ACORDA THERAPEUTICS INC, 10-Q filed on 11/7/2017
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2017
Oct. 31, 2017
Document And Entity Information [Abstract]
 
 
Entity Registrant Name
ACORDA THERAPEUTICS INC 
 
Entity Central Index Key
0001008848 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2017 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
46,747,166 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
ACOR 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 192,496 
$ 158,537 
Restricted cash
68 
79 
Trade accounts receivable, net of allowances of $552 and $964, as of September 30, 2017 and December 31, 2016, respectively
53,825 
52,239 
Prepaid expenses
9,757 
12,907 
Finished goods inventory
39,870 
43,135 
Other current assets
7,399 
5,760 
Total current assets
303,415 
272,657 
Property and equipment, net of accumulated depreciation
36,484 
34,310 
Goodwill
285,317 
280,599 
Deferred tax asset
4,400 
4,400 
Intangible assets, net of accumulated amortization
705,141 
742,242 
Non-current portion of deferred cost of license revenue
1,796 
2,272 
Other assets
8,505 
5,855 
Total assets
1,345,058 
1,342,335 
Current liabilities:
 
 
Accounts payable
21,741 
26,933 
Accrued expenses and other current liabilities
78,304 
104,890 
Current portion of deferred license revenue
9,057 
9,057 
Current portion of loans payable
636 
6,256 
Current portion of convertible notes payable
 
765 
Total current liabilities
109,738 
147,901 
Convertible senior notes (due 2021)
306,411 
299,395 
Acquired contingent consideration
88,900 
72,100 
Non-current portion of deferred license revenue
25,663 
32,456 
Non-current portion of loans payable
25,174 
24,635 
Deferred tax liability
98,537 
92,807 
Other non-current liabilities
10,645 
8,830 
Commitments and contingencies
   
   
Stockholders’ equity:
 
 
Preferred stock, $0.001 par value. Authorized 1,000,000 shares at September 30, 2017 and no shares at December 31, 2016; no shares issued as of September 30, 2017 and December 31, 2016, respectively
   
   
Common stock, $0.001 par value. Authorized 80,000,000 shares at September 30, 2017 and December 31, 2016; issued 46,720,478 and 46,182,738 shares, including those held in treasury, as of September 30, 2017 and December 31, 2016, respectively
47 
46 
Treasury stock at cost (16,151 shares at September 30, 2017 and 12,420 shares at December 31, 2016)
(389)
(329)
Additional paid-in capital
957,543 
921,365 
Accumulated deficit
(284,148)
(243,970)
Accumulated other comprehensive income (loss)
6,937 
(12,901)
Total stockholders’ equity
679,990 
664,211 
Total liabilities and stockholders’ equity
$ 1,345,058 
$ 1,342,335 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]
 
 
Trade accounts receivable, allowances (in dollars)
$ 552 
$ 964 
Preferred stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Preferred stock, Authorized shares
1,000,000 
Preferred stock, issued shares
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
46,720,478 
46,182,738 
Treasury stock, shares
16,151 
12,420 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Revenues:
 
 
 
 
Net product revenues
$ 134,357 
$ 128,508 
$ 379,705 
$ 359,350 
Royalty revenues
4,444 
4,841 
13,391 
12,831 
License revenue
2,264 
2,264 
6,793 
6,793 
Total net revenues
141,065 
135,613 
399,889 
378,974 
Costs and expenses:
 
 
 
 
Cost of sales
29,992 
27,644 
84,840 
77,265 
Cost of license revenue
159 
159 
476 
476 
Research and development
33,286 
54,777 
130,963 
149,640 
Selling, general and administrative
40,741 
54,805 
142,100 
176,388 
Asset impairment
39,446 
 
39,446 
 
Changes in fair value of acquired contingent consideration
(400)
3,700 
16,800 
11,900 
Total operating expenses
143,224 
141,085 
414,625 
415,669 
Operating loss
(2,159)
(5,472)
(14,736)
(36,695)
Other (expense) income, (net):
 
 
 
 
Interest and amortization of debt discount expense
(4,180)
(4,404)
(13,783)
(12,161)
Interest income
30 
46 
103 
309 
Realized loss on foreign currency transactions
(18)
(179)
(458)
(1,674)
Other income
 
 
 
10,026 
Total other expense, (net)
(4,168)
(4,537)
(14,138)
(3,500)
Loss before taxes
(6,327)
(10,009)
(28,874)
(40,195)
(Provision for) benefit from income taxes
(18,868)
(3,023)
(23,421)
7,686 
Net loss
(25,195)
(13,032)
(52,295)
(32,509)
Net loss attributable to non-controlling interest
 
307 
 
985 
Net loss attributable to Acorda Therapeutics, Inc.
$ (25,195)
$ (12,725)
$ (52,295)
$ (31,524)
Net loss per share attributable to Acorda Therapeutics, Inc. —basic and diluted
$ (0.55)
$ (0.28)
$ (1.14)
$ (0.70)
Weighted average common shares outstanding used in computing net loss per share attributable to Acorda Therapeutics, Inc.—basic and diluted
46,002 
45,378 
45,918 
45,178 
Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Net loss
$ (25,195)
$ (13,032)
$ (52,295)
$ (32,509)
Other comprehensive income (loss), net of tax:
 
 
 
 
Foreign currency translation adjustment
7,266 
1,097 
19,838 
(3,615)
Reclassification of net losses to net income
 
 
 
119 
Other comprehensive income (loss), net of tax
7,266 
1,097 
19,838 
(3,496)
Comprehensive loss
(17,929)
(11,935)
(32,457)
(36,005)
Other comprehensive income (loss) attributable to noncontrolling interest.
 
$ 17 
 
$ (110)
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Cash flows from operating activities:
 
 
Net loss
$ (52,295)
$ (32,509)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
Share-based compensation expense
25,264 
27,392 
Amortization of net premiums and discounts on investments
 
467 
Amortization of debt discount and debt issuance costs
8,918 
7,158 
Depreciation and amortization expense
17,484 
15,775 
Intangible asset impairment
39,446 
 
Changes in fair value of acquired contingent consideration
16,800 
11,900 
Unrealized foreign currency transaction loss (gain)
247 
(10,484)
Restructuring costs, net of cash payments
1,878 
 
Deferred tax provision (benefit)
16,746 
(10,522)
Changes in assets and liabilities:
 
 
Increase in accounts receivable
(1,505)
(17,018)
Decrease in prepaid expenses and other current assets
1,614 
5,820 
Decrease (increase) in inventory
3,266 
(4,459)
Decrease in non-current portion of deferred cost of license revenue
476 
476 
(Increase) decrease in other assets
(3,990)
25 
(Decrease) increase in accounts payable, accrued expenses, other current liabilities
(31,435)
9,612 
Decrease in non-current portion of deferred license revenue
(6,793)
(6,793)
Increase in other non-current liabilities
102 
 
Decrease in restricted cash
86 
6,032 
Net cash provided by operating activities
36,309 
2,872 
Cash flows from investing activities:
 
 
Purchases of property and equipment
(10,370)
(4,633)
Purchases of intangible assets
(294)
(482)
Acquisitions, net of cash received
 
(268,107)
Purchases of investments
 
(40,214)
Proceeds from maturities of investments
 
239,966 
Net cash used in investing activities
(10,664)
(73,470)
Cash flows from financing activities:
 
 
Proceeds from issuance of common stock and option exercises
7,001 
74,673 
Purchase of noncontrolling interest
 
(27,946)
Refund of deposit for purchase of noncontrolling interest
2,722 
 
Purchase of treasury stock
(60)
 
Debt issuance costs
 
(1,559)
Repayments of revenue interest liability
 
(41)
Repayment of loans payable
(2,409)
 
Net cash provided by financing activities
7,254 
45,127 
Effect of exchange rate changes on cash and cash equivalents
1,060 
207 
Net increase (decrease) in cash and cash equivalents
33,959 
(25,264)
Cash and cash equivalents at beginning of period
158,537 
153,204 
Cash and cash equivalents at end of period
192,496 
127,940 
Supplemental disclosure:
 
 
Cash paid for interest
3,047 
3,040 
Cash paid for taxes
$ 11,363 
$ 3,564 
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 accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information, Accounting Standards Codification (ASC) Topic 270-10 and with the instructions to Form 10-Q. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, all adjustments considered necessary for a fair presentation have been included in the interim periods presented and all adjustments are of a normal recurring nature. The Company has evaluated subsequent events through the date of this filing. Operating results for the three and nine-month periods ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. When used in these notes, the terms “Acorda” or “the Company” mean Acorda Therapeutics, Inc. The December 31, 2016 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. You should read these unaudited interim condensed consolidated financial statements in conjunction with the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

(2) Summary of Significant Accounting Policies

Our critical accounting policies are detailed in our Annual Report on Form 10-K for the year ended December 31, 2016. Effective January 1, 2017, the Company adopted ASU 2016-09, “Compensation – Stock Compensation” (Topic 718) and ASU 2015-11, “Inventory” (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11). Other than the adoption of the new accounting guidance, our critical accounting policies have not changed materially from December 31, 2016.

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 reflected in operations in the period incurred.

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 with respect 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.

Intangible Assets

The Company has finite lived intangible assets related to Ampyra and Selincro. 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.

On March 31, 2017, the United States District Court for the District of Delaware upheld U.S. Patent No. 5,540,938 (the ‘938 patent), which is set to expire in July 2018. The claims of the ‘938 patent relate to methods for treating a neurological disease, such as MS, and cover the use of a sustained release dalfampridine formulation, such as AMPYRA (dalfampridine) Extended Release Tablets, 10 mg for improving walking in people with MS. The District Court invalidated U.S. Patent Nos. 8,663,685, 8,007,826, 8,440,703, and 8,354,437, which pertain to Ampyra. In May 2017, the Company appealed the ruling on these patents. As a result of the District Court’s ruling, the Company performed an interim impairment test for the intangible assets related to Ampyra in connection with the preparation of the unaudited interim condensed consolidated financial statements for the first quarter of 2017. Based on the impairment test performed, the Company determined that these intangible assets were not impaired.

As a result of the invalidation of the patents, the estimated remaining useful lives of the Ampyra intangible assets were reviewed to determine if there was a change in the estimated useful lives of these assets. Based on the review, the Company determined that there was a change in the estimated useful lives of these assets that would require an acceleration of the amortization expense. The Company determined that the estimated useful lives of these intangible assets will coincide with the expiration of the ‘938 patent, unless the appeal is resolved favorably. The Company accounted for this change prospectively as a change in an accounting estimate beginning in the three-month period ended June 30, 2017. The acceleration of the amortization associated with the change in the estimated remaining useful lives of these intangible assets, did not have a material impact on the Company’s statement of operations for the three- and nine-month periods ended September 30, 2017.

The Company reviewed the carrying value of its intangible asset related to Selincro, a European Medicines Agency (EMA)-approved orally administered therapy for alcohol dependence therapy. The Company receives double digit royalties from sales of Selincro via a licensing agreement with a third-party (licensee). Through discussions with the licensee, the Company reviewed the intangible asset for impairment due to a downward revision to the projected royalty revenue the Company expects to receive. As a result of the review, the Company determined that the carrying value of the asset was greater than the estimated fair market value. The Company recognized an impairment charge in the amount of $39.4 million representing the amount by which the carrying value exceeded the fair market value as of September 30, 2017.

 

 

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 there were no subsequent events requiring disclosure in these financial statements.

Recently Issued / Adopted Accounting Pronouncements

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 adopted this guidance effective January 1, 2017 on a prospective basis. The new guidance requires that excess tax benefits or deficiencies that arise upon the vesting or exercise of share-based payments be recognized as income tax benefit or expense in the income statement. Previously, these amounts were recorded as additional paid-in-capital. As a result of the adoption of ASU 2016-09, the Company recorded an adjustment to accumulated deficit of $12.1 million to recognize net operating loss carryforwards, attributable to excess tax benefits on stock compensation that was not previously recognized in additional paid in capital. For the three- and nine-month periods ended September 30, 2017, the Company recorded $0.4 million and $2.2 million, respectively, of shortfalls as a component of income tax expense in the statement of operations. The new guidance also permits the accounting for forfeitures based on either an estimate of the number of shares expected to vest or on the actual forfeitures as they occur. The Company elected to continue estimating forfeitures for determining compensation costs. The new guidance also provides for excess tax benefits to be classified as an operating activity in the statement of cash flows. Previously, excess tax benefits were classified as a financing activity.

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 adopted this guidance effective January 1, 2017. The adoption of this guidance did not have an impact on the consolidated financial statements.

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. The Company adopted this guidance effective January 1, 2017. The adoption of this guidance did not have an impact on the consolidated financial statements.

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 on January 1, 2018. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. The Company will adopt the new guidance following the modified retrospective approach.

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 evaluating the impact on its financial statements for this particular contract.

The Company completed a review of its revenue contracts (noting no expected impact aside from the Biogen contract noted above) and continues to solidify its plan for implementation of the new guidance including revising accounting policies and evaluating internal controls and will implement any changes as required to facilitate adoption of the new guidance which the Company will adopt beginning in the first quarter of 2018.

In January 2017, the FASB issued Accounting Standards Update 2017-04, “Intangibles – Goodwill and Other” (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). This new standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 allows for prospective application and is effective for fiscal years beginning after December 15, 2019, and interim periods therein with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact adoption of this guidance may have on its consolidated financial statements.

In May 2017, the FASB issued Accounting Standards Update 2017-09, “Compensation – Stock Compensation” (Topic 718): Scope of Modification Accounting (ASU 2017-09). This new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 allows for prospective application and is effective for fiscal years beginning after December 15, 2017, and interim periods therein with early adoption permitted for interim or annual periods. The Company is currently evaluating the impact adoption of this guidance may have on its consolidated financial statements.

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. We believe that tozadenant, acquired through Biotie, and Inbrija (CVT-301, levodopa inhalation powder), our most advanced program, have the potential to position the Company as a leader in Parkinson’s disease therapy. 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 Finnish arbitral tribunal administering redemption proceedings for the shares not tendered to the Company. Accordingly, the Company owned 100% of the fully diluted capital stock of Biotie as of September 30, 2016.

In the three-month period ended March 31, 2017, the Company received a refund of the cash security deposit of approximately $2.7 million following the final determination and payment of the redemption price for the shares subject to the redemption proceedings.

The Company estimated the 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 its final measurement-period adjustments to the purchase price allocation from the acquisition date through April 18, 2017. During the six-month period ended June 30, 2017, the Company recorded final measurement period adjustments of approximately $6.4 million to its purchase price allocation with a corresponding offset to goodwill. The final measurement period adjustments included a reduction to current liabilities of approximately $3.8 million related to the repurchase of the Biotie convertible capital loans as the Company was able to determine the fair market value of these loans, a reduction to other long-term liabilities of approximately $2.7 million due to the finalization of the valuation of the Biotie non-convertible capital loans and an increase to deferred tax liabilities of approximately $0.2 million due to the finalization of the provisional amounts recorded for deferred tax liabilities.

The following table presents the final 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:

 

(In thousands)

 

Preliminary

Allocation, as

adjusted through

December 31, 2016

 

 

Measurement

Period

Adjustments

 

 

Final

Allocation as of April 18, 2017

 

Cash and cash equivalents

 

$

73,854

 

 

$

 

 

$

73,854

 

Other current assets

 

 

1,878

 

 

 

 

 

 

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

 

 

(18,572

)

 

 

3,837

 

 

 

(14,735

)

Deferred taxes

 

 

(89,908

)

 

 

(156

)

 

 

(90,064

)

Other long-term liabilities

 

 

(25,690

)

 

 

2,740

 

 

 

(22,950

)

Fair value of assets and liabilities acquired

 

 

272,024

 

 

 

6,421

 

 

 

278,445

 

Goodwill

 

 

103,876

 

 

 

(6,421

)

 

 

97,455

 

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 $18.6 million in acquisition related expenses to date. For the three-month period ended September 30, 2017, there were no acquisition related expenses incurred. For the nine-month period ended September 30, 2017, the Company incurred approximately $0.6 million in acquisition related expenses, all of which were expensed and included in selling, general and administrative expenses in the consolidated statements 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 indefinite lived intangible assets were 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 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 indefinite lived intangible 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 indefinite lived 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.

Goodwill

Changes in the carrying amount of goodwill were as follows:

 

(In thousands)

 

 

 

 

Balance at December 31, 2016

 

$

280,599

 

Decrease to goodwill for measurement period adjustments

 

 

(6,421

)

Foreign currency translation adjustment

 

 

11,139

 

Balance at September 30, 2017

 

$

285,317

 

 

Preferred Stock
Preferred Stock

(4) Preferred Stock

Stockholder Rights Plan

On August 31, 2017, the Board of Directors of the Company adopted a stockholder rights plan (Rights Plan) to preserve the ability of the Board to protect the interests of stockholders in transactions that may result in an acquisition of control of the Company, including tender offers and open market purchases of the Company’s securities. In general terms, the Rights Plan works by significantly diluting the stock ownership of any person or group that acquires 15% or more of the outstanding common stock of the Company without the approval of the Board (such person, an Acquiring Person).

Under the Rights Plan, on August 31, 2017, the Board authorized and declared a dividend of one preferred share purchase right (Right) for each outstanding share of common stock, par value $0.001 per share, of the Company. The dividend was payable to the stockholders of record on September 11, 2017 (Record Date). Each Right, when it becomes exercisable, entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, of the Company at a price of $110 per one one-thousandth of a Preferred Share, subject to adjustment. As of September 30, 2017, there were 1,000,000 preferred shares authorized and no such shares issued and outstanding. In addition, one Right will automatically attach to each Common Share that becomes outstanding between the Record Date and the earliest of the Distribution Date, the redemption of the Rights or the expiration of the Rights. The Distribution Date is the close of business on the tenth day after the first date of public announcement that any person has become an Acquiring Person or such earlier date as a majority of the Board becomes aware of the existence of an Acquiring Person. Until a Right is exercised, the holder thereof, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. The Rights are not exercisable until the Distribution Date. The Rights will expire at the close of business on August 31, 2018, unless earlier redeemed or exchanged by the Company.

Corporate Restructuring
Corporate Restructuring

(5) Corporate Restructuring

On April 5, 2017, the Company announced a corporate restructuring to reduce its cost structure and focus its resources on its two late-stage programs, Inbrija and tozadenant.

The adoption of this restructuring plan followed the previously-announced decision by the United States District Court for the District of Delaware invalidating certain patents pertaining to Ampyra. Under this ruling, Acorda expects to maintain exclusivity to Ampyra through July 2018, depending on the outcome of the appeal of the Court’s decision.

As part of this restructuring, the Company reduced headcount by approximately 20%. The majority of the reduction in personnel was completed in the three-month period ended June 30, 2017. The Company estimates that during 2017 it will incur approximately $8.0 million of pre-tax charges for severance and employee separation related costs related to the restructuring.

In the three-month period ended September 30, 2017, the Company incurred approximately $0.03 million in pre-tax severance and employee separation related costs associated with the restructuring. In the nine-month period ended September 30, 2017, the Company incurred pre-tax severance and employee separation related expenses of approximately $7.6 million associated with the restructuring. The pre-tax charges incurred include a cash component of approximately $6.7 million representing employee charges for severance payments and benefits and a non-cash component of approximately $0.9 million representing stock compensation charges. Of the pre-tax severance and employee separation related expenses incurred, $5.6 million was recorded in research and development expenses and $2.0 million was recorded in selling, general and administrative expenses. The majority of the restructuring costs are expected to be paid by the end of 2017.

A summary of the restructuring charges for the three- and nine-month periods ended September 30, 2017 is as follows:

 

 

 

Severance and

 

 

 

 

 

 

 

 

 

 

 

Other Employee

 

 

 

 

 

 

 

 

 

(In thousands)

 

Costs

 

 

Other Costs

 

 

Total

 

Q2 Restructuring costs

 

$

7,515

 

 

$

75

 

 

$

7,590

 

Q2 Payments

 

 

(6,166

)

 

 

(75

)

 

 

(6,241

)

Q3 Restructuring costs

 

 

29

 

 

 

5

 

 

 

34

 

Q3 Payments

 

 

(458

)

 

 

(5

)

 

 

(463

)

Restructuring Liability as of September 30, 2017

 

$

920

 

 

$

 

 

$

920

 

 

Share-based Compensation
Share-based Compensation

(6) Share-based Compensation

During the three‑month periods ended September 30, 2017 and 2016, the Company recognized share-based compensation expense of $6.7 million and $10.0 million, respectively. During the nine-month periods ended September 30, 2017 and 2016, the Company recognized share-based compensation expense of $26.2 million and $27.4 million, respectively. Activity in options and restricted stock during the nine-month period ended September 30, 2017 and related balances outstanding as of that date are reflected below. The weighted average fair value per share of options granted to employees for the three-month periods ended September 30, 2017 and 2016 were approximately $9.46 and $11.21, respectively. The weighted average fair value per share of options granted to employees for the nine-month periods ended September 30, 2017 and 2016 were approximately $10.68  and $13.65, respectively.

The following table summarizes share-based compensation expense included within the consolidated statements of operations:

 

 

 

For the three-month

period ended September 30,

 

 

For the nine-month

period ended September 30,

 

(In millions)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Research and development

 

$

2.0

 

 

$

2.9

 

 

$

8.4

 

 

$

7.7

 

Selling, general and administrative

 

 

4.7

 

 

 

7.1

 

 

 

17.8

 

 

 

19.7

 

Total

 

$

6.7

 

 

$

10.0

 

 

$

26.2

 

 

$

27.4

 

 

A summary of share-based compensation activity for the nine-month period ended September 30, 2017 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 January 1, 2017

 

 

9,072

 

 

$

31.11

 

 

 

 

 

 

 

 

 

Granted

 

 

1,619

 

 

 

20.29

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(671

)

 

 

31.35

 

 

 

 

 

 

 

 

 

Exercised

 

 

(332

)

 

 

21.11

 

 

 

 

 

 

 

 

 

Balance at September 30, 2017

 

 

9,688

 

 

$

29.63

 

 

 

5.9

 

 

$

10,026

 

Vested and expected to vest at

    September 30, 2017

 

 

9,547

 

 

$

29.76

 

 

 

5.8

 

 

$

9,327

 

Vested and exercisable at

    September 30, 2017

 

 

7,010

 

 

$

30.35

 

 

 

4.8

 

 

$

4,503

 

 

Restricted Stock and Performance Stock Unit Activity

 

(In thousands)

 

 

 

 

Restricted Stock and Performance Stock Units

 

Number of Shares

 

Nonvested at January 1, 2017

 

 

625

 

Granted

 

 

542

 

Vested

 

 

(51

)

Forfeited

 

 

(183

)

Nonvested at September 30, 2017

 

 

933

 

 

Unrecognized compensation cost for unvested stock options, restricted stock awards and performance stock units as of September 30, 2017 totaled $42.1 million and is expected to be recognized over a weighted average period of approximately 2.9 years.

Loss Per Share
Loss Per Share

(7) Loss Per Share

The following table sets forth the computation of basic and diluted loss per share for the three- and nine-month periods ended September 30, 2017 and 2016:

 

(In thousands, except per share data)

 

Three-month

period ended

September 30,

2017

 

 

Three-month

period ended

September 30,

2016

 

 

Nine-month

period ended

September 30,

2017

 

 

Nine-month

period ended

September 30,

2016

 

Basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(25,195

)

 

$

(12,725

)

 

$

(52,295

)

 

$

(31,524

)

Weighted average common shares outstanding used in

   computing net loss per share—basic

 

 

46,002

 

 

 

45,378

 

 

 

45,918

 

 

 

45,178

 

Plus: net effect of dilutive stock options and restricted

   common shares

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding used in

   computing net loss per share—diluted

 

 

46,002

 

 

 

45,378

 

 

 

45,918

 

 

 

45,178

 

Net loss per share—basic

 

$

(0.55

)

 

$

(0.28

)

 

$

(1.14

)

 

$

(0.70

)

Net loss per share—diluted

 

$

(0.55

)

 

$

(0.28

)

 

$

(1.14

)

 

$

(0.70

)

 

Securities that could potentially be dilutive are excluded from the computation of diluted earnings per share when a loss from continuing operations exists or when the exercise price exceeds the average closing price of the Company’s common stock during the period, because their inclusion would result in an anti-dilutive effect on per share amounts.

The following amounts were not included in the calculation of net loss per diluted share because their effects were anti-dilutive:

 

(In thousands)

 

Three-month

period ended

September 30,

2017

 

 

Three-month

period ended

September 30,

2016

 

 

Nine-month

period ended

September 30,

2017

 

 

Nine-month

period ended

September 30,

2016

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and restricted common shares

 

 

9,147

 

 

 

8,278

 

 

 

9,232

 

 

 

7,821

 

Convertible note – Saints Capital

 

 

 

 

 

10

 

 

 

 

 

 

10

 

 

Additionally, the impact of the convertible debt and the impact of the convertible capital loan assumed from Biotie were determined to be anti-dilutive and excluded from the calculation of net loss per diluted share for the three and nine-month periods ended September 30, 2017 and 2016.

Income Taxes
Income Taxes

(8) Income Taxes

The Company’s effective income tax rate differs from the U.S. statutory rate principally due to state taxes, Federal research and development tax credits, jurisdictions with pretax losses for which no tax benefit can be recognized and the effects of share based compensation which are recorded discretely in the quarters in which they occur.

For the three-month periods ended September 30, 2017 and 2016, the Company recorded a $18.9 million and $3.0 million provision for income taxes, respectively. The effective income tax rates for the Company for the three-month periods ended September 30, 2017 and 2016 were -298.2% and -30.2%, respectively. The variance in the effective tax rates for the three-month period ended September 30, 2017 as compared to the three-month period ended September 30, 2016 was due primarily to the valuation allowance recorded on jurisdictions with Biotie pretax losses for which no tax benefit can be recognized, state taxes, the tax implications of costs related to the Biotie transaction, the reduction in the research & development tax credit and the absence of orphan drug development in 2017

For the nine-month periods ended September 30, 2017 and 2016, the Company recorded a $23.4 million provision for and $7.7 million benefit from income taxes, respectively. The effective income tax rates for the Company for the nine-month periods ended September 30, 2017 and 2016 were -81.1% and 19.1%, respectively. The variance in the effective tax rates for the nine-month period ended September 30, 2017 as compared to the nine-month period ended September 30, 2016 was due primarily to the valuation allowance recorded on jurisdictions with Biotie pretax losses for which no tax benefit can be recognized, the tax implications of costs related to the Biotie transaction, the reduction in the research & development tax credit and the absence of orphan drug development in 2017.

The Company continues to evaluate the realizability of its deferred tax assets and liabilities on a quarterly basis and will adjust such amounts in light of changing facts and circumstances including, but not limited to, future projections of taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits and the regulatory approval of products currently under development. Any changes to the valuation allowance or deferred tax assets and liabilities in the future would impact the Company's income taxes.

The Internal Revenue Service commenced an examination of the Company’s US income tax return for 2015 in the third quarter of 2017. There have been no proposed adjustments at this stage of the examination.

Fair Value Measurements
Fair Value Measurements

(9) Fair Value Measurements

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates, exchange rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability. The Company’s Level 1 assets consist of time deposits and investments in a Treasury money market fund. The Company’s Level 3 liabilities represent acquired contingent consideration related to the acquisition of Civitas and are valued using a probability weighted discounted cash flow valuation approach. No changes in valuation techniques occurred during the three or nine-month periods ended September 30, 2017. The estimated fair values of all of our financial instruments approximate their carrying values at September 30, 2017, except for the fair value of the Company’s convertible senior notes, which was approximately $317.4 million as of September 30, 2017. The Company estimates the fair value of its notes utilizing market quotations for the debt (Level 2).

 

(In thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Assets Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

9,144

 

 

$

 

 

$

 

Liabilities Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Acquired contingent consideration

 

 

 

 

 

 

 

 

88,900

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Assets Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

18,514

 

 

$

 

 

$

 

Liabilities Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Acquired contingent consideration

 

 

 

 

 

 

 

 

72,100

 

 

The following table presents additional information about liabilities measured at fair value on a recurring basis and for which the Company utilizes Level 3 inputs to determine fair value.

Acquired contingent consideration

 

(In thousands)

 

Three-month

period ended

September 30,

2017

 

 

Three-month

period ended

September 30,

2016

 

 

Nine-month

period ended

September 30,

2017

 

 

Nine-month

period ended

September 30,

2016

 

Acquired contingent consideration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

89,300

 

 

$

71,700

 

 

$

72,100

 

 

$

63,500

 

Fair value change to contingent consideration

   included in the statement of operations

 

 

(400

)

 

 

3,700

 

 

 

16,800

 

 

 

11,900

 

Balance, end of period

 

$

88,900

 

 

$

75,400

 

 

$

88,900

 

 

$

75,400

 

 

The Company estimates the fair value of its acquired contingent consideration using a probability weighted discounted cash flow valuation approach based on estimated future sales expected from Inbrija (CVT-301, levodopa inhalation powder), a potential new drug candidate for the treatment of OFF periods of Parkinson’s disease and CVT-427, a Phase I candidate. CVT-427 is an inhaled triptan intended for acute treatment of migraine using the ARCUS delivery system. Using this approach, expected future cash flows are calculated over the expected life of the agreement, are discounted, and then exercise scenario probabilities are applied. Some of the more significant assumptions made in the valuation include (i) the estimated Inbrija and CVT-427 revenue forecasts, (ii) probabilities of success, and (iii) discount periods and rate. The probability of achievement of revenue milestones ranged from 26.3% to 85% with milestone payment outcomes ranging from $0 to $62 million in the aggregate for Inbrija and CVT-427. The valuation is performed quarterly. Gains and losses are included in the statement of operations. For the three- and nine-month periods ended September 30, 2017, changes in the fair value of the acquired contingent consideration were due to the re-calculation of cash flows for the passage of time and updates to certain other estimated assumptions.

The acquired contingent consideration is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approach, including but not limited to, assumptions involving probability adjusted sales estimates for Inbrija and CVT-427 and estimated discount rates, the estimated fair value could be significantly higher or lower than the fair value determined.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company’s non-financial assets, such as intangible assets are recorded at fair value if an impairment charge is recognized. The Company reviewed for impairment, the intangible asset for Selincro based on a downward revision to the projected royalty revenue the Company expects to receive from its licensee. As a result of the review, the Company determined that the carrying value of the intangible asset was greater than the estimated fair value of the intangible asset. The fair value of the intangible asset for Selincro was determined using a discounted cash flow valuation approach which is based on application of the double digit contracted royalty rate to the estimated projected sales of Selincro by the licensee. The significant assumptions used in the valuation include the estimated projected sales of Selincro by the licensee, the discount period over which the Company expects to receive royalties and the discount rate which is derived from the Company’s weighted average cost of capital. The fair value of the intangible asset for Selincro is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market.

The table below presents the non-financial assets that were measured and recorded at fair value on a nonrecurring basis and the total impairment losses recorded during the three-month period ended September 30, 2017. There were no impairment losses recorded during 2016.

 

(In thousands)

Net Carrying Value as of September 30, 2017

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Impairment Loss

(Level 3) as of

September 30, 2017

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible Asset - Selincro

$

14,695

 

 

$

 

 

$

 

 

$

14,695

 

 

$

39,446

 

 

Investments
Investments

(10) Investments

Short-term investments with maturities of three months or less from date of purchase have been classified as cash equivalents, and amounted to $9.1 million and $18.5 million as of September 30, 2017 and December 31, 2016, 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 short-term or long-term at September 30, 2017 and 2016.

Debt Obligations
Debt Obligations

(11) Debt Obligations

Saints Capital Notes

Effective January 2017, the Company paid approximately $0.8 million in full payment of these notes.

Asset Based Loan

On June 1, 2016, the Company and certain of its subsidiaries entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as the sole initial lender and the administrative agent for the lenders. On May 4, 2017, the Company voluntarily terminated the Credit Agreement because it no longer served the Company’s needs. The Company did not incur any early termination penalties in connection with the termination. Prior to its termination, the Credit Agreement provided the Company with a three-year senior secured revolving credit facility in the maximum amount of $60 million. The restrictive covenants, as well as the lenders' security interests in collateral, under the Credit Agreement and the related loan documents terminated in connection with the termination of the facility.

In the three-month period ended June 30, 2017, approximately $1.1 million of debt issuance costs associated with the Credit Agreement were written off.

Convertible Capital Loans

In the three-month period ended March 31, 2017, the Company paid approximately $1.7 million (€1.5 million) to repurchase the outstanding principal amount of these loans. In April 2017, the Company paid approximately $0.2 million (€0.2 million) to repurchase the outstanding principal amount of the last outstanding loan. There were no convertible capital loans outstanding as of June 30, 2017.

Commitments and Contingencies
Commitments and Contingencies

(12) Commitments and Contingencies

A summary of the Company’s commitments and contingencies was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Company’s long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business.

The Company is currently party to various legal proceedings which are principally patent litigation matters. The Company has assessed such legal proceedings and does not believe that it is probable that a liability has been incurred or that the amount of any potential liability or range of losses can be reasonably estimated. As a result, the Company did not record any loss contingencies for any of these matters. Litigation expenses are expensed as incurred.

Summary of Significant Accounting Policies (Policies)

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 reflected in operations in the period incurred.

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 with respect 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.

Intangible Assets

The Company has finite lived intangible assets related to Ampyra and Selincro. 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.

On March 31, 2017, the United States District Court for the District of Delaware upheld U.S. Patent No. 5,540,938 (the ‘938 patent), which is set to expire in July 2018. The claims of the ‘938 patent relate to methods for treating a neurological disease, such as MS, and cover the use of a sustained release dalfampridine formulation, such as AMPYRA (dalfampridine) Extended Release Tablets, 10 mg for improving walking in people with MS. The District Court invalidated U.S. Patent Nos. 8,663,685, 8,007,826, 8,440,703, and 8,354,437, which pertain to Ampyra. In May 2017, the Company appealed the ruling on these patents. As a result of the District Court’s ruling, the Company performed an interim impairment test for the intangible assets related to Ampyra in connection with the preparation of the unaudited interim condensed consolidated financial statements for the first quarter of 2017. Based on the impairment test performed, the Company determined that these intangible assets were not impaired.

As a result of the invalidation of the patents, the estimated remaining useful lives of the Ampyra intangible assets were reviewed to determine if there was a change in the estimated useful lives of these assets. Based on the review, the Company determined that there was a change in the estimated useful lives of these assets that would require an acceleration of the amortization expense. The Company determined that the estimated useful lives of these intangible assets will coincide with the expiration of the ‘938 patent, unless the appeal is resolved favorably. The Company accounted for this change prospectively as a change in an accounting estimate beginning in the three-month period ended June 30, 2017. The acceleration of the amortization associated with the change in the estimated remaining useful lives of these intangible assets, did not have a material impact on the Company’s statement of operations for the three- and nine-month periods ended September 30, 2017.

The Company reviewed the carrying value of its intangible asset related to Selincro, a European Medicines Agency (EMA)-approved orally administered therapy for alcohol dependence therapy. The Company receives double digit royalties from sales of Selincro via a licensing agreement with a third-party (licensee). Through discussions with the licensee, the Company reviewed the intangible asset for impairment due to a downward revision to the projected royalty revenue the Company expects to receive. As a result of the review, the Company determined that the carrying value of the asset was greater than the estimated fair market value. The Company recognized an impairment charge in the amount of $39.4 million representing the amount by which the carrying value exceeded the fair market value as of September 30, 2017.

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 there were no subsequent events requiring disclosure in these financial statements.

Recently Issued / Adopted Accounting Pronouncements

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 adopted this guidance effective January 1, 2017 on a prospective basis. The new guidance requires that excess tax benefits or deficiencies that arise upon the vesting or exercise of share-based payments be recognized as income tax benefit or expense in the income statement. Previously, these amounts were recorded as additional paid-in-capital. As a result of the adoption of ASU 2016-09, the Company recorded an adjustment to accumulated deficit of $12.1 million to recognize net operating loss carryforwards, attributable to excess tax benefits on stock compensation that was not previously recognized in additional paid in capital. For the three- and nine-month periods ended September 30, 2017, the Company recorded $0.4 million and $2.2 million, respectively, of shortfalls as a component of income tax expense in the statement of operations. The new guidance also permits the accounting for forfeitures based on either an estimate of the number of shares expected to vest or on the actual forfeitures as they occur. The Company elected to continue estimating forfeitures for determining compensation costs. The new guidance also provides for excess tax benefits to be classified as an operating activity in the statement of cash flows. Previously, excess tax benefits were classified as a financing activity.

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 adopted this guidance effective January 1, 2017. The adoption of this guidance did not have an impact on the consolidated financial statements.

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. The Company adopted this guidance effective January 1, 2017. The adoption of this guidance did not have an impact on the consolidated financial statements.

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 on January 1, 2018. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. The Company will adopt the new guidance following the modified retrospective approach.

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 evaluating the impact on its financial statements for this particular contract.

The Company completed a review of its revenue contracts (noting no expected impact aside from the Biogen contract noted above) and continues to solidify its plan for implementation of the new guidance including revising accounting policies and evaluating internal controls and will implement any changes as required to facilitate adoption of the new guidance which the Company will adopt beginning in the first quarter of 2018.

In January 2017, the FASB issued Accounting Standards Update 2017-04, “Intangibles – Goodwill and Other” (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). This new standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 allows for prospective application and is effective for fiscal years beginning after December 15, 2019, and interim periods therein with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact adoption of this guidance may have on its consolidated financial statements.

In May 2017, the FASB issued Accounting Standards Update 2017-09, “Compensation – Stock Compensation” (Topic 718): Scope of Modification Accounting (ASU 2017-09). This new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 allows for prospective application and is effective for fiscal years beginning after December 15, 2017, and interim periods therein with early adoption permitted for interim or annual periods. The Company is currently evaluating the impact adoption of this guidance may have on its consolidated financial statements.

Acquisitions (Tables)

The following table presents the final 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:

 

(In thousands)

 

Preliminary

Allocation, as

adjusted through

December 31, 2016

 

 

Measurement

Period

Adjustments

 

 

Final

Allocation as of April 18, 2017

 

Cash and cash equivalents

 

$

73,854

 

 

$

 

 

$

73,854

 

Other current assets

 

 

1,878

 

 

 

 

 

 

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

 

 

(18,572

)

 

 

3,837

 

 

 

(14,735

)

Deferred taxes

 

 

(89,908

)

 

 

(156

)

 

 

(90,064

)

Other long-term liabilities

 

 

(25,690

)

 

 

2,740

 

 

 

(22,950

)

Fair value of assets and liabilities acquired

 

 

272,024

 

 

 

6,421

 

 

 

278,445

 

Goodwill

 

 

103,876

 

 

 

(6,421

)

 

 

97,455

 

Total purchase price

 

 

375,900

 

 

 

 

 

 

375,900

 

Less: Noncontrolling interests

 

 

(25,736

)

 

 

 

 

 

(25,736

)

Purchase consideration on date of acquisition

 

$

350,164

 

 

$

 

 

$

350,164

 

 

Changes in the carrying amount of goodwill were as follows:

 

(In thousands)

 

 

 

 

Balance at December 31, 2016

 

$

280,599

 

Decrease to goodwill for measurement period adjustments

 

 

(6,421

)

Foreign currency translation adjustment

 

 

11,139

 

Balance at September 30, 2017

 

$

285,317

 

 

Corporate Restructuring (Tables)
Summary of Restructuring Charges

A summary of the restructuring charges for the three- and nine-month periods ended September 30, 2017 is as follows:

 

 

 

Severance and

 

 

 

 

 

 

 

 

 

 

 

Other Employee

 

 

 

 

 

 

 

 

 

(In thousands)

 

Costs

 

 

Other Costs

 

 

Total

 

Q2 Restructuring costs

 

$

7,515

 

 

$

75

 

 

$

7,590

 

Q2 Payments

 

 

(6,166

)

 

 

(75

)

 

 

(6,241

)

Q3 Restructuring costs

 

 

29

 

 

 

5

 

 

 

34

 

Q3 Payments

 

 

(458

)

 

 

(5

)

 

 

(463

)

Restructuring Liability as of September 30, 2017

 

$

920

 

 

$

 

 

$

920

 

 

Share-based Compensation (Tables)

The following table summarizes share-based compensation expense included within the consolidated statements of operations:

 

 

 

For the three-month

period ended September 30,

 

 

For the nine-month

period ended September 30,

 

(In millions)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Research and development

 

$

2.0

 

 

$

2.9

 

 

$

8.4

 

 

$

7.7

 

Selling, general and administrative

 

 

4.7

 

 

 

7.1

 

 

 

17.8

 

 

 

19.7

 

Total

 

$

6.7

 

 

$

10.0

 

 

$

26.2

 

 

$

27.4

 

 

 

 

 

Number of

Shares

(In thousands)

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Intrinsic

Value

(In thousands)

 

Balance at January 1, 2017

 

 

9,072

 

 

$

31.11

 

 

 

 

 

 

 

 

 

Granted

 

 

1,619

 

 

 

20.29

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(671

)

 

 

31.35

 

 

 

 

 

 

 

 

 

Exercised

 

 

(332

)

 

 

21.11

 

 

 

 

 

 

 

 

 

Balance at September 30, 2017

 

 

9,688

 

 

$

29.63

 

 

 

5.9

 

 

$

10,026

 

Vested and expected to vest at

    September 30, 2017

 

 

9,547

 

 

$

29.76

 

 

 

5.8

 

 

$

9,327

 

Vested and exercisable at

    September 30, 2017

 

 

7,010

 

 

$

30.35

 

 

 

4.8

 

 

$

4,503

 

 

 

(In thousands)

 

 

 

 

Restricted Stock and Performance Stock Units

 

Number of Shares

 

Nonvested at January 1, 2017

 

 

625

 

Granted

 

 

542

 

Vested

 

 

(51

)

Forfeited

 

 

(183

)

Nonvested at September 30, 2017

 

 

933

 

 

Loss Per Share (Tables)

 

(In thousands, except per share data)

 

Three-month

period ended

September 30,

2017

 

 

Three-month

period ended

September 30,

2016

 

 

Nine-month

period ended

September 30,

2017

 

 

Nine-month

period ended

September 30,

2016

 

Basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(25,195

)

 

$

(12,725

)

 

$

(52,295

)

 

$

(31,524

)

Weighted average common shares outstanding used in

   computing net loss per share—basic

 

 

46,002

 

 

 

45,378

 

 

 

45,918

 

 

 

45,178

 

Plus: net effect of dilutive stock options and restricted

   common shares

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding used in

   computing net loss per share—diluted

 

 

46,002

 

 

 

45,378

 

 

 

45,918

 

 

 

45,178

 

Net loss per share—basic

 

$

(0.55

)

 

$

(0.28

)

 

$

(1.14

)

 

$

(0.70

)

Net loss per share—diluted

 

$

(0.55

)

 

$

(0.28

)

 

$

(1.14

)

 

$

(0.70

)

 

 

(In thousands)

 

Three-month

period ended

September 30,

2017

 

 

Three-month

period ended

September 30,

2016

 

 

Nine-month

period ended

September 30,

2017

 

 

Nine-month

period ended

September 30,

2016

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and restricted common shares

 

 

9,147

 

 

 

8,278

 

 

 

9,232

 

 

 

7,821

 

Convertible note – Saints Capital

 

 

 

 

 

10

 

 

 

 

 

 

10

 

 

Fair Value Measurements (Tables)

 

(In thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Assets Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

9,144

 

 

$

 

 

$

 

Liabilities Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Acquired contingent consideration

 

 

 

 

 

 

 

 

88,900

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Assets Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

18,514

 

 

$

 

 

$

 

Liabilities Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Acquired contingent consideration