ACORDA THERAPEUTICS INC, 10-K filed on 3/1/2018
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2017
Feb. 20, 2018
Jun. 30, 2017
Document And Entity Information [Abstract]
 
 
 
Entity Registrant Name
ACORDA THERAPEUTICS INC 
 
 
Entity Central Index Key
0001008848 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 342,832,579 
Entity Common Stock, Shares Outstanding
 
46,913,767 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
ACOR 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 307,068 
$ 158,537 
Restricted cash
410 
79 
Trade accounts receivable, net of allowances of $845 and $964, as of December 31, 2017 and 2016, respectively
81,403 
52,239 
Prepaid expenses
13,333 
12,907 
Finished goods inventory held by the Company
37,501 
43,135 
Other current assets
1,983 
5,760 
Total current assets
441,698 
272,657 
Property and equipment, net of accumulated depreciation
36,669 
34,310 
Goodwill
286,611 
280,599 
Deferred tax asset
 
4,400 
Intangible assets, net of accumulated amortization
430,603 
742,242 
Non-current portion of deferred cost of license revenue
1,638 
2,272 
Other assets
750 
5,855 
Total assets
1,197,969 
1,342,335 
Current liabilities:
 
 
Accounts payable
27,367 
26,933 
Accrued expenses and other current liabilities
100,128 
104,890 
Current portion of deferred license revenue
9,057 
9,057 
Current portion of loans payable
645 
6,256 
Current portion of liability related to sale of future royalties
6,763 
 
Current portion of convertible notes payable
 
765 
Total current liabilities
143,960 
147,901 
Convertible senior notes (due 2021)
308,805 
299,395 
Acquired contingent consideration
112,722 
72,100 
Non-current portion of deferred license revenue
23,398 
32,456 
Non-current portion of loans payable
25,670 
24,635 
Deferred tax liability
22,459 
92,807 
Non-current portion of liability related to sale of future royalties
29,025 
 
Other non-current liabilities
11,943 
8,830 
Commitments and contingencies
   
   
Stockholders’ equity:
 
 
Preferred stock, $0.001 par value. Authorized 1,000,000 shares at December 31, 2017 and no shares at December 31, 2016; no shares issued as of December 31, 2017
   
   
Common stock, $0.001 par value. Authorized 80,000,000 shares at December 31, 2017 and 2016; issued 46,441,428 and 45,680,042 shares, including those held in treasury, as of December 31, 2017 and 2016, respectively
46 
46 
Treasury stock at cost (16,151 and 12,420 shares at December 31, 2017 and 2016, respectively)
(389)
(329)
Additional paid-in capital
968,580 
921,365 
Accumulated deficit
(455,108)
(243,970)
Accumulated other comprehensive income (loss)
6,858 
(12,901)
Total stockholders’ equity
519,987 
664,211 
Total liabilities and stockholders’ equity
$ 1,197,969 
$ 1,342,335 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]
 
 
Trade accounts receivable, allowances (in dollars)
$ 845 
$ 964 
Preferred stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Preferred stock, Authorized shares
1,000,000 
Preferred stock, issued shares
 
Common stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Common stock, Authorized shares
80,000,000 
80,000,000 
Common stock, issued shares
46,441,428 
45,680,042 
Treasury stock, shares
16,151 
12,420 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Revenues:
 
 
 
Net product revenues
$ 549,749 
$ 493,358 
$ 466,111 
Royalty revenues
29,481 
17,186 
17,492 
License revenue
9,057 
9,057 
9,057 
Total net revenues
588,287 
519,601 
492,660 
Costs and expenses:
 
 
 
Cost of sales
135,080 
107,475 
92,297 
Cost of milestone and license revenue
634 
634 
634 
Research and development
166,105 
203,437 
149,209 
Selling, general and administrative
181,619 
235,437 
205,630 
Asset impairment
296,763 
 
 
Changes in fair value of acquired contingent consideration
40,900 
8,600 
10,900 
Total operating expenses
821,101 
555,583 
458,670 
Operating (loss) income
(232,814)
(35,982)
33,990 
Other expense (net):
 
 
 
Interest and amortization of debt discount expense
(18,664)
(16,527)
(15,472)
Interest income
136 
339 
440 
Other (expense) income
(543)
9,902 
411 
Total other expense (net)
(19,071)
(6,286)
(14,621)
(Loss) income before taxes
(251,885)
(42,268)
19,369 
Benefit from (provision for) income taxes
28,526 
6,665 
(8,311)
Net (loss) income
(223,359)
(35,603)
11,058 
Net loss attributable to non-controlling interest
 
985 
 
Net (loss) income attributable to Acorda Therapeutics, Inc.
$ (223,359)
$ (34,618)
$ 11,058 
Net (loss) income per share—basic
$ (4.86)
$ (0.76)
$ 0.26 
Net (loss) income per share—diluted
$ (4.86)
$ (0.76)
$ 0.25 
Weighted average common shares outstanding used in computing net (loss) income per share—basic
45,999 
45,259 
42,230 
Weighted average common shares outstanding used in computing net (loss) income per share—diluted
45,999 
45,259 
43,621 
Consolidated Statements of Comprehensive (Loss) Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net (loss) income
$ (223,359)
$ (35,603)
$ 11,058 
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
19,759 
(12,901)
 
Unrealized losses on available-for-sale securities, net of tax
 
 
(45)
Reclassification of net losses to net income
 
119 
 
Other comprehensive income (loss), net of tax
19,759 
(12,782)
(45)
Comprehensive (loss) income attributable to Acorda Therapeutics, Inc.
(203,600)
(48,385)
11,013 
Comprehensive loss attributable to noncontrolling interests.
 
$ (110)
 
Consolidated Statements of Changes in Stockholders' Equity (USD $)
In Thousands, unless otherwise specified
Total
Private Placement
Common stock
Common stock
Private Placement
Treasury stock
Additional paid-in capital
Additional paid-in capital
Private Placement
Accumulated deficit
Accumulated other comprehensive income (loss)
Noncontrolling Interest
Balance at Dec. 31, 2014
$ 540,255 
 
$ 42 
 
$ (329)
$ 761,026 
 
$ (220,410)
$ (74)
 
Balance (in shares) at Dec. 31, 2014
 
 
41,884 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Compensation expense for issuance of stock options to employees
25,026 
 
 
 
 
25,026 
 
 
 
 
Compensation expense for issuance of restricted stock to employees
8,441 
 
 
 
 
8,441 
 
 
 
 
Compensation expense for issuance of restricted stock to employees (in shares)
 
 
244 
 
 
 
 
 
 
 
Exercise of stock options
18,096 
 
 
 
18,095 
 
 
 
 
Exercise of stock options (in shares)
 
 
871 
 
 
 
 
 
 
 
Excess tax benefit from (charges for) share-based compensation arrangements
194 
 
 
 
 
194 
 
 
 
 
Other comprehensive loss, net of tax
(45)
 
 
 
 
 
 
 
(45)
 
Net (loss) income
11,058 
 
 
 
 
 
 
11,058 
 
 
Balance at Dec. 31, 2015
603,025 
 
43 
 
(329)
812,782 
 
(209,352)
(119)
 
Balance (in shares) at Dec. 31, 2015
 
 
42,999 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Compensation expense for issuance of stock options to employees
28,090 
 
 
 
 
28,090 
 
 
 
 
Compensation expense for issuance of restricted stock to employees
8,296 
 
 
 
 
8,296 
 
 
 
 
Compensation expense for issuance of restricted stock to employees (in shares)
 
 
236 
 
 
 
 
 
 
 
Exercise of stock options
3,427 
 
 
 
 
3,427 
 
 
 
 
Exercise of stock options (in shares)
 
 
194 
 
 
 
 
 
 
 
Excess tax benefit from (charges for) share-based compensation arrangements
(13)
 
 
 
 
(13)
 
 
 
 
Private placement, net of issuance costs
 
72,091 
 
 
 
72,088 
 
 
 
Private placement, net of issuance costs (in shares)
 
 
 
2,251 
 
 
 
 
 
 
Acquisition of subsidiary
25,736 
 
 
 
 
 
 
 
 
25,736 
Purchase of noncontrolling interest
(27,946)
 
 
 
 
(3,305)
 
 
 
(24,641)
Other comprehensive loss, net of tax
(12,893)
 
 
 
 
 
 
 
(12,782)
(110)
Net (loss) income
(35,603)
 
 
 
 
 
 
(34,618)
 
(985)
Balance at Dec. 31, 2016
664,211 
 
46 
 
(329)
921,365 
 
(243,970)
(12,901)
Balance (in shares) at Dec. 31, 2016
 
 
45,680 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
Adjustment to accumulated deficit (pursuant to adoption of ASU 2016-09) (ASU 2016-09)
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, 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 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:
 
 
 
Net (loss) income
$ (223,359)
$ (35,603)
$ 11,058 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Recognition of deferred product revenue - Zanaflex
 
 
(22,186)
Share-based compensation expense
32,814 
36,386 
33,467 
Amortization of net premiums and discounts on investments
 
467 
3,366 
Amortization of debt discount and debt issuance costs
12,153 
9,717 
8,562 
Depreciation and amortization expense
23,234 
21,582 
15,012 
Intangible asset impairment
296,763 
 
 
Change in contingent consideration obligation
40,622 
8,600 
10,900 
Gain on sale of Zanaflex franchise
(3,534)
 
 
Realized gain on foreign currency transaction
247 
(9,856)
 
Restructuring costs, net of cash payments
1,472 
 
 
Non-cash royalty revenue
(2,705)
 
 
Deferred tax (benefit) provision
(54,044)
(11,190)
3,975 
Excess tax charge (benefit) from share-based compensation arrangements
 
15 
(194)
Changes in assets and liabilities:
 
 
 
(Increase) decrease in accounts receivable
(29,112)
(19,965)
744 
Decrease (increase) in prepaid expenses and other current assets
3,445 
6,904 
(998)
Decrease (increase) in inventory
5,505 
(6,660)
(9,639)
Decrease in non-current portion of deferred cost of license revenue
634 
634 
634 
Decrease in other assets
3,759 
34 
34 
(Decrease) increase in accounts payable, accrued expenses and other current liabilities
(3,571)
37,625 
(1,184)
Decrease in non-current portion of deferred license revenue
(9,057)
(9,057)
(9,057)
Increase (decrease) in other non-current liabilities
1,491 
16 
(198)
Decrease in deferred product revenue—Zanaflex
 
 
(989)
(Increase) decrease in restricted cash
(257)
5,698 
(4,826)
Net cash provided by operating activities
96,500 
35,347 
38,481 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(13,688)
(6,192)
(5,921)
Purchases of intangible assets
(688)
(893)
(1,145)
Acquisitions, net of cash received and gain on foreign currency transaction
 
(266,454)
 
Net proceeds from sale of Zanaflex franchise
3,663 
 
 
Purchases of investments
 
(40,215)
(434,670)
Proceeds from maturities of investments
 
239,968 
356,500 
Net cash used in investing activities
(10,713)
(73,786)
(85,236)
Cash flows from financing activities:
 
 
 
Debt issuance costs
 
(1,587)
 
Proceeds from issuance of common stock and option exercises
10,479 
75,520 
18,096 
Repayment/(purchase) of non-controlling interest
2,722 
(27,946)
 
Purchase of treasury stock
(60)
 
 
Net proceeds from royalty monetizations
50,787 
 
 
Repayment of loans payable
(2,409)
 
 
Excess tax (benefit) charge from share-based compensation arrangements
 
(15)
194 
Repayments of revenue interest liability
 
(41)
(501)
Net cash provided by financing activities
61,519 
45,931 
17,789 
Effect of exchange rate changes on cash and cash equivalents
1,225 
(2,159)
 
Net increase (decrease) in cash and cash equivalents
148,531 
5,333 
(28,966)
Cash and cash equivalents at beginning of period
158,537 
153,204 
182,170 
Cash and cash equivalents at end of period
307,068 
158,537 
153,204 
Supplemental disclosure:
 
 
 
Cash paid for interest
6,066 
6,059 
7,218 
Cash paid for taxes
$ 14,929 
$ 4,250 
$ 4,697 
Organization and Business Activities
Organization and Business Activities

(1) Organization and Business Activities

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

The management of the Company is responsible for the accompanying audited consolidated financial statements and the related information included in the notes to the consolidated financial statements.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

(2) Summary of Significant Accounting Policies

Principles of Consolidation

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

Use of Estimates

The preparation of the consolidated financial statements requires management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include share‑based compensation accounting, which are largely dependent on the fair value of the Company’s equity securities, measurement of changes in the fair value of acquired contingent consideration which is based on a probability weighted discounted cash flow valuation methodology, 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 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 a bank account with funds to cover the Company’s self-funded employee health insurance. At December 31, 2017, the Company also held $0.6 million of restricted cash related to cash collateralized standby letters of credit in connection with obligations under facility leases, which is included with other assets in the consolidated balance sheet due to the long-term nature of the letters of credit. (see Note 10).

Investments

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

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

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

Other Comprehensive Income (Loss)

The Company’s other comprehensive income (loss) is comprised of unrealized gains and losses on available-for-sale securities and adjustments for foreign currency translation and is recorded and presented net of income tax. There was no income tax allocated to the foreign currency translation adjustment in Other Comprehensive Income (Loss) for the period ended December 31, 2017 and 2016. The cumulative foreign currency translation adjustment reported in Other Comprehensive Income (Loss) was $19.8 million and $(12.9) million for the period ended December 31, 2017 and 2016, respectively.

Inventory

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

Ampyra

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

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation, 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.

Goodwill

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

Intangible Assets

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

Contingent Consideration

The Company may record contingent consideration as part of the cost of business acquisitions. Contingent consideration is recognized at fair value as of the date of acquisition and recorded as a liability on the consolidated balance sheet. The contingent consideration is re-valued on a quarterly basis using a probability weighted discounted cash-flow approach until fulfillment or expiration of the contingency. Changes in the fair value of the contingent consideration are recognized in the statement of operations. See Note 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 may warrant revision or that the carrying value of the assets may be impaired. The Company evaluates the realizability of its long-lived assets based on profitability and cash flow expectations for the related assets. Any write‑downs are treated as permanent reductions in the carrying amount of the assets.

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.

In-Process Research and Development

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

Accounting for Income Taxes

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

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

Revenue Recognition

Ampyra

Ampyra is available only through a network of specialty pharmacy providers that provide the medication to patients by mail; Kaiser Permanente, which distributes Ampyra to patients through a closed network of on-site pharmacies; and ASD Specialty Healthcare, Inc. (an AmerisourceBergen affiliate), which distributes Ampyra to the U.S. Bureau of Prisons, the U.S. Department of Defense, the U.S. Department of Veterans Affairs, or VA, and other federal agencies. Ampyra is not available in retail pharmacies. The Company does not recognize revenue from product sales until there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed and determinable, the buyer is obligated to pay the Company, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from the Company, the Company has no obligation to bring about the sale of the product, and the amount of returns can be reasonably estimated and collectability is reasonably assured. The Company recognizes product sales of Ampyra following shipment of product to a network of specialty pharmacy providers, Kaiser Permanente, and ASD Specialty Healthcare, Inc. The specialty pharmacy providers, Kaiser Permanente, and ASD Specialty Healthcare, Inc. are contractually obligated to hold no more than  20 days of inventory.

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

Zanaflex

The Company applies the revenue recognition guidance in Accounting Standards Codification (ASC) 605-15-25, which among other criteria requires that future returns can be reasonably estimated in order to recognize revenue. Prior to the three-month period ended September 30, 2015, the Company accounted for Zanaflex tablet and capsule (Zanaflex products) shipments using a deferred revenue recognition model (sell-through). Under the deferred revenue recognition model, the Company did not recognize revenue upon product shipment. For product shipments, the Company invoiced the wholesaler, recorded deferred revenue at gross invoice sales price, and classified the cost basis of the product held by the wholesaler as a separate component of inventory. The Company recognized revenue when prescribed to the end-user, on a first-in first-out (FIFO) basis. The Company’s revenue to be recognized was based on the estimated prescription demand, based on pharmacy sales for its products using third-party information, including third-party market research data. The Company’s sales and revenue recognition reflected the Company’s estimate of actual product prescribed to the end-user. As of the third quarter of 2015, the Company began recognizing sales for Zanaflex products when the product was shipped to its wholesale distributors (sell-in), as the Company was able to reasonably estimate expected returns. For the three-month period ended September 30, 2015, the Company recognized a one-time increase in net revenue of $22.2 million, representing previously deferred product sales as of June 30, 2015, net of an allowance for estimated returns. See Note 5 – regarding the sale of the Zanaflex assets.

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

Qutenza

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

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

Milestones and royalties

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

Collaborations

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

Concentration of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments in cash, cash equivalents, restricted cash and 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 Ampyra or its other commercial product Qutenza. It relies and expects to continue to rely on third parties for the production and packaging of its commercial products and clinical trial materials for all of its products except Inbrija. The Company leases a manufacturing facility in Chelsea, Massachusetts which produces Inbrija for clinical trials and eventually will produce commercial supply, if approved.

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

The Company’s principal direct customers as of December 31, 2017 were a network of specialty pharmacies, Kaiser Permanente, and ASD Specialty Healthcare, Inc. for Ampyra and two specialty distributors for Qutenza, one of which is ASD Specialty Healthcare, Inc. 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 82% of total revenue in 2017. Three customers individually accounted for more than 10% of the Company’s revenue in  2016 and 2015. Four customers individually accounted for more than 10% of the Company’s accounts receivable or approximately 69% of total accounts receivable as of December 31, 2017. Three customers individually accounted for more than 10% of the Company’s accounts receivable as of December 31, 2016. 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 had cash discount allowances of $6.9 million and $5.7 million for the years ended December 31, 2017 and 2016, respectively. The Company’s accruals for cash discount allowances were $0.8 million and $0.6 million as of December 31, 2017 and 2016, respectively.

(in thousands)

 

Cash

discounts

 

Balance at December 31, 2015

 

$

514

 

Allowances for sales 2016

 

 

5,689

 

Allowances for prior year sales

 

 

(24

)

Actual credits for sales during 2016

 

 

(5,152

)

Actual credits for prior year sales

 

 

(433

)

Balance at December 31, 2016

 

$

594

 

Allowances for sales 2017

 

 

6,940

 

Allowances for prior year sales

 

 

(42

)

Actual credits for sales during 2017

 

 

(6,056

)

Actual credits for prior year sales

 

 

(592

)

Balance at December 31, 2017

 

$

844

 

 

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 as of December 31, 2017. The Company recognized an allowance related to one customer of approximately $0.4 million as of December 31, 2016. For the year ended December 31, 2017 and 2016, the provisions and write-offs were immaterial.

Contingencies

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

Fair Value of Financial Instruments

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

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

 

(a)

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

 

(b)

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

 

(c)

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

 

(d)

Convertible Senior Notes were measured at fair value based on market quoted prices of the debt securities; and

 

(e)

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

Earnings per Share

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

Foreign Currency Translation

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

Segment and Geographic Information

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

Accumulated Other Comprehensive Income (Loss)

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

Recent Accounting Pronouncements - Adopted

In March 2016, the FASB issued Accounting Standards Update 2016-09, “Compensation – Stock Compensation” (Topic 718). The main objective of this update is to simplify the accounting, and reporting classifications for certain aspects of share-based payment transactions. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.

The Company has finalized its review of its existing revenue contracts. As a result of its assessment, the Company determined that there may be a significant impact related to the recognition of license revenues associated with its Biogen contract. The Company is currently evaluating whether the revenue should be recognized at a point in time rather than over a period of time and the cumulative effect of this change could be material. The Company is also finalizing its accounting policies and designing and implementing the necessary changes to processes and controls in order to account for revenue under the new standard. Based on the Company's timeline and planned resources, the Company anticipates completing its implementation in connection with its first quarter 2018 interim financial statements.     

In July 2015, the FASB issued Accounting Standards Update 2015-11, “Inventory” (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11), which requires the measurement of inventory at the lower of cost and net realizable value. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods therein with early adoption permitted. The Company adopted this guidance effective January 1, 2017. The adoption of this guidance did not have an impact on the consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update 2016-06, “Derivatives and Hedging” (Topic 815): Contingent Put and Call Options in Derivative Contracts (ASU 2016-06), which clarifies the requirements for assessing whether contingent options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This ASU is effective for fiscal years beginning after December 15, 2016 and interim periods therein. The Company adopted this guidance effective January 1, 2017. The adoption of this guidance did not have an impact on the consolidated financial statements.  

Recent Accounting Pronouncements – Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (Topic 606) (ASU 2014-09). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. In July 2015, the FASB deferred the effective date of the new revenue standard for interim and annual periods beginning after December 15, 2017. The Company will adopt this guidance on January 1, 2018. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. The Company will adopt the new guidance following the modified retrospective approach.

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

The Company completed its assessment of the new guidance and evaluated the new requirements as applied to its existing revenue contracts. As a result of its assessment, the Company determined that the most significant impact will relate to the recognition of license revenues associated with its Biogen contract at a point in time rather than over a period of time. The Company estimates that the impact of this change to the Company’s balance sheet will be a reduction of $9.1 million and $23.4 million, respectively, to the current and non-current portions of deferred license revenue and a reduction of $0.6 million and $1.6 million, respectively, to other current assets and the non-current portion of deferred cost of license revenue with a resulting reduction of $5.6 million to the deferred tax asset due to the changes in deferred revenue. The net impact of this change will result in an overall adjustment to increase the opening retained earnings balance by approximately $24.6 million at January 1, 2018.

The Company completed a review of its revenue contracts and continues to work on its plan for implementation of the new guidance including reviewing accounting policies and evaluating internal controls and will implement any changes as required to facilitate adoption of the new guidance which the Company expects to adopt beginning January 1, 2018.

In January 2016, the FASB issued Accounting Standards Update 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company expects to adopt this guidance effective January 1, 2018. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.

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

In August 2016, the FASB issued Accounting Standards Update ASU 2016-15 “Statement of Cash Flows” (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which specifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU requires retrospective application to all periods presented and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company will adopt this guidance effective January 1, 2018. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued Accounting Standards Update ASU 2016-18 “Statement of Cash Flows” (Topic 230), Restricted Cash (ASU 2016-18), which defines new requirements for the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The amendments in this ASU require retrospective application to each period presented and are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company will adopt this guidance effective January 1, 2018. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update 2017-01, “Business Combinations” (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which provides additional clarification to aid in determining when a set of assets and activities is not a business. The amendments in this update require prospective applications and are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company will adopt this guidance effective January 1, 2018. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update 2017-04, “Intangibles – Goodwill and Other” (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). This new standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 allows for prospective application and is effective for fiscal years beginning after December 15, 2019, and interim periods therein with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating whether it will adopt this guidance early. The Company does not exepect the adoption of this guidance to have a significant impact on the consolidated financial statements.

In May 2017, the FASB issued Accounting Standards Update 2017-09, “Compensation – Stock Compensation” (Topic 718): Scope of Modification Accounting (ASU 2017-09). This new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 allows for prospective application and is effective for fiscal years beginning after December 15, 2017, and interim periods therein with early adoption permitted for interim or annual periods. The Company expects to adopt this guidance effective January 1, 2018. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s 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.

Acquisitions
Acquisitions

(3) Acquisitions

Biotie Therapies Corp.

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

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

During the year ended December 31, 2017, the Company received a refund of the cash security deposit of approximately $2.7 million following the final determination and payment of the redemption price for the shares subject to the redemption proceedings.

The Company estimated the fair value of the assets acquired and liabilities assumed as of the date of acquisition based on the information available at that time. The Company recorded measurement-period adjustments to its preliminary purchase price allocation to increase current liabilities and to decrease other current assets and other long-term liabilities from the acquisition date through December 31, 2016. The total net impact of these adjustments was an increase to goodwill of $1.2 million, which reduced current assets and long-term liabilities and increased current liabilities and the deferred tax liability with a corresponding decrease to goodwill. These changes had an immaterial effect on any related amortizations for the period April 18, 2016 through December 31, 2016. The Company recorded its final measurement-period adjustments to the purchase price allocation from the acquisition date through April 18, 2017. During the year ended December 31, 2017, the Company recorded final measurement period adjustments of approximately $6.4 million to its purchase price allocation with a corresponding offset to goodwill. The final measurement period adjustments included a reduction to current liabilities of approximately $3.8 million related to the  convertible capital loans as the Company was able to determine the fair market value of these loans, a reduction to other long-term liabilities of approximately $2.7 million due to the finalization of the valuation of the non-convertible capital loans and an increase to deferred tax liabilities of approximately $0.2 million due to the finalization of the provisional amounts recorded for deferred tax liabilities.

The following table presents the final allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:

 

(In thousands)

 

Preliminary Allocation, as adjusted through

December 31, 2016

 

 

Measurement

Period

Adjustments

 

 

Final Allocation, as of April 18, 2017

 

Cash and cash equivalents

 

$

73,854

 

 

$

 

 

$

73,854

 

Other current assets

 

 

1,878

 

 

 

 

 

 

1,878

 

Other long-term assets

 

 

4,962

 

 

 

 

 

 

4,962

 

Intangible assets (indefinite-lived)

 

 

260,500

 

 

 

 

 

 

260,500

 

Intangible assets (definite-lived)

 

 

65,000

 

 

 

 

 

 

65,000

 

Current liabilities

 

 

(18,572

)

 

 

3,837

 

 

 

(14,735

)

Deferred taxes

 

 

(89,908

)

 

 

(156

)

 

 

(90,064

)

Other long-term liabilities

 

 

(25,690

)

 

 

2,740

 

 

 

(22,950

)

Fair value of assets and liabilities acquired

 

 

272,024

 

 

 

6,421

 

 

 

278,445

 

Goodwill

 

 

103,876

 

 

 

(6,421

)

 

 

97,455

 

Total purchase price

 

 

375,900

 

 

 

 

 

 

375,900

 

Less: Noncontrolling interests

 

 

(25,736

)

 

 

 

 

 

(25,736

)

Purchase consideration on date of acquisition

 

$

350,164

 

 

$

 

 

$

350,164

 

 

   The Company accounted for the Acquisition as a business combination using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the date of acquisition. The Company incurred approximately $18.6 million in total acquisition related expenses, all of which were expensed and included in selling, general and administrative expenses in the consolidated statements of operations. For the year ended December 31, 2017, 2016 and 2015, the Company incurred approximately $0.6 million, $17.6 million and $0.4 million, respectively, in acquisition related expenses, which were included in selling, general and administrative expenses in the consolidated statement of operations. The results of Biotie’s operations have been included in the consolidated statements of operations from the acquisition date of April 18, 2016.

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

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

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

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

Noncontrolling Interests

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

Financial Instruments

The Company does not enter into hedging transactions in the normal course of business. However, as a result of the Biotie acquisition which was completed in Euros, the Company was exposed to fluctuations in exchange rates between the U.S. dollar and the Euro until the completion of the transaction. To mitigate this risk, the Company entered into foreign currency options to limit its exposure to fluctuations in exchange rates between the U.S. dollar and the Euro until the transaction was completed. The foreign currency options were settled as of May 2, 2016. There were no foreign currency options outstanding as of December 31, 2017 and December 31, 2016.

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

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

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

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

 

 

Year ended

 

 

Year ended

 

 

December 31, 2016

 

 

December 31, 2015

 

(In thousands)

Reported

 

 

Pro Forma

 

 

Reported

 

 

Pro Forma

 

Net revenues

$

519,601

 

 

$

520,658

 

 

$

492,660

 

 

$

496,688

 

Net (loss) income from continuing operations

    attributable to Acorda

$

(34,618

)

 

$

(57,925

)

 

$

11,058

 

 

$

(28,684

)

 

Intangible Assets and Goodwill
Intangible Assets and Goodwill

(4) Intangible Assets and Goodwill

Intangible Assets

Tozadenant, SYN120, BTT1023 and Selincro IPR&D

In connection with the acquisition of Biotie (Note 3), the Company acquired global rights to tozadenant, SYN120, and BTT1023 (timolumab). SYN120 is is a potential treatment for Parkinson’s-related dementia. BTT1023 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 Biotie’s partner H. Lundbeck A/S, a Danish pharmaceutical company.

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

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.

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.

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 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 is $0.

Inbrija (levodopa inhalation powder) and ARCUS Technology IPR&D

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

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

Ampyra

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

As a result of the invalidation of the patents, the estimated remaining useful lives of the Ampyra intangible assets were reviewed to determine if there was a change in the estimated useful lives of these assets. Based on the review, the Company determined that there was a change in the estimated useful lives of these assets that would require an acceleration of the amortization expense. The Company determined that the estimated useful lives of these intangible assets will coincide with the expiration of the ‘938 patent, unless the appeal is resolved favorably. The Company accounted for this change prospectively as a change in an accounting estimate beginning in the three-month period ended June 30, 2017. The acceleration of the amortization associated with the change in the estimated remaining useful lives of these intangible assets, did not have a material impact on the Company’s statement of operations for the year ended December 31, 2017.

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, 2017, 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, 2017

 

 

December 31, 2016

 

(Dollars In thousands)

 

Estimated

Remaining

Useful Lives

(Years)

 

 

Cost

 

 

Accumulated

Amortization

 

 

Impairment

 

 

Foreign

Currency

Translation

 

 

Net

Carrying

Amount

 

 

Cost

 

 

Accumulated

Amortization

 

 

Foreign

Currency

Translation

 

Net

Carrying

Amount

 

In-process research &

   development (1)

 

Indefinite-lived

 

 

$

683,500

 

 

$

 

 

$

(257,317

)

 

$

1,317

 

 

$

427,500

 

 

$

683,500

 

 

$

 

 

$

(1,794

)

$

681,706

 

Selincro

 

n/a

 

 

 

65,000

 

 

 

(27,932

)

 

 

(39,446

)

 

 

2,378

 

 

 

 

 

 

65,000

 

 

 

(6,445

)

 

 

(4,061

)

 

54,494

 

Ampyra milestones

 

 

1

 

 

 

5,750

 

 

 

(4,438

)

 

 

 

 

 

 

 

 

1,312

 

 

 

5,750

 

 

 

(2,677

)

 

 

 

 

3,073

 

Ampyra CSRO royalty

   buyout

 

 

1

 

 

 

3,000

 

 

 

(2,642

)

 

 

 

 

 

 

 

 

358

 

 

 

3,000

 

 

 

(2,108

)

 

 

 

 

892

 

Website development

   costs

 

 

3

 

 

 

13,983

 

 

 

(12,816

)

 

 

 

 

 

 

 

 

1,167

 

 

 

13,459

 

 

 

(11,485

)

 

 

 

 

1,974

 

Website development

   costs–in process

 

n/a

 

 

 

266

 

 

 

 

 

 

 

 

 

 

 

 

266

 

 

 

103

 

 

 

 

 

 

 

 

103

 

 

 

 

 

 

 

$

771,499

 

 

$

(47,828

)

 

$

(296,763

)

 

$

3,695

 

 

$

430,603

 

 

$

770,812

 

 

$

(22,715

)

 

$

(5,855

)

$

742,242

 

 

 

 

(1)

Includes the fair values of Inbrija: $423.0 million and BTT 1023: $4.5 million as of December 31, 2017. 

 

The Company recorded $25.1 million and $9.1 million in amortization expense related to these intangible assets for the years ended December 31, 2017 and 2016, respectively.

Estimated future amortization expense for intangible assets subsequent to December 31, 2017 is as follows:

 

(In thousands)

 

 

 

 

2018

 

$

2,394

 

2019

 

 

351

 

2020

 

 

92

 

2021

 

 

 

2022

 

 

 

Thereafter

 

 

 

 

 

$

2,837

 

The weighted-average remaining useful lives of all amortizable assets is approximately 1.8 years.

Goodwill

The following table presents the goodwill balances at December 31, 2017 and 2016 and the associated changes in goodwill through December 31, 2017.

 

(In thousands)

 

 

 

 

Balance at December 31, 2016

 

$

280,599

 

Decrease to goodwill due to measurement period adjustments

 

 

(6,421

)

Foreign currency translation adjustment

 

 

12,433

 

Balance at December 31, 2017

 

$

286,611

 

 

Zanaflex Asset Sale
Zanaflex Asset Sale

(5) Zanaflex Asset Sale

On November 13, 2017, the Company entered into an asset purchase agreement (“Agreement”) to sell its rights and interests related to its Zanaflex assets for a purchase price of $4.0 million. The Company recognized a gain on the sale of approximately $3.5 million for the year ended December 31, 2017 after reflecting the direct costs to complete the transaction and the net book value of the inventory transferred to the buyer. The gain on the sale is recognized in the Statement of Operations as a reduction to the selling, general and administrative expenses.

Investments
Investments

(6) Investments

The changes in AOCI associated with the net unrealized holding losses on available-for-sale investments during the year ended 2016 were as follows (in thousands):

       

(In thousands)

 

Net Unrealized

Gains (Losses) on

Marketable

Securities

 

Balance at December 31, 2015

 

$

(119

)

Other comprehensive loss before reclassifications:

 

 

 

Amounts reclassified from accumulated other

   comprehensive loss

 

 

119

 

Net current period other comprehensive loss

 

 

119

 

Balance at December 31, 2016

 

 

 

 

Property and Equipment
Property and Equipment

(7) Property and Equipment

Property and equipment consisted of the following:

 

(In thousands)

 

December 31, 2017

 

 

December 31, 2016

 

 

Estimated

useful lives used

Machinery and equipment

 

$

24,956

 

 

$

21,964

 

 

2-7 years

Leasehold improvements

 

 

23,978

 

 

 

19,406

 

 

Lesser of useful life or

remaining lease term

Computer equipment

 

 

21,560

 

 

 

18,700

 

 

1-3 years

Laboratory equipment

 

 

8,542

 

 

 

7,522

 

 

2-5 years

Furniture and fixtures

 

 

2,635

 

 

 

2,890

 

 

4-7 years

Capital in progress

 

 

4,995

 

 

 

3,629

 

 

 

 

 

 

86,666

 

 

 

74,111

 

 

 

Less accumulated depreciation

 

 

(49,997

)

 

 

(39,801

)

 

 

 

 

$

36,669

 

 

$

34,310

 

 

 

 

Depreciation and amortization expense on property and equipment was $11.0 million and $12.3 million for the years ended December 31, 2017 and 2016, respectively.

Preferred Stock
Preferred Stock

(8) Preferred Stock

Stockholder Rights Plan

On August 31, 2017, the Board of Directors of the Company adopted a stockholder rights plan (Rights Plan) to preserve the ability of the Board to protect the interests of stockholders in transactions that may result in an acquisition of control of the Company, including tender offers and open market purchases of the Company’s securities. In general terms, the Rights Plan works by significantly diluting the stock ownership of any person or group that acquires 15% or more of the outstanding common stock of the Company without the approval of the Board (such person, an Acquiring Person). The rights plan exempts any person or group owning 15% or more of the Company’s outstanding common stock when we announced the rights plan, however the exemption does not apply to additional shares acquired after the announcement.

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

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

(9) Common Stock Options and Restricted Stock

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

The 2006 Plan was administered by the Compensation Committee of the Board of Directors, which selected the individuals to be granted options and restricted stock, determined the time or times at which options and restricted stock were to be granted, determined the number of shares to be granted subject to any option or restricted stock and the duration of each option and restricted stock, and made any other determinations necessary, advisable, and/or appropriate to administer the 2006 Plan. Under the 2006 Plan, each option granted expires no later than the tenth anniversary of the date of its grant. The number of shares of common stock authorized for issuance under the 2006 Plan as of December 31, 2017 was 14,912,048 shares. The total number of shares of common stock available for issuance under the 2006 Plan, including shares of common stock subject to the then outstanding awards, automatically increased on January 1 of each year during the term of the 2006 Plan, beginning 2007, by a number of shares of common stock equal to 4% of the outstanding shares of common stock on that date, unless otherwise determined by the Board of Directors.. As of December 31, 2017, the Company had granted an aggregate of 11,778,603 shares as restricted stock or subject to issuance upon exercise of stock options under the 2006 Plan, of which 5,870,938 shares remained subject to outstanding options.

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

The 2015 Plan is administered by the Compensation Committee of the Board of Directors, which selects the individuals to be granted options, restricted stock, and restricted stock units, determines the time or times at which options, restricted stock, and restricted stock units are to be granted, determines the number of shares to be granted subject to any option, restricted stock or restricted stock unit and the duration of each option, restricted stock, and restricted stock unit, and makes any other determinations necessary, advisable, and/or appropriate to administer the 2015 Plan. Under the 2015 Plan, each option granted expires no later than the tenth anniversary of the date of its grant. Since inception, the number of shares of common stock authorized for issuance under the 2015 Plan as of December 31, 2017 is 5,100,000 shares. As of December 31, 2017, the Company had granted an aggregate of 4,345,147 shares either as restricted stock or shares subject to issuance upon the exercise of stock options under the 2015 Plan, of which 2,931,355 shares remained subject to outstanding options.

On April 14, 2016 the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved the Acorda Therapeutics, Inc. 2016 Inducement Plan (the “2016 Plan”) to provide equity compensation to certain individuals of the Company (or its subsidiaries) in order to induce such individuals to enter into employment with the Company or its subsidiaries. The only equity awards issued under this plan were issued to individuals employed by Biotie Therapies Corp. and its subsidiary Biotie Therapies, Inc. (collectively, “Biotie”) in connection with our acquisition of Biotie. The number of shares of common stock authorized for issuance under the 2016 Plan for these awards is 366,950 shares. As of December 31, 2017, the Company had granted an aggregate of 224,762 shares either as restricted stock or shares subject to issuance upon the exercise of stock options under the 2016 Plan, of which 127,562 shares remained subject to outstanding options.

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

 

 

 

Year ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Employees and directors:

 

 

 

 

 

 

 

 

 

 

 

 

Estimated volatility%

 

 

48.02

%

 

 

44.63

%

 

 

46.68

%

Expected life in years

 

 

6.15

 

 

 

5.99

 

 

 

5.88

 

Risk free interest rate%

 

 

2.08

%

 

 

1.46

%

 

 

1.74

%

Dividend yield

 

 

 

 

 

 

 

 

 

 

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

The weighted average fair value per share of options granted to employees and directors for the years ended December 31, 2017, 2016 and 2015 amounted to approximately $10.70, $13.26, and $15.85, respectively. No options were granted to non-employees for the years ended December 31, 2017, 2016 and 2015.

During the year ended December 31, 2017, the Company granted 2,213,397 stock options and restricted stock awards to employees and directors under all plans. The stock options were issued with a weighted average exercise price of $22.53 per share. As a result of these grants, the total compensation charge to be recognized over the service period is $24.2 million, of which $10.1 million was recognized during the year ended December 31, 2017.

Compensation costs for options and restricted stock granted to employees and directors amounted to $32.8 million, $36.4 million, and $33.5 million, for the years ended December 31, 2017, 2016 and 2015, respectively. There were no compensation costs capitalized in inventory balances. Compensation expense for options and restricted stock granted to employees and directors are classified between research and development, and selling, general and administrative expense based on employee job function. The following table summarizes share-based compensation expense included within the Company’s consolidated statements of operations:

 

 

 

Year ended December 31,

 

(In thousands)

 

2017

 

 

2016

 

 

2015

 

Research and development

 

$

9,683

 

 

$

10,610

 

 

$

8,474

 

Selling, general and administrative

 

 

23,131

 

 

 

25,777

 

 

 

24,992

 

Total

 

$

32,814

 

 

$

36,387

 

 

$

33,466

 

 

A summary of share‑based compensation activity for the year ended December 31, 2017 is presented below:

Stock Option Activity

 

 

 

Number

of Shares

(In thousands)

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Remaining

Contractual Term

 

 

Intrinsic

Value

(In thousands)

 

Balance at December 31, 2016

 

 

9,072

 

 

$

31.11

 

 

 

 

 

 

 

 

 

Granted

 

 

1,671

 

 

 

20.36

 

 

 

 

 

 

 

 

 

Forfeited and expired

 

 

(1,316

)

 

 

32.48

 

 

 

 

 

 

 

 

 

Exercised

 

 

(498

)

 

 

21.02

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

8,929

 

 

$

29.46

 

 

 

6.0

 

 

$

5,594

 

Vested and expected to vest at December 31, 2017

 

 

8,806

 

 

$

29.59

 

 

 

6.0

 

 

$

5,139

 

Vested and exercisable at December 31, 2017

 

 

6,646

 

 

$

30.26

 

 

 

5.2

 

 

$

2,344

 

 

 

 

Options Outstanding

 

 

Options Exercisable

 

Range of exercise price

 

Outstanding

as of

December 31,

2017

(In thousands)

 

 

Weighted-

average

remaining

contractual life

 

 

Weighted-

average

exercise price

 

 

Exercisable

as of

December 31,

2017

(In thousands)

 

 

Weighted-

average

exercise price

 

$13.80 - $22.06

 

 

1,876

 

 

 

6.0

 

 

$

18.61

 

 

 

1,168

 

 

$

19.67

 

$22.13 - $28.12

 

 

1,875

 

 

 

6.1

 

 

 

26.43

 

 

 

1,263

 

 

 

26.23

 

$28.14 - $32.55

 

 

1,860

 

 

 

5.4

 

 

 

30.69

 

 

 

1,659

 

 

 

30.79

 

$32.56 - $35.74

 

 

2,101

 

 

 

6.3

 

 

 

35.22

 

 

 

1,489

 

 

 

35.08

 

$35.84 - $44.50

 

 

1,217

 

 

 

6.1

 

 

 

39.01

 

 

 

1,067

 

 

 

39.07

 

 

 

 

8,929

 

 

 

6.0

 

 

$

29.46

 

 

 

6,646

 

 

$

30.26

 

 

Restricted Stock Activity

 

Restricted Stock

 

Number of Shares

(In thousands)

 

Nonvested at December 31, 2016

 

 

625

 

Granted

 

 

542

 

Vested

 

 

(263

)

Forfeited

 

 

(206

)

Nonvested at December 31, 2017

 

 

698

 

 

Unrecognized compensation cost for unvested stock options and restricted stock awards as of December 31, 2017 totaled $34.0 million and is expected to be recognized over a weighted average period of approximately 3.0 years.

Debt
Debt

(10) Debt

Convertible Senior Notes

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

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

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

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

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

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

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

The outstanding note balance as of December 31, 2017 and 2016 consisted of the following:

 

(In thousands)

 

December 31, 2017

 

 

December 31, 2016

 

Liability component:

 

 

 

 

 

 

 

 

Principal

 

$

345,000

 

 

$

345,000

 

Less: debt discount and debt issuance costs , net

 

 

(36,195

)

 

 

(54,580

)

Net carrying amount

 

 

308,805

 

 

$

290,420

 

Equity component

 

$

61,195

 

 

$

61,195

 

 

In connection with the issuance of the Notes, the Company incurred approximately $7.5 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs to the liability and equity components based on the allocation of the proceeds. Of the total $7.5 million of debt issuance costs, $1.3 million were allocated to the equity component and recorded as a reduction to additional paid-in capital and $6.2 million were allocated to the liability component and recorded as a reduction in the carrying amount of the debt liability on the balance sheet. The portion allocated to the liability component is amortized to interest expense over the expected life of the Notes using the effective interest method.

The Company determined the expected life of the debt was equal to the seven year term on the Notes. The fair value of the Company’s convertible senior notes was approximately $296.0 million as of December 31, 2017.

As of December 31, 2017, the remaining contractual life of the Notes is approximately 3.5 years. The effective interest rate on the liability component was approximately 4.8% for the period from the date of issuance through December 31, 2017.

The following table sets forth total interest expense recognized related to the Notes for the years ended December 31, 2017 and 2016:

 

(In thousands)

 

Year ended December 31,         2017

 

 

Year ended December 31,         2016

 

Contractual interest expense

 

$

6,038

 

 

$

6,038

 

Amortization of debt issuance costs

 

 

871

 

 

 

830

 

Amortization of debt discount

 

 

8,539

 

 

 

8,145

 

Total interest expense

 

$

15,448

 

 

$

15,013

 

Saints Capital Notes

      Effective January 2017, the Company paid approximately $0.8 million in full payment of these notes (See Note 16).

Asset Based Loan

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

In the fiscal year ended December 31, 2017, approximately $1.1 million of debt issuance costs associated with the Credit Agreement were written off.

Non-Convertible Capital Loan

Prior to and subsequent to the acquisition of Biotie on April 18, 2016, Biotie held non-convertible capital loans (“Tekes Loans”) granted by Tekes, a Finnish Funding Agency for Technology and Innovation. The non-convertible capital loans had an adjusted acquisition-date fair value of $23.3 million (€20.6 million) and a carrying value of $23.7 million as of December 31, 2017. The Tekes Loans are comprised of fourteen non-convertible loans granted by Tekes. These loans bear interest based on the greater of 3% or the base rate set by Finland’s Ministry of Finance minus one (1) percentage point. The maturity dates of these loans range from eight to ten years from the date of issuance, however, according to certain terms and conditions of the loans, the Company may repay the principal and accrued and unpaid interest of the loans only when the consolidated retained earnings of Biotie is sufficient to fully repay the loans.

Convertible Capital Loans

In the three-month period ended March 31, 2017, the Company extended an offer to each of the convertible capital loan holders to repurchase the outstanding principal amount of each convertible capital loan. The Company paid approximately $1.7 million (€1.5 million) and $0.2 million (€0.2 million) in March and April 2017, respectively, to repurchase the outstanding principal amount of these loans. There were no outstanding balances on these loans as of December 31, 2017.        

Research and Development Loans

Research and Development Loans (“R&D Loans”) were granted by Tekes with an acquisition-date fair value of $2.9 million (€2.6 million) and a carrying value of $2.6 million as of December 31, 2017. The R&D Loans bear interest based on the greater of 1% or the base rate set by Finland’s Ministry of Finance minus three (3) percentage points. The repayment of these loans began in January 2017. The loan principal will be paid in equal annual installments over a 5 year period, ending January 2021.

Letters of Credit

As of December 31, 2017, the Company has $0.6 million of cash collateralized standby letters of credit outstanding (see Note 2).