Directors with Terms Expiring at the Annual Meeting and Not Standing for Election:

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PROPOSAL NO. 2 – APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2010 OMNIBUS INCENTIVE COMPENSATION PLAN

We currently maintain the NuPathe Inc. 2010 Omnibus Incentive Compensation Plan (referred to herein as, the "2010 Plan"), which was originally effective on August 5, 2010. On April 11, 2011, our Board of Directors approved, subject to stockholder approval, an amendment and restatement of the 2010 Plan (referred to herein as, the "Plan" or the "amended and restated Plan") to:

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increase the aggregate share limit for incentive stock options (referred to herein as, "ISOs") from 124,767 shares of common stock to 1,000,000 shares of common stock (Section 4(a));



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increase the individual annual grant limit to any person from 124,767 shares of common stock to 1,000,000 shares of common stock (Section 4(c)(i)); and



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modify the plan's "evergreen provision" to increase the maximum number of shares that may be added to the plan (and to the aggregate share limit for ISOs) each year from 499,070 shares of common stock to 1,500,000 shares of common stock (Section 4(a)).

Section 4(a) of the 2010 Plan provided that each January during the term of the plan an additional number of shares of our common stock shall be added to the plan (and to the aggregate share limit for ISOs) equal to the lesser of (i) five percent (5%) of the total number of shares of our common stock outstanding on the last trading day in December of the immediately preceding calendar year, or (ii) 499,070 shares. This type of provision is commonly referred to as an "evergreen provision." The amended and restated Plan retains this "evergreen provision" and, as noted above, increases the maximum number of shares that may be added to the Plan each year from 499,070 shares to 1,500,000 shares. Other than by virtue of increasing the maximum number of shares that may be added to the plan pursuant to the "evergreen provision", the amendment and restatement does not increase the number of shares authorized for issuance under the 2010 Plan.

Stockholder approval of the amendment and restatement of the 2010 Plan is being sought (i) in order to satisfy NASDAQ listing rules, (ii) so that compensation attributable to grants under the Plan may qualify for an exemption from the deduction limit under section 162(m) of the Internal Revenue Code of 1986, as amended and the regulations promulgated thereunder (referred to herein as, the "Code") (see discussion of "Federal Income Tax Consequences" below), and (iii) in order for ISOs to meet the requirements of the Code.

A total of 2,237,956 shares of our common stock are authorized for issuance under the 2010 Plan, of which 703,932 shares were available for future grants as of April 15, 2011. Our Board of Directors believes that the number of shares of common stock currently available under the 2010 Plan and expected to become available pursuant to its "evergreen provision," is insufficient to meet our future equity needs. In addition, our Board of Directors believes that it is desirable to increase the 2010 Plan's ISO and individual share limits to provide us with sufficient flexibility to utilize equity awards to attract, retain and motivate top quality employees, directors and consultants. If stockholders do not approve the amendment and restatement of the 2010 Plan at the Annual Meeting, the amendment and restatement will not be effective, and the ISO and individual share limits and the "evergreen provision" will remain as they currently exist under the 2010 Plan. Our Board of Directors believes that the amendment and restatement of the 2010 Plan will further our compensation strategy and is vital to our ability to attract, retain and motivate top quality employees, directors and consultants.

The material features of the amended and restated Plan are summarized below.

Our Board recommends that stockholders vote FOR on Proposal No. 2 to approve the amendment and restatement of the 2010 Plan.

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Material Features of the Plan

This summary of the material features of the Plan is not intended to be a complete description of the Plan and is qualified in its entirety by the actual text of the Plan which is attached to this Proxy Statement as Appendix A.

General. The Plan provides that grants may be made in any of the following forms: ISOs, nonqualified stock options (referred to herein as, "NQSOs" and together with ISOs as, "options"), stock awards, stock units, performance units, stock appreciation rights (referred to herein as, "SARs"), dividend equivalents and other stock-based or bonus awards.

A total of 2,237,956 shares of our common stock are authorized for issuance or transfer under the Plan. As of April 15, 2011, (i) 1,456,835 options were outstanding under the Plan with a weighted average exercise price of $4.37 and a weighted average remaining term of 7.8 years, (ii) 77,189 shares had been issued under the Plan as a result of option exercises and vested restricted stock and (iii) 703,932 shares were available for future grants under the Plan. The last reported sale price of our common stock on the NASDAQ Global Market on April 15, 2011 was $6.70. The aggregate number of shares of common stock that may be issued or transferred under the Plan pursuant to ISOs may not exceed 1,000,000 shares.

During the term of the Plan, the number of shares authorized for issuance and the aggregate share limit for ISOs will automatically increase on the first trading day in January each calendar year, beginning in calendar year 2012, by an amount equal to the lesser of 5.0% of the total number of outstanding shares of our common stock on the last trading day in December in the prior calendar year or 1,500,000 shares. This provision is commonly referred to as an "evergreen provision." The Plan also contains annual limits of 1,000,000 shares for all grants to each person participating in the Plan measured in shares of our common stock and $3,000,000 for all grants to each person participating in the Plan measured in cash dollars. Both limits are subject to adjustment as described in the Plan.

If and to the extent any options or SARs, including options and SARs granted under our 2005 Equity Compensation Plan which was merged with and into the Plan (referred to herein as, the "2005 Plan"), terminate, expire or are canceled, forfeited, exchanged or surrendered without having been exercised or if any stock awards, stock units or other stock-based awards, including awards granted under the 2005 Plan, are forfeited, terminated or otherwise not paid in full, the shares subject to such grants will again be available for purposes of the Plan. In addition, if any shares of our common stock are surrendered in payment of the exercise price of an option or SAR, the number of shares available for issuance under the Plan will be reduced only by the net number of shares actually issued upon exercise and not by the total number of shares under which such option or SAR is exercised. If shares of common stock otherwise issuable under the Plan are withheld in satisfaction of the withholding taxes incurred in connection with the issuance, vesting or exercise of any grant or the issuance of common stock, then the number of shares of common stock available for issuance under the Plan shall be reduced by the net number of shares issued, vested or exercised under such grant. If any grants are paid in cash, and not in shares of our common stock, any shares of common stock subject to such grants will also be available for future grants.

Administration. The Plan will be administered by our Compensation Committee, and our Compensation Committee will determine all of the terms and conditions applicable to grants under the Plan. Our Compensation Committee will also determine who will receive grants under the Plan and the number of shares of common stock that will be subject to grants, except that grants to members of our Compensation Committee must be authorized by a disinterested majority of our Board of Directors. The Compensation Committee will have sole authority: to (i) determine the individuals to whom grants or bonus awards shall be made under the Plan, (ii) determine the type, size and terms of the grants or bonus awards to be made to each such individual, (iii) determine the time when the grants or bonus

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awards will be made, (iv) determine the duration of any applicable vesting, exercise or restriction period, including the criteria for such vesting, exercisability and lapse of restriction and the acceleration of such vesting, exercisability and lapse of restriction, (v) amend the terms of any previously issued grant or bonus award, and (vi) deal with any other matters arising under the Plan.

In connection with stock splits, stock dividends, recapitalizations and certain other events affecting our common stock, our Compensation Committee will make adjustments as it deems appropriate in the maximum number of shares of common stock authorized for issuance as grants, the maximum number of shares of common stock that any individual participating in the Plan may be granted in any year, the number and kind of shares covered by outstanding grants, the kind of shares that may be issued or transferred under the Plan, and the price per share or market value of any outstanding grants.

Eligibility for Participation. All of our employees are eligible to receive grants under the Plan. In addition, our non-employee directors and consultants and key advisors who perform services for us may receive grants under the Plan. Our Compensation Committee shall select the employees, non-employee directors and key advisors to receive grants. As of April 15, 2011, we had 28 employees and 8 non-employee directors.

Types of Awards

Options. Under the Plan, our Compensation Committee will determine the exercise price of the options granted and may grant options to purchase shares of our common stock in such amounts as it determines. Our Compensation Committee may grant options that are intended to qualify as ISOs under Section 422 of the Code, or NQSOs, which are not intended to so qualify. ISOs may only be granted to employees. Anyone eligible to participate in the Plan may receive a grant of NQSOs. The exercise price of an option granted under the Plan cannot be less than the fair market value of a share of our common stock on the date the option is granted. If an ISO is granted to a 10% stockholder, the exercise price cannot be less than 110% of the fair market value of a share of our common stock on the date the option is granted.

A participant may exercise an option that has become exercisable, in whole or in part, by delivering a notice of exercise to the appropriate Company personnel. The exercise price for any option is generally payable in cash; in certain circumstances as permitted by our Compensation Committee, by the surrender of shares of our common stock with an aggregate fair market value on the date the option is exercised equal to the exercise price; by payment through a broker in accordance with procedures established by the Federal Reserve Board; by surrender of the vested portion of the option to us for an appreciation distribution payable in shares of our common stock with a fair market value at the time of the option surrender equal to the dollar amount by which the then fair market value of the shares of common stock subject to the surrendered portion exceeds the aggregate exercise price. The term of an option cannot exceed ten years from the date of grant, except that if an ISO is granted to a 10% stockholder, the term cannot exceed five years from the date of grant. To the extent that the aggregate fair market value of shares of common stock, determined on the date of grant, with respect to which ISOs become exercisable for the first time by a grantee during any calendar year exceeds $100,000, such ISOs will be treated as NQSOs

Except as provided in the grant instrument or as otherwise determined by our Compensation Committee, an option may only be exercised while a grantee is employed by or providing service to us or during an applicable period after termination of employment or service.

Stock Awards. Under the Plan, our Compensation Committee may grant stock awards. A stock award is an award of our common stock that may be subject to restrictions as our Compensation Committee determines. The restrictions, if any, may lapse over a specified period of employment or based on the satisfaction of pre-established criteria, in installments or otherwise, as our Compensation Committee

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may determine. The Compensation Committee shall determine the number of shares of common stock to be issued or transferred pursuant to stock awards.

Except to the extent restricted under the grant instrument relating to the stock award, a grantee will have all of the rights of a stockholder as to those shares, including the right to vote and the right to receive dividends or distributions on the shares. All unvested stock awards are forfeited if the grantee's employment or service is terminated for any reason, unless our Compensation Committee determines otherwise.

Stock Units. Under the Plan, our Compensation Committee may grant stock units to anyone eligible to participate in the Plan. Stock units are phantom units that represent shares of our common stock. Each stock unit represents the right of the participant to receive a share of our common stock or an amount of cash based on the value of a share of our common stock, if and when specified conditions are met.

Stock units become payable on terms and conditions determined by our Compensation Committee and will be payable in cash, shares of our common stock, or any combination of the foregoing, as determined by our Compensation Committee. All unvested stock units are forfeited if the grantee's employment or service is terminated for any reason, unless our Compensation Committee determines otherwise.

Stock Appreciation Rights and Other Stock-Based Awards. Under the Plan, our Compensation Committee may grant other types of awards that are based on, measured by or payable to anyone eligible to participate in the Plan in shares of our common stock, including SARs. The Committee may grant SARs to an employee or non-employee director separately or in tandem with any option (for all or a portion of the applicable option). Tandem SARs may be granted either at the time the option is granted or at any time thereafter while the option remains outstanding; provided, however, that, in the case of an ISO, SARs may be granted only at the time of the grant of the ISO. The number of tandem SARs granted to a participant that shall be exercisable during a specified period shall not exceed the number of shares of common stock that the participant may purchase upon the exercise of the related option during such period.

Our Compensation Committee will determine the terms and conditions of such awards, including the base amount of a SAR, which will not be less than the fair market value of a share of our common stock on the date the SAR is granted. A SAR shall be exercisable during the period specified by the Compensation Committee and shall be subject to such vesting and other restrictions as may be specified in the grant instrument. The Compensation Committee may accelerate the exercisability of any or all outstanding SARs at any time for any reason.

SARs may only be exercised while the participant is employed by, or providing service to, the Company or during the applicable period after termination of employment or service. A tandem SAR shall be exercisable only during the period when the option to which it is related is also exercisable. When a participant exercises SARs, the participant shall receive in settlement of such SARs an amount equal to the value of the stock appreciation for the number of SARs exercised. The appreciation in a SAR shall be paid in shares of our common stock, cash or any combination of the foregoing, as the Compensation Committee shall determine. For purposes of calculating the number of shares of our common stock to be received, shares of common stock shall be valued at their fair market value on the date of exercise of the SAR.

Other stock-based awards, based on or measured by our common stock, may be payable in cash, shares of our common stock or a combination of the two, as the Compensation Committee shall determine.

Performance Units. Under the Plan, our Compensation Committee may grant performance units to anyone eligible to participate in the Plan. Performance units represent a participating interest in a special bonus pool tied to the attainment of pre-established corporate performance objectives based on

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one or more performance goals or the right to receive a targeted dollar amount tied to the attainment of pre-established corporate performance objectives based on one or more performance goals. The amount of the bonus pool and the targeted dollar amounts may vary based on the level at which the applicable performance objectives are attained. The value of each performance unit which becomes due and payable upon the attained level of performance shall be determined by dividing the amount of the resulting bonus pool, if any, by the total number of performance units issued and outstanding at the completion of the applicable performance period or based on the threshold, target and maximum amounts that may be paid if the performance goals are met.

Performance units become payable on the attainment of the applicable performance objectives as determined by our Compensation Committee and will be payable in cash, in shares of our common stock, or in any combination of the two, as determined by our Compensation Committee. All unvested performance units are forfeited if the grantee's employment or service is terminated for any reason, unless the committee determines otherwise.

Dividend Equivalents. Under the Plan, our Compensation Committee may grant dividend equivalents in connection with grants of stock units or other stock-based awards made under the Plan. Dividend equivalents entitle the grantee to receive amounts equal to ordinary dividends that are paid on the shares underlying a grant while the grant is outstanding. Our Compensation Committee will determine whether dividend equivalents will be paid currently or accrued as contingent cash obligations. Dividend equivalents may be paid in cash, in shares of our common stock or in a combination of the two. Our Compensation Committee will determine the terms and conditions of the dividend equivalent grants, including whether the grants are payable upon the achievement of specific performance goals.

Qualified Performance-Based Compensation. The Plan permits our Compensation Committee to impose performance goals that must be met with respect to grants of stock awards, stock units, performance units, other stock-based awards and dividend equivalents that are intended to meet the exception for qualified performance-based compensation under Section 162(m) of the Code. Prior to or soon after the beginning of a performance period, our Compensation Committee will establish the performance goals that must be met, the applicable performance periods, the amounts to be paid if the performance goals are met and any other conditions. The Compensation Committee does not have discretion to increase the amount of compensation that is payable upon achievement of the designated performance goals.

The performance goals, to the extent designed to meet the requirements of Section 162(m) of the Code, will be based on one or more of the following criteria: cash flow; earnings (including gross margin, earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, and net earnings); earnings per share; growth in earnings or earnings per share; stock price; return on equity or average stockholder equity; total stockholder return or growth in total stockholder return either directly or in relation to a comparative group; return on capital; return on assets or net assets; revenue, growth in revenue or return on sales; income or net income; operating income, net operating income or net operating income after tax; operating profit or net operating profit; operating margin; return on operating revenue or return on operating profit; regulatory filings; regulatory approvals; litigation and regulatory resolution goals; other operational, regulatory or departmental objectives; budget comparisons; growth in stockholder value relative to established indexes, or another peer group or peer group index; development and implementation of strategic plans and/or organizational restructuring goals; development and implementation of risk and crisis management programs; improvement in workforce diversity; compliance requirements and compliance relief; safety goals; productivity goals; workforce management and succession planning goals; economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added performance measures); measures of

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customer satisfaction, employee satisfaction or staff development; development or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance our revenue or profitability or enhance its customer base; merger and acquisitions; and other similar criteria consistent with the foregoing.

The Compensation Committee will establish in writing the performance goals that must be met, the applicable performance period, the amounts to be paid if the performance goals are met, and any other conditions, prior to, or soon after the beginning of, the performance period. The Compensation Committee shall certify and announce the results for each performance period to all participants after the announcement of our financial results for the performance period. If and to the extent that the Compensation Committee does not certify that the performance goals have been met, the grants of stock awards, stock units, performance units, other stock-based awards and dividend equivalents for the performance period shall be forfeited or shall not be made, as applicable.

If dividend equivalents are granted as qualified performance-based compensation, the maximum amount of dividend equivalents that may be accrued by a grantee in a calendar year is $1.0 million.

Change of Control. If we experience a change of control, unless our Compensation Committee determines otherwise, all outstanding options and SARs will automatically accelerate and become fully exercisable, the restrictions and conditions on all outstanding stock awards will immediately lapse and all grantees holding stock units, performance units, dividend equivalents and other equity-based awards will receive a payment in settlement of such grants in an amount determined by our Compensation Committee. Our Compensation Committee may also provide that:

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Grantees will be required to surrender their outstanding options and SARs in exchange for a payment, in cash or shares of our common stock, equal to the difference between the exercise price and the fair market value of the underlying shares of common stock;



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After grantees have the opportunity to exercise their options and SARs, any unexercised options and SARs will be terminated on the date determined by our Compensation Committee; or



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All outstanding options and SARs not exercised will be assumed or replaced with comparable options or rights by the surviving corporation (or a parent or subsidiary of the surviving corporation) and other outstanding grants will be converted to similar grants of the surviving corporation (or a parent or subsidiary of the surviving corporation) as determined by our Compensation Committee.

In general terms, a change of control under the Plan occurs if:

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A person, entity or affiliated group, with certain exceptions, acquires more than 50% of our then outstanding voting securities;



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We merge into another entity unless the holders of our voting shares immediately prior to the merger have at least 50% of the combined voting power of the securities in the merged entity or its parent;



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We merge into another entity and the members of our Board of Directors prior to the merger would not constitute a majority of the board of the merged entity or its parent;



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We sell or dispose of all or substantially all of our assets;



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We are liquidated or dissolved; or



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A majority of the members of our Board of Directors is replaced during any 12-month period or less by directors whose appointment or election is not endorsed by a majority of the incumbent directors.

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Bonus Awards. The Plan authorizes our Compensation Committee to grant cash bonus awards, which are intended to qualify as "qualified performance-based compensation" for purposes of Section 162(m) of the Code, to executive employees as selected by our Compensation Committee. Our Compensation Committee will impose and specify the performance goals that must be met with respect to the grant of cash bonus awards and the performance period for the performance goals. To satisfy the requirements of Section 162(m) of the Code for qualified performance-based compensation, our Compensation Committee will establish in writing the performance goals that must be met in order to receive payment for the bonus award, the maximum amounts to be paid if the performance goals are met, performance threshold levels that must be met to receive payment for the bonus award, and any other conditions our Compensation Committee determines and to be consistent with the requirements of Section 162(m) of the Code.

Our Compensation Committee will use objectively determinable performance goals based on one or more criteria as described above for qualified performance-based compensation. The Compensation Committee will establish in writing the performance goals that must be met and the target bonus award, and any other conditions, prior to, or soon after the beginning of, the performance period.

Separate and apart from the cash bonus awards, our Compensation Committee may also grant to selected executive employees other bonuses which may be based on individual performance, our performance or such other criteria as determined by our Compensation Committee.

Transferability. Only the grantee may exercise rights under a grant during the grantee's lifetime. A grantee may not transfer those rights except by will or the laws of descent and distribution; provided, however, that a grantee may transfer a grant other than an ISO pursuant to a domestic relations order. Our Compensation Committee may also provide, in a grant agreement, that a grantee may transfer NQSOs to his or her family members, or one or more trusts or other entities for the benefit of or owned by such family members, consistent with applicable securities laws, according to such terms as the Compensation Committee may determine; provided that the participant receives no consideration for the transfer of an option.

Clawback Rights. Our Compensation Committee may provide that, if a participant breaches any restrictive covenant agreement or otherwise engages in activities that constitute Cause either while employed by, or providing service to, the Company or within a specified period of time thereafter, all grants held by the participant will terminate. We may rescind any exercise of an option or SAR and the vesting of any other grant and delivery of shares upon such exercise or vesting. The Compensation Committee may require that in the event of any such rescission, (i) the participant return to us the shares received upon the exercise of any option or SAR and/or the vesting and payment of any other grant or, (ii) if the participant no longer owns the shares, the participant pay to us the amount of any gain realized or payment received as a result of any sale or other disposition of the shares, net of the price originally paid by the participant for the shares.

Payment by the participant shall be made in such manner and on such terms and conditions as may be required by the Compensation Committee. We shall be entitled to set off against the amount of any such payment any amounts otherwise owed to the participant by us.

Deferrals. Our Compensation Committee may permit or require grantees to defer receipt of the payment of cash or the delivery of shares of common stock that would otherwise be due to the grantee in connection with a grant under the Plan. Our Compensation Committee will establish the rules and procedures applicable to any such deferrals, consistent with the requirements of Section 409A of the Code.

Repricing. Our Compensation Committee may cancel, with the consent of the affected holders, any or all of the outstanding options or SARs, including options or SARs transferred from the 2005 Plan, and in exchange for (i) new options or SARs with an exercise price or base amount per share not less than

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the fair market value per share of our common stock on the new grant date or (ii) cash or shares of our common stock. Our Compensation Committee shall also have the authority, with the consent of the affected holders, to reduce the exercise price or base amount of one or more outstanding options or SARs to the then current fair market value per share of our common stock or issue new options or SARs with a lower exercise price or base amount.

Amendment; Termination. Our Board of Directors may amend or terminate the Plan at any time; except that our stockholders must approve any amendment if such approval is required in order to comply with the Code, applicable laws, or applicable stock exchange requirements. Unless terminated sooner by our Board or extended with stockholder approval, the Plan will terminate on August 4, 2020.

Foreign Participants. If any individual who receives a grant under the Plan is subject to taxation in countries other than the U.S., the Plan provides that our Compensation Committee may make grants to such individuals on such terms and conditions as our Compensation Committee determines appropriate to comply with the laws of the applicable countries.

Grants under the Plan

No grant has been or will be made under the Plan that is contingent upon approval of this Proposal No. 2 by our stockholders at the Annual Meeting. Grants under the Plan are discretionary, so it is not currently possible to predict the grants that will be made or who will receive grants under the Plan after the Annual Meeting. For information with respect to grants made in 2010 to our named executive officers, see the "Executive Compensation- 2010 Grants of Plan-Based Awards" section of this Proxy Statement and for information with respect to grants made in 2010 to our non-employee directors, see the "Director Compensation - 2010 Director Compensation" section of this Proxy Statement.

Federal Income Tax Consequences of the Plan

The federal income tax consequences of grants under the Plan will depend on the type of grant. The following description provides only a general description of the application of federal income tax laws to grants under the Plan. This discussion is intended for the information of stockholders considering how to vote at the Annual Meeting and not as tax guidance to grantees, as the consequences may vary with the types of grants made, the identity of the grantees and the method of payment or settlement. This summary does not address the effects of other federal taxes (including possible "golden parachute" excise taxes) or taxes imposed under state, local, or foreign tax laws.

From the grantees' standpoint, as a general rule, ordinary income will be recognized at the time of delivery of shares of common stock or payment of cash under the Plan. Future appreciation on shares of common stock held beyond the ordinary income recognition event will be taxable as capital gain when the shares of common stock are sold. The tax rate applicable to capital gain will depend upon how long the grantee holds the shares. We, as a general rule, will be entitled to a tax deduction that corresponds in time and amount to the ordinary income recognized by the grantee, and we will not be entitled to any tax deduction with respect to capital gain income recognized by the grantee.

Exceptions to these general rules arise under the following circumstances:

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If shares of common stock, when delivered, are subject to a substantial risk of forfeiture by reason of any employment or performance-related condition, ordinary income taxation and our tax deduction will be delayed until the risk of forfeiture lapses, unless the grantee makes a special election to accelerate taxation under Section 83(b) of the Code.



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If an employee exercises an option that qualifies as an ISO, no ordinary income will be recognized, and we will not be entitled to any tax deduction, if the shares of common stock acquired upon exercise of the option are held until the later of (A) one year from the date of

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exercise and (B) two years from the date of grant. However, if the employee disposes of the shares acquired upon exercise of an ISO before satisfying both holding period requirements, the employee will recognize ordinary income to the extent of the difference between the fair market value of the shares on the date of exercise (or the amount realized on the disposition, if less) and the exercise price, and we will be entitled to a tax deduction in that amount. The gain, if any, in excess of the amount recognized as ordinary income will be long-term or short-term capital gain, depending upon the length of time the employee held the shares before the disposition.

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A grant may be subject to a 20% tax, in addition to ordinary income tax, at the time the grant becomes vested, plus interest, if the grant constitutes deferred compensation under Section 409A of the Code and the requirements of Section 409A of the Code are not satisfied.

Section 162(m) of the Code generally disallows a publicly held corporation's tax deduction for compensation paid to its chief executive officer or any of its four other most highly compensated officers in excess of $1 million in any year. Qualified performance-based compensation is excluded from the $1 million deductibility limit, and therefore remains fully deductible by the corporation that pays it. We intend that options and SARs granted under the Plan will be qualified performance-based compensation.

We have the right to require that grantees pay to us an amount necessary for us to satisfy our federal, state or local tax withholding obligations with respect to grants. We may withhold from other amounts payable to a grantee an amount necessary to satisfy these obligations. Our Compensation Committee may permit a grantee to satisfy our withholding obligation with respect to grants paid in shares of common stock by having shares withheld, at the time the grants become taxable, provided that the number of shares withheld does not exceed the individual's minimum applicable withholding tax rate for federal, state and local tax liabilities.

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PROPOSAL NO. 3 – ADVISORY VOTE ON EXECUTIVE COMPENSATION

In accordance with the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (referred to herein as, the "Dodd-Frank Act"), we are presenting our stockholders with an advisory vote on the compensation paid to our "named executive officers" as disclosed in the "Executive Compensation" section of this Proxy Statement. This advisory vote is commonly referred to as a "Say-on-Pay" vote. Because this is an advisory vote, the stockholder vote will not be binding on us. Nevertheless, our Board of Directors and Compensation Committee value the opinions expressed by our stockholders and will take the outcome of the vote into account in future determinations concerning our executive compensation program.

The following resolution will be presented at the Annual Meeting for stockholder approval:

"RESOLVED, that the stockholders of the Company approve, on an advisory basis, the compensation of the Company's named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and the narrative disclosures that accompany the compensation tables contained in the Company's proxy statement for its 2011 Annual Meeting of Stockholders."

Our executive compensation programs are designed to:

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Attract and retain individuals with superior ability and managerial experience;



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Align executive officers' incentives with our corporate strategies, business objectives and the long-term interests of our stockholders; and



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Increase the incentive to achieve key strategic performance measures by linking incentive award opportunities to the achievement of performance objectives in these areas and by providing a portion of total compensation opportunities for executive officers in the form of direct ownership in our company.

We believe the meaningful performance incentives and mix of long-term and short-term compensation, cash and non-cash compensation and forms of non-cash compensation that we utilize as part of our executive compensation program, align the interests of our named executive officers and stockholders and provides an incentive for the long-term continued employment of such executives.

Please refer to the "Executive Compensation" section of this Proxy Statement for additional information regarding our executive compensation programs and the compensation paid to our named executive officers.

Our Board recommends that stockholders vote FOR on Proposal No. 3 to approve, on an advisory basis, the compensation paid to our named executive officers, as stated in the above resolution.

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PROPOSAL NO. 4 – ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION

Also in accordance with the Dodd-Frank Act, we are presenting our stockholders with an advisory vote on how frequently they would like to cast future "Say-on-Pay" votes (see Proposal No. 3 for a discussion of "Say-on-Pay" votes). Because this an advisory vote, the stockholder vote will not be binding on us. Nevertheless, our Board of Directors and Compensation Committee value the opinions expressed by our stockholders and will carefully consider the outcome of the vote when considering the frequency of future "Say-on-Pay" votes.

Our Board believes that a frequency of every 3 YEARS is the optimal interval for conducting and responding to "Say-on-Pay" votes. This interval between "Say-on-Pay" votes will provide our Board and Compensation Committee sufficient time to attempt to (i) evaluate the stockholders' vote, (ii) determine the nature of any stockholders' concerns with our executive compensation programs, (iii) design and implement changes to attempt to address those concerns, and (iv) determine the effectiveness of those changes before the revised programs are resubmitted to stockholders for another "Say-on-Pay" vote. The 3 YEARS interval will also give stockholders more time to evaluate the effectiveness of our executive compensation programs. Stockholders who have concerns about our executive compensation programs during the interval between "Say-on-Pay" votes are welcome to bring their specific concerns to the attention of our Board of Directors. Please refer to the "Communications with Our Board of Directors or Individual Directors" section of this Proxy Statement for information about communicating with our Board and individual directors.

Our Board recommends that stockholders vote 3 YEARS on Proposal No. 4 concerning the frequency of the advisory vote on executive compensation.

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PROPOSAL NO. 5 – RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Our Audit Committee has selected KPMG LLP as the Company's independent registered public accounting firm for 2011. This selection will be presented to stockholders for ratification at the Annual Meeting. KPMG LLP has served as our auditor since 2006. One or more representatives of KPMG LLP is expected to attend the Annual Meeting and will have an opportunity to make a statement and respond to appropriate questions from our stockholders.

Although stockholder ratification of the selection of KPMG LLP is not required by our bylaws or otherwise, the Board believes that it is desirable to give our stockholders the opportunity to ratify this selection as a matter of good corporate governance. If this proposal is not approved at the Annual Meeting, our Audit Committee will reconsider, but may not change, its selection of KPMG LLP as our independent registered public accounting firm for 2011. Even if the selection is ratified, the Audit Committee may, in its discretion, direct the selection of a different independent registered public accounting firm during the year if the Audit Committee determines such a change is advisable.

Information regarding the fees paid to KPMG LLP for services rendered in 2010 and 2009 and our policies and procedures for the approval of such fees is set forth below.

Fees Paid to Independent Registered Public Accounting Firm

Aggregate "Audit Fees" paid to KPMG LLP for services rendered during 2010 and 2009 was $902,014 and $33,000, respectively. These amounts consist of fees paid for professional services rendered with respect to annual audits and quarterly reviews of our financial statements, the issuance of a comfort letter in connection with our initial public offering and the issuance of consents in connection with registration statements we filed with the SEC. No other fees were paid to KPMG LLP in 2010 or 2009.

Pre-Approval Policies and Procedures

Our Audit Committee has established a policy that requires it to pre-approve all services provided by the Company's independent registered public accounting firm and the fees for such services. The prior approval of our Audit Committee was obtained for all services provided by KPMG LLP in 2010 and 2009 and the fees for such services.

Our Board recommends that stockholders vote FOR on Proposal No. 5 to ratify the selection of KPMG LLP as the Company's independent registered public accounting firm for 2011.

OTHER MATTERS AND DISCRETIONARY VOTING AUTHORITY

The Board of Directors is not aware of any other matters that will be presented for action at the Annual Meeting. However, if any other matters properly come before the Annual Meeting, the proxy holders will have authority to vote the shares represented thereby on such matters in accordance with their judgment.

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EXECUTIVE OFFICERS AND KEY EMPLOYEE

Biographical information regarding our executive officers and key employee is set forth below. Each executive officer and key employee is elected annually by our Board and serves until his or her successor is appointed and qualified, or until such individual's earlier resignation or removal.

Executive Officers:

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information known to us concerning the beneficial ownership of our common stock as of March 31, 2011 for:

•

each person known by us to beneficially own more than 5% of our common stock;



•

each of our directors (including director nominees);



•

each of our executive officers; and



•

all of our directors (including director nominees) and executive officers as a group.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In general, a person is deemed to be the beneficial owner of (i) any shares of our common stock over which such person has sole or shared voting power or investment power, plus (ii) any shares which such person has the right to acquire beneficial ownership of within 60 days of March 31, 2011, whether through the exercise of options, warrants or otherwise.

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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (referred to herein as, the "Exchange Act") requires our directors, executive officers and persons who beneficially own more than 10% of our common stock to file initial reports of their ownership of our common stock and reports of changes in such ownership with the SEC. Based on information furnished to us by such persons, we believe all such filing requirements were satisfied for 2010.

EQUITY COMPENSATION PLAN INFORMATION

We have two compensation plans under which we are authorized to issue equity securities: (i) the 2010 Plan and (ii) our 2010 Employee Stock Purchase Plan (referred to herein as, the "2010 ESPP"). Both plans have been approved by our stockholders. The following table presents information about the securities authorized for issuance under these compensation plans as of December 31, 2010.

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CORPORATE GOVERNANCE

Our Board of Directors

Our Board of Directors currently consists of 9 directors. The size of the Board will be reduced to 7 directors at the Annual Meeting. During 2010, there were 18 meetings of our Board and a total of 14 committee meetings. Each director attended at least 75% of the aggregate number of Board meetings held in 2010 and 75% of the number of meetings held by all of the committees on which he or she served in 2010. Our independent directors have the opportunity to meet separately in executive session following each regularly scheduled Board meeting. Directors are expected to attend the Annual Meeting.

Committees of Our Board of Directors

Our Board of Directors has three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each of these committees operates under a written charter that has been approved by the Board. These charters are available on our website at www.nupathe.com under the "Investor Relations – Corporate Governance" page.

Audit Committee

The members of our Audit Committee are Mr. Kollender (Chairman), Ms. Cunicelli, Mr. Federici and Mr. Roche. Our Board of Directors has determined that each member of the Audit Committee is independent within the meaning of Rule 10A-3 under the Exchange Act and NASDAQ listing rules. In addition, our Board of Directors has determined that Mr. Kollender and Mr. Federici each qualify as an "audit committee financial expert" within the meaning of SEC regulations and NASDAQ listing rules.

The Audit Committee held 9 meetings during 2010. The responsibilities of the Audit Committee include, among other things:

•

Retaining, appointing, setting compensation of and evaluating the performance, independence, internal quality control procedures and qualifications of our independent auditors;



•

Reviewing and approving in advance the engagement of our independent auditors to perform audit services and any permissible non-audit services;



•

Reviewing with our independent auditor the planning and staffing of the audit, including the rotation requirements and other independence rules;



•

Reviewing our annual and quarterly financial statements and reports, discussing the statements and reports with our independent auditors and management and recommending to the Board whether to include the financial statements in the annual reports filed with the SEC;



•

Reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation, matters concerning the scope, adequacy and effectiveness of our financial controls, effects of alternative Generally Accepted Accounting Principles (GAAP) methods on our financial statements and any correspondence or reports that raise issues with or could have a material effect on our financial statements;



•

Reviewing any earnings announcements and other financial information and earnings guidance provided to analysts, the investment community and ratings agencies;



•

Establishing procedures for the receipt, retention and treatment of complaints received by us, and the anonymous submission by employees of concerns, regarding financial controls, accounting or auditing matters;

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•

Preparing the audit committee report required by the rules of the SEC, which is included in this Proxy Statement under the heading "Audit Committee Report";



•

Reviewing the reports of the Chief Executive Officer and Chief Financial Officer during their certification process for our Form 10-K and Form 10-Q filings with the SEC;



•

Reviewing and, if acceptable, approving any related person transactions and establishing and reviewing our code of business conduct and ethics;



•

Reviewing our risk assessment, risk management, financial disclosure and accounting policies on a periodic basis;



•

Reviewing and assessing the adequacy of our audit committee charter on an annual basis;



•

Overseeing our disclosure controls and procedures, including internal controls over our financial reporting, and reviewing and discussing our management's annual report on the effectiveness of our internal control over financial reporting;



•

Reviewing and assessing, on a periodic basis, our systems to monitor compliance with applicable laws and regulations and meeting periodically with our Chief Compliance Officer, General Counsel and other senior personnel responsible for the our compliance with such legal and regulatory requirements;



•

Setting policies for our hiring of employees or former employees of our independent auditors; and



•

Making regular reports to our Board regarding the audit committee's activities, including reviewing any issues realized during the audit committee's performance of its responsibilities.

Compensation Committee

The members of our Compensation Committee are Dr. Kurtzman (Chairman), Mr. Cola and Mr. Kollender. Our Board of Directors has determined that each member of the Compensation Committee is independent within the meaning of the NASDAQ listing rules and qualifies as a "non-employee director" (as defined under Rule 16b-3 under the Exchange Act) and an "outside director" (as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended).

Our Compensation Committee held 5 meetings during 2010. The responsibilities of the Compensation Committee include, among other things:

•

Establishing corporate goals and objectives relevant to compensation of our executive officers and evaluating the performance of such executive officers in light of those goals and objectives;



•

In the case of our Chief Executive Officer, recommending to the independent members of our Board of Directors the appropriate compensation package for her and, in the case of our other executive officers, determining the appropriate compensation for them;



•

Reviewing and approving for our executive officers the other terms of their employment, including employment agreements, severance arrangements and change in control protections;



•

Periodically reviewing and evaluating for continuing appropriateness, any existing employee agreements and change in control agreements with our executive officers;



•

Adopting and recommending to our Board of Directors the approval of a comprehensive statement of executive compensation policy, strategy and principles and periodically reviewing and evaluating the effectiveness of such policy in achieving expected benefits to us;



•

Reviewing our compensation plans and approving and recommending to our Board of Directors for its approval the initial adoption or material modification of such plans;

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•

Implementing and administering our incentive compensation plans;



•

Overseeing and reviewing the operation of our plans subject to the Employee Retirement Income Security Act of 1974, as amended;



•

Evaluating and recommending to our Board of Directors the appropriate level of director compensation and ensuring that any payments to directors other than in their capacity as directors are fully and properly disclosed;



•

Selecting peer groups of companies to be used for determining competitive compensation packages;



•

Reviewing and discussing with management our disclosures under the "Executive Compensation - Compensation Discussion and Analysis" section of this Proxy Statement and recommending to our Board of Directors the inclusion of such information in this Proxy Statement;



•

Preparing the compensation committee report required by the rules of the SEC, which is included in this Proxy Statement under the heading "Compensation Committee Report"; and



•

Reviewing and assessing the adequacy of our compensation committee charter on an annual basis.

Nominating and Corporate Governance Committee

The members of our Nominating Committee are Mr. Cola (Chairman), Ms. Cunicelli and Dr. Diem. Our Board of Directors has determined that each member of the Nominating Committee is independent within the meaning of NASDAQ listing rules.

The Nominating Committee was constituted upon the closing of our initial public offering on August 2010. The Nominating Committee did not hold any meetings in 2010. The responsibilities of the Nominating and Corporate Governance Committee include, among other things:

•

Identifying, reviewing, evaluating, nominating and recommending candidates to serve on our Board of Directors and each of its committees;



•

Considering and recommending to our Board of Directors the appropriate size and composition of our Board of Directors;



•

Evaluating the performance of and, when determined appropriate, approving current members of our Board of Directors standing for reelection;



•

Reviewing and recommending to our Board of Directors an appropriate course of action upon the resignation of current Board members or any planned expansion of the Board;



•

Recommending to our Board of Directors the responsibilities and structure of each committee of the Board;



•

Establishing and assessing our corporate governance guidelines and recommending any amendments to such guidelines to our Board of Directors;



•

Reviewing and assessing the adequacy of our restated certificate of incorporation, bylaws and charters of any committee of our Board of Directors and recommending any necessary modifications to such documents to our Board of Directors;

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•

Reviewing all stockholder proposals submitted to us and recommending to our Board of Directors appropriate action on each such proposal; and



•

Reviewing and assessing the adequacy of our nominating and corporate governance committee charter on an annual basis.

Board Leadership and Structure

The positions of our Chairman of the Board and Chief Executive Officer are separated. Although our bylaws do not require that these positions be separate, our Board of Directors believes that having separate positions is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance. Separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairman of the Board to lead the Board of Directors in its fundamental role of providing advice to and independent oversight of management. Our Board of Directors recognizes the time, effort and energy that the Chief Executive Officer must devote to her position in the current business environment, as well as the commitment required to serve as our Chairman, particularly as the Board of Directors' oversight responsibilities continue to grow. Our Board of Directors also believes that this structure ensures a greater role for the independent directors in the oversight of our company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our Board of Directors. This leadership structure also is preferred by a significant number of our stockholders. Our Board of Directors believes its administration of its risk oversight function has not affected its leadership structure.

The Board's Role in Risk Oversight

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including those described under the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is available on our website under the "Investor Relations – SEC Filings" page. Our Board of Directors is actively involved in oversight of risks that could affect us. This oversight is conducted primarily through committees of the Board of Directors, as disclosed in the descriptions of each of the committees above, but the full Board of Directors has retained responsibility for general oversight of risks. Our Board of Directors satisfies this responsibility through full reports by each committee chair regarding the committee's considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within our company. Our Board of Directors believes that full and open communication between management and the Board of Directors is essential for effective risk management and oversight.

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DIRECTOR INDEPENDENCE AND RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Director Independence and Relationships

Under NASDAQ listing rules, a director will only qualify as an "independent director" if, in the opinion of our Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board has determined that each of our directors, with the exception of Ms. Hollingsworth, is an independent director under NASDAQ listing rules. In making such determination, the Board considered the relationships that each such non-employee director has with our company and all other facts and circumstances that the Board deemed relevant in determining their independence. In considering the independence of our directors, our Board considered each director's beneficial ownership of our common stock and with respect to Ms. Cunicelli, Dr. Diem, Mr. Kollender and Dr. Kurtzman, the association of such directors with certain beneficial owners of more than five percent of our common stock. Please refer to the biographies of these directors in the "Proposal No. 1 – Election of Directors" section of this Proxy Statement for details regarding such associations.

Compensation Committee Interlocks and Insider Participation

During 2010 and as of the date of this Proxy Statement, none of the members of our Compensation Committee was or is an officer or employee of the Company, and no executive officer of the Company served or serves on the compensation committee (or other board committee performing a similar function) or board of directors of any company that employed or employs any member of our Compensation Committee or Board of Directors as an executive officer.

Policies and Procedures for Transactions with Related Persons

In connection with our initial public offering in August 2010, our Board of Directors adopted written policies and procedures for the review and approval of "related person transactions" as defined under SEC rules. Under SEC rules, a related person transaction is any transaction, arrangement or relationship in which we are a participant, the amount involved exceeds $120,000 and one of our executive officers, directors, director nominees or beneficial owners of more than 5% of our common stock, or their immediate family members (each of whom we refer to as a "related person") has a direct or indirect material interest.

Under our policy, where a transaction has been identified as a related person transaction, management must present information regarding the proposed related person transaction to our Audit Committee, or, where review by our Audit Committee would be inappropriate, to another independent body of our Board of Directors, for review. The presentation must include a description of, among other things, the material facts, the direct and indirect interests of the related persons, the benefits of the transaction to us and whether any alternative transactions are available. To identify related person transactions in advance, we rely on information supplied by our executive officers, directors and certain significant stockholders. In considering related person transactions, our Audit Committee or other independent body of our Board of Directors takes into account the relevant available facts and circumstances including:

•

The risks, costs and benefits to us;



•

The impact on a director's independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated;



•

The terms of the transaction;

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•

The availability of other sources for comparable services or products; and



•

The terms available to or from, as the case may be, unrelated third parties or to or from our employees generally.

In reviewing a related person transaction, our Audit Committee or other independent body of our Board of Directors will determine whether, in its good faith exercise of discretion and in light of known circumstances, the transaction is in, or is not inconsistent with, the best interests of us and our stockholders. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval.

Transactions with Related Persons

Set forth below is a description of our related person transactions in 2010. These transactions occurred prior to the adoption of our related person transaction policy described above. Nevertheless, each of these transactions, and the interests of the related persons therein, were reviewed and approved by our Board of Directors. Please refer to the "Security Ownership of Certain Beneficial Owners and Management" section of this Proxy Statement for additional information regarding the beneficial ownership of the stockholders named below and their association with certain of our directors.

April 2010 Convertible Notes

In April 2010, we sold $10.1 million in gross principal amount of convertible promissory notes (referred to herein as, the "April 2010 Convertible Notes"), in a private placement transaction to the related persons named in the table below. The April 2010 Convertible Notes accrued interest at a rate equal to 8% per annum, compounding monthly, and had a maturity date of December 31, 2010, unless converted prior thereto. In August 2010, pursuant to the terms of the April 2010 Convertible Notes, all principal and interest due under the April 2010 Convertible Notes were automatically converted into shares of our common stock at a 20% discount to our $10.00 per share initial public offering price.

The following shows the principal amount of April 2010 Convertible Notes purchased by related persons and the shares of common stock received by such persons upon the conversion of the notes and accrued interest thereon.

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Participation in Initial Public Offering

In August 2010 we completed our initial public offering of common stock selling 5,000,000 shares at an offering price of $10.00 per share, resulting in gross proceeds to us of $50,000,000. The following shows the number of shares of common stock purchased by related persons in the offering.

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DIRECTOR COMPENSATION

General

Our Compensation Committee reviews and makes recommendations to the Board of Directors with respect to director compensation. In connection with our initial public offering, our Compensation Committee engaged Radford, a division of Aon Corporation (referred to herein, as "Radford"), an independent compensation consultant, to (i) perform a review of our overall director and executive compensation, (ii) benchmark such compensation in relation to other comparable publicly traded companies with which we may compete for talent, and (iii) provide recommendations to ensure that our compensation programs continue to enable us to attract and retain qualified directors and executives through competitive compensation packages.

Based on its review of the director compensation practices of our peer group (the companies comprising our peer group for this purpose are identified in the "Executive Compensation - Compensation Discussion and Analysis" section of this Proxy Statement), Radford recommended that we compensate directors with a combination of cash, to compensate directors for their service, and equity, to align their interests with the long-term interests of our stockholders. Radford recommended that we align the cash and equity components of director compensation with approximately the 50th percentile of our peer group. Consistent with Radford's recommendation and upon the recommendation of our Compensation Committee, our Board of Directors adopted the non-employee director compensation policy set forth below (referred to herein as, the "Non-Employee Director Compensation Policy"), which became effective on August 5, 2010. Prior to the adoption of the Non-Employee Director Compensation Policy, our directors did not receive cash payment for services rendered as our directors.

Non-Employee Director Compensation Policy

Set forth below is our Non-Employee Director Compensation Policy which became effective on August 5, 2010. Directors who are also our employees receive no additional compensation (beyond their regular employee compensation) for their services as directors. Ms. Hollingsworth is our only director who is also an employee of ours.

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2010 Director Compensation

The following table presents information regarding the compensation of our non-employee directors for 2010.

⁽¹⁾

Amounts in this column represent fees earned under the Non-Employee Director Compensation Policy. The annual retainers provided for under the Non-Employee Director Compensation Policy were pro-rated for the portion of the year from August 5, 2010 (the effective date of the Non-Employee Director Compensation Policy) through December 31, 2010.

⁽²⁾

Each non-employee director received 7,486 options on August 5, 2010 (the date the registration statement relating to our initial public offering was declared effective). The options have an exercise price of $10.00 per share (which was the initial public offering price per share of our common stock). The options vest in 3 equal annual installments beginning on the first anniversary

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of the grant date. The aggregate number of shares subject to outstanding option awards held by our non-employee directors as of December 31, 2010 was as follows:

⁽³⁾

Amounts in this column represent the grant date fair value of option awards granted to non-employee directors during 2010, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (referred to herein, as "FASB ASC Topic 718"). These amounts do not necessarily correspond to the actual value that may be realized by non-employee directors. The assumptions made in valuing the option awards reported in this column are discussed in the Company's audited financial statements (Note 3(h), Summary of Significant Accounting Policies under subsection "Stock-Based Compensation," and in Note 8, Stock-Based Compensation) included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the SEC.

⁽⁴⁾

Ms. Cunicelli has agreed to surrender any compensation that she receives for services as a director to Bay City Capital LLC.

⁽⁵⁾

Mr. Federici joined the Board in January 2011.

⁽⁶⁾

Mr. Kollender has agreed to surrender any compensation that he receives for services as a director to Quaker BioVentures Management, L.P.

⁽⁷⁾

Dr. Kurtzman has agreed to surrender any compensation that he receives for services as a director to Safeguard Scientifics.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis should be read in conjunction with the compensation tables and narratives that immediately follow this section.

Introduction

This Compensation Discussion and Analysis provides information about the objectives of our executive compensation program and explains how and why we arrived at the levels and forms of compensation for our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers who were serving as executive officers as of December 31, 2010. We refer to these officers collectively as our "named executive officers." Our named executive officers for the year ended December 31, 2010 were:

•

Jane H. Hollingsworth, Chief Executive Officer;



•

Terri B. Sebree, President;



•

Keith A. Goldan, Vice President and Chief Financial Officer;



•

Gerald W. McLaughlin, Vice President Commercial Operations; and



•

Michael F. Marino, Vice President, General Counsel and Secretary.

Objectives and Philosophy of Our Executive Compensation Program

The primary objective of our executive compensation program is to attract, retain and motivate individuals who possess knowledge, experience and skills that we believe are important to the advancement of our business of developing and commercializing branded therapeutics for diseases of the central nervous system, including neurological and psychiatric disorders.

Specifically, our executive compensation programs are designed to:

•

Attract and retain individuals with superior ability and managerial experience;



•

Align named executive officers' incentives with our corporate strategies, business objectives and the long-term interests of our stockholders; and



•

Increase the incentive to achieve key strategic performance measures by linking incentive award opportunities to the achievement of performance objectives in these areas and by providing a portion of total compensation opportunities for named executive officers in the form of direct ownership in our company.

To achieve these objectives, we seek to provide our named executive officers with a competitive compensation package that ties a substantial portion of the executive's overall compensation to both our company objectives and the executive's individual performance. Base salary increases and annual performance bonuses are tied to our company and individual performance in relation to competitive market conditions. Equity awards are primarily used to promote long-term stockholder value and employee retention through the use of multi-year vesting schedules that provide an incentive to the executive to remain in the employ of the company through the end of the vesting period in order to share in any increase in the value of our company over time.

Overview of How Compensation Decisions are Made

Our Compensation Committee oversees our compensation and benefit plans and policies, administers our equity incentive plans and reviews and approves compensation decisions relating to our named executive officers other than our Chief Executive Officer, whose compensation levels are set by the Board of Directors.

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When determining our executive compensation policies, reviewing the performance of our named executive officers and establishing compensation levels and programs, our Compensation Committee considers recommendations from our Chief Executive Officer, regarding the compensation for named executive officers other than herself. Our Compensation Committee has the final authority regarding the overall compensation structure for our named executive officers, other than our Chief Executive Officer. In the case of our Chief Executive Officer, our Compensation Committee evaluates her performance and, with significant input from the Chairman of our Compensation Committee, makes compensation recommendations to the Board of Directors, which sets her compensation. Our Chief Executive Officer does not participate in determining her own compensation.

In determining executive compensation levels prior to our initial public offering in August 2010, our Compensation Committee reviewed survey information for private life sciences companies published in CompStudy, an annual survey of compensation for executives at more than 700 private life sciences and technology companies conducted by J. Robert Scott in partnership with Ernst & Young LLP.

In connection with our initial public offering, our Compensation Committee engaged Radford, a division of Aon Hewitt (referred to herein as "Radford"), an independent compensation consultant, to perform a review of our overall executive compensation, benchmark such compensation in relation to other comparable publicly traded companies with which we may compete for executive talent and provide recommendations to ensure that our executive compensation program continues to enable us to attract and retain qualified executives through competitive compensation packages.

Radford established our peer group by considering all pharmaceutical and biotechnology companies and then further refined the list of companies based on the following four factors:

•

Employee size;



•

Revenue;



•

Market value; and



•

Stage of development.

Radford focused on companies with approximately 15 to 120 employees, revenue of approximately $10 million to $85 million, market value of approximately $100 million to $500 million and product candidates in Phase III trials or subject to a recently filed NDA or recently commercialized products. Based on these variables, Radford benchmarked our executive compensation against a group of the following 20 publicly traded companies (referred to herein as, "our peer group"):

In the future, we expect that our Compensation Committee will continue to engage Radford or another independent compensation consultant to provide additional guidelines for executive compensation and conduct further competitive benchmarking against a peer group of publicly traded companies.

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Elements of Executive Compensation

The compensation for our named executive officers consists of the following principal elements:

•

Base salary;



•

Annual performance bonuses;



•

Long-term incentives in the form of equity grants; and



•

Severance and change of control benefits.

We do not have a policy or target for allocating compensation between long-term and short-term compensation, cash and non-cash compensation, or among different forms of non-cash compensation. Prior to our initial public offering in August 2010, our Compensation Committee balanced our need to preserve cash with the expectations of those we sought to recruit and retain as named executive officers. In the future we expect to adjust the mix of long-term and short-term compensation, cash and non-cash compensation, and forms of non-cash compensation based on competitive market conditions for attracting and retaining talented personnel.

Base Salary

We generally establish base salaries for our named executive officers based on the scope of their responsibilities and the amount and type of work experience prior to joining us, taking into account competitive market compensation paid by other companies to individuals in similar positions. In general, our Compensation Committee reviews base salaries annually based on these factors and adjusts salaries to reflect current market levels. We may also adjust base salaries from time to time during the year in connection with promotions or in light of changes in market conditions. The base salaries for our named executive officers for (i) 2009, (ii) the period in 2010 prior to our initial public offering in August and (iii) the period in 2010 after our initial public offering, are set forth in the table below:

⁽¹⁾

Mr. Marino commenced employment with us on October 7, 2010.

In setting salary levels for 2009 and for the period in 2010 prior to our initial public offering in August, our Compensation Committee had a goal of setting target compensation for our named executive officers at levels the committee believed to be competitive for companies of similar size and stage of development operating in the life sciences industry. To accomplish this, our Compensation Committee reviewed CompStudy survey information for private therapeutics companies with 20 to 40 employees, revenue of up to $40 million and between two to five rounds of outside investor financing and set compensation levels in the mid-range for comparable positions at such companies taking into account the executive's industry experience.

Based on Radford's analysis of our peer group, which showed that the base salaries for named executive officers (other than Ms. Sebree) generally fell at or below the 25th percentile of our peer group, our Compensation Committee and in the case of Ms. Hollingsworth, our Board of Directors, approved additional base salary increases for our named executive officers in 2010 effective upon the completion of our initial public offering in August. With the exception of Ms. Sebree, these salary

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increases were designed to align the total cash compensation levels (base salary plus maximum bonus opportunity) of our named executive officers with total cash compensation levels within the 25th to 50th percentile of our peer group, as recommended by Radford. Ms. Sebree's total cash compensation level was structured to align her with the 75th percentile of our peer group, based on the recommendation by Radford, to reflect the significant scope of her responsibilities for research and development, regulatory affairs, medical affairs and manufacturing. Mr. Marino's 2010 base salary of $250,000 was negotiated at the time he was hired in October 2010.

Annual Performance Bonuses

We pay annual performance bonuses to reward the performance and achievements of our company and our named executive officers. We generally pay these bonuses in cash, and an executive must be employed by us on the pay date to receive a bonus. Each named executive officer is assigned a targeted maximum payout, expressed as a percentage of his or her base salary for the year. The targeted maximum payout for our Chief Executive Officer is set by our Board of Directors and the targeted maximum payout for each of our other named executive officers is set by the Compensation Committee. For 2010, the targeted maximum payouts for our named executive officers were increased as set forth in the table below. With the exception of Ms. Sebree, whose total cash compensation level (base salary plus maximum bonus opportunity) was set at the 75th percentile of our peer group, these increases in the targeted maximum payouts were designed to align the total cash compensation levels of our named executive officers with the 25th to 50th percentile of our peer group, as recommended by Radford based on its analysis of our peer group.

⁽¹⁾

Mr. Marino commenced employment with us on October 7, 2010. His employment agreement provided for a guaranteed bonus for 2010 of $20,000.

For 2010, the amount of each named executive officer's annual performance bonus (other than our Chief Executive Officer) was based 75% on our achievement of company objectives and 25% on the executive's achievement of individual performance objectives. Our Chief Executive Officer's annual performance bonus was determined solely based on attainment of company objectives. Our Board of Directors and Compensation Committee determined that this was appropriate given our Chief Executive Officer's responsibility for the overall direction and success of our business.

The company and individual performance objectives are generally objectively determinable and measurable and their outcomes are uncertain at the time established. When we set the 2010 objectives, we considered them to be ambitious, but attainable and designed to cause annual performance bonus payments to reflect meaningful performance requirements.

Generally, our Compensation Committee establishes our company objectives for each fiscal year prior to the end of the first quarter of the year and determines a separate weighting for each of our company objectives with the aggregate weighting of all company objectives totaling 100%. In 2010, our company objectives were revised in connection with our initial public offering. Our company objectives

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generally relate to the achievement of pre-established performance goals based on company-wide business objectives. For 2010, our company objectives, including their weightings, are set forth below:

•

New Drug Application (referred to herein as, an "NDA") submission for Zelrix declared effective by the U.S. Food and Drug Administration (referred to herein as, "FDA") within the appropriate regulatory time frame (weighted 40%);



•

Advance commercialization plans for Zelrix, including technology transfer of manufacturing process from Germany facility to New Jersey facility and build-out of commercial capability (weighted 16%);



•

Manage budget to plan and consistent with company objectives (weighted 8%);



•

Advance NP201 and NP202 pipeline products, including initiation of preclinical study for NP201 and completion of technology transfer for NP202 from University of Pennsylvania to the commercial manufacturer (weighted 8%);



•

Explore partnership opportunities (weighted 8%); and



•

Board discretion (weighted 20%).

Our Compensation Committee assesses the achievement of the company objectives for the year and reports its findings and annual performance bonus recommendation for our Chief Executive Officer to our Board of Directors. In its sole discretion, our Board of Directors may accept or reject, in whole or in part, the annual performance bonus recommendation of our Compensation Committee. For 2010, our Board of Directors reviewed and accepted our Compensation Committee's annual performance bonus recommendation with respect to Ms. Hollingsworth.

For 2010, our Compensation Committee determined that we achieved each of the company objectives specified above. With respect to the Board discretionary component, the Board awarded 5% out of a possible 20% in recognition of the successful completion of our initial public offering in August and the submission of our New Drug Application for Zelrix in October. As a result, in March 2011, Ms. Hollingsworth was paid 85% of her 2010 targeted annual performance bonus. All other named executive officers were allocated 85% of the company objective portion of their 2010 annual performance bonus award payout.

Our Chief Executive Officer established individual performance objectives for each other named executive officer at approximately the same time as the company objectives were established. Each named executive officer's individual objectives were based on the performance of the functions for which the named executive officer is responsible. These individual objectives are intended to align with the company objectives so that each function is providing the necessary support to achieve such objectives.

Ms. Sebree is responsible for research and development, regulatory affairs, medical affairs and manufacturing. Her 2010 individual performance objectives related to:

•

Submitting our NDA for Zelrix and the FDA declaring such submission effective within the appropriate regulatory time frame;



•

Advancing commercialization plans for Zelrix, including technology transfer of manufacturing process from Germany facility to New Jersey facility and build-out of commercial capability;



•

Managing department budgets to plan and consistent with company objectives;

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•

Advancing NP201 and NP202 pipeline products, including initiation of a preclinical study for NP201 and completion of technology transfer for NP202 from University of Pennsylvania to the commercial manufacturer; and



•

Exploring partnership opportunities.

Mr. Goldan is responsible for finance, investor relations and information technology. His 2010 individual performance objectives related to:

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Achieving fiscal year financial goals and ensuring cash requirements are maintained throughout the year;



•

Managing communications with the investment community;



•

Managing commercial supply price of Zelrix;



•

Budgeting and financial forecasting;



•

Implementation of disclosure controls and procedures and internal control over financial reporting; and



•

Management of infrastructure and administrative functions of the company.

Mr. McLaughlin is responsible for commercial operations. His 2010 individual performance objectives related to:

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Developing launch commercialization plan for Zelrix and advancing pre-launch efforts according to plan;



•

Completing sales and marketing components for commercial manufacturing;



•

Supporting business development and financing activities; and



•

Advancing commercial analysis of pipeline candidates.

At the end of the year, our Chief Executive Officer assessed the achievement of the individual performance objectives of the other named executive officers, reported her findings to our Compensation Committee and submited recommendations for annual performance bonus payouts to our Compensation Committee. Our Compensation Committee reviewed our Chief Executive Officer's analysis and, based on the recommendation of our Chief Executive Officer and its assessment of the level at which each named executive officer achieved his or her individual performance objectives, the Compensation Committee assigned the following individual achievement percentages out of a maximum of 100%: Ms. Sebree, 100%, Mr. Goldan, 90% and Mr. McLaughlin 100%.

Taking into account the relative weighting of the corporate and individual performance objectives, with 75% for corporate objectives and 25% for individual performance objectives for the named executive officers other than Ms. Hollingsworth, and the achievement of these objectives on a percentage basis as

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described above, we paid each named executive officer the following 2010 annual performance bonus in 2011:

⁽¹⁾

Mr. Marino commenced employment with us on October 7, 2010. His employment agreement provided for a guaranteed bonus for 2010 of $20,000.

Long-Term Incentives

Equity grants have been our primary form of long-term incentive and retention benefits. We believe that long-term performance is enhanced through equity grants that reward our named executive officers for maximizing stockholder value over time and thus aligning the interests of our named executive officers with those of our stockholders by tying a significant portion of an executive's potential compensation to the market price of our stock. Our equity grants to named executive officers generally have vesting schedules over a four-year period, which we believe results in a retention incentive for such executives. If a named executive officer voluntarily leaves our employ before the completion of the vesting period, then that named executive officer will not receive any benefit from the non-vested portion of his or her equity grants. We also use equity grants as a significant component of the initial compensation incentive when we hire named executive officers.

Historically, we have used stock options and, to a very limited degree, restricted stock, as the primary long-term incentive vehicle. Prior to our initial public offering, we generally made equity grants to existing executives at times when we raised capital from new investors, and not as a part of our annual compensation program. Consistent with that approach, we made option grants to our named executive officers in connection with our initial public offering in August 2010. In the future we expect to make annual equity grants to our named executive officers. We may also make equity grants from time to time during the year in connection with new hires or promotions or exceptional corporate or individual achievements. We expect that such equity grants will have vesting based on multi-year periods and/or performance-based objectives. These equity grants may be in the form of stock options, restricted stock or restricted stock units.

Our Compensation Committee considers and approves equity grants to named executive officers based upon a review of competitive compensation data, its assessment of individual performance, a review of each executive's existing long-term incentives and retention considerations. In connection with its peer group analysis for executive compensation, Radford also benchmarked our named executive officer long-term incentive compensation to recommend equity grants in connection with the closing of our initial public offering in August 2010. Radford recommended that we establish a tiered structure of long-term incentive compensation in the form of equity grants that are market driven and tie a significant portion of equity to our performance. Based on its analysis and in light of the fact that the total cash compensation of our named executive officers (other than Ms. Sebree) is aligned with the 25^th to 50^th percentile of our peer group, Radford recommended we align our named executive officers' long-term incentive compensation with the 75th percentile of our peer group. Based on this

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recommendation, our Compensation Committee and Board of Directors granted the following time-based and performance-based stock options to our named executive officers in 2010:

The options granted to our named executive officers (other than Mr. Marino) became effective on August 5, 2010, the effective date of the registration statement relating to our initial public offering, and have an exercise price equal to our initial public offering price. The options granted to Mr. Marino became effective on October 7, 2010, the date Mr. Marino commenced employment with us, and have an exercise price equal to the closing price of our common stock as reported on the NASDAQ Global Market on that date. The time-based options vest based upon continued employment or service over a four-year period with 25% vesting on the first anniversary of the date of grant and the balance vesting in 12 equal quarterly installments thereafter. The performance-based options will vest based upon attainment of performance criteria tied to FDA approval of our NDA for Zelrix. Specifically, the performance-based options will vest as follows:

•

If our NDA for Zelrix is approved before October 1, 2011, all of the performance-based options will be earned and will vest as follows: one-third of such earned options will vest upon NDA approval, one-third of such earned options will vest on the first anniversary of NDA approval, and one-third of such earned options will vest on the second anniversary of NDA approval;



•

If our NDA for Zelrix is approved on or after October 1, 2011, but before January 1, 2012, two-thirds of the performance-based options will be earned and will vest as follows: one-third of such earned options will vest upon NDA approval, one-third of such earned options will vest on the first anniversary of NDA approval, and one-third of such earned options will vest on the second anniversary of NDA approval;



•

If our NDA for Zelrix is approved on or after January 1, 2012, but before April 1, 2012, one-third of the performance-based options will be earned and will vest as follows: one-third of such earned options option will vest upon NDA approval, one-third of such earned options will vest on the first anniversary of NDA approval, and one-third of such earned options will vest on the second anniversary of NDA approval;



•

If our NDA for Zelrix is not approved before April 1, 2012, any unvested options will be forfeited;



•

If a change of control (as defined in our 2010 Plan) occurs before April 1, 2012 and our NDA for Zelrix has not been approved, any unvested performance-based options shall accelerate and become exercisable as follows: 32,439 for Ms. Hollingsworth, 14,972 for Ms. Sebree, 11,229 for Messrs. Goldan and McLaughlin and 10,000 for Mr. Marino;



•

If a change of control occurs after our NDA for Zelrix is approved, our 2010 Plan and each named executive officer's employment agreement shall govern the acceleration and vesting of any unvested options; and



•

If, after our NDA for Zelrix is approved, we terminate a named executive officer's employment without "cause," or if a named executive officer terminates employment for "good reason," all outstanding options held by the executive based on the schedule set forth above will accelerate and vest.

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Employment Agreements and Severance and Change of Control Benefits

We have entered into employment agreements with each of named executive officer. The employment agreements with our named executive officers other than Mr. Marino became effective upon the effective date of the registration statement for our initial public offering. Mr. Marino's employment agreement became effective upon the commencement of his employment with us. These employment agreements were designed to be part of a competitive compensation package and keep our named executive officers focused on our business goals and objectives. The employment agreements provide for specific base salaries, incentive compensation and severance and change of control benefits. The employment agreements provide for payments and other benefits if we terminate a named executive officer's employment without "cause," or if a named executive officer terminates employment for "good reason." Such payments and other benefits are generally greater in the event the termination occurs in connection with a change of control. In general terms, a change of control is deemed to occur if:

•

A person, entity or affiliated group acquires more than 50% of our then outstanding voting securities;



•

We merge into another entity, unless the holders of our voting securities immediately prior to the merger have at least 50% of the combined voting power of the securities in the merged entity or its parent;



•

We sell or dispose of all or substantially all of our assets;



•

We are liquidated or dissolved; or



•

A majority of the members of our Board of Directors is replaced during any 12-month period or less by directors whose appointment or election is not endorsed by a majority of the incumbent directors.

Our practice in the case of change of control benefits for our named executive officers, other than accelerated vesting of equity awards, has been to structure these as "double trigger" benefits. In other words, a change of control by itself does not generally trigger benefits. Rather, cash benefits are paid only if the employment of the executive is terminated in specified circumstances during a determined period before or after a change of control. We believe "double trigger" cash benefits maximize stockholder value because they prevent an unintended windfall to executives in the event of a friendly change of control, while still providing executives appropriate incentives to cooperate in negotiating any change of control in which they believe they may lose their jobs.

See the "Executive Compensation - Potential Payments Upon Termination or Change of Control" section of this Proxy Statement for additional details regarding our named executive officers' employment agreements.

Other Benefits

Our named executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life, short and long-term disability, and our 401(k) plan, in each case, on the same basis as other employees, subject to applicable laws. We also provide vacation and other paid holidays to all employees, including our named executive officers.

Tax Considerations

As discussed above, our Compensation Committee considers the tax and accounting treatment associated with the cash and equity grants it makes, although these considerations are not dispositive. Section 162(m) of the Code places a limit of $1.0 million per person on the amount of compensation that we may deduct in any year with respect to each of our named executive officers. There is an exemption from the $1.0 million limitation for performance-based compensation that meets certain

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requirements. Grants of options or SARs under our 2010 Plan are intended to qualify for the exemption. Grants of restricted stock or stock units that are made in the future under our 2010 Plan may qualify for the exemption if vesting is contingent on the attainment of objectives based on the performance criteria set forth in the plan and if certain other requirements are satisfied. Grants of restricted stock or stock units that vest solely on the basis of service cannot qualify for the exemption. In addition, the terms of our 2010 Plan contemplate that cash performance bonuses made in the future may qualify for the exemption. To maintain flexibility in compensating officers in a manner designed to promote varying company goals, our Compensation Committee has not adopted a policy requiring all compensation to be deductible. Our Compensation Committee may approve compensation or changes to plans, programs or grants that may cause the compensation or grants to exceed the limitation under Section 162(m) if it determines that action is appropriate and in our best interests.

Securities Trading Policy

To further align the interests of our named executive officers with the interests of our stockholders, our Insider Trading Policy does not permit named executive officers (or our specified persons) to engage in certain short-term or speculative transactions involving our securities or hedging transactions intended to offset any decrease in the market price of our securities. Trading is permitted only during announced trading periods or in accordance with a previously established trading plan that meets SEC requirements. At all times, including during announced trading periods, our named executive officers (and other specified persons) are required to receive preclearance from our General Counsel prior to entering into any transactions involving our securities, unless those sales occur in accordance with a previously established trading plan that meets SEC requirements.

2010 Summary Compensation Table

The following table presents information regarding the compensation of our named executive officers for 2010 and 2009.

⁽¹⁾

Mr. Marino commenced employment with us on October 7, 2010. His employment agreement provided for a guaranteed bonus for 2010 of $20,000 which was paid in 2011.

⁽²⁾

Amounts in this column represent the aggregate grant date fair value of all option awards granted to the named executive officer during the fiscal year shown, computed in accordance with FASB ASC

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Topic 718. These amounts do not necessarily correspond to the actual value that may be realized by the named executive officers. The assumptions made in valuing the option awards reported in this column are discussed in the Company's audited financial statements (Note 3(h), Summary of Significant Accounting Policies under subsection "Stock-Based Compensation," and in Note 8, Stock-Based Compensation) included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the SEC. Excluded from the amounts reported in this column are performance-based stock option awards that were granted to the named executive officers in 2010. At the date of grant, and again at December 31, 2010, the Company had not deemed the achievement of the performance goals to be probable, and therefore the grant date fair value ascribed to such awards pursuant to FASB ASC Topic 718 is $0. If the grant date fair value of the performance-based stock option awards is calculated assuming the achievement of the performance goals at the highest level, the number of options that would be earned by the named executive officers and the grant date fair value of such options would be as follows:

Additional information regarding the option awards granted to the named executive officers during 2010 is set forth in the "2010 Grants of Plan-Based Awards" table.

⁽³⁾

Amounts in this column represent annual performance bonuses earned for the year shown based on pre-established performance objectives and paid in the subsequent year. Annual performance bonuses are described in more detail under "Compensation Discussion and Analysis—Annual Performance Bonuses."

⁽⁴⁾

Amounts in this column represent the premiums paid by the Company for life insurance and long-term disability insurance coverage for the named executive officer, plus the employer matching contributions made on behalf of the named executive officer to the Company's 401(k) plan.

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2010 Grants of Plan-Based Awards

The following table presents information regarding the plan-based awards granted to our named executive officers in 2010.