ACORDA THERAPEUTICS INC, 10-K filed on 2/28/2020
Annual Report
v3.19.3.a.u2
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Feb. 20, 2020
Jun. 28, 2019
Cover [Abstract]      
Entity Registrant Name ACORDA THERAPEUTICS, INC.    
Entity Central Index Key 0001008848    
Document Type 10-K    
Document Period End Date Dec. 31, 2019    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Filer Category Accelerated Filer    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Public Float     $ 362,821,066
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Document Annual Report true    
Document Transition Report false    
Entity Common Stock, Shares Outstanding   47,997,023  
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity File Number 001-31938    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 13-3831168    
Entity Address, Address Line One 420 Saw Mill River Road    
Entity Address, City or Town Ardsley    
Entity Address, State or Province NY    
Entity Address, Postal Zip Code 10502    
City Area Code 914    
Local Phone Number 347-4300    
Title of each class Common Stock $0.001 par value    
Trading Symbol ACOR    
Name of each exchange on which registered NASDAQ    
Documents Incorporated by Reference

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a proxy statement for its 2020 Annual Meeting of Stockholders pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2019. Portions of the proxy statement are incorporated herein by reference into the following parts of the Form 10-K:

Part III, Item 10, Directors, Executive Officers and Corporate Governance.

Part III, Item 11, Executive Compensation.

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

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

Part III, Item 14, Principal Accounting Fees and Services.

   
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 62,085 $ 293,564
Restricted cash 12,836 532
Short term investments 63,754 151,989
Trade accounts receivable, net of allowances of $682 and $2,681, as of December 31, 2019 and 2018, respectively 22,083 23,430
Prepaid expenses 11,574 19,384
Inventory, net 25,221 29,014
Other current assets 3,560 10,194
Total current assets 201,113 528,107
Property and equipment, net of accumulated depreciation 142,527 60,519
Goodwill   282,059
Intangible assets, net of accumulated amortization 402,329 428,570
Right of use asset, net of accumulated amortization 23,450  
Restricted cash 30,270 255
Other assets 29 156
Total assets 799,718 1,299,666
Current liabilities:    
Accounts payable 26,257 48,859
Accrued expenses and other current liabilities 39,077 76,882
Current portion of loans payable 603 616
Current portion of liability related to sale of future royalties 10,836 8,985
Current portion of lease liability 7,746  
Current portion of acquired contingent consideration 1,866 4,914
Total current liabilities 86,385 140,256
Convertible senior notes 192,774 318,670
Derivative liability 59,409  
Non-current portion of acquired contingent consideration 78,434 163,086
Non-current portion of loans payable 25,495 24,470
Deferred tax liability 9,581 7,483
Non-current portion of liability related to sale of future royalties 13,565 21,731
Non-current portion of lease liability 22,996  
Other non-current liabilities 259 11,987
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.001 par value. Authorized 1,000,000 shares at December 31, 2019 and December 31, 2018; no shares issued as of December 31, 2019 and December 31, 2018
Common stock, $0.001 par value. Authorized 80,000,000 shares at December 31, 2019 and 2018; issued 47,730,396 and 47,508,505 shares, including those held in treasury, as of December 31, 2019 and 2018, respectively 48 48
Treasury stock at cost (29,304 and 87,737 shares at December 31, 2019 and 2018, respectively) (638) (2,133)
Additional paid-in capital 979,388 1,005,105
Accumulated deficit (666,809) (393,843)
Accumulated other comprehensive (loss) income (1,169) 2,806
Total stockholders’ equity 310,820 611,983
Total liabilities and stockholders’ equity $ 799,718 $ 1,299,666
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Trade accounts receivable, allowances (in dollars) $ 682 $ 2,681
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, Authorized shares 1,000,000 1,000,000
Preferred stock, issued shares 0 0
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 47,730,396 47,508,505
Treasury stock, shares 29,304 87,737
v3.19.3.a.u2
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Revenues:      
Total net revenues $ 192,408 $ 471,433 $ 588,287
Costs and expenses:      
Cost of sales 34,849 97,640 111,322
Cost of milestone and license revenue     634
Research and development 60,083 106,383 166,105
Selling, general and administrative 192,846 172,254 181,619
Goodwill and intangible asset impairments 277,561   296,763
Amortization of intangible assets 25,636 1,670 23,758
Changes in fair value of acquired contingent consideration (86,935) 55,000 40,900
Total operating expenses 504,040 432,947 821,101
Operating (loss) income (311,632) 38,486 (232,814)
Other (income) expense, net:      
Interest and amortization of debt discount expense (21,872) (21,597) (18,664)
Interest income 4,170 3,518 136
Other income (expense) 13 16 (543)
Gain on debt extinguishment 55,073    
Total other (income) expense, net 37,384 (18,063) (19,071)
(Loss) income before taxes (274,248) 20,423 (251,885)
Benefit from income taxes 1,282 13,259 28,526
Net (loss) income $ (272,966) $ 33,682 $ (223,359)
Net (loss) income per share—basic $ (5.75) $ 0.72 $ (4.86)
Net (loss) income per share—diluted $ (5.75) $ 0.71 $ (4.86)
Weighted average common shares outstanding used in computing net (loss) income per share—basic 47,512 47,010 45,999
Weighted average common shares outstanding used in computing net (loss) income per share—diluted 47,512 47,341 45,999
Net Product Revenues      
Revenues:      
Total net revenues $ 180,736 $ 459,739 $ 549,749
Royalty Revenues      
Revenues:      
Total net revenues $ 11,672 $ 11,694 29,481
License Revenue      
Revenues:      
Total net revenues     $ 9,057
v3.19.3.a.u2
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement Of Income And Comprehensive Income [Abstract]      
Net (loss) income $ (272,966) $ 33,682 $ (223,359)
Other comprehensive (loss) income:      
Foreign currency translation adjustment (4,118) (3,927) 19,759
Unrealized gains (losses) on available-for-sale securities, net of tax 143 (125)  
Other comprehensive (loss) income, net of tax (3,975) (4,052) 19,759
Comprehensive (loss) income $ (276,941) $ 29,630 $ (203,600)
v3.19.3.a.u2
Consolidated Statements of Changes in Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common stock
Treasury stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Balance at Dec. 31, 2016 $ 664,211 $ 46 $ (329) $ 921,365 $ (243,970) $ (12,901)
Balance (in shares) at Dec. 31, 2016   45,680        
Increase (Decrease) in Stockholders' Equity            
Adjustment to accumulated deficit (pursuant to adoption of ASU) | ASU 2014-09 12,221       12,221  
Compensation expense for issuance of stock options to employees 24,910     24,910    
Compensation expense for issuance of restricted stock to employees 7,904     7,904    
Compensation expense for issuance of restricted stock to employees (in shares)   263        
Exercise of stock options 10,479     10,479    
Exercise of stock options (in shares)   498        
Restructuring Cost pursuant to equity modification 967     967    
Purchase of Treasury Stock (60)   (60)      
Purchase of noncontrolling interest 2,955     2,955    
Other comprehensive (loss) income, net of tax 19,759         19,759
Net (loss) income (223,359)       (223,359)  
Balance at Dec. 31, 2017 519,987 $ 46 (389) 968,580 (455,108) 6,858
Balance (in shares) at Dec. 31, 2017   46,441        
Increase (Decrease) in Stockholders' Equity            
Adjustment to accumulated deficit (pursuant to adoption of ASU) | ASU 2016-09 27,583       27,583  
Compensation expense for issuance of stock options to employees 15,182     15,182    
Compensation expense for issuance of restricted stock to employees 6,147     6,147    
Compensation expense for issuance of restricted stock to employees (in shares)   306        
Exercise of stock options 15,198 $ 2   15,196    
Exercise of stock options (in shares)   689        
Purchase of Treasury Stock (1,744)   (1,744)      
Purchase of Treasury Stock ,Shares   72        
Other comprehensive (loss) income, net of tax (4,052)         (4,052)
Net (loss) income 33,682       33,682  
Balance at Dec. 31, 2018 611,984 $ 48 (2,133) 1,005,105 (393,843) 2,806
Balance (in shares) at Dec. 31, 2018   47,508        
Increase (Decrease) in Stockholders' Equity            
Compensation expense for issuance of stock options to employees 9,923     9,923    
Compensation expense for issuance of restricted stock to employees 4,327     4,327    
Compensation expense for issuance of restricted stock to employees (in shares)   278        
Exercise of stock options $ 24     24    
Exercise of stock options (in shares) 2 2        
Purchase of Treasury Stock $ (93)   1,495 (1,587)    
Purchase of Treasury Stock ,Shares   (58)        
Equity component of convertible notes exchange (38,404)     (38,404)    
Other comprehensive (loss) income, net of tax (3,975)         (3,975)
Net (loss) income (272,966)       (272,966)  
Balance at Dec. 31, 2019 $ 310,820 $ 48 $ (638) $ 979,388 $ (666,809) $ (1,169)
Balance (in shares) at Dec. 31, 2019   47,730        
v3.19.3.a.u2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:      
Net (loss) income $ (272,966) $ 33,682 $ (223,359)
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:      
Share-based compensation expense 14,250 21,252 32,814
Amortization of net premiums and discounts on investments (1,647) (1,417)  
Amortization of debt discount and debt issuance costs 15,724 15,822 12,153
Depreciation and amortization expense 34,573 11,479 23,234
Gain on debt extinguishment (55,073)    
Goodwill and intangible asset impairments 277,561   296,763
Change in contingent consideration obligation (86,935) 55,000 40,622
Realized gain on foreign currency transaction     247
Non-cash royalty revenue (10,271) (10,291) (2,705)
Deferred tax benefit (1,978) (14,505) (54,044)
Changes in assets and liabilities:      
Decrease (increase) in accounts receivable 1,347 57,972 (29,112)
Decrease (increase) in prepaid expenses and other current assets 14,439 (15,402) 3,445
Decrease in inventory 3,793 8,440 5,505
Decrease in non-current portion of deferred cost of license revenue     634
Decrease in other assets 11 34 4,138
Decrease in accounts payable, accrued expenses and other current liabilities (60,564) (3,488) (2,099)
Decrease in non-current portion of deferred license revenue     (9,057)
(Decrease) increase in other non-current liabilities (431) 52 1,491
Net cash (used) provided by operating activities (128,167) 150,793 97,136
Cash flows from investing activities:      
Purchases of property and equipment (90,426) (33,328) (13,688)
Purchases of intangible assets   (587) (688)
Purchases of investments (226,587) (249,107)  
Proceeds from maturities of investments 316,508 98,273  
Net cash used in investing activities (505) (176,865) (10,713)
Cash flows from financing activities:      
Payments on convertible senior notes exchange (55,199)    
Debt issuance costs (4,670) 0 0
Proceeds from issuance of common stock and option exercises 24 15,198 10,479
Repayment of non-controlling interest     2,722
Purchase of treasury stock (91) (1,744) (60)
Net proceeds from royalty monetizations     50,787
Repayment of loans payable (614) (657) (2,409)
Net cash (used) provided by financing activities (60,550) 12,797 61,519
Effect of exchange rate changes on cash and cash equivalents and restricted cash 62 (412) 1,225
Net (decrease) increase in cash and cash equivalents and restricted cash (189,160) (13,687) 149,167
Cash, cash equivalents and restricted cash at beginning of period 294,351 308,038 158,871
Cash, cash equivalents and restricted cash at end of period 105,191 294,351 308,038
Supplemental disclosure:      
Non-cash debt issuance cost 490    
Cash paid for interest 6,056 6,064 6,066
Cash paid for taxes $ 2,791 20,709 14,929
Zanaflex      
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:      
Gain on sale of assets     (3,534)
Cash flows from investing activities:      
Net proceeds from sale of assets     $ 3,663
Qutenza      
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:      
Gain on sale of assets   (7,837)  
Cash flows from investing activities:      
Net proceeds from sale of assets   $ 7,884  
v3.19.3.a.u2
Organization and Business Activities
12 Months Ended
Dec. 31, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
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.

v3.19.3.a.u2
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
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, estimated deductions to determine net revenue such as allowances for customer credits, including estimated discounts, rebates, and chargebacks, which are estimated based on available information that will be adjusted to reflect known changes in the factors that impact such allowances, estimates of derivative liability associated with the exchange of the new convertible senior secured notes due 2024, which is marked to market each quarter based on a Monte Carlo model approach, estimates of reserves for obsolete and excess inventory, and estimates of unrecognized tax benefits 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 which is 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 an escrow account with funds to maintain the interest payments for an amount equal to all remaining scheduled interest payments on the outstanding new convertible senior secured notes due 2024 through the interest

payment date of June 1, 2023; and a bank account with funds to cover the Company’s self-funded employee health insurance. At December 31, 2019, 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 and $30.0 million related to the escrow account for interest payments included in restricted cash – non current in the consolidated balance sheet due to the long-term nature of the letters of credit and interest payments. (see Note 10).

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same amounts shown in the statement of cash flows:

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

December 31, 2017

 

(In thousands)

 

Beginning of period

 

 

End of period

 

 

Beginning of period

 

 

End of period

 

 

Beginning of period

 

 

End of period

 

Cash and cash equivalents

 

$

293,564

 

 

$

62,085

 

 

$

307,068

 

 

$

293,564

 

 

$

158,537

 

 

$

307,068

 

Restricted cash

 

 

532

 

 

 

12,836

 

 

 

410

 

 

 

532

 

 

 

79

 

 

 

410

 

Restricted cash-non current

 

 

255

 

 

 

30,270

 

 

 

560

 

 

 

255

 

 

 

255

 

 

 

560

 

Total Cash, cash equivalents and restricted cash per statement of cash flows

 

$

294,351

 

 

$

105,191

 

 

$

308,038

 

 

$

294,351

 

 

$

158,871

 

 

$

308,038

 

 

Investments

Short-term investments consist primarily of high-grade commercial paper and corporate 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 all its 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 Income (Loss)

The Company’s other comprehensive income (loss) consisted 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 Income (Loss) for the period ended December 31, 2019 and 2018. The cumulative foreign currency translation adjustment reported in Other Comprehensive Income (Loss) was $(4.1) million and $(3.9) million for the period ended December 31, 2019 and 2018, respectively.

Inventory

Inventory is stated at the lower of cost or 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. The Company records a reserve for excess and obsolete inventory based on the expected future product sales volumes and the projected expiration of inventory and specifically identified obsolete inventory. The Company recorded a charge for excess and obsolete inventory of $0.0 million and $8.4 million for the years ended December 31, 2019 and 2018, respectively. Production costs related to idle capacity are not included in the cost of inventory but are charged directly to cost of sales in the period incurred. We recorded an idle

capacity charge to cost of goods sold of $0.7 million and $0.0 million for the years ended December 31, 2019 and 2018, respectively.

The following table provides the major classes of inventory:

 

(In thousands)

 

December 31, 2019

 

 

December 31, 2018

 

Raw materials

 

$

1,753

 

 

$

 

Work-in-progress

 

 

13,509

 

 

 

 

Finished goods

 

 

9,959

 

 

 

29,014

 

Total

 

$

25,221

 

 

$

29,014

 

 

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, except for assets acquired in a business combination, which are recorded at fair value as of the acquisition date. 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. The Company capitalizes interest costs for assets under construction.

Goodwill

Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired in a business combination 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. We perform our impairment testing at the reporting level where we have determined that we have a single reporting unit and operating segment. The impairment test for goodwill uses an approach which compares the estimated fair value of the reporting unit including goodwill to its carrying value. If the carrying value of the reporting unit exceeds the estimated fair value of the reporting unit, an impairment loss is recognized in an amount equal to the excess of the carrying value over the estimated fair value. The Company recorded an impairment charge of $277.6 million for the year ended December 31, 2019 in the statement of operations. See note 4 for a discussion of goodwill.

Intangible Assets

In Process Research and Development

The Company has indefinite lived intangible assets for the value of acquired 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 project will be further developed or have an alternative future use; otherwise it is expensed. The estimated fair value of IPR&D projects acquired in a business combination is capitalized. Several methods may be used to determine the estimated fair value of the IPR&D assets acquired in a business combination. The Company utilizes the "income method” which applies a probability weighting that considers the risk of development and commercialization to the 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, estimated 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 impaired, as appropriate. These assets are tested at least annually or when a triggering event occurs that could indicate a potential impairment. Events that could result in an impairment, or trigger an interim impairment assessment, may include

actions by regulatory authorities with respect to us or our competitors, the receipt of additional clinical or nonclinical data regarding our drug candidate or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate or new information regarding potential sales for the drug which could have a negative effect on cash flows and which could result in an impairment. If impairment indicators are present or changes in circumstance suggest that an impairment may exist, we perform an impairment analysis by comparing the sum of the estimated discounted future cash flows, or fair value, of each intangible asset to its carrying value on the consolidated balance sheet. We will recognize an impairment loss if the carrying value of the intangible asset exceeds its fair value.

Finite-Lived Intangible Assets

The Company has finite lived intangible assets that 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 impairment indicators are present or changes in circumstance suggest that impairment may exist, the Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows of each intangible asset to its carrying value on the consolidated balance sheet. If the undiscounted cash flows used in the recoverability test are less than the carrying value, the Company would determine the fair value of the intangible asset and recognize an impairment loss in the statement of operations if the carrying value of the intangible asset exceeds its fair value. Fair value is generally estimated based on either appraised value or other valuation techniques. Events that could result in an impairment, or trigger an interim impairment assessment, may include actions by regulatory authorities with respect to us or our competitors, new or better products entering the market, changes in market share or market pricing, changes in the economic lives of the assets, changes in the legal framework covering patents, rights or licenses, and other market changes which could have a negative effect on cash flows and which could result in an impairment.

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 16 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, including identifiable intangible assets subject to amortization and property plant and equipment, 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. Factors the Company considers important that could trigger an impairment review include significant changes in the use of any assets, changes in historical trends in operating performance, changes in projected operating performance, stock price, loss of a major customer and significant negative economic trends. The decline in the trading price of the Company's common stock during the quarter ended September 30, 2019, and related decrease in the Company's market capitalization, was determined to be a triggering event in connection with the Company's review of the recoverability of its long-lived assets for the year ended December 31, 2019. The Company performed a recoverability test during the third quarter of fiscal 2019 using the undiscounted cash flows, which are the sum of the future undiscounted cash flows expected to be derived from the direct use of the long-lived assets to the carrying value of the long-lived assets. Estimates of future cash flows were based on the Company’s own assumptions about its own use of the long-lived assets. The cash flow estimation period was based on the long-lived assets’ estimated remaining useful life to the Company. After performing the recoverability test, the Company determined that the undiscounted cash flows exceeded the carrying value and the long-lived assets were not impaired. Changes in these assumptions and resulting valuations could result in future long-lived asset impairment charges. Management will continue to monitor any changes in circumstances for indicators of impairment. Any write‑downs are treated as permanent reductions in the carrying amount of the assets.

Non-Cash Interest Expense on Liability Related to Sale of Future Royalties

As of October 1, 2017, the Company completed a royalty purchase agreement with HealthCare Royalty Partners, or HCRP (“Royalty Agreement”). In exchange for the payment of $40 million to the Company, HCRP obtained the right to receive Fampyra royalties payable by Biogen under the Collaboration and Licensing Agreement between the Company and Biogen, up to an agreed upon threshold of royalties. When this threshold is met, if ever, the Fampyra royalty revenue will revert back to the Company and the Company will continue to receive the Fampyra royalty revenue from Biogen until the revenue stream ends. The transaction does not include potential future milestones to be paid by Biogen to Acorda.

The Company maintained the rights under the license and collaboration agreement with Biogen, therefore, the Royalty Agreement has been accounted for as a liability that will be amortized using the effective interest method over the life of the arrangement, in accordance with the relevant accounting guidance. In order to determine the amortization of the liability, the Company is required to estimate the total amount of future net royalty payments to be made to HCRP over the term of the agreement up to the agreed upon threshold of royalties. The total threshold of net royalties to be paid, less the net proceeds received will be recorded as interest expense over the life of the liability. The Company imputes interest on the unamortized portion of the liability using the effective interest method and records interest expense based on the timing of the payments received over the term of the royalty agreement. The Company’s estimate of the interest rate under the arrangement is based on forecasted net royalty payments expected to be made to HCRP over the life of the royalty agreement. The Company estimated an effective annual interest rate of approximately 15%. Over the course of the Royalty Agreement, the actual interest rate will be affected by the amount and timing of net royalty revenue recognized and changes in forecasted revenue. On a quarterly basis, the Company will reassess the effective interest rate and adjust the rate prospectively as required. Non-cash royalty revenue is reflected as royalty revenue and non-cash interest expense is reflected as interest and amortization of debt discount expense in the Statement of Operations.

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.

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

On January 1, 2018, the Company adopted the new accounting standard ASC 606, “Revenue from Contracts with Customers” (Topic 606) (“ASC 606”) and the related amendments to all contracts with customers that were not completed as of the date of adoption using the modified retrospective method. ASC 606 supersedes prior revenue guidance under ASC 605 “Revenue Recognition” (“ASC 605”) and requires entities to recognize revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company completed its assessment of the new guidance and evaluated the new requirements as applied to its existing revenue contracts not completed as of the date of initial application. As a result of the assessment, with the exception of the changes to our recognition of license revenue as further described below, the Company determined that adoption of the new standard did not have a significant impact on its revenue recognition methodology. In accordance with ASC 606, the Company recognizes revenue when the customer obtains control of a promised good or service, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the good or service.

The Company determined that the revenue recognition methodology for the deferred license revenue changed as a result of the adoption of ASC 606. License revenue recorded by the Company prior to January 1, 2018 related exclusively to the recognition of the upfront payment received from Biogen upon the execution of the License and Collaboration agreement that granted Biogen an exclusive non sub-licensable license to sell Fampyra outside of the U.S. License revenue recorded prior to January 1, 2018 was recognized under ASC 605 on a pro rata basis as the Company’s obligations were satisfied throughout the duration of the license and collaboration agreement. As of January 1, 2018, the Company adopted ASC 606 which changed the Company’s determination of its distinct performance obligations resulting in an acceleration of the recognition of the revenue in the arrangement. The material performance obligations were completed prior to January 1, 2018, and as a result, the Company recognized its previously deferred license revenue and the associated deferred costs as a cumulative effect adjustment of $27.6 million within the accumulated deficit on the consolidated balance sheet as of January 1, 2018.

The cumulative effect of applying ASC 606 to the company’s consolidated balance sheet was as follows:

 

(In thousands)

 

Balance as of December 31, 2017

 

 

Net Adjustments

 

 

Balance as of

January 1, 2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Other current assets

 

$

1,983

 

 

$

(634

)

 

$

1,349

 

Non-current portion of deferred cost of license revenue

 

 

1,638

 

 

 

(1,638

)

 

 

 

    Total Assets

 

$

1,197,969

 

 

$

(2,272

)

 

$

1,195,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of deferred license revenue

 

$

9,057

 

 

$

(9,057

)

 

$

 

Non-current portion of deferred license revenue

 

 

23,398

 

 

 

(23,398

)

 

 

 

Deferred tax liability

 

 

22,459

 

 

 

2,600

 

 

 

25,059

 

Accumulated deficit

 

 

(455,108

)

 

 

27,583

 

 

 

(427,525

)

    Total liabilities and stockholders' equity

 

$

1,197,969

 

 

$

(2,272

)

 

$

1,195,697

 

 

The impact of the adoption of ASC 606 on the Company’s consolidated balance sheet as of December 31, 2018 was as follows:

 

(In thousands)

 

Balance as of

December 31, 2018

Prior to Adoption

of ASC 606

 

 

Net Adjustments

 

 

Balance as of

December 31, 2018

as Reported

Under ASC 606

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Other current assets

 

$

10,828

 

 

$

(634

)

 

$

10,194

 

Non-current portion of deferred cost of license revenue

 

 

1,004

 

 

 

(1,004

)

 

 

 

    Total Assets

 

$

1,301,304

 

 

$

(1,638

)

 

$

1,299,666

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of deferred license revenue

 

$

9,057

 

 

$

(9,057

)

 

$

 

Non-current portion of deferred license revenue

 

 

14,341

 

 

 

(14,341

)

 

 

 

Deferred tax liability

 

 

6,988

 

 

 

495

 

 

 

7,483

 

Accumulated deficit

 

 

(415,108

)

 

 

21,265

 

 

 

(393,843

)

    Total liabilities and stockholders' equity

 

$

1,301,304

 

 

$

(1,638

)

 

$

1,299,666

 

 

The impact of the adoption of ASC 606 on the Company’s consolidated statement of operations for the year ended December 31, 2018 was as follows:

 

(In thousands)

 

Year Ended December 31, 2018

Balance Prior to

Adoption of ASC 606

 

 

Effect of Change

 

 

Year Ended December 31, 2018

Balance as Reported

Under ASC 606

 

License revenue

 

$

9,057

 

 

$

(9,057

)

 

$

 

Cost of license revenue

 

 

634

 

 

 

(634

)

 

 

 

Operating income (loss)

 

$

46,909

 

 

$

(8,423

)

 

$

38,486

 

(Benefit from) provision for income taxes

 

 

(15,364

)

 

 

2,105

 

 

 

(13,259

)

Net income (loss)

 

$

40,000

 

 

$

(6,318

)

 

$

33,682

 

Net income (loss) per share—basic

 

$

0.85

 

 

$

(0.13

)

 

$

0.72

 

Net income (loss) per share—diluted

 

$

0.84

 

 

$

(0.13

)

 

$

0.71

 

 

ASC 606 did not have an aggregate impact on the Company’s net cash provided by operating activities.

ASC 606 outlines a five-step process for recognizing revenue from contracts with customers: i) identify the contract with the customer, ii) identify the performance obligations in the contract, (iii) determine the transaction price, iv) allocate the transaction price to the separate performance obligations in the contract, and (v) recognize revenue associated with the performance obligations as they are satisfied.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606, the Company determines the performance obligations that are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to each respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations are transferred to customers at a point in time, typically upon receipt of the product by the customer.

ASC 606 requires entities to record a contract asset when a performance obligation has been satisfied or partially satisfied, but the amount of consideration has not yet been received because the receipt of the consideration is conditioned on something other than the passage of time. ASC 606 also requires an entity to present a revenue contract as a contract liability

in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g. receivable), before the entity transfers a good or service to the customer. We did not have any contract assets or liabilities as of December 31, 2019 and December 31, 2018.

Product Revenue, Net

Inbrija

Inbrija is available primarily through a network of specialty pharmacies, which deliver the medication to patients by mail, and ASD Specialty Healthcare, Inc. (an AmerisourceBergen affiliate).

Ampyra

Ampyra is distributed primarily through a network of specialty pharmacies, which deliver the medication to patients by mail.

Net revenue from product sales is recognized at the transaction price when the customer obtains control of the Company’s products, which occurs at a point in time, typically upon receipt of the product by the customer. The Company’s products are sold primarily to a network of specialty providers which are contractually obligated to hold no more than an agreed upon number of days of inventory. The Company’s payment terms are between 30 to 35 days.

The Company’s net revenues represent total revenues adjusted for discounts and allowances, including estimated cash discounts, chargebacks, rebates, returns, copay assistance, data fees and wholesaler fees for services. These adjustments represent variable consideration under ASC 606 and are recorded for the Company’s estimate of cash consideration expected to be given by the Company to a customer that is presumed to be a reduction of the transaction price of the Company’s products and, therefore, are characterized as a reduction of revenue. These adjustments 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. Adjustments for variable consideration are determined 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.

Discounts and Allowances

Revenue from product sales are recorded at the transaction price, which includes estimates for discounts and allowances for which reserves are established and includes cash discounts, chargebacks, rebates, returns, copay assistance, data fees and wholesaler fees for services. Actual discounts and allowances are recorded following shipment of product and the appropriate reserves are credited. These reserves are classified as reductions of accounts receivable (if the amount is payable to the Customer and right of offset exists) or a current liability (if the amount is payable to a party other than a Customer). These allowances are established by management as its best estimate based on historical experience and data points available and are adjusted to reflect known changes in the factors that impact such reserves. Allowances for customer credits, chargebacks, rebates, data fees and wholesaler fees for services, returns, and discounts are established based on contractual terms with customers and analyses of historical usage of these items. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. The nature of our allowances and accruals requiring critical estimates, and the specific considerations it uses in estimating their amounts are as follows:

Government Chargebacks and Rebates: We contract for Medicaid and other U.S. federal government programs to allow for our products to remain eligible for reimbursement under these programs. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. Based upon our contracts and the most recent experience with respect to sales through each of these channels, we provide an allowance for chargebacks and rebates. We monitor the sales trends and adjust the chargeback and rebate percentages on a regular basis to reflect the most recent chargebacks and rebate experience. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current

quarter, and estimated future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.

Managed Care Contract Rebates: We contract with various managed care organizations including health insurance companies and pharmacy benefit managers. These contracts stipulate that rebates and, in some cases, administrative fees, are paid to these organizations provided our product is placed on a specific tier on the organization’s drug formulary. Based upon our contracts and the most recent experience with respect to sales through managed care channels, we provide an allowance for managed care contract rebates. We monitor the sales trends and adjust the allowance on a regular basis to reflect the most recent rebate experience. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.

Copay Mitigation Rebates: We offer copay mitigation to commercially insured patients who have coverage for our products (in accordance with applicable law) and are responsible for a cost share. Based upon our contracts and the most recent experience with respect to actual copay assistance provided, we provide an allowance for copay mitigation rebates. We monitor the sales trends and adjust the rebate percentages on a regular basis to reflect the most recent rebate experience.

Cash Discounts: We sell directly to companies in our distribution network, which primarily includes specialty pharmacies, which deliver the medication to patients by mail, and ASD Specialty Healthcare, Inc. (an AmeriSourceBergen affiliate). We generally provide invoice discounts for prompt payment for our products. We estimate our cash discounts based on the terms offered to our customers. Discounts are estimated based on rates that are explicitly stated in the Company’s contracts as it is expected they will take the discount and are recorded as a reduction of revenue at the time of product shipment when product revenue is recognized. We adjust estimates based on actual activity as necessary.

Product Returns: We offer no right of return except for products damaged upon receipt to Ampyra and Inbrija customers or a limited right of return based on the product’s expiration date to previous Zanaflex and Qutenza customers. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The company currently estimates product return liabilities using historical sales information and inventory remaining in the distribution channel.

Data Fees and Fees for Services Payable to Specialty Pharmacies: We have contracted with certain specialty pharmacies to obtain transactional data related to our products in order to develop a better understanding of our selling channel as well as patient activity and utilization by the Medicaid program and other government agencies and managed care organizations. We pay a variable fee to the specialty pharmacies to provide us the data. We also pay the specialty pharmacies a fee in exchange for providing distribution and inventory management services, including the provision of inventory management data to the Company. We estimate our fee for service accruals and allowances based on sales to each specialty pharmacy and the applicable contracted rate.

Royalty Revenue

Royalty revenue recorded by the Company relates exclusively to the Company’s License and Collaboration agreement with Biogen which provides for ongoing royalties based on sales of Fampyra outside of the U.S. The Company recognizes revenue for royalties under ASC 606, which provides revenue recognition constraints by requiring the recognition of revenue at the later of the following: 1) sale or usage of the products or 2) satisfaction of the performance obligations. The Company has satisfied its performance obligations and therefore recognizes royalty revenue when the sales to which the royalties relate are completed.

License Revenue

License revenue relates to the License and Collaboration agreement with Biogen which provides for milestone payments for the achievement of certain regulatory and sales milestones during the term of the agreement. Regulatory milestones are contingent upon the approval of Fampyra for new indications outside of the U.S. Sales milestones are contingent upon the achievement of certain net sales targets for Fampyra sales outside of the U.S. The Company recognizes license revenue under ASC 606, which provides constraints for entities to recognize license revenue which is deemed to be

variable by requiring the Company to estimate the amount of consideration to which it is entitled in exchange for transferring the promised goods or services to a customer. The Company recognizes an estimate of revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the milestone is achieved. For regulatory milestones, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. For sales-based milestones, the Company recognizes revenue upon the achievement of the specific sale milestones. The Company did not recognize any license revenue related to milestones for the years ended December 31, 2019, 2018 or 2017.

The following table disaggregates our revenue by major source (in thousands):

 

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

Year ended December 31,

 

(In thousands)

 

2019

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Net product revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Ampyra

 

$

163,162

 

 

$

455,096

 

 

$

543,343

 

Inbrija

 

 

15,303

 

 

 

 

 

 

 

Other

 

 

2,271

 

 

 

4,643

 

 

 

6,406

 

Total net product revenues

 

 

180,736

 

 

 

459,739

 

 

 

549,749

 

Royalty revenues

 

 

11,672

 

 

 

11,694

 

 

 

29,481

 

License revenue

 

 

 

 

 

 

 

 

9,057

 

Total net revenues

 

$

192,408

 

 

$

471,433

 

 

$

588,287

 

 

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 does not require any collateral for its accounts receivable. The Company maintains cash, cash equivalents and restricted cash 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 its product Ampyra. 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 Inbrija. The Company leases a manufacturing facility in Chelsea, Massachusetts which produces Inbrija for clinical trials and commercial supply.

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, 2019 were a network of specialty pharmacies and ASD Specialty Healthcare, Inc. (an AmeriSource Bergen affiliate) for Inbrija and a network of specialty pharmacies for Ampyra. The Company periodically assesses the financial strength of these customers and establishes allowances for anticipated losses, if necessary. Four customers individually accounted for more than 10% of the Company’s revenue or approximately 83% of total revenue in 2019. Four customers individually accounted for more than 10% of the Company’s revenue in 2018 and 2017. Four customers individually accounted for more than 10% of the Company’s accounts receivable or approximately 91% of total accounts receivable as of December 31, 2019. Five customers individually accounted for more than 10% of the

Company’s accounts receivable or approximately 88% of total accounts receivable as of December 31, 2018. 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 34 days after the end of each calendar month. The Company provided cash discount allowances of $2.7 million and $6.4 million for the years ended December 31, 2019 and 2018, respectively. The Company’s reserve for cash discount allowances was $0.4 million as of December 31, 2019 and 2018,

 

(in thousands)

 

Cash

discounts

 

Balance at December 31, 2017

 

$

844

 

Allowances for sales

 

 

6,371

 

Actual credits

 

 

(6,820

)

Balance at December 31, 2018

 

$

395

 

Allowances for sales

 

 

2,722

 

Actual credits

 

 

(2,705

)

Balance at December 31, 2019

 

$

412

 

 

Allowance for Doubtful Accounts

A portion of the Company’s accounts receivable may not be collected. The Company provides reserves based on an 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 had no recognized allowance for doubtful accounts as of December 31, 2019 or December 31, 2018. There were no provisions and write-offs for the years ended December 31, 2019 and 2018. 

Allowance for Chargebacks

Based upon the Company’s contracts and the most recent experience with respect to sales with the U.S. government, the Company provides an allowance for chargebacks. The Company monitors the sales trends and adjusts the chargebacks on a regular basis to reflect the most recent chargebacks experience. The Company recorded a charge of $6.5 million and $18.9 million for the years ended December 31, 2019 and December 31, 2018, respectively. The Company made a payment of $8.5 million and $16.7 million related to the chargebacks allowances for the years ended December 31, 2019 and December 31, 2018, respectively. The Company’s reserve for chargebacks allowance was $0.2 million and $2.2 million as of December 31, 2019 and December 31, 2018, respectively.

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

 

(b)

Short-term investments 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 the debt securities;

 

(e)

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

 

(f)

New convertible senior secured notes due 2024 were measured at fair value based on market quoted prices of the debt securities; and

 

(g)

Derivate liability related to conversion option of the new convertible senior secured notes due 2024 is measured at fair value using a Monte Carlo simulation 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 18 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 10.

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 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 operation and reported in other income (expense) in consolidated statements of 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 and Inbrija in the U.S. for the year ended December 31, 2019 and Ampyra and Qutenza in the U.S. for the year ended December 31, 2018 and Ampyra, Zanaflex and Qutenza in the U.S. for the year ended December 31, 2017.

Accumulated Other Comprehensive Income

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

Recent Accounting Pronouncements - Adopted

In February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842, which amends the guidance in former ASC Topic 840, Leases. The new standard increases transparency and comparability most significantly by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases longer than 12 months. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The Company adopted the new lease guidance effective January 1, 2019 using the modified retrospective transition approach, applying the new standard to all of its leases existing at the date of initial application which is the effective date of adoption. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. We elected the package of practical expedients which permits us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient which permits entities to use hindsight in determining the lease term and assessing impairment. The adoption of the lease standard did not change our previously reported consolidated statements of operations and did not result in a cumulative catch-up adjustment to opening equity. See Note 3 for further information.

In August 2018, the Securities Exchange Commission (“SEC”) adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The Company adopted the rule in the three-month period ended March 31, 2019 and included its first presentation of changes in stockholders’ equity in its Form 10-Q for the three-month period ended March 31, 2019.

In February 2018, the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income” (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). This new standard provides entities with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The reclassification is the difference between the amount previously recorded in other comprehensive income at the historical U.S. federal tax rate that remains in accumulated other comprehensive loss at the time the Act was effective and the amount that would have been recorded using the newly enacted rate. This guidance became effective in Q1 2019; however, the Company did not elect to make the optional reclassification.

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements.” The ASU’s amendments clarify, correct errors in, or make minor improvements to a variety of ASC topics. The changes in ASU 2018-09 are not expected to have a significant effect on current accounting practices. Some of the amendments in this update do not require transition guidance and are effective upon issuance of this update. However, many of the amendments in this update do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. The ASU became effective in Q1 2019. The ASU did not have a significant impact on its consolidated financial statements. 

 

In January 2017, the FASB issued ASU 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 adopted this guidance on April 1, 2019. The ASU did not have an impact upon adoption on its consolidated financial statements. 

Recent Accounting Pronouncements – Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This ASU provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. This new standard amends the current guidance on the impairment of financial instruments and adds an impairment model known as current expected credit loss (CECL) model that is based on expected losses rather than incurred losses. Under the new guidance, an entity will recognize as an allowance its estimate of expected credit losses. The FASB subsequently issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses to clarify and address certain items related to the amendments in ASU 2016-13. ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, was issued to provide entities that have certain instruments within the scope of ASC 326 with an option to irrevocably elect the fair value option under ASC 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments. ASC 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim reporting periods within those fiscal years with early adoption permitted. The Company does not anticipate a significant impact on its consolidated financial statements based on the available for sale debt instruments currently held and its historical trend of bad debt expense relating to trade accounts receivable.

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820): “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The amendment in this ASU eliminate, add and modify certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public business entities will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its disclosure requirements in consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The ASU clarifies certain aspects of ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in April 2015. Specifically, the ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).” The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606. ASU 2018-18 clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer and precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The ASU enhances and simplifies various aspects of the income tax accounting guidance in ASC 740 and removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for fiscal years beginning after December 15,

2020, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact the adoption of this guidance 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 there were no subsequent events that required disclosure in our financial statements.

v3.19.3.a.u2
Leases
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Leases

(3) Leases

In February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842, which amends the guidance in former ASC Topic 840, Leases. The new standard increases transparency and comparability most significantly by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases longer than 12 months. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The Company adopted the new lease guidance effective January 1, 2019 using the modified retrospective transition approach, applying the new standard to all of its leases existing at the date of initial application which is the effective date of adoption. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. We elected the package of practical expedients which permits us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. We did not elect the hindsight practical expedient which permits entities to use hindsight in determining the lease term and assessing impairment. The adoption of the lease standard did not change our previously reported consolidated statements of operations and did not result in a cumulative catch-up adjustment to opening equity. The adoption of the new guidance resulted in the recognition of ROU assets of $28.0 million and lease liabilities of $35.1 million at January 1, 2019. The difference between the ROU assets and the lease liabilities is primarily due to unamortized initial direct costs, lease incentives and deferred rent related to the Company’s operating leases at December 31, 2018.

The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. In calculating the present value of the lease payments, the Company elected to utilize its incremental borrowing rate based on the remaining lease terms as of the January 1, 2019 adoption date.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any. Our leases have remaining lease terms of 2.5 years to 7 years, some of which include options to extend the lease term for up to 15 years, and some of which include options to terminate the lease within 2.5 years.

The Company has elected the practical expedient to combine lease and non-lease components as a single component. The lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as right-of-use assets, current operating lease liabilities and non-current operating lease liabilities.

The new standard also provides practical expedients and certain exemptions for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases where the initial lease term is one year or less or for which the ROU asset at inception is deemed immaterial, we will not recognize ROU assets or lease liabilities. Those leases are expensed on a straight line basis over the term of the lease.

Operating Leases

We lease certain office space, manufacturing and warehouse space under arrangements classified as leases under ASC 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal options ranging from 5 to 15 years. The exercise of lease renewal options is at our sole discretion. One of our leases also includes an option to early terminate the lease within 2.5 years.

Ardsley, New York

In June 2011, the Company entered into a 15-year lease for an aggregate of approximately 138,000 square feet of office and laboratory space in Ardsley, New York. In 2014, the Company exercised its option to expand into an additional 25,405 square feet of office space, which the Company occupied in January 2015. The Company has options to extend the term of the lease for three additional five-year periods, and the Company has an option to terminate the lease after 10 years subject to payment of an early termination fee. The Company’s extension and early termination rights are subject to specified terms and conditions, including specified time periods when they must be exercised, and are also subject to limitations including that the Company not be in default under the lease.

The Ardsley lease provides for monthly payments of rent during the lease term. These payments consist of base rent, which takes into account the costs of the facility improvements funded by the facility owner prior to the Company’s occupancy, and additional rent covering customary items such as charges for utilities, taxes, operating expenses, and other facility fees and charges. The base rent is currently $4.8 million per year, which reflects an annual 2.5% escalation factor.

Chelsea, Massachusetts

Through our Civitas subsidiary, we lease a manufacturing facility in Chelsea, Massachusetts which we use to manufacture Inbrija. The approximately 90,000 square foot facility also includes office and laboratory space. Civitas leases this facility from North River Everett Ave, LLC pursuant to a lease with a term that expires on December 31, 2025, and Civitas has two additional extension options of five years each. The base rent under the lease is currently $1.7 million per year, which reflects an annual escalation factor of 2.5% as well as an amendment to the lease to add additional property at the Chelsea, Massachusetts site as further described below.

In 2017, the Company’s Civitas subsidiary amended its existing Chelsea, Massachusetts lease. The amendment added expansion property located in Chelsea, Massachusetts next to the existing facility. The additional property includes land being used for parking and a free-standing warehouse building on the same site. The base rent for the additional property under the lease included in the rent number above, is currently $0.4 million per year with an annual escalation factor of 3.0%.

In 2018, the Company initiated a renovation and expansion of a building within the Chelsea manufacturing facility that increased the size of the facility to approximately 95,000 square feet. The project has added a new manufacturing production line for Inbrija and other ARCUS products that has greater capacity than the existing manufacturing line, and has created additional warehousing space for manufactured product. Pursuant to a 2018 lease amendment that enabled the renovation and expansion, upon completion of the project, annual rent under the lease increased to $1.7 million. Although the project was substantially completed in late 2019, it will take additional time after completion of construction to obtain the approvals needed for use of the new production line for commercial manufacture, such as approvals from the FDA, Massachusetts state environmental permits, and approvals from other regulatory authorities. All costs to renovate and expand the facility are borne by the Company, and will be accounted for as leasehold improvements when the renovation and expansion is approved to be used for production.

Additional Facilities

In October 2016, we entered into a 10-year lease agreement with a term commencing January 1, 2017, for approximately 26,000 square feet of lab and office space in Waltham, MA. The lease provides for monthly rental payments over the lease term. The base rent under the lease is currently $1.1 million per year.

Our leases have remaining lease terms of 2.5 years to 7 years, which assumes exercise of the early termination of our Ardsley, NY lease. We do not include any renewal options in our lease terms when calculating our lease liabilities as we are

not reasonably certain that we will exercise these options. When calculating the lease liability, we assume exercise of the Ardsley early termination option. The weighted-average remaining lease term for our operating leases was 5 years at December 31, 2019. The weighted-average discount rate was 7.13% at December 31, 2019.

ROU assets and lease liabilities related to our operating leases are as follows:

(In thousands)

 

Balance Sheet Classification

 

December 31, 2019

 

Right-of-use assets

 

Right of use assets

 

$

23,450

 

Current lease liabilities

 

Current portion of lease liabilities

 

 

7,746

 

Non-current lease liabilities

 

Non-current portion of lease liabilities

 

 

22,996

 

 

We have lease agreements that contain both lease and non-lease components. We account for lease components together with non-lease components (e.g., common-area maintenance). The components of lease costs were as follows:

 

 

 

Year ended December 31,

 

(In thousands)

 

2019

 

Operating lease cost

 

$

7,070

 

Variable lease cost

 

 

4,585

 

Short-term lease cost

 

 

1,417

 

Total lease cost

 

$

13,072

 

             

       

 

Future minimum commitments under all non-cancelable operating leases are as follows:

 

(In thousands)

 

 

 

 

2020

 

$

7,746

 

2021

 

 

7,935

 

2022

 

 

9,971

 

2023

 

 

3,043

 

2024

 

 

3,128

 

Later years

 

 

4,537

 

Total lease payments

 

 

36,360

 

Less: Imputed interest

 

 

(5,619

)

Present value of lease liabilities

 

$

30,741

 

 

Supplemental cash flow information and non-cash activity related to our operating leases are as follows:

 

(In thousands)

 

December 31, 2019

 

Operating cash flow information:

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

7,507

 

Non-cash activity:

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations

 

$

770

 

 

v3.19.3.a.u2
Intangible Assets and Goodwill
12 Months Ended
Dec. 31, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill

(4) Intangible Assets and Goodwill

Intangible Assets

Inbrija (levodopa inhalation powder) and ARCUS Technology

In connection with the acquisition of Civitas in October 2014, the Company acquired global rights to Inbrija, a Phase 3 treatment candidate for Parkinson’s disease OFF periods, also known as OFF episodes. The acquisition of Civitas also included rights to Civitas’ proprietary ARCUS drug delivery technology, which the Company believes has potential to be

used in the development of a variety of inhaled medicines. In December 2018, the FDA approved Inbrija for intermittent treatment of OFF episodes in people with Parkinson’s disease treated with carbidopa/levodopa.

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 of the associated research and development efforts. The value allocated to the indefinite lived intangible asset was $423 million. In December 2018, the Company received FDA approval for Inbrija and accordingly reclassified the indefinite lived intangible asset to a definite lived intangible asset with amortization commencing upon launch in February 2019.

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.

On March 31, 2017, the United States District Court for the District of Delaware (the “District Court”) upheld U.S. Patent No. 5,540,938 (the ‘938 patent), which was 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 in 2017 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 year ended December 31, 2019 or December 31, 2018.

Tozadenant, SYN120, BTT1023 and Selincro IPR&D

In connection with the acquisition of Biotie, the Company acquired global rights to tozadenant, SYN120, and BTT1023 (timolumab). Tozadenant was a potential treatment for Parkinson’s disease patients to reduce off periods. SYN120 is a potential treatment for Parkinson’s-related dementia. BTT1023 is a product candidate for the orphan disease Primary Sclerosing Cholangitis, or PSC, a chronic and progressive liver disease. 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 marketed across Europe by 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 was being amortized over the estimated remaining useful life of approximately 6 years. The value allocated to the indefinite lived intangible assets was $260.5 million.

In November 2017, the Company announced that it was discontinuing its clinical development program for tozadenant, including immediately discontinuing dosing of all participants that were already enrolled in tozadenant studies. The Company made this decision based on additional data obtained from the Phase 3 clinical trial related to previously disclosed agranulocytosis and associated serious adverse events. Based on the analysis of the additional data, the Company determined that tozadenant was fully impaired. The Company recorded a non-cash impairment charge in the amount of approximately $233.5 million to write-off the asset for the year ended December 31, 2017.

In December 2017, the Company received and reviewed the data read-out from the Phase II proof-of-concept study for SYN120. The data from the Phase II study showed that neither the primary nor key secondary endpoints achieved statistical significance. Based on the data from the study indicating a lack of statistical significance for the key endpoints in the study, management determined that SYN120 was fully impaired. The Company recorded a non-cash impairment charge in the amount of approximately $23.8 million to write-off the asset for the year ended December 31, 2017.

In the three-month period ended September 30, 2017, the Company determined the carrying value of Selincro was greater than the estimated fair market value. The Company recorded a non-cash impairment charge of $39.4 million representing the amount by which the carrying value exceeded the fair market value for the year ended December 31, 2017.

In November 2017, the Company executed an Amendment to its existing License and Commercialization Agreement with Lundbeck for the Company to provide to Lundbeck, a fully paid up royalty free license under the licensed IP for sales of Selincro outside of the U.S. in exchange for a payment of approximately $13.0 million (or approximately €11.0 million). Selincro is not approved for use in the U.S. The Company recorded the receipt of the payment from Lundbeck as royalty income for the year ended December 31, 2017 and accelerated the amortization of the remaining carrying value to account for the asset monetization. The Company recorded amortization expense related to Selincro of approximately $14.7 million (or approximately €12.4 million) in the three-month period ended December 31, 2017. As of December 31, 2017, the net book value of Selincro was $0.

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, 2019, 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, 2019

 

 

December 31, 2018

 

(Dollars In thousands)

 

Estimated

Remaining

Useful Lives

(Years)

 

 

Cost

 

 

Accumulated

Amortization

 

 

Foreign

Currency

Translation

 

 

Net

Carrying

Amount

 

 

Cost

 

 

Accumulated

Amortization

 

 

Reclass to Definite-lived asset

 

 

Foreign

Currency

Translation

 

 

Net

Carrying

Amount

 

In-process research &

   development (1)

 

Indefinite-lived

 

 

$

4,300

 

 

$

 

 

$

(88

)

 

$

4,212

 

 

$

427,500

 

 

$

 

 

$

(423,000

)

 

$

(200

)

 

$

4,300

 

Inbrija (2)

 

13

 

 

 

423,000

 

 

 

(25,636

)

 

 

 

 

 

397,364

 

 

 

 

 

 

 

 

 

423,000

 

 

 

 

 

 

423,000

 

Ampyra milestones

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,750

 

 

 

(5,750

)

 

 

 

 

 

 

 

 

 

Ampyra CSRO royalty buyout

 

n/a