)(4).
The 2007 Plan was amended in October 2009 to provide for the reservation of 500,000 shares of our common stock to be issued pursuant to the Inducement Reserve without stockholder approval, as permitted under Rule 5635(c)(4). The 2007 Plan was
further amended without stockholder approval in February 2010 to reserve an additional 2,000,000 shares of our common stock to be issued pursuant to the Inducement Reserve.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Comparative Stock Performance Graph

The information contained in this Stock Performance Graph section shall not be deemed to be soliciting material or filed with the SEC or subject to the liabilities of section 18
of the Exchange Act unless we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.

The following graph illustrates a comparison of the total cumulative stockholder return on our common stock since April 26, 2007, which is the date our common stock first began trading on the Nasdaq
Global Market, to two indices: the Nasdaq Composite Index and the Nasdaq Biotechnology Index. The graph assumes an initial investment of $100 on April 26, 2007. The comparisons in the graph are required by the Securities and Exchange Commission
and are not intended to forecast or be indicative of possible future performance of our common stock.

LOGO



|                            |  |                |     |                   |   |   
|--------------------------- |  | -------------- | --- | ----------------- | - | --
|                            |  | April 26, 2007 |     | December 31, 2009
|Orexigen Therapeutics, Inc. |  | $              | 100 |                   | $ | 57
|Nasdaq Composite Index      |  | $              | 100 |                   | $ | 91
|Nasdaq Biotechnology Index  |  | $              | 100 |                   | $ | 99



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Sales of Unregistered Securities

None.

Repurchases of Equity Securities

None.

Item 6. Selected Financial Data

The following selected financial data should be read together with our financial statements and related notes, and Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in this annual report.



|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|----------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---------------------------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                                                        |  | Years Ended December 31,                 |         |   | Period FromSeptember 12,2002(Inception)
toDecember 31,2009 |  
|                                                                        |  | 2009                                     |         |   | 2008                                                       |   |         | 2007 |  |   | 2006    |   |  | 2005 |         |  
|                                                                        |  | (In thousands, except per share amounts) |        
|Statement of Operations Data:                                           |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Revenues:                                                               |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Collaborative agreement                                                 |  | $                                        |        |   |                                                            | $ |        |      |  | $ |        |   |  | $    |        |   |  | $ | 174     |   |  | $ | 174      |  
|License revenue                                                         |  |                                          | 88      |   |                                                            |   | 88      |      |  |   | 88      |   |  |      | 88      |   |  |   | 88      |   |  |   | 441      |  
|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Total revenues                                                          |  |                                          | 88      |   |                                                            |   | 88      |      |  |   | 88      |   |  |      | 88      |   |  |   | 262     |   |  |   | 615      |  
|Operating expenses:                                                     |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Research and development                                                |  |                                          | 47,441  |   |                                                            |   | 79,261  |      |  |   | 50,253  |   |  |      | 22,586  |   |  |   | 9,709   |   |  |   | 216,559  |  
|General and administrative                                              |  |                                          | 18,177  |   |                                                            |   | 15,651  |      |  |   | 10,657  |   |  |      | 5,870   |   |  |   | 3,386   |   |  |   | 55,999   |  
|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Total operating expenses                                                |  |                                          | 65,618  |   |                                                            |   | 94,912  |      |  |   | 60,910  |   |  |      | 28,456  |   |  |   | 13,095  |   |  |   | 272,558  |  
|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Loss from operations                                                    |  |                                          | (65,530 | ) |                                                            |   | (94,824 | )    |  |   | (60,822 | ) |  |      | (28,368 | ) |  |   | (12,833 | ) |  |   | (271,943 | )
|Other income (expense):                                                 |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Interest income                                                         |  |                                          | 333     |   |                                                            |   | 3,115   |      |  |   | 3,901   |   |  |      | 872     |   |  |   | 744     |   |  |   | 9,012    |  
|Interest expense                                                        |  |                                          | (1,365  | ) |                                                            |   | (1,531  | )    |  |   | (846    | ) |  |      | (8      | ) |  |   |        |   |  |   | (3,806   | )
|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Total other income (expense)                                            |  |                                          | (1,032  | ) |                                                            |   | 1,584   |      |  |   | 3,055   |   |  |      | 864     |   |  |   | 744     |   |  |   | 5,206    |  
|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Net loss                                                                |  |                                          | (66,562 | ) |                                                            |   | (93,240 | )    |  |   | (57,767 | ) |  |      | (27,504 | ) |  |   | (12,089 | ) |  |   | (266,737 | )
|Accretion to redemption value of redeemable convertible preferred stock |  |                                          |        |   |                                                            |   |        |      |  |   | (10     | ) |  |      | (31     | ) |  |   | (24     | ) |  |   | (78      | )
|Deemed dividend of beneficial conversion for Series C preferred stock   |  |                                          |        |   |                                                            |   |        |      |  |   |        |   |  |      | (13,860 | ) |  |   |        |   |  |   | (13,860  | )
|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Net loss attributable to common stockholders                            |  | $                                        | (66,562 | ) |                                                            | $ | (93,240 | )    |  | $ | (57,777 | ) |  | $    | (41,395 | ) |  | $ | (12,113 | ) |  | $ | (280,675 | )
|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Basic and diluted net loss per share(1)                                 |  | $                                        | (1.67   | ) |                                                            | $ | (2.76   | )    |  | $ | (3.08   | ) |  | $    | (18.87  | ) |  | $ | (6.12   | ) |  |   |          |  
|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  
|Shares used to calculate net loss per share(1)                          |  |                                          | 39,905  |   |                                                            |   | 33,762  |      |  |   | 18,757  |   |  |      | 2,193   |   |  |   | 1,980   |   |  |   |          |  
|                                                                        |  |                                          |         |   |                                                            |   |         |      |  |   |         |   |  |      |         |   |  |   |         |   |  |   |          |  



|(1) | See Note 2 of Notes to Financial Statements for an explanation of the method used to calculate the net loss per share and the number of shares
used in the computation of the per share amounts.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                                                        |  |                    |          |   |      |   |          |      |  |   |          |   |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------- |  | ------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                        |  | As of December 31, |         
|                                                                        |  | 2009               |          |   | 2008 |   |          | 2007 |  |   | 2006     |   |  | 2005 |        
|                                                                        |  | (In thousands)     |         
|Balance Sheet Data:                                                     |  |                    |          |   |      |   |          |      |  |   |          |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents and investment securities, available-for-sale |  | $                  | 92,158   |   |      | $ | 86,167   |      |  | $ | 85,454   |   |  | $    | 34,413  |   |  | $ | 27,647  |  
|Working capital                                                         |  |                    | 77,387   |   |      |   | 60,862   |      |  |   | 74,648   |   |  |      | 29,644  |   |  |   | 26,412  |  
|Total assets                                                            |  |                    | 96,848   |   |      |   | 91,908   |      |  |   | 91,320   |   |  |      | 36,810  |   |  |   | 28,114  |  
|Long-term debt, less current portion                                    |  |                    | 2,416    |   |      |   | 8,800    |      |  |   | 11,072   |   |  |      |        |   |  |   |        |  
|Redeemable convertible preferred stock                                  |  |                    |         |   |      |   |         |      |  |   |         |   |  |      | 45,897  |   |  |   | 45,866  |  
|Deficit accumulated during the development stage                        |  |                    | (266,737 | ) |      |   | (200,175 | )    |  |   | (106,935 | ) |  |      | (49,168 | ) |  |   | (21,664 | )
|Total stockholders equity (deficit)                                    |  |                    | 75,903   |   |      |   | 53,794   |      |  |   | 64,883   |   |  |      | (15,847 | ) |  |   | (20,576 | )

Item 7.
Managements Discussion And Analysis Of Financial Condition And Results Of Operations

The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6Selected Financial Data and our financial statements and related notes appearing elsewhere in this
annual report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including but not limited to those set forth under Item 1ARisk Factors and elsewhere in this annual report.

Overview

Background

We are a biopharmaceutical company focused on the development of pharmaceutical
product candidates for the treatment of obesity. Our lead combination product candidates targeted for obesity are Contrave®, which has completed Phase III clinical trials, and Empatic, which has completed Phase II clinical trials. Each of these product candidates is a
combination of generic drugs, which we have systematically screened for synergistic CNS activity. Each of the components of our product candidates has already received regulatory approval and has been commercialized previously. We are testing these
combinations in an effort to demonstrate adequate efficacy and safety for potential regulatory approval. We have not yet received regulatory approval for any product candidate.

We are a development stage company. We have incurred significant net losses since our inception. As of December 31, 2009, we had an accumulated deficit of $266.7 million. These
losses have resulted principally from costs incurred in connection with research and development activities, primarily costs of clinical trial activities associated with our current product candidates, and general and administrative expenses. We
expect to continue to incur operating losses for the next several years as we pursue the clinical development and market launch of our product candidates and acquire or in-license additional products and technologies, and add the necessary
infrastructure to support our growth.

In January 2008, we completed a public offering of
7,000,000 shares of common stock at a public offering price of $11.00 per share. Net cash proceeds from the public offering were approximately $71.5 million, after deducting underwriting discounts, commissions and offering expenses payable
by us. In February 2008, the underwriters exercised a portion of their overallotment option and purchased an additional 326,435 shares of our common stock, from which we received cash proceeds, net of underwriting discounts, of approximately
$3.4 million.

In July 2009, we completed a public offering of 11,500,000 shares of our common stock
at a public offering price of $7.50 per share. Net cash proceeds from the public offering were $81.6 million, after deducting underwriting discounts, commissions and offering expenses.



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Revenues

We have generated approximately $615,000 in revenue from inception through December 31, 2009, resulting from the
sublicensing of technology and amounts earned under a collaborative agreement. During 2005, we sublicensed technology to Cypress Bioscience, Inc., or Cypress, for an upfront payment of $1.5 million, and this amount is being recognized ratably
over the estimated life of the sublicensed patent. In addition, we recognized revenue of approximately $174,000 during the year ended December 31, 2005 related to a collaborative agreement with Eli Lilly and Company, or Eli Lilly, the term of
which has since expired. We do not expect to generate any significant revenues from licensing, achievement of milestones or product sales unless and until we are able to obtain regulatory approval of, and commercialize, our product candidates either
ourselves or with a collaborator. However, we may never generate revenues from our product candidates as we may never succeed in obtaining regulatory approval or commercializing our product candidates.

Research and Development Expenses

The majority of our operating expenses to date have been incurred in research and development activities. Our research and development expenses consist primarily of costs associated
with clinical trials managed by our contract research organizations, or CROs, product development efforts and manufacturing costs. License fees, salaries and related employee benefits for certain personnel, and costs associated with certain
non-clinical activities such as regulatory expenses, are also included in this amount. Our most significant costs to date are expenses incurred in connection with the clinical trials for Contrave and Empatic. The clinical trial expenses include
payments to vendors such as CROs, investigators, suppliers of clinical drug materials and related consultants. We charge all research and development expenses to operations as incurred because the underlying technology associated with these
expenditures relates to our research and development efforts and has no alternative future uses.

At any time,
we have several ongoing research projects. Our internal research and development resources are not directly tied to any individual research project and are primarily deployed across our Contrave and Empatic programs, both of which target the obesity
market. We are developing our two obesity product candidates in parallel and, due to the fact that we use shared resources across projects, we do not maintain information regarding our internal costs incurred for our research and development
programs on a program-specific basis. We use external service providers to manage our clinical trials, to manufacture the product supplies used in these trials and for formulations development, consulting and other activities. Prior to 2007, our
external service providers did not generally bill us on a program-specific basis.

The following table
summarizes our research and development expenses for the year ended December 31, 2009. Costs that are not attributable to a specific research program are included in the Other category (in thousands):



|                                     |  |   |       
|------------------------------------ |  | - | ------
|Costs of external service providers: |  |   |       
|Obesity                              |  | $ | 36,270
|Other                                |  |   | 134   
|                                     |  |   |       
|Subtotal                             |  |   | 36,404
|Internal costs                       |  |   | 8,096 
|Stock-based compensation             |  |   | 2,941 
|                                     |  |   |       
|Total research and development costs |  | $ | 47,441
|                                     |  |   |       

At this time, due to the risks
inherent in the clinical trial process and given the early stage of our product development programs, we are unable to estimate with any certainty the costs we will incur in the continued development of our product candidates for potential
commercialization. Clinical development timelines, the probability of success and development costs can differ materially from expectations. While we are currently



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focused on advancing each of our product development programs, our future research and development expenses will depend on the clinical success of each product candidate, as well as ongoing
assessments as to each product candidates commercial potential. In addition, we cannot forecast with any degree of certainty which product candidates will be subject to future collaborations, when such arrangements will be secured, if at all,
and to what degree such arrangements would affect our development plans and capital requirements.

We expect
our development expenses to decline in 2010 due to the completion of our Contrave Phase III clinical trial program, as well as the completion of our Phase II clinical trial for Empatic. We expect increases in pre-commercialization expenses as we
seek approval for and prepare to launch Contrave. Future development expenses will depend on whether we must conduct additional clinical trials for Contrave, our financial resources, as well as decisions made with respect to our Empatic program. The
lengthy process of completing our clinical trials and seeking regulatory approval for our product candidates requires the expenditure of substantial resources. Any failure by us or delay in completing our clinical trials, or in obtaining regulatory
approvals, could cause a delay in the commencement of product revenues and cause our research and development expenses to increase and, in turn, have a material adverse effect on our results of operations. We do not expect any of our current product
candidates to be commercially available in major markets before 2011, if at all.

General and Administrative

Our general and administrative expenses consist primarily of salaries and related costs for personnel in
executive, finance, accounting and internal support functions. In addition, general and administrative expenses include professional fees for legal, consulting and accounting services. We anticipate increases in general and administrative expenses
as we add personnel, comply with the reporting obligations applicable to publicly-held companies, and continue to build our corporate infrastructure in support of our continued development and preparation for the potential commercialization of our
product candidates.

Other Income (Expense)

Other income consists of interest earned on our cash, cash equivalents and investment securities. Interest expense consists
of interest incurred in connection with the $25.0 million credit and security agreement, as amended, with GE Healthcare Financial Services.

Income Taxes

At December 31, 2009, we have
federal and state net operating loss carryforwards of approximately $247.9 million and $224.6 million, respectively. The federal and state net operating loss carryforwards begin to expire in 2022 and 2013, respectively, unless previously
utilized. At December 31, 2009, we have federal and state research and development tax credit carryforwards of $10.4 million and $2.6 million, respectively. The federal research and development tax credit carryforwards begin to expire in 2023
unless previously utilized and the state tax credits carry forward indefinitely. Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, substantial changes in our ownership may limit the amount
of net operating loss carryforwards that could be utilized annually in the future to offset taxable income. An analysis was performed which indicated that multiple ownership changes have occurred in previous years which created annual limitations on
our ability to utilize our net operating loss, or NOL, and tax credit carryovers. Such limitations will result in approximately $945,000 of tax benefits related to NOL and tax credit carryforwards that will expire unused. Accordingly, the related
net operating loss and research and development tax credit carryforwards have been removed from deferred tax assets accompanied by a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance,
limitations created by future ownership changes, if any, will not impact our effective tax rate.

Beneficial
Conversion Feature

During November 2006, we completed the sale of 8,771,930 shares of
Series C convertible preferred stock for net proceeds of approximately $29.9 million. The Series C convertible preferred stock was sold at a price per



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share below the anticipated initial public offering price. We recorded a deemed dividend on the Series C convertible preferred stock of $13,859,649, which is equal to the number of shares of
Series C convertible preferred stock sold multiplied by the difference between the estimated fair value of the underlying common stock and the Series C conversion price per share.

Critical Accounting Policies and Estimates

Our managements discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in conformity with generally accepted
accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. Actual results could
differ from those estimates.

We believe the following accounting policies to be critical to the judgments and
estimates used in the preparation of our financial statements.

Research and Development Expenses

A substantial portion of our ongoing research and development activities are performed under agreements we enter into with
external service providers, including CROs, which conduct many of our research and development activities. We accrue for costs incurred under these contracts based on factors such as estimates of work performed, patient enrollment, progress of
patient studies and other events. However, the level of estimates can be significant. To date, we have not made any material adjustments to our estimates of clinical trial expenses. We make good faith estimates that we believe to be accurate, but
the actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.

Stock-Based Compensation

We account for stock-based compensation to employees in accordance with the fair value method of accounting for stock-based compensation arrangements which requires us to expense the estimated fair value
of non-cash, stock-based payments to employees. Share-based payment transactions with employees are recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period.

We grant options to purchase our common stock to our employees, directors and non-employees under our 2007 equity incentive
award plan. Stock-based compensation expense for the years ended December 31, 2009, 2008 and 2007 were $6.2 million, $7.1 million and $4.4 million, respectively. At December 31, 2009, total unrecognized estimated stock-based compensation
expense related to non-vested stock options granted prior to that date was $17.5 million, which is expected to be recognized over a weighted-average period of 3.4 years.

We calculate the fair value of stock option grants using the Black-Scholes option-pricing model. The determination of the fair value of stock-based payment awards on the date of
grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of
the awards, risk-free interest rate and the expected term of the awards.

The weighted average expected life
of options was calculated using the simplified method as prescribed by the Securities Exchange Commission. This decision was based on the lack of relevant historical data due to our limited historical experience. For options granted during the year
ended December 31, 2009, we have calculated a weighted average expected term of 6.2 years. In addition, due to our limited historical data, the estimated volatility incorporates the historical volatility of comparable companies whose share
prices are publicly available. For purposes of estimating the fair value of stock options granted during 2009 using the Black-Scholes model, we used estimated weighted average stock price volatility of 59.6%.



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The risk-free interest rate assumption was based on the United States
Treasurys rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued (weighted-average risk-free interest rate of 2.3% for the year ended December 31, 2009). The assumed
dividend yield was based on our expectation of not paying dividends in the foreseeable future.

For 2009, 2008
and 2007, we have reduced stock-based compensation expense recognized in the Statement of Operations to reflect estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Pre-vesting forfeitures were estimated to be approximately 10.0% for all years ended December 31, 2009, 2008 and 2007 based on historical experience.

Equity instruments issued to non-employees are recorded at their fair value and are periodically revalued as the equity
instruments vest and are recognized as expense over the related service period.

Income Taxes

We follow the provisions of the Income Taxes Topic of the Financial Accounting Standards Board (FASB) Accounting
Standards Codification, that defines a recognition threshold and measurement attributes for financial statement recognition and measurement of a tax provision taken or expected to be taken in a tax return. The topic also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under the topic, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount
that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The topic is effective for fiscal
years beginning after December 15, 2006.

Deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates which will be in effect when the differences reverse. We provide a valuation allowance against net deferred tax assets unless, based upon the
available evidence, it is more likely than not that the deferred tax asset will be realized.

Results of
Operations

Comparison of year ended December 31, 2009 to year ended December 31, 2008

Revenues. Revenues for each of the years ended December 31, 2009 and 2008 were
$88,000 and were related to our sublicensed technology to Cypress.

Research and Development
Expenses. Research and development expenses decreased to $47.4 million for the year ended December 31, 2009 from $79.3 million in 2008. This decrease of approximately $31.9 million was due primarily to a decrease in
expenses in connection with our Contrave Phase III clinical trials, related proprietary product formulation work and consulting activities totaling $39.8 million. The decrease in research and development expenses was partly offset by an increase in
costs incurred in connection with the preparation for our New Drug Application for Contrave of $2.8 million, an increase in license fees of $2.5 million and an increase in salaries and personnel related costs totaling approximately
$2.5 million.

General and Administrative Expenses. General and administrative expenses
increased to $18.2 million for the year ended December 31, 2009 from $15.7 million in 2008. This increase of $2.5 million was principally due to increases in salaries and personnel related costs totaling $1.7 million, an increase
in medical affairs expense of $522,000, an increase in recruiting expense of $490,000 and an increase in public relations costs of $338,000. The increases were partially offset by a decrease in stock-based compensation costs totaling approximately
$1.3 million.



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Interest Income. Interest income decreased to $333,000 for the
year ended December 31, 2009 from $3.1 million in 2008. This decrease of approximately $2.8 million was primarily due to lower interest rates and a decrease in average cash and investment balances.

Interest Expense. Interest expense decreased to $1.4 million for the year ended December 31, 2009 from $1.5
million in 2008. This decrease of approximately $166,000 was primarily due to the decrease in interest expense resulting from a lower average interest rate and a lower average outstanding balance on the $23.8 million borrowed under the credit
and security agreement with GE Healthcare Financial Services as of December 31, 2009.

Comparison of year ended
December 31, 2008 to year ended December 31, 2007

Revenues. Revenues for each of
the years ended December 31, 2008 and 2007 were $88,000 and were related to our sublicensed technology to Cypress.

Research and Development Expenses. Research and development expenses increased to $79.3 million for the year ended December 31, 2008 from $50.3 million in 2007. This increase of
approximately $29.0 million was due primarily to an increase in expenses in connection with our Contrave Phase III clinical trials, related proprietary product formulation work and consulting activities totaling $27.6 million. The remaining
increase is primarily the result of increases in salaries and personnel related costs totaling approximately $2.6 million and stock-based compensation costs totaling approximately $847,000, partially offset by a decrease in consulting fees of
$2.2 million.

General and Administrative Expenses. General and administrative expenses increased
to $15.7 million for the year ended December 31, 2008 from $10.7 million in 2007. This increase of $5.0 million was principally due to increases in stock-based compensation costs totaling approximately $1.9 million, increases in
salaries and personnel related costs totaling $1.2 million, an increase in facilities expenses of $857,000 and an increase in costs related to consulting activities of $580,000.

Interest and Other Income. Interest income decreased to $3.1 million for the year ended December 31,
2008 from $3.9 million in 2007. This decrease of $786,000 was primarily due to lower interest rates partially offset by an increase in average cash and investment balances.

Interest Expense. Interest expense increased to $1.5 million for the year ended December 31, 2008 from
$846,000 in 2007 primarily due to an increase of the amounts borrowed under the credit and security agreement, as amended, with GE Healthcare Financial Services, of which approximately $16.4 million was outstanding as of December 31, 2008.

Liquidity and Capital Resources

Since inception, our operations have been financed primarily through the sale of equity securities. Through December 31, 2009, we received net proceeds of approximately $320.2 million from the
sale of shares of our preferred and common stock as follows:



| |  |  | from September 12, 2002 to December 31, 2006, we issued and sold a total of 1,053,572 shares of common stock for aggregate net
proceeds of $14,801;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in March 2004, we issued and sold a total of 9,322,035 shares of Series A redeemable convertible preferred stock for aggregate net
proceeds of $9.2 million and the conversion of promissory notes and interest thereon totaling $1.7 million;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | from April 2005 to May 2005, we issued and sold 14,830,509 shares of Series B redeemable convertible preferred stock for aggregate net
proceeds of $34.9 million;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in November 2006, we issued and sold a total of 8,771,930 shares of Series C convertible preferred stock for aggregate net proceeds of
$29.9 million;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | in May 2007, we issued and sold a total of 8,050,000 shares of common stock for aggregate net proceeds of $87.9 million;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | in January and February 2008, we issued and sold a total of 7,326,435 shares of common stock for aggregate net proceeds of $74.9 million;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in July 2009, we issued and sold a total of 11,500,000 shares of common stock for aggregate net proceeds of $81.6 million.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

As of December 31, 2009, we had $37.7 million in cash and cash equivalents and an
additional $54.5 million in investment securities, available-for-sale. As of December 31, 2009, our holdings primarily consisted of treasury-backed money market funds, treasuries and other instruments that are insured, guaranteed or
supported by the U.S. federal government. We maintain established guidelines relating to diversification and maturities of our investments to preserve principal and maintain liquidity.

Net cash used in operating activities was $68.5 million and $74.7 million for 2009 and 2008, respectively. Net
cash used in each of these periods was primarily a result of external research and development expenses, clinical trial costs, personnel-related costs, third-party supplier expenses and professional fees.

Net cash used in investing activities was $14.3 million for 2009 and the net cash provided by investing activities was
$15.4 million for 2008. These amounts are primarily the result of the net purchases and maturities of investment securities.

Net cash provided by financing activities was $75.0 million and $75.8 million for 2009 and 2008, respectively. The net cash provided for 2009 is primarily as a result of the public sale of our
common stock in July 2009 for aggregate net proceeds of $81.6 million. The net cash provided for 2008 was primarily a result of the public sale of our common stock in January and February 2008 for aggregate net proceeds of $74.9 million.

We cannot be certain if, when or to what extent we will receive cash inflows from the commercialization of
our product candidates. We expect our pre-commercialization and commercialization expenses to be substantial and to increase over the next few years as we seek approval for and launch Contrave, and we expect development expenses will increase as we
continue the advancement of Empatic.

We have entered into license agreements to acquire the rights to develop
and commercialize Contrave and Empatic. Pursuant to these agreements, we obtained exclusive and non-exclusive licenses to the patent rights and know-how for selected indications and territories. Under our license agreement with Duke University, we
issued 442,624 shares of our common stock in March 2004 and may be required to make future milestone payments totaling up to $1.7 million upon the achievement of various milestones related to regulatory or commercial events. Under our
license agreement with Lee Dante, M.D., we issued an option to purchase 73,448 shares of our common stock in April 2004 at an exercise price of $0.10 per share, which expires in April 2014. We also paid Dr. Dante an upfront fee of
$100,000 and may be required to make future milestone payments totaling up to $1.0 million upon the achievement of a milestone related to a regulatory event. Under our license agreement with Oregon Health & Science University, we
issued 76,315 shares of our common stock in December 2003 and paid an upfront fee of $65,000. Under these three agreements, we are also obligated to pay royalties on any net sales of the licensed products. Under our license agreement with
SmithKline Beecham Corporation and Glaxo Group Limited, we paid an upfront payment and may be required to make a future milestone payment upon the earliest achievement of certain milestones primarily relating to regulatory or commercial events.

Our future capital uses and requirements depend on numerous factors. These factors include but are not
limited to the following:



| |  |  | the rate of progress and cost of our clinical trials and other product development programs for Contrave, to the extent additional clinical trials
need to be conducted, and Empatic, including expenses to support the trials and milestone payments that may become payable;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | our ability to establish and maintain strategic collaborations, including licensing and other arrangements;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the costs involved in enforcing or defending patent claims or other intellectual property rights;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | the costs and timing of regulatory approvals;
| | - |  | ---------------------------------------------



| |  |  | the costs of establishing sales or distribution capabilities;
| | - |  | -------------------------------------------------------------



| |  |  | the successful commercialization of our products; and
| | - |  | -----------------------------------------------------



| |  |  | the extent to which we in-license, acquire or invest in other indications, products, technologies and businesses.
| | - |  | -----------------------------------------------------------------------------------------------------------------

In December 2006, we entered into a credit and security agreement with Merrill Lynch Capital providing for potential
borrowing until June 30, 2007 of up to $17.0 million. In July 2007, we entered into a first amendment to the credit and security agreement with Merrill Lynch Capital. The first amendment provided for, among other things, the extension of
the period during which Merrill Lynch Capital was obligated to make advances under the credit and security agreement to us from June 30, 2007 to December 31, 2007. In November 2007, we entered into a second amendment to the credit and
security agreement with Merrill Lynch Capital. The second amendment provided for, among other things, the increase of the total amount available for advances under the credit and security agreement from $17.0 million to $25.0 million, our
obligation to request an advance of $8.0 million on or before December 31, 2007, and the extension of the period during which Merrill Lynch Capital was obligated to make advances to us under the credit and security agreement from
December 31, 2007 to December 31, 2008. GE Healthcare Financial Services acquired a portfolio of loans from Merrill Lynch Capital in 2008, and the credit and security agreement, as amended, was subsequently assigned to GE Healthcare
Financial Services.

We drew down $10.0 million, $8.0 million and $5.8 million under the credit and
security agreement in March 2007, December 2007 and December 2008, respectively. Under the credit and security agreement, we are required to make monthly payments of principal and interest and all amounts then outstanding will become due and
payable upon the earlier to occur of July 1, 2011 or three years from the funding of any amounts under the agreement. Interest accrues on amounts outstanding under the agreement at a base rate set forth in the agreement plus an applicable
margin, which ranges from 3.75% to 4.25% based on the date of borrowing. Amounts outstanding under the credit and security agreement at December 31, 2009 bear interest at an average rate of 7.3%. The loan is collateralized by substantially all
of our assets other than, subject to certain limited exceptions, intellectual property. Subject to certain limited exceptions, amounts prepaid under the credit and security agreement are subject to a prepayment fee equal to 3% of the amount prepaid.
In addition, upon repayment of the amounts borrowed for any reason, we will be required to pay an exit fee of approximately $1.2 million. Under the terms of the agreement, we are subject to operational covenants, including limitations on our ability
to incur liens or additional debt, pay dividends, redeem our stock, make specified investments and engage in merger, consolidation or asset sale transactions, among other restrictions.

We believe that our existing cash and cash equivalents will be sufficient to meet our projected operating requirements
through at least the next 12 months.

Until we can generate significant cash from our operations, we
expect to continue to fund our operations with existing cash resources, proceeds of potential offerings of our equity securities, potential borrowings and potential corporate collaborations. However, we cannot be sure that our existing cash and
investment resources will be adequate, that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or our stockholders. Having insufficient funds may require us to delay, scale
back or eliminate some or all of our development programs and/or our pre-commercialization and commercialization activities, relinquish some or even all rights to product candidates or renegotiate less favorable terms than we would otherwise choose.
Failure to obtain adequate financing also may adversely affect our ability to operate as a going concern. If we raise additional funds by issuing equity securities, substantial



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dilution to existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as
covenants and specific financial requirements that may restrict our ability to operate our business.

Continued turbulence in the U.S. and international markets and economies may adversely affect our ability to obtain additional financing on terms acceptable to us, or at all. If these market conditions continue, they may limit our ability
to access the capital markets to meet liquidity needs.

Contractual Obligations and Commitments

The following table describes our long-term contractual obligations and commitments as of December 31, 2009 (in
thousands):



|                              |  |                         |        |                 |   |           |  |           |       |       |   |     |  |   |  
|----------------------------- |  | ----------------------- | ------ | --------------- | - | --------- |  | --------- | ----- | ----- | - | --- |  | - | -
|                              |  | Payments Due by Periods
|                              |  | Total                   |        | Less Than1 Year |   | 1-3 Years |  | 4-5 Years |       | After
|Long-term debt obligations(1) |  | $                       | 9,231  |                 | $ | 6,773     |  | $         | 2,458 |       | $ |    |  | $ | 
|Long-term liabilities(2)      |  |                         | 1,190  |                 |   | 500       |  |           | 690   |       |   |    |  |   | 
|Operating lease obligations   |  |                         | 6,266  |                 |   | 1,791     |  |           | 3,481 |       |   | 994 |  |   | 
|License obligations(3)        |  |                         |       |                 |   |          |  |           |      |       |   |    |  |   | 
|                              |  |                         |        |                 |   |           |  |           |       |       |   |     |  |   |  
|Total                         |  | $                       | 16,687 |                 | $ | 9,064     |  | $         | 6,629 |       | $ | 994 |  | $ | 
|                              |  |                         |        |                 |   |           |  |           |       |       |   |     |  |   |  



|(1) | In December 2006, we entered into a credit and security agreement with Merrill Lynch Capital, which was subsequently assigned to GE Healthcare
Financial Services, providing for the potential borrowing of up to $17.0 million. In November 2007, the amount available for borrowing under the credit and security agreement was increased to $25.0 million. In March 2007, December
2007 and December 2008, we drew down $10.0 million, $8.0 million and $5.8 million, respectively, under the credit and security agreement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Primarily represents fees due to the lender incurred in connection with our credit and security agreement, as amended, with GE Healthcare Financial
Services due on the earlier of the repayment of total amounts borrowed or termination of the agreement.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | License obligations do not include additional payments of up to $2.7 million due upon the occurrence of certain milestones related to
regulatory or commercial events or potential payments of up to $5.7 million to Duke University should we receive milestone payments from Cypress under our agreement with Cypress (up to $3.7 million excluding milestone payments unrelated to
sleep apnea). We may also be required to pay royalties on any net sales of the licensed products. License payment may increase based on the timing of various milestones and the extent to which the licensed technologies are pursued for other
indications. These milestone payments and royalty payments under our license agreements are not included in the table above because we cannot, at this time, determine when or if the related milestones will be achieved or the events triggering the
commencement of payment obligations will occur.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also enter into agreements with third
parties to manufacture our product candidates, conduct our clinical trials and perform data collection and analysis. Our payment obligations under these agreements depend upon the progress of our development programs. Therefore, we are unable at
this time to estimate with certainty the future costs we will incur under these agreements.

Recently Issued Accounting Standards

In April 2009, the FASB issued a new accounting standard providing guidance for the accounting of assets
acquired and liabilities assumed in a business combination that arise from contingencies. This guidance amends and clarifies previous accounting standards to address application issues regarding the initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The adoption of this standard did not have a material effect on our consolidated financial statements.



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In June 2009, the FASB issued authoritative guidance that prescribes the
information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferors continuing
involvement in transferred financial assets. Specifically, among other aspects, this standard amends previously issued accounting guidance, modifies the financial-components approach and removes the concept of a qualifying special purpose entity
when accounting for transfers and servicing of financial assets and extinguishments of liabilities, and removes the exception from applying the general accounting principles for the consolidation of variable interest entities that are qualifying
special-purpose entities. This new accounting standard is effective for transfers of financial assets occurring on or after January 1, 2010. The adoption of this standard will not have an impact on our consolidated financial statements.

In June 2009, the FASB issued authoritative guidance that amends previously issued accounting guidance for
the consolidation of variable interest entities to require an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. This amended consolidation guidance for variable
interest entities also replaces the existing quantitative approach for identifying which enterprise should consolidate a variable interest entity, which was based on which enterprise is exposed to a majority of the risks and rewards, with a
qualitative approach, based on which enterprise has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of the entity that could potentially be significant to the
variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Under this revised guidance, more entities may meet the definition of a variable interest entity, and
the determination about whether an enterprise should consolidate a variable interest entity is required to be evaluated continuously. This standard is effective for us for interim and annual periods beginning after January 1, 2010. The adoption
of this standard will not have an impact on our consolidated financial statements.

In August 2009, the FASB
issued new authoritative guidance for the fair value measurement of liabilities when a quoted price in an active market is not available. The new guidance is effective for reporting periods beginning after August 28, 2009, which means that it
became effective for our fourth quarter beginning October 1, 2009. The adoption of this new guidance did not have a material effect on our consolidated financial statements.

In September 2009, the FASB issued authoritative guidance that provides additional guidance on using the net asset value per
share, provided by an investee, when estimating the fair value of an alternate investment that does not have a readily determinable fair value and enhances the disclosures concerning these investments. Examples of alternate investments that fall
within the scope of this standard include investments in hedge funds and private equity, real estate, and venture capital partnerships. This Standard is effective for interim and annual periods ending after December 15, 2009. The adoption of
this new guidance did not have a material effect on our consolidated financial statements.

In October 2009,
the FASB issued authoritative guidance that amends existing revenue recognition accounting pronouncements related to multiple-deliverable revenue arrangements. The new guidance provides accounting principles and application guidance on whether
multiple deliverables exist, how the arrangement should be separated, and how the consideration should be allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for
separate revenue recognition based upon managements estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. The new guidance is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Earlier application is permitted as of the beginning of a fiscal year. We are currently evaluating the potential impact of this
standard on our consolidated financial statements.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet activities.



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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our cash and cash equivalents as of December 31, 2009 consisted primarily of money market funds and U.S.
government agency securities. We do not have any auction rate securities on our balance sheet, as they are not permitted by our investment policy. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in
the general level of U.S. interest rates, particularly because the majority of our investments are in short-term marketable debt securities. The primary objective of our investment activities is to preserve principal while at the same time
maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may be subject to market risk. This means that a change in prevailing interest rates may cause the value of the
investment to fluctuate. For example, if we purchase a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of our investment will probably decline. To minimize this risk, we intend to continue
to maintain our portfolio of cash equivalents and short-term investments in a variety of securities including commercial paper, money market funds and government and non-government debt securities, all with various maturities. In general, money
market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate.

Our cash is invested in accordance with an investment policy approved by our board of directors which specifies the categories, allocations, and ratings of securities we may consider for investment. We do
not believe our cash, cash equivalents and investment securities have significant risk of default or illiquidity. We made this determination based on discussions with our investment advisors and a review of our holdings. While we believe our cash,
cash equivalents and investment securities are well diversified and do not contain excessive risk, we cannot provide assurance that in the future our investments will not be subject to adverse changes in market value.

In addition, domestic and international equity markets have experienced and may continue to experience heightened volatility
and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue and the markets continue to remain volatile, our results of operations could be adversely affected by
those factors in many ways, including making it more difficult for us to raise funds if necessary and our stock price may further decline. In addition, we maintain significant amounts of cash and cash equivalents that are not federally insured. If
economic instability continues, we cannot provide assurance that we will not experience losses on these investments.



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Item 8. Financial Statements and Supplementary Data

Index to Financial Statements



|                                                                                        |  |           
|--------------------------------------------------------------------------------------- |  | ----------
|                                                                                        |  | PageNumber
|Report of Independent Registered Public Accounting Firm                                 |  | 71        
|Balance Sheets                                                                          |  | 72        
|Statements of Operations                                                                |  | 73        
|Statements of Redeemable Convertible Preferred Stock and Stockholders Equity
(Deficit) |  | 74        
|Statements of Cash Flows                                                                |  | 77        
|Notes to Financial Statements                                                           |  | 78        



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Orexigen Therapeutics, Inc.

We have audited the accompanying
balance sheets of Orexigen Therapeutics, Inc. (a development stage company) as of December 31, 2009 and 2008 and the related statements of operations, redeemable convertible preferred stock and stockholders equity (deficit), and cash
flows for each of the three years in the period ended December 31, 2009 and for the period from September 12, 2002 (inception) to December 31, 2009. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Orexigen Therapeutics, Inc. (a development stage company) at
December 31, 2009 and 2008 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009 and for the period from September 12, 2002 (inception) to December 31, 2009, in
conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with
the standards of the Public Company Oversight Board (United States), Orexigen Therapeutics, Incs internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2010 expressed an unqualified opinion thereon.

/s/    Ernst & Young LLP

San Diego, California

March 11, 2010



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OREXIGEN THERAPEUTICS, INC.

(a development stage company)

BALANCE SHEETS

(In thousands, except share and par value amounts)



|                                                                                                                                                                                                |  |              |          |   |      |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                                                                                |  | December 31, |         
|                                                                                                                                                                                                |  | 2009         |          |   | 2008 |  
|ASSETS                                                                                                                                                                                          |  |              |          |   |      |   |          |  
|Current assets:                                                                                                                                                                                 |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                                                                                       |  | $            | 37,658   |   |      | $ | 45,451   |  
|Investment securities, available-for-sale                                                                                                                                                       |  |              | 54,500   |   |      |   | 40,716   |  
|Prepaid expenses and other current assets                                                                                                                                                       |  |              | 1,529    |   |      |   | 1,184    |  
|                                                                                                                                                                                                |  |              |          |   |      |   |          |  
|Total current assets                                                                                                                                                                            |  |              | 93,687   |   |      |   | 87,351   |  
|Property and equipment, net                                                                                                                                                                     |  |              | 1,324    |   |      |   | 2,059    |  
|Restricted cash                                                                                                                                                                                 |  |              | 1,290    |   |      |   | 1,375    |  
|Other assets                                                                                                                                                                                    |  |              | 547      |   |      |   | 1,123    |  
|                                                                                                                                                                                                |  |              |          |   |      |   |          |  
|Total assets                                                                                                                                                                                    |  | $            | 96,848   |   |      | $ | 91,908   |  
|                                                                                                                                                                                                |  |              |          |   |      |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                            |  |              |          |   |      |   |          |  
|Current liabilities:                                                                                                                                                                            |  |              |          |   |      |   |          |  
|Accounts payable                                                                                                                                                                                |  | $            | 4,713    |   |      | $ | 5,644    |  
|Accrued expenses                                                                                                                                                                                |  |              | 5,115    |   |      |   | 13,166   |  
|Deferred revenue, current portion                                                                                                                                                               |  |              | 88       |   |      |   | 88       |  
|Long-term debt, current portion                                                                                                                                                                 |  |              | 6,384    |   |      |   | 7,591    |  
|                                                                                                                                                                                                |  |              |          |   |      |   |          |  
|Total current liabilities                                                                                                                                                                       |  |              | 16,300   |   |      |   | 26,489   |  
|Deferred revenue, less current portion                                                                                                                                                          |  |              | 971      |   |      |   | 1,058    |  
|Long-term debt, less current portion                                                                                                                                                            |  |              | 2,416    |   |      |   | 8,800    |  
|Other long-term liabilities                                                                                                                                                                     |  |              | 1,258    |   |      |   | 1,767    |  
|Commitments and contingencies                                                                                                                                                                   |  |              |          |   |      |   |          |  
|Stockholders equity:                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Preferred stock, $.001 par value, 10,000,000 shares authorized at December 31, 2009 and 2008, no shares issued and
outstanding at December 31, 2009 and 2008                                    |  |              |         |   |      |   |         |  
|Common stock, $.001 par value, 100,000,000 shares authorized at December 31, 2009 and 2008; 47,215,479 and
34,433,322 shares issued and outstanding at December 31, 2009 and 2008, respectively |  |              | 47       |   |      |   | 34       |  
|Additional paid-in capital                                                                                                                                                                      |  |              | 342,599  |   |      |   | 253,782  |  
|Accumulated other comprehensive income (loss)                                                                                                                                                   |  |              | (6       | ) |      |   | 153      |  
|Deficit accumulated during the development stage                                                                                                                                                |  |              | (266,737 | ) |      |   | (200,175 | )
|                                                                                                                                                                                                |  |              |          |   |      |   |          |  
|Total stockholders equity                                                                                                                                                                      |  |              | 75,903   |   |      |   | 53,794   |  
|                                                                                                                                                                                                |  |              |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                                                                                                      |  | $            | 96,848   |   |      | $ | 91,908   |  
|                                                                                                                                                                                                |  |              |          |   |      |   |          |  

See accompanying notes.



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OREXIGEN THERAPEUTICS, INC.

(a development stage company)

STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)



|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---------------------------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                                                   |  | Years Ended December 31, |         |   | Period fromSeptember 12,2002(Inception)
toDecember 31,2009 |  
|                                                                                                   |  | 2009                     |         |   | 2008                                                       |   |         | 2007 |  |  
|Revenues:                                                                                          |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Collaborative agreement                                                                            |  | $                        |        |   |                                                            | $ |        |      |  | $ |        |   |  | $ | 174      |  
|License revenue                                                                                    |  |                          | 88      |   |                                                            |   | 88      |      |  |   | 88      |   |  |   | 441      |  
|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Total revenues                                                                                     |  |                          | 88      |   |                                                            |   | 88      |      |  |   | 88      |   |  |   | 615      |  
|Operating expenses:                                                                                |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Research and development                                                                           |  |                          | 47,441  |   |                                                            |   | 79,261  |      |  |   | 50,253  |   |  |   | 216,559  |  
|General and administrative                                                                         |  |                          | 18,177  |   |                                                            |   | 15,651  |      |  |   | 10,657  |   |  |   | 55,999   |  
|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Total operating expenses                                                                           |  |                          | 65,618  |   |                                                            |   | 94,912  |      |  |   | 60,910  |   |  |   | 272,558  |  
|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Loss from operations                                                                               |  |                          | (65,530 | ) |                                                            |   | (94,824 | )    |  |   | (60,822 | ) |  |   | (271,943 | )
|Other income (expense):                                                                            |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Interest income                                                                                    |  |                          | 333     |   |                                                            |   | 3,115   |      |  |   | 3,901   |   |  |   | 9,012    |  
|Interest expense                                                                                   |  |                          | (1,365  | ) |                                                            |   | (1,531  | )    |  |   | (846    | ) |  |   | (3,806   | )
|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Total other income (expense)                                                                       |  |                          | (1,032  | ) |                                                            |   | 1,584   |      |  |   | 3,055   |   |  |   | 5,206    |  
|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Net loss                                                                                           |  |                          | (66,562 | ) |                                                            |   | (93,240 | )    |  |   | (57,767 | ) |  |   | (266,737 | )
|Accretion to redemption value of redeemable convertible preferred stock                            |  |                          |        |   |                                                            |   |        |      |  |   | (10     | ) |  |   | (78      | )
|Deemed dividend of beneficial conversion for Series C preferred stock                              |  |                          |        |   |                                                            |   |        |      |  |   |        |   |  |   | (13,860  | )
|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Net loss attributable to common stockholders                                                       |  | $                        | (66,562 | ) |                                                            | $ | (93,240 | )    |  | $ | (57,777 | ) |  | $ | (280,675 | )
|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Net loss per share attributable to common stockholdersbasic and diluted(1)                        |  | $                        | (1.67   | ) |                                                            | $ | (2.76   | )    |  | $ | (3.08   | ) |  |   |          |  
|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  
|Shares used to compute basic and diluted net loss per share attributable to common stockholders(1) |  |                          | 39,905  |   |                                                            |   | 33,762  |      |  |   | 18,757  |   |  |   |          |  
|                                                                                                   |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   |          |  



|(1) | As a result of the issuance of 8,050,000 shares of common stock in the Companys initial public offering in May 2007 and the conversion of
the Companys preferred stock into 16,462,231 shares of common stock upon completion of the Companys initial public offering, there is a lack of comparability in the basic and diluted net loss per share amounts for the periods
presented. See Note 2 for further discussion.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes.



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OREXIGEN THERAPEUTICS, INC.

(a development stage company)

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT)

PERIOD FROM SEPTEMBER 12, 2002 (INCEPTION) TO DECEMBER 31, 2009

(In
thousands, except per share amounts)



|                                                                                                                            |  |                                              |  |                                              |        |        |   |              |   |                                   |  |                          |  |        |                      |        |   |                                            |   |                                              |   |   |                                   |   |       |   |  |   |        |   |  |   |   |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- |  | -------------------------------------------- | ------ | ------ | - | ------------ | - | --------------------------------- |  | ------------------------ |  | ------ | -------------------- | ------ | - | ------------------------------------------ | - | -------------------------------------------- | - | - | --------------------------------- | - | ----- | - |  | - | ------ | - |  | - | - |  | - | ------ | - |  | - | ------ | -
|                                                                                                                            |  | Series ARedeemableConvertiblePreferred Stock |  | Series BRedeemableConvertiblePreferred Stock |        |        |   | Common Stock |   | Series CConvertiblePreferredStock |  | AdditionalPaid-InCapital |  |        | DeferredCompensation |        |   | AccumulatedOtherComprehensiveIncome (Loss) |   | DeficitAccumulatedDuring theDevelopmentStage |   |   | TotalStockholdersEquity(Deficit) |  
|                                                                                                                            |  | Shares                                       |  | Amount                                       |        | Shares |   | Amount       |   |                                   |  | Shares                   |  | Amount |                      | Shares |   | Amount                                     |   |                                              |   |   |                                  
|Balance at September 12, 2002 (inception)                                                                                   |  |                                             |  | $                                            |       |        |  |              | $ |                                  |  |                          |  |       |                      | $      |  |                                            |  |                                              | $ |  |                                   | $ |      |   |  | $ |       |   |  | $ |  |  | $ |       |   |  | $ |       |  
|Issuance of common stock to founder at $0.002 per share in exchange for services in September                               |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  | 650    |                      |        | 1 |                                            |  |                                              |   |  |                                   |   |      |   |  |   |       |   |  |   |  |  |   |       |   |  |   | 1      |  
|Net loss and comprehensive loss                                                                                             |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  |       |                      |        |  |                                            |  |                                              |   |  |                                   |   |      |   |  |   |       |   |  |   |  |  |   | (1     | ) |  |   | (1     | )
|                                                                                                                            |  |                                              |  |                                              |        |        |   |              |   |                                   |  |                          |  |        |                      |        |   |                                            |   |                                              |   |   |                                   |   |       |   |  |   |        |   |  |   |   |  |   |        |   |  |   |        |  
|Balance at December 31, 2002                                                                                                |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  | 650    |                      |        | 1 |                                            |  |                                              |   |  |                                   |   |      |   |  |   |       |   |  |   |  |  |   | (1     | ) |  |   |       |  
|Issuance of common stock at $0.002 per share for cash in June, November and December                                        |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  | 949    |                      |        | 1 |                                            |  |                                              |   |  |                                   |   | 1     |   |  |   |       |   |  |   |  |  |   |       |   |  |   | 2      |  
|Issuance of common stock at $0.002 per share in exchange for services in December                                           |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  | 443    |                      |        |  |                                            |  |                                              |   |  |                                   |   | 1     |   |  |   |       |   |  |   |  |  |   |       |   |  |   | 1      |  
|Issuance of common stock at $0.002 per share in exchange for technology in December                                         |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  | 76     |                      |        |  |                                            |  |                                              |   |  |                                   |   |      |   |  |   |       |   |  |   |  |  |   |       |   |  |   |       |  
|Issuance of common stock options to consultant in exchange for services                                                     |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  |       |                      |        |  |                                            |  |                                              |   |  |                                   |   | 1     |   |  |   |       |   |  |   |  |  |   |       |   |  |   | 1      |  
|Net loss and comprehensive loss                                                                                             |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  |       |                      |        |  |                                            |  |                                              |   |  |                                   |   |      |   |  |   |       |   |  |   |  |  |   | (1,881 | ) |  |   | (1,881 | )
|                                                                                                                            |  |                                              |  |                                              |        |        |   |              |   |                                   |  |                          |  |        |                      |        |   |                                            |   |                                              |   |   |                                   |   |       |   |  |   |        |   |  |   |   |  |   |        |   |  |   |        |  
|Balance at December 31, 2003                                                                                                |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  | 2,118  |                      |        | 2 |                                            |  |                                              |   |  |                                   |   | 3     |   |  |   |       |   |  |   |  |  |   | (1,882 | ) |  |   | (1,877 | )
|Issuance of Series A redeemable convertible preferred stock at $1.18 per share for cash in January, net of issuance costs   |  | 7,864                                        |  |                                              | 9,194  |        |  |              |   |                                  |  |                          |  |       |                      |        |  |                                            |  |                                              |   |  |                                   |   |      |   |  |   |       |   |  |   |  |  |   |       |   |  |   |       |  
|Issuance of Series A redeemable convertible preferred stock for conversion of notes payable and accrued interest in January |  | 1,458                                        |  |                                              | 1,721  |        |  |              |   |                                  |  |                          |  |       |                      |        |  |                                            |  |                                              |   |  |                                   |   |      |   |  |   |       |   |  |   |  |  |   |       |   |  |   |       |  
|Issuance of common stock at $0.002 per share in exchange for technology in March                                            |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  | 443    |                      |        |  |                                            |  |                                              |   |  |                                   |   | 44    |   |  |   |       |   |  |   |  |  |   |       |   |  |   | 44     |  
|Issuance of common stock options to consultants in exchange for services in March                                           |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  |       |                      |        |  |                                            |  |                                              |   |  |                                   |   | 2     |   |  |   |       |   |  |   |  |  |   |       |   |  |   | 2      |  
|Accretion of redeemable convertible preferred stock to redemption value                                                     |  |                                             |  |                                              | 13     |        |  |              |   |                                  |  |                          |  |       |                      |        |  |                                            |  |                                              |   |  |                                   |   | (13   | ) |  |   |       |   |  |   |  |  |   |       |   |  |   | (13    | )
|Net loss and comprehensive loss                                                                                             |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  |       |                      |        |  |                                            |  |                                              |   |  |                                   |   |      |   |  |   |       |   |  |   |  |  |   | (7,693 | ) |  |   | (7,693 | )
|                                                                                                                            |  |                                              |  |                                              |        |        |   |              |   |                                   |  |                          |  |        |                      |        |   |                                            |   |                                              |   |   |                                   |   |       |   |  |   |        |   |  |   |   |  |   |        |   |  |   |        |  
|Balance at December 31, 2004                                                                                                |  | 9,322                                        |  |                                              | 10,928 |        |  |              |   |                                  |  |                          |  | 2,561  |                      |        | 2 |                                            |  |                                              |   |  |                                   |   | 36    |   |  |   |       |   |  |   |  |  |   | (9,575 | ) |  |   | (9,537 | )
|Deferred employee stock based compensation related to issuance of stock options to employees                                |  |                                             |  |                                              |       |        |  |              |   |                                  |  |                          |  |       |                      |        |  |                                            |  |                                              |   |  |                                   |   | 5,029 |   |  |   | (5,029 | ) |  |   |  |  |   |       |   |  |   |       |  



74



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##### Table of Contents

OREXIGEN THERAPEUTICS, INC.

(a development stage company)

STATEMENTS OF
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT)(Continued)

(In thousands, except
per share amounts)

|                                                                                                                                |  |                                              |  |                                             |  |        |  |              |  |                                   |  |                          |   |  |                      |  |        |                                            |        |  |                                              |   |  |                                   |   |  |     |   |  |         |   |  |         |  
|------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- |  | ------------------------------------------- |  | ------ |  | ------------ |  | --------------------------------- |  | ------------------------ | - |  | -------------------- |  | ------ | ------------------------------------------ | ------ |  | -------------------------------------------- | - |  | --------------------------------- | - |  | --- | - |  | ------- | - |  | ------- | -
|                                                                                                                                |  | Series ARedeemableConvertiblePreferred Stock |  | Series BRedeemableConvertiblePreferredStock |  |        |  | Common Stock |  | Series CConvertiblePreferredStock |  | AdditionalPaid-InCapital |   |  | DeferredCompensation |  |        | AccumulatedOtherComprehensiveIncome (Loss) |        |  | DeficitAccumulatedDuring theDevelopmentStage |   |  | TotalStockholdersEquity(Deficit) |  
|                                                                                                                                |  | Shares                                       |  | Amount                                      |  | Shares |  | Amount       |  |                                   |  | Shares                   |   |  | Amount               |  | Shares |                                            | Amount |  |                                              |   |  |                                  
|Amortization of deferred compensation                                                                                           |  |                                             |  |                                            |  |       |  |             |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  |                                             |   |  | 1,113                             |   |  |    |   |  |        |   |  | 1,113   |  
|Stock-based compensation for common stock issued to consultants in exchange for services                                        |  |                                             |  |                                            |  |       |  |             |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  | 2                                            |   |  |                                  |   |  |    |   |  |        |   |  | 2       |  
|Repurchase of common stock at $0.002 per share for cash in January                                                              |  |                                             |  |                                            |  |       |  |             |  |                                   |  | (267                     | ) |  |                     |  |       |                                            |       |  |                                             |   |  |                                  |   |  |    |   |  |        |   |  |        |  
|Exercise of common stock options at $0.10 per share for cash                                                                    |  |                                             |  |                                            |  |       |  |             |  |                                   |  | 59                       |   |  |                     |  |       |                                            |       |  | 6                                            |   |  |                                  |   |  |    |   |  |        |   |  | 6       |  
|Issuance of Series B redeemable convertible preferred stock for cash at $2.36 per share in April and May, net of issuance
costs |  |                                             |  |                                            |  | 14,831 |  | 34,915       |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  |                                             |   |  |                                  |   |  |    |   |  |        |   |  |        |  
|Accretion of redeemable convertible preferred stock to redemption value                                                         |  |                                             |  | 13                                          |  |       |  | 10           |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  | (24                                          | ) |  |                                  |   |  |    |   |  |        |   |  | (24     | )
|Comprehensive loss:                                                                                                             |  |                                              |  |                                             |  |        |  |              |  |                                   |  |                          |   |  |                      |  |        |                                            |        |  |                                              |   |  |                                   |   |  |     |   |  |         |   |  |         |  
|Unrealized loss on securities, available-for-sale                                                                               |  |                                             |  |                                            |  |       |  |             |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  |                                             |   |  |                                  |   |  | (47 | ) |  |        |   |  | (47     | )
|Net loss                                                                                                                        |  |                                             |  |                                            |  |       |  |             |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  |                                             |   |  |                                  |   |  |    |   |  | (12,089 | ) |  | (12,089 | )
|                                                                                                                                |  |                                              |  |                                             |  |        |  |              |  |                                   |  |                          |   |  |                      |  |        |                                            |        |  |                                              |   |  |                                   |   |  |     |   |  |         |   |  |         |  
|Total comprehensive loss                                                                                                        |  |                                              |  |                                             |  |        |  |              |  |                                   |  |                          |   |  |                      |  |        |                                            |        |  |                                              |   |  |                                   |   |  |     |   |  |         |   |  | (12,136 | )
|                                                                                                                                |  |                                              |  |                                             |  |        |  |              |  |                                   |  |                          |   |  |                      |  |        |                                            |        |  |                                              |   |  |                                   |   |  |     |   |  |         |   |  |         |  
|Balance at December 31, 2005                                                                                                    |  | 9,322                                        |  | 10,941                                      |  | 14,831 |  | 34,925       |  |                                   |  | 2,353                    |   |  | 2                    |  |       |                                            |       |  | 5,049                                        |   |  | (3,916                            | ) |  | (47 | ) |  | (21,664 | ) |  | (20,576 | )
|Reversal of deferred compensation upon adoption of FAS 123(R)                                                                   |  |                                             |  |                                            |  |       |  |             |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  | (3,916                                       | ) |  | 3,916                             |   |  |    |   |  |        |   |  |        |  
|Exercise of common stock options at $0.10 and $0.60 per share for cash                                                          |  |                                             |  |                                            |  |       |  |             |  |                                   |  | 45                       |   |  |                     |  |       |                                            |       |  | 7                                            |   |  |                                  |   |  |    |   |  |        |   |  | 7       |  
|Stock-based compensation expense                                                                                                |  |                                             |  |                                            |  |       |  |             |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  | 2,258                                        |   |  |                                  |   |  |    |   |  |        |   |  | 2,258   |  
|Accretion of redeemable convertible preferred stock to redemption value                                                         |  |                                             |  | 14                                          |  |       |  | 17           |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  | (31                                          | ) |  |                                  |   |  |    |   |  |        |   |  | (31     | )
|Issuance of Series C convertible preferred stock for cash at $3.42 per share in November, net of issuance
costs                 |  |                                             |  |                                            |  |       |  |             |  |                                   |  |                         |   |  |                     |  | 8,772  |                                            | 9      |  | 29,932                                       |   |  |                                  |   |  |    |   |  |        |   |  | 29,941  |  
|Beneficial conversion featuredeemed dividend on issuance of Series C convertible preferred stock                               |  |                                             |  |                                            |  |       |  |             |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  | 13,860                                       |   |  |                                  |   |  |    |   |  |        |   |  | 13,860  |  
|Beneficial conversion featuredeemed dividend of beneficial conversion feature for Series C convertible preferred stock         |  |                                             |  |                                            |  |       |  |             |  |                                   |  |                         |   |  |                     |  |       |                                            |       |  | (13,860                                      | ) |  |                                  |   |  |    |   |  |        |   |  | (13,860 | )



75



---

##### Table of Contents

OREXIGEN THERAPEUTICS, INC.

(a development stage company)

STATEMENTS OF
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT)(Continued)

(In thousands, except
per share amounts)



|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | -------------------------------------------- | - |  | -------------------------------------------- | ------- | - | ------ | ------- | ------------ | ------ | --------------------------------- | ------- | - | ------------------------ | ------ |  | -------------------- |  | ------------------------------------------ | -- |  | -------------------------------------------- | - |  | --------------------------------- | -- | - |  | - | ------- | - |  | - | - |  | - | ---- | - |  | - | -------- | - |  | - | ------- | -
|                                                                                               |  | Series ARedeemableConvertiblePreferred Stock |   |  | Series BRedeemableConvertiblePreferred Stock |         |   |        |         | Common Stock |        | Series CConvertiblePreferredStock |         |   | AdditionalPaid-InCapital |        |  | DeferredCompensation |  | AccumulatedOtherComprehensiveIncome (Loss) |    |  | DeficitAccumulatedDuring theDevelopmentStage |   |  | TotalStockholdersEquity(Deficit) |   
|                                                                                               |  | Shares                                       |   |  | Amount                                       |         |   | Shares |         |              | Amount |                                   |         |   |                          | Shares |  | Amount               |  | Shares                                     |    |  | Amount                                       |   |  |                                   |    |   | 
|Comprehensive loss:                                                                            |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Unrealized loss on securities, available-for-sale                                              |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   |        |   |  |   |  |  |   | 58   |   |  |   |         |   |  |   | 58      |  
|Net loss                                                                                       |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   |        |   |  |   |  |  |   |     |   |  |   | (27,504  | ) |  |   | (27,504 | )
|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Total comprehensive loss                                                                       |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   | (27,446 | )
|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2006                                                                   |  | 9,322                                        |   |  |                                              | 10,955  |   |        | 14,831  |              |        |                                   | 34,942  |   |                          |        |  | 2,398                |  |                                            | 2  |  | 8,772                                        |   |  |                                   | 9  |   |  |   | 33,299  |   |  |   |  |  |   | 11   |   |  |   | (49,168  | ) |  |   | (15,847 | )
|Accretion of redeemable convertible preferred stock to redemption value                        |  |                                             |   |  |                                              | 4       |   |        |        |              |        |                                   | 6       |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   | (10     | ) |  |   |  |  |   |     |   |  |   |         |   |  |   | (10     | )
|Issuance of common stock in initial public offering at $12.00 per share, net of issuance costs |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  | 8,050                |  |                                            | 8  |  |                                             |   |  |                                   |   |   |  |   | 87,883  |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 87,891  |  
|Conversion of preferred stock in connection with initial public offering                       |  | (9,322                                       | ) |  |                                              | (10,959 | ) |        | (14,831 | )            |        |                                   | (34,948 | ) |                          |        |  | 16,462               |  |                                            | 17 |  | (8,772                                       | ) |  |                                   | (9 | ) |  |   | 45,899  |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 45,907  |  
|Exercise of common stock options at $0.10, $0.60, $0.70 and $2.00 per share for cash           |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  | 73                   |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   | 77      |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 77      |  
|Stock-based compensation expense                                                               |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   | 4,423   |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 4,423   |  
|Comprehensive loss:                                                                            |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Unrealized loss on securities, available-for-sale                                              |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   |        |   |  |   |  |  |   | 209  |   |  |   |         |   |  |   | 209     |  
|Net loss                                                                                       |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   |        |   |  |   |  |  |   |     |   |  |   | (57,767  | ) |  |   | (57,767 | )
|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Total comprehensive loss                                                                       |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   | (57,558 | )
|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2007                                                                   |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  | 26,983               |  |                                            | 27 |  |                                             |   |  |                                   |   |   |  |   | 171,571 |   |  |   |  |  |   | 220  |   |  |   | (106,935 | ) |  |   | 64,883  |  
|Issuance of common stock, net of issuance costs                                                |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  | 7,326                |  |                                            | 6  |  |                                             |   |  |                                   |   |   |  |   | 74,904  |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 74,910  |  
|Exercise of common stock options                                                               |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  | 124                  |  |                                            | 1  |  |                                             |   |  |                                   |   |   |  |   | 184     |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 185     |  
|Stock-based compensation expense                                                               |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   | 7,123   |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 7,123   |  
|Comprehensive loss:                                                                            |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Unrealized loss on securities, available-for-sale                                              |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   |        |   |  |   |  |  |   | (67  | ) |  |   |         |   |  |   | (67     | )
|Net loss                                                                                       |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   |        |   |  |   |  |  |   |     |   |  |   | (93,240  | ) |  |   | (93,240 | )
|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Total comprehensive loss                                                                       |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   | (93,307 | )
|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2008                                                                   |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  | 34,433               |  |                                            | 34 |  |                                             |   |  |                                   |   |   |  |   | 253,782 |   |  |   |  |  |   | 153  |   |  |   | (200,175 | ) |  |   | 53,794  |  
|Issuance of common stock, net of issuance costs                                                |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  | 11,500               |  |                                            | 12 |  |                                             |   |  |                                   |   |   |  |   | 81,612  |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 81,624  |  
|Exercise of common stock options                                                               |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  | 1,282                |  |                                            | 1  |  |                                             |   |  |                                   |   |   |  |   | 977     |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 978     |  
|Stock-based compensation expense                                                               |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   | 6,228   |   |  |   |  |  |   |     |   |  |   |         |   |  |   | 6,228   |  
|Comprehensive loss:                                                                            |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Unrealized loss on securities, available-for-sale                                              |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   |        |   |  |   |  |  |   | (159 | ) |  |   |         |   |  |   | (159    | )
|Net loss                                                                                       |  |                                             |   |  |                                              |        |   |        |        |              |        |                                   |        |   |                          |        |  |                     |  |                                            |   |  |                                             |   |  |                                   |   |   |  |   |        |   |  |   |  |  |   |     |   |  |   | (66,562  | ) |  |   | (66,562 | )
|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Total comprehensive loss                                                                       |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   | (66,721 | )
|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2009                                                                   |  |                                             |   |  | $                                            |        |   |        |        |              |        | $                                 |        |   |                          |        |  | 47,215               |  | $                                          | 47 |  |                                             |   |  | $                                 |   |   |  | $ | 342,599 |   |  | $ |  |  | $ | (6   | ) |  | $ | (266,737 | ) |  | $ | 75,903  |  
|                                                                                               |  |                                              |   |  |                                              |         |   |        |         |              |        |                                   |         |   |                          |        |  |                      |  |                                            |    |  |                                              |   |  |                                   |    |   |  |   |         |   |  |   |   |  |   |      |   |  |   |          |   |  |   |         |  



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OREXIGEN THERAPEUTICS, INC.

(a development stage company)

STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|---------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---------------------------------------------------------- | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                                                     |  | Years Ended December 31, |          |   | Period fromSeptember 12,2002(Inception)
toDecember 31,2009 |  
|                                                                                                     |  | 2009                     |          |   | 2008                                                       |   |          | 2007 |  |  
|Operating activities                                                                                 |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Net loss                                                                                             |  | $                        | (66,562  | ) |                                                            | $ | (93,240  | )    |  | $ | (57,767  | ) |  | $ | (266,737 | )
|Adjustments to reconcile net loss to net cash used in operating activities:                          |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Amortization of premium (accretion of discount) on investment securities, available-for-sale         |  |                          | 592      |   |                                                            |   | (1,588   | )    |  |   | (2,476   | ) |  |   | (3,364   | )
|Amortization of debt issuance costs                                                                  |  |                          | 468      |   |                                                            |   | 250      |      |  |   | 203      |   |  |   | 929      |  
|Depreciation                                                                                         |  |                          | 478      |   |                                                            |   | 447      |      |  |   | 138      |   |  |   | 1,120    |  
|Loss on disposal of equipment                                                                        |  |                          | 83       |   |                                                            |   |         |      |  |   |         |   |  |   | 87       |  
|Issuance of common stock in exchange for technology and services                                     |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   | 47       |  
|Stock-based compensation                                                                             |  |                          | 6,228    |   |                                                            |   | 7,123    |      |  |   | 4,423    |   |  |   | 21,150   |  
|Changes in operating assets and liabilities:                                                         |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Prepaid expenses and other current assets                                                            |  |                          | (345     | ) |                                                            |   | 1,352    |      |  |   | (2,249   | ) |  |   | (1,464   | )
|Accounts payable and accrued expenses                                                                |  |                          | (8,983   | ) |                                                            |   | 10,356   |      |  |   | 3,551    |   |  |   | 9,882    |  
|Other assets                                                                                         |  |                          | 108      |   |                                                            |   | 157      |      |  |   | (130     | ) |  |   | (59      | )
|Other long-term liabilities                                                                          |  |                          | (500     | ) |                                                            |   |         |      |  |   |         |   |  |   | (500     | )
|Deferred rent                                                                                        |  |                          | (9       | ) |                                                            |   | 535      |      |  |   | 7        |   |  |   | 567      |  
|Deferred revenue                                                                                     |  |                          | (88      | ) |                                                            |   | (88      | )    |  |   | (88      | ) |  |   | 1,059    |  
|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Net cash used in operating activities                                                                |  |                          | (68,530  | ) |                                                            |   | (74,696  | )    |  |   | (54,388  | ) |  |   | (237,283 | )
|Investing activities                                                                                 |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Purchases of investment securities, available-for-sale                                               |  |                          | (100,366 | ) |                                                            |   | (125,049 | )    |  |   | (134,814 | ) |  |   | (416,364 | )
|Maturities and sales of investment securities, available-for-sale                                    |  |                          | 85,833   |   |                                                            |   | 142,339  |      |  |   | 96,000   |   |  |   | 365,223  |  
|Purchases of property and equipment                                                                  |  |                          | (126     | ) |                                                            |   | (1,647   | )    |  |   | (534     | ) |  |   | (2,896   | )
|Proceeds from sale of equipment                                                                      |  |                          | 300      |   |                                                            |   |         |      |  |   |         |   |  |   | 300      |  
|Restricted cash                                                                                      |  |                          | 85       |   |                                                            |   | (250     | )    |  |   | (970     | ) |  |   | (1,290   | )
|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Net cash provided by (used in) investing activities                                                  |  |                          | (14,274  | ) |                                                            |   | 15,393   |      |  |   | (40,318  | ) |  |   | (55,027  | )
|Financing activities                                                                                 |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Proceeds from borrowings of long-term debt                                                           |  |                          |         |   |                                                            |   | 5,800    |      |  |   | 18,000   |   |  |   | 23,800   |  
|Payments on borrowings on long-term debt                                                             |  |                          | (7,591   | ) |                                                            |   | (5,215   | )    |  |   | (2,193   | ) |  |   | (14,999  | )
|Proceeds from issuance of convertible and redeemable preferred stock for cash, net of issuance costs |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   | 44,109   |  
|Proceeds from issuance of convertible preferred stock for cash, net of issuance costs                |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   | 29,940   |  
|Proceeds from promissory notes                                                                       |  |                          |         |   |                                                            |   |         |      |  |   |         |   |  |   | 1,665    |  
|Costs paid in connection with loan agreement                                                         |  |                          |         |   |                                                            |   |         |      |  |   | (43      | ) |  |   | (226     | )
|Costs paid in connection with initial public offering                                                |  |                          |         |   |                                                            |   |         |      |  |   | 623      |   |  |   |         |  
|Proceeds from issuance of common stock                                                               |  |                          | 82,602   |   |                                                            |   | 75,095   |      |  |   | 87,968   |   |  |   | 245,679  |  
|Costs paid in connection with public offering                                                        |  |                          |         |   |                                                            |   | 107      |      |  |   | (107     | ) |  |   |         |  
|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Net cash provided by financing activities                                                            |  |                          | 75,011   |   |                                                            |   | 75,787   |      |  |   | 104,248  |   |  |   | 329,968  |  
|Increase (decrease) in cash and cash equivalents                                                     |  |                          | (7,793   | ) |                                                            |   | 16,484   |      |  |   | 9,542    |   |  |   | 37,658   |  
|Cash and cash equivalents at beginning of period                                                     |  |                          | 45,451   |   |                                                            |   | 28,967   |      |  |   | 19,425   |   |  |   |         |  
|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Cash and cash equivalents at end of period                                                           |  | $                        | 37,658   |   |                                                            | $ | 45,451   |      |  | $ | 28,967   |   |  | $ | 37,658   |  
|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Supplemental Disclosure                                                                              |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Interest paid                                                                                        |  | $                        | 904      |   |                                                            | $ | 1,323    |      |  | $ | 581      |   |  | $ | 2,808    |  
|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Unrealized gain (loss) on investment securities, available-for-sale                                  |  | $                        | (159     | ) |                                                            | $ | (67      | )    |  | $ | 209      |   |  | $ | (6       | )
|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Non-cash financing activities                                                                        |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Conversion of notes payable and accrued interest to redeemable convertible preferred stock           |  | $                        |         |   |                                                            | $ |         |      |  | $ |         |   |  | $ | 1,721    |  
|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  
|Accretion to redemption value of redeemable convertible preferred stock                              |  | $                        |         |   |                                                            | $ |         |      |  | $ | 10       |   |  | $ | 78       |  
|                                                                                                     |  |                          |          |   |                                                            |   |          |      |  |   |          |   |  |   |          |  

See accompanying notes.



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OREXIGEN THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

Orexigen Therapeutics, Inc. (the Company), a Delaware corporation, is a biopharmaceutical company
focused on the development of pharmaceutical product candidates for the treatment of obesity. The Company was incorporated in September 2002 and commenced operations in 2003.

The Companys primary activities since incorporation have been organizational activities, including recruiting
personnel, conducting research and development, including clinical trials, and raising capital. Since the Company has not yet begun principal operations of commercializing a product candidate, the Company is considered to be in the development
stage. In addition, the Company has experienced losses since its inception, and as of December 31, 2009, had an accumulated deficit of $266.7 million. The Company expects to continue to incur losses for at least the next several years.
Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Companys cost structure, and until that time, the Company will need to continue to raise additional equity or debt
financing. Management believes that it has sufficient capital to fund operations through at least the next 12 months.

2. Summary
of Significant Accounting Policies

Common Stock

In May 2007, the Company completed its initial public offering of 7,000,000 shares of its common stock at a public
offering price of $12.00 per share. Net cash proceeds from the initial public offering were approximately $76.2 million, after deducting underwriting discounts, commissions and offering costs payable by the Company. In connection with the
closing of the initial public offering, all of the Companys shares of convertible preferred stock outstanding at the time of the offering were automatically converted into 16,462,231 shares of common stock. In May 2007, the underwriters
exercised their overallotment option and purchased an additional 1,050,000 shares of the Companys common stock, from which the Company received cash proceeds, net of underwriting discounts and commissions, of approximately
$11.7 million.

In January 2008, the Company completed a public offering of 7,000,000 shares of its
common stock at a public offering price of $11.00 per share. Net cash proceeds from the public offering were approximately $71.5 million, after deducting underwriting discounts, commissions and offering expenses payable by the Company. In
February 2008, the underwriters exercised a portion of their overallotment option and purchased an additional 326,435 shares of the Companys common stock, from which the Company received cash proceeds, net of underwriting discounts, of
approximately $3.4 million.

In July 2009, the Company completed a public offering of
11,500,000 shares of its common stock at a public offering price of $7.50 per share. Net cash proceeds from the public offering were $81.6 million, after deducting underwriting discounts, commissions and offering expenses.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates.



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Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be
cash equivalents.

Investment Securities, Available-for-Sale

The Company classifies all investment securities as available-for-sale, as the sale of such securities may be required prior
to maturity to implement management strategies. These investment securities are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income (loss) until realized. The cost of debt securities is adjusted
for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, as well as interest and dividends, are included in interest income. Realized gains and losses from the sale of available-for-sale securities, if
any, are determined on a specific identification basis and are also included in interest income.

Restricted Cash

As of December 31, 2009, restricted cash represents certificates of deposit pledged as collateral
for letters of credit issued by the Company in connection with the execution of operating leases in September 2006 ($70,000), December 2007 ($800,000) and December 2008 ($420,000).

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts payable and accrued expenses are considered to be representative of their respective fair value because of the short-term
nature of these items. Investment securities, available-for-sale, are carried at fair value. The fair value of the outstanding debt approximates its carrying value as of the balance sheet date.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and investment securities, available-for-sale. The Company
maintains deposits in federally insured financial institutions in excess of federally insured limits. However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in
which these deposits are held. Additionally, the Company has established guidelines regarding the diversification of its investments and their maturities, which are designed to maintain safety and liquidity.

Concentration of Revenue

Cypress Bioscience, Inc. (Cypress) accounted for 100%, 100%, 100% and 72% of revenue for the years ended December 31, 2009, 2008 and 2007, and for the period from September 12, 2002
(inception) to December 31, 2009, respectively. Eli Lilly and Company (Eli Lilly) accounted for 0%, 0%, 0% and 28% of revenue for the years ended December 31, 2009, 2008 and 2007, and for the period from September 12, 2002
(inception) to December 31, 2009, respectively.

Property and Equipment

Property and equipment is stated at cost and depreciated over the estimated useful lives of the assets (three to five years)
using the straight-line method. Leasehold improvements are stated at cost and amortized over the shorter of their useful lives or the lease term.

Impairment of Long-Lived Assets

The Company will
record impairment losses on long-lived assets used in operations when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated



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by those assets are less than the carrying amount of those assets. While the Companys current and historical operating losses and cash flows are indicators of impairment, the Company
believes the future cash flows to be received support the carrying value of its long-lived assets and, accordingly, the Company has not recognized any impairment losses as of December 31, 2009.

Research and Development Costs

All research and development costs are charged to expense as incurred and consist principally of costs related to clinical trials managed by the Companys contract research organizations, license
fees and salaries and related benefits. Clinical trial costs are a significant component of research and development expenses. These costs are accrued based on estimates of work performed, and require estimates of total costs incurred based on
patients enrolled, progress of patient studies and other events. Clinical trial costs are subject to revision as the trials progress and revisions are charged to expense in the period in which they become known.

Patent Costs

All costs related to filing and pursuing patent applications are expensed as incurred as recoverability of such expenditures is uncertain.

Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates which will be in effect when the
differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax asset will be realized.

The Company follows the provisions of the Income Taxes Topic of the Financial Accounting Standards Board (FASB)
Accounting Standards Codification that defines a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under the Income Taxes
Topic, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position
will not be recognized if it has less than a 50% likelihood of being sustained.

Revenue Recognition

The Company has entered into an agreement with Cypress which contains multiple elements, including non-refundable upfront
fees, payments for reimbursement of research costs, payments associated with achieving specific development milestones and royalties based on specified percentages of net product sales, if any. When determining the revenue recognition, the Company
considers a variety of factors in determining the appropriate method of revenue recognition under these arrangements, such as whether the elements are separable, whether there are determinable fair values and whether there is a unique earnings
process associated with each element of a contract. If the required ongoing obligations involve minimal or no cost effort, nonrefundable upfront fees would be recognized upon receipt. Otherwise, non-refundable upfront fees are recognized over the
period the related services are provided or over the period the Company has continuing involvement. Revenue from milestones is recognized as agreed upon scientific events are achieved, as long as the event is substantial and was not readily assured
at the beginning of the arrangement.

During 2005, the Company entered into a collaborative research and
development contract with Eli Lilly. The agreement was to provide research and development over a term of one year on a best efforts basis at which time the agreement terminated. Amounts received were recognized over the term of the agreement, which
ended in December 2005.



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Advance payments received in excess of amounts earned are classified as
deferred revenue until earned.

Stock-Based Compensation

Compensation costs related to all equity instruments granted is recognized at the grant-date fair value of the awards.
Additionally, the Company includes an estimate of the number of awards that will be forfeited in calculating compensation costs, which is recognized over the requisite service period of the awards on a straight-line basis. No related tax benefits of
the share-based compensation costs have been recognized since the Companys inception.

The fair value of
each option award was estimated on the date of grant using the Black-Scholes option valuation model. The following weighted-average assumptions were utilized for the calculations during each period:



|                                |  |                          |      |   |      |   |      |      |  |   |      |  
|------------------------------- |  | ------------------------ | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                |  | Years Ended December 31, |     
|                                |  | 2009                     |      |   | 2008 |   |      | 2007 | 
|Expected life (in years)        |  |                          | 6.2  |   |      |   | 6.1  |      |  |   | 6.1  |  
|Expected volatility             |  |                          | 59.6 | % |      |   | 55.0 | %    |  |   | 70.0 | %
|Risk-free interest rate         |  |                          | 2.3  | % |      |   | 3.2  | %    |  |   | 4.1  | %
|Expected dividend yield         |  |                          | 0.0  | % |      |   | 0.0  | %    |  |   | 0.0  | %
|Per share grant-date fair value |  | $                        | 2.48 |   |      | $ | 5.81 |      |  | $ | 9.46 |  

The
weighted average expected life of options was calculated using the simplified method as prescribed by the Securities and Exchange Commission (SEC). This decision was based on the lack of relevant historical data due to the Companys
limited historical experience. In addition, due to the Companys limited historical data, the estimated volatility incorporates the historical volatility of comparable companies whose share prices are publicly available. The risk-free interest
rate assumption was based on the United States Treasurys rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Companys
expectation of not paying dividends in the foreseeable future.

Total stock-based compensation expense
recognized during the years ended December 31, 2009, 2008 and 2007 and for the period from September 12, 2002 (inception) to December 31, 2009 was comprised of the following (in thousands):



|                           |  |                          |       |                                                            |   |       |  |   |       |  |   |       
|-------------------------- |  | ------------------------ | ----- | ---------------------------------------------------------- | - | ----- |  | - | ----- |  | - | ------
|                           |  | Years Ended December 31, |       | Period fromSeptember 12,2002(Inception)
toDecember 31,2009
|                           |  | 2009                     |       | 2008                                                       |   | 2007  | 
|General and administrative |  | $                        | 3,287 |                                                            | $ | 4,562 |  | $ | 2,709 |  | $ | 13,112
|Research and development   |  |                          | 2,941 |                                                            |   | 2,561 |  |   | 1,714 |  |   | 8,038 
|                           |  |                          |       |                                                            |   |       |  |   |       |  |   |       
|                           |  | $                        | 6,228 |                                                            | $ | 7,123 |  | $ | 4,423 |  | $ | 21,150
|                           |  |                          |       |                                                            |   |       |  |   |       |  |   |       

For the year ended December 31,
2008, stock-based compensation costs charged to general and administrative expense includes an incremental cost of approximately $600,000 related to modifications to Dr. Gary Tollefsons stock option awards pursuant to his Resignation
Agreement with the Company dated December 5, 2008. The modifications included the partial acceleration of vesting of his stock option awards and the extension of the period in which he could exercise his stock options for a period of two years
after his termination.

At December 31, 2009, total unrecognized estimated share-based compensation
expense related to non-vested stock options granted prior to that date was $17.5 million, which is expected to be recognized over a weighted-average period of 3.4 years.



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Equity instruments issued to non-employees are recorded at their fair value
and are periodically revalued as the equity instruments vest and are recognized as expense over the related service period. In connection with the issuance of options to purchase shares of common stock to non-employees, the Company recorded total
stock-based compensation (included in the table above) within stockholders equity totaling $143,000, $160,000, $264,000 and $723,000 for the years ended December 31, 2009, 2008, 2007 and for the period from September 12, 2002
(inception) to December 31, 2009, respectively.

Comprehensive Income (Loss)

The Company records all components of comprehensive income, including net income, in the financial statements in the period
in which they are recognized. Comprehensive income (loss) consists of net loss and certain changes in stockholders equity that are excluded from net loss. Comprehensive income (loss) for each of the years ended December 31, 2009, 2008 and
2007 has been reflected in the Statements of Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit). Accumulated other comprehensive income (loss), which is included in Stockholders Equity (Deficit), represents
unrealized gains and losses on investment securities, available-for-sale.

Comprehensive loss includes net
loss and unrealized gains and losses on investments. The Company discloses the accumulated balance of other comprehensive loss as a separate component of stockholders equity.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period less the weighted average number of shares subject to repurchase.
Diluted net loss per share is computed by dividing the net loss by the weighted average number of basic shares plus common stock equivalents outstanding during the period determined using the treasury stock method, if dilutive. Stock options and
shares to be issued upon conversion of the redeemable convertible preferred stock are considered to be common stock equivalents and were not included in the net loss per share calculation for the years ended December 31, 2009, 2008 and 2007
because the inclusion of such shares would have had an anti-dilutive effect.



|                                                                               |  |                                         |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------ |  | --------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                               |  | Years Ended December 31,                |        
|                                                                               |  | 2009                                    |         |   | 2008 |   |         | 2007 | 
|                                                                               |  | (In thousands, except per shareamounts) |        
|Historical                                                                     |  |                                         |         |   |      |   |         |      |  |   |         |  
|Numerator:                                                                     |  |                                         |         |   |      |   |         |      |  |   |         |  
|Net loss attributable to common stockholders                                   |  | $                                       | (66,562 | ) |      | $ | (93,240 | )    |  | $ | (57,777 | )
|                                                                               |  |                                         |         |   |      |   |         |      |  |   |         |  
|Denominator:                                                                   |  |                                         |         |   |      |   |         |      |  |   |         |  
|Weighted average common shares outstanding                                     |  |                                         | 39,905  |   |      |   | 33,762  |      |  |   | 18,789  |  
|Weighted average unvested common shares subject to repurchase                  |  |                                         |        |   |      |   |        |      |  |   | (32     | )
|                                                                               |  |                                         |         |   |      |   |         |      |  |   |         |  
|Denominator for basic and diluted net loss attributable to common stockholders |  |                                         | 39,905  |   |      |   | 33,762  |      |  |   | 18,757  |  
|                                                                               |  |                                         |         |   |      |   |         |      |  |   |         |  
|Net loss attributable to common stockholders per sharebasic and diluted       |  | $                                       | (1.67   | ) |      | $ | (2.76   | )    |  | $ | (3.08   | )
|                                                                               |  |                                         |         |   |      |   |         |      |  |   |         |  

Historical outstanding anti-dilutive securities not included in the diluted net loss per
share calculation include the following (in thousands):



|                     |  |                    |  |       |  |      
|-------------------- |  | ------------------ |  | ----- |  | -----
|                     |  | As of December 31,
|                     |  | 2009               |  | 2008  |  | 2007 
|Common stock options |  | 7,008              |  | 3,971 |  | 2,873



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Pro Forma Net Loss per Share

The pro forma disclosure below shows what net loss per share would have been if the conversion of the Companys shares
of redeemable convertible preferred stock has occurred at the beginning of 2007 using the as-if-converted method. All shares of convertible preferred stock were automatically converted to 16,462,231 shares of common stock upon the completion of
the Companys initial public offering in May 2007. This pro forma information provides supplemental information that helps investors compare the results of prior periods after giving effect to the change in capitalization resulting from the
conversion of preferred stock. The pro forma basic net loss per share is computed as follows (in thousands, except per share amounts):



|                                                                                                           |  |                            |         |  
|---------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | -
|                                                                                                           |  | Year endedDecember 31,2007 |        
|Numerator:                                                                                                 |  |                            |         |  
|Net loss attributable to common stockholders                                                               |  | $                          | (57,777 | )
|Adjustment to eliminate accretion on preferred stock and beneficial conversion of series C preferred stock |  |                            | 10      |  
|                                                                                                           |  |                            |         |  
|Pro forma net loss                                                                                         |  | $                          | (57,767 | )
|                                                                                                           |  |                            |         |  
|Denominator:                                                                                               |  |                            |         |  
|Weighted average shares of common stock outstanding                                                        |  |                            | 18,757  |  
|Pro forma adjustment to reflect assumed conversion of preferred stock, as-if-converted                     |  |                            | 5,457   |  
|                                                                                                           |  |                            |         |  
|Denominator for pro forma basic and diluted net loss per share                                             |  |                            | 24,214  |  
|                                                                                                           |  |                            |         |  
|Pro forma basic and diluted net loss per share                                                             |  | $                          | (2.39   | )
|                                                                                                           |  |                            |         |  

Recently Issued Accounting Standards

In April 2009, the FASB issued a new accounting standard providing guidance for the accounting of assets acquired and
liabilities assumed in a business combination that arise from contingencies. This guidance amends and clarifies previous accounting standards to address application issues regarding the initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The adoption of this standard did not have a material effect on the Companys consolidated financial statements.

In June 2009, the FASB issued authoritative guidance that prescribes the information that a reporting entity must provide in
its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferors continuing involvement in transferred financial assets. Specifically,
among other aspects, this standard amends previously issued accounting guidance, modifies the financial-components approach and removes the concept of a qualifying special purpose entity when accounting for transfers and servicing of financial
assets and extinguishments of liabilities, and removes the exception from applying the general accounting principles for the consolidation of variable interest entities that are qualifying special-purpose entities. This new accounting standard is
effective for transfers of financial assets occurring on or after January 1, 2010. The adoption of this standard will not have an impact on the Companys consolidated financial statements.

In June 2009, the FASB issued authoritative guidance that amends previously issued accounting guidance for the consolidation
of variable interest entities to require an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. This amended consolidation guidance for variable interest entities
also replaces the existing quantitative approach for identifying which enterprise should consolidate a variable interest entity, which was based on which enterprise is exposed to a majority of the risks and rewards, with a qualitative approach,
based on which enterprise has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or
the right to receive benefits from the entity



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that could potentially be significant to the variable interest entity. Under this revised guidance, more entities may meet the definition of a variable interest entity, and the determination
about whether an enterprise should consolidate a variable interest entity is required to be evaluated continuously. This standard is effective for us for interim and annual periods beginning after January 1, 2010. The adoption of this standard
will not have an impact on the Companys consolidated financial statements.

In August 2009, the FASB
issued new authoritative guidance for the fair value measurement of liabilities when a quoted price in an active market is not available. The new guidance is effective for reporting periods beginning after August 28, 2009, which means that it
became effective for the fourth quarter beginning October 1, 2009. The adoption of this new guidance did not have a material effect on the Companys consolidated financial statements.

In September 2009, the FASB issued authoritative guidance that provides additional guidance on using the net asset value per
share, provided by an investee, when estimating the fair value of an alternate investment that does not have a readily determinable fair value and enhances the disclosures concerning these investments. Examples of alternate investments that fall
within the scope of this standard include investments in hedge funds and private equity, real estate, and venture capital partnerships. This Standard is effective for interim and annual periods ending after December 15, 2009. The adoption of
this new guidance did not have a material effect on the Companys consolidated financial statements.

In
October 2009, the FASB issued authoritative guidance that amends existing revenue recognition accounting pronouncements related to multiple-deliverable revenue arrangements. The new guidance provides accounting principles and application guidance on
whether multiple deliverables exist, how the arrangement should be separated, and how the consideration should be allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead
provides for separate revenue recognition based upon managements estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. The new guidance is effective
prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Earlier application is permitted as of the beginning of a fiscal year. The Company is currently evaluating the
potential impact of this standard on the Companys consolidated financial statements.

3. Investment Securities, Available-for-Sale

The Company invests its excess cash in investment securities, principally debt instruments of financial
institutions, corporations with investment grade credit ratings and government agencies. A summary of the estimated fair value of investment securities, available-for-sale, is as follows at December 31, 2009 and December 31, 2008 (in
thousands):



|                                  |  |                   |       |                |        |   |            |   |     |            |   |     |   |  |   |        |  
|--------------------------------- |  | ----------------- | ----- | -------------- | ------ | - | ---------- | - | --- | ---------- | - | --- | - |  | - | ------ | -
|December 31, 2009                 |  | Maturity in Years |       | Amortized Cost |        |   | Unrealized |   |     | Fair Value |  
|                                  |  |                   | Gains |                | Losses |   |           
|U.S. government agency securities |  | Less than 1       |       | $              | 54,506 |   |            | $ | 13  |            | $ | (19 | ) |  | $ | 54,500 |  
|                                  |  |                   |       |                |        |   |            |   |     |            |   |     |   |  |   |        |  
|Total investment securities       |  |                   |       | $              | 54,506 |   |            | $ | 13  |            | $ | (19 | ) |  | $ | 54,500 |  
|                                  |  |                   |       |                |        |   |            |   |     |            |   |     |   |  |   |        |  
|                                  |  |                   |       |               
|December 31, 2008                 |  | Maturity in Years |       | Amortized Cost |        |   | Unrealized |   |     | Fair Value |  
|                                  |  |                   | Gains |                | Losses |   |           
|Corporate debt obligations        |  | Less than 1       |       | $              | 13,551 |   |            | $ | 46  |            | $ |    |   |  | $ | 13,597 |  
|U.S. government agency securities |  | Less than 1       |       |                | 29,521 |   |            |   | 107 |            |   |    |   |  |   | 29,628 |  
|                                  |  |                   |       |                |        |   |            |   |     |            |   |     |   |  |   |        |  
|                                  |  |                   |       |                | 43,072 |   |            |   | 153 |            |   |    |   |  |   | 43,225 |  
|Less: cash equivalents            |  |                   |       |                | (2,509 | ) |            |   |    |            |   |    |   |  |   | (2,509 | )
|                                  |  |                   |       |                |        |   |            |   |     |            |   |     |   |  |   |        |  
|Total investment securities       |  |                   |       | $              | 40,563 |   |            | $ | 153 |            | $ |     |   |  | $ | 40,716 |  
|                                  |  |                   |       |                |        |   |            |   |     |            |   |     |   |  |   |        |  



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Gross realized gains and losses on available-for-sale securities were
immaterial during the years ended December 31, 2009, 2008 and 2007.

4. Fair Value Measurements

The following table presents information about the Companys financial assets measured at fair value on a recurring
basis as of December 31, 2009, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company has the ability to access. The Company classifies money market funds and U.S. Treasury securities as Level 1 assets. Fair values determined by Level 2 inputs utilize inputs other
than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that
are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company classifies commercial paper holdings, U.S. government agency securities and asset-backed security
holdings as Level 2 assets. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The Company does not hold any Level 3 assets. In
certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has
been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment, and considers factors specific to the asset or liability.

Assets that have recurring
measurements are shown below (in thousands):



|                                            |  |                               |        |                                                             |   |                                             |  |                                         |        |  |   |  
|------------------------------------------- |  | ----------------------------- | ------ | ----------------------------------------------------------- | - | ------------------------------------------- |  | --------------------------------------- | ------ |  | - | -
|                                            |  |                               |        | Fair Value Measurement at Reporting Date Using             
|Description                                 |  | Balance as ofDecember 31,2009 |        | Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) |   | Significant OtherObservableInputs (Level 2) |  | SignificantUnobservableInputs (Level 3)
|Financial instruments owned:                |  |                               |        |                                                             |   |                                             |  |                                         |        |  |   |  
|Money market funds/U.S. Treasury securities |  | $                             | 48,357 |                                                             | $ | 48,357                                      |  | $                                       |       |  | $ | 
|U.S. government agency securities           |  |                               | 42,761 |                                                             |   |                                            |  |                                         | 42,761 |  |   | 
|                                            |  |                               |        |                                                             |   |                                             |  |                                         |        |  |   |  
|Total financial instruments owned           |  | $                             | 91,118 |                                                             | $ | 48,357                                      |  | $                                       | 42,761 |  | $ | 
|                                            |  |                               |        |                                                             |   |                                             |  |                                         |        |  |   |  

5. Property and Equipment

Property and equipment consists of the following (in thousands):



|                                |  |                      |  |              |       |   |      |   |       |  
|------------------------------- |  | -------------------- |  | ------------ | ----- | - | ---- | - | ----- | -
|                                |  |                      |  | December 31, |      
|                                |  | Useful Life in Years |  | 2009         |       |   | 2008 |  
|Furniture and fixtures          |  | 5                    |  | $            | 1,102 |   |      | $ | 1,102 |  
|Computer equipment and software |  | 3 to 5               |  |              | 493   |   |      |   | 488   |  
|Leasehold improvements          |  | 5                    |  |              | 597   |   |      |   | 477   |  
|Laboratory equipment            |  | 5                    |  |              | 44    |   |      |   | 566   |  
|                                |  |                      |  |              |       |   |      |   |       |  
|                                |  |                      |  |              | 2,236 |   |      |   | 2,633 |  
|Accumulated depreciation        |  |                      |  |              | (912  | ) |      |   | (574  | )
|                                |  |                      |  |              |       |   |      |   |       |  
|Property and equipment, net     |  |                      |  | $            | 1,324 |   |      | $ | 2,059 |  
|                                |  |                      |  |              |       |   |      |   |       |  

Depreciation expense was $478,000, $447,000, $138,000 and $1,120,000 for each of the years
ended December 31, 2009, 2008, 2007 and for the period from September 12, 2002 (inception) to December 31, 2009, respectively.



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6. Accrued Expenses

Accrued expenses consist of the following (in thousands):



|                                                |  |              |       |      |   |       
|----------------------------------------------- |  | ------------ | ----- | ---- | - | ------
|                                                |  | December 31,
|                                                |  | 2009         |       | 2008
|Accrued compensation related expenses           |  | $            | 3,588 |      | $ | 1,763 
|Accrued preclinical and clinical trial expenses |  |              | 451   |      |   | 10,513
|Accrued legal and professional expenses         |  |              | 159   |      |   | 150   
|Other accrued expenses                          |  |              | 917   |      |   | 740   
|                                                |  |              |       |      |   |       
|                                                |  | $            | 5,115 |      | $ | 13,166
|                                                |  |              |       |      |   |       

7. Commitments and Contingencies

Credit and Security Agreement

In December 2006, the Company entered into a Credit and Security Agreement with Merrill Lynch Capital (the Credit Agreement) providing for potential borrowing until June 30, 2007 of up to
$17.0 million. In March 2007, the Company drew down $10.0 million under the Credit Agreement. In July 2007, the Company entered into a First Amendment to Credit and Security Agreement with Merrill Lynch Capital (the First
Amendment). The First Amendment provides for, among other things, the extension of the period during which Merrill Lynch Capital was obligated to make advances under the Credit Agreement to the Company from June 30, 2007 to
December 31, 2007. In November 2007, the Company entered into a Second Amendment to Credit and Security Agreement with Merrill Lynch Capital (the Second Amendment). The Second Amendment amends and restates certain provisions of the
Credit Agreement as amended by the First Amendment. The Second Amendment provides for, among other things, the increase of the total amount available for advances under the Credit Agreement from $17.0 million to $25.0 million, the
obligation of the Company to request an advance of $8.0 million on or before December 31, 2007, and the extension of the period during which Merrill Lynch Capital was obligated to make advances to the Company under the Credit Agreement
from December 31, 2007 to December 31, 2008. In December 2008 and 2007, the Company drew down an additional $5.8 million and $8.0 million, respectively, under the Credit Agreement, as amended. GE Healthcare Financial Services acquired a
portfolio of loans from Merrill Lynch Capital in 2008, and the Credit Agreement, as amended, was subsequently assigned to GE Healthcare Financial Services.

The Company is required to make monthly payments of principal and interest and all amounts outstanding under the Credit Agreement will become due and payable on the earlier of
July 1, 2011 or three years after the funding of any amounts under the Credit Agreement. The loan is collateralized by substantially all of the Companys assets other than, subject to certain limited exceptions, intellectual property.
Subject to certain limited exceptions, amounts prepaid under the Credit Agreement are subject to a prepayment fee equal to 3% of the amount prepaid. In addition, upon repayment of the total amounts borrowed for any reason, the Company will be
required to pay an exit fee equal to the greater of $1,190,000 or 5% of the total amounts borrowed under the Credit Agreement. Under the terms of the agreement, the Company is subject to operational covenants, including limitations on the
Companys ability to incur liens or additional debt, pay dividends, redeem stock, make specified investments and engage in merger, consolidation or asset sale transactions, among other restrictions. As of December 31, 2009,
$23.8 million has been drawn under this agreement and $8.8 million remains payable. The average rate of interest on the amounts outstanding at December 31, 2009, which is fixed through maturity, is 7.3%. The fair value of the outstanding
debt approximates its carrying value as of December 31, 2009.



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At December 31, 2009, future minimum principal payments under the
Credit Agreement, as amended, are as follows (in thousands):



|                     |  |   |        |  
|-------------------- |  | - | ------ | -
|Due in:              |  |   |       
|2010                 |  | $ | 6,384  |  
|2011                 |  |   | 2,416  |  
|                     |  |   |        |  
|                     |  |   | 8,800  |  
|Less current portion |  |   | (6,384 | )
|                     |  |   |        |  
|                     |  | $ | 2,416  |  
|                     |  |   |        |  

Included in other assets at both December 31, 2009 and 2008 is approximately $1.4
million related to costs incurred in connection with the Credit Agreement, as amended. At both December 31, 2009 and 2008, this amount includes $1,190,000 which was earned by the lender upon the closing of the loan agreement and can be used to
offset the $1,190,000 exit fee, which is payable upon the earlier of repayment of amounts borrowed or termination of the agreement. These costs are being amortized to interest expense over the term of the Credit Agreement, as amended, and such
amortization totaled approximately $468,000, $267,000, $203,000 and $946,000 for each of the years ended December 31, 2009, 2008, and 2007, and for the period from September 12, 2002 (inception) to December 31, 2009, respectively. The
remaining balance of these costs was $487,000 and $955,000 at December 31, 2009 and 2008, respectively.

Operating
Leases

In December 2007, the Company entered into an operating lease agreement for office facilities
(corporate headquarters) in San Diego, California. The term of the lease began in April 2008 and is for an initial term of 64 months. The monthly rental payments are adjusted on an annual basis. As security for the lease, the landlord required
a letter of credit for $1.0 million. The letter of credit is collateralized by a certificate of deposit of $800,000, which is included in restricted cash in the accompanying balance sheet at December 31, 2009. The amount of security required
will be reduced every 12 months until the 61st month of the lease term, at which time the amount of security required is zero. Rent expense is being recorded on a straight-line basis over the life of the lease. In September 2008, the Company
entered into an amendment to lease to expand the office space at this location by 9,312 square feet. The initial term of the lease for this expanded space is for 52 months and began in April 2009. The monthly rental payments are adjusted on an
annual basis. As security for the lease of additional space, the Company issued a letter of credit for $420,000 to the landlord. The letter of credit is collateralized by a certificate of deposit in the same amount, which is included in restricted
cash in the accompanying balance sheet at December 31, 2009. Rent expense is being recorded on a straight-line basis over the life of the lease for the expanded space.

In September 2006, the Company entered into a five-year operating lease for office facilities commencing on November 1, 2006. Monthly rental payments are adjusted on an annual
basis and the lease expires in October 2011, with one option to renew for a three-year term on the same terms and conditions. As security for the lease, the landlord required a letter of credit for $125,000 through April 2009, at which time the
security was reduced to $70,000. The letter of credit is collateralized by a certificate of deposit in the same amount, which is included in restricted cash in the accompanying balance sheet at December 31, 2009 and 2008. The Company cannot
withdraw from the certificate of deposit until all obligations have been paid and the banks obligation to provide the letter of credit terminates. In April 2008, the Company moved to its new corporate headquarters and vacated this facility.
Effective September 2008, the Company entered into a sublease agreement with a third party for these office facilities for a term of 38 months. In accordance with authoritative guidance for costs associated with exit activities, the Company recorded
an expense of approximately $200,000 in the second quarter of 2008 to reflect the exit costs associated with this property.



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Future minimum payments under the operating leases, including equipment
leases, as of December 31, 2009 are as follows (in thousands):



|           |  |                           |      
|---------- |  | ------------------------- | -----
|           |  | Years Ending December 31,
|2010       |  | $                         | 1,791
|2011       |  |                           | 1,809
|2012       |  |                           | 1,672
|2013       |  |                           | 994  
|2014       |  |                           |     
|Thereafter |  |                           |     
|           |  |                           |      
|           |  | $                         | 6,266
|           |  |                           |      

Total rent expense for each of the
years ended December 31, 2009, 2008 and 2007, and for the period from September 12, 2002 (inception) to December 31, 2009 was approximately $1.4 million, $1.1 million, $215,000 and $2.8 million, respectively.

Technology and License Agreements

Oregon Health & Science University

In June
2003, the Company entered into a license agreement with Oregon Health & Science University (OHSU), whereby the Company acquired an assignment of any rights OHSU may have to a U.S. provisional patent application that the
Company filed, which formed the basis for the Companys subsequently issued patents. This license agreement was amended in November 2003, December 2006 and December 2007. As consideration for this license agreement, the Company paid an
upfront fee of $65,000 and issued 76,315 shares of the Companys common stock to OHSU. The Company is also obligated to pay a royalty to OHSU on net sales for Contrave and any other products covered by the assigned patent rights. At
December 31, 2009, no royalty payments have been made or are payable under this agreement as the product has not been launched and sales have not commenced. The Company is also responsible for all prosecution and maintenance (including all
costs associated with the enforcement) of any patent applications, that stem from these assigned rights, and for any patents that have or may issue with respect thereto.

OHSU has also licensed to the Company, on an exclusive basis, the issued patent underlying the in vitromodel that the Company has used for screening combination
therapies for impact on neuronal activity. With respect to these rights, the Company was required to make a payment of $20,000 upon receipt of a pair of mice and is required to pay an additional $20,000 upon receipt of any additional pair of mice.
OHSU is solely responsible for the prosecution, maintenance and enforcement (including all costs associated therewith) of this patent; however the Company is required to pay 100% of expenses incurred by OHSU in the maintenance and prosecution of
this patent. As of December 31, 2009, the Company has paid a total of approximately $113,000 in connection with the maintenance and prosecution of this patent. In addition, OHSU has the right to not file any patent application or to abandon any
patent or patent application included in the patent rights, in which case it must provide the Company 60 days prior written notice and, in response, the Company may elect at its sole cost to pursue these actions. The Companys rights
to this patent extend through the expiration of the patent, which is expected to occur in 2024.

The term of
the agreement generally extends until the last of the subject patent rights expire, which is expected to occur in March of 2025. The Company may unilaterally terminate the agreement and/or any licenses in any country upon specified written notice to
OHSU. OHSU may terminate the agreement upon delivery of written notice if the Company commits a material breach of its obligations and fails to remedy the breach within a specified period or may immediately terminate the agreement upon the delivery
of written notice concerning the occurrence of specified bankruptcy proceedings. In addition, upon written notice and the Companys failure to remedy any of the following breaches within a specified period, OHSU may terminate or modify the



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agreement: if the Company cannot demonstrate to OHSUs satisfaction that it has taken, or can be expected to take within a reasonable time, effective steps to achieve practical application
of the licensed products and/or licensed processes; or if the Company has willfully made a false statement of, or willfully omitted, a material fact in any report required by the agreement; or if the Company commits a substantial breach of a
covenant or agreement contained in the license.

Duke University

In March 2004, the Company entered into a patent license agreement (the Duke Agreement) with Duke University
(Duke) whereby the Company acquired, among other things, an exclusive worldwide license to a U.S. patent. As consideration for this license, the Company issued 442,624 shares of its common stock to Duke and may be required to
make future milestone payments totaling $1.7 million upon the achievement of various milestones related to regulatory or commercial events. The Company is also obligated to pay a royalty on net sales of products covered by the license. The Company
has the right to grant sublicenses to third parties, subject to an obligation to pay Duke a royalty on any revenue it receives under such sublicensing arrangements. In addition, the Company is obligated to pay Duke a specified royalty on sales of
products which are covered by certain of the Companys issued patents under the OHSU license agreement. At December 31, 2009, no such payments have been made or are payable under the Duke Agreement as the product has not been launched and
sales have not commenced. In January 2005, the Company sublicensed the technology to Cypress for a non-refundable upfront payment of $1.5 million.

As a result of the Companys sublicensing of the Duke technology to Cypress for specified uses, the Company may be required to make future payments to Duke of up to $5.7 million
($3.7 million excluding milestone payments related to sleep apnea, see further discussion below) upon Cypresss achievement of various regulatory milestones. The term of the agreement generally extends until the last licensed patent right
expires, which is expected to occur in 2023. Either party may terminate the agreement upon delivery of written notice if the other party commits fraud, willful misconduct, or illegal conduct of the other party with respect to the subject matter of
the agreement. In addition, either party may terminate the agreement upon delivery of written notice if the other party commits a material breach of its obligations and fails to remedy the breach within a specified period. The Company may also
voluntarily terminate the agreement upon delivery of written notice within a specified time period. Duke may terminate the agreement upon delivery of written notice if the Company fails to meet certain specified milestones of the agreement and fail
to remedy such a breach within the specified period. In addition, Duke may terminate the agreement upon specified bankruptcy, liquidation or receivership proceedings.

Lee Dante, M.D.

In June 2004, the Company entered
into a patent license agreement with Lee G. Dante, M.D. whereby the Company acquired an exclusive worldwide license to two U.S. patents. As consideration for this license, the Company paid upfront fees totaling $100,000 and granted
Dr. Dante an option to purchase 73,448 shares of its common stock. The Company is also obligated to pay a royalty on net sales of products covered by the license. The Company will be required to make a one-time milestone payment to
Dr. Dante in the amount of $1.0 million upon the occurrence of a specified regulatory event. The Company has the right to grant sublicenses of the patented technology to third parties, subject to its obligation to pay Dr. Dante a royalty
on any revenue it receives from such arrangements. At December 31, 2009, no such payments have been made or are payable under this agreement as the technology has not been sublicensed, the product has not been launched and sales have not
commenced.

The term of the agreement generally extends until the last licensed patent right expires, which is
expected to occur in 2013. Either party may terminate the agreement upon delivery of written notice if the other party commits fraud, willful misconduct, or illegal conduct respect to the subject matter of the agreement. In addition, either party
may terminate the agreement upon delivery of written notice if the other party commits a material



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breach of its obligations and fails to remedy the breach within a specified period. The Company may also voluntarily terminate the agreement upon delivery of written notice within a specified
time period. In addition, Dr. Dante may terminate the agreement upon specified bankruptcy, liquidation or receivership proceedings.

Cypress Bioscience, Inc.

In January 2005, the
Company entered into a license agreement with Cypress whereby the Company sublicensed certain of its rights under a patent license agreement with Duke to Cypress for specified uses. As consideration for this license, Cypress paid the Company
non-refundable upfront fees of $1.5 million. Cypress can require the Company to provide clinical support for any of the specified uses over the term of the agreement. Accordingly, this $1.5 million is being recognized over 17 years, the
estimated life of the sublicensed patent. In addition, Cypress is obligated to pay the Company a royalty on net sales of any products covered by the sublicensed technology. Cypress may also be required to make future milestone payments to the
Company of up to $57.0 million upon its achievement of various regulatory milestones. In June 2006, Cypress announced that the results of a completed Phase IIa trial did not support continuing its development program for obstructive sleep apnea, one
of the specified uses under the agreement. Therefore, the Companys receipt of $20.0 million of milestone payments related to sleep apnea is unlikely at this time.

For each of the years in the three year period ended December 31, 2009 and for the period from September 12, 2002 (inception) to December 31, 2009, the Company
recognized revenues under this agreement of $88,000 and $441,000, respectively. At December 31, 2009 and 2008, deferred revenue under this agreement totaled $1.1 million and $1.1 million, respectively.

As a result of the Companys sublicensing of the Duke technology to Cypress for specified uses, the Company may be
required to make future payments to Duke of up to $5.7 million ($3.7 million excluding milestone payments related to sleep apnea) upon Cypresss achievement of various regulatory milestones. The term of the Cypress agreement generally
extends until the last licensed patent right expires, which is expected to occur in 2023. Either party may terminate the agreement upon delivery of written notice if the other party commits fraud, willful misconduct, or illegal conduct of the other
party with respect to the subject matter of the agreement. In addition, either party may terminate the agreement upon delivery of written notice if the other party commits a material breach of its obligations and fails to remedy the breach within a
specified period. Cypress may terminate the agreement for any reason upon delivery of written notice within the specified period. Cypress may also terminate with no notice if an unfavorable judgment is entered against the Company or any other party
relating to the patents we have sublicensed to Cypress. In addition, Cypress may terminate the agreement upon specified bankruptcy, liquidation or receivership proceedings.

Eli Lilly and Company

In December 2004, the Company entered into a Drug Study Agreement with Eli Lilly whereby the Company and Eli Lilly would enter into a joint Drug Study program. Eli Lilly was required to make a payment of
$87,000 upon execution of the agreement and $87,000 upon the completion of the pre-clinical study, which was completed in December 2005. For the period from September 12, 2002 (inception) to December 31, 2009, the Company recognized
revenue totaling $174,000 under this agreement.

8. Stockholders Equity

Redeemable Convertible Preferred Stock

During January 2004, the Company entered into agreements with several investors who collectively purchased 7,863,776 shares of Series A redeemable convertible preferred
stock (Series A Preferred Stock) at $1.18 per share for cash proceeds of $9,193,866, net of issuance costs of $85,387. In addition, notes payable and accrued interest totaling $1,720,747 were converted into 1,458,259 shares of
Series A Preferred Stock.



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During April and May 2005, the Company entered into agreements with several
investors who collectively purchased 14,830,509 shares of Series B redeemable convertible preferred stock (Series B Preferred Stock and, together with the Series A Preferred Stock, the Preferred Stock) at
$2.36 per share for cash proceeds totaling $34,914,721, net of issuance costs of $85,279.

Each share of
Preferred Stock was automatically converted into common stock upon the closing of the initial public offering of 8,050,000 shares of the Companys common stock in May 2007. All shares of the Companys outstanding redeemable preferred
stock were converted into an aggregate of 12,076,269 shares of common stock.

In addition, at any time
after April 22, 2010 and upon the election of the holders of at least two-thirds of the outstanding shares of Preferred Stock, and only after all outstanding shares of the Series B Preferred Stock have been redeemed, the Company was
required to redeem in three annual installments, the outstanding shares of Preferred Stock by a cash payment equal to the original issue price ($1.18 for Series A Preferred Stock and $2.36 for Series B Preferred Stock) plus any declared
but unpaid dividends, as adjusted for stock dividends, combinations or splits.

The Company accreted the
carrying value of these securities to the Liquidation Preference and Redemption Value as of April 23, 2010, the earliest date on which the holders of Preferred Stock could require the redemption of the outstanding shares. The difference
between the Carrying Value and the Liquidation Preference and Redemption Value of the Preferred Stock represented the amount of issuance costs remaining to be accreted.

Convertible Preferred Stock

During November 2006, the Company sold 8,771,930 shares of Series C convertible Preferred Stock at $3.42 per share, resulting in net proceeds of approximately $29.9 million. The Series C
convertible Preferred Stock was sold at a price per share below the anticipated Initial Public Offering price. The Company recorded a deemed dividend on the Series C convertible Preferred Stock of approximately $13.9 million which is equal to
the number of shares of Series C convertible Preferred Stock sold multiplied by the difference between the estimated fair value of the underlying preferred stock and the Series C conversion price per share. The deemed dividend increases
the net loss applicable to common stockholders in the calculation of basic and diluted net loss per common share for the year ended December 31 2006 and is reported as a charge to additional paid-in capital.

Each share of Series C convertible Preferred Stock was automatically converted into common stock upon the closing of
the initial public offering of 8,050,000 shares of the Companys common stock in May 2007. All shares of the Companys outstanding convertible preferred stock were converted into an aggregate of 4,385,962 shares of common stock.

Common Stock

During 2002 and 2003, and in connection with the founding of the Company, the Company issued 1,599,600 shares of common stock at $0.002 per share in exchange for cash and services. In addition,
during 2003, in exchange for consulting services rendered to the Company, the Company issued two individuals a total of 442,624 shares of the Companys common stock at $0.002 per share.

During May 2006, the Board of Directors approved an amendment to the Companys Certificate of Incorporation to increase
the number of authorized common shares by 3,000,000, resulting in the total number of authorized common shares of 38,000,000. In addition, during November 2006, the Board of Directors approved an amendment to the Companys Certificate of
Incorporation to increase the number of authorized shares of common stock to 50,000,000.



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In February 2007, the Companys Board of Directors and stockholders
approved a one-for-two reverse stock split of the Companys outstanding common stock. A Certificate of Amendment to the Companys Amended and Restated Certificate of Incorporation was filed on April 9, 2007 effecting the one-for-two
reverse stock split. All common and per-share data included in these financial statements have been retroactively restated to reflect the one-for-two reverse stock split.

Stock Options

During 2004, the Company adopted the
2004 Stock Plan (the 2004 Plan) under which, as amended, 3,159,275 shares of common stock are reserved for issuance to employees, directors and consultants of the Company. The 2004 Plan provides for the grant of incentive stock options,
non-statutory stock options and rights to purchase restricted stock to eligible recipients. Recipients of incentive stock options shall be eligible to purchase shares of the Companys common stock at an exercise price equal to no less than the
estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2004 Plan is ten years. The options generally vest over four years, and some are immediately exercisable. At December 31, 2009,
options to purchase 699,417 shares have been granted and are outstanding under the 2004 Plan.

In
February 2007, the Companys stockholders approved the 2007 Equity Incentive Award Plan (the 2007 Plan), which became effective in April 2007, under which 3,525,000 shares of common stock were initially reserved for
future issuance to employees, directors and consultants of the Company. Effective January 1, 2009 and 2010, the Board of Directors increased the shares available for issuance under the 2007 Plan by 1,721,666 and 2,000,000 shares, respectively,
in accordance with an evergreen provision. The 2007 Plan was amended in October 2009 to provide for the reservation of 500,000 shares of the Companys common stock to be used exclusively for the grant of awards to individuals not
previously an employee or non-employee director of the Company (or following a bona fide period of non-employment with the Company), as an inducement material to the individuals entering into employment with the Company within the meaning of
Rule 5635(c)(4) of the NASDAQ Listing Rules. The 2007 Plan provides for the issuance of stock options, stock appreciation rights, restricted stock units, performance stock units, and other stock-based awards. The 2007 Plan has an initial term of ten
years. As of the effectiveness of the 2007 Plan, no additional shares will be granted under the 2004 Plan. At December 31, 2009, options to purchase 6,308,620 shares have been granted and are outstanding under the 2007 Plan.



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The following table summarizes stock option transactions for the 2004 and
2007 Plans since inception:



|                                          |  |                  |   |  |                                |      
|----------------------------------------- |  | ---------------- | - |  | ------------------------------ | -----
|                                          |  | Number ofOptions |   |  | Weighted AverageExercise Price
|Outstanding at December 31, 2002 and 2003 |  |                 |   |  | $                              |     
|Granted                                   |  | 223,624          |   |  |                                | 0.10 
|                                          |  |                  |   |  |                                |      
|Outstanding at December 31, 2004          |  | 223,624          |   |  |                                | 0.10 
|Granted                                   |  | 1,260,683        |   |  |                                | 0.54 
|Exercised                                 |  | (58,973          | ) |  |                                | 0.10 
|Forfeited                                 |  | (86,203          | ) |  |                                | 0.10 
|                                          |  |                  |   |  |                                |      
|Outstanding at December 31, 2005          |  | 1,339,131        |   |  |                                | 0.52 
|Granted                                   |  | 1,240,444        |   |  |                                | 1.86 
|Exercised                                 |  | (45,000          | ) |  |                                | 0.16 
|Forfeited                                 |  | (237,513         | ) |  |                                | 0.60 
|                                          |  |                  |   |  |                                |      
|Outstanding at December 31, 2006          |  | 2,297,062        |   |  |                                | 1.24 
|Granted                                   |  | 648,632          |   |  |                                | 14.29
|Exercised                                 |  | (72,332          | ) |  |                                | 1.06 
|                                          |  |                  |   |  |                                |      
|Outstanding at December 31, 2007          |  | 2,873,362        |   |  |                                | 4.19 
|Granted                                   |  | 1,805,058        |   |  |                                | 10.57
|Exercised                                 |  | (124,286         | ) |  |                                | 1.49 
|Forfeited                                 |  | (582,688         | ) |  |                                | 9.64 
|                                          |  |                  |   |  |                                |      
|Outstanding at December 31, 2008          |  | 3,971,446        |   |  |                                | 6.37 
|Granted                                   |  | 4,637,084        |   |  |                                | 4.37 
|Exercised                                 |  | (1,282,157       | ) |  |                                | 0.76 
|Forfeited                                 |  | (318,336         | ) |  |                                | 5.19 
|                                          |  |                  |   |  |                                |      
|Outstanding at December 31, 2009          |  | 7,008,037        |   |  | $                              | 6.13 
|                                          |  |                  |   |  |                                |      

The following table summarizes
information about stock options outstanding under the 2004 and 2007 Plans at December 31, 2009:



|                         |                  |                     |                                                    |                     |                               |   |                  |  |                               |  |   |      
|------------------------ | ---------------- | ------------------- | -------------------------------------------------- | ------------------- | ----------------------------- | - | ---------------- |  | ----------------------------- |  | - | -----
|Range of Exercise Prices |                  | Options Outstanding |                                                    | Options Exercisable
|                         | Number ofOptions |                     | WeightedAverageRemainingContractual Life(In Years) |                     | WeightedAverageExercise Price |   | Number ofOptions |  | WeightedAverageExercise Price
|$0.70 - $2.50            |                  | 1,262,675           |                                                    | 7.4                 |                               | $ | 1.94             |  | 601,377                       |  | $ | 1.76 
|$2.79                    |                  | 1,500,000           |                                                    | 9.3                 |                               | $ | 2.79             |  |                              |  | $ |     
|$2.83 - $7.12            |                  | 1,445,653           |                                                    | 9.4                 |                               | $ | 4.89             |  | 310,651                       |  | $ | 4.13 
|$7.52 - $10.64           |                  | 1,505,500           |                                                    | 9.3                 |                               | $ | 8.68             |  | 235,599                       |  | $ | 9.46 
|$10.72 - $15.45          |                  | 1,294,209           |                                                    | 7.5                 |                               | $ | 12.51            |  | 635,509                       |  | $ | 12.75
|                         |                  |                     |                                                    |                     |                               |   |                  |  |                               |  |   |      
|$0.70 - $15.45           |                  | 7,008,037           |                                                    | 8.6                 |                               | $ | 6.13             |  | 1,783,136                     |  | $ | 7.11 
|                         |                  |                     |                                                    |                     |                               |   |                  |  |                               |  |   |      

As of December 31, 2009, the aggregate intrinsic value of options outstanding
and exercisable was approximately $17.6 million and $4.4 million, respectively. The aggregate intrinsic value of options exercised was $9.1 million, $1.1 million, $990,000 and $11.3 million during the year ended December 31, 2009, 2008, 2007
and the period from September 12, 2002 (inception) to December 31, 2009, respectively. At December 31, 2009, the weighted average remaining contractual term for options exercisable was 7.0 years.



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Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following at December 31, 2009:



|                                     |  |          
|------------------------------------ |  | ---------
|Stock options issued and outstanding |  | 7,008,037
|Authorized for future option grants  |  | 315,157  
|                                     |  |          
|                                     |  | 7,323,194
|                                     |  |          

9. Income Taxes

Significant components of the Companys deferred tax assets at December 31, 2009 and 2008 are shown below. A
valuation allowance has been recognized to offset the net deferred tax assets as realization of such deferred tax assets has not met the more likely than not threshold.



|                                 |  |              |          |   |      |   |         |  
|-------------------------------- |  | ------------ | -------- | - | ---- | - | ------- | -
|                                 |  | December 31, |         
|(In thousands)                   |  | 2009         |          |   | 2008 |  
|Deferred tax assets:             |  |              |          |   |      |   |         |  
|Net operating loss carryforwards |  | $            | 96,544   |   |      | $ | 69,827  |  
|Research and development credits |  |              | 9,613    |   |      |   | 12,408  |  
|Deferred revenue                 |  |              | 431      |   |      |   | 467     |  
|Other, net                       |  |              | 3,745    |   |      |   | 2,083   |  
|Valuation allowance              |  |              | (110,333 | ) |      |   | (84,785 | )
|                                 |  |              |          |   |      |   |         |  
|                                 |  | $            |         |   |      | $ |        |  
|                                 |  |              |          |   |      |   |         |  

A reconciliation of income taxes to the amount computed by applying the statutory federal
income tax rate to the net loss is summarized as follows:



|                                                |  |              |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                |  | December 31, |        
|(In thousands)                                  |  | 2009         |         |   | 2008 |   |         | 2007 | 
|Income tax expense (benefit) at statutory rates |  | $            | (23,318 | ) |      | $ | (32,634 | )    |  | $ | (20,218 | )
|State income tax, net of federal benefit        |  |              | (3,640  | ) |      |   | (4,934  | )    |  |   | (2,963  | )
|Permanent items                                 |  |              | 3,507   |   |      |   | 2,996   |      |  |   | 3,315   |  
|Research and development credits                |  |              | (2,160  | ) |      |   | (6,032  | )    |  |   | (3,050  | )
|Change in valuation allowance                   |  |              | 25,548  |   |      |   | 40,604  |      |  |   | 22,916  |  
|                                                |  |              |         |   |      |   |         |      |  |   |         |  
|Income tax expense (benefit)                    |  | $            | (63     | ) |      | $ |        |      |  | $ |        |  
|                                                |  |              |         |   |      |   |         |      |  |   |         |  

For the year ended December 31, 2009, the Company recorded a tax benefit of $63,000
related to refundable income tax credits. This amount was included in Other Income (Expense) for financial statement presentation.

At December 31, 2009, the Company has federal and state net operating loss carryforwards of approximately $247.9 million and $224.6 million, respectively. The federal and state loss
carryforwards begin to expire in 2022 and 2013, respectively, unless previously utilized. At December 31, 2009, the Company has federal and state research and development tax credits of $10.4 million and $2.6 million, respectively. The federal
research and development tax credits begin to expire in 2023 unless previously utilized and the state tax credits carry forward indefinitely.

Approximately $7.5 million of the net operating loss carryforwards relate to excess tax deductions for stock compensation, the income tax benefit of which will be recorded as additional paid-in-capital if
and when realized.



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Additionally, the utilization of the net operating loss and research and
development tax credit carryforwards is subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions due to ownership change limitations that have occurred previously or that
could occur in the future. These ownership changes limit the amount of the net operating loss and research and development tax credit carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax,
respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points
over a three-year period. An analysis was performed which indicated that multiple ownership changes have occurred in previous years which created annual limitations on the Companys ability to utilize its net operating loss and research and
development tax carryovers. Such limitations will result in approximately $945,000 of tax benefits related to the net operating loss and research and development tax carryforwards that will expire unused. Accordingly, the related net operating loss
and research and development tax carryforwards have been removed from deferred tax assets accompanied by a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, limitations created by future
ownership changes, if any, will not impact the Companys effective tax rate.

The following table
summarizes the activity related to the Companys gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2009, 2008 and 2007 (in thousands):



|                                                             |  |              |        |   |      |   |       |  |   |      
|------------------------------------------------------------ |  | ------------ | ------ | - | ---- | - | ----- |  | - | -----
|                                                             |  | December 31,
|                                                             |  | 2009         |        |   | 2008 |   | 2007 
|Gross unrecognized tax benefits at the beginning of the year |  | $            | 3,652  |   |      | $ | 1,878 |  | $ | 768  
|Increases related to current year tax positions              |  |              | 469    |   |      |   | 1,774 |  |   | 1,110
|Decreases related to prior year tax positions                |  |              | (1,522 | ) |      |   |      |  |   |     
|Expiration of unrecognized tax benefits                      |  |              |       |   |      |   |      |  |   |     
|                                                             |  |              |        |   |      |   |       |  |   |      
|Gross unrecognized tax benefits at the end of the year       |  | $            | 2,599  |   |      | $ | 3,652 |  | $ | 1,878
|                                                             |  |              |        |   |      |   |       |  |   |      

Due to the valuation allowance, none
of the unrecognized tax benefits as of December 31, 2009, if recognized, would reduce the Companys annual effective tax rate.

The Company files income tax returns in the United States and in various state jurisdictions with varying statutes of limitations. Due to net operating losses incurred, the Companys tax returns from
inception to date are subject to examination by taxing authorities. The Companys policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. As of December 31, 2009, the
Company had no interest or penalties accrued for uncertain tax positions.

10. Litigation

The Company is not currently a party to any material legal proceedings.

11. Related Party Transactions

During the year ended December 31, 2004 and 2003, two of the Companys stockholders, which are affiliated venture funds, loaned the Company $15,000 and $1,650,000, respectively. The notes were
interest bearing at an annual rate of 6.25% and were due in January 2004. During January 2004, the notes, and accrued interest totaling $55,747, were converted into 1,458,259 shares of Series A Preferred Stock.

During the years ended December 31, 2006 and 2005, the Company reimbursed a company, which is the general partner of
the two stockholders venture funds, for expenses incurred on the Companys behalf. These expenses, which included amounts for rent, totaled $0, $0, $0 and $194,000 for the years ended December 31, 2009, 2008 and 2007 and for the period
September 12, 2002 (inception) to December 31, 2009, respectively.



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Rent expense paid under a month-to-month rental agreement to this founding stockholder totaled $0, $0, $0 and $55,000 for the years ended December 31, 2009, 2008 and 2007 and for the period
September 12, 2002 (inception) to December 31, 2009, respectively.

During August 2006, the Company
entered into a sponsored research agreement with OHSU, one of the Companys stockholders, for work conducted by the laboratory of Dr. Michael Cowley, a former officer and employee of the Company. The agreement, which was terminated in
February 2008, provided for payment by the Company to OHSU of up to approximately $847,500 over the 30 month term of the agreement, was primarily for the continuation of research underlying the license agreement entered into between the Company
and OHSU in June 2003 (Note 7). Research expense paid under the terms of this agreement totaled $0, $0, $461,000 and $461,000 for the years ended December 31, 2009, 2008 and 2007 and for the period from September 12, 2002 (inception)
to December 31, 2009, respectively.

12. Employee Benefit Plan

During 2007, the Company adopted a 401(k) Plan which allows employees to contribute up to 100% of their annual compensation
up to the maximum annual amount prescribed by the Internal Revenue Service. The Company may elect to make a discretionary contribution or match a discretionary percentage of employee contributions. During the years ended December 31, 2009, 2008
and 2007, the Companys matching contributions to the plan were approximately $195,000, $133,000 and $29,000, respectively.

13.
Selected Quarterly Financial Data (Unaudited)

The following financial information reflects all normal
recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods. Selected quarterly financial data for years ended December 31, 2009 and 2008 are as follows (in thousands,
except per share amounts):



|                                                     |  |                              |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|---------------------------------------------------- |  | ---------------------------- | ------- | - | ----------- | - | ------- | ----------- |  | - | ----------- | - |  | - | ------- | -
|                                                     |  | Year Ended December 31, 2009 |        
|                                                     |  | 1st Quarter                  |         |   | 2nd Quarter |   |         | 3rd Quarter |  |   | 4th Quarter |  
|Selected quarterly financial data:                   |  |                              |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Revenues                                             |  | $                            | 22      |   |             | $ | 22      |             |  | $ | 22          |   |  | $ | 22      |  
|Total operating expenses                             |  |                              | 19,096  |   |             |   | 17,553  |             |  |   | 14,184      |   |  |   | 14,785  |  
|Net loss                                             |  |                              | (19,303 | ) |             |   | (17,806 | )           |  |   | (14,433     | ) |  |   | (15,020 | )
|Net loss attributable to common stockholders         |  |                              | (19,303 | ) |             |   | (17,806 | )           |  |   | (14,433     | ) |  |   | (15,020 | )
|Net loss per common stockholderbasic and diluted(1) |  | $                            | (0.56   | ) |             | $ | (0.51   | )           |  | $ | (0.33       | ) |  | $ | (0.32   | )
|                                                     | 
|                                                     |  | Year Ended December 31, 2008 |        
|                                                     |  | 1st Quarter                  |         |   | 2nd Quarter |   |         | 3rd Quarter |  |   | 4th Quarter |  
|Selected quarterly financial data:                   |  |                              |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Revenues                                             |  | $                            | 22      |   |             | $ | 22      |             |  | $ | 22          |   |  | $ | 22      |  
|Total operating expenses                             |  |                              | 24,006  |   |             |   | 23,677  |             |  |   | 25,101      |   |  |   | 22,128  |  
|Net loss                                             |  |                              | (23,214 | ) |             |   | (23,113 | )           |  |   | (24,787     | ) |  |   | (22,126 | )
|Net loss attributable to common stockholders         |  |                              | (23,214 | ) |             |   | (23,113 | )           |  |   | (24,787     | ) |  |   | (22,126 | )
|Net loss per common stockholderbasic and diluted(1) |  | $                            | (0.73   | ) |             | $ | (0.67   | )           |  | $ | (0.72       | ) |  | $ | (0.64   | )



|(1) | Net loss per common stockholder is computed independently for each of the quarters presented. Therefore, the sum of the quarterly net loss per share
will not necessarily equal the total for the year.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.

None.



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Item 9A. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

As required by Securities and Exchange Commission Rule 13a-15(b), we
carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Managements Report on Internal Control Over Financial Reporting

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive
Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the financial statements.

Internal control over
financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject
to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.

Management is responsible for establishing and
maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our chief executive officer and chief
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has used the framework set forth in the report entitled Internal ControlIntegrated Framework published
by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting. Based on its evaluation, management has concluded that our internal control over financial
reporting was effective as of December 31, 2009, the end of our most recent fiscal year. Ernst & Young LLP, our independent registered public accounting firm, has issued a report on the effectiveness of our internal control over
financial reporting, which is included below.

There has been no change in our internal control over financial
reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Orexigen Therapeutics, Inc.

We have audited Orexigen Therapeutics, Inc.s internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Orexigen Therapeutics, Inc.s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A companys internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets
that could have a material effect on the financial statements.

Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Orexigen
Therapeutics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Orexigen Therapeutics, Inc. (a
development stage company) as of December 31, 2009 and 2008 and the related statements of operations, redeemable convertible preferred stock and stockholders equity (deficit), and cash flows for each of the three years in the period ended
December 31, 2009 and for the period from September 12, 2002 (inception) to December 31, 2009 of Orexigen Therapeutics, Inc. and our report dated March 11, 2010 expressed an unqualified opinion thereon.

/s/    Ernst & Young LLP

San Diego, California

March 11, 2010



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##### Table of Contents

Item 9B. Other Information.

None.

PART III

Certain information required by Part III is omitted
from this Annual Report on Form 10-K since we intend to file our definitive proxy statement for our 2010 annual meeting of stockholders, or the Proxy Statement, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and certain information to be included in the Proxy Statement is incorporated herein by reference.

Item 10. Directors, Executive Officers and Corporate Governance.

Information regarding Directors, Executive Officers and Corporate Governance is hereby incorporated by reference to our
definitive proxy statement, which will be filed with the SEC within 120 days after December 31, 2009.

We
have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees which is available on our internet website at www.orexigen.com. The Code of Business Conduct and Ethics contains general guidelines for
conducting the business of our company consistent with the highest standards of business ethics, and is intended to qualify as a code of ethics within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of
Regulation S-K. In addition, we intend to promptly disclose (1) the nature of any amendment to our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of such person who is granted
the waiver and the date of the waiver on our website in the future.

Item 11. Executive Compensation.

Information regarding Executive Compensation is hereby incorporated by reference to our definitive proxy
statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.

Information regarding Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters is hereby incorporated by reference to our definitive proxy statement.

Item 13. Certain
Relationships and Related Transactions, and Director Independence.

Information regarding Certain
Relationships and Related Transactions, and Director Independence is hereby incorporated by reference to our definitive proxy statement.

Item 14. Principal Accounting Fees and Services.

Information regarding the Principal Accounting
Fees and Services is hereby incorporated by reference to our definitive proxy statement.



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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)Documents filed as part of this report:

1. The following financial statements of Orexigen Therapeutics, Inc. are filed as part of this report under
Item 8Financial Statements and Supplementary Data:



|                                                                                                                                                         |  |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                                                                         |  | PageNumber
|Balance SheetsDecember 31, 2009 and 2008                                                                                                                |  | 72        
|Statements of OperationsYears Ended December 
31, 2009, 2008 and 2007 and Period from Inception (September 12, 2002) to December 31, 2009               |  | 73        
|Statements of Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit)Period from
 Inception (September 12, 2002) to December 31, 2009 |  | 74        
|Statements of Cash FlowsYears Ended December 
31, 2009, 2008 and 2007 and Period from Inception (September 12, 2002) to December 31, 2009               |  | 77        
|Notes to Financial Statements                                                                                                                            |  | 78        

2. List
of financial statement schedules. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

3. List of Exhibits required by Item 601 of Regulation S-K. See paragraph (b) below.



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(b) The following exhibits are filed as part of this report:



|              |  |                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                
|3.1(1)        |  | Amended and Restated Certificate of Incorporation of the Registrant                                                                        
|              | 
|3.2(1)        |  | Amended and Restated Bylaws of the Registrant                                                                                              
|              | 
|4.1(1)        |  | Form of the Registrants Common Stock Certificate                                                                                          
|              | 
|4.2(1)        |  | Second Amended and Restated Investors Rights Agreement dated November 20, 2006                                                            
|              | 
|4.3(2)        |  | Registration Rights Waiver and Amendment dated January 6, 2008                                                                             
|              | 
|10.1(1)       |  | Form of Director and Executive Officer Indemnification Agreement                                                                           
|              | 
|10.2#(9)      |  | Form of Executive Officer Employment Agreement                                                                                             
|              | 
|10.3#(1)      |  | 2004 Stock Plan and forms of option agreements thereunder                                                                                  
|              | 
|10.4#(10)     |  | Independent Director Compensation Policy                                                                                                   
|              | 
|10.5#(10)     |  | 2007 Equity Incentive Award Plan, as amended, and forms of stock option grant notice and stock option agreement thereunder                 
|              | 
|10.6(1)       |  | Lease dated September 22, 2006 by and between the Registrant and Prentiss/Collins Del Mar Heights LLC                                      
|              | 
|10.7(1)      |  | License Agreement dated June 27, 2003 by and between the Registrant and Oregon Health & Science University                                 
|              | 
|10.8(1)      |  | Amendment to License Agreement dated November 1, 2003 by and between the Registrant and Oregon Health & Science University                 
|              | 
|10.9(1)      |  | Letter Agreement Amendment to License Agreement dated December 6, 2003 by and between the Registrant and Oregon Health & Science
University
|              | 
|10.10(1)     |  | License Agreement dated March 31, 2004 by and between the Registrant and Duke University                                                   
|              | 
|10.11(1)     |  | Amendment No. 1 to License Agreement dated December 22, 2004 by and between the Registrant and Duke University                             
|              | 
|10.12(1)     |  | Amendment No. 2 to License Agreement dated July 27, 2004 by and between the Registrant and Duke University                                 
|              | 
|10.13(1)     |  | License Agreement dated June 1, 2004 by and between the Registrant and Lee G. Dante, M.D.                                                  
|              | 
|10.14(1)      |  | Credit and Security Agreement dated December 15, 2006 by and between the Registrant and GE Healthcare Financial Services                   
|              | 
|10.15(1)      |  | Master Agreement for Pharmaceutical Development Services dated February 16, 2007 by and between Registrant and Patheon Pharmaceuticals Inc.
|              | 
|10.16(3)      |  | First Amendment to Credit and Security Agreement dated July 2, 2007 by and between the Registrant and GE Healthcare Financial Services     
|              | 
|10.17(4)      |  | Second Amendment to Credit and Security Agreement dated November 6, 2007 by and between the Registrant and GE Healthcare Financial Services
|              | 
|10.18(5)      |  | Amendment No. 3 to License Agreement dated December 10, 2007 by and between the Registrant and Oregon Health & Science University          
|              | 
|10.19(5)      |  | Office Lease dated December 11, 2007 by and between the Registrant and Mullrock 3 Torrey Pines, LLC                                        



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|              |  |                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                          
|10.20(6)      |  | First Amendment to Lease dated September 23, 2008 by and between the Registrant and Mullrock 3 Torrey Pines, LLC                                                     
|              | 
|10.21(7)     |  | Naltrexone Hydrochloride Supply Agreement dated January 29, 2009 by and between the Registrant and Cilag GmbH International                                          
|              | 
|10.22(8)    |  | License Agreement dated June 10, 2009 by and between the Registrant, SmithKline Beecham Corporation and Glaxo Group Limited                                          
|              | 
|10.23       |  | Bupropion Hydrochloride Supply Agreement dated November 24, 2009 by and between the Registrant and Chemi, S.p.A.                                                     
|              | 
|10.24#(9)     |  | Form of Chief Executive Officer Employment Agreement                                                                                                                 
|              | 
|23.1          |  | Consent of Independent Registered Public Accounting Firm                                                                                                             
|              | 
|31.1          |  | Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14 of the Securities Exchange Act of 1934, as
amended                                  
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14 of the Securities Exchange Act of 1934, as
amended                                  
|              | 
|32.1*         |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002



|(1) | Filed with the Registrants Registration Statement on Form S-1 on December 19, 2006, as amended (File No. 333-139496).
|--- | ----------------------------------------------------------------------------------------------------------------------

|(2) | Filed with the Registrants Current Report on Form 8-K on January 7, 2008.
|--- | --------------------------------------------------------------------------

|(3) | Filed with the Registrants Current Report on Form 8-K on July 3, 2007.
|--- | -----------------------------------------------------------------------

|(4) | Filed with the Registrants Current Report on Form 8-K on November 8, 2007.
|--- | ---------------------------------------------------------------------------

|(5) | Filed with the Registrants Current Report on Form 8-K on December 14, 2007.
|--- | ----------------------------------------------------------------------------

|(6) | Filed with the Registrants Quarterly Report on Form 10-Q on November 7, 2008.
|--- | ------------------------------------------------------------------------------

|(7) | Filed with the Registrants Annual Report on Form 10-K on March 13, 2009.
|--- | -------------------------------------------------------------------------

|(8) | Filed with the Registrants Quarterly Report on Form 10-Q on August 7, 2009.
|--- | ----------------------------------------------------------------------------

|(9) | Filed with the Registrants Current Report on Form 8-K on January 28, 2010.
|--- | ---------------------------------------------------------------------------

|(10) | Filed with the Registrants Current Report on Form 8-K on March 2, 2010.
|---- | ------------------------------------------------------------------------

| | Confidential treatment has been granted for portions of this exhibit. These portions have been omitted from the Registration Statement and filed
separately with the Securities and Exchange Commission.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and submitted separately to the Securities
and Exchange Commission.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|# | Indicates management contract or compensatory plan.
|- | ---------------------------------------------------

|* | These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being
filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of Orexigen Therapeutics, Inc., whether made before or after the date hereof, regardless of any
general incorporation language in such filing.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant
has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.



OREXIGEN THERAPEUTICS, INC.By:

/s/    MICHAEL A. NARACHIMichael A Narachi President and Chief Executive Officer


Dated:
March 11, 2010

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



|                                                         |  |                                                                                    |  |               
|-------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | --------------
|Signature                                                |  | Title                                                                              |  | Date          
|/s/    MICHAEL A.
NARACHI Michael A. Narachi             |  | President and Chief Executive Officer Director (Principal Executive Officer)       |  | March 11, 2010
|                                                         | 
|                                                         |  |                                                                                   
|/s/    GRAHAM K.
COOPER Graham K. Cooper                 |  | Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |  | March 11, 2010
|                                                         | 
|                                                         |  |                                                                                   
|/s/    ECKARD
WEBER Eckard Weber, M.D.                   |  | Chairman of the Board of Directors                                                 |  | March 11, 2010
|                                                         | 
|                                                         |  |                                                                                   
|/s/    LOUIS C.
BOCK                                     |  | Director                                                                           |  | March 11, 2010
|Louis C. Bock                                            |  |                                                                                   
|                                                         |  |                                                                                   
|/s/    BRIAN H.
DOVEY Brian H. Dovey                     |  | Director                                                                           |  | March 11, 2010
|                                                         | 
|                                                         |  |                                                                                   
|/s/    PETER K.
HONIG Peter K. Honig, M.D.               |  | Director                                                                           |  | March 6, 2010 
|                                                         | 
|                                                         |  |                                                                                   
|/s/    JOSEPH S.
LACOB Joseph S. Lacob                   |  | Director                                                                           |  | March 8, 2010 
|                                                         | 
|                                                         |  |                                                                                   
|/s/    MICHAEL F. POWELL, PH.D. Michael F. Powell, Ph.D. |  | Director                                                                           |  | March 11, 2010
|                                                         | 
|                                                         |  |                                                                                   
|/s/    DANIEL K. TURNER
III Daniel K. Turner III         |  | Director                                                                           |  | March 11, 2010
|                                                         | 
|                                                         |  |                                                                                   
|/s/    PATRICK
MAHAFFY Patrick Mahaffy                   |  | Director                                                                           |  | March 11, 2010
|                                                         | 



103