- Proxy Statement (definitive) (DEF 14A)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant   x                             

Filed by a Party other than the Registrant   ¨

Check the appropriate box:

NOTICE OF ANNUAL MEETING OF

STOCKHOLDERS AND PROXY STATEMENT

Dear fellow stockholder:

The annual meeting of stockholders of Cadence Pharmaceuticals, Inc. will be held at the Homewood Suites by Hilton Hotel, located at 11025 Vista Sorrento Parkway, San Diego, California 92130 on Wednesday, June 13, 2012 at 8:00 a.m., local time, for the following purposes:

1. To elect four (4) directors for a three-year term to expire at the 2015 annual meeting of stockholders.

2. To approve an amendment to our Amended and Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 200,000,000.

3. To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2012.

4. To transact any other business that may be properly brought before the annual meeting or any continuation, adjournment or postponement thereof.

Our board of directors has fixed April 16, 2012 as the record date for the determination of stockholders entitled to notice of, and to vote at, the annual meeting and at any adjournment or postponement of the meeting.

Accompanying this notice of annual meeting is a proxy. Whether or not you expect to attend the annual meeting, please complete, sign and date the enclosed proxy and return it promptly. If you plan to attend the annual meeting and wish to vote your shares personally, you may do so at any time before the proxy is voted.

All stockholders are cordially invited to attend the annual meeting.

By Order of the Board of Directors

Theodore R. Schroeder President, Chief Executive Officer and Director

San Diego, California

May 4, 2012

Your vote is important. Please vote your shares whether or not you plan to attend the meeting.

2012 ANNUAL MEETING OF STOCKHOLDERS

NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

TABLE OF CONTENTS

CADENCE PHARMACEUTICALS, INC.

PROXY STATEMENT FOR THE

2012 ANNUAL MEETING OF STOCKHOLDERS

The board of directors of Cadence Pharmaceuticals, Inc. is soliciting the enclosed proxy for use at the annual meeting of stockholders to be held on Wednesday, June 13, 2012 at 8:00 a.m., local time, at the Homewood Suites by Hilton Hotel, located at 11025 Vista Sorrento Parkway, San Diego, California 92130. If you need directions to the location of the annual meeting, please contact us at (858) 436-1400.

GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

Why did you send me this proxy statement?

We sent you this proxy statement and the enclosed proxy card because our board of directors is soliciting your proxy to vote at the 2012 annual meeting of stockholders. This proxy statement summarizes information related to your vote at the annual meeting. All stockholders are cordially invited to attend the annual meeting in person. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card.

We intend to begin mailing this proxy statement, the attached notice of annual meeting and the enclosed proxy card on or about May 4, 2012 to all stockholders of record entitled to vote at the annual meeting. Only stockholders who owned our common stock on April 16, 2012 are entitled to vote at the annual meeting. On this record date, there were 85,539,619 shares of our common stock outstanding. Common stock is our only class of stock entitled to vote. We are also sending along with this proxy statement our 2011 fiscal year annual report, which includes our financial statements.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on June 13, 2012

Electronic copies of this proxy statement and Cadence’s annual report are available under the Investors, Financial Reports section of our website at www.cadencepharm.com.

What am I voting on?

Proposal 1: Election of Directors.  The election of four (4) directors to serve a three-year term. Based upon the recommendation of our nominating/corporate governance committee, our present board of directors has nominated and recommends for election as directors the following persons:

Proposal 2: Approval of an amendment to our Amended and Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 200,000,000. A proposal to amend our Amended and Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 200,000,000 and the total number of authorized shares from 110,000,000 to 210,000,000.

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Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm.  To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2012.

Other business. To transact any other business that may be properly brought before the annual meeting or any continuation, adjournment or postponement thereof.

How does the board of directors recommend that I vote?

The board of directors recommends that you vote:

How many votes do I have?

Each share of our common stock that you own as of April 16, 2012 entitles you to one vote.

How do I vote by proxy?

Whether you plan to attend the annual meeting or not, we urge you to complete, sign and date the enclosed proxy card and to return it promptly in the envelope provided. Returning the proxy card will not affect your right to attend or vote at the meeting.

If you properly complete your proxy card and send it to us in time to vote, your proxy (i.e., one of the individuals named on your proxy card) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your shares will be voted as recommended by our board of directors.

If any other matter is presented at the annual meeting, your proxy (one of the individuals named on your proxy card) will vote in accordance with his or her best judgment. As of the date of this proxy statement, we knew of no matters that needed to be acted on at the meeting, other than those discussed in this proxy statement.

May I revoke my proxy?

If you give us your proxy, you may revoke it at any time before it is exercised. You may revoke your proxy in any one of the three following ways:

How do I vote in person?

If you plan to attend the annual meeting and vote in person, we will give you a ballot when you arrive. However, if your shares are held in the name of your broker, bank or other nominee, you must bring an account statement or letter from the nominee indicating that you were the beneficial owner of the shares on April 16, 2012, the record date for voting.

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Can I vote via the Internet or by telephone?

If your shares are registered in the name of a bank or brokerage firm, you may be eligible to vote your shares electronically over the Internet or by telephone. A large number of banks and brokerage firms offer Internet and telephone voting. If your bank or brokerage firm does not offer Internet or telephone voting information, please complete and return your proxy card in the self-addressed, postage-paid envelope provided.

What constitutes a quorum?

The presence at the annual meeting, in person or by proxy, of a majority of our outstanding common stock, or approximately 42,769,810 shares, constitutes a quorum at the meeting, permitting us to conduct our business.

What vote is required to approve each proposal?

Proposal 1: Election of Directors.  The four nominees who receive the most votes will be elected.

Proposal 2: Amendment to our Amended and Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 200,000,000. The amendment to our Amended and Restated Certificate of Incorporation to increase the authorized number of shares of common stock will require the affirmative vote of a majority of the outstanding shares of our common stock entitled to vote on the record date.

Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm.  The ratification of the appointment of Ernst & Young LLP will require the affirmative vote of a majority of the shares of common stock present or represented by proxy and entitled to vote at the annual meeting.

Voting results will be tabulated and certified by our transfer agent, American Stock Transfer & Trust Company.

What is the effect of abstentions and broker non-votes?

Shares held by persons attending the annual meeting but not voting, and shares represented by proxies that reflect abstentions as to a particular proposal, will be counted as present for purposes of determining the presence of a quorum. Abstentions are treated as shares present in person or by proxy and entitled to vote, so abstaining has the same effect as a negative vote for purposes of determining whether our stockholders have approved the amendment to our Amended and Restated Certificate of Incorporation to increase the authorized number of shares of common stock (Proposal 2) and have ratified the appointment of Ernst & Young LLP, our independent registered public accounting firm (Proposal 3). However, because directors are elected by a plurality of votes cast, an abstention on this proposal (Proposal 1) will not have an effect on the outcome of this vote.

Shares represented by proxies that reflect a “broker non-vote” will be counted for purposes of determining whether a quorum exists. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner has not received instructions from the beneficial owner and does not have discretionary authority to vote the shares for certain non-routine matters. The election of directors (Proposal 1) is not a routine matter and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the vote. The approval of the amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our common stock (Proposal 2) and the ratification of the selection of an independent registered public accounting firm (Proposal 3) are considered routine matters on which a broker or other nominee has discretionary authority to vote.

What are the costs of soliciting these proxies?

We will pay all of the costs of soliciting these proxies. Our directors, officers and other employees may solicit proxies in person or by telephone, fax or email. We will pay these directors, officers and other employees

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no additional compensation for these services. We have retained the services of MacKenzie Partners, Inc. to assist us in the distribution and solicitation of proxies and have agreed to pay MacKenzie Partners, Inc. an estimated fee of approximately $5,000 plus expenses for its services. We may reimburse banks, brokers and other institutions, nominees and fiduciaries for their expenses in forwarding these proxy materials to their principals and to obtain authority to execute proxies.

How do I obtain an Annual Report on Form 10-K?

Our 2011 Annual Report on Form 10-K for the fiscal year ended December 31, 2011 that we filed with the Securities and Exchange Commission, or SEC, is included in this mailing. If you would like an additional copy of our Annual Report on Form 10-K, we will send you one without charge. Please write to:

Investor Relations

Cadence Pharmaceuticals, Inc.

12481 High Bluff Drive, Suite 200

San Diego, California 92130

or

ir@cadencepharm.com

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PROPOSAL 1:

ELECTION OF DIRECTORS

Our board of directors has fixed the number of directors at ten. Under our charter, our board is divided into three classes, with one class of our directors standing for election each year, generally for a three-year term. You are requested to vote for the four nominees for director named below, whose terms expire at this annual meeting and who will be elected for a new three-year term and until their successors are elected and qualified. Each nominee has consented to serve, if elected. If no contrary indication is made, proxies in the accompanying form are to be voted for the nominees, or in the event that any nominee is not a candidate or is unable to serve as a director at the time of the election  (which is not currently expected), for any nominee who is designated by our board of directors to fill the vacancy.

Nominees for Director

The following table lists the persons recommended by the nominating and governance committee and nominated by the board to be elected as directors and their ages as of April 1, 2012:

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS

For a Three-Year Term Expiring at the

2015 Annual Meeting of Stockholders

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6

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Members of the Board of Directors

Members of our board of directors that are continuing in office, and their ages as of April 1, 2012, are listed below:

MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE

Term Expiring at the 2013 Annual Meeting of Stockholders

8

9

Term Expiring at the 2014 Annual Meeting of Stockholders

10

11

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Vote Required; Recommendation of the Board of Directors

Provided that a quorum of stockholders is present at the meeting in person or by proxy, directors will be elected by a plurality of the votes cast by the stockholders entitled to vote on this proposal at the meeting. Abstentions, broker non-votes and votes withheld will not be treated as votes cast for this purpose and, therefore, will not affect the outcome of the election.

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INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

Independence of the Board of Directors

Our board of directors has determined that the members of our board of directors, with the exception of Mr. Schroeder, who does not serve on our audit committee, compensation committee, or nominating/corporate governance committee, are independent within the meaning of the independent director standards of the SEC and under the Nasdaq Stock Market qualification standards.

Board Leadership Structure

Our board of directors consists of our president and chief executive officer, Mr. Schroeder, and nine independent directors. We separate the roles of chief executive officer and chairman of the board of directors in recognition of the differences between the two roles. Mr. Schroeder is responsible for setting the strategic direction for our company and the day to day leadership and performance of the company, while Mr. Garner, our chairman, provides guidance to the chief executive officer, sets the agenda for meetings of the board of directors and presides over those meetings. We believe that our current leadership structure, the number of independent, experienced directors that make up our board, and the independent leadership of our board of directors by our non-executive chairman, benefit our company and its stockholders.

Role of the Board in Risk Oversight

Our board of directors has responsibility for the oversight of the company’s risk management processes and, either as a whole or through its committees, regularly discusses with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving regular reports from board committees and members of senior management to enable our board to understand the company’s risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic and reputational risk.

The audit committee reviews information regarding liquidity and operations, and oversees the company’s management of financial risks. Periodically, the audit committee reviews our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct communication with our external auditors, and discussions with management regarding significant risk exposures and the actions management has taken to limit, monitor or control such exposures. In addition, we have established an anonymous and confidential ethics reporting system, which allows members of the public and employees to submit concerns regarding suspected violations of the laws, rules, regulations or policies that apply to our company directly to the audit committee and our compliance officer. Our audit committee also oversees risks relating to our investments and is responsible for reviewing and approving related person transactions. The compensation committee is responsible for assessing whether any of the company’s compensation policies or programs has the potential to encourage excessive risk-taking. The nominating/corporate governance committee manages risks associated with the independence of the board, corporate disclosure practices, and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board is regularly informed through committee reports about such risks, and through periodic review of extensive risk factor sections of our annual and quarterly reports filed with the SEC. Matters of significant strategic risk are considered by our board as a whole.

Meetings of the Board of Directors

During fiscal year 2011, our board of directors met six times (including telephonic meetings). Each director attended at least 75% of the meetings held while he or she was a director, either in person or by teleconference. Additionally, each director attended at least 75% of the meetings for each committee on which they served,

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except for Dr. Berman who missed one of three meetings of the Nominating/Corporate Governance Committee. As required under the Nasdaq Stock Market qualification standards, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present.

Information Regarding Committees of the Board of Directors

We have three standing committees: the audit committee, the compensation committee and the nominating/corporate governance committee. Each of these committees has a written charter approved by our board of directors. A copy of each charter is available on our website at www.cadencepharm.com by selecting “Investors” on our web page, followed by the “Corporate Governance” tab, and subsequently selecting the “Essential Governance Documents” hyperlink. The members of the committees are identified in the following table:

Audit Committee

The audit committee of our board of directors, which consists of Messrs. Twomey (chairman), Eagle and Frazier, met four times (including telephonic meetings) during fiscal year 2011. The audit committee is governed by a written charter adopted by our board of directors and its main function is to oversee our accounting and financial reporting processes, internal systems of control, independent registered public accounting firm relationships and the audits of our financial statements. The audit committee’s responsibilities include:

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Our board of directors has determined that all members of our audit committee meet the applicable tests for independence and the requirements for financial literacy, as defined in the Nasdaq Stock Market qualification standards and by Section 10A of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In particular, our board has determined that although Mr. Frazier falls outside the safe harbor provisions of Rule 10A-3(e)(l)(ii) under the Exchange Act, he nevertheless meets the independence requirements contemplated by Rule 10A-3 under the Exchange Act. In addition, our board of directors has determined that Mr. Twomey qualifies as an “audit committee financial expert” as that phrase is defined under the regulations promulgated by the SEC. Both our external auditor and internal financial personnel meet privately with the audit committee and have unrestricted access to this committee. The board has adopted a written charter for the audit committee that details the responsibilities of the audit committee, which was amended on March 16, 2011.

Report of the Audit Committee of the Board of Directors

The audit committee oversees the company’s financial reporting process on behalf of the company’s board of directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the audit committee reviewed and discussed the audited financial statements in the company’s annual report with management, including a discussion of any significant changes in the selection or application of accounting principles, the reasonableness of significant judgments, the clarity of disclosures in the financial statements and the effect of any new accounting initiatives.

The audit committee reviewed and discussed with Ernst & Young LLP, which is responsible for expressing an opinion on the conformity of the company’s audited financial statements with generally accepted accounting principles, its judgments as to the quality, not just the acceptability, of the company’s accounting principles and such other matters as are required to be discussed with the audit committee under generally accepted auditing standards, including the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, as currently in effect. In addition, the audit committee has discussed with Ernst & Young LLP, its independence from management and the company, has received from Ernst & Young LLP the written disclosures and the letter required by Public Company Accounting Oversight Board 3526 (Independence Discussions with Audit Committees), and has considered the compatibility of non-audit services with the auditors’ independence.

The audit committee met with Ernst & Young LLP to discuss the overall scope of its services, the results of its audit and reviews, its evaluation of the company’s internal controls and the overall quality of the company’s financial reporting. Ernst & Young LLP, as the company’s independent registered public accounting firm, also periodically updates the audit committee about new accounting developments and their potential impact on the company’s reporting. The audit committee’s meetings with Ernst & Young LLP were held with and without management present. The audit committee is not employed by the company, nor does it provide any expert assurance or professional certification regarding the company’s financial statements. The audit committee relies, without independent verification, on the accuracy and integrity of the information provided, and representations made, by management and the company’s independent registered public accounting firm.

In reliance on the reviews and discussions referred to above, the audit committee has recommended to the company’s board of directors that the audited financial statements be included in the company’s annual report for the year ended December 31, 2011. The audit committee and the company’s board of directors also have recommended, subject to stockholder approval, the ratification of the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for our 2012 fiscal year.

This report of the audit committee shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.

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The foregoing report has been furnished by the audit committee.

Respectfully submitted,

AUDIT COMMITTEE

Mr. Christopher J. Twomey, Chairman

Mr. Michael L. Eagle

Mr. Alan D. Frazier

Compensation Committee

The compensation committee of our board of directors consists of Mr. Garner (chairman) and Drs. Barker and Blair. During fiscal year 2011, the compensation committee met five times (including telephonic meetings). The committee’s purpose is to provide recommendations to the board of directors in determining the compensation and benefit plans for our senior management and directors. The compensation committee is governed by a written charter, approved by our board of directors, and its responsibilities include:

Our board of directors has determined that all members of the compensation committee are independent directors, as defined in the Nasdaq Stock Market qualification standards. The board has adopted a written charter for the compensation committee, which was amended on March 14, 2012, which details the responsibilities of the compensation committee.

Compensation Committee Interlocks and Insider Participation

Mr. Garner (chairman) and Dr. Blair have served on our compensation committee since our 2006 fiscal year and Dr. Barker has served on the committee since 2009. No member of the compensation committee was at any time during the 2011 fiscal year, or at any other time, an officer or employee of the company. None of our executive officers serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our compensation committee. None of our executive officers serves, or in the past year has served, as a member of the compensation committee of any entity that has one or more executives serving on our board of directors.

Compensation Policies and Practices as They Relate to Risk Management

Management periodically assesses our compensation programs for all employees for purposes of reviewing these policies and programs to assess whether they create risks that are reasonably likely to have a material adverse effect on our company. As part of that assessment, management reviews the primary elements of our

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compensation programs, the relationship between such programs and the enterprise risks faced by our company, and the design features of each such program that serve to control potential risks to our company that could arise from our compensation programs. Following the last such assessment, in March 2011, management determined that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on our company and reported the results of its assessment to the compensation committee.

Report of the Compensation Committee of the Board of Directors

The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis for 2011 contained in this proxy statement. Based on this review and discussion, the compensation committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated into our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed by us with the Securities and Exchange Commission.

This report of the compensation committee shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.

The foregoing report has been furnished by the compensation committee.

Respectfully submitted,

COMPENSATION COMMITTEE

Mr. Cam L. Garner, Chairman

Dr. Samuel L. Barker

Dr. James C. Blair

Nominating/Corporate Governance Committee

The nominating/corporate governance committee of our board of directors, which consists of Mr. Atwood (chair) and Drs. Berman and Rich, met three times during fiscal year 2011. The committee’s purpose is to assist our board by identifying individuals qualified to become members of our board of directors, consistent with criteria set by our board, and to develop our corporate governance principles. The nominating/corporate governance committee is governed by a written charter, approved by our board of directors, and its responsibilities include:

Our board of directors has determined that all members of the nominating/corporate governance committee are independent directors, as defined in the Nasdaq Stock Market qualification standards. The board has adopted a written charter for the nominating/corporate governance committee, which was amended on January 26, 2011, that details the responsibilities of the nominating/corporate governance committee.

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Corporate Governance Guidelines

We have been committed to having sound corporate governance principles since our inception, and in 2006 we adopted formal corporate governance standards, which were amended in January 2009. We have reviewed internally and with the board the provisions of the Sarbanes-Oxley Act of 2002, the rules of the SEC and the Nasdaq Global Market’s listing standards regarding corporate governance policies and processes and are in compliance with the rules and listing standards. Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter and Nominating/Corporate Governance Committee Charter are available, free of charge, on our website at www.cadencepharm.com. However, the information contained on the website is not incorporated by reference in, or considered part of, this proxy statement. We will also provide copies of these documents, as well as our company’s other corporate governance documents, free of charge, to any stockholder upon written request to Investor Relations, Cadence Pharmaceuticals, Inc., 12481 High Bluff Drive, Suite 200, San Diego, California 92130.

Director Nomination Process

The nominating/corporate governance committee’s goal is to assemble a board of directors that brings to the company a variety of perspectives and skills derived from high quality business and professional experience. The committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees.

We believe that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the board of directors to fulfill its responsibilities. While the company does not have a policy regarding board diversity, it is one of a number of factors that the Nominating/Corporate Governance Committee takes into account in identifying nominees. Nominees are not discriminated against on the basis of race, religion, national origin, sexual orientation, disability or any other basis proscribed by law.

The nominating/corporate governance committee believes it is appropriate for at least one, and, preferably, several, members of our board of directors to meet the criteria for an “audit committee financial expert” as defined by SEC rules, and that a majority of the members of our board of directors be independent as required under the Nasdaq Stock Market qualification standards. The nominating/corporate governance committee also believes it is appropriate for our President and Chief Executive Officer to serve as a member of our board of directors.

In considering whether to recommend any candidate for inclusion in the board of director’s slate of recommended director nominees, including candidates recommended by stockholders, the nominating/corporate governance committee applies the criteria set forth in our Corporate Governance Guidelines. These criteria, which are intended to promote diversity of views and experience, include the following:

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The nominating/corporate governance committee identifies nominees for director by first evaluating the current members of our board of directors willing to continue in service. Current members with qualifications and skills that are consistent with the nominating/corporate governance committee’s criteria for board of directors service and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of our board of directors with that of obtaining a new perspective.

If any member of our board of directors does not wish to continue in service or if our board of directors decides not to re-nominate a member for re-election, the nominating/corporate governance committee identifies the desired skills and experience of a new nominee in light of the criteria above. The nominating/corporate governance committee generally polls our board of directors and members of management for their recommendations. The nominating/corporate governance committee may also review the composition and qualification of the boards of directors of our competitors, and may seek input from industry experts or analysts. The nominating/corporate governance committee reviews the qualifications, experience and background of the candidates. Final candidates are interviewed by the members of the nominating/corporate governance committee and by certain of our other independent directors and executive management. In making its determinations, the nominating/corporate governance committee evaluates each individual in the context of our board of directors as a whole, with the objective of assembling a group that can best contribute to the success of our company and represent stockholder interests through the exercise of sound judgment. After review and deliberation of all feedback and data, the nominating/corporate governance committee makes its recommendation to our board of directors. To date, the nominating/corporate governance committee has not utilized third-party search firms to identify board of director candidates. The nominating/corporate governance committee may in the future choose to do so in those situations where particular qualifications are required or where existing contacts are not sufficient to identify an appropriate candidate.

The nominating/corporate governance committee evaluates nominees recommended by stockholders in the same manner as it evaluates other nominees. We have not received director candidate recommendations from our stockholders and do not have a formal policy regarding consideration of such recommendations. However, any recommendations received from stockholders will be evaluated in the same manner that potential nominees suggested by board members, management or other parties are evaluated. We do not intend to treat stockholder recommendations in any manner different from other recommendations. Under our amended and restated bylaws, stockholders wishing to suggest a candidate for director should write to our corporate secretary. In order to be considered, the recommendation for a candidate must include the following written information: (1) the stockholders’ name and contact information, as they appear on our books; (2) the class and number of shares of our capital stock which are owned beneficially and of record by the stockholder; (3) a representation that the stockholder is a holder of record of our capital stock and entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such nomination; (4) a representation whether the stockholder intends or is part of a group which intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of our outstanding capital stock required to elect the nominee and/or (b) otherwise to solicit proxies from stockholders in support of the nomination; (5) all information relating to such candidate that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A and Rule 14a-101 under the Exchange Act (including such candidate’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected). In order to give the nominating/corporate governance committee sufficient time to evaluate a recommended candidate and/or include the candidate in our proxy statement for the 2013 annual meeting, the recommendation should be received by our corporate secretary at our principal executive offices in accordance with our procedures detailed in the section below entitled “Stockholder Proposals.”

Code of Business Conduct and Ethics

We have a Code of Business Conduct and Ethics that applies to our officers, directors and employees. This Code of Business Conduct and Ethics, which was amended by our board of directors on November 18, 2009, contains general guidelines for conducting the business of our company consistent with the highest standards of

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business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. The Code of Business Conduct and Ethics is available on our website at www.cadencepharm.com by selecting “Investors” on our web page, followed by the “Corporate Governance” tab and subsequently selecting the “Essential Governance Documents” hyperlink.

Stockholder Communications with our Board of Directors

Stockholders seeking to communicate with our board of directors should submit their written comments to our corporate secretary, Cadence Pharmaceuticals, Inc., 12481 High Bluff Drive, Suite 200, San Diego, California 92130. The corporate secretary will forward such communications to each member of our board of directors; provided that, if in the opinion of our corporate secretary it would be inappropriate to send a particular stockholder communication to a specific director, such communication will only be sent to the remaining directors (subject to the remaining directors concurring with such opinion).

Compensation of Directors

We compensate non-employee directors for their service on our board of directors, but do not pay director fees to our directors who are our employees. Each non-employee director is entitled to receive the following compensation components, in addition to reimbursement for out-of-pocket expenses:

Cash Component— Each non-employee director is eligible to receive the following:

Fees are paid to our non-employee directors in four equal quarterly installments. In addition, we provide reimbursement to our non-employee directors for their reasonable expenses incurred in attending meetings of our board of directors and committees of our board of directors.

Equity Component— Any non-employee director when first elected or appointed to our board of directors is granted a non-qualified option to purchase 25,000 shares of our common stock on the date of his or her initial election or appointment. Such options will have an exercise price per share equal to the fair market value of our common stock on the date of grant. In addition, on the date of each annual meeting of our stockholders, each non-employee director is eligible to receive a non-qualified option to purchase an additional 17,500 shares of our common stock.

The initial options granted to non-employee directors described above will vest in 36 equal monthly installments on the first day of each calendar month subsequent to the date of grant, subject to the director’s continuing service on our board of directors on those dates. The annual options granted to non-employee directors described above will vest in twelve equal monthly installments on the first day of each calendar month subsequent to the date of grant, subject to the director’s continuing service on our board of directors on those dates. The term of each option granted to non-employee directors shall be ten years.

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Director Attendance at Annual Meetings

Although our company does not have a formal policy regarding attendance by members of our board of directors at our annual meeting, we encourage all of our directors to attend. All of the then-sitting directors attended the company’s last annual meeting in 2011.

Director Compensation Table

The following table sets forth compensation information with respect to all of our non-employee directors for amounts earned during 2011.

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PROPOSAL 2:

APPROVAL OF AN AMENDMENT TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF

COMMON STOCK

Our board of directors is requesting stockholder approval of an amendment to our Amended and Restated Certificate of Incorporation to increase our authorized number of shares of common stock from 100,000,000 shares to 200,000,000 shares and the total number of authorized shares from 110,000,000 to 210,000,000.

The additional common stock to be authorized by adoption of the amendment would have rights identical to our currently outstanding common stock. Adoption of the proposed amendment and issuance of the common stock would not affect the rights of the holders of our currently outstanding common stock, except for effects incidental to increasing the number of shares of our common stock outstanding, such as dilution of the earnings per share and the voting rights of current holders of common stock. If the amendment is adopted, it will become effective upon filing of a Certificate of Amendment of our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware.

As of April 16, 2012, we had 85,539,619 shares of common stock outstanding, and our board of directors had reserved an aggregate of 7,572,754 shares of common stock for issuance under our equity incentive plans. Of this number, 7,569,004 shares were reserved for issuance upon exercise of stock options that were currently outstanding and 3,750 shares were reserved for issuance upon vesting of outstanding restricted stock units. In addition, our board of directors had reserved 6,483,332 shares of common stock which may be issued upon the exercise of outstanding warrants. Moreover, our board of directors had authorized an additional 4,722,059 shares for future issuance under our equity incentive plans, of which 2,512,008 shares were subject to stock options that are currently outstanding, however, none of these shares has been reserved by our board of directors and their reservation and issuance is subject to stockholder approval of an amendment to our amended and restated certificate of incorporation to increase our authorized shares of common stock. If this Proposal 2 is approved, our board of directors intends to reserve these shares for future issuance.

Although, at present, our board of directors has no plans to issue the additional shares of common stock other than the shares to be reserved in connection with our equity incentive plans, it desires to have the shares available to provide additional flexibility to use our capital stock for business and financial purposes in the future. Our board of directors believes that the ability to grant equity awards should be a significant component of our executive compensation strategy and is important to ensure alignment between executive compensation and the long-term financial interests of our stockholders. Aside from our equity incentive plans, the additional shares may be used for various purposes without further stockholder approval. These purposes may include raising capital; providing equity incentives to employees, officers or directors; establishing strategic relationships with other companies; expanding our business or product lines through the acquisition of other businesses or products; and other purposes.

The additional shares of common stock that would become available for issuance if the proposal is adopted could also be used by us to oppose a hostile takeover attempt or to delay or prevent changes in control or management of our company. For example, without further stockholder approval, our board of directors could strategically sell shares of common stock in a private transaction to purchasers who would oppose a takeover or favor the current board of directors. Although this proposal to increase the authorized common stock has been prompted by business and financial considerations and not by the threat of any hostile takeover attempt (nor is the board of directors currently aware of any such attempts directed at us), stockholders should be aware that approval of this proposal could facilitate future efforts by us to deter or prevent changes in control of our company, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices.

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Vote Required; Recommendation of the Board of Directors

The affirmative vote of the holders of a majority of the outstanding shares of our common stock that are entitled to vote will be required to approve this amendment to our Amended and Restated Certificate of Incorporation. As a result, abstentions and broker non-votes will be counted toward the tabulation of votes cast on this proposal and will have the same effect as negative votes.

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PROPOSAL 3:

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The audit committee has selected Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2012, and has further directed that management submit the selection of independent registered public accountants for ratification by the stockholders at the annual meeting. Ernst & Young LLP has audited the company’s financial statements since our inception in 2004. Representatives of Ernst & Young LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they so desire, and are expected to be available to respond to appropriate questions.

Stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm is not required by Delaware law, the company’s restated certificate of incorporation, or our amended and restated bylaws. However, the audit committee is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the audit committee will reconsider whether to retain that firm. Even if the selection is ratified, the audit committee in its discretion may direct the appointment of different independent registered public accountants at any time during the year if they determine that such a change would be in the best interests of the company and its stockholders.

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting will be required to ratify the selection of Ernst & Young LLP. Abstentions will be counted toward the tabulation of votes cast on this proposal and will have the same effect as negative votes.

Independent Registered Public Accountant Fees and Services

The following table represents aggregate fees billed to the company for services related to the fiscal years ended December 31, 2011 and 2010, by Ernst & Young LLP, the company’s independent registered public accounting firm.

The audit committee has considered whether the provision of non-audit services is compatible with maintaining the independence of Ernst & Young LLP, and has concluded that the provision of such services is compatible with maintaining the independence of our auditors.

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Pre-Approval Policies and Procedures

Our audit committee has established a policy that all audit and permissible non-audit services provided by our independent registered public accounting firm will be pre-approved by the audit committee. These services may include audit services, audit- related services, tax services and other services. The audit committee considers whether the provision of each non-audit service is compatible with maintaining the independence of our auditors. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Our independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date.

Vote Required; Recommendation of the Board of Directors

The affirmative vote of a majority of the shares of common stock present or represented by proxy and entitled to vote at the meeting will be required to ratify the selection of Ernst & Young LLP. Abstentions will be counted toward the tabulation of votes cast on this proposal and will have the same effect as negative votes. Broker non-votes will be counted toward a quorum but not counted for any purpose in determining whether this proposal has been approved.

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EXECUTIVE OFFICERS

Our executive officers and their respective ages and positions as of April 1, 2012, are as follows:

The biography of Mr. Schroeder can be found under “Proposal 1—Election of Directors.”

MR. WILLIAM R. LARUE has served as our Senior Vice President, Chief Financial Officer and Treasurer since June 2006, as our Secretary from June 2006 through April 2007, and as Assistant Secretary since April 2007. From April 2001 to May 2006, Mr. LaRue served as Senior Vice President and Chief Financial Officer of Micromet, Inc., formerly CancerVax Corporation, a biotechnology company focused on the treatment and control of cancer. From March 2000 to February 2001, Mr. LaRue served as Executive Vice President and Chief Financial Officer of eHelp Corporation, a provider of user assistance software. From January 1997 to February 2000, Mr. LaRue served as Vice President and Treasurer of Safeskin Corporation, a medical device company, and from January 1993 to January 1997, he served as Treasurer of GDE Systems, Inc., a high technology electronic systems company. Mr. LaRue also serves on the board of directors of Neurelis, Inc., a privately-held company. Mr. LaRue received a B.S. in business administration and an M.B.A. from the University of Southern California.

DR. JAMES B. BREITMEYER has served as our Executive Vice President, Development and Chief Medical Officer since August 2006. From December 2001 to August 2006, Dr. Breitmeyer served as Chief Medical Officer and Vice President, Pharmaceutical Operations of Applied Molecular Evolution, a wholly-owned subsidiary of Eli Lilly and Company, a global pharmaceutical company. From February 2000 to July 2001, Dr. Breitmeyer was the President and Chief Executive Officer of the Harvard Clinical Research Institute. Prior to February 2000, Dr. Breitmeyer held various positions of increasing responsibility including Senior Vice President and Chief Medical Officer of Serono International S.A., a global biopharmaceutical company. Dr. Breitmeyer holds a B.A. in chemistry from the University of California, Santa Cruz, and an M.D. and Ph.D. from Washington University School of Medicine.

MR. SCOTT A. BYRD has served as our Senior Vice President, Chief Commercial Officer since June 2009. Previously, Mr. Byrd served in a variety of roles in sales, marketing, finance, manufacturing and strategic planning at Eli Lilly and Company, a global pharmaceutical company, since January 1992, including most recently as U.S. Brand Leader for prasugrel beginning in October 2006. Mr. Byrd also served as Lilly’s Senior Director, Global Brands, Cardiovascular and Acute Care from June 2004 to September 2006, National Sales Director and U.S. Marketing Director for abciximab from March 2003 to May 2004, and Director of Marketing, Cardiovascular Business Unit from November 2001 to February 2003. Mr. Byrd holds a B.S. in mechanical engineering from Bradley University and an M.B.A. from the Harvard University Graduate School of Business Administration.

MS. HAZEL M. AKER has served as our Senior Vice President, General Counsel and Secretary since April 2007. From April 2006 to April 2007, Ms. Aker served as Senior Vice President, Operations and Business Affairs of Ambrx, Inc., a biotechnology company focused on protein therapeutics. From February 2003 to May 2006, Ms. Aker served as Senior Vice President, Regulatory Operations & Legal Affairs, General Counsel and

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Secretary of Micromet, Inc., formerly CancerVax Corporation, a biotechnology company focused on the treatment and control of cancer, and served as its Vice President, General Counsel and Secretary from February 2001 to February 2003. From April 2000 to March 2001, Ms. Aker served as Vice President, General Counsel and Secretary for Alaris Medical, Inc., and its subsidiary, Alaris Medical Systems, Inc., a manufacturer of intravenous infusion therapy products and patient monitoring systems. From October 1999 to April 2000, Ms. Aker served as Vice President and General Counsel and, from December 1999 to April 2000, as Vice President of Regulatory and Quality Affairs, for Women First HealthCare, Inc. From May 1995 until October 1999, Ms. Aker served as Corporate Vice President, Legal Affairs, and Assistant General Counsel for Alaris Medical Systems, Inc., which was formerly IVAC Medical Systems, Inc. Ms. Aker also serves on the board of directors of USO Council of San Diego, Inc., a 501(c)(3) non-profit public benefit corporation. Ms. Aker is a member of the State Bar of California and holds a B.A. from the University of California, San Diego and a J.D. from the University of San Diego School of Law.

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SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of our common stock as of March 31, 2012, except as noted in the footnotes below, for:

Information with respect to beneficial ownership has been furnished by each executive officer, director or beneficial owner of more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to the securities. Except as indicated by footnote, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The number of shares of common stock used to calculate the percentage ownership of each listed person includes the shares of common stock underlying options or warrants held by such persons on March 31, 2012 that are exercisable as of May 30, 2012, which is 60 days after March 31, 2012.

Percentage of beneficial ownership is based on 85,539,619 shares of common stock outstanding as of March 31, 2012.

Unless otherwise indicated, the address for the following stockholders is c/o Cadence Pharmaceuticals, Inc., 12481 High Bluff Drive, Suite 200, San Diego, California 92130.

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EXECUTIVE COMPENSATION AND OTHER INFORMATION

Compensation Discussion and Analysis

This section provides an overview and analysis of our compensation programs and policies, including the material compensation decisions made under the programs with respect to our President and Chief Executive Officer, our Senior Vice President and Chief Financial Officer and our three other most highly compensated executive officers for the fiscal year ended December 31, 2011, whom we refer to as our “named executive officers.” Our named executive officers are:

Executive Summary

Our compensation program is designed to attract and retain key employees with the skills and experience needed to achieve our corporate objectives, to reward strong performance and significant impact on the achievement of corporate results, and to reward the achievement of individual and corporate objectives and demonstration of our core values of performance, transparency, respect and integrity. Underlying these core philosophies is our commitment to link pay to performance. We held our first advisory stockholder vote on executive compensation in June 2011, which resulted in over 99% of the stockholder votes cast (excluding abstentions and broker non-votes) in favor of the resolution on the compensation of our named executive officers as described in our last proxy statement. Based on this favorable direction, we have made only modest changes to our compensation plans this year.

In determining the amount of salary, bonus, stock incentive awards and other benefits to provide to each named executive officer, the compensation committee considers (1) the company’s performance against corporate objectives, (2) the executive’s success in achieving individual objectives, (3) the difficulty and complexity of achieving desired results, (4) the value of the executive’s experience, unique skills and capabilities to support long-term performance of the company, (5) historical compensation versus performance, (6) comparisons to executives with similar levels of expertise and experience in our market comparison group and our market survey data and (7) the demand and competition for executives in the marketplace in which we operate.

Our compensation committee believes that our current executive compensation policies continue to be effective in advancing our company’s strategic plans, and that our executives are motivated to work towards key objectives that will deliver value in the long-term for our stockholders without taking on unnecessary or excessive risks. Highlights of our compensation programs include:

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We have also implemented the following compensation governance elements to regulate our compensation programs:

Our compensation committee meets during the first quarter of each fiscal year to review and approve the achievement of the company’s performance goals for the prior fiscal year, incentive compensation, if earned, based on such achievement for the prior fiscal year, performance goals for the current fiscal year, and the level and mix of named executive officer compensation for the current fiscal year. A portion of these meetings is conducted by the compensation committee without management present.

2011 Corporate Achievements. Our board of directors established corporate performance goals for the company in January 2011. These goals were: (1) the successful commercial launch of OFIRMEV ^® (acetaminophen) injection, (2) ensure adequate production and supply chain to meet market demand for OFIRMEV, (3) complete post-marketing commitment negotiations with the FDA, and (4) maintain adequate cash resources. At the time that the performance goals were established, the outcome was uncertain and the goals were deemed to be challenging, yet achievable if we fully executed on our business plan. We believe that our accomplishments during 2011 illustrate our ability to execute our business plan and achieve targeted goals. These accomplishments include:

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Key 2011 Compensation Decisions. We believe that the 2011 compensation of our named executive officers was appropriate and properly aligned with both our 2011 corporate performance and each officer’s 2011 individual performance. Key executive compensation decisions in 2011 included:

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Overview of Compensation Program, Objectives and Philosophy

Our compensation program is designed to attract and retain key employees with the skills and experience needed to achieve our corporate objectives, to reward strong performance and significant impact on the achievement of corporate results, and to reward the achievement of individual and corporate objectives and demonstration of our core values of performance, transparency, respect and integrity. Our executive compensation programs impact all employees by setting general levels of compensation and helping to create an environment of goals, rewards and expectations. Because we believe the performance of every employee is important to our success, we are mindful of the effect of executive compensation and incentive programs on all of our employees.

We believe that the compensation of our named executive officers should reflect their success as a management team, as well as their individual contributions, in attaining key strategic and operating objectives. We believe that the performance of our named executive officers in managing our company in light of general economic and specific company, industry and competitive conditions, should be the basis for determining their overall compensation. As a result, our compensation program consists of elements designed to motivate both short- and long-term performance, with the overarching goal of aligning our employees’ incentives with the long-term financial interests of our stockholders.

Our compensation program consists of five elements: base salary; annual, variable cash and equity incentive bonus awards; long-term equity incentive awards; benefits; and severance and termination protection. Each of these elements is described in more detail below. We have selected these elements because each is considered useful and necessary to meet one or more of the principal objectives of our compensation policy. For instance, base salary and bonus target percentage are set with the goal of attracting and retaining employees and adequately compensating and rewarding them for the services they perform. Our equity programs are geared toward providing incentives and rewards for the achievement of long-term business objectives and retaining key talent. We believe that these elements of compensation, when combined, are effective, and will continue to be effective, in achieving the objectives of our compensation program.

Through the compensation arrangements described above, a significant portion of our executive officer compensation program is contingent upon individual and company-wide performance, and realization of benefits from the program by our executive officers is closely linked to increases in long-term stockholder value. We remain committed to this philosophy of pay-for-performance, recognizing that the competitive market for talented executive officers and the volatility of our business may result in highly variable compensation during any given annual period. We do not, however, have a pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Rather, the compensation committee reviews historical and competitive information regarding current and long-term goals to determine the appropriate level and mix of incentive compensation.

Based upon our compensation program objectives and philosophy, the amount of each element of compensation for our executive officers is determined by our compensation committee, which uses the following factors to determine the amount of salary, bonus, stock incentive awards and other benefits to provide to each executive:

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The compensation levels of our named executive officers reflect to a significant degree their varying roles and responsibilities. Mr. Schroeder, in his role as President and Chief Executive Officer, has the greatest level of responsibility among our named executive officers and, therefore, receives the highest level of pay. This is also consistent with the practices of the companies in our market comparison group and the survey compensation data reviewed by our compensation committee.

Role of the Compensation Committee and Named Executive Officers in Setting Compensation

The compensation committee has the primary authority to determine our company’s compensation philosophy and to establish compensation for our executive officers. In the first quarter of each year, the compensation committee reviews the performance of each of our executive officers during the previous year and, based upon the outcome of a performance review, the compensation committee reviews and adjusts base salaries for our executive officers, determines appropriate cash and equity incentive awards, and approves elements of the incentive bonus plan for the executives for the current year, including target bonuses and corporate objectives. Based on the compensation objectives and philosophy outlined above, the compensation committee considers all components of compensation and, in general, targets the 50 ^th to 60 ^th percentiles of total compensation for similarly-situated executives at the companies within our market comparison group represented by the market survey data we review, as discussed further below. However, each executive’s actual compensation may be higher or lower than targeted compensation levels based upon our company’s overall performance and the performance, job criticality, experience and skill set of the particular executive, and our incentive program allows for achievement of compensation levels above target levels based upon the achievement of exceptional results.

In making these compensation decisions, it is the practice of our compensation committee to review the historical levels of each element of each executive officer’s total compensation (salary, bonus, stock option incentive awards, benefits, and severance/termination protection) and to compare each element with that of the executive officers in an appropriate market comparison group. For 2011, the compensation committee engaged Radford (an Aon Hewitt Company), an independent compensation consultant, to perform a competitive assessment of each executive officer’s compensation utilizing a specific market comparison group of biotechnology and pharmaceutical companies. Market information was gathered from publicly available sources in addition to Radford’s Global Life Sciences databases for national and regional companies in the pharmaceutical and biotechnology industries. Radford reports to and is accountable to the compensation committee, and the firm may not conduct any other work for our company without the authorization of the compensation committee.

Radford provided our compensation committee with information and recommendations regarding the base salaries, target total cash compensation, target incentive opportunities, and total potential ownership of executive officers based on the market assessment. Radford also provides information on equity compensation practices, levels of dilution and incentive plans to inform the compensation committee’s decisions. To assist the compensation committee in making its compensation determinations, this information was also provided to our President and Chief Executive Officer, who prepared his own recommendations regarding the compensation of all executive officers, excluding himself. The chairman of our board of directors makes compensation recommendations to the board of directors and compensation committee with respect to our President and Chief Executive Officer.

The recommendations provided to the compensation committee were based upon an annual performance review for each named executive officer by the President and Chief Executive Officer. As part of this process, our executive officers provide input regarding their contributions to our company’s achievements for the period

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being assessed. The compensation committee may, in its sole discretion, accept or adjust the executive compensation recommendations it is given. No named executive officer is allowed to be present at the time his or her compensation is being discussed or determined.

Response to 2011 Say-On-Pay Vote

We held our first advisory stockholder vote on executive compensation in June 2011, with over 99% of the stockholder votes cast (excluding abstentions and broker non-votes) in favor of the resolution on the compensation of our named executive officers as described in our last proxy statement. Based on this favorable direction, we have made only modest changes to our compensation plans this year.

In addition, our stockholders recommended a say-on-pay frequency of every three years, which was adopted by our board of directors, in direct response to their feedback. The compensation committee will continue to monitor our stockholders’ views on compensation to determine if any changes in our policies are required.

Use of Market Comparison Data in Determining Executive Compensation

For 2011, our compensation committee worked with Radford to select and approve the comparison group of companies included in the competitive assessment. Our compensation committee aims to choose a comparison group in line with best practices, and changes were made to focus the group based on sector, revenue, market cap and stage. Radford provided an independent review of the peer group and recommended changes for the compensation committee’s consideration. The comparison group was based upon the following criteria:

For 2011, the compensation committee approved the companies comprising the market comparison group, which are:

Radford relied on data for the peer group gathered through publicly available information included in company proxy statements and Radford’s Global Life Sciences Compensation Survey for the specific peer group. In addition, data was gathered from a broader group of companies in the life sciences sector with headcounts

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between 150 and 500 employees, reflecting the complexity and scale of the company’s business. In considering an individual named executive officer’s compensation, Radford predominantly utilized peer group information and supplemented that with survey information to provide more specific market information where the direct peer group did not have sufficient data for that officer. This approach is an industry best practice to make sure that the compensation committee is not relying on a limited number of data points to make these critical decisions. The compensation committee received a detailed report outlining the statistical summaries for each of the named executive officers in order to assist them in their decision making.

The selected companies in the market comparison group are companies that fall within a reasonable range of comparison factors and/or that we may compete with for executive talent, and were not selected on the basis of executive compensation levels. In addition, the pool of senior executive talent from which the company draws and against which it compares itself extends beyond the immediate market comparison group and is represented by the survey data. As a result, the compensation committee uses a combination of industry survey data and peer group data to analyze the overall competitiveness of the company’s compensation.

While we believe that comparisons to market data are a useful tool, we do not believe that it is appropriate to establish executive compensation levels based solely on a comparison to market data. While compensation paid by other companies is a factor that the compensation committee considers in assessing the reasonableness of compensation, the compensation committee incorporates flexibility into our compensation programs and in the assessment process to respond to and adjust for the evolving business environment and other factors described above, and relies upon the judgment of its members in making executive compensation decisions.

Elements of Executive Compensation

Base Salary: On an aggregated basis, the annual base salaries for our named executive officers are consistent with median salary levels for similarly situated executives at companies in our market comparison group. As a general matter, the base salary for each named executive officer is initially established through negotiation at the time the officer is hired, taking into account the officer’s qualifications, experience, prior salary and competitive salary information. The compensation committee annually reviews and, if appropriate, adjusts the base salaries of our President and Chief Executive Officer and other members of senior management. Each of our named executive officers has entered into an employment agreement with us that prohibits the compensation committee from materially decreasing his or her base salary as part of this annual review process. Salaries are also reviewed in the case of promotions or other significant changes in responsibilities. In each case, the compensation committee assesses individual performance against job responsibilities, our overall company performance, our budget for merit increases, and competitive salary information. Base salary is intended to provide a baseline of compensation that does not fluctuate except for, potentially, merit-based increases and market comparisons.

In March 2011, the compensation committee increased base salaries for our named executive officers. The table below shows the base salary approved by the Compensation Committee for each of the named executive officers and the percentage increase over the 2010 base salaries.

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At the time that the decisions were made, base salary levels for Messrs. Schroeder and LaRue and Ms. Aker were in the 25 ^th percentile, which warranted a larger increase to ensure that their overall compensation was competitive.

Annual Incentive Compensation Plan: Our compensation committee believes it is important to have a significant percentage of each executive officer’s total compensation contingent upon the company’s overall performance, as well as upon the level of his or her own contribution toward the company’s performance. This allows our named executive officers to receive incentive compensation in the event certain specified corporate and, if applicable, individual performance measures are achieved. The use of corporate performance goals is intended to establish a link between the executive’s pay and our business performance.

In March 2011, our compensation committee approved our 2011 corporate bonus plan, which designates a target bonus amount for each named executive officer, expressed as a percentage of his or her base salary. These target bonus amounts are 75% for our President and Chief Executive Officer (increased from 60% in 2010), 40% for our Executive Vice President and Senior Vice Presidents (increased from 35% in 2010), and 30% for our other Vice Presidents (unchanged from 2010). These percentages were determined based upon a target of the 60 ^th percentile of bonuses for similarly-situated executives at companies within our market comparison group, as represented by the market survey data we review. Our named executive officers were eligible to receive bonuses if certain individual and corporate performance criteria were achieved during the 2011 fiscal year.

With respect to both corporate goals and individual goals, our compensation committee places performance into one of four categories: excellent in view of prevailing conditions, acceptable in view of prevailing conditions, meeting some but not all objectives, or not acceptable in view of prevailing conditions. Each of these categorizations results in the application of a multiplier to the target amount of the bonus that is applicable to the corporate or individual goals. For 2011, the ranges applied were 75% to 150% for excellent performance, 50% to 100% for acceptable performance, 25% to 50% for performance meeting some but not all objectives, and 0% for unacceptable performance. However, the compensation committee has broad discretion with respect to the actual multiplier to apply in each case.

Our board of directors established corporate performance goals for purposes of the 2011 corporate bonus plan in January 2011. These goals were: (1) the successful commercial launch of OFIRMEV, weighted at 50%, (2) ensure adequate production and supply chain to meet market demand for OFIRMEV, weighted at 30%, (3) complete post-marketing commitment negotiations with the FDA, weighted at 10%, and (4) maintain adequate cash resources, weighted at 10%.

In January 2012, our compensation committee determined that the achievement level of the foregoing corporate performance objectives was 65%. In making that determination, the compensation committee took into account factors in addition to the foregoing stated corporate objectives. The compensation committee decided that, despite the company’s successful commercial launch of OFIRMEV and success relative to the other stated objectives, it was important to consider the company’s overall performance during 2011, particularly in light of the decrease in the price of the company’s common stock during the year.

In March 2012, our compensation committee met to perform its annual review of executive compensation, and determined that each of our named executive officers performed well individually and effectively managed their respective business areas to contribute significantly to our overall corporate achievements for the year. The calculation of the bonus to be paid to our President and Chief Executive Officer under our incentive bonus program is entirely dependent upon the achievement of our corporate performance goals. Our compensation committee determined that Mr. Schroeder demonstrated exceptional leadership during the company’s launch year for OFIRMEV, but because our incentive bonus program dictates that his incentive award will be based entirely on the achievement of the company’s goals, Mr. Schroeder was awarded a bonus equal to 65% of his target bonus.

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Under our incentive bonus program, awards to our named executive officers other than our President and Chief Executive Officer are dependent upon the achievement of both our corporate performance goals and individual performance. For 2011, these bonuses were based 75% on the achievement of corporate goals (increased from 60% in 2010) and 25% on the achievement of individual goals (decreased from 40% in 2010). The change to the relative weighting of these levels in 2011 was made to further align the compensation of our named executive officers with the performance of the company. The individual goals, which are discussed below, vary for each of our named executive officers based upon each individual’s job responsibilities, and they are intended to provide an incentive for the named executive officer to help us achieve our corporate goals. The analysis of overall individual performance is based upon numerous factors, including the achievement of the individual’s performance goals, and ultimately upon a subjective evaluation by the compensation committee. The compensation committee determined that the achievement levels of individual performance goals during 2011 for these named executive officers ranged between 90% and 115%, which resulted in bonus awards for 2011 for these individuals that ranged from 71% to 78% of their respective targets. As part of the company’s efforts to align executive compensation with the long-term financial interests of the company’s stockholders, the compensation committee determined that the 2011 bonuses of our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer would be paid entirely in stock options, and the 2011 bonuses of the other named executive officers would be paid half in cash and half in stock options that vest six months after the grant date. The number of stock options to be granted to each named executive officer was determined by converting the value of the bonus to be paid in the form of stock options into stock options with an equivalent of 1.5 times the Black-Scholes value.

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The cash incentive payments approved by our compensation committee for our named executive officers for 2011, based on the committee’s assessments of company and individual performance, are set forth below in the “Summary Compensation Table” below.

Stock Incentive Awards: We generally provide stock-based incentive award compensation to our named executive officers through grants of stock options. Stock option grants allow us to:

Stock option grant levels are determined based on market data and vary among executive officers based on their positions and performance. Newly hired or promoted executive officers also typically receive stock option grants in connection with those events. Our 2006 Equity Incentive Award Plan defines the exercise price of our stock option grants to be the closing price of our common stock on the Nasdaq Global Market on the grant date. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents.

Our 2006 Equity Incentive Award Plan also allows us to provide other types of equity awards to our executive officers, including RSUs.

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In March 2011, stock option awards ranging from 80,000 to 500,000 were granted to our named executive officers as part of our compensation committee’s annual review of executive compensation. In determining the amount of these awards, factors considered by the compensation committee were market survey data provided by Radford, individual performance, the expected criticality of the individual’s position to the company’s long-term success, retention and tenure with the company. Our compensation committee generally targets between the 50 ^th to 60 ^th percentiles of awards for similarly-situated executives at companies within our market comparison group, as represented by relevant market survey data. The awards for Mr. Byrd (80,000 options) and Ms. Aker (80,000 options) were within the target range of the 50 ^th to 60 ^th percentile. The awards for Messrs. LaRue (125,000 options) and Breitmeyer (110,000 options) were at the 75 ^th percentile based on a determination by the compensation committee that special adjustments were warranted for reasons of performance, retention and positions critical to the future of the company. All of the awards to named executive officers other than our President and CEO have a ten year term, and vest over four years, with 25% vesting after one year and the remainder vesting in equal monthly installments over the subsequent three years. Mr. Schroeder’s grant (500,000 options) was made as a retention award and to tie Mr. Schroeder’s compensation with our long-term performance. For these reasons, Mr. Schroeder’s grant, which also has a ten year term, will vest over a six-year period, with the majority of the award vesting during the second half of that period. During the vesting period, (1) 50,000 of the shares subject to the option will vest one year after the grant date, (2) 1/12th of 50,000 shares will vest on the first day of each full month in the second year after the grant date, (3) 1/12th of 50,000 shares will vest on the first day of each full month in the third year after the grant date, (4) 1/12th of 100,000 shares will vest on the first day of each full month in the fourth year after the grant date, (5) 1/12th of 125,000 shares will vest on the first day of each full month in the fifth year after the grant date and (6) 1/12th of 125,000 shares will vest on the first day of each full month in the sixth year after the grant date, so that all of the shares subject to the option will be vested on the first day of the full month following the sixth anniversary of the grant date, provided that Mr. Schroeder continues to provide services to the company. For a description of the change of control provisions applicable to the equity awards granted to our named executive officers, see “Severance Benefits and Change of Control Arrangements” below.

We do not have stock ownership requirements for our officers or directors.

Other Benefits

In order to attract, retain, and pay market levels of compensation, we provide our named executive officers and our other employees the following benefits and perquisites.

Medical Insurance: The company provides to each named executive officer and their dependents such health, dental and vision insurance coverage, and flexible spending accounts, as the company may from time to time make available to its other eligible employees.

Life and Disability Insurance: The company provides each named executive officer such disability and/or life insurance as the company may from time to time make available to its other eligible employees.

401(k) Plan: The company provides to each named executive officer a basic savings plan, or 401(k) plan, which is intended to qualify under Section 401(k) of the Internal Revenue Code so that contributions to our 401(k) plan by employees or by us, and the investment earnings thereon, are not taxable to employees until withdrawn from our 401(k) plan. If our 401(k) plan qualifies under Section 401(k) of the Internal Revenue Code, contributions by us, if any, will be deductible by us when made.

All of our employees are eligible to participate in our 401(k) plan. Pursuant to our 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily-prescribed annual limit, which was $16,500 for 2011. Eligible employees who are 50 years of age or older were permitted to contribute an additional $5,500 to the 401(k) plan in 2011. Our 401(k) plan permits, but does not require, additional matching or non-elective contributions to our 401(k) plan by us on behalf of all participants in our 401(k) plan. To date, we have not made any matching or non-elective contributions to our 401(k) plan.

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Pension Benefits: We do not provide pension arrangements or post-retirement health coverage for our executives or employees.

Non-qualified Deferred Compensation: We do not provide any non-qualified defined contribution or other deferred compensation plans.

Perquisites: We do not generally provide perquisites to our named executive officers or other employees.

Summary

We believe that the 2011 compensation of our named executive officers was appropriate and properly aligned with both our 2011 corporate performance and each officer’s 2011 individual performance, and that the total compensation paid to our named executive officers was consistent with our compensation objectives and philosophy. Through the compensation arrangements described above, a significant portion of our executive officer compensation program is contingent upon individual and company-wide performance, and realization of benefits from the program by our executive officers is closely linked to increases in long-term stockholder value. We remain committed to this philosophy of pay-for-performance, recognizing that the competitive market for talented executive officers and the volatility of our business may result in highly variable compensation during any given annual period.

Summary Compensation Table

The following table provides a summary of the compensation received by our named executive officers for the fiscal years ended December 31, 2011, 2010 and 2009.