ACORDA THERAPEUTICS INC, 10-Q filed on 5/7/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 01, 2019
Document And Entity Information [Abstract]    
Entity Registrant Name ACORDA THERAPEUTICS INC  
Entity Central Index Key 0001008848  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Trading Symbol ACOR  
Entity Common Stock, Shares Outstanding   48,129,672
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 197,093 $ 293,564
Restricted cash 567 532
Short term investments 146,157 151,989
Trade accounts receivable, net of allowances of $1,033 and $2,681, as of March 31, 2019 and December 31, 2018, respectively 20,652 23,430
Prepaid expenses 14,223 19,384
Inventory, net 31,465 29,014
Other current assets 7,747 10,194
Total current assets 417,904 528,107
Property and equipment, net of accumulated depreciation 83,032 60,519
Goodwill 280,128 282,059
Intangible assets, net of accumulated amortization 425,777 428,570
Right of use assets 26,802  
Other assets 295 411
Total assets 1,233,938 1,299,666
Current liabilities:    
Accounts payable 25,955 48,859
Accrued expenses and other current liabilities 45,918 76,882
Current portion of acquired contingent consideration 8,179 4,914
Current portion of lease liabilities 7,458  
Current portion of loans payable 604 616
Current portion of liability related to sale of future royalties 9,173 8,985
Total current liabilities 97,287 140,256
Convertible senior notes (due 2021) 321,210 318,670
Non-current portion of acquired contingent consideration 167,221 163,086
Non-current portion of lease liabilities 26,455  
Non-current portion of loans payable 24,643 24,470
Deferred tax liability 5,401 7,483
Non-current portion of liability related to sale of future royalties 20,174 21,731
Other non-current liabilities 4,961 11,987
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.001 par value. Authorized 20,000,000 shares at March 31, 2019 and December 31, 2018; no shares issued as of March 31, 2019 and December 31, 2018, respectively
Common stock, $0.001 par value. Authorized 80,000,000 shares at March 31, 2019 and December 31, 2018; issued 47,563,184 and 47,508,505 shares, including those held in treasury, as of March 31, 2019 and December 31, 2018, respectively 48 48
Treasury stock at cost (91,594 shares at March 31, 2019 and 87,737 shares at December 31, 2018) (2,185) (2,133)
Additional paid-in capital 1,008,796 1,005,105
Accumulated deficit (441,448) (393,843)
Accumulated other comprehensive income 1,375 2,806
Total stockholders’ equity 566,586 611,983
Total liabilities and stockholders’ equity $ 1,233,938 $ 1,299,666
v3.19.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Trade accounts receivable, allowances (in dollars) $ 1,033 $ 2,681
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, Authorized shares 20,000,000 20,000,000
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 47,563,184 47,508,505
Treasury stock, shares 91,594 87,737
v3.19.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Revenues:    
Total net revenues $ 44,137 $ 106,165
Costs and expenses:    
Cost of sales 8,799 20,634
Research and development 16,028 30,560
Selling, general and administrative 52,725 47,601
Amortization of intangible assets 2,564 716
Changes in fair value of acquired contingent consideration 7,400 6,200
Total operating expenses 87,516 105,711
Operating (loss) income (43,379) 454
Other (expense) income, net:    
Interest and amortization of debt discount expense (6,424) (5,497)
Interest income 1,496 326
Realized loss on foreign currency transactions (13) (5)
Total other expense, net (4,941) (5,176)
Loss before taxes (48,320) (4,722)
Benefit from (Provision for) income taxes 715 (3,477)
Net loss $ (47,605) $ (8,199)
Net loss per share—basic $ (1.00) $ (0.18)
Net loss per share—diluted $ (1.00) $ (0.18)
Weighted average common shares outstanding used in computing net loss per share—basic 47,472 46,529
Weighted average common shares outstanding used in computing net loss per share—diluted 47,472 46,529
Net Product Revenues    
Revenues:    
Total net revenues $ 41,334 $ 103,003
Royalty Revenues    
Revenues:    
Total net revenues $ 2,803 $ 3,162
v3.19.1
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]    
Net loss $ (47,605) $ (8,199)
Other comprehensive (loss) income, net of tax:    
Foreign currency translation adjustment (1,609) 2,547
Unrealized income (loss) on available for sale debt securities 178 (92)
Other comprehensive (loss) income, net of tax (1,431) 2,455
Comprehensive loss $ (49,036) $ (5,744)
v3.19.1
Consolidated Statements of Changes in Stockholders' Equity - USD ($)
$ in Thousands
Total
Common stock
Treasury stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Balance at Dec. 31, 2017 $ 519,987 $ 46 $ (389) $ 968,580 $ (455,108) $ 6,858
Balance (in shares) at Dec. 31, 2017   46,441,000        
Increase (Decrease) in Stockholders' Equity            
Adjustment to accumulated deficit (pursuant to adoption ofASU 2014-09) 27,582       27,582  
Compensation expense for issuance of stock options to employees 4,095     4,095    
Compensation expense for issuance of restricted stock to employees 1,840     1,840    
Compensation expense for issuance of restricted stock to employees (in shares)   100,000        
Exercise of stock options 3,367 $ 1   3,366    
Exercise of stock options (in shares)   137,000        
Purchase of Treasury Stock (1,202)   (1,202)      
Purchase of Treasury Stock ,Shares   47,000        
Other comprehensive (loss) income, net of tax 2,455         2,455
Net loss (8,199)       (8,199)  
Balance at Mar. 31, 2018 549,925 $ 47 (1,591) 977,881 (435,725) 9,313
Balance (in shares) at Mar. 31, 2018   46,725,000        
Balance at Dec. 31, 2018 611,983 $ 48 (2,133) 1,005,105 (393,843) 2,806
Balance (in shares) at Dec. 31, 2018   47,508,000        
Increase (Decrease) in Stockholders' Equity            
Compensation expense for issuance of stock options to employees 2,745     2,745    
Compensation expense for issuance of restricted stock to employees 922     922    
Compensation expense for issuance of restricted stock to employees (in shares)   49,000        
Exercise of stock options $ 24     24    
Exercise of stock options (in shares) 2,000 2,000        
Purchase of Treasury Stock $ (52)   (52)      
Purchase of Treasury Stock ,Shares (3,857) 4,000        
Other comprehensive (loss) income, net of tax $ (1,431)         (1,431)
Net loss (47,605)       (47,605)  
Balance at Mar. 31, 2019 $ 566,586 $ 48 $ (2,185) $ 1,008,796 $ (441,448) $ 1,375
Balance (in shares) at Mar. 31, 2019   47,563,000        
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Cash flows from operating activities:      
Net loss $ (47,605) $ (8,199)  
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:      
Share-based compensation expense 3,667 5,867  
Amortization of net premiums and discounts on investments (521) (92)  
Amortization of debt discount and debt issuance costs 4,717 4,003  
Depreciation and amortization expense 4,850 3,310  
Change in acquired contingent consideration obligation 7,400 6,200  
Non-cash royalty revenue (2,467) (2,782)  
Deferred tax benefit (1,092) (293)  
Changes in assets and liabilities:      
Decrease in accounts receivable 2,777 30,616  
Decrease (increase) in prepaid expenses and other current assets 7,602 (1,535)  
(Increase) decrease in inventory (2,451) 9,839  
Decrease in other assets   8  
Decrease in accounts payable, accrued expenses and other current liabilities (54,042) (18,271)  
(Decrease) increase in other non-current liabilities (331) 30  
Net cash (used in) provided by operating activities (77,496) 28,701  
Cash flows from investing activities:      
Purchases of property and equipment (24,655) (4,807)  
Purchases of intangible assets   (5)  
Purchases of investments (48,685) (106,767)  
Proceeds from maturities of investments 55,219    
Net cash used in investing activities (18,121) (111,579)  
Cash flows from financing activities:      
Proceeds from issuance of common stock and option exercises 24 3,367  
Purchase of treasury stock (52) (1,202)  
Repayment of loans payable (614) (656)  
Net cash (used in) provided by financing activities (642) 1,509  
Effect of exchange rate changes on cash, cash equivalents and restricted cash (177) 378  
Net decrease in cash, cash equivalents and restricted cash (96,436) (80,991)  
Cash, cash equivalents and restricted cash at beginning of period 294,351 308,039 $ 308,039
Cash, cash equivalents and restricted cash at end of period 197,915 227,048 $ 294,351
Supplemental disclosure:      
Cash paid for interest 18 26  
Cash paid for taxes $ 19 $ 465  
v3.19.1
Organization and Business Activities
3 Months Ended
Mar. 31, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Business Activities

(1) Organization and Business Activities

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information, Accounting Standards Codification (ASC) Topic 270-10 and with the instructions to Form 10-Q. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, all adjustments considered necessary for a fair presentation have been included in the interim periods presented and all adjustments are of a normal recurring nature. The Company has evaluated subsequent events through the date of this filing. Operating results for the three-month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. When used in these notes, the terms “Acorda” or “the Company” mean Acorda Therapeutics, Inc. The December 31, 2018 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. You should read these unaudited interim condensed consolidated financial statements in conjunction with the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K, for the year ended December 31, 2018.

Certain reclassifications were made to prior period amounts in the consolidated financial statements to conform to the current year presentation.

v3.19.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

(2) Summary of Significant Accounting Policies

Our significant accounting policies are detailed in our Annual Report on Form 10-K for the year ended December 31, 2018. Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases” (Topic 842), ASU 2018-05, Income Taxes (Topic 740), ASU 2018-09, “Codification Improvements” and ASU 2018-02, ‘Income Statement—Reporting Comprehensive Income’ (Topic 220). Other than the adoption of the new accounting guidance, our significant accounting policies have not changed materially from December 31, 2018.

Restricted Cash

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:

 

Three-month period ended March 31, 2019

 

 

Three-month period ended March 31, 2018

 

(In thousands)

Beginning of period

 

 

End of period

 

 

Beginning of period

 

 

End of period

 

Cash and cash equivalents

$

293,564

 

 

$

197,093

 

 

$

307,068

 

 

$

226,276

 

Restricted cash

 

532

 

 

 

567

 

 

 

410

 

 

 

460

 

Restricted cash included in Other assets

 

255

 

 

 

255

 

 

 

561

 

 

 

312

 

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

$

294,351

 

 

$

197,915

 

 

$

308,039

 

 

$

227,048

 

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.

Inventory

The major classes of inventory were as follows:

(In thousands)

 

March 31, 2019

 

 

December 31, 2018

 

Raw materials

 

$

548

 

 

$

 

Work-in-progress

 

 

5,913

 

 

 

 

Finished goods

 

 

25,004

 

 

 

29,014

 

Total

 

$

31,465

 

 

$

29,014

 

The Company reviews inventory, including inventory purchase commitments, for slow moving or obsolete amounts based on expected product sales volume and provides reserves against the carrying amount of inventory as appropriate.

Revenue Recognition

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. 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 any contract liabilities as of March 31, 2019.  

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

 

(In thousands)

Three-month period ended March 31, 2019

 

 

Three-month period ended March 31, 2018

 

Revenues:

 

 

 

 

 

 

 

Net product revenues

$

41,334

 

 

$

103,003

 

Royalty revenues

 

2,803

 

 

 

3,162

 

Total net revenues

$

44,137

 

 

$

106,165

 

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; 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 losses and gains are recognized in the period incurred and are reported as other (expense) income, net in the statement of operations.

Segment and Geographic Information

The Company is managed and operated as one business which is focused on developing therapies that restore function and improve the lives of people with neurological disorders. The entire business is managed by a single management team that reports to the Chief Executive Officer. The Company does not operate separate lines of business with respect to any of its products or product candidates and the Company does not prepare discrete financial information with respect to separate products or product candidates or by location. Accordingly, the Company views its business as one reportable operating segment. Net product revenues reported are derived from the sales of Inbrija in the U.S. for the three-month period ended March 31, 2019 and from the sales of Ampyra and Qutenza in the U.S for the three-month periods ended March 31, 2019 and 2018.

 

 

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 required disclosure in these financial statements.

Accounting Pronouncements Adopted

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

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

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

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Our leases have remaining lease terms of 3 years to 8 years, some of which include options to extend the lease term for up to 15 years, and some of which include options to terminate the lease within 3 years.

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

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

Operating Leases

We lease certain office space, manufacturing and warehouse space under arrangements classified as leases under ASC 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal options ranging from 5 to 15 years. The exercise of lease renewal options is at our sole discretion. One of our leases also includes an option to early terminate the lease within 3 years.

Ardsley, New York

In June 2011, the Company entered into a 15-year lease for an aggregate of approximately 138,000 square feet of office and laboratory space in Ardsley, New York. In 2014, the Company exercised its option to expand into an additional 25,405 square feet of office space, which the Company occupied in January 2015. The Company has options to extend the term of the lease for three additional five-year periods, and the Company has an option to terminate the lease after 10 years subject to payment of an early termination fee. Also, the Company has a right of first refusal until mid-2020 to lease up to approximately 95,000 additional square feet of space in additional buildings at the same location. The Company’s extension, early termination, and expansion rights are subject to specified terms and conditions, including specified time periods when they must be exercised, and are also subject to limitations including that the Company not be in default under the lease.

The Ardsley lease provides for monthly payments of rent during the lease term. These payments consist of base rent, which takes into account the costs of the facility improvements funded by the facility owner prior to the Company’s occupancy, and additional rent covering customary items such as charges for utilities, taxes, operating expenses, and other facility fees and charges. The base rent is currently $4.7 million per year, which reflects an annual 2.5% escalation factor.

Chelsea, Massachusetts

Through our Civitas subsidiary, we lease a manufacturing facility in Chelsea, Massachusetts with commercial-scale capabilities. The approximately 90,000 square foot facility also includes office and laboratory space. Civitas leases this facility from North River Everett Ave, LLC pursuant to a lease with a term that expires on December 31, 2025, and Civitas has two additional extension options of five years each. The base rent under the lease is currently $1.6 million per year, which reflects an annual escalation factor of 2.5% as well as an amendment to the lease to add additional property at the Chelsea, Massachusetts site as further described below.

In 2017, the Company’s Civitas subsidiary amended its existing Chelsea, Massachusetts lease. The amendment added expansion property located in Chelsea, Massachusetts next to the existing facility. The additional property includes land being used for parking and a free-standing warehouse building on the same site. The base rent for the additional property under the lease included in the rent number above, is currently $0.5 million per year with an annual escalation factor of 3.0%.

In 2018, the Company initiated a renovation and expansion of a building within the Chelsea manufacturing facility that will increase the size of the facility to approximately 95,000 square feet. The project will add a new manufacturing production line for Inbrija and other ARCUS products that has greater capacity than the existing manufacturing line, and it will create additional warehousing space for manufactured product. Pursuant to a 2018 lease amendment that enabled the renovation and expansion, upon completion of the project, annual rent under the lease will increase to $1.7 million. Construction of the project is scheduled for completion in the third quarter of 2019, though we cannot be assured that the project will meet this schedule, and it will take additional time after completion of construction to obtain the FDA approval needed to use the new production line for commercial manufacturing. All costs to renovate and expand the facility are borne by the Company, therefore, the lease for that building is accounted for as a build to suit lease.

Additional Facilities

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

Our leases have remaining lease terms of 3 years to 8 years which assumes exercise of the early termination of our Ardsley, NY lease. We do not include any renewal options in our lease terms when calculating our lease liabilities as we are not reasonably certain that we will exercise these options. One of our leases includes the early termination option in the lease term when calculating the lease liability. The weighted-average remaining lease term for our operating leases was 5 years at March 31, 2019. The weighted-average discount rate was 7.13% at March 31, 2019.

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

 

(In thousands)

 

Balance Sheet Classification

 

March 31, 2019

 

Right-of-use assets

 

Right of use assets

 

$

26,802

 

Current lease liabilities

 

Current portion of lease liabilities

 

 

7,458

 

Non-current lease liabilities

 

Non-current portion of lease liabilities

 

 

26,455

 

 

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

 

(In thousands)

 

Three-month period ended March 31, 2019

 

Operating lease cost

 

$

1,781

 

Variable lease cost

 

 

664

 

Short-term lease cost

 

 

322

 

Total lease cost

 

$

2,767

 

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

(In thousands)

 

 

 

 

2019 (excluding the three months ended March 31, 2019)

 

$

5,572

 

2020

 

 

7,608

 

2021

 

 

7,793

 

2022

 

 

9,825

 

2023

 

 

2,892

 

Later years

 

 

7,357

 

Total lease payments

 

 

41,047

 

Less: Imputed interest

 

 

(7,134

)

Present value of lease liabilities

 

$

33,913

 

 

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

 

(In thousands)

 

Three-month period ended March 31, 2019

 

Operating cash flow information:

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

1,834

 

Non-cash activity:

 

 

 

 

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

 

$

 

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 included its first presentation of changes in stockholders’ equity in its Form 10-Q for the three-month period ended March 31, 2019.

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

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements.” The ASU’s amendments clarify, correct errors in, or make minor improvements to a variety of ASC topics. The changes in ASU 2018-09 are not expected to have a significant effect on current accounting practices. Some of the amendments in this update do not require transition guidance and 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 ASU became effective in Q1 2019. The ASU did not have a significant impact on its consolidated financial statements. 

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (Topic 326): Measurement of Credit Losses on Financial Instruments. This new standard amends the current guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model known as current expected credit loss (CECL) model that is based on expected losses rather than incurred losses. Under the new guidance, an entity will recognize as an allowance its estimate of expected credit losses. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements.

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

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

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

v3.19.1
Share-based Compensation
3 Months Ended
Mar. 31, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-based Compensation

(3) Share-based Compensation

During the three‑month periods ended March 31, 2019 and 2018, the Company recognized share-based compensation expense of $3.7 million and $5.9 million, respectively. Activity in options and restricted stock during the three-month period ended March 31, 2019 and related balances outstanding as of that date are reflected below. The weighted average fair value per share of options granted to employees for the three-month periods ended March 31, 2019 and 2018 were approximately $7.41 and $12.37, respectively.

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

 

 

 

For the three-month period ended March 31,

 

(In millions)

 

2019

 

 

2018

 

Research and development expense

 

$

0.7

 

 

$

1.7

 

Selling, general and administrative expense

 

 

2.8

 

 

 

4.2

 

Cost of Sales

 

 

0.2

 

 

 

 

Total

 

$

3.7

 

 

$

5.9

 

 

A summary of share-based compensation activity for the three-month period ended March 31, 2019 is presented below:

Stock Option Activity

 

 

 

Number of

Shares

(In thousands)

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Intrinsic

Value

(In thousands)

 

Balance at January 1, 2019

 

 

8,194

 

 

$

29.81

 

 

 

 

 

 

 

 

 

Granted

 

 

440

 

 

 

13.88

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(202

)

 

 

23.34

 

 

 

 

 

 

 

 

 

Exercised

 

 

(2

)

 

 

16.00

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

8,430

 

 

$

29.14

 

 

 

5.5

 

 

$

 

Vested and expected to vest at

    March 31, 2019

 

 

8,398

 

 

$

29.18

 

 

 

5.5

 

 

$

 

Vested and exercisable at

    March 31, 2019

 

 

6,905

 

 

$

30.54

 

 

 

4.8

 

 

$

 

 

Restricted Stock and Performance Stock Unit Activity

 

(In thousands)

 

 

 

 

Restricted Stock and Performance Stock Units

 

Number of Shares

 

Nonvested at January 1, 2019

 

 

231

 

Granted

 

 

576

 

Vested

 

 

(53

)

Forfeited

 

 

(3

)

Nonvested at March 31, 2019

 

 

751

 

 

Unrecognized compensation cost for unvested stock options, restricted stock awards and performance stock units as of March 31, 2019 totaled $21.0 million and is expected to be recognized over a weighted average period of approximately 2.1 years.

During the three‑month period ended March 31, 2019, the Company repurchased 3,857 shares of common stock at an average price of $13.38 per share or approximately $52 thousand. The share repurchase consists primarily of common stock withheld to cover tax liabilities in connection with the settlement of vested restricted stock units in the three-month period ended March 31, 2019.

v3.19.1
Loss Per Share
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Loss Per Share

(4) Loss Per Share

The following table sets forth the computation of basic and diluted loss per share for the three-month periods ended March 31, 2019 and 2018:

 

(In thousands, except per share data)

 

Three-month period ended March 31, 2019

 

 

Three-month period ended March 31, 2018

 

Basic and diluted

 

 

 

 

 

 

 

 

Net loss

 

$

(47,605

)

 

$

(8,199

)

Weighted average common shares outstanding used in

   computing net loss per share—basic

 

 

47,472

 

 

 

46,529

 

Plus: net effect of dilutive stock options and restricted

   common shares

 

 

 

 

 

 

Weighted average common shares outstanding used in

   computing net loss per share—diluted

 

 

47,472

 

 

 

46,529

 

Net loss per share—basic

 

$

(1.00

)

 

$

(0.18

)

Net loss per share—diluted

 

$

(1.00

)

 

$

(0.18

)

 

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

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

 

(In thousands)

 

Three-month period ended March 31, 2019

 

 

Three-month period ended March 31, 2018

 

Denominator

 

 

 

 

 

 

 

 

Stock options and restricted common shares

 

 

8,544

 

 

 

7,504

 

 

Performance share units are excluded from the calculation of net loss per diluted share as the performance criteria has not been met for the three-month period ended March 31, 2019. Additionally, the impact of the convertible senior notes was determined to be anti-dilutive and excluded from the calculation of net loss per diluted share for the three-month periods ended March 31, 2019 and 2018.

v3.19.1
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

(5) Income Taxes

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

For the three-month periods ended March 31, 2019 and 2018, the Company recorded a benefit of $0.7 million and a provision of $(3.5) million for income taxes, respectively. The effective income tax rates for the Company for the three-month periods ended March 31, 2019 and 2018 were 1.5% and (74%), respectively. The variance in the effective tax rates for the three-month period ended March 31, 2019 as compared to the three-month period ended March 31, 2018 was due primarily to differences in pre-tax book income between the periods, the valuation allowance recorded on deferred tax assets for which no tax benefit can be recognized, state taxes, and the reduction in the research & development tax credit.

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

The Internal Revenue Service commenced its examination of the Company’s wholly-owned subsidiary, Biotie Therapies, Inc.’s, U.S. income tax return for the short period ended December 31, 2016 in the third quarter of 2018. There have been no proposed adjustments at this stage of the examination.

The New York State Department of Tax commenced an examination of the Company’s income tax returns for the years 2014-2016 in the third quarter of 2018. There have been no proposed adjustments at this stage of the examination.

v3.19.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements

(6) Fair Value Measurements

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates, exchange rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability. The Company’s Level 1 assets consist of time deposits and investments in a Treasury money market fund. The Company’s level 2 assets consist of investments in corporate bonds and commercial paper which are categorized as short-term investments for investments with original maturities between three months and one year. The Company’s Level 3 liabilities represent acquired contingent consideration related to the acquisition of Civitas and are valued using a probability weighted discounted cash flow valuation approach. No changes in valuation techniques occurred during the three-month period ended March 31, 2019. The estimated fair values of all of our financial instruments approximate their carrying values at March 31, 2019, except for the fair value of the Company’s convertible senior notes, which was approximately $306.2 million as of March 31, 2019. The Company estimates the fair value of its notes utilizing market quotations for the debt (Level 2).

 

(In thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Assets Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,751

 

 

$

 

 

$

 

Commercial paper

 

 

 

 

 

54,485

 

 

 

 

Corporate bonds

 

 

 

 

 

91,672

 

 

 

 

Liabilities Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Acquired contingent consideration

 

 

 

 

 

 

 

 

175,400

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Assets Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

9,586

 

 

$

 

 

$

 

Commercial paper

 

 

 

 

 

47,108

 

 

 

 

Corporate bonds

 

 

 

 

 

104,881

 

 

 

 

Liabilities Carried at Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

Acquired contingent consideration

 

 

 

 

 

 

 

 

168,000

 

 

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

Acquired contingent consideration

 

(In thousands)

 

Three-month period ended March 31, 2019

 

 

Three-month period ended March 31, 2018

 

Acquired contingent consideration:

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

168,000

 

 

$

113,000

 

Fair value change to contingent consideration

   included in the statement of operations

 

 

7,400

 

 

 

6,200

 

Balance, end of period

 

$

175,400

 

 

$

119,200

 

 

The Company estimates the fair value of its acquired contingent consideration using a probability weighted discounted cash flow valuation approach based on estimated future sales expected from Inbrija (levodopa inhalation powder), an FDA approved drug for the treatment of OFF periods in Parkinson’s disease and our ARCUS program for acute migraine. Using this approach, expected probability adjusted future cash flows are calculated over the expected life of the agreement and discounted to estimate the current value of the liability at the period end date. Some of the more significant assumptions made in the valuation include (i) the estimated revenue forecasts for Inbrija and our ARCUS program for acute migraine, (ii) probabilities of success, and (iii) discount periods and rate. The probability of success ranged from 26.3% to 100.0% with milestone payment outcomes ranging from $0 to $70 million in the aggregate for Inbrija and our ARCUS program for acute migraine. The valuation is performed quarterly. Gains and losses representing changes in the fair value of the contingent consideration are included in the statement of operations. For the three-month periods ended March 31, 2019 and 2018, changes in the fair value of the acquired contingent consideration were primarily due to the re-calculation of cash flows for the passage of time and updates to certain other estimated assumptions.

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

v3.19.1
Investments
3 Months Ended
Mar. 31, 2019
Investments Debt And Equity Securities [Abstract]  
Investments

(7) Investments

The Company has determined that all of its investments are classified as available-for-sale. Available-for-sale debt securities are carried at fair value with interest on these investments included in interest income and are recorded based on quoted market prices. Available-for-sale investments consisted of the following at March 31, 2019 and December 31, 2018, respectively:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Estimated

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Paper

 

$

54,446

 

 

$

39

 

 

$

 

 

$

54,485

 

Corporate Bonds

 

 

91,658

 

 

 

24

 

 

 

(10

)

 

 

91,672

 

Total Short-term investments

 

$

146,104

 

 

$

63

 

 

$

(10

)

 

$

146,157

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Paper

 

$

47,149

 

 

$

 

 

$

(41

)

 

$

47,108

 

Corporate Bonds

 

 

104,965

 

 

 

6

 

 

 

(90

)

 

 

104,881

 

Total Short-term investments

 

$

152,114

 

 

$

6

 

 

$

(131

)

 

$

151,989

 

 

Short-term investments with maturities of three months or less from date of purchase have been classified as cash equivalents, and amounted to approximately $16.8 million and $9.6 million as of March 31, 2019 and December 31, 2018, respectively. Short-term investments have original maturities of greater than 3 months but less than 1 year and amounted to approximately $146.2 million and $152.0 million as of March 31, 2019 and December 31, 2018, respectively. The aggregate fair value of short-term investments in an unrealized loss position amounted to approximately $31.8 million as of March 31, 2019. Short-term investments at March 31, 2019 primarily consisted of high-grade commercial paper and corporate bonds. Long-term investments have original maturities of greater than 1 year. There were no investments classified as long-term at March 31, 2019 or December 31, 2018. The Company has determined that there were no other-than-temporary declines in the fair values of its investments as of March 31, 2019 as the Company does not intend to sell its investments and it is not more likely than not that the Company will be required to sell its investments prior to the recovery of its amortized cost basis.

Unrealized holding gains and losses, which relate to debt instruments, are reported within accumulated other comprehensive income (AOCI) in the statements of comprehensive income. The changes in AOCI associated with the unrealized holding losses on available-for-sale investments during the three-month period ended March 31, 2019, were as follows (in thousands):

 

(In thousands)

 

Net Unrealized Gains (Losses) on Marketable Securities

 

Balance at December 31, 2018

 

$

(125

)

Other comprehensive income before reclassifications

 

 

178

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

Net current period other comprehensive income

 

 

178

 

Balance at March 31, 2019

 

$

53

 

 

v3.19.1
Liability Related to Sale of Future Royalties
3 Months Ended
Mar. 31, 2019
Deferred Revenue Disclosure [Abstract]  
Liability Related to Sale of Future Royalties

(8) 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 License and Collaboration Agreement between the Company and Biogen, up to an agreed upon threshold of royalties. When this threshold is met, if ever, the Fampyra royalties will revert back to the Company and the Company will continue to receive the Fampyra royalties from Biogen until the revenue stream ends. The transaction does not include potential future milestones to be paid.

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. The Company recorded the receipt of the $40 million payment from HCRP and established a corresponding liability in the amount of $40 million, net of transaction costs of approximately $2.2 million. The net liability is classified between the current and non-current portion of liability related to the sale of future royalties in the consolidated balance sheets based on the recognition of the interest and principal payments to be received by HCRP in the next 12 months from the financial statement reporting date. The total net royalties to be paid, less the net proceeds received will be recorded to interest expense using the effective interest method over the life of the Royalty Agreement. The Company will estimate the payments to be made to HCRP over the term of the Agreement based on forecasted royalties and will calculate the interest rate required to discount such payments back to the liability balance. 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 necessary.

   The following table shows the activity within the liability account for March 31, 2019 and December 31, 2018, respectively:

 

(In thousands)

 

March 31, 2019

 

 

December 31, 2018

 

Liability related to sale of future royalties - beginning balance

 

$

30,716

 

 

$

35,788

 

Deferred transaction costs recognized

 

 

174

 

 

 

784

 

Non-cash royalty revenue payable to HCRP

 

 

(2,467

)

 

 

(10,291

)

Non-cash interest expense recognized

 

 

925

 

 

 

4,435

 

Liability related to sale of future royalties - ending balance

 

$

29,348

 

 

$

30,716

 

 

 

 

 

 

 

 

 

 

 

v3.19.1
Convertible Senior Notes
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Convertible Senior Notes

(9) Convertible Senior Notes

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

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

The Company may redeem for cash all or part of the Notes, at the Company’s option, on or after June 20, 2017, under certain circumstances as outlined in the indenture.

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

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

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

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

The outstanding note balance as of March 31, 2019 and December 31, 2018 consisted of the following:

 

(In thousands)

 

March 31, 2019

 

 

December 31, 2018

 

Liability component:

 

 

 

 

 

 

 

 

Principal

 

$

345,000

 

 

$

345,000

 

Less: debt discount and debt issuance costs, net

 

 

(23,790

)

 

 

(26,330

)

Net carrying amount

 

$

321,210

 

 

$

318,670

 

Equity component

 

$

61,195

 

 

$

61,195

 

 

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

As of March 31, 2019, the remaining contractual life of the Notes is approximately 2.25 years. The effective interest rate on the liability component was approximately 4.8% for the period from the date of issuance through March 31, 2019.

The following table sets forth total interest expense recognized related to the Notes for the three-month periods ended March 31, 2019 and 2018:

 

(In thousands)

 

Three-month period ended March 31, 2019

 

 

Three-month period ended March 31, 2018

 

Contractual interest expense

 

$

1,509

 

 

$

1,509

 

Amortization of debt issuance costs

 

 

235

 

 

 

224

 

Amortization of debt discount

 

 

2,305

 

 

 

2,199

 

Total interest expense

 

$

4,049

 

 

$

3,932

 

 

v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2019
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

(10) Commitments and Contingencies

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

v3.19.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Restricted Cash

Restricted Cash

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:

 

Three-month period ended March 31, 2019

 

 

Three-month period ended March 31, 2018

 

(In thousands)

Beginning of period

 

 

End of period

 

 

Beginning of period

 

 

End of period

 

Cash and cash equivalents

$

293,564

 

 

$

197,093

 

 

$

307,068

 

 

$

226,276

 

Restricted cash

 

532

 

 

 

567

 

 

 

410

 

 

 

460

 

Restricted cash included in Other assets

 

255

 

 

 

255

 

 

 

561

 

 

 

312

 

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

$

294,351

 

 

$

197,915

 

 

$

308,039

 

 

$

227,048

 

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.

Inventory

Inventory

The major classes of inventory were as follows:

(In thousands)

 

March 31, 2019

 

 

December 31, 2018

 

Raw materials

 

$

548

 

 

$

 

Work-in-progress

 

 

5,913

 

 

 

 

Finished goods

 

 

25,004

 

 

 

29,014

 

Total

 

$

31,465

 

 

$

29,014

 

The Company reviews inventory, including inventory purchase commitments, for slow moving or obsolete amounts based on expected product sales volume and provides reserves against the carrying amount of inventory as appropriate.

Revenue Recognition

Revenue Recognition

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. 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 any contract liabilities as of March 31, 2019.  

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

 

(In thousands)

Three-month period ended March 31, 2019

 

 

Three-month period ended March 31, 2018

 

Revenues:

 

 

 

 

 

 

 

Net product revenues

$

41,334

 

 

$

103,003

 

Royalty revenues

 

2,803

 

 

 

3,162

 

Total net revenues

$

44,137

 

 

$

106,165

 

Foreign Currency Translation

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; 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 losses and gains are recognized in the period incurred and are reported as other (expense) income, net in the statement of operations.

Segment and Geographic Information

Segment and Geographic Information

The Company is managed and operated as one business which is focused on developing therapies that restore function and improve the lives of people with neurological disorders. The entire business is managed by a single management team that reports to the Chief Executive Officer. The Company does not operate separate lines of business with respect to any of its products or product candidates and the Company does not prepare discrete financial information with respect to separate products or product candidates or by location. Accordingly, the Company views its business as one reportable operating segment. Net product revenues reported are derived from the sales of Inbrija in the U.S. for the three-month period ended March 31, 2019 and from the sales of Ampyra and Qutenza in the U.S for the three-month periods ended March 31, 2019 and 2018.

Subsequent Events

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 required disclosure in these financial statements.

Accounting Pronouncements Adopted

Accounting Pronouncements Adopted

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

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

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

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Our leases have remaining lease terms of 3 years to 8 years, some of which include options to extend the lease term for up to 15 years, and some of which include options to terminate the lease within 3 years.

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

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

Operating Leases

We lease certain office space, manufacturing and warehouse space under arrangements classified as leases under ASC 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal options ranging from 5 to 15 years. The exercise of lease renewal options is at our sole discretion. One of our leases also includes an option to early terminate the lease within 3 years.

Ardsley, New York

In June 2011, the Company entered into a 15-year lease for an aggregate of approximately 138,000 square feet of office and laboratory space in Ardsley, New York. In 2014, the Company exercised its option to expand into an additional 25,405 square feet of office space, which the Company occupied in January 2015. The Company has options to extend the term of the lease for three additional five-year periods, and the Company has an option to terminate the lease after 10 years subject to payment of an early termination fee. Also, the Company has a right of first refusal until mid-2020 to lease up to approximately 95,000 additional square feet of space in additional buildings at the same location. The Company’s extension, early termination, and expansion rights are subject to specified terms and conditions, including specified time periods when they must be exercised, and are also subject to limitations including that the Company not be in default under the lease.

The Ardsley lease provides for monthly payments of rent during the lease term. These payments consist of base rent, which takes into account the costs of the facility improvements funded by the facility owner prior to the Company’s occupancy, and additional rent covering customary items such as charges for utilities, taxes, operating expenses, and other facility fees and charges. The base rent is currently $4.7 million per year, which reflects an annual 2.5% escalation factor.

Chelsea, Massachusetts

Through our Civitas subsidiary, we lease a manufacturing facility in Chelsea, Massachusetts with commercial-scale capabilities. The approximately 90,000 square foot facility also includes office and laboratory space. Civitas leases this facility from North River Everett Ave, LLC pursuant to a lease with a term that expires on December 31, 2025, and Civitas has two additional extension options of five years each. The base rent under the lease is currently $1.6 million per year, which reflects an annual escalation factor of 2.5% as well as an amendment to the lease to add additional property at the Chelsea, Massachusetts site as further described below.

In 2017, the Company’s Civitas subsidiary amended its existing Chelsea, Massachusetts lease. The amendment added expansion property located in Chelsea, Massachusetts next to the existing facility. The additional property includes land being used for parking and a free-standing warehouse building on the same site. The base rent for the additional property under the lease included in the rent number above, is currently $0.5 million per year with an annual escalation factor of 3.0%.

In 2018, the Company initiated a renovation and expansion of a building