ACORDA THERAPEUTICS INC, 10-K filed on 2/27/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 20, 2019
Jun. 29, 2018
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, 2018    
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     $ 1,122,560,492
Entity Shell Company false    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Common Stock, Shares Outstanding   47,633,407  
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol ACOR    
v3.10.0.1
Consolidated Balance Sheets - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 293,564,000 $ 307,068,000
Restricted cash 532,000 410,000
Short term investments 151,989,000 0
Trade accounts receivable, net of allowances of $2,681 and $845, as of December 31, 2018 and 2017, respectively 23,430,000 81,403,000
Prepaid expenses 19,384,000 13,333,000
Inventory, net 29,014,000 37,501,000
Other current assets 10,194,000 1,983,000
Total current assets 528,107,000 441,698,000
Property and equipment, net of accumulated depreciation 60,519,000 36,669,000
Goodwill 282,059,000 286,611,000
Intangible assets, net of accumulated amortization 428,570,000 430,603,000
Non-current portion of deferred cost of license revenue   1,638,000
Other assets 411,000 750,000
Total assets 1,299,666,000 1,197,969,000
Current liabilities:    
Accounts payable 48,859,000 27,367,000
Accrued expenses and other current liabilities 76,882,000 99,850,000
Current portion of deferred license revenue   9,057,000
Current portion of loans payable 616,000 645,000
Current portion of liability related to sale of future royalties 8,985,000 6,763,000
Current portion of acquired contingent consideration 4,914,000 278,000
Total current liabilities 140,256,000 143,960,000
Convertible senior notes (due 2021) 318,670,000 308,805,000
Non-current portion of acquired contingent consideration 163,086,000 112,722,000
Non-current portion of deferred license revenue   23,398,000
Non-current portion of loans payable 24,470,000 25,670,000
Deferred tax liability 7,483,000 22,459,000
Non-current portion of liability related to sale of future royalties 21,731,000 29,025,000
Other non-current liabilities 11,987,000 11,943,000
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.001 par value. Authorized 1,000,000 shares at December 31, 2018 and December 31, 2017; no shares issued as of December 31, 2018 and December 31, 2017
Common stock, $0.001 par value. Authorized 80,000,000 shares at December 31, 2018 and 2017; issued 47,508,505 and 46,441,428 shares, including those held in treasury, as of December 31, 2018 and 2017, respectively 48,000 46,000
Treasury stock at cost (87,737 and 16,151 shares at December 31, 2018 and 2017, respectively) (2,133,000) (389,000)
Additional paid-in capital 1,005,105,000 968,580,000
Accumulated deficit (393,843,000) (455,108,000)
Accumulated other comprehensive income 2,806,000 6,858,000
Total stockholders’ equity 611,983,000 519,987,000
Total liabilities and stockholders’ equity $ 1,299,666,000 $ 1,197,969,000
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Trade accounts receivable, allowances (in dollars) $ 2,681 $ 845
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, Authorized shares 1,000,000 1,000,000
Preferred stock, issued shares 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, Authorized shares 80,000,000 80,000,000
Common stock, issued shares 47,508,505 46,441,428
Treasury stock, shares 87,737 16,151
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenues:      
Total net revenues $ 471,433 $ 588,287 $ 519,601
Costs and expenses:      
Cost of sales 99,310 135,080 107,475
Cost of milestone and license revenue   634 634
Research and development 106,383 166,105 203,437
Selling, general and administrative 172,254 181,619 235,437
Asset impairment   296,763  
Changes in fair value of acquired contingent consideration 55,000 40,900 8,600
Total operating expenses 432,947 821,101 555,583
Operating income (loss) 38,486 (232,814) (35,982)
Other expense (net):      
Interest and amortization of debt discount expense (21,597) (18,664) (16,527)
Interest income 3,518 136 339
Other income (expense) 16 (543) 9,902
Total other expense (net) (18,063) (19,071) (6,286)
Income (loss) before taxes 20,423 (251,885) (42,268)
Benefit from income taxes 13,259 28,526 6,665
Net income (loss) 33,682 (223,359) (35,603)
Net (loss) attributable to non-controlling interest     (985)
Net income (loss) attributable to Acorda Therapeutics, Inc. $ 33,682 $ (223,359) $ (34,618)
Net income (loss) per share—basic $ 0.72 $ (4.86) $ (0.76)
Net income (loss) per share—diluted $ 0.71 $ (4.86) $ (0.76)
Weighted average common shares outstanding used in computing net income (loss) per share—basic 47,010 45,999 45,259
Weighted average common shares outstanding used in computing net income (loss) per share—diluted 47,341 45,999 45,259
Net Product Revenues      
Revenues:      
Total net revenues $ 459,739 $ 549,749 $ 493,358
Royalty Revenues      
Revenues:      
Total net revenues $ 11,694 29,481 17,186
License Revenue      
Revenues:      
Total net revenues   $ 9,057 $ 9,057
v3.10.0.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement Of Income And Comprehensive Income [Abstract]      
Net income (loss) $ 33,682 $ (223,359) $ (35,603)
Other comprehensive income (loss):      
Foreign currency translation adjustment (3,927) 19,759 (12,901)
Unrealized losses on available-for-sale securities, net of tax (125)    
Reclassification of net losses to net income     119
Other comprehensive (loss) income, net of tax (4,052) 19,759 (12,782)
Comprehensive income (loss) attributable to Acorda Therapeutics, Inc. $ 29,630 $ (203,600) (48,385)
Comprehensive (loss) attributable to noncontrolling interests.     $ (1,095)
v3.10.0.1
Consolidated Statements of Changes in Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
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, 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   $ 3     $ 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) income, net of tax (12,893)               (12,782) (110)
Net income (loss) (35,603)             (34,618)   (985)
Balance at Dec. 31, 2016 664,211   $ 46   (329) 921,365   (243,970) (12,901) $ 0
Balance (in shares) at Dec. 31, 2016     45,680              
Increase (Decrease) in Stockholders' Equity                    
Adjustment to accumulated deficit (pursuant to adoption of ASU) | 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) income, net of tax 19,759               19,759  
Net income (loss) (223,359)             (223,359)    
Balance at Dec. 31, 2017 519,987   $ 46   (389) 968,580   (455,108) 6,858  
Balance (in shares) at Dec. 31, 2017     46,441              
Increase (Decrease) in Stockholders' Equity                    
Adjustment to accumulated deficit (pursuant to adoption of ASU) | ASU 2014-09 27,583             27,583    
Compensation expense for issuance of stock options to employees 15,182         15,182        
Compensation expense for issuance of restricted stock to employees 6,147         6,147        
Compensation expense for issuance of restricted stock to employees (in shares)     306              
Exercise of stock options $ 15,198   $ 2     15,196        
Exercise of stock options (in shares) 733   689              
Purchase of Treasury Stock $ (1,744)       (1,744)          
Purchase of Treasury Stock ,Shares     72              
Other comprehensive (loss) income, net of tax (4,052)               (4,052)  
Net income (loss) 33,682             33,682    
Balance at Dec. 31, 2018 $ 611,983   $ 48   $ (2,133) $ 1,005,105   $ (393,843) $ 2,806  
Balance (in shares) at Dec. 31, 2018     47,508              
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities:      
Net income (loss) $ 33,682 $ (223,359) $ (35,603)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Share-based compensation expense 21,252 32,814 36,386
Amortization of net premiums and discounts on investments (1,417)   467
Amortization of debt discount and debt issuance costs 15,822 12,153 9,717
Depreciation and amortization expense 11,479 23,234 21,582
Intangible asset impairment   296,763  
Change in contingent consideration obligation 55,000 40,622 8,600
Realized gain on foreign currency transaction   247 (9,856)
Non-cash royalty revenue (10,291) (2,705)  
Deferred tax benefit (14,505) (54,044) (11,190)
Excess tax charge (benefit) from share-based compensation arrangements     15
Changes in assets and liabilities:      
Decrease (increase) in accounts receivable 57,972 (29,112) (19,965)
(Increase) decrease in prepaid expenses and other current assets (15,402) 3,445 6,904
Decrease (increase) in inventory 8,440 5,505 (6,660)
Decrease in non-current portion of deferred cost of license revenue   634 634
Decrease in other assets 34 4,138 34
(Decrease) Increase in accounts payable, accrued expenses and other current liabilities (3,488) (2,099) 37,625
Decrease in non-current portion of deferred license revenue   (9,057) (9,057)
Increase in other non-current liabilities 52 1,491 17
Net cash provided by operating activities 150,793 97,136 29,649
Cash flows from investing activities:      
Purchases of property and equipment (33,328) (13,688) (6,192)
Purchases of intangible assets (587) (688) (893)
Acquisitions, net of cash received and gain on foreign currency transaction     (266,454)
Purchases of investments (249,107)   (40,215)
Proceeds from maturities of investments 98,273   239,968
Net cash used in investing activities (176,865) (10,713) (73,786)
Cash flows from financing activities:      
Debt issuance costs     (1,587)
Proceeds from issuance of common stock and option exercises 15,198 10,479 75,520
Repayment/(purchase) of non-controlling interest   2,722 (27,946)
Purchase of treasury stock (1,744) (60)  
Net proceeds from royalty monetizations   50,787  
Repayment of loans payable (657) (2,409)  
Excess tax (benefit) charge from share-based compensation arrangements     (15)
Repayments of revenue interest liability     (41)
Net cash provided by financing activities 12,797 61,519 45,931
Effect of exchange rate changes on cash and cash equivalents and restricted cash (412) 1,225 (2,159)
Net (decrease) increase in cash and cash equivalents and restricted cash (13,687) 149,167 (364)
Cash, cash equivalents and restricted cash at beginning of period 308,038 158,871 159,235
Cash, cash equivalents and restricted cash at end of period 294,351 308,038 158,871
Supplemental disclosure:      
Cash paid for interest 6,064 6,066 6,059
Cash paid for taxes 20,709 14,929 $ 4,250
Zanaflex      
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Gain on sale of assets   (3,534)  
Cash flows from investing activities:      
Net proceeds from sale of assets   $ 3,663  
Qutenza      
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Gain on sale of assets (7,837)    
Cash flows from investing activities:      
Net proceeds from sale of assets $ 7,884    
v3.10.0.1
Organization and Business Activities
12 Months Ended
Dec. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Business Activities

(1) Organization and Business Activities

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

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

v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

(2) Summary of Significant Accounting Policies

Principles of Consolidation

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

Use of Estimates

The preparation of the consolidated financial statements requires management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include share‑based compensation accounting, which are largely dependent on the fair value of the Company’s equity securities, measurement of changes in the fair value of acquired contingent consideration which is based on a probability weighted discounted cash flow valuation methodology, estimated deductions to determine net revenue such as allowances for customer credits, including estimated discounts, rebates, and chargebacks, which are estimated based on available information that will be adjusted to reflect known changes in the factors that impact such allowances, estimates of reserves for obsolete and excess inventory, and estimates of unrecognized tax benefits and valuation allowances on deferred tax assets which are based on an assessment of recoverability of the deferred tax assets against future taxable income. Actual results could differ from those estimates.

Risks and Uncertainties

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

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash represents a bank account with funds to cover the Company’s self-funded employee health insurance. At December 31, 2018, the Company also held $0.3 million of restricted cash related to cash collateralized standby letters of credit in connection with obligations under facility leases, which is included with other assets in the consolidated balance sheet due to the long-term nature of the letters of credit. (see Note 10).

Investments

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

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

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

Other Comprehensive Income (Loss)

The Company’s other comprehensive income (loss) 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, 2018 and 2017. The cumulative foreign currency translation adjustment reported in Other Comprehensive Income (Loss) was $(3.9) million and $19.8 million for the period ended December 31, 2018 and 2017, respectively.

Inventory

Inventory is stated at the lower of cost or net realizable value. The Company capitalizes inventory costs associated with the Company's products prior to regulatory approval when, based on management's judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. Cost is determined using the first-in, first-out method (FIFO) for all inventories. The Company’s inventory primarily consisted of finished goods as of December 31, 2018 and 2017. The Company establishes reserves as necessary for obsolescence and excess inventory. The Company records a reserve for excess and obsolete inventory based on the expected future product sales volumes and the projected expiration of inventory and specifically identified obsolete inventory. The Company recorded a charge for excess and obsolete inventory of $8.4 million and $0.7 million for the years ended December 31, 2018 and 2017, respectively.

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 in a business combination accounted for using the acquisition method of accounting. Goodwill is not amortized and is subject to impairment testing on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill is impaired. We perform our impairment testing at the reporting unit level where we have determined that we have a single reporting unit and operating segment. We test goodwill for impairment using a quantitative method (primarily based on market capitalization). The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of the reporting unit including goodwill to its carrying value. If the carrying value of the reporting unit exceeds the estimated fair value of the reporting unit, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit as if the reporting unit was acquired in a business combination. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of its goodwill calculated in this manner, an impairment loss is recognized in an amount equal to the excess of the carrying value over the implied fair value. See Note 4 for a discussion of goodwill.

Intangible Assets

In Process Research and Development

The Company has indefinite lived intangible assets for the value of acquired in-process research and development. The cost of in-process research and development (IPR&D) acquired directly in a transaction other than a business combination is capitalized if the project will be further developed or have an alternative future use; otherwise it is expensed. The estimated fair value of IPR&D projects acquired in a business combination is capitalized. Several methods may be used to determine the estimated fair value of the IPR&D assets acquired in a business combination. The Company utilizes the "income method” which applies a probability weighting that considers the risk of development and commercialization to the estimated future net cash flows that are derived from projected sales revenues and estimated costs. These projections are based on factors such as relevant market size, patent protection, estimated pricing and expected industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or impaired, as appropriate. These assets are tested at least annually or when a triggering event occurs that could indicate a potential impairment. Events that could result in an impairment, or trigger an interim impairment assessment, may include actions by regulatory authorities with respect to us or our competitors, the receipt of additional clinical or nonclinical data regarding our drug candidate or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate or new information regarding potential sales for the drug which could have a negative effect on cash flows and which could result in an impairment. If impairment indicators are present or changes in circumstance suggest that an impairment may exist, we perform an impairment analysis by comparing the sum of the estimated discounted future cash flows, or fair value, of each intangible asset to its carrying value on the consolidated balance sheet. We will recognize an impairment loss if the carrying value of the intangible asset exceeds its fair value.

Finite-Lived Intangible Assets

The Company has finite lived intangible assets that are amortized on a straight line basis over the period in which the Company expects to receive economic benefit and are reviewed for impairment when facts and circumstances indicate that the carrying value of the asset may not be recoverable. The determination of the expected life will be dependent upon the use and underlying characteristics of the intangible asset. In the Company’s evaluation of the intangible assets, it considers the term of the underlying asset life and the expected life of the related product line. If impairment indicators are present or changes in circumstance suggest that impairment may exist, the Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows of each intangible asset to its carrying value on the consolidated balance sheet. If the undiscounted cash flows used in the recoverability test are less than the carrying value, the Company would determine the fair value of the intangible asset and recognize an impairment loss in the statement of operations if the carrying value of the intangible asset exceeds its fair value. Fair value is generally estimated based on either appraised value or other valuation techniques. Events that could result in an impairment, or trigger an interim impairment assessment, may include actions by regulatory authorities with respect to us or our competitors, new or better products entering the market, changes in market share or market pricing, changes in the economic lives of the assets, changes in the legal framework covering patents, rights or licenses, and other market changes which could have a negative effect on cash flows and which could result in an impairment.

Contingent Consideration

The Company may record contingent consideration as part of the cost of business acquisitions. Contingent consideration is recognized at fair value as of the date of acquisition and recorded as a liability on the consolidated balance sheet. The contingent consideration is re-valued on a quarterly basis using a probability weighted discounted cash-flow approach until fulfillment or expiration of the contingency. Changes in the fair value of the contingent consideration are recognized in the statement of operations. See Note 16 for discussion on the Alkermes ARCUS agreement.

Impairment of Long-Lived Assets

The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful lives of its long-lived assets 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.

Accounting for Income Taxes

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

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

Revenue Recognition

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

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

 

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

(In thousands)

 

Balance as of December 31, 2017

 

 

Net Adjustments

 

 

Balance as of

January 1, 2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Other current assets

 

$

1,983

 

 

$

(634

)

 

$

1,349

 

Non-current portion of deferred cost of license revenue

 

 

1,638

 

 

 

(1,638

)

 

 

 

    Total Assets

 

$

1,197,969

 

 

$

(2,272

)

 

$

1,195,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of deferred license revenue

 

$

9,057

 

 

$

(9,057

)

 

$

 

Non-current portion of deferred license revenue

 

 

23,398

 

 

 

(23,398

)

 

 

 

Deferred tax liability

 

 

22,459

 

 

 

2,600

 

 

 

25,059

 

Accumulated deficit

 

 

(455,108

)

 

 

27,583

 

 

 

(427,525

)

    Total liabilities and stockholders' equity

 

$

1,197,969

 

 

$

(2,272

)

 

$

1,195,697

 

 

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

(In thousands)

 

Balance as of

December 31, 2018

Prior to Adoption

of ASC 606

 

 

Net Adjustments

 

 

Balance as of

December 31, 2018

as Reported

Under ASC 606

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Other current assets

 

$

10,828

 

 

$

(634

)

 

$

10,194

 

Non-current portion of deferred cost of license revenue

 

 

1,004

 

 

 

(1,004

)

 

 

 

    Total Assets

 

$

1,301,304

 

 

$

(1,638

)

 

$

1,299,666

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of deferred license revenue

 

$

9,057

 

 

$

(9,057

)

 

$

 

Non-current portion of deferred license revenue

 

 

14,341

 

 

 

(14,341

)

 

 

 

Deferred tax liability

 

 

6,988

 

 

 

495

 

 

 

7,483

 

Accumulated deficit

 

 

(415,108

)

 

 

21,265

 

 

 

(393,843

)

    Total liabilities and stockholders' equity

 

$

1,301,304

 

 

$

(1,638

)

 

$

1,299,666

 

 

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

(In thousands)

 

Year Ended December 31, 2018

Balance Prior to

Adoption of ASC 606

 

 

Effect of Change

 

 

Year Ended December 31, 2018

Balance as Reported

Under ASC 606

 

License revenue

 

$

9,057

 

 

$

(9,057

)

 

$

 

Cost of license revenue

 

 

634

 

 

 

(634

)

 

 

 

Operating income (loss)

 

$

46,909

 

 

$

(8,423

)

 

$

38,486

 

(Benefit from) provision for income taxes

 

 

(15,364

)

 

 

2,105

 

 

 

(13,259

)

Net income (loss)

 

$

40,000

 

 

$

(6,318

)

 

$

33,682

 

Net income (loss) per share—basic

 

$

0.85

 

 

$

(0.13

)

 

$

0.72

 

Net income (loss) per share—diluted

 

$

0.84

 

 

$

(0.13

)

 

$

0.71

 

 

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

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

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

ASC 606 requires entities to record a contract asset when a performance obligation has been satisfied or partially satisfied, but the amount of consideration has not yet been received because the receipt of the consideration is conditioned on something other than the passage of time. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g. receivable), before the entity transfers a good or service to the customer. We did not have any contract assets or liabilities as of December 31, 2018.

Product Revenue, Net

Ampyra

Ampyra is available primarily through a network of specialty pharmacy providers that provide the medication to patients by mail 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.

Qutenza

Prior to the sale of Qutenza assets, Qutenza was 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.

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

The Company’s net revenues represent total revenues adjusted for discounts and allowances, including estimated cash discounts, chargebacks, rebates, returns, copay assistance, data fees and wholesaler fees for services. These adjustments represent variable consideration under ASC 606 and are recorded for the Company’s estimate of cash consideration expected to be given by the Company to a customer that is presumed to be a reduction of the transaction price of the Company’s products and, therefore, are characterized as a reduction of revenue. These adjustments are established by management as its best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances. Adjustments for variable consideration are determined based on the contractual terms with customers, historical trends, communications with customers and the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product and anticipated introduction of competitive products.

Discounts and Allowances

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

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

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

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

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

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

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

Royalty Revenue

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

License Revenue

License revenue relates to the License and Collaboration agreement with Biogen which provides for milestone payments for the achievement of certain regulatory and sales milestones during the term of the agreement. Regulatory milestones are contingent upon the approval of Fampyra for new indications outside of the U.S. Sales milestones are contingent upon the achievement of certain net sales targets for Fampyra sales outside of the U.S. The Company recognizes license revenue under ASC 606, which provides constraints for entities to recognize license revenue which is deemed to be variable by requiring the Company to estimate the amount of consideration to which it is entitled in exchange for transferring the promised goods or services to a customer. The Company recognizes an estimate of revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the milestone is achieved. For regulatory milestones, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. For sales-based milestones, the Company recognizes revenue upon the achievement of the specific sale milestones. The Company did not recognize any license revenue related to milestones for the years ended December 31, 2018, 2017 or 2016.

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

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Net product revenues

 

$

459,739

 

 

$

549,749

 

 

$

493,358

 

Royalty revenues

 

$

11,694

 

 

 

29,481

 

 

$

17,186

 

License revenue

 

$

 

 

 

9,057

 

 

$

9,057

 

Total net revenues

 

$

471,433

 

 

$

588,287

 

 

$

519,601

 

 

 

Concentration of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments in cash, cash equivalents, restricted cash, short-term investments and accounts receivable. The Company does not require any collateral for its accounts receivable. The Company maintains cash, cash equivalents and restricted cash with approved financial institutions. The Company is exposed to credit risks and liquidity in the event of default by the financial institutions or issuers of investments in excess of FDIC insured limits. The Company performs periodic evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any institution.

The Company does not own or operate, and currently does not plan to own or operate, facilities for production and packaging of 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 commercial supply.

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

The Company’s principal direct customers as of December 31, 2018 were a network of specialty pharmacies and ASD Specialty Healthcare, Inc. for Ampyra. The Company periodically assesses the financial strength of these customers and establishes allowances for anticipated losses, if necessary. Four customers individually accounted for more than 10% of the Company’s revenue or approximately 81% of total revenue in 2018. Four and Three customers individually accounted for more than 10% of the Company’s revenue in 2017 and 2016, respectively. Five customers individually accounted for more than 10% of the Company’s accounts receivable or approximately 88% of total accounts receivable as of December 31, 2018. 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. The Company’s net product revenues are generated in the U.S.

Allowance for Cash Discounts

An allowance for cash discounts is accrued based on historical usage rates at the time of product shipment. The Company adjusts accruals based on actual activity as necessary. Cash discounts are typically settled with customers within 34 days after the end of each calendar month. The Company provided cash discount allowances of $6.4 million and $6.9 million for the years ended December 31, 2018 and 2017, respectively. The Company’s reserve for cash discount allowances were $0.4 million and $0.8 million as of December 31, 2018 and 2017, respectively.

(in thousands)

 

Cash

discounts

 

Balance at December 31, 2016

 

$

594

 

Allowances for sales

 

 

6,898

 

Actual credits

 

 

(6,648

)

Balance at December 31, 2017

 

$

844

 

Allowances for sales

 

 

6,371

 

Actual credits

 

 

(6,820

)

Balance at December 31, 2018

 

$

395

 

 

Allowance for Doubtful Accounts

A portion of the Company’s accounts receivable may not be collected. The Company provides reserves based on an evaluation of the aging of its trade receivable portfolio and an analysis of high-risk customers. The Company has not historically experienced material losses related to credit risk. The Company had no recognized allowance for doubtful accounts as of December 31, 2018 or December 31, 2017. There were no provisions and write-offs for the years ended December 31, 2018 and 2017. 

Allowance for Chargebacks

Based upon the Company’s contracts and the most recent experience with respect to sales with the US government, the Company provides an allowance for chargebacks. The Company monitors the sales trends and adjusts the chargebacks on a regular basis to reflect the most recent chargebacks experience. The Company recorded a charge of $18.9 million for the year ended December 31, 2018 for allowance related to chargebacks. The Company did not record any allowance for chargebacks for the year ended December 31, 2017. The Company made a payment of $16.7 million related to the chargebacks allowances for the year ended December 31, 2018. The Company’s reserve for chargebacks allowance was $2.2 million as of December 31, 2018.

Contingencies

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

Fair Value of Financial Instruments

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

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

 

(a)

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

 

(b)

Short-term investments are recorded based primarily on quoted market prices;

 

(c)

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

 

(d)

Convertible Senior Notes were measured at fair value based on market quoted prices of the debt securities; 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 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 Amypra and Qutenza in the U.S. for the year ended December 31, 2018 and Ampyra, Zanaflex and Qutenza in the U.S. for the years ended December 31, 2017 and 2016.

Accumulated Other Comprehensive Income

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

Recent Accounting Pronouncements - Adopted

As noted above, in May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606). This new standard replaced all previous U.S. GAAP guidance on this topic and eliminated all industry-specific guidance. The new standard 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 adopted the new standard effective January 1, 2018 using the modified retrospective transition method. See discussion of the adoption above in Revenue Recognition.

In November 2016, the FASB issued 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. The Company adopted this guidance effective January 1, 2018 retrospectively. This ASU requires entities to present the statement of cash flows in a manner such that it reconciles beginning and ending totals of cash, cash equivalents, restricted cash or restricted cash equivalents. Also, when cash, cash equivalents, restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position, an entity should, for each period that a statement of financial position is presented, present on the face of the statement of cash flows or disclose in the notes to the financial statements, the line items and amounts of cash, cash equivalents, and restricted cash or restricted cash equivalents reported within the statement of financial position. The amounts, disaggregated by the line item in which they appear within the statement of financial position, shall sum to the total amount of cash, cash equivalents, and restricted cash or restricted cash equivalents at the end of the corresponding period shown in the statement of cash flows.

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

 

 

December 31, 2018

 

 

December 31, 2017

 

 

December 31, 2016

 

(In thousands)

 

Beginning of period

 

 

End of period

 

 

Beginning of period

 

 

End of period

 

 

Beginning of period

 

 

End of period

 

Cash and cash equivalents

 

$

307,068

 

 

$

293,564

 

 

$

158,537

 

 

$

307,068

 

 

$

153,204

 

 

$

158,537

 

Restricted cash

 

 

410

 

 

 

532

 

 

 

79

 

 

 

410

 

 

 

6,031

 

 

 

79

 

Restricted cash included in Other assets

 

 

560

 

 

 

255

 

 

 

255

 

 

 

560

 

 

 

 

 

 

255

 

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

 

$

308,038

 

 

$

294,351

 

 

$

158,871

 

 

$

308,038

 

 

$

159,235

 

 

$

158,871

 

Amounts included in restricted cash represent those amounts required to be set aside to cover the Company’s self-funded employee health insurance. Restricted cash included in other assets on the statement of financial position relates 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.

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. The Company adopted this guidance effective January 1, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

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. The Company adopted this guidance effective January 1, 2018. The adoption of this guidance did not have an 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. The Company adopted this guidance effective January 1, 2018. The adoption of this guidance did not have an impact on the Company’s 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 adopted this guidance effective January 1, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Previously, share-based payment arrangements with employees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. ASC 505-50, before the amendments, differed significantly from ASC 718. However, FASB concluded that awards granted to employees are economically similar to awards granted to nonemployees and therefore two different accounting models were not justified. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods therein with early adoption permitted. The Company early adopted this guidance beginning April 1, 2018. The adoption of this guidance did not have an impact on its consolidated financial statements.   

In March 2018, the FASB issued ASU 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 118’. The ASU adds seven paragraphs to ASC 740, Income Taxes, that contain SEC guidance related to SAB 118 (codified as SEC SAB Topic 5.EE, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act”), which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Cuts and Jobs Act in the period of enactment which is the period that includes December 22, 2017. The measurement period should not extend beyond one year from the enactment date. The Company completed its accounting for the income tax effects for the year ended December 31, 2018. See note 17 for a discussion of the impact of the guidance on the Company’s consolidated financial statements.

Recent Accounting Pronouncements – Not Yet Adopted

In February 2016, the FASB issued ASU 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. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements and ASU No. 2018-20, Narrow-Scope Improvements for Lessors. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

This ASU is effective for the Company on January 1, 2019. We expect to adopt the new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.

While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate operating leases and (2) providing significant new disclosures for our leasing activities.

The new standard also provides practical expedients and certain exemptions for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all of our leases. We have determined the completeness of our lease population as of January 1, 2019. We expect to complete our assessment of the full financial impact of ASC 842 during the first quarter of 2019, and will include all required presentation and disclosures under ASC 842 in our Form 10-Q for the three months ending March 31, 2019.

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

In February 2018, the FASB issued ASU 2018-02, ‘Income Statement—Reporting Comprehensive Income’ (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). This new standard provides entities with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. ASC 740-10-35-4 requires that deferred tax assets and liabilities should be adjusted to account for any changes in tax laws or rates within the period that the enactment of these changes occurs and any adjustments to flow through income from continuing operations. Since the adjustments due to the Tax Cuts and Jobs Act are required to flow through income from continuing operations, the tax effects of items within accumulated other comprehensive income known now as “stranded tax effects,” do not reflect the appropriate tax rate. As such, FASB issued ASU 2018-02, in order to address these stranded income tax effects. The new standard requires entities to disclose the following:

 

A description of the accounting policy for releasing income tax effects from AOCI;

 

Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act, and

 

Information about the other income tax effects that are reclassified.

 

The ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact it may have on its consolidated financial statements.

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

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

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

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

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

Subsequent Events

Subsequent events are defined as those events or transactions that occur after the balance sheet date, but before the financial statements are filed with the Securities and Exchange Commission. The Company completed an evaluation of the impact of any subsequent events through the date these financial statements were issued, and determined there were no subsequent events that required disclosure in our financial statements.

v3.10.0.1
Acquisitions
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisitions

(3) Acquisitions

Biotie Therapies Ltd.

On April 18, 2016, the Company acquired a controlling interest in Biotie Therapies Ltd., formerly 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. 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 and 2016, the Company incurred approximately $0.6 million and $17.6 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 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.

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 year ended December 31, 2016 as if the acquisition of Biotie had occurred as of January 1, 2016. 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 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

 

 

December 31, 2016

 

(In thousands)

Reported

 

 

Pro Forma

 

Net revenues

$

519,601

 

 

$

520,658

 

Net loss from continuing operations

    attributable to Acorda

$

(34,618

)

 

$

(57,925

)

v3.10.0.1
Intangible Assets and Goodwill
12 Months Ended
Dec. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill

(4) Intangible Assets and Goodwill

Intangible Assets

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 Parkinson’s disease OFF periods, also known as OFF episodes. The acquisition of Civitas also included rights to Civitas’ proprietary ARCUS drug delivery technology, which the Company believes has potential to be used in the development of a variety of inhaled medicines. In December 2018, the FDA approved Inbrija for intermittent treatment of OFF episodes in people with Parkinson’s disease treated with carbidopa/levodopa.

In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the transaction to the underlying assets acquired and liabilities assumed by the Company, based upon the estimated fair values of those assets and liabilities at the date of acquisition and classified the fair value of the acquired IPR&D as an indefinite-lived intangible asset until the successful completion of the associated research and development efforts. The value allocated to the indefinite lived intangible asset was $423 million. In December 2018, the Company received FDA approval for Inbrija and accordingly reclassified the indefinite lived intangible asset to a definite lived intangible asset with amortization scheduled to begin upon launch in 2019.

Ampyra

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

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

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

As a result of the invalidation of the patents, the estimated remaining useful lives of the Ampyra intangible assets were reviewed 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, 2018 or December 31, 2017.

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). Tozadenant was a potential treatment for Parkinson’s disease patients to reduce off periods. SYN120 is a potential treatment for Parkinson’s-related dementia. BTT1023 is a product candidate for the orphan disease Primary Sclerosing Cholangitis, or PSC, a chronic and progressive liver disease. The Company also acquired rights to Selincro, an orally administered drug used for the treatment of alcohol dependence. Selincro received European Medicines Agency approval in 2013 and is marketed across Europe by H. Lundbeck A/S, a Danish pharmaceutical company.

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

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

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

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

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

Websites

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

The Company continually evaluates whether events or circumstances have occurred that indicate that the carrying value of the intangible assets may be impaired or that the estimated remaining useful lives of these assets may warrant revision. As of December 31, 2018, 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, 2018

 

 

December 31, 2017

 

(Dollars In thousands)

 

Estimated

Remaining

Useful Lives

(Years)

 

 

Cost

 

 

Accumulated

Amortization

 

 

Reclass to Definite-lived asset

 

 

Foreign

Currency

Translation

 

 

Net

Carrying

Amount

 

 

Cost

 

 

Accumulated

Amortization

 

 

Impairment

 

 

Foreign

Currency

Translation

 

 

Net

Carrying

Amount

 

In-process research &

   development (1)

 

Indefinite-lived

 

 

$

427,500

 

 

$

 

 

$

(423,000

)

 

$

(200

)

 

$

4,300

 

 

$

683,500

 

 

$

 

 

$

(257,317

)

 

$

1,317

 

 

$

427,500

 

Inbrija (2)

 

14

 

 

 

 

 

 

 

 

 

423,000

 

 

 

 

 

 

423,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selincro

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65,000

 

 

 

(27,932

)

 

 

(39,446

)

 

 

2,378

 

 

 

 

Ampyra milestones

 

n/a

 

 

 

5,750

 

 

 

(5,750

)

 

 

 

 

 

 

 

 

 

 

 

5,750

 

 

 

(4,438

)

 

 

 

 

 

 

 

 

1,312

 

Ampyra CSRO royalty

   buyout

 

n/a

 

 

 

3,000

 

 

 

(3,000

)