ACORDA THERAPEUTICS INC, 10-K filed on 2/27/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2016
Feb. 17, 2017
Jun. 30, 2016
Document And Entity Information [Abstract]
 
 
 
Entity Registrant Name
ACORDA THERAPEUTICS INC 
 
 
Entity Central Index Key
0001008848 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 518,498,297 
Entity Common Stock, Shares Outstanding
 
46,407,850 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
ACOR 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 158,537 
$ 153,204 
Restricted cash
79 
6,032 
Short-term investments
 
200,101 
Trade accounts receivable, net of allowances of $964 and $884, as of December 31, 2016 and 2015, respectively
52,239 
31,466 
Prepaid expenses
12,907 
16,079 
Finished goods inventory held by the Company
43,135 
36,476 
Other current assets
5,760 
7,959 
Total current assets
272,657 
451,317 
Property and equipment, net of accumulated depreciation
34,310 
40,204 
Goodwill
280,599 
183,636 
Deferred tax asset
4,400 
2,128 
Intangible assets, net of accumulated amortization
742,242 
430,856 
Non-current portion of deferred cost of license revenue
2,272 
2,906 
Other assets
5,855 
247 
Total assets
1,342,335 
1,111,294 
Current liabilities:
 
 
Accounts payable
26,933 
14,233 
Accrued expenses and other current liabilities
104,890 
66,133 
Current portion of deferred license revenue
9,057 
9,057 
Current portion of loans payable
6,256 
25 
Current portion of convertible notes payable
765 
1,144 
Total current liabilities
147,901 
90,592 
Convertible senior notes (due 2021)
299,395 
290,420 
Acquired contingent consideration
72,100 
63,500 
Non-current portion of deferred license revenue
32,456 
41,513 
Non-current portion of loans payable
24,635 
 
Non-current portion of convertible notes payable
 
1,107 
Deferred tax liability
92,807 
12,146 
Other non-current liabilities
8,830 
8,991 
Commitments and contingencies
   
   
Stockholders’ equity:
 
 
Common stock, $0.001 par value. Authorized 80,000,000 shares at December 31, 2016 and 2015; issued and outstanding 45,680,042 and 42,999,377 shares, including those held in treasury, as of December 31, 2016 and 2015, respectively
46 
43 
Treasury stock at cost (12,420 shares at December 31, 2016 and 2015, respectively)
(329)
(329)
Additional paid-in capital
921,365 
812,782 
Accumulated deficit
(243,970)
(209,352)
Accumulated other comprehensive loss
(12,901)
(119)
Total stockholders’ equity
664,211 
603,025 
Total liabilities and stockholders’ equity
$ 1,342,335 
$ 1,111,294 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Statement Of Financial Position [Abstract]
 
 
Trade accounts receivable, allowances (in dollars)
$ 964 
$ 884 
Common stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Common stock, Authorized shares
80,000,000 
80,000,000 
Common stock, issued shares
45,680,042 
42,999,377 
Common stock, outstanding shares
45,680,042 
42,999,377 
Treasury stock, shares
12,420 
12,420 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Revenues:
 
 
 
Net product revenues
$ 493,358 
$ 466,111 
$ 373,292 
Royalty revenues
17,186 
17,492 
19,131 
License revenue
9,057 
9,057 
9,057 
Total net revenues
519,601 
492,660 
401,480 
Costs and expenses:
 
 
 
Cost of sales
107,475 
92,297 
79,981 
Cost of milestone and license revenue
634 
634 
634 
Research and development
203,437 
149,209 
73,470 
Selling, general and administrative
235,437 
205,630 
201,813 
Asset impairment
 
 
6,991 
Changes in fair value of acquired contingent consideration
8,600 
10,900 
2,200 
Total operating expenses
555,583 
458,670 
365,089 
Operating (loss) income
(35,982)
33,990 
36,391 
Other expense (net):
 
 
 
Interest and amortization of debt discount expense
(16,527)
(15,472)
(9,288)
Interest income
339 
440 
674 
Other income
9,902 
411 
232 
Total other expense (net)
(6,286)
(14,621)
(8,382)
(Loss) income before taxes
(42,268)
19,369 
28,009 
Benefit from (provision for) income taxes
6,665 
(8,311)
(10,337)
Net (loss) income
(35,603)
11,058 
17,672 
Net loss attributable to non-controlling interest
985 
 
 
Net (loss) income attributable to Acorda Therapeutics, Inc.
$ (34,618)
$ 11,058 
$ 17,672 
Net (loss) income per share—basic
$ (0.76)
$ 0.26 
$ 0.43 
Net (loss) income per share—diluted
$ (0.76)
$ 0.25 
$ 0.42 
Weighted average common shares outstanding used in computing net (loss) income per share—basic
45,259 
42,230 
41,150 
Weighted average common shares outstanding used in computing net (loss) income per share—diluted
45,259 
43,621 
42,544 
Consolidated Statements of Comprehensive (Loss) Income (USD $)
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net (loss) income
$ (35,603,000)
$ 11,058,000 
$ 17,672,000 
Other comprehensive (loss) income:
 
 
 
Foreign currency translation adjustment
(12,901,000)
 
Unrealized losses on available-for-sale securities, net of tax
 
(45,000)
(111,000)
Reclassification of net losses to net income
(119,000)
 
 
Other comprehensive (loss) income, net of tax
(12,782,000)
(45,000)
(111,000)
Comprehensive (loss) income attributable to Acorda Therapeutics, Inc.
(48,385,000)
11,013,000 
17,561,000 
Comprehensive loss attributable to noncontrolling interests.
$ (110,000)
 
 
Consolidated Statements of Changes in Stockholders' Equity (USD $)
In Thousands, unless otherwise specified
Total
Private Placement
Common stock
Common stock
Private Placement
Treasury stock
Additional paid-in capital
Additional paid-in capital
Private Placement
Accumulated deficit
Accumulated other comprehensive income (loss)
Noncontrolling Interest
Balance at Dec. 31, 2013
$ 440,353 
 
$ 41 
 
$ (329)
$ 678,686 
 
$ (238,082)
$ 37 
 
Balance (in shares) at Dec. 31, 2013
 
 
40,896 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Compensation expense for issuance of stock options to employees
21,910 
 
 
 
 
21,910 
 
 
 
 
Compensation expense for issuance of restricted stock to employees
7,527 
 
 
 
 
7,527 
 
 
 
 
Compensation expense for issuance of restricted stock to employees (in shares)
 
 
242 
 
 
 
 
 
 
 
Exercise of stock options
16,015 
 
 
 
16,014 
 
 
 
 
Exercise of stock options (in shares)
 
 
746 
 
 
 
 
 
 
 
Equity component of the convertible notes, issuance, net
37,795 
 
 
 
 
37,795 
 
 
 
 
Debt issuance costs
(1,277)
 
 
 
 
(1,277)
 
 
 
 
Excess tax benefit from (charges for) share-based compensation arrangements
371 
 
 
 
 
371 
 
 
 
 
Other comprehensive loss, net of tax
(111)
 
 
 
 
 
 
 
(111)
 
Net (loss) income
17,672 
 
 
 
 
 
 
17,672 
 
 
Balance at Dec. 31, 2014
540,255 
 
42 
 
(329)
761,026 
 
(220,410)
(74)
 
Balance (in shares) at Dec. 31, 2014
 
 
41,884 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Compensation expense for issuance of stock options to employees
25,026 
 
 
 
 
25,026 
 
 
 
 
Compensation expense for issuance of restricted stock to employees
8,441 
 
 
 
 
8,441 
 
 
 
 
Compensation expense for issuance of restricted stock to employees (in shares)
 
 
244 
 
 
 
 
 
 
 
Exercise of stock options
18,096 
 
 
 
18,095 
 
 
 
 
Exercise of stock options (in shares)
 
 
871 
 
 
 
 
 
 
 
Excess tax benefit from (charges for) share-based compensation arrangements
194 
 
 
 
 
194 
 
 
 
 
Other comprehensive loss, net of tax
(45)
 
 
 
 
 
 
 
(45)
 
Net (loss) income
11,058 
 
 
 
 
 
 
11,058 
 
 
Balance at Dec. 31, 2015
603,025 
 
43 
 
(329)
812,782 
 
(209,352)
(119)
 
Balance (in shares) at Dec. 31, 2015
 
 
42,999 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Compensation expense for issuance of stock options to employees
28,090 
 
 
 
 
28,090 
 
 
 
 
Compensation expense for issuance of restricted stock to employees
8,296 
 
 
 
 
8,296 
 
 
 
 
Compensation expense for issuance of restricted stock to employees (in shares)
 
 
236 
 
 
 
 
 
 
 
Exercise of stock options
3,427 
 
 
 
 
3,427 
 
 
 
 
Exercise of stock options (in shares)
 
 
194 
 
 
 
 
 
 
 
Excess tax benefit from (charges for) share-based compensation arrangements
(13)
 
 
 
 
(13)
 
 
 
 
Private placement, net of issuance costs
 
72,091 
 
 
 
72,088 
 
 
 
Private placement, net of issuance costs (in shares)
 
 
 
2,251 
 
 
 
 
 
 
Acquisition of subsidiary
25,736 
 
 
 
 
 
 
 
 
25,736 
Purchase of noncontrolling interest
(27,946)
 
 
 
 
(3,305)
 
 
 
(24,641)
Other comprehensive loss, net of tax
(12,892)
 
 
 
 
 
 
 
(12,782)
(110)
Net (loss) income
(35,603)
 
 
 
 
 
 
(34,618)
 
(985)
Balance at Dec. 31, 2016
$ 664,211 
 
$ 46 
 
$ (329)
$ 921,365 
 
$ (243,970)
$ (12,901)
 
Balance (in shares) at Dec. 31, 2016
 
 
45,680 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Cash flows from operating activities:
 
 
 
Net (loss) income
$ (35,603)
$ 11,058 
$ 17,672 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Recognition of deferred product revenue - Zanaflex
 
(22,186)
 
Share-based compensation expense
36,386 
33,467 
29,437 
Amortization of net premiums and discounts on investments
467 
3,366 
3,571 
Amortization of debt discount and debt issuance costs
9,717 
8,562 
4,291 
Amortization of revenue interest issuance cost
 
15 
27 
Depreciation and amortization expense
21,582 
15,012 
8,473 
Intangible asset impairment
 
 
6,991 
Changes in fair value of acquired contingent consideration
8,600 
10,900 
2,200 
Realized gain on foreign currency transaction
9,856 
 
 
Gain on put/call liability
 
 
(147)
Deferred tax (benefit) provision
(11,190)
3,975 
6,681 
Excess tax charge (benefit) from share-based compensation arrangements
15 
(194)
(371)
Changes in assets and liabilities:
 
 
 
(Increase) decrease in accounts receivable
(19,965)
744 
(1,427)
Decrease (increase) in prepaid expenses and other current assets
6,904 
(998)
(4,083)
Increase in inventory held by the Company
(6,660)
(10,220)
(721)
Decrease in inventory held by others
 
581 
56 
Decrease in non-current portion of deferred cost of license revenue
634 
634 
634 
Decrease in other assets
34 
34 
34 
Increase (decrease) in accounts payable, accrued expenses and other current liabilities
37,625 
(825)
13,180 
(Decrease) increase in revenue interest liability interest payable
 
(374)
108 
Decrease in non-current portion of deferred license revenue
(9,057)
(9,057)
(9,057)
Increase (decrease) in other non-current liabilities
16 
(198)
(301)
Decrease in deferred product revenue—Zanaflex
 
(989)
(2,670)
Decrease (increase) in restricted cash
5,698 
(4,826)
71 
Net cash provided by operating activities
35,347 
38,481 
74,649 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(6,192)
(5,921)
(5,084)
Purchases of intangible assets
(893)
(1,145)
(2,699)
Acquisitions, net of cash received and gain on foreign currency transaction
(266,454)
 
(476,151)
Purchases of investments
(40,215)
(434,670)
(580,381)
Proceeds from maturities of investments
239,966 
356,500 
770,490 
Net cash used in investing activities
(73,786)
(85,236)
(293,825)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of convertible senior notes
 
 
345,000 
Debt issuance costs
(1,587)
 
(7,516)
Proceeds from issuance of common stock and option exercises
75,520 
18,096 
16,015 
Purchase of non-controlling interest
(27,946)
 
 
Excess tax charge (benefit) from share-based compensation arrangements
(15)
194 
371 
Repayments of revenue interest liability
(41)
(501)
(562)
Net cash provided by financing activities
45,931 
17,789 
353,308 
Effect of exchange rate changes on cash and cash equivalents
(2,159)
 
 
Net increase (decrease) in cash and cash equivalents
5,333 
(28,966)
134,133 
Cash and cash equivalents at beginning of period
153,204 
182,170 
48,037 
Cash and cash equivalents at end of period
158,537 
153,204 
182,170 
Supplemental disclosure:
 
 
 
Cash paid for interest
6,059 
7,218 
4,522 
Cash paid for taxes
$ 4,250 
$ 4,697 
$ 4,392 
Organization and Business Activities
Organization and Business Activities

(1) Organization and Business Activities

Acorda Therapeutics, Inc. (“Acorda” or the “Company”) is a biopharmaceutical company focused on developing therapies that restore function and improve the lives of people with neurological disorders.

The management of the Company is responsible for the accompanying audited consolidated financial statements and the related information included in the notes to the consolidated financial statements. In the opinion of management, the audited consolidated financial statements reflect all adjustments, including normal recurring adjustments necessary for the fair presentation of the Company's financial position and results of operations and cash flows for the periods presented. Certain reclassifications were made to prior period amounts in the consolidated financial statements and accompanying notes to conform with the current presentation.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

(2) Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) and include the results of operations of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements requires management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include share‑based compensation accounting, which are largely dependent on the fair value of the Company’s equity securities, measurement of changes in the fair value of acquired contingent consideration which is based on a probability weighted discounted cash flow valuation methodology and valuation allowances on deferred tax assets which are based on an assessment of recoverability of the deferred tax assets against future taxable income. Actual results could differ from those estimates.

Risks and Uncertainties

The Company is subject to risks common to companies in the pharmaceutical industry including, but not limited to, uncertainties related to commercialization of products, regulatory approvals, dependence on key products, dependence on key customers and suppliers, and protection of intellectual property rights.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with original maturities of three months or less from date of purchase to be cash equivalents. All cash and cash equivalents are held in highly rated securities including a Treasury money market fund and U.S. Treasury bonds, which are unrestricted as to withdrawal or use. To date, the Company has not experienced any losses on its cash and cash equivalents. The carrying amount of cash and cash equivalents approximates its fair value due to its short-term and liquid nature. We maintain cash balances in excess of insured limits. We do not anticipate any losses with respect to such cash balances.

Restricted Cash

Restricted cash represents a bank account with funds to cover the Company’s self-funded employee health insurance. At December 31, 2016, the Company also held $0.3 million of restricted cash related to cash collateralized standby letters of credit in connection with obligations under facility leases, which is included with other assets in the consolidated balance sheet due to the long-term nature of the letters of credit. (see Note 8).

Investments

Short-term investments consist of U.S. Treasury bonds. The Company classifies marketable securities available to fund current operations as short-term investments in current assets on its consolidated balance sheets. Marketable securities are classified as long-term investments in long-term assets on the consolidated balance sheets if the Company has the ability and intent to hold them and such holding period is longer than one year. The Company classifies its short-term investments as available-for-sale. Available-for-sale securities are recorded at the fair value of the investments based on quoted market prices.

Unrealized holding gains and losses on available-for-sale securities, which are determined to be temporary, are excluded from earnings and are reported as a separate component of accumulated other comprehensive loss.

Premiums and discounts on investments are amortized over the life of the related available-for-sale security as an adjustment to yield using the effective‑interest method. Dividend and interest income are recognized when earned. Amortized premiums and discounts, dividend and interest income are included in interest income. Realized gains and losses are included in other income.

Other Comprehensive (Loss) Income

The Company’s other comprehensive (loss) income is comprised of unrealized gains and losses on available-for-sale securities and adjustments for foreign currency translation and is recorded and presented net of income tax. There was no income tax allocated to the foreign currency translation adjustment in Other Comprehensive (Loss) Income  for the period ended December 31, 2016. The cumulative foreign currency translation adjustment reported in Other Comprehensive (Loss) Income was $12.9 million for the period ended December 31, 2016. There was no foreign currency translation adjustment reported in Other Comprehensive (Loss) Income for the period ended December 31, 2015.

Inventory

Inventory is stated at the lower of cost or market value and includes amounts for Ampyra, Zanaflex tablet, Zanaflex Capsule and Qutenza inventories and is recorded at its net realizable value. The Company capitalizes inventory costs associated with the Company's products prior to regulatory approval when, based on management's judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. Cost is determined using the first-in, first-out method (FIFO) for all inventories. The Company establishes reserves as necessary for obsolescence and excess inventory.

Ampyra

The cost of Ampyra inventory manufactured by Alkermes plc (Alkermes) is based on agreed upon pricing with Alkermes. In the event Alkermes does not manufacture the products, Alkermes is entitled to a compensating payment for the quantities of product provided by Patheon, the Company’s alternative manufacturer. This compensating payment is included in the Company’s inventory balances.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which ranges from one to seven years. Leasehold improvements are recorded at cost, less accumulated amortization, which is computed on a straight-line basis over the shorter of the useful lives of the assets or the remaining lease term. Expenditures for maintenance and repairs are charged to expense as incurred.

Goodwill

Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a result of the Company’s business acquisitions accounted for using the acquisition method of accounting. Goodwill is not amortized and is subject to impairment testing on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill is impaired. See Note 4 for a discussion of goodwill.

Intangible Assets

The Company has finite lived intangible assets related to Selincro, Ampyra, and for certain website development costs. These intangible assets are amortized on a straight line basis over the period in which the Company expects to receive economic benefit and are reviewed for impairment when facts and circumstances indicate that the carrying value of the asset may not be recoverable. The determination of the expected life will be dependent upon the use and underlying characteristics of the intangible asset. In the Company’s evaluation of the intangible assets, it considers the term of the underlying asset life and the expected life of the related product line. If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds its estimated fair value. Fair value is generally estimated based on either appraised value or other valuation techniques. The Company also has indefinite lived intangible assets for the value of acquired in-process research and development related to CVT-301, tozadenant, SYN120 and BTT1023. The Company reviews the carrying value of indefinite lived intangible assets annually and whenever indicators of impairment are present. See also “In-Process Research and Development” and Note 4 for discussion on intangible assets.

Contingent Consideration

The Company may record contingent consideration as part of the cost of business acquisitions. Contingent consideration is recognized at fair value as of the date of acquisition and recorded as a liability on the consolidated balance sheet. The contingent consideration is re-valued on a quarterly basis using a probability weighted discounted cash-flow approach until fulfillment or expiration of the contingency. Changes in the fair value of the contingent consideration are recognized in the statement of operations. See Note 12 for discussion on the Alkermes ARCUS agreement.

Impairment of Long-Lived Assets

The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful lives of its long-lived assets may warrant revision or that the carrying value of the assets may be impaired. The Company evaluates the realizability of its long-lived assets based on profitability and cash flow expectations for the related assets. Any write‑downs are treated as permanent reductions in the carrying amount of the assets.

Patent Costs

Patent application and maintenance costs are expensed as incurred.

Research and Development

Research and development expenses include the costs associated with the Company’s internal research and development activities, including salaries and benefits, occupancy costs, and research and development conducted for it by third parties, such as contract research organizations (CROs), sponsored university-based research, clinical trials, contract manufacturing for its research and development programs, and regulatory expenses. In addition, research and development expenses include the cost of clinical trial drug supply shipped to the Company’s clinical study vendors. For those studies that the Company administers itself, the Company accounts for its clinical study costs by estimating the patient cost per visit in each clinical trial and recognizes this cost as visits occur, beginning when the patient enrolls in the trial. This estimated cost includes payments to the trial site and patient-related costs, including laboratory costs related to the conduct of the trial. Cost per patient varies based on the type of clinical trial, the site of the clinical trial, and the length of the treatment period for each patient. For those studies for which the Company uses a CRO, the Company accounts for its clinical study costs according to the terms of the CRO contract. These costs include upfront, milestone and monthly expenses as well as reimbursement for pass through costs. As actual costs become known to the Company, it adjusts the accrual; such changes in estimate may be a material change in its clinical study accrual, which could also materially affect its results of operations. All research and development costs are expensed as incurred except when accounting for nonrefundable advance payments for goods or services to be used in future research and development activities. These payments are capitalized at the time of payment and expensed ratably over the period the research and development activity is performed.

In-Process Research and Development

The cost of in-process research and development (IPR&D) acquired directly in a transaction other than a business combination is capitalized if the projects will be further developed or have an alternative future use; otherwise they are expensed. The fair values of IPR&D projects acquired in business combinations are capitalized. Several methods may be used to determine the estimated fair value of the IPR&D acquired in a business combination. The Company utilizes the "income method”, and uses estimated future net cash flows that are derived from projected sales revenues and estimated costs. These projections are based on factors such as relevant market size, patent protection, historical pricing and expected industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. IPR&D intangible assets that are determined to have had a drop in their fair value are adjusted downward and an expense is recognized in the statement of operations. These assets are tested at least annually or sooner when a triggering event occurs that could indicate a potential impairment.

Accounting for Income Taxes

The Company provides for income taxes in accordance with ASC Topic 740 (ASC 740). Income taxes are accounted for under the asset and liability method with deferred tax assets and liabilities recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance for the amounts of any tax benefits which, more likely than not, will not be realized.

In determining whether a tax position is recognized for financial statement purposes, a two-step process is utilized whereby the threshold for recognition is a more likely-than-not test that the tax position will be sustained upon examination and the tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

Revenue Recognition

Ampyra

Ampyra is available only through a network of specialty pharmacy providers that provide the medication to patients by mail; Kaiser Permanente, which distributes Ampyra to patients through a closed network of on-site pharmacies; and ASD Specialty Healthcare, Inc. (an AmerisourceBergen affiliate), which distributes Ampyra to the U.S. Bureau of Prisons, the U.S. Department of Defense, the U.S. Department of Veterans Affairs, or VA, and other federal agencies. Ampyra is not available in retail pharmacies. The Company does not recognize revenue from product sales until there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed and determinable, the buyer is obligated to pay the Company, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from the Company, the Company has no obligation to bring about the sale of the product, and the amount of returns can be reasonably estimated and collectability is reasonably assured. The Company recognizes product sales of Ampyra following shipment of product to a network of specialty pharmacy providers, Kaiser Permanente, and ASD Specialty Healthcare, Inc. The specialty pharmacy providers, Kaiser Permanente, and ASD Specialty Healthcare, Inc. are contractually obligated to hold no more than an agreed number of days of inventory, ranging from 10 to 30 days.

The Company’s net revenues represent total revenues less allowances for customer credits, including estimated discounts, rebates, and chargebacks. These allowances are recorded for cash consideration given by a vendor to a customer that is presumed to be a reduction of the selling prices of the vendor’s products or services and, therefore, are characterized as a reduction of revenue. At the time product is shipped to specialty pharmacies, Kaiser Permanente and ASD Specialty Healthcare, Inc., an adjustment is recorded for estimated discounts, rebates, and chargebacks. These allowances are established by management as its best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances. Allowances for discounts, rebates, and chargebacks are established based on the contractual terms with customers, historical trends, communications with customers and the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product and anticipated introduction of competitive products. Product shipping and handling costs are included in cost of sales. The Company does not accept returns of Ampyra with the exception of product damages that occur during shipping.

Zanaflex

The Company applies the revenue recognition guidance in Accounting Standards Codification (ASC) 605-15-25, which among other criteria requires that future returns can be reasonably estimated in order to recognize revenue. Prior to the three-month period ended September 30, 2015, the Company accounted for Zanaflex tablet and capsule (Zanaflex products) shipments using a deferred revenue recognition model (sell-through). Under the deferred revenue recognition model, the Company did not recognize revenue upon product shipment. For product shipments, the Company invoiced the wholesaler, recorded deferred revenue at gross invoice sales price, and classified the cost basis of the product held by the wholesaler as a separate component of inventory. The Company recognized revenue when prescribed to the end-user, on a first-in first-out (FIFO) basis. The Company’s revenue to be recognized was based on the estimated prescription demand, based on pharmacy sales for its products using third-party information, including third-party market research data. The Company’s sales and revenue recognition reflected the Company’s estimate of actual product prescribed to the end-user. Beginning in the third quarter of 2015, the Company is recognizing sales for Zanaflex products when the product is shipped to its wholesale distributors (sell-in), as the Company believes there is now sufficient history to reasonably estimate expected returns. For the three-month period ended September 30, 2015, the Company recognized a one-time increase in net revenue of $22.2 million, representing previously deferred product sales as of June 30, 2015, net of an allowance for estimated returns.

The Company’s net revenues represent total revenues less allowances for customer credits, including estimated discounts, rebates, chargebacks and returns.

Qutenza

Qutenza is distributed in the U.S. by Besse Medical, Inc., a specialty distributor that furnishes the medication to physician offices; and by ASD Specialty Healthcare, Inc., a specialty distributor that furnishes the medication to hospitals and clinics. The Company does not recognize revenue from product sales until there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed and determinable, the buyer is obligated to pay the Company, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from the Company, the Company has no obligation to bring about the sale of the product, and the amount of returns can be reasonably estimated and collectability is reasonably assured. This means that, for Qutenza, the Company recognizes product sales following shipment of product to its specialty distributors.

The Company’s net revenues represent total revenues less allowances for customer credits, including estimated rebates, chargebacks, and returns.

Milestones and royalties

In order to determine the revenue recognition for contingent milestones, the Company evaluates the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards (FASB) guidance on the milestone method of revenue recognition. At the inception of a collaboration agreement the Company evaluates if payments are substantive. The criteria requires that (i) the Company determines if the milestone is commensurate with either its performance to achieve the milestone or the enhancement of value resulting from the Company’s activities to achieve the milestone, (ii) the milestone be related to past performance, and (iii) the milestone be reasonably relative to all deliverable and payment terms of the collaboration arrangement. If these criteria are met then the contingent milestones can be considered as substantive milestones and will be recognized as revenue in the period that the milestone is achieved. Royalties are recognized as earned in accordance with the terms of various research and collaboration agreements.

Collaborations

The Company recognizes collaboration revenues and expenses by analyzing each element of the agreement to determine if it shall be accounted for as a separate element or single unit of accounting. If an element shall be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for that element are applied to determine when revenue shall be recognized. If an element shall not be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for the bundled group of elements are applied to determine when revenue shall be recognized. Payments received in excess of revenues recognized are recorded as deferred revenue until such time as the revenue recognition criteria have been met.

Concentration of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments in cash, cash equivalents, restricted cash, short-term investments and accounts receivable. The Company maintains cash, cash equivalents, restricted cash and short-term investments with approved financial institutions. The Company is exposed to credit risks and liquidity in the event of default by the financial institutions or issuers of investments in excess of FDIC insured limits. The Company performs periodic evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any institution.

The Company does not own or operate, and currently does not plan to own or operate, facilities for production and packaging of Ampyra or its other commercial products, Zanaflex Capsules, Zanaflex tablets or Qutenza. It relies and expects to continue to rely on third parties for the production and packaging of its commercial products and clinical trial materials for all of its products except CVT-301. The Company leases a manufacturing facility in Chelsea, Massachusetts which produces CVT-301 for clinical trials and eventually will produce commercial supply, if approved.

The Company relies primarily on Alkermes for its supply of Ampyra. Under its supply agreement with Alkermes, the Company is obligated to purchase at least 75% of its yearly supply of Ampyra from Alkermes, and it is required to make compensatory payments if it does not purchase 100% of its requirements from Alkermes, subject to certain specified exceptions. The Company and Alkermes have agreed that the Company may purchase up to 25% of its annual requirements from Patheon, a mutually agreed-upon second manufacturing source, with compensatory payment. The Company and Alkermes also rely on a single third-party manufacturer, Regis, to supply dalfampridine, the active pharmaceutical ingredient, or API, in Ampyra. If Regis experiences any disruption in their operations, a delay or interruption in the supply of Ampyra product could result until Regis cures the problem or it locates an alternate source of supply.

The Company’s principal direct customers as of December 31, 2016 were a network of specialty pharmacies, Kaiser Permanente, and ASD Specialty Healthcare, Inc. for Ampyra, wholesale pharmaceutical distributors for Zanaflex Capsules and Zanaflex tablets, and two specialty distributors for Qutenza. The Company periodically assesses the financial strength of these customers and establishes allowances for anticipated losses, if necessary. Three customers individually accounted for more than 10% of the Company’s revenue in 2016 and 2015 and four customers individually accounted for more than 10% of the Company’s revenue in 2014. Three customers individually accounted for more than 10% of the Company’s accounts receivable as of December 31, 2016 and 2015, respectively. The Company’s net product revenues are generated in the U.S.

Allowance for Cash Discounts

An allowance for cash discounts is accrued based on historical usage rates at the time of product shipment. The Company adjusts accruals based on actual activity as necessary. Cash discounts are typically settled with customers within 30 days after the end of each calendar month. The Company had cash discount allowances of $5.7 million and $5.1 million for the years ended December 31, 2016 and 2015, respectively. The Company’s accruals for cash discount allowances were $0.6 million and $0.5 million as of December 31, 2016 and 2015, respectively.

Allowance for Doubtful Accounts

A portion of the Company’s accounts receivable may not be collected due principally to customer disputes. The Company provides reserves for these situations based on the evaluation of the aging of its trade receivable portfolio and an analysis of high-risk customers. The Company has not historically experienced material losses related to credit risk. The Company has recognized an allowance related to one customer of approximately $0.4 million as of December 31, 2016 and December 31, 2015. For the year ended December 31, 2016 and 2015, the Company recorded no provision and did not record any write-offs.

Contingencies

The Company accrues for amounts related to legal matters if it is probable that a liability has been incurred and the amount is reasonably estimable. Litigation expenses are expensed as incurred.

Fair Value of Financial Instruments

The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Significant differences can arise between the fair value and carrying amounts of financial instruments that are recognized at historical cost amounts. The Company considers that fair value should be based on the assumptions market participants would use when pricing the asset or liability.

The following methods are used to estimate the fair value of the Company’s financial instruments:

 

(a)

Cash equivalents, grants receivable, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments;

 

(b)

Available-for-sale securities are recorded based primarily on quoted market prices;

 

(c)

Acquired contingent consideration related to the Civitas acquisition is measured at fair value using a probability weighted, discounted cash flow approach;

 

(d)

Convertible Senior Notes were measured at fair value based on market quoted prices of debt securities with similar terms and maturities using other observable inputs; and

 

(e)

Capital and R&D loans were measured at fair value based on a discounted cash flow approach.

Earnings per Share

Basic net income (loss) per share and diluted net income per share is based upon the weighted average number of common shares outstanding during the period. Diluted net income per share is based upon the weighted average number of common shares outstanding during the period plus the effect of additional weighted average common equivalent shares outstanding during the period when the effect of adding such shares is dilutive. Common equivalent shares result from the assumed exercise of outstanding stock options (the proceeds of which are then assumed to have been used to repurchase outstanding stock using the treasury stock method), the vesting of restricted stock and the potential dilutive effects of the conversion option on the Company’s convertible debt. In addition, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of stock options that are in-the-money. This results in the “assumed” buyback of additional shares, thereby reducing the dilutive impact of stock options. See Note 14 for discussion on earnings (loss) per share.

Share‑based Compensation

The Company has various share‑based employee and non-employee compensation plans, which are described more fully in Note 7.

The Company accounts for stock options and restricted stock granted to employees and non-employees by recognizing the costs resulting from all share-based payment transactions in the consolidated financial statements at their fair values. The Company estimates the fair value of each option on the date of grant using the Black‑Scholes closed-form option‑pricing model based on assumptions of expected volatility of its common stock, prevailing interest rates, an estimated forfeiture rate, and the expected term of the stock options, and the Company recognizes that cost as an expense ratably over the associated employee service period.

Foreign Currency Translation

The functional currency of operations outside the United States of America is deemed to be the currency of the local country, unless otherwise determined that the United States dollar would serve as a more appropriate functional currency given the economic operations of the entity. Accordingly, the assets and liabilities of the Company’s foreign subsidiary, Biotie, are translated into United States dollars using the period-end exchange rate; and income and expense items are translated using the average exchange rate during the period; and equity transactions are translated at historical rates. Cumulative translation adjustments are reflected as a separate component of equity. Foreign currency transaction gains and losses are charged to operations.

Segment and Geographic Information

The Company is managed and operated as one business which is focused on developing therapies that restore function and improve the lives of people with neurological disorders. The entire business is managed by a single management team that reports to the Chief Executive Officer. The Company does not operate separate lines of business with respect to any of its products or product candidates and the Company does not prepare discrete financial information to allocate resources to separate products or product candidates or by location. Accordingly, the Company views its business as one reportable operating segment. Net product revenues reported to date are derived from the sales of Ampyra, Zanaflex and Qutenza in the U.S.

Accumulated Other Comprehensive (Loss)

Unrealized gains (losses) from the Company’s investment securities and adjustments for foreign currency translation are included in accumulated other comprehensive loss within the consolidated balance sheet.

Recent Accounting Pronouncements - Adopted

In August 2014, the FASB issued Accounting Standards Update 2014-15, “Presentation of Financial Statements-Going Concern” (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), which defines management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is effective for annual reporting periods ending after December 15, 2016 with early adoption permitted. The Company adopted this guidance effective December 31, 2016. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update 2015-03, “Interest – Imputation of Interest” (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. ASU-2015-03 is effective for fiscal years and interim periods therein beginning after December 15, 2015, with early adoption permitted. The Company adopted this guidance retrospectively effective in the three-month period ended March 31, 2016. The impact of the adoption of this guidance on the Company’s consolidated balance sheet as of December 31, 2015 was a reclassification of approximately $5.0 million representing the unamortized balance of debt issuance costs as of December 31, 2015 from Other Assets to the Convertible Senior Notes liability.

 

(In thousands)

 

Balance at December 31, 2015

 

 

 

Revised Reporting

 

 

As Previously Reported

 

Other assets

 

$

247

 

 

$

5,296

 

Convertible notes payable – due 2021

 

$

(290,420

)

 

$

(295,469

)

 

On June 12, 2015, the FASB issued Accounting Standards Update 2015-10, “Technical Corrections and Improvements”. With regard to fair value measurement disclosures, ASU 2015-10 clarified that, for nonrecurring measurements estimated at a date during the reporting period other than the end of the reporting period, an entity should clearly indicate that the fair value information presented is not as of the period’s end as well as the date or period that the measurement was taken. This change was effective immediately upon issuance of ASU 2015-10. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements or related disclosures.

In September 2015, the FASB issued Accounting Standards update 2015-16, “Business Combinations” (Topic 805):  Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16), which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition the acquirer is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is effective for fiscal years and interim periods therein beginning after December 15, 2015 with early adoption permitted, and requires prospective application. The Company adopted this guidance effective December 31, 2015. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued Accounting Standards updated 2015-17, “Income Taxes” (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets and associated valuation allowances be classified as noncurrent on the balance sheet instead of distinguishing between current and noncurrent. This guidance is effective for fiscal years and interim periods therein beginning after December 15, 2016, and may be applied prospectively or retrospectively with early adoption permitted. The Company early adopted this guidance effective with its fiscal year ending December 31, 2015 and elected to apply this guidance retrospectively. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements or related disclosures.

In December 2016, the FASB issued Accounting Standards Update 2016-19, “Technical Corrections and Improvements”. With regard to fair value measurement disclosures, ASU 2016-19 clarifies the difference between a valuation approach and a valuation technique and also requires disclosure about when there has been a change in either or both a valuation approach and/or a valuation technique. This change was effective immediately upon issuance of ASU 2016-09. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements or related disclosures.

Recent Accounting Pronouncements – Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (Topic 606) (ASU 2014-09). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. In July 2015, the FASB deferred the effective date of the new revenue standard for interim and annual periods beginning after December 15, 2017 (previously December 15, 2016). The Company expects to adopt this guidance when effective. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. The Company is evaluating the transition method that will be elected and the potential effects of adopting the provisions of ASU No. 2014-09.

The new guidance requires the application of a five-step model to determine the amount and timing of revenue to be recognized. The underlying principle is that revenue is to be recognized for the transfer of goods or services to customers that reflects the amount of consideration that the Company expects to be entitled to in exchange for those goods or services.

The Company is continuing to assess the impact of the new guidance on its accounting policies and procedures and is evaluating the new requirements as applied to existing revenue contracts. Although the Company is continuing to assess the impact of the new guidance, the Company believes the most significant impact will relate to the recognition of license revenues associated with its Biogen contract at a point in time rather than over a period of time. The Company is reviewing its revenue contracts and working on its plan for implementation of the new guidance which it expects to adopt beginning in the first quarter of 2018.

In July 2015, the FASB issued Accounting Standards Update 2015-11, “Inventory” (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11), which requires the measurement of inventory at the lower of cost and net realizable value. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods therein with early adoption permitted. The Company expects to adopt this guidance when effective and adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued Accounting Standards Update 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”  The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating whether it will adopt this guidance early and whether it may have an impact on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases” (Topic 842). The main objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating whether it will adopt this guidance early and the impact it may have on its consolidated financial statements is not currently estimable.

In March 2016, the FASB issued Accounting Standards Update 2016-06, “Derivatives and Hedging” (Topic 815): Contingent Put and Call Options in Derivative Contracts (ASU 2016-06), which clarifies the requirements for assessing whether contingent options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This ASU is effective for fiscal years beginning after December 15, 2016 and interim periods therein, with early adoption permitted. The Company is currently evaluating whether it will adopt this guidance early and the impact it may have on its financial statements.

In March 2016, the FASB issued Accounting Standards Update 2016-09, “Compensation – Stock Compensation” (Topic 718). The main objective of this update is to simplify the accounting, and reporting classifications for certain aspects of share-based payment transactions. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company expects to adopt this guidance when effective and the impact it will have on its consolidated financial statements is not currently estimable.

In August 2016, the FASB issued Accounting Standards Update ASU 2016-15 “Statement of Cash Flows” (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which specifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU requires retrospective application to all periods presented and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

In November 2016, the FASB issued Accounting Standards Update ASU 2016-18 “Statement of Cash Flows” (Topic 230), Restricted Cash (ASU 2016-18), which defines new requirements for the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The amendments in this ASU require retrospective application to each period presented and are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating whether it will adopt this guidance early and the impact it may have on its consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update 2017-01, “Business Combinations” (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which provides additional clarification to aid in determining when a set of assets and activities is not a business. The amendments in this update require prospective applications and are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating whether it will adopt this guidance early and the impact it may have on its consolidated financial statements.

Subsequent Events

Subsequent events are defined as those events or transactions that occur after the balance sheet date, but before the financial statements are filed with the Securities and Exchange Commission. The Company completed an evaluation of the impact of any subsequent events through the date these financial statements were issued, and determined the following subsequent events required disclosure in our financial statements.

On February 8, 2017, we entered into a settlement agreement with Apotex Inc. and its subsidiary Apotex Corporation (collectively “Apotex”) to resolve the patent litigation that we brought against them in the U.S. District Court for the District of Delaware, described above. As a result of the settlement agreement, Apotex will be permitted to market a generic version of Ampyra in the U.S. at a specified date in 2025, or potentially earlier under certain circumstances. The parties will request that the Court enter a Consent Order, in which it will dismiss our litigation against Apotex referred to above. The parties will submit the agreement to the Federal Trade Commission and the Department of Justice, as required by federal law. The settlement with Apotex does not resolve pending patent litigation that we brought against other ANDA filers, as described in this report. The settlement is reflected in our results of operations for the period ending December 31, 2016.

 

Acquisitions
Acquisitions

(3) Acquisitions

Biotie Therapies Corp.

On April 18, 2016, the Company acquired a controlling interest in Biotie Therapies Corp. (“Biotie”) pursuant to a combination agreement entered into in January 2016. The acquisition of Biotie positions the Company as a leader in Parkinson’s disease therapeutic development, with three clinical-stage compounds that have the potential to improve the lives of people with Parkinson’s disease. In accordance with the combination agreement, the Company closed a public tender offer for all of Biotie’s capital stock, pursuant to which the Company acquired approximately 93% of the fully diluted capital stock of Biotie for a cash purchase price of approximately $350 million. On May 4, 2016, the Company acquired an additional approximately 4% of Biotie’s fully diluted capital stock pursuant to a subsequent public offer to Biotie stockholders that did not tender their shares in the initial tender offer. The purchase consideration for the subsequent tender offer was approximately $14.5 million. The acquisition of the additional 4% of Biotie’s fully diluted capital stock resulted in the Company owning approximately 97% of the fully diluted capital stock of Biotie (the “Acquisition”) as of June 30, 2016.

On September 30, 2016, the Company acquired the remaining approximately 3% of Biotie’s fully diluted capital stock in exchange for the payment of a cash security deposit of approximately $13.5 million, as determined by the arbitral tribunal administering the redemption proceedings. Accordingly, the Company owned 100% of the fully diluted capital stock of Biotie as of September 30, 2016.

The Company estimated the preliminary fair value of the assets acquired and liabilities assumed as of the date of acquisition based on the information available at that time. The Company recorded measurement-period adjustments to its preliminary purchase price allocation to increase current liabilities and to decrease other current assets and other long-term liabilities from the acquisition date through December 31, 2016. The total net impact of these adjustments was an increase to goodwill of $1.2 million, which reduced current assets and long-term liabilities and increased current liabilities and the deferred tax liability with a corresponding decrease to goodwill. These changes had an immaterial effect on any related amortizations for the period April 18, 2016 through December 31, 2016. The valuation of the assets and liabilities is subject to further analysis however, the Company believes that finalization of the valuation of the long-term debt and accounting for deferred taxes are the key remaining outstanding items. As the Company finalizes the fair values of the assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period and such adjustments could be material. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized.

The following table presents the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date of April 18, 2016, as adjusted through the period ended December 31, 2016:

 

(In thousands)

 

Preliminary

Allocation as of the

acquisition date

 

 

Measurement

Period

Adjustments

 

 

Preliminary Allocation, as adjusted through

December 31, 2016

 

Cash and cash equivalents

 

$

73,854

 

 

$

 

 

$

73,854

 

Other current assets

 

 

2,208

 

 

 

(330

)

 

 

1,878

 

Other long-term assets

 

 

4,962

 

 

 

 

 

 

4,962

 

Intangible assets (indefinite-lived)

 

 

260,500

 

 

 

 

 

 

260,500

 

Intangible assets (definite-lived)

 

 

65,000

 

 

 

 

 

 

65,000

 

Current liabilities

 

 

(17,547

)

 

 

(1,025

)

 

 

(18,572

)

Deferred taxes

 

 

(89,038

)

 

 

(870

)

 

 

(89,908

)

Other long-term liabilities

 

 

(26,715

)

 

 

1,025

 

 

 

(25,690

)

Fair value of assets and liabilities acquired

 

 

273,224

 

 

 

(1,200

)

 

 

272,024

 

Goodwill

 

 

102,676

 

 

 

1,200

 

 

 

103,876

 

Total purchase price

 

 

375,900

 

 

 

 

 

 

375,900

 

Less: Noncontrolling interests

 

 

(25,736

)

 

 

 

 

 

(25,736

)

Purchase consideration on date of acquisition

 

$

350,164

 

 

$

 

 

$

350,164

 

 

The Company accounted for the Acquisition as a business combination using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the date of acquisition. The Company incurred approximately $18.1 million in acquisition related expenses to date. For the year ended December 31, 2016, the Company incurred approximately $17.6 million in acquisition related expenses, which were included in selling, general and administrative expenses in the consolidated statement of operations. The results of Biotie’s operations have been included in the consolidated statements of operations from the acquisition date of April 18, 2016.

The definite-lived intangible asset will be amortized on a straight line basis over the period in which the Company expects to receive economic benefit and will be reviewed for impairment when facts and circumstances indicate that the carrying value of the asset may not be recoverable.

The fair value of the IPR&D will be capitalized as of the acquisition date and subsequently accounted for as indefinite-lived intangible assets until disposition of the assets or completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the completion of the acquisition, these assets will not be amortized into earnings; rather, these assets will be subject to periodic impairment testing. Upon successful completion of the development efforts, the useful lives of the IPR&D assets will be determined and the assets will be considered definite-lived intangible assets and amortized over their expected useful lives.

Goodwill is calculated as the excess of the purchase price and the noncontrolling interest over the estimated fair value of the assets acquired and liabilities assumed. The goodwill recorded is primarily related to establishing a deferred tax liability for the IPR&D intangible assets, which have no tax basis and, therefore, will not result in a future tax deduction. None of the goodwill is deductible for tax purposes.

The revenue of Biotie included in the consolidated statements of operations for the period April 18, 2016 through December 31, 2016 was $2.7 million. The net loss of Biotie included in the consolidated statement of operations for the period April 18, 2016 through December 31, 2016 was $37.5 million.

Noncontrolling Interests

The fair value of the noncontrolling interest comprised the fair value of Biotie’s equity interests not acquired by the Company. The fair value of the noncontrolling interest was determined by quoted market price, which is considered to be a Level 1 input under the fair value measurements and disclosure guidance. The noncontrolling interest in Biotie was presented as permanent equity in the Company’s consolidated balance sheet. Noncontrolling interests are generally adjusted for the net income or loss and other comprehensive income or loss attributable to the noncontrolling shareholders and any additional acquisition of noncontrolling interests. On May 4, 2016, the Company acquired an additional approximately 4% of Biotie’s fully diluted capital stock. On September 30, 2016, the Company acquired shares representing the remaining approximately 3% of Biotie’s fully diluted capital stock, which eliminated the noncontrolling interest as of September 30, 2016.

Financial Instruments

The Company does not enter into hedging transactions in the normal course of business. However, as a result of the Biotie acquisition which was completed in Euros, the Company was exposed to fluctuations in exchange rates between the U.S. dollar and the Euro until the completion of the transaction. To mitigate this risk, the Company entered into foreign currency options to limit its exposure to fluctuations in exchange rates between the U.S. dollar and the Euro until the transaction was completed. The foreign currency options were settled as of May 2, 2016. There were no foreign currency options outstanding as of December 31, 2016.

The Company had a realized gain on the foreign currency options of approximately $9.9 million, which is included in other income in the consolidated statements of operations for the year ended December 31, 2016.

Pro-Forma Financial Information Associated with the Biotie Acquisition (Unaudited)

The following table summarizes certain supplemental pro forma financial information for the years ended December 31, 2016 and 2015 as if the acquisition of Biotie had occurred as of January 1, 2015. The unaudited pro forma financial information for the year ended December 31, 2016 reflects (i) the net impact to amortization expense based on the fair value adjustments to the intangible assets acquired from Biotie; (ii) the impact to operations resulting from the reversal of transaction costs related to the Acquisition; (iii) the impact to operations resulting from the reversal of the unrealized and realized gains on the foreign currency option; (iv) the impact to interest expense based on the fair value adjustments to the debt acquired from Biotie; (v) the tax effects of those adjustments; and (vi) the net loss attributable to the noncontrolling interests resulting from the acquisition.

The unaudited pro forma financial information for the year ended December 31, 2015 reflects (i) the net impact to amortization expense based on the fair value adjustments to the intangible assets acquired from Biotie; (ii) the impact to interest expense based on the fair value adjustments to the debt acquired from Biotie; (iii) the net loss attributable to the noncontrolling interests resulting from the acquisition; and (iv) the related tax effects of those adjustments. The unaudited pro forma financial information was prepared for comparative purposes only and is not necessarily indicative of what would have occurred had the acquisitions been made at those times or of results which may occur in the future

 

 

 

Year ended

 

 

Year ended

 

 

 

December 31, 2016

 

 

December 31, 2015

 

(In thousands)

 

Reported

 

 

Pro Forma

 

 

Reported

 

 

Pro Forma

 

Net revenues

 

$

519,601

 

 

$

520,658

 

 

$

492,660

 

 

$

496,688

 

Net (loss) income from continuing operations

   attributable to Acorda

 

$

(34,618

)

 

$

(57,925

)

 

$

11,058

 

 

$

(28,684

)

 

Intangible Assets and Goodwill
Intangible Assets and Goodwill

(4) Intangible Assets and Goodwill

Intangible Assets

Tozadenant, SYN120, BTT1023 and Selincro IPR&D

In connection with the acquisition of Biotie (Note 3), the Company acquired global rights to tozadenant, SYN120, and BTT1023. Tozadenant is an oral adenosine A2a receptor antagonist currently in Phase 3 development as an adjunctive treatment to levodopa in Parkinson’s disease patients to reduce OFF periods. SYN120 is an oral, dual antagonist with the potential to facilitate pro-cognitive and antipsychotic activities for patients with neurodegenerative diseases, such as Parkinson’s disease and Alzheimer’s disease. BTT1023 is a fully human monoclonal antibody that targets vascular adhesion for the potential treatment of inflammatory/fibrotic disease, such as rheumatoid arthritis and psoriasis. The Company also acquired rights to Selincro, an orally administered drug used for the treatment of alcohol dependence. Selincro received European Medicines Agency approval in 2013 and is currently marketed across Europe by Biotie’s partner H. Lundbeck A/S, a Danish pharmaceutical company.

In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the transaction to the underlying assets acquired and liabilities assumed, based upon the estimated fair values of those assets and liabilities at the date of acquisition. The Company classified the fair value of the acquired IPR&D as indefinite lived intangible assets until the successful completion or abandonment of the associated research and development efforts. The Company classified the fair value of Selincro as a definite lived intangible asset. The value allocated to Selincro was $65 million, which will be amortized over the estimated remaining useful life of approximately 6 years. The value allocated to the indefinite lived intangible assets was $260.5 million.

CVT-301 and ARCUS Technology IPR&D

In connection with the acquisition of Civitas in October 2014, the Company acquired global rights to CVT-301, a Phase 3 treatment candidate for OFF periods of Parkinson’s disease. The acquisition of Civitas also included rights to Civitas’s proprietary ARCUS drug delivery technology, which the Company believes has potential applications in multiple disease areas. CVT-301 is a self-administered, inhaled formulation of levodopa, or L-dopa, for the treatment of OFF periods in Parkinson’s disease.

In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the transaction to the underlying assets acquired and liabilities assumed by the Company, based upon the estimated fair values of those assets and liabilities at the date of acquisition and classified the fair value of the acquired IPR&D as an indefinite-lived intangible asset until the successful completion or abandonment of the associated research and development efforts. The value allocated to the indefinite lived intangible asset was $423 million.

Ampyra

In January 2010, the Company received marketing approval from the FDA for Ampyra triggering two milestone payments of $2.5 million to Alkermes and $0.8 million to Rush-Presbyterian St. Luke’s Medical Center (Rush) and an additional $2.5 million payable to Alkermes two years from date of approval. The Company made the milestone payments totaling $5.75 million, which were recorded as intangible assets in the consolidated financial statements.

The Company had a License Agreement with the Canadian Spinal Research Organization (CSRO) that granted the Company an exclusive and worldwide license under certain patent assets and know-how of CSRO. The agreement required the Company to pay royalties to CSRO based on a percentage of net sales of any product incorporating the licensed rights, including royalties on the sale of Ampyra and on the sale of dalfampridine for any other indication. During 2010, the Company purchased CSRO’s rights to all royalty payments under the agreement for $3.0 million. This payment was recorded as an intangible asset in the consolidated financial statements.

Websites

Intangible assets also include certain website development costs which have been capitalized. The Company has developed several websites, each with its own purpose, including the general corporate website, product information websites and various other websites.

The Company continually evaluates whether events or circumstances have occurred that indicate that the carrying value of the intangible assets may be impaired or that the estimated remaining useful lives of these assets may warrant revision. As of December 31, 2016, the Company determined that the intangible assets were not impaired and that there are no facts or circumstances that would indicate a need for changing the estimated remaining useful lives of these assets.

Intangible assets consisted of the following:

 

 

 

 

 

 

 

December 31, 2016

 

 

December 31, 2015

 

(Dollars In thousands)

 

Estimated

Remaining

Useful Lives

(Years)

 

 

Cost

 

 

Accumulated

Amortization

 

 

Foreign

Currency

Translation

 

 

Net

Carrying

Amount

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

In-process research &

   development (1)

 

Indefinite-lived

 

 

$

683,500

 

 

$

 

 

$

(1,794

)

 

$

681,706

 

 

$

423,000

 

 

$

 

 

$

423,000

 

Selincro

 

 

6

 

 

 

65,000

 

 

 

(6,445

)

 

 

(4,061

)

 

 

54,494

 

 

 

 

 

 

 

 

 

 

Ampyra milestones

 

 

10

 

 

 

5,750

 

 

 

(2,677

)

 

 

 

 

 

3,073

 

 

 

5,750

 

 

 

(2,380

)

 

 

3,370

 

Ampyra CSRO royalty

   buyout

 

 

3

 

 

 

3,000

 

 

 

(2,108

)

 

 

 

 

 

892

 

 

 

3,000

 

 

 

(1,817

)

 

 

1,183

 

Website development

   costs

 

 

3

 

 

 

13,459

 

 

 

(11,485

)

 

 

 

 

 

1,974

 

 

 

12,504

 

 

 

(9,467

)

 

 

3,037

 

Website development

   costs–in process

 

n/a

 

 

 

103

 

 

 

 

 

 

 

 

 

103

 

 

 

266

 

 

 

 

 

 

266

 

 

 

 

 

 

 

$

770,812

 

 

$

(22,715

)

 

$

(5,855

)

 

$

742,242

 

 

$

444,520

 

 

$

(13,664

)

 

$

430,856

 

 

(1)

Includes the fair values of:  CVT-301: $423.0 million; tozadenant: $232.0 million; SYN120: $24.2 million and BTT-1023: $4.3 million

The Company recorded $9.1 million and $3.1 million in amortization expense related to these intangible assets for the years ended December 31, 2016 and 2015, respectively.

Estimated future amortization expense for intangible assets subsequent to December 31, 2016 is as follows:

 

(In thousands)

 

 

 

 

2017

 

$

11,119

 

2018

 

 

10,423

 

2019

 

 

10,055

 

2020

 

 

9,602

 

2021

 

 

9,583

 

Thereafter

 

 

13,712

 

 

 

$

64,494

 

 

Goodwill

The following table presents the goodwill balances at December 31, 2016 and 2015 and the associated changes in goodwill through December 31, 2016.

 

(In thousands)

 

 

 

 

Balance at December 31, 2015

 

$

183,636

 

Goodwill associated with the acquisition of Biotie Therapies Corp.

 

 

102,676

 

Increase to goodwill due to measurement period adjustments

 

 

1,200

 

Foreign currency translation adjustment

 

 

(6,913

)

Balance at December 31, 2016

 

$

280,599

 

 

Investments
Investments

(5) Investments

The Company has determined that all of its investments were classified as available-for-sale. Available-for-sale securities are carried at fair value with interest on these securities included in interest income and are recorded based primarily on quoted market prices. Available-for-sale securities consisted of the following:

 

(In thousands)

 

Amortized

Cost

 

 

Gross

unrealized

gains

 

 

Gross

unrealized

losses

 

 

Estimated

fair

value

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury bonds

 

$

 

 

$

 

 

$

 

 

$

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US Treasury bonds

 

$

200,244

 

 

$

 

 

$

(143

)

 

$

200,101

 

 

The Company held no available-for-sale securities as of December 31, 2016. These securities were sold during 2016 to effect the Biotie acquisition. The Company had a realized gain on the sale of these investments of $0.03 million, which is reflected in earnings for the year ended December 31, 2016. The Company’s available-for-sale securities were classified as short-term investments and consisted of U.S. Treasury bonds as of December 31, 2015. 

Short-term investments with maturities of three months or less from date of purchase have been classified as cash and cash equivalents, and amounted to $18.5 million and $83.5 million as of December 31, 2016 and 2015, respectively. Short-term investments have original maturities of greater than 3 months but less than 1 year and long-term investments are greater than 1 year. There were no investments classified as long-term at December 31, 2016 and 2015.

The Company holds available-for-sale investment securities which are reported at fair value on the Company’s balance sheet. Unrealized holding gains and losses are reported within accumulated other comprehensive (loss) income (AOCI) in the statements of comprehensive income. The changes in AOCI associated with the net unrealized holding losses on  available-for-sale investments during the years ended December 31, 2016 and 2015 were as follows (in thousands):

 

(In thousands)

 

Net Unrealized

Gains (Losses) on

Marketable

Securities

 

Balance at December 31, 2014

 

$

(74

)

Other comprehensive loss before reclassifications:

 

 

(45

)

Amounts reclassified from accumulated other

   comprehensive loss

 

 

 

Net current period other comprehensive loss

 

 

(119

)

Balance at December 31, 2015

 

 

(119

)

Other comprehensive loss before reclassifications:

 

 

 

 

Amounts reclassified from accumulated other

   comprehensive loss

 

 

119

 

Net current period other comprehensive income

 

 

119

 

Balance at December 31, 2016

 

$

 

 

Property and Equipment
Property and Equipment

(6) Property and Equipment

Property and equipment consisted of the following:

 

(In thousands)

 

December 31,

2016

 

 

December 31,

2015

 

 

Estimated

useful lives used

Machinery and equipment

 

$

21,964

 

 

$

21,026

 

 

2-7 years

Leasehold improvements

 

 

19,406

 

 

 

19,135

 

 

Lesser of useful life or

remaining lease term

Computer equipment

 

 

18,700

 

 

 

15,776

 

 

1-3 years

Laboratory equipment

 

 

7,522

 

 

 

6,514

 

 

2-5 years

Furniture and fixtures

 

 

2,890

 

 

 

2,064

 

 

4-7 years

Capital in progress

 

 

3,629

 

 

 

1,318

 

 

 

 

 

 

74,111

 

 

 

65,833

 

 

 

Less accumulated depreciation

 

 

(39,801

)

 

 

(25,629

)

 

 

 

 

$

34,310

 

 

$

40,204

 

 

 

 

Depreciation and amortization expense on property and equipment was $12.3 million and $11.9 million for the years ended December 31, 2016 and 2015, respectively.

Common Stock Options and Restricted Stock
Common Stock Options and Restricted Stock

(7) Common Stock Options and Restricted Stock

On June 18, 1999, the Company’s board of directors approved the adoption of the Acorda Therapeutics, Inc. 1999 Employee Stock Option Plan (the 1999 Plan). All employees of the Company were eligible to participate in the 1999 Plan, including executive officers, as well as directors, independent contractors, and agents of the Company. The number of shares authorized for issuance under the 1999 Plan was 2,481,334. As of December 31, 2016, the Company had granted an aggregate of 2,384,345 shares as restricted stock of stock options under the 1999 Plan, of which there were no remaining shares subject to outstanding options.

On January 12, 2006, the Company’s board of directors approved the adoption of the Acorda Therapeutics, Inc. 2006 Employee Incentive Plan (the 2006 Plan). The 2006 Plan served as the successor to the Company’s 1999 Plan, as amended, and no further option grants or stock issuances were to be made under the 1999 Plan after the effective date, as determined under Section 14 of the 2006 Plan. All employees of the Company were eligible to participate in the 2006 Plan, including executive officers, as well as directors, independent contractors, and agents of the Company. The 2006 Plan also covered the issuance of restricted stock.

The 2006 Plan was administered by the Compensation Committee of the Board of Directors, which selected the individuals to be granted options and restricted stock, determined the time or times at which options and restricted stock were to be granted, determined the number of shares to be granted subject to any option or restricted stock and the duration of each option and restricted stock, and made any other determinations necessary, advisable, and/or appropriate to administer the 2006 Plan. Under the 2006 Plan, each option granted expires no later than the tenth anniversary of the date of its grant. The number of shares of common stock authorized for issuance under the 2006 Plan as of December 31, 2016 was 14,912,048 shares. The total number of shares of common stock available for issuance under the 2006 Plan, including shares of common stock subject to the then outstanding awards, automatically increased on January 1 of each year during the term of the 2006 Plan, beginning 2007, by a number of shares of common stock equal to 4% of the outstanding shares of common stock on that date, unless otherwise determined by the Board of Directors. The Board approved the automatic increases of 4% for 2015, 2014, and 2013. As of December 31, 2016, the Company had granted an aggregate of 12,620,331 shares as restricted stock or subject to issuance upon exercise of stock options under the 2006 Plan, of which 7,150,883 shares remained subject to outstanding options.

On June 9, 2015, the Company’s stockholders approved the adoption of the Acorda Therapeutics, Inc. 2015 Omnibus Incentive Compensation Plan (the 2015 Plan). The 2015 Plan serves as the successor to the Company’s 2006 Plan, as amended, and no further option grants or stock issuances will be made under the 2006 Plan after the effective date, as determined under Section 1 of the 2015 Plan. All employees of the Company are eligible to participate in the 2015 Plan, including executive officers, as well as directors, consultants, advisors and other service providers of the Company or any of its subsidiaries. The 2015 Plan also covers the issuance of restricted stock.

The 2015 Plan is administered by the Compensation Committee of the Board of Directors, which selects the individuals to be granted options and restricted stock, determines the time or times at which options and restricted stock are to be granted, determines the number of shares to be granted subject to any option or restricted stock and the duration of each option and restricted stock, and makes any other determinations necessary, advisable, and/or appropriate to administer the 2015 Plan. Under the 2015 Plan, each option granted expires no later than the tenth anniversary of the date of its grant. Since inception, the number of shares of common stock authorized for issuance under the 2015 Plan as of December 31, 2016 is 5,100,000 shares. Upon the exercise of options in the future, the Company intends to issue new shares. As of December 31, 2016, the Company had granted an aggregate of 2,392,521 shares either as restricted stock or shares subject to issuance upon the exercise of stock options under the 2015 Plan, of which 4,818,858 shares remained subject to outstanding options.

 

On April 14, 2016 the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved the Acorda Therapeutics, Inc. 2016 Inducement Plan (the “2016 Plan”) to provide equity compensation to certain individuals or directors of the Company (or its subsidiaries) in order to induce such individuals to enter into employment with the Company or its subsidiaries. These equity awards were issued to individuals employed by Biotie Therapies Corp. and its subsidiary Biotie Therapies, Inc. (collectively, “Biotie”) in connection with our acquisition of Biotie. The number of shares of common stock authorized for issuance under the 2016 Plan is 366,950 shares. As of December 31, 2016, the Company had granted an aggregate of 331,950 shares either as restricted stock or shares subject to issuance upon the exercise of stock options under the 2016 Plan, of which 234,750 shares remained subject to outstanding options. Our Board of Directors could but has not as of the date, authorized the issuance of any additional equity awards under this Plan.

 

The fair value of each option granted is estimated on the date of grant using the Black‑Scholes option‑pricing model with the following weighted average assumptions:

 

 

 

Year ended December 31,

 

 

 

2016

 

 

2015

 

 

2014

 

Employees and directors:

 

 

 

 

 

 

 

 

 

 

 

 

Estimated volatility%

 

 

44.63

%

 

 

46.68

%

 

 

51.26

%

Expected life in years

 

 

5.99

 

 

 

5.88

 

 

 

5.84

 

Risk free interest rate%

 

 

1.46

%

 

 

1.74

%

 

 

1.79

%

Dividend yield

 

 

 

 

 

 

 

 

 

 

The Company estimated volatility for purposes of computing compensation expense on its employee and director options using the historic volatility of the Company’s stock price. The expected life used to estimate the fair value of employee and director options is based on the historical life of the Company’s options based on exercise data.

The weighted average fair value per share of options granted to employees and directors for the years ended December 31, 2016, 2015 and 2014 amounted to approximately $13.26, $15.85, and $17.61, respectively. No options were granted to non-employees for the years ended December 31, 2016, 2015 and 2014.

During the year ended December 31, 2016, the Company granted 2,641,683 stock options and restricted stock awards to employees and directors under all plans. The stock options were issued with a weighted average exercise price of $30.85 per share. As a result of these grants, the total compensation charge to be recognized over the service period is $36.7 million, of which $10.8 million was recognized during the year ended December 31, 2016.

Compensation costs for options and restricted stock granted to employees and directors amounted to $36.4 million, $33.5 million, and $29.4 million, for the years ended December 31, 2016, 2015 and 2014, respectively. There were no compensation costs capitalized in inventory balances. Compensation expense for options and restricted stock granted to employees and directors are classified between research and development, and selling, general and administrative expense based on employee job function. The following table summarizes share-based compensation expense included within the Company’s consolidated statements of operations:

 

 

 

Year ended December 31,

 

(In thousands)

 

2016

 

 

2015

 

 

2014

 

Research and development

 

$

10,610

 

 

$

8,474

 

 

$

5,939

 

Selling, general and administrative

 

 

25,777

 

 

 

24,992

 

 

 

23,498

 

Total

 

$

36,387

 

 

$

33,466

 

 

$

29,437

 

 

A summary of share‑based compensation activity for the year ended December 31, 2016 is presented below:

Stock Option Activity

 

 

 

Number

of Shares

(In thousands)

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Remaining

Contractual Term

 

Intrinsic

Value

(In thousands)

 

Balance at December 31, 2013

 

 

6,486

 

 

$

25.61

 

 

 

 

 

 

 

Granted

 

 

2,352

 

 

 

36.56

 

 

 

 

 

 

 

Forfeited and expired

 

 

(306

)

 

 

32.40

 

 

 

 

 

 

 

Exercised

 

 

(746

)

 

 

21.46

 

 

 

 

 

 

 

Balance at December 31, 2014

 

 

7,786

 

 

$

29.05

 

 

 

 

 

 

 

Granted

 

 

1,651

 

 

 

35.45

 

 

 

 

 

 

 

Forfeited and expired

 

 

(343

)

 

 

34.85

 

 

 

 

 

 

 

Exercised

 

 

(871

)

 

 

20.77

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

8,223

 

 

$

30.97

 

 

 

 

 

 

 

Granted

 

 

1,766

 

 

31.55

 

 

 

 

 

 

 

Forfeited and expired

 

 

(723

)

 

34.21

 

 

 

 

 

 

 

Exercised

 

 

(194

)

 

17.69

 

 

 

 

 

 

 

Balance at December 31, 2016

 

 

9,072

 

 

$

31.11

 

 

6.3

 

$

70,680

 

Vested and expected to vest at December 31, 2016

 

 

8,994

 

 

$

31.10

 

 

6.3

 

$

70,032

 

Vested and exercisable at December 31, 2016

 

 

6,152

 

 

$

30.00

 

 

5.2

 

$

59,612

 

 

 

 

Options Outstanding

 

 

Options Exercisable

 

Range of exercise price

 

Outstanding

as of

December 31,

2016

(In thousands)

 

 

Weighted-

average

remaining

contractual life

 

 

Weighted-

average

exercise price

 

 

Exercisable

as of

December 31,

2016

(In thousands)

 

 

Weighted-

average

exercise price

 

$15.91 - $26.35

 

 

2,335

 

 

 

4.0

 

 

$

22.97

 

 

 

2,102

 

 

$

22.82

 

$26.38 - $30.46

 

 

1,879

 

 

 

7.0

 

 

 

29.27

 

 

 

1,200

 

 

 

29.64

 

$30.49 - $35.53

 

 

2,395

 

 

 

6.9

 

 

 

33.83

 

 

 

1,459

 

 

 

33.23

 

$35.58 - $39.38

 

 

2,278

 

 

 

7.3

 

 

 

37.28

 

 

 

1,318

 

 

 

37.54

 

$39.67 - $44.50

 

 

185

 

 

 

8.1

 

 

 

41.37

 

 

 

73

 

 

 

41.62

 

 

 

 

9,072

 

 

6.3

 

 

$

31.11

 

 

 

6,152

 

 

$

30.00

 

 

Restricted Stock Activity

 

Restricted Stock

 

Number of Shares

(In thousands)

 

Nonvested at December 31, 2013

 

 

421

 

Granted

 

 

387

 

Vested

 

 

(241

)

Forfeited

 

 

(48

)

Nonvested at December 31, 2014

 

 

519

 

Granted

 

 

205

 

Vested

 

 

(244

)

Forfeited

 

 

(39

)

Nonvested at December 31, 2015

 

 

441

 

Granted

 

 

664

 

Vested

 

 

(236

)

Forfeited

 

 

(244

)

Nonvested at December 31, 2016

 

 

625

 

 

Unrecognized compensation cost for unvested stock options and restricted stock awards as of December 31, 2016 totaled $52.5 million and is expected to be recognized over a weighted average period of approximately 2.3 years.

Debt
Debt

(8) Debt

Convertible Senior Notes

On June 17, 2014, the Company issued $345 million aggregate principal amount of 1.75% Convertible Senior Notes due 2021 (the Notes) in an underwritten public offering. The net proceeds from the offering were $337.5 million after deducting the Underwriter’s discount and offering expenses paid by the Company.

The Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, under certain circumstances as outlined in the indenture, based on an initial conversion rate, subject to adjustment, of 23.4968 shares per $1,000 principal amount of Notes (representing an initial conversion price of approximately $42.56 per share).

The Company may not redeem the Notes prior to June 20, 2017. The Company may redeem for cash all or part of the Notes, at the Company’s option, on or after June 20, 2017, under certain circumstances as outlined in the indenture.

The Company pays 1.75% interest per annum on the principal amount of the Notes, payable semiannually in arrears in cash on June 15 and December 15 of each year. The Notes will mature on June 15, 2021.

If the Company undergoes a “fundamental change” (as defined in the Indenture), subject to certain conditions, holders may require the Company to repurchase for cash all or part of their Notes in principal amounts of $1,000 or an integral multiple thereof. The Indenture contains customary terms and covenants and events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Notes by notice to the Company and the Trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all the Notes to be due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal and accrued and unpaid interest, if any, on all of the Notes will become due and payable automatically. Notwithstanding the foregoing, the Indenture provides that, to the extent the Company elects and for up to 270 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right to receive additional interest on the Notes.

The Notes will be senior unsecured obligations and will rank equally with all of the Company’s existing and future senior debt and senior to any of the Company’s subordinated debt. The Notes will be structurally subordinated to all existing or future indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries and will be effectively subordinated to the Company’s existing or future secured indebtedness to the extent of the value of the collateral. The Indenture does not limit the amount of debt that the Company or its subsidiaries may incur.

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes as a whole. The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

The outstanding note balance as of December 31, 2016 and 2015 consisted of the following:

 

(In thousands)

 

December 31, 2016

 

 

December 31, 2015

 

Liability component:

 

 

 

 

 

 

 

 

Principal