NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. DESCRIPTION OF BUSINESS
AMAG Pharmaceuticals, Inc., a Delaware corporation, was founded in 1981. We are a pharmaceutical company focused on bringing innovative products to patients with unmet medical needs by leveraging our development and commercial expertise to invest in and grow our pharmaceutical products across a range of therapeutic areas. Our currently marketed products support the health of patients in the areas of hematology and maternal and women’s health, including Feraheme® (ferumoxytol injection) for intravenous use, Makena® (hydroxyprogesterone caproate injection) auto-injector, Intrarosa® (prasterone) vaginal inserts and Vyleesi®(bremelanotide injection). In addition to our marketed products, our portfolio includes two product candidates, AMAG-423 (digoxin immune fab (ovine)), which is being studied for the treatment of severe preeclampsia, and ciraparantag, which is being studied as an anticoagulant reversal agent.
In March 2019, we announced topline results from the Progestin’s Role in Optimizing Neonatal Gestation clinical trial (“PROLONG” or “Trial 003”), a randomized, double-blinded, placebo-controlled clinical trial evaluating Makena in patients with a history of a prior spontaneous singleton preterm delivery. The PROLONG trial was conducted under the U.S. Food and Drug Administration’s (the “FDA”) “Subpart H” accelerated approval process. The approval of Makena was based primarily on the Meis trial (“Trial 002”), which was conducted by the Maternal-Fetal Medicine Units Network, sponsored by the National Institute of Child Health and Human Development. In contrast to the Meis trial, the PROLONG trial did not demonstrate a statistically significant difference between the treatment and placebo arms for the co-primary endpoints. On October 29, 2019, the Advisory Committee met to discuss the results of the PROLONG trial to inform the FDA’s regulatory decision for Makena. Following various presentations by experts and discussions at the meeting, the FDA’s Bone, Reproductive and Urologic Drugs Advisory Committee (the “Advisory Committee”) voted as follows: (a) in response to the question “Do the findings from Trial 003 verify the clinical benefits of Makena on neonatal outcomes?”, 16 members voted “No” and no members voted “Yes”; (b) in response to the question “Based on the findings from Trial 002 and Trial 003, is there substantial evidence of effectiveness of Makena in reducing the risk of recurrent preterm birth?”, 13 members voted “No” and three members voted “Yes”; and (c) in response to the question, “Should the FDA (A) pursue withdrawal of approval for Makena, (B) leave Makena on the market under accelerated approval and require a new confirmatory trial, or (C) leave Makena on the market without requiring a new confirmatory trial?”, nine members voted for (A), seven members voted for (B) and no members voted for (C). The FDA is not required to follow the recommendations of its Advisory Committees, but will take them into consideration in deciding what regulatory steps to take with respect to Makena. We are unable to predict the outcome or timing of any FDA action with respect to Makena.
In December 2019 we completed a review of our product portfolio and strategy. This strategic review resulted in our intention to divest Intrarosa® (prasterone) and Vyleesi® (bremelanotide), as announced in January 2020. We determined that these anticipated actions did not result in the related assets meeting the criteria to be recorded as held of sale at December 31, 2019.
We are subject to risks common to companies in the pharmaceutical industry including, but not limited to (as such risks pertain to our business) the impact of any action by the FDA with respect to Makena, including the potential of the removal of Makena’s approval, our ability to successfully divest Intrarosa and Vyleesi, our ability to successfully commercialize our products, intense competition, including from generic products; maintaining and defending the proprietary nature of our technology, including in the event that Sandoz launches a generic version of Feraheme in accordance with the 2018 settlement agreement; our dependence upon third-party manufacturers and our potential inability to obtain raw or other materials and impacts of supply shortages; our reliance on and the extent of reimbursement from third parties for the use of our products, including the impact of generic competitors, Makena’s high Medicaid reimbursement concentration; our ability to expand our product portfolio through business development transactions; the approval of our product candidates and our ability to commercialize such products, if approved; potential litigation, including securities and product liability suits; our ability to work effectively and collaboratively with our licensors and partners; our reliance on other third parties in our business, including to conduct our clinical trials and undertake our product and distribution; our ability to maintain, attract and retain key employees; our potential failure to comply with federal and state healthcare fraud and abuse laws, marketing disclosure laws, or other federal and state laws and regulations and potential civil or criminal penalties as a result thereof; uncertainties regarding reporting and payment obligations under government pricing programs; post-approval commitments for Feraheme; our ability to comply with data protection laws and regulations; the impact of disruptions to our information technology systems; our level of and ability to repay our indebtedness; our access to sufficient capital; the availability of net operating loss carryforwards and other tax assets; potential differences between actual future results and the estimates or assumptions used by us in preparation of our consolidated financial statements, including goodwill and intangible assets; the volatility of our stock price; the potential
fluctuation of our operating results; and provisions in our charter, by-laws and certain contracts that discourage an acquisition of our company.
Throughout this Annual Report on Form 10-K, AMAG Pharmaceuticals, Inc. and our consolidated subsidiaries are collectively referred to as “the Company,” “AMAG,” “we,” “us,” or “our.”
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”) and include the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
As of June 30, 2018, our CBR business met the criteria to be classified as a discontinued operation. All historical operating results for CBR are reflected within discontinued operations in the consolidated statements of operations for the years ended December 31, 2018 and 2017. For additional information, see Note C, “Discontinued Operations.”
Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. The most significant estimates and assumptions are used to determine amounts and values of, but are not limited to: revenue recognition related to product sales revenue; product sales allowances and accruals; allowance for doubtful accounts; marketable securities; inventory; acquisition date fair value and subsequent fair value estimates used to assess impairment of long-lived assets, including goodwill and other intangible assets; debt obligations; certain accrued liabilities, including clinical trial accruals; equity-based compensation expense, and income taxes, inclusive of valuation allowances. Actual results could differ materially from those estimates.
Revenue Recognition
Product revenues
On January 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) applying the modified retrospective transition method to all contracts that were not completed as of January 1, 2018 as an adjustment of $1.1 million to the opening balance of stockholders’ equity at the beginning of 2018. The adjustment recorded was for incremental contract acquisition costs related to the CBR business. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for prior periods. There was no impact to our product revenue as a result of adoption.
Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps:
a.Identify the contract(s) with a customer;
b.Identify the performance obligations in the contract;
c.Determine the transaction price;
d.Allocate the transaction price to the performance obligations in the contract; and
e.Recognize revenue when (or as) the performance obligations are satisfied.
We only apply the five step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, if the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract, determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Our major sources of revenue during the reporting periods were product revenues from Makena, Feraheme and Intrarosa. The adoption of ASC 606 in 2018 did not have an impact on the pattern or timing of recognition of our product revenue, as the majority of our product revenue continues to be recognized when the customer takes control of our product.
We receive payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional.
Performance Obligations
At contract inception, we assess the goods promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a good (or bundle of goods) that is distinct. To identify the performance obligations, we consider all of the goods promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. We determined that the following distinct goods represent separate performance obligations:
•Supply of Makena product
•Supply of Feraheme product
•Supply of Intrarosa product
•Supply of Vyleesi product
We principally sell our products to wholesalers, specialty distributors, specialty pharmacies and other customers (collectively, “Customers”), who purchase products directly from us. Our Customers subsequently resell the products to healthcare providers and patients. In addition to distribution agreements with Customers, we enter into arrangements with healthcare providers and payers that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of our products.
For the majority of our Customers, we transfer control at the point in time when the goods are delivered. In instances when we perform shipping and handling activities, these are considered fulfillment activities, and accordingly, the costs are accrued when the related revenue is recognized. Taxes collected from Customers and remitted to governmental authorities are excluded from revenues.
Variable Consideration
Under ASC 606, we are required to make estimates of the net sales price, including estimates of variable consideration (such as rebates, chargebacks, discounts, copay assistance and other deductions), and recognize the estimated amount as revenue, when we transfer control of the product to our customers. Variable consideration must be determined using either an “expected value” or a “most likely amount” method.
We record product revenues net of certain allowances and accruals in our consolidated statements of operations. Product sales allowances and accruals are primarily comprised of both direct and indirect fees, discounts and rebates and provisions for estimated product returns. Direct fees, discounts and rebates are contractual fees and price adjustments payable to Customers that purchase products directly from us. Indirect fees, discounts and rebates are contractual price adjustments payable to healthcare providers and organizations, such as certain physicians, clinics, hospitals, group purchasing organizations (“GPOs”), and dialysis organizations that typically do not purchase products directly from us but rather from wholesalers and specialty distributors. Consideration payable to a Customer, or other parties that purchase goods from a Customer, are considered to be a reduction of the transaction price, and therefore, of revenue.
Product sales allowances and accruals are based on definitive contractual agreements or legal requirements (such as laws and regulations to provide mandatory discounts for sales to government entities) related to the purchase and/or utilization of the product by these entities and are recorded in the same period that the related revenue is recognized. We use the expected value method for estimating variable consideration. We estimate product sales allowances and accruals using either historical, actual and/or other data, including estimated patient usage, applicable contractual rebate rates, contract performance by the benefit providers, other current contractual and statutory requirements, historical market data based upon experience of our products and other products similar to them, specific known market events and trends such as competitive pricing and new product introductions, current and forecasted Customer buying patterns and inventory levels, and the shelf life of our products. As part of this evaluation, we also review changes to federal and other legislation, changes to rebate contracts, changes in the level of discounts, and changes in product sales trends. Although allowances and accruals are recorded at the time of product sale, rebates are typically paid out in arrears, one to three months after the sale.
The estimate of variable consideration, which is included in the transaction price, may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved in a future period. Estimating variable consideration and the related constraint requires the use of significant management judgment and actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. No amounts were constrained as of December 31, 2019.
Discounts
We typically offer a 2% prompt payment discount to certain customers as an incentive to remit payment in accordance with the stated terms of the invoice, generally between 30 to 60 days. Because we anticipate that those customers who are offered this discount will take advantage of the discount, 100% of the prompt payment discount at the time of sale is accrued for eligible customers, based on the gross amount of each invoice. We adjust the accrual quarterly to reflect actual experience.
Chargebacks
Chargeback reserves represent the estimated obligations resulting from the difference between the prices at which we sell our products to wholesalers and the sales price ultimately paid to wholesalers under fixed price contracts by third-party payers, including governmental agencies. The chargeback estimates are determined based on actual product sales data and forecasted customer buying patterns. Actual chargeback amounts are determined at the time of resale to the qualified healthcare provider, and we generally issue credits for such amounts within several weeks of receiving notification from the wholesaler. Estimated chargeback amounts are recorded at the time of sale and adjusted quarterly to reflect actual experience.
Distributor/Wholesaler and Group Purchasing Organization Fees
Fees under arrangements with distributors and wholesalers are usually based upon units of product purchased during the prior month or quarter and are usually paid by us within several weeks of the receipt of an invoice from the wholesaler or distributor. Fees under arrangements with GPOs are usually based upon member purchases during the prior quarter and are generally billed by the GPO within 30 days after period end. In accordance with ASC 606, since the consideration given to the Customer is not for a distinct good or service, the consideration is a reduction of the transaction price of the vendor’s products or services. We have included these fees in contractual adjustments in the table above. We generally pay such amounts within several weeks of the receipt of an invoice from the distributor, wholesaler or GPO. Accordingly, we accrue the estimated fee due at the time of sale, based on the contracted price invoiced to the Customer. We adjust the accrual quarterly to reflect actual experience.
Product Returns
Consistent with industry practice, we generally offer wholesalers, specialty distributors and other customers a limited right to return our products based on the product’s expiration date. The current shelf-lives or time between manufacture and expiration for products in our portfolio range from three to five years. Product returns are estimated based on the historical return patterns and known or expected changes in the marketplace. We track actual returns by individual production lots. Returns on lots eligible for credits under our returned goods policy are monitored and compared with historical return trends and rates. We expect that wholesalers and healthcare providers will not stock significant inventory due to the cost of the product, the expense to store our products, and/or that our products are readily available for distribution. We record an estimate of returns at the time of sale. If necessary, our estimated rate of returns may be adjusted for actual return experience as it becomes available and for known or expected changes in the marketplace. There were no material adjustments to our reserve for product returns during the years ended December 31, 2019, 2018 or 2017. To date, our product returns have been relatively limited; however, returns experience may change over time. We may be required to make future adjustments to our product returns estimate, which would result in a corresponding change to our net product sales in the period of adjustment and could be significant.
Sales Rebates
We contract with various private payer organizations, primarily pharmacy benefit managers, for the payment of rebates with respect to utilization of our products. We determine our estimates for rebates, if applicable, based on actual product sales data and our historical product claims experience. Rebate amounts generally are invoiced quarterly and are paid in arrears, and we expect to pay such amounts within several weeks of notification by the provider. We regularly assess our reserve balance and the rate at which we accrue for claims against product sales. If we determine in future periods that our actual rebate
experience is not indicative of expected claims, if actual claims experience changes, or if other factors affect estimated claims rates, we may be required to adjust our current accumulated reserve estimate, which would affect net product sales in the period of the adjustment and could be significant.
Governmental Rebates
Governmental rebates relate to our reimbursement arrangements with state Medicaid programs. We determine our estimates for Medicaid rebates, if applicable, based on actual product sales data and our historical product claims experience. In estimating these reserves, we provide for a Medicaid rebate associated with both those expected instances where Medicaid will act as the primary insurer as well as in those instances where we expect Medicaid will act as the secondary insurer. Rebate amounts generally are invoiced quarterly and are paid in arrears, and we expect to pay such amounts within several weeks of notification by the Medicaid or provider entity. We regularly assess our Medicaid reserve balance and the rate at which we accrue for claims against product sales. If we determine in future periods that our actual rebate experience is not indicative of expected claims, if actual claims experience changes, or if other factors affect estimated claims rates, we may be required to adjust our current Medicaid accumulated reserve estimate, which would affect net product sales in the period of the adjustment and could be significant.
Other Discounts
Other discounts which we offer include voluntary patient assistance programs, such as copay assistance programs, which are intended to provide financial assistance to qualified commercially insured patients with prescription drug copayments required by payers. The calculation of the accrual for copay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue.
Collaboration Revenues
When we enter into collaboration agreements, we assess whether the agreements fall within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”) based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. To the extent that the arrangement falls within the scope of ASC 808, we assess whether the payments between us and our collaboration partner fall within the scope of other accounting literature. If we conclude that payments from the collaboration partner to us represent consideration from a customer, such as license fees and contract research and development activities, we account for those payments within the scope of ASC 606. However, if we conclude that our collaboration partner is not a customer for certain activities and associated payments, such as for certain collaborative research, development, manufacturing and commercial activities, we present such payments as a reduction of research and development expense or general and administrative expense, based on where we present the related underlying expense.
Cash and Cash Equivalents
Cash and cash equivalents consist principally of cash held in commercial bank accounts, money market funds and U.S. treasury securities having an original maturity of less than three months at the date of acquisition. We consider all highly liquid marketable securities with a maturity of three months or less as of the acquisition date to be cash equivalents. At December 31, 2019 and 2018, substantially all of our cash and cash equivalents were held in either commercial bank accounts or money market funds.
Concentrations and Significant Customer Information
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities, and accounts receivable. We currently hold our excess cash primarily in institutional money market funds, corporate debt securities, U.S. treasury and government agency securities and certificates of deposit. As of December 31, 2019, we did not have a material concentration in any single investment.
Our operations are located entirely within the U.S. We focus primarily on developing, manufacturing, and commercializing our products and product candidates. The following table sets forth customers who represented 10% or more of our total revenues for 2019, 2018 and 2017:
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Years Ended December 31,
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2019
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2018
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2017
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McKesson Corporation
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36%
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26%
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24%
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AmerisourceBergen Drug Corporation
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28%
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27%
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26%
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Cardinal Health
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13%
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< 10%
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< 10%
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Our net accounts receivable primarily represent amounts due for products sold directly to wholesalers, distributors and specialty pharmacies. Accounts receivable for our products are recorded net of reserves for estimated chargeback obligations, prompt payment discounts and any allowance for doubtful accounts.
As part of our credit management policy, we perform ongoing credit evaluations of our customers, and we generally do not require collateral. If the financial condition of any of our significant product sales customers was to deteriorate and result in an impairment of its ability to make payments owed to us, an allowance for doubtful accounts may be required which could have a material effect on earnings in the period of any such adjustment. We did not experience any significant bad debts and have not established an allowance for doubtful accounts as of December 31, 2019 and 2018.
At December 31, 2019 and 2018, three customers accounted for 10% or more of our accounts receivable balance, representing approximately 85% and 73% in the aggregate of our total accounts receivable, respectively.
We are currently dependent on a single supplier for certain of our manufacturing processes, including Feraheme drug substance (produced in two separate facilities) and a single supplier for our Makena auto-injector product. We have been and may continue to be exposed to a significant loss of revenue from the sale of our products in the event that our suppliers and/or manufacturers are not able to fulfill demand for any reason.
Fair Value Measurements
We apply the provisions of ASC Topic 820, Fair Value Measurements (“ASC 820”) for our financial assets and liabilities that are re-measured and reported at fair value each reporting period and our nonfinancial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis, including property and equipment and identifiable intangible assets. Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. Financial assets and liabilities are categorized within the valuation hierarchy based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:
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•
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Level 1- Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
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•
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Level 2 - Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
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•
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Level 3 - Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.
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Marketable Securities
We account for and classify our marketable securities as either “available-for-sale,” “held-to-maturity,” or “trading debt securities,” in accordance with the accounting guidance related to the accounting and classification of certain investments in marketable securities. The determination of the appropriate classification by us is based primarily on management’s ability and intent to sell the debt security at the time of purchase. As of December 31, 2019 and 2018, all of our marketable securities were classified as available-for-sale.
Available-for-sale securities are those securities which we view as available for use in current operations, if needed. We generally classify our available-for-sale securities as short-term investments, even though the stated maturity date may be one year or more beyond the current balance sheet date. Available-for-sale marketable securities are stated at fair value with their
unrealized gains and losses included in accumulated other comprehensive income (loss) within the consolidated statements of stockholders’ equity, until such gains and losses are realized in other income (expense) within the consolidated statements of operations or until an unrealized loss is considered other-than-temporary.
We recognize other-than-temporary impairments of our marketable securities when there is a decline in fair value below the amortized cost basis and if (a) we have the intent to sell the security or (b) it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis. If either of these conditions is met, we recognize the difference between the amortized cost basis of the security and its fair value at the impairment measurement date in our consolidated statements of operations. If neither of these conditions is met, we must perform additional analysis to evaluate whether the unrealized loss is associated with the creditworthiness of the issuer of the security rather than other factors, such as interest rates or market factors. If we determine from this analysis that we do not expect to receive cash flows sufficient to recover the entire amortized cost of the security, a credit loss exists, the impairment is considered other-than-temporary and is recognized in our consolidated statements of operations.
Inventory
Inventory is stated at the lower of cost or net realizable value, with approximate cost being determined on a first-in, first-out basis. Prior to initial approval from the FDA or other regulatory agencies, we expense costs relating to the production of inventory in the period incurred, unless we believe regulatory approval and subsequent commercialization of the product candidate is probable and we expect the future economic benefit from sales of the product to be realized, at which point we capitalize the costs as inventory. We assess any costs capitalized prior to regulatory approval each quarter for indicators of impairment, such as a reduced likelihood of approval. We expense costs associated with clinical trial material as research and development expense.
On a quarterly basis, we analyze our inventory levels to determine whether we have any obsolete, expired, or excess inventory. If any inventory is expected to expire prior to being sold, has a cost basis in excess of its net realizable value, is in excess of expected sales requirements as determined by internal sales forecasts, or fails to meet commercial sale specifications, the inventory is written-down through a charge to cost of product sales. The determination of whether inventory costs will be realizable requires estimates by management of future expected inventory requirements, based on sales forecasts. Once packaged, our products have a shelf-life ranging from three to five years. As a result of comparison to internal sales forecasts, we expect to fully realize the carrying value of our finished goods inventory. If actual market conditions are less favorable than those projected by management, inventory write-downs may be required. Charges for inventory write-downs are not reversed if it is later determined that the product is saleable.
Property and Equipment, Net
Property and equipment are recorded at cost and depreciated when placed into service using the straight-line method based on their estimated useful lives as follows:
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Useful Life
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Computer equipment and software
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5 Years
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Furniture and fixtures
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5 Years
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Leasehold improvements
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Lesser of Lease or Asset Life
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Laboratory and production equipment
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5 Years
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Costs for capital assets not yet placed in service are capitalized on our balance sheets and will be depreciated in accordance with the above guidelines once placed into service. Costs for maintenance and repairs are expensed as incurred. Upon sale or other disposition of property and equipment, the cost and related depreciation are removed from the accounts and any resulting gain or loss is charged to our consolidated statements of operations. Assets classified as held for sale are no longer subject to depreciation and are recorded at the lower of carrying value or estimated net realizable value.
Intangible Assets
We amortize our intangible assets that have finite lives based on either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized.
If we acquire an asset or a group of assets that do not meet the definition of a business, the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred.
Impairment of Long-Lived Assets
We review our long-lived assets, which includes property and equipment and identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. To evaluate recoverability, management compares the projected undiscounted future cash flows associated with the asset or asset group, including proceeds from its eventual disposition over its estimated useful life against its carrying amount. If the undiscounted cash flows are not sufficient to recover the carrying value of the asset or asset group, the asset or asset group is considered impaired. The impairment loss, if any, is measured as the excess of the carrying amount of the asset or asset group over its estimated fair value, which is typically calculated utilizing a discounted cash flow (“DCF”) model following the same methodology as described in the following section.
Goodwill
We test goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that could indicate impairment and trigger an interim impairment assessment include, but are not limited to, an adverse change in current economic and market conditions, including a significant prolonged decline in market capitalization, a significant adverse change in legal factors, unexpected adverse business conditions, and an adverse action or assessment by a regulator. Our annual impairment test date is October 31. We have determined that we operate in a single operating segment and have a single reporting unit.
In performing our goodwill impairment tests, we utilize the approach prescribed under Accounting Standards Codification (“ASC”) 350, as amended by Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which requires that an entity perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
When we perform any goodwill impairment test, the estimated fair value of our reporting unit is determined using an income approach that utilizes a DCF model or a market approach, when appropriate, which assesses our market capitalization as adjusted for a control premium, or a combination thereof.
Under the market approach, when our carrying value exceeds our market capitalization, we consider a control premium for purposes of estimating the fair value of our reporting unit, as we believe that a market participant buyer would be required to pay a control premium for our business. The control premium utilized is based on control premiums observed in recent comparable market transactions. As described in the accounting guidance for evaluating long-lived assets for impairment, an entity’s fair value may include a control premium in addition to the quoted market price to determine the fair value of a single reporting unit entity, as an acquiring entity is often willing to pay more for equity securities that give it a controlling interest than an investor would pay for a number of equity securities representing less than a controlling interest. This accounting guidance also indicates that the quoted market price of an individual security need not be the sole measurement basis of the fair value of a single reporting unit. When our market capitalization exceeds our carrying value, we utilize our market capitalization as the indicator of fair value in our impairment test.
Under the income approach, the DCF model is based upon expected future after-tax operating cash flows of the reporting unit discounted to a present value using a risk-adjusted discount rate. Estimates of future cash flows require management to make significant assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amount and timing of cash flows and the probability of achieving the estimated cash flows (ii) the probability of regulatory approvals, and (iii) future economic conditions, all of which may differ from actual future cash flows. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rate, which is intended to reflect the risks inherent in future cash flow projections, used in the DCF model, is based on estimates of the weighted average cost of capital (“WACC”) of market participants relative to our reporting unit. Financial and credit market volatility can directly impact certain inputs and assumptions used to develop the WACC. Any changes in these assumptions may affect our fair value estimate and the result of an impairment test. The discount rates and other inputs and assumptions are consistent with those that a market participant would use. In addition, in order to assess the reasonableness of the fair value of our reporting unit as calculated under the DCF model, we also compare the reporting unit’s fair value to our market capitalization and calculate an implied control premium (the excess sum of the reporting unit’s fair value over its market capitalization). We evaluate the implied control premium by comparing it to control premiums of recent comparable market transactions, as applicable.
Business Combinations and Asset Acquisitions
The purchase price allocation for business combinations requires extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. Under ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business (“2017-01”), we first determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the single asset or group of assets, as applicable, is not a business.
We account for acquired businesses using the acquisition method of accounting, under which the total purchase price of an acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Acquisition-related costs are expensed as incurred. Any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
The purchase price allocations for business combinations are initially prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any adjustments to the purchase price allocations are made as soon as practicable but no later than one year from the acquisition date.
Acquired inventory is recorded at its fair value, which may require a step-up adjustment to recognize the inventory at its expected net realizable value. The inventory step-up is recorded to cost of product sales in our consolidated statements of operations when related inventory is sold, and we record step-up costs associated with clinical trial material as research and development expense.
Acquisition-Related Contingent Consideration
Contingent consideration arising from a business combination is included as part of the purchase price and is recognized at its estimated fair value as of the acquisition date. Subsequent to the acquisition date, we measure contingent consideration arrangements at fair value for each period until the contingency is resolved. These changes in fair value are recognized in selling, general and administrative expenses in our consolidated statements of operations. Changes in fair values reflect new information about the likelihood of the payment of the contingent consideration and the passage of time. For asset acquisitions, we record contingent consideration for obligations we consider to be probable and estimable and these liabilities are not adjusted to fair value.
Leases
Effective January 1, 2019, we adopted ASC Topic 842, Leases (“ASC 842”), and chose to apply the provisions of ASC 842 as of the effective date with no restatement of prior periods or cumulative adjustment to retained earnings. Upon adoption, we elected to utilize the package of transition practical expedients, which allowed us to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases. We also made accounting policy elections to not separate lease and non-lease components for our real estate lease and to not recognize leases with an initial term of twelve months or less within our consolidated balance sheets and to recognize those lease payments on a straight-line basis on our consolidated statements of income over the lease term. We did not have any material short-term leases accounted for under this policy during the year ended December 31, 2019.
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liability, and long-term operating lease liability on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the 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. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Our incremental borrowing rate is determined based on an evaluation of our creditworthiness and the prevailing market rates for collateralized debt with maturity dates commensurate with the term of each lease. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
The lease payments used to determine our ROU assets may include lease incentives, stated rent increases, and escalation clauses linked to rates of inflation when determinable and are recognized in our ROU assets on our consolidated balance sheet. In addition, certain lease agreements contain lease and non-lease components. With the exception of our real estate leases, we separate lease payments for the identified assets from any non-lease payments included in the agreement. For our real estate leases, we account for the lease and non-lease components as a single lease component. Additionally, for vehicle and certain equipment leases, we apply a portfolio approach to effectively account for the related ROU assets and operating lease liabilities.
Restricted Cash
We classified $0.5 million of our cash as restricted cash, a non-current asset on the balance sheet, as of December 31, 2019 and 2018. This amount represented the security deposit delivered to the landlord of our Waltham, Massachusetts headquarters.
Research and Development Expenses
Research and development expenses include both external and internal expenses. External expenses primarily include costs of clinical trials and fees paid to contract research organizations (“CROs”), clinical supply and manufacturing expenses, regulatory filing fees, consulting and professional fees as well as other general costs related to the execution of research and development activities. Internal expenses primarily include compensation of employees engaged in research and development activities. Research and development expenses are expensed as incurred. Manufacturing costs are generally expensed as incurred until a product has received the necessary initial regulatory approval.
Patents
We expense all patent-related costs in selling, general and administrative expenses as incurred.
Advertising Costs
Advertising costs are expensed as incurred and included in selling, general and administrative expenses in our consolidated statements of operations. Advertising costs, including promotional expenses, costs related to digital marketing and print media advertising space were $53.3 million, $29.8 million and $9.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Equity-Based Compensation
Equity-based compensation cost is generally measured at the estimated grant date fair value and recorded to expense over the requisite service period, which is generally the vesting period. Because equity-based compensation expense is based on awards ultimately expected to vest, we must make certain judgments about whether employees, officers, directors, consultants and advisers will complete the requisite service period, and reduce the compensation expense being recognized for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based upon historical experience and adjusted for unusual events such as corporate restructurings, which can result in higher than expected turnover and forfeitures. If factors change and we employ different assumptions in future periods, the compensation expense that we record in the future may differ significantly from what we have recorded in the current period.
We estimate the fair value of equity-based compensation involving stock options based on the Black-Scholes option pricing model. This model requires the input of several factors such as the expected option term, the expected risk-free interest rate over the expected option term, the expected volatility of our stock price over the expected option term and the expected dividend yield over the expected option term and are subject to various assumptions. The fair value of awards calculated using the Black-Scholes option pricing model is generally amortized on a straight-line basis over the requisite service period, and is recognized based on the proportionate amount of the requisite service period that has been rendered during each reporting period.
We estimate the fair value of our restricted stock units (“RSUs”) whose vesting is contingent upon market conditions, such as total shareholder return, using the Monte-Carlo simulation model. The fair value of RSUs where vesting is contingent upon market conditions is amortized based upon the estimated derived service period. The fair value of RSUs granted to our employees and directors whose vesting is dependent on future service is determined based upon the quoted closing market price per share on the date of grant, adjusted for estimated forfeitures.
We believe our valuation methodologies are appropriate for estimating the fair value of the equity awards we grant to our employees and directors. Our equity award valuations are estimates and may not be reflective of actual future results or amounts ultimately realized by recipients of these grants. These amounts are subject to future quarterly adjustments based upon a variety of factors, which include, but are not limited to, changes in estimated forfeiture rates and the issuance of new equity-based awards.
Income Taxes
We use the asset and liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A deferred tax asset is established for the expected future benefit of net operating loss (“NOL”) and credit carryforwards. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance against net deferred tax assets is required if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Significant judgments, estimates and assumptions regarding future events, such as the amount, timing and character of income, deductions and tax credits, are required in the determination of our provision for income taxes and whether valuation allowances are required against deferred tax assets. In evaluating our ability to recover our deferred tax assets, we consider all available evidence, both positive and negative, including the existence of taxable temporary differences, our past operating results, the existence of cumulative income in the most recent fiscal years, changes in the business in which we operate and our forecast of future taxable income. In determining future taxable income, we are responsible for assumptions utilized including the amount of state and federal operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income. As of December 31, 2019, we have established a valuation allowance on our net deferred tax assets other than refundable alternative minimum tax (“AMT”) credits to the extent that our existing taxable temporary differences would not be available as a source of income to realize the benefits of those deferred tax assets.
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity, and changes in facts or circumstances related to a tax position. We evaluate uncertain tax positions on a quarterly basis and adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Any changes to these estimates, based on the actual results obtained and/or a change in assumptions, could impact our income tax provision in future periods. Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as a provision for income tax in our consolidated statement of operations.
Comprehensive Loss
Our comprehensive loss consists of net loss and other comprehensive loss. Other comprehensive loss includes changes in equity that are excluded from net loss, which for all periods presented in these consolidated financial statements related to unrealized holding gains and losses on available-for-sale marketable securities, net of tax.
Basic and Diluted Earnings per Share
We compute basic earnings per share by dividing earnings by the weighted average number of common shares outstanding during the relevant period. Diluted earnings per share is computed by dividing earnings by the diluted number of common shares outstanding during the period. Except where the result would be antidilutive, diluted earnings per common share would be computed assuming the impact of the conversion of the 3.25% convertible senior notes due in 2022 (the “2022 Convertible Notes”), the exercise of outstanding stock options and the vesting of RSUs.
We have a choice to settle the conversion obligation of our 2022 Convertible Notes (the “2022 Convertible Notes”) in cash, shares or any combination of the two. Our policy is to settle the principal balance of the 2022 Convertible Notes in cash. As such, we apply the treasury stock method to these securities and the dilution related to the conversion premium, if any, of the 2022 Convertible Notes is included in the calculation of diluted weighted-average shares outstanding to the extent the issuance is dilutive based on the average stock price during each reporting period being greater than the conversion price of the 2022 Convertible Notes.
The components of basic and diluted earnings per share for 2019, 2018 and 2017 were as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net loss from continuing operations
|
$
|
(467,661
|
)
|
|
$
|
(172,075
|
)
|
|
$
|
(206,688
|
)
|
|
Net income from discontinued operations
|
—
|
|
|
103,578
|
|
|
5,925
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
34,030
|
|
|
34,394
|
|
|
34,907
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options and RSUs
|
—
|
|
|
—
|
|
|
—
|
|
|
Shares used in calculating dilutive net loss per share
|
34,030
|
|
|
34,394
|
|
|
34,907
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(13.74
|
)
|
|
$
|
(5.00
|
)
|
|
$
|
(5.92
|
)
|
|
Income from discontinued operations
|
—
|
|
|
3.01
|
|
|
0.17
|
|
|
Total
|
$
|
(13.74
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
(5.75
|
)
|
The following table sets forth the potential common shares issuable upon the exercise of outstanding options, the vesting of RSUs and the conversion of the Convertible Notes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Options to purchase shares of common stock
|
3,976
|
|
|
3,797
|
|
|
3,531
|
|
|
Shares of common stock issuable upon the vesting of RSUs
|
1,579
|
|
|
1,129
|
|
|
1,070
|
|
|
Warrants
|
—
|
|
|
1,008
|
|
|
1,008
|
|
|
2022 Convertible Notes
|
11,695
|
|
|
11,695
|
|
|
11,695
|
|
|
2019 Convertible Notes
|
—
|
|
|
790
|
|
|
790
|
|
|
Shares of common stock under employee stock purchase plan
|
—
|
|
|
81
|
|
—
|
—
|
|
|
Total
|
17,250
|
|
|
18,500
|
|
|
18,094
|
|
In connection with the issuance of the 2019 Convertible Notes, in February 2014, we entered into convertible bond hedges with certain financial institutions. The convertible bond hedges were not included for purposes of calculating the number of diluted shares outstanding, as their effect would be anti-dilutive. The convertible bond hedges and warrants expired in February 2019 in conjunction with the settlement of the 2019 Convertible Notes.
Business Segments
We have determined that we conduct our operations in one business segment: the manufacture, development and commercialization of products for use in treating various conditions, with a focus on maternal and women’s health and anemia management. Long-lived assets consist entirely of intangible assets, property and equipment and are located in the U.S. for all periods presented.
Immaterial Revision of Prior Period Financial Information
Prior period amounts, specifically net product sales and accrued expenses have been revised to correct a prior period error related to gross-to-net (“GTN”) adjustments for governmental rebates and the related accrual for a certain state program. Refer to Note X, “Revision of Prior Period Financial Statements” for further detail.
C. DISCONTINUED OPERATIONS
On August 6, 2018, we completed the sale of our CBR business to GI Partners pursuant to the CBR Purchase Agreement. We determined that the sale of CBR represented a strategic shift that would have a major effect on our business and therefore met the criteria for classification as discontinued operations at June 30, 2018. All historical operating results for CBR were reflected within discontinued operations in the consolidated statements of operations for the years ended December 31, 2018 and 2017.
The following is a summary of net income from discontinued operations for the years ended December 31, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
Service revenues, net
|
$
|
71,217
|
|
|
$
|
114,177
|
|
|
Costs and expenses:
|
|
|
|
|
Cost of services
|
12,559
|
|
|
21,817
|
|
|
Selling, general and administrative expenses
|
39,899
|
|
|
81,782
|
|
|
Total costs and expenses
|
52,458
|
|
|
103,599
|
|
|
Operating income
|
18,759
|
|
|
10,578
|
|
|
Other income (expense)
|
114
|
|
|
(265
|
)
|
|
Income from discontinued operations
|
18,873
|
|
|
10,313
|
|
|
Gain on sale of CBR business
|
87,076
|
|
|
—
|
|
|
Income tax expense
|
2,371
|
|
|
4,388
|
|
|
Net income from discontinued operations
|
$
|
103,578
|
|
|
$
|
5,925
|
|
The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows for the years ended December 31, 2018 and 2017. For the years ended December 31, 2018 and 2017, capital expenditures related to the CBR business were $1.6 million and $4.9 million, respectively. Depreciation and amortization expense related to the CBR business for the same periods was $8.4 million and $21.7 million, respectively. Excluding the gain of $87.1 million recognized on the sale of the CBR business and the related transaction expenses of $14.1 million presented in the consolidated statements of cash flows for the year ended December 31, 2018, there were no other significant operating or investing non-cash items related to the CBR business for any period presented.
D. REVENUE RECOGNITION
Product Revenue
The following table provides information about disaggregated revenue by product for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Product sales, net
|
|
|
|
|
|
|
Makena
|
$
|
120,859
|
|
|
$
|
320,311
|
|
|
$
|
385,356
|
|
|
Feraheme
|
167,947
|
|
|
135,001
|
|
|
105,930
|
|
|
Intrarosa
|
21,417
|
|
|
16,218
|
|
|
1,816
|
|
|
Other
|
(238
|
)
|
|
368
|
|
|
741
|
|
|
Total
|
$
|
309,985
|
|
|
$
|
471,898
|
|
|
$
|
493,843
|
|
Total gross product sales were offset by product sales allowances and accruals for the years ended December 31, 2019, 2018 and 2017 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Gross product sales
|
$
|
955,693
|
|
|
$
|
974,330
|
|
|
$
|
920,061
|
|
|
Provision for product sales allowances and accruals:
|
|
|
|
|
|
|
Contractual adjustments
|
530,645
|
|
|
387,540
|
|
|
310,588
|
|
|
Governmental rebates
|
115,063
|
|
|
114,892
|
|
|
115,630
|
|
|
Total
|
645,708
|
|
|
502,432
|
|
|
426,218
|
|
|
Product sales, net
|
$
|
309,985
|
|
|
$
|
471,898
|
|
|
$
|
493,843
|
|
The following table summarizes the product revenue allowance and accrual activity for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
Governmental
|
|
|
|
|
Adjustments
|
|
Rebates
|
|
Total
|
|
Balance at January 1, 2017
|
$
|
47,600
|
|
|
$
|
52,741
|
|
|
$
|
100,341
|
|
|
Current provisions relating to sales in current year
|
314,537
|
|
|
113,969
|
|
|
428,506
|
|
|
Adjustments relating to sales in prior years
|
(3,949
|
)
|
|
1,661
|
|
|
(2,288
|
)
|
|
Payments/returns relating to sales in current year
|
(253,545
|
)
|
|
(61,569
|
)
|
|
(315,114
|
)
|
|
Payments/returns relating to sales in prior years
|
(42,479
|
)
|
|
(53,060
|
)
|
|
(95,539
|
)
|
|
Balance at December 31, 2017
|
62,164
|
|
|
53,742
|
|
|
115,906
|
|
|
Current provisions relating to sales in current year
|
389,861
|
|
|
106,988
|
|
|
496,849
|
|
|
Adjustments relating to sales in prior years
|
(2,330
|
)
|
|
7,903
|
|
|
5,573
|
|
|
Payments/returns relating to sales in current year
|
(333,694
|
)
|
|
(75,920
|
)
|
|
(409,614
|
)
|
|
Payments/returns relating to sales in prior years
|
(58,802
|
)
|
|
(58,501
|
)
|
|
(117,303
|
)
|
|
Balance at December 31, 2018
|
57,199
|
|
|
34,212
|
|
|
91,411
|
|
|
Provisions related to current period sales
|
521,916
|
|
|
100,926
|
|
|
622,842
|
|
|
Adjustments related to prior period sales
|
8,774
|
|
|
14,137
|
|
|
22,911
|
|
|
Payments/returns relating to current period sales
|
(431,014
|
)
|
|
(60,218
|
)
|
|
(491,232
|
)
|
|
Payments/returns relating to prior period sales
|
(61,654
|
)
|
|
(41,435
|
)
|
|
(103,089
|
)
|
|
Balance at December 31, 2019
|
$
|
95,221
|
|
|
$
|
47,622
|
|
|
$
|
142,843
|
|
During the year ended December 31, 2019, we recorded adjustments of $14.1 million for Medicaid rebate claims received that related to prior period sales and $8.8 million for contractual adjustments related to prior period sales. We concluded that these adjustments represented changes in estimate during the year ended December 31, 2019 due to higher Medicaid and payer utilization and subsequent rebate obligations than anticipated based on our historical experience.
Collaboration Revenue
During the first quarter of 2019, in conjunction with the Perosphere transaction, we assumed responsibility for a clinical trial collaboration agreement with a pharmaceutical company. This agreement provided for milestone payments to us, provided we met certain clinical obligations in connection with our ciraparantag program. We also acquired $6.4 million of deferred revenue related to this agreement, which represented the fair value of our remaining performance obligations associated with upfront milestone payments received by Perosphere under this agreement prior to acquisition. We accounted for this agreement under ASC 606.
During the fourth quarter of 2019, we entered into a termination and settlement agreement (the “Termination Agreement”) with the pharmaceutical company which provided for a $10.0 million termination payment to us and stated that no party had any remaining performance obligations effective as of the termination date. The $10.0 million termination payment was received during the fourth quarter of 2019. Under ASC 606, the Termination Agreement met the definition of a contract modification and was accounted for as a cumulative catch-up adjustment at the time of modification.
During the year ended December 31, 2019, the $10.0 million termination payment and $6.4 million of deferred revenue were recognized as collaboration revenue in our consolidated statements of operations.
E. MARKETABLE SECURITIES
As of December 31, 2019 and 2018, our marketable securities consisted of securities classified as available-for-sale in accordance with accounting standards which provide guidance related to accounting and classification of certain investments in marketable securities.
The following is a summary of our marketable securities as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Description of Securities:
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Short-term investments:*
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
46,186
|
|
|
$
|
140
|
|
|
$
|
(2
|
)
|
|
$
|
46,324
|
|
|
U.S. treasury and government agency securities
|
2,750
|
|
|
—
|
|
|
—
|
|
|
2,750
|
|
|
Certificates of deposit
|
1,500
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
|
Total short-term investments
|
50,436
|
|
|
140
|
|
|
(2
|
)
|
|
50,574
|
|
|
Long-term investments:**
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
8,016
|
|
|
152
|
|
|
—
|
|
|
8,168
|
|
|
Total long-term investments
|
8,016
|
|
|
152
|
|
|
—
|
|
|
8,168
|
|
|
Total investments
|
$
|
58,452
|
|
|
$
|
292
|
|
|
$
|
(2
|
)
|
|
$
|
58,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Description of Securities:
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Short-term investments:*
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
51,184
|
|
|
$
|
—
|
|
|
$
|
(236
|
)
|
|
$
|
50,948
|
|
|
U.S. treasury and government agency securities
|
7,647
|
|
|
—
|
|
|
(34
|
)
|
|
7,613
|
|
|
Commercial paper
|
3,995
|
|
|
—
|
|
|
—
|
|
|
3,995
|
|
|
Certificates of deposit
|
12,000
|
|
|
—
|
|
|
—
|
|
|
12,000
|
|
|
Total short-term investments
|
74,826
|
|
|
—
|
|
|
(270
|
)
|
|
74,556
|
|
|
Long-term investments:**
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
62,530
|
|
|
52
|
|
|
(433
|
)
|
|
62,149
|
|
|
U.S. treasury and government agency securities
|
2,742
|
|
|
—
|
|
|
(32
|
)
|
|
2,710
|
|
|
Certificates of deposit
|
1,500
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
|
Total long-term investments
|
66,772
|
|
|
52
|
|
|
(465
|
)
|
|
66,359
|
|
|
Total investments
|
$
|
141,598
|
|
|
$
|
52
|
|
|
$
|
(735
|
)
|
|
$
|
140,915
|
|
* Represents marketable securities with a remaining maturity of less than one year.
** Represents marketable securities with a remaining maturity of one to three years classified as short-term on our consolidated balance sheets.
Impairments and Unrealized Gains and Losses on Marketable Securities
We did not recognize any other-than-temporary impairment losses in our consolidated statements of operations related to our marketable securities during 2019, 2018 or 2017. We considered various factors, including the length of time that each security was in an unrealized loss position and our ability and intent to hold these securities until recovery of their amortized cost basis occurs. As of December 31, 2019, we have no material losses in an unrealized loss position for more than one year. Future events may occur, or additional information may become available, which may cause us to identify credit losses where we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of a security and may necessitate the recording of future realized losses on securities in our portfolio. Significant losses in the estimated fair values of our marketable securities could have a material adverse effect on our earnings in future periods.
F. FAIR VALUE MEASUREMENTS
The following tables present information about our assets and liabilities that we measure at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques utilized to determine such fair value as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using:
|
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
13,732
|
|
|
$
|
13,732
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Corporate debt securities
|
54,492
|
|
|
—
|
|
|
54,492
|
|
|
—
|
|
|
U.S. treasury and government agency securities
|
2,750
|
|
|
—
|
|
|
2,750
|
|
|
—
|
|
|
Certificates of deposit
|
1,500
|
|
|
—
|
|
|
1,500
|
|
|
—
|
|
|
Total Assets
|
$
|
72,474
|
|
|
$
|
13,732
|
|
|
$
|
58,742
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
17
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
Total Liabilities
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 Using:
|
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
71,568
|
|
|
$
|
71,568
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Corporate debt securities
|
113,097
|
|
|
—
|
|
|
113,097
|
|
|
—
|
|
|
U.S. treasury and government agency securities
|
10,323
|
|
|
—
|
|
|
10,323
|
|
|
—
|
|
|
Commercial paper
|
3,995
|
|
|
—
|
|
|
3,995
|
|
|
—
|
|
|
Certificates of deposit
|
13,500
|
|
|
—
|
|
|
13,500
|
|
|
—
|
|
|
Total Assets
|
$
|
212,483
|
|
|
$
|
71,568
|
|
|
$
|
140,915
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration
|
359
|
|
|
—
|
|
|
—
|
|
|
359
|
|
|
Total Liabilities
|
$
|
359
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
359
|
|
Cash equivalents
Our cash equivalents are classified as Level 1 assets under the fair value hierarchy as these assets have been valued using quoted market prices in active markets and do not have any restrictions on redemption. As of December 31, 2019 and 2018, cash equivalents were comprised of funds in money market accounts.
Marketable securities
Our marketable securities are classified as Level 2 assets under the fair value hierarchy as these assets were primarily determined from independent pricing services, which normally derive security prices from recently reported trades for identical or similar securities, making adjustments based upon other significant observable market transactions. At the end of each reporting period, we perform quantitative and qualitative analysis of prices received from third parties to determine whether prices are reasonable estimates of fair value. After completing our analysis, we did not adjust or override any fair value measurements provided by our pricing services as of December 31, 2019 or 2018. In addition, there were no transfers or reclassifications of any securities between Level 1 and Level 2 during 2019 or 2018.
Contingent consideration
In accordance with GAAP, for asset acquisitions, we record contingent consideration for obligations we consider to be probable and estimable and these liabilities are not adjusted to fair value. As of December 31, 2019 and December 31, 2018, no contingent consideration was recorded in accrued expenses.
We recorded contingent consideration related to the November 2014 acquisition of Lumara Health Inc. (“Lumara Health”) for our Makena product and related to our June 2013 license agreement for MuGard® Mucoadhesive Oral Wound Rinse (the “MuGard License Agreement”) with Abeona Therapeutics, Inc. (“Abeona”), under which we acquired the U.S. commercial rights for the management of oral mucositis and stomatitis (the “MuGard Rights”).
The fair value measurements of contingent consideration obligations and the related intangible assets arising from business combinations are classified as Level 3 under the fair value hierarchy as they have been valued using unobservable inputs. These inputs include: (a) the estimated amount and timing of projected cash flows; (b) the probability of the achievement of the factors on which the contingency is based; and (c) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.
During 2018, we reduced the fair value of our contingent consideration liability by approximately $49.6 million, primarily based on actual Makena net sales to date and our expectations for future performance, which indicated that achievement of future milestones is not probable. This adjustment was based on our estimates, which are reliant on a number of external factors as well as the exercise of judgment.
We believe the estimated fair values of the contingent payments associated with Lumara Health and the MuGard Rights are based on reasonable assumptions, however, our actual results may vary significantly from the estimated results.
Debt
We estimate the fair value of our debt obligations by using quoted market prices obtained from third-party pricing services, which is classified as a Level 2 input. As of December 31, 2019, the estimated fair value of the 2022 Convertible Notes was $274.8 million, which differed from its carrying value. As of December 31, 2018, the estimated fair value of the 2022 Convertible Notes and the 2019 Convertible Notes was $294.8 million and $20.9 million, respectively, which differed from their carrying values. See Note R, “Debt,” for additional information on our debt obligations.
Nonrecurring Fair Value Measurements
During the year ended December 31, 2019, we measured the Makena base technology, Makena auto-injector developed technology, Intrarosa developed technology and Vyleesi developed technology intangible assets at fair value based on indicators of impairment identified for the Makena, Intrarosa and Vyleesi products. The aggregate fair values of our intangible assets at December 31, 2019 was $23.6 million and we recorded total impairment charges of $232.3 million in our consolidated statements of operations for the year ended December 31, 2019. The fair value measurement related to the Makena base technology intangible asset was recorded during the second quarter of 2019. The Makena auto-injector developed technology intangible asset was measured at fair value as of October 29, 2019 and the Intrarosa developed technology and Vyleesi developed technology intangible assets were measured at fair value as of December 31, 2019. See Note I, “Goodwill and Intangible Assets, Net” for additional information regarding our intangible asset impairment assessments.
G. INVENTORIES
Our major classes of inventories were as follows as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Raw materials
|
$
|
5,211
|
|
|
$
|
9,388
|
|
|
Work in process
|
6,248
|
|
|
5,932
|
|
|
Finished goods
|
20,094
|
|
|
11,371
|
|
|
Total inventories
|
$
|
31,553
|
|
|
$
|
26,691
|
|
During the year ended December 31, 2019, we recorded inventory write-downs of $19.8 million in conjunction with the impairments of the asset groups related to the Makena intramuscular (“IM”) products and the Makena auto-injector product.
H. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Computer equipment and software
|
$
|
1,568
|
|
|
$
|
1,637
|
|
|
Furniture and fixtures
|
1,714
|
|
|
1,737
|
|
|
Leasehold improvements
|
4,984
|
|
|
2,938
|
|
|
Laboratory and production equipment
|
6,570
|
|
|
6,000
|
|
|
Construction in progress
|
656
|
|
|
420
|
|
|
|
15,492
|
|
|
12,732
|
|
|
Less: accumulated depreciation
|
(11,376
|
)
|
|
(5,211
|
)
|
|
Property and equipment, net
|
$
|
4,116
|
|
|
$
|
7,521
|
|
During 2019, 2018 and 2017, depreciation expense was $2.6 million, $1.6 million, and $1.2 million, respectively.
I. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
Our $422.5 million goodwill balance represents goodwill of the continuing business following the goodwill allocation performed in 2018 in connection with the CBR transaction discussed in Note C, “Discontinued Operations.” As of December 31, 2019, we had no accumulated impairment losses related to goodwill.
2019 Impairment Testing Results
On October 31, 2019 (the “2019 measurement date”), we conducted our 2019 annual goodwill impairment test using a market approach to estimate the fair value of our reporting unit as of the 2019 measurement date. We considered our market capitalization, as adjusted for a control premium, to be one indicator of the fair value of our reporting unit. On October 31, 2019, our stock price closed at $9.71 per share, resulting in a market capitalization of approximately $329 million, which was below the carrying amount of our reporting unit as of the 2019 measurement date, resulting in an implied control premium of 6%. During the fourth quarter of 2019, we obtained a control premium analysis that benchmarked average control premiums paid in prior merger and acquisition transactions among biotechnology and pharmaceutical companies. The analysis indicated that control premiums vary depending on facts and circumstances for each transaction. The range of control premiums observed was between 37% and 84%, with a median of 65%. Management believes that using this market approach of assessing reasonable control premiums provided a sufficient basis to assess whether the fair value of our reporting unit, including a range of reasonable control premiums, was above its carrying amount. Incorporating control premiums in this range to our October 31, 2019 market capitalization of $329 million resulted in a fair value which was at least 29% greater (at the low end of the range) than the carrying amount of our net assets as of October 31, 2019. As a result of this review, we determined that there was no impairment of our goodwill at October 31, 2019.
Between October 31, 2019 and December 31, 2019, in accordance with ASC 350, we evaluated business factors, including the business decision to divest Intrarosa and Vyleesi, to determine whether there were indicators that the fair value of our reporting unit was less than its carrying value. We determine that it was not more likely than not that the fair value of the reporting unit was less than its carrying value and accordingly, determined that there was no impairment of goodwill at December 31, 2019.
Based on our assessment, we determined that there was no goodwill impairment at October 31, 2019 or December 31, 2019. However, the future occurrence of events including, but are not limited to, an adverse change in current economic and market conditions, including a significant prolonged decline in market capitalization, a significant adverse change in legal factors, unexpected adverse business conditions and an adverse action or assessment by a regulator could indicate potential impairment and trigger an interim impairment assessment of goodwill. As a result of the significance of goodwill, our results of operations and financial position in a future period could be negatively impacted should an impairment test be triggered that results in an impairment of goodwill.
2018 Impairment Testing Results
During the second quarter of 2018, in conjunction with the goodwill allocation required by the CBR transaction and in accordance with ASC 350, we performed a goodwill impairment test to assess whether there were indicators that its fair value was less than its carrying value. As a result of this evaluation, we determined that there was no impairment of goodwill at June 30, 2018.
On October 31, 2018 (the “2018 measurement date”), we conducted our 2018 annual goodwill impairment test using a market approach to estimate the fair value of our reporting unit as of the 2018 measurement date. We considered our market capitalization, as adjusted for a control premium, to be one indicator of the fair value of our reporting unit. On October 31, 2018, our stock price closed at $21.50 per share, resulting in a market capitalization of approximately $742 million, which was below the carrying amount of our reporting unit as of the 2018 measurement date, resulting in an implied control premium of 2%. In the days following our October 31, 2018 annual testing date, our stock price declined, largely in response to our November 1, 2018 earnings release and Company update. This decline resulted in a market capitalization of approximately $633 million on November 5, 2018, resulting in an implied control premium of 20%. During the third quarter of 2018, we obtained an updated control premium analysis that benchmarked average control premiums paid in prior merger and acquisition transactions among biotechnology and pharmaceutical companies. The analysis indicated that control premiums vary depending on facts and circumstances for each transaction. The range of control premiums observed was between 39% and 96%, with a median of 71%. Management believes that using this market approach of assessing reasonable control premiums provided a sufficient basis to assess whether the fair value of our reporting unit, including a range of reasonable control premiums, was above its carrying amount. Incorporating control premiums in this range to our October 31, 2018 market capitalization of $742 million resulted in a fair value which was at least 36% greater (at the low end of the range) than the carrying amount of our net assets as of October 31, 2018. As a result of this review, we determined that there was no impairment of our goodwill at October 31, 2018.
Between October 31, 2018 and December 31, 2018, our stock price continued to fluctuate, with a median closing stock price of $17.84 per share for the period from November 1, 2018 through December 31, 2018. The median closing stock price of $17.84 per share resulted in a market capitalization of approximately $617 million, which as compared to the $747 million carrying amount of our reporting unit at December 31, 2018 resulted in an implied control premium of 21%. Incorporating the range of control premiums obtained from the control premium study used in our annual goodwill impairment test at October 31, 2018 to the calculated market capitalization of $617 million resulted in a fair value which was at least 15% greater (at the low end of the range) than the carrying amount of our net assets as of December 31, 2018. Using the closing stock price of $15.19 per share on December 31, 2018 results in an implied control premium of 41%. This implied control premium is within the range of control premiums observed. As a result of this review, we determined that there was no impairment of our goodwill between our annual goodwill impairment test date and December 31, 2018. In addition, we determined that there were no other indicators of impairment through December 31, 2018 requiring further assessment.
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
Original Cost
|
|
Life to Date Accumulated Amortization
|
|
Life to Date Impairments
|
|
Net Book Value
|
|
Original Cost
|
|
Life to Date Accumulated Amortization
|
|
Life to Date Impairments
|
|
Net Book Value
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Makena base technology
|
$
|
797,100
|
|
|
$
|
400,496
|
|
|
$
|
396,604
|
|
|
$
|
—
|
|
|
$
|
797,100
|
|
|
$
|
400,495
|
|
|
$
|
319,246
|
|
|
$
|
77,359
|
|
|
Makena auto-injector developed technology
|
79,100
|
|
|
15,782
|
|
|
55,426
|
|
|
7,892
|
|
|
79,100
|
|
|
6,952
|
|
|
—
|
|
|
72,148
|
|
|
Intrarosa developed technology
|
77,655
|
|
|
16,798
|
|
|
56,881
|
|
|
3,976
|
|
|
77,655
|
|
|
10,129
|
|
|
—
|
|
|
67,526
|
|
|
Vyleesi developed technology
|
60,000
|
|
|
9,264
|
|
|
38,984
|
|
|
11,752
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total intangible assets
|
$
|
1,013,855
|
|
|
$
|
442,340
|
|
|
$
|
547,895
|
|
|
$
|
23,620
|
|
|
$
|
953,855
|
|
|
$
|
417,576
|
|
|
$
|
319,246
|
|
|
$
|
217,033
|
|
During the second quarter of 2019, Vyleesi received FDA approval, which triggered a $60.0 million milestone payment, which was capitalized as developed technology.
Late in the second quarter of 2019, we were notified that an additional manufacturing site for the Makena IM products, which relates to the Makena base technology intangible asset, received FDA approval. However, the approval was received later than expected and the extended period of the stock-out caused our authorized generic partner to lose additional customers and market share, resulting in no shipments of IM to our authorized generic partner during that quarter. As a result of this loss of market share, we deemed it probable as of the end of the second quarter of 2019 that we would terminate the Distribution and Supply Agreement with our authorized generic partner. We do not expect to generate any future revenues from shipments
of the IM products. Accordingly, we eliminated the Makena IM products from our long-term revenue forecast during the second quarter of 2019. These business factors were considered indicators of impairment for the Makena base technology intangible asset during the second quarter of 2019. We determined that the fair value of the Makena base technology intangible asset was zero at June 30, 2019, and as a result, we recorded an impairment charge for the full remaining value of the asset of $77.4 million, which was recorded within a separate operating expense line item on our consolidated statements of operations. The Distribution and Supply Agreement with our authorized generic partner was terminated in August 2019 and we have not sold any Makena IM in the second half of 2019.
During the fourth quarter of 2019, we identified indicators of impairment for the Makena auto-injector developed technology, Intrarosa developed technology and Vyleesi developed technology intangible assets (each part of its own asset group) related to (i) the October 29, 2019 unfavorable FDA Advisory Committee recommendation for Makena as described in Note A, “Description of Business”, and (ii) the December 2019 decision to divest Intrarosa and Vyleesi based on the strategic review that we conducted. We determined that the Intrarosa and Vyleesi asset groups did not meet the criteria to be classified as held for sale as of December 31, 2019 and as a result, assessed these assets for potential impairment under the held and used guidance. For each asset group, we estimated the sum of the undiscounted projected cash flows and found that the sum of the projected, probability-weighted undiscounted cash flows were less than the carrying value of each corresponding asset group. Therefore, we reassessed the fair value of each asset group using an income approach, a Level 3 measurement technique, which included probability weighting a range of potential outcomes as impacted by multiple significant and inter-related business factors. For all three asset groups, these significant assumptions included an estimated probability of a negative FDA action with respect to Makena and the expected timing of any such FDA action. In addition, for the Intrarosa and Vyleesi asset groups, management’s assessment also included assumptions regarding the probability of completing a sale of these assets and the expected timing of a sale, should one occur. We derived these estimates based on management’s judgment as informed by externally available information. We believe the assumptions we used to determine the estimated fair value of the asset groups are reasonable. Based on our consideration of these probability-weighted assumptions evaluated in the aggregate, we recorded impairment charges of $55.4 million, $56.9 million and $39.0 million to reduce the carrying values of the Makena auto-injector developed technology, Intrarosa developed technology and Vyleesi developed technology intangible assets to their respective estimated fair values. Total impairment charges of $155.0 million were recorded within a separate operating expense line item in our consolidated statements of operations during the fourth quarter of 2019, of which $151.3 million were allocated to the intangible assets in each asset group. In addition, we reassessed and prospectively adjusted the estimated remaining useful lives of the Makena auto-injector developed technology, Intrarosa developed technology and Vyleesi developed technology intangible assets and other long-lived assets within each asset group. As such, we accelerated amortization of these intangible assets resulting in an additional $7.1 million of expense recorded in 2019. As described in more detail above, our assessment was based on our estimates and assumptions, a number of which are based on external factors and the exercise of management judgment. Actual results may differ significantly from our estimates.
As of December 31, 2019, the weighted average estimated remaining amortization period for our finite-lived intangible assets was approximately one year. Total amortization expense for 2019, 2018 and 2017, was $24.8 million, $158.4 million and $130.4 million, respectively. Amortization expense is recorded in cost of product sales in our consolidated statements of operations. We expect amortization expense related to our finite-lived intangible assets to be $23.6 million during the year ended December 31, 2020.
J. CURRENT AND LONG-TERM LIABILITIES
Accrued Expenses
Accrued expenses consisted of the following as of December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Commercial rebates, fees and returns
|
$
|
124,730
|
|
|
$
|
85,618
|
|
|
Accrued manufacturing
|
21,364
|
|
|
9,282
|
|
|
Salaries, bonuses, and other compensation
|
18,693
|
|
|
22,482
|
|
|
Professional, license, and other fees and expenses
|
13,392
|
|
|
13,960
|
|
|
Accrued research and development
|
3,539
|
|
|
2,226
|
|
|
Interest expense
|
867
|
|
|
1,067
|
|
|
Restructuring expense
|
797
|
|
|
—
|
|
|
Total accrued expenses
|
$
|
183,382
|
|
|
$
|
134,635
|
|
K. INCOME TAXES
For the years ended December 31, 2019, 2018, and 2017, all of our profit or loss before income taxes was from U.S. operations. The income tax (benefit) expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
(630
|
)
|
|
$
|
(1,136
|
)
|
|
$
|
2,162
|
|
|
State
|
179
|
|
|
1,469
|
|
|
5,358
|
|
|
Total current
|
$
|
(451
|
)
|
|
$
|
333
|
|
|
$
|
7,520
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
$
|
432
|
|
|
$
|
43,546
|
|
|
$
|
(172,238
|
)
|
|
State
|
(28
|
)
|
|
(3,443
|
)
|
|
(10,803
|
)
|
|
Total deferred
|
$
|
404
|
|
|
$
|
40,103
|
|
|
$
|
(183,041
|
)
|
|
Total income tax (benefit) expense
|
$
|
(47
|
)
|
|
$
|
40,436
|
|
|
$
|
(175,521
|
)
|
The reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Statutory U.S. federal tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
|
State taxes, net of federal benefit
|
2.6
|
|
|
4.7
|
|
|
3.3
|
|
|
Impact of 2017 tax reform on deferred tax balance
|
—
|
|
|
—
|
|
|
4.5
|
|
|
Equity-based compensation expense
|
(0.4
|
)
|
|
(1.5
|
)
|
|
(0.8
|
)
|
|
Contingent consideration
|
—
|
|
|
7.1
|
|
|
4.4
|
|
|
In-process research and development
|
(3.4
|
)
|
|
—
|
|
|
—
|
|
|
Other permanent items, net
|
(0.4
|
)
|
|
(1.4
|
)
|
|
(0.5
|
)
|
|
Tax credits
|
0.4
|
|
|
6.2
|
|
|
0.7
|
|
|
Valuation allowance
|
(19.8
|
)
|
|
(67.4
|
)
|
|
(0.8
|
)
|
|
Other, net
|
—
|
|
|
0.6
|
|
|
0.1
|
|
|
Effective tax rate
|
—
|
%
|
|
(30.7
|
)%
|
|
45.9
|
%
|
For the year ended December 31, 2019, we recognized an immaterial income tax benefit, representing an effective tax rate of 0.0%. The difference between the expected statutory federal tax rate of 21.0% and the effective tax rate of 0.0% for the year ended December 31, 2019, was primarily attributable to the valuation allowance established against our current period losses generated and the non-deductible IPR&D expense related to the Perosphere acquisition.We have established a valuation allowance on our deferred tax assets other than refundable AMT credits to the extent that our existing taxable temporary differences would not be available as a source of income to realize the benefits of those deferred tax assets. The income tax benefit for the year ended December 31, 2019 primarily related to the offset of the recognition of the income tax expense recorded in other comprehensive loss associated with the increase in the value of available-for-sale securities that we carried at fair market value during the period, partially offset by state income taxes.
For the year ended December 31, 2018, we recognized income tax expense of $40.4 million representing an effective tax rate of (30.7)%. The difference between the expected statutory federal tax rate of 21.0% and the (30.7)% effective tax rate for 2018 was primarily attributable to the establishment of a valuation allowance on net deferred tax assets other than refundable AMT credits, the impact of non-deductible stock compensation and other non-deductible expenses, partially offset by a benefit from contingent consideration associated with Lumara Health, state income taxes and orphan drug tax credits. The valuation allowance on our deferred tax assets, other than refundable AMT credits, increased during the year ended December 31, 2018 primarily because the deferred tax liabilities associated with the CBR business, which was reclassified to discontinued operations and sold during the year ended December 31, 2018, are no longer available as a source of income to realize the benefits of the net deferred tax assets.
For the year ended December 31, 2017, we recognized an income tax benefit of $175.5 million representing an effective tax rate of 45.9%. The difference between the expected statutory federal tax rate of 35.0% and the 45.9% effective tax rate for 2017 was primarily attributable to the impact of the 2017 federal tax reform legislation, as discussed below, contingent consideration associated with Lumara Health, federal research and orphan drug tax credits generated during the year, and the impact of state income taxes, partially offset by equity-based compensation expenses and an increase to our valuation allowance.
On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”), was enacted. The 2017 Tax Act includes significant changes to the U.S. corporate income tax system, including a reduction of the federal corporate income tax rate from 35.0% to 21.0%, effective January 1, 2018. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which those temporary differences are expected to be recovered or settled. As a result of the reduction in the federal tax rate from 35.0% to 21.0%, we revalued our ending net deferred tax liabilities at December 31, 2017 and recognized a $17.1 million tax benefit.
Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using future enacted rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. The components of our deferred tax assets and liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Assets
|
|
|
|
|
Net operating loss carryforwards
|
$
|
79,679
|
|
|
$
|
46,888
|
|
|
Tax credit carryforwards
|
28,641
|
|
|
24,290
|
|
|
Capital loss carryforwards
|
20,659
|
|
|
20,896
|
|
|
Interest expense carryforwards
|
5,746
|
|
|
4,318
|
|
|
Equity-based compensation expense
|
6,106
|
|
|
5,931
|
|
|
Capitalized research & development
|
2,347
|
|
|
4,635
|
|
|
Intangible assets
|
67,847
|
|
|
12,565
|
|
|
Reserves
|
5,721
|
|
|
2,683
|
|
|
Lease liability
|
5,739
|
|
|
—
|
|
|
Property, plant and equipment
|
391
|
|
|
—
|
|
|
Contingent consideration
|
4
|
|
|
87
|
|
|
Other
|
10,846
|
|
|
6,627
|
|
|
Valuation allowance
|
(218,291
|
)
|
|
(114,516
|
)
|
|
Liabilities
|
|
|
|
|
Property, plant and equipment depreciation
|
—
|
|
|
(614
|
)
|
|
Debt instruments
|
(9,195
|
)
|
|
(12,489
|
)
|
|
Right of use asset
|
(5,599
|
)
|
|
—
|
|
|
Other
|
(11
|
)
|
|
(41
|
)
|
|
Net deferred tax assets
|
$
|
630
|
|
|
$
|
1,260
|
|
The valuation allowance increased by approximately $103.8 million for the year ended December 31, 2019. We have established a valuation allowance on our deferred tax assets other than refundable AMT credits to the extent that our existing taxable temporary differences would not be available as a source of income to realize the benefits of those deferred tax assets. Our valuation allowance on our deferred tax assets, other than refundable AMT credits, increased during the year ended December 31, 2019, primarily due to our current period losses generated.
At December 31, 2019, we had federal and state NOL carryforwards of approximately $332.8 million and $184.6 million, respectively, of which $123.1 million and $16.6 million federal and state NOL carryforwards, were acquired as part of the Lumara Health transaction, respectively, and $21.4 million and $14.6 million federal and state NOL carryforwards were acquired as part of the Perosphere transaction, respectively. The majority of the federal and state NOLs expire at various dates
through 2039. We have $127.4 million of federal NOLs generated after 2017 which will not expire. We have federal tax credits of approximately $26.1 million to offset future tax liabilities of which $2.3 million were acquired as part of the Lumara Health transaction and $2.3 million of which were acquired as part of the Perosphere transaction. We have state tax credits of $2.5 million to offset future tax liabilities of which $1.2 million were acquired as part of the Perosphere transaction. These federal and state tax credits will expire periodically through 2039 if not utilized. We have a capital loss carryforward of $90.4 million from the sale of the CBR business that can only be used to offset future capital gains and expires in 2023. Our interest expense carryforward is $23.6 million, which may be carried forward indefinitely.
Utilization of our NOLs, interest expense carryforwards, and research and development (“R&D”) credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (“Section 382”) as well as similar state provisions. These ownership changes may limit the amount of NOLs and interest expense carryforwards that can be utilized annually to offset future taxable income and may limit the amounts of R&D credit carryforwards that can be utilized annually to offset taxes. In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. Since our formation, we have raised capital through the issuance of capital stock on several occasions. These financings, combined with the purchasing shareholders’ subsequent disposition of those shares, could result in a change of control, as defined by Section 382. We conducted an analysis under Section 382 to determine if historical changes in ownership through December 31, 2019, based upon publicly available information as of December 31, 2019, would limit or otherwise restrict our ability to utilize these NOLs, interest expense, and R&D credit carryforwards. As a result of this analysis, we do not believe there are any significant limitations on our ability to utilize these carryforwards. The NOLs and tax credits acquired from Lumara Health and Perosphere are subject to restrictions under Section 382. These restricted NOLs and credits may be utilized subject to an annual limitation. We identified ownership changes associated with the attributes acquired as part of the Lumara Health and Perosphere transactions and determined these attributes are subject to annual limitations. Future changes in ownership after December 31, 2019 could affect the limitation in future years and any limitation may result in expiration of a portion of the NOL or R&D credit carryforwards before utilization.
Unrecognized tax benefits represent uncertain tax positions for which reserves have been established. A reconciliation of our changes in unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Unrecognized tax benefits at the beginning of the year
|
$
|
11,180
|
|
|
$
|
10,560
|
|
|
$
|
13,020
|
|
|
Additions based on tax positions related to the current year
|
521
|
|
|
12
|
|
|
574
|
|
|
Additions for tax positions from prior years
|
2,173
|
|
|
608
|
|
|
340
|
|
|
Subtractions for federal tax reform
|
—
|
|
|
—
|
|
|
(3,296
|
)
|
|
Subtractions for tax positions from prior years
|
(336
|
)
|
|
—
|
|
|
(78
|
)
|
|
Unrecognized tax benefits at the end of the year
|
$
|
13,538
|
|
|
$
|
11,180
|
|
|
$
|
10,560
|
|
The amount of unrecognized tax benefits that would impact the effective tax rate if recognized is immaterial, as the majority of our uncertain tax positions relate to NOL and credit carryforwards, which, if recognized, are currently expected to require a full valuation allowance.
Our unrecognized tax benefits as of December 31, 2019 increased by $2.4 million as compared to December 31, 2018 primarily due to tax reserves associated with NOLs and R&D credit carryforwards acquired in connection with the Perosphere transaction.
Our unrecognized tax benefits as of December 31, 2018 increased by $0.6 million as compared to December 31, 2017 primarily due to tax reserves established on R&D tax credits.
Our unrecognized tax benefits as of December 31, 2017 decreased by $2.5 million as compared to December 31, 2016 primarily due to the change in the federal tax rate, which reduced the future value of our federal NOLs and the corresponding value of the unrecognized tax benefits related to those NOLs. This decrease was partially offset by tax reserves established on R&D tax credits.
We have recorded minimal interest or penalties on unrecognized tax benefits since inception. We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. We do not expect our unrecognized tax benefits to change significantly in the next 12 months.
The statute of limitations for assessment by the Internal Revenue Service (the “IRS”) and most state tax authorities is closed for tax years prior to December 31, 2016, although carryforward attributes that were generated prior to tax year 2016 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. We file income tax returns in the U.S. federal and various state jurisdictions. There are currently no federal or state audits in progress.
L. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in the accumulated balances of other comprehensive loss associated with unrealized (losses) gains on securities during 2019, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Beginning balance
|
$
|
(3,985
|
)
|
|
$
|
(3,908
|
)
|
|
$
|
(3,838
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
746
|
|
|
(77
|
)
|
|
(70
|
)
|
|
Ending balance
|
$
|
(3,239
|
)
|
|
$
|
(3,985
|
)
|
|
$
|
(3,908
|
)
|
M. EQUITY-BASED COMPENSATION
We currently maintain three equity compensation plans, namely our 2019 Equity Incentive Plan (the “2019 Plan”), which was approved by our stockholders at our 2019 annual meeting and replaced our Fourth Amended and Restated 2007 Equity Incentive Plan, as amended (the “2007 Plan”), the Lumara Health Inc. Amended and Restated 2013 Incentive Compensation Plan (the “Lumara Health 2013 Plan”) and our 2015 Employee Stock Purchase Plan (“2015 ESPP”). All outstanding stock options granted under each of our equity compensation plans other than our 2015 ESPP (discussed below) have an exercise price equal to the closing price of a share of our common stock on the grant date.
Our 2019 Plan succeeded our 2007 Plan, which has expired and under which no further grants may be made. The number of shares available for future grants under the 2019 Plan consists of the sum of (i) the number of shares that remained available for issuance under the 2007 Plan as of the date of adoption of the 2019 Plan and (ii) an additional 2,161,000 shares. All outstanding awards granted under the 2007 Plan will remain subject to the terms of the 2007 Plan. In addition, any shares subject to outstanding awards granted under the 2007 Plan that expire or terminate for any reason prior to exercise will be added to the total number of shares of our stock available for issuance under the 2019 Plan. The allotted number of shares available for issuance under the 2019 Plan was 3,519,304 as of December 31, 2019 and there were 2,828,030 shares remaining available for future issuance under the 2019 Plan. As of December 31, 2019, all outstanding options under both the 2019 Plan and 2007 Plan have a ten-year term.
In November 2014, we assumed the Lumara Health 2013 Plan in connection with the acquisition of Lumara Health. The total number of shares issuable pursuant to awards under this plan as of the effective date of the acquisition and after taking into account any adjustments as a result of the acquisition, was 200,000 shares. As of December 31, 2019, there were 9,817 shares remaining available for issuance under the Lumara Health 2013 Plan, which are available for grants to certain employees, officers, directors, consultants, and advisers of AMAG and our subsidiaries who are newly-hired or who previously performed services for Lumara Health. All outstanding options under the Lumara Health 2013 Plan have a ten-year term.
The 2019 Plan, 2007 Plan and the Lumara Health 2013 Plan provide for the grant of stock options, RSUs, restricted stock, stock, stock appreciation rights and other equity interests in our company. We generally issue common stock from previously authorized but unissued shares to satisfy option exercises and RSU awards. The terms and conditions of each award are determined by our Board of Directors (the “Board”) or the Compensation Committee of our Board. The terms and conditions of each award assumed in the acquisition of Lumara Health were previously determined by Lumara Health prior to being assumed in connection with the acquisition, subject to applicable adjustments made in connection with such acquisition.
In May 2015, our stockholders approved our 2015 ESPP, which authorizes the issuance of up to 200,000 shares of our common stock to eligible employees. In June 2018, at our annual meeting of stockholders, our stockholders approved an amendment to our 2015 ESPP to increase the maximum number of shares of our common stock that will be made available for sale thereunder by 500,000 shares. The terms of the 2015 ESPP permit eligible employees to purchase shares (subject to certain plan and tax limitations) in semi-annual offerings through payroll deductions of up to an annual maximum of 10% of the employee’s “compensation” as defined in the 2015 ESPP. Shares are purchased at a price equal to 85% of the fair market value of our common stock on either the first or last business day of the offering period, whichever is lower. Plan periods consist of six-month periods typically commencing June 1 and ending November 30 and commencing December 1 and ending May 31. As of December 31, 2019, 445,713 shares have been issued under our 2015 ESPP.
During 2019, we also granted equity through inducement grants outside of our equity compensation plans to certain employees to induce them to accept employment with us (collectively, “Inducement Grants”). The options were granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant dates and will be exercisable in four equal annual installments beginning on the first anniversary of the respective grant dates. The RSU grants will vest in three equal annual installments beginning on the first anniversary of the respective grant dates. The foregoing grants were made pursuant to inducement grants outside of our stockholder approved equity plans as permitted under the NASDAQ Stock Market listing rules. We assessed the terms of these awards and determined there was no possibility that we would have to settle these awards in cash and therefore, equity accounting was applied.
Stock Options
The following table summarizes stock option activity during 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Equity
|
|
2007 Equity
|
|
2013 Lumara
|
|
Inducement
|
|
|
|
|
Plan
|
|
Plan
|
|
Equity Plan
|
|
Grants
|
|
Total
|
|
Outstanding at December 31, 2018
|
—
|
|
|
2,781,786
|
|
|
124,450
|
|
|
810,343
|
|
|
3,716,579
|
|
|
Granted
|
479,212
|
|
|
465,009
|
|
|
37,000
|
|
|
80,366
|
|
|
1,061,587
|
|
|
Exercised
|
—
|
|
|
(2,025
|
)
|
|
—
|
|
|
—
|
|
|
(2,025
|
)
|
|
Expired or terminated
|
(6,800
|
)
|
|
(659,304
|
)
|
|
(29,675
|
)
|
|
(194,545
|
)
|
|
(890,324
|
)
|
|
Outstanding at December 31, 2019
|
472,412
|
|
|
2,585,466
|
|
|
131,775
|
|
|
696,164
|
|
|
3,885,817
|
|
Restricted Stock Units
The following table summarizes RSU activity during 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Equity
|
|
2007 Equity
|
|
2013 Lumara
|
|
Inducement
|
|
|
|
|
Plan
|
|
Plan
|
|
Equity Plan
|
|
Grants
|
|
Total
|
|
Outstanding at December 31, 2018
|
—
|
|
|
1,041,141
|
|
|
2,101
|
|
|
85,293
|
|
|
1,128,535
|
|
|
Granted
|
132,542
|
|
|
1,023,847
|
|
|
1,100
|
|
|
29,385
|
|
|
1,186,874
|
|
|
Vested
|
—
|
|
|
(358,362
|
)
|
|
(1,034
|
)
|
|
(44,909
|
)
|
|
(404,305
|
)
|
|
Expired or terminated
|
(3,800
|
)
|
|
(299,321
|
)
|
|
—
|
|
|
(28,546
|
)
|
|
(331,667
|
)
|
|
Outstanding at December 31, 2019
|
128,742
|
|
|
1,407,305
|
|
|
2,167
|
|
|
41,223
|
|
|
1,579,437
|
|
In February 2019, March 2018 and February 2017, we granted RSUs under our 2007 Plan to certain members of our senior management covering a maximum of 365,591, 206,250 and 191,250 shares of common stock, respectively. These performance-based RSUs will vest, if at all, on February 24, 2022, March 1, 2021 and February 22, 2020, respectively, based on our total shareholder return (“TSR”) performance measured against the median TSR of a defined group of companies over a three-year period. As of December 31, 2019, the maximum shares of common stock that may be issued under these awards was 325,091, 155,250 and 131,250, respectively. The maximum aggregate total fair value of these RSUs at December 31, 2019 was $4.2 million, $2.9 million and $2.6 million, respectively, which is being recognized as expense over a period of three years from the date of grant, net of any estimated and actual forfeitures.
Equity-based compensation expense
Equity-based compensation expense for 2019, 2018 and 2017 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Cost of product sales
|
$
|
871
|
|
|
$
|
802
|
|
|
$
|
884
|
|
|
Research and development
|
2,844
|
|
|
2,533
|
|
|
3,225
|
|
|
Selling, general and administrative
|
14,818
|
|
|
16,614
|
|
|
16,187
|
|
|
Total equity-based compensation expense
|
18,533
|
|
|
19,949
|
|
|
20,296
|
|
|
Income tax effect
|
—
|
|
|
—
|
|
|
(6,188
|
)
|
|
After-tax effect of equity-based compensation expense
|
$
|
18,533
|
|
|
$
|
19,949
|
|
|
$
|
14,108
|
|
In addition to the equity-based compensation expense presented in the table above, we incurred $0.7 million of equity-based compensation expense related to the restructuring activities during the first quarter of 2019, which is classified within restructuring expense on our consolidated statements of operations for the year ended December 31, 2019.
The following table summarizes the weighted average assumptions we utilized for purposes of valuing grants of options to our employees and non-employee directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
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2019
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2018
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2017
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Non-Employee
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Non-Employee
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Non-Employee
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Employees
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Directors
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Employees
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Directors
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Employees
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Directors
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Risk free interest rate (%)
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2.12
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2.04
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2.75
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|
2.70
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|
1.86
|
|
1.61
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Expected volatility (%)
|
57
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|
59
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|
57
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59
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|
53
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|
57
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|
Expected option term (years)
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5.0
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4.0
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|
5.0
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|
4.0
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5.0
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4.0
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|
Dividend yield
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none
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none
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none
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none
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none
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none
|
Risk free interest rates utilized are based upon published U.S. Treasury yields at the date of the grant for the expected option term. During 2019, 2018 and 2017, we estimated our expected stock price volatility by using the historical volatility of our own common stock price over the prior period equivalent to our expected option term, in order to better reflect expected future volatility. To compute the expected option term, we analyze historical exercise experience as well as expected stock option exercise patterns.
The following table summarizes details regarding stock options granted under our equity incentive plans for the year ended December 31, 2019:
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December 31, 2019
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Options
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Weighted Average Exercise Price
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Weighted Average Remaining Contractual Term
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Aggregate Intrinsic Value
($ in thousands)
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Outstanding at beginning of year
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3,716,579
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$
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24.81
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|
|
7.3
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|
|
$
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—
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Granted
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1,061,587
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|
|
12.71
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|
|
—
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—
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Exercised
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(2,025
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)
|
|
14.56
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|
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—
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|
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—
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Expired and/or forfeited
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(890,324
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)
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|
22.93
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|
|
—
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—
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Outstanding at end of year
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3,885,817
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|
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$
|
21.94
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|
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6.8
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|
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$
|
776
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Outstanding at end of year - vested and unvested expected to vest
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3,799,575
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|
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$
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22.12
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|
|
6.8
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|
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$
|
701
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|
Exercisable at end of year
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2,242,727
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|
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$
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25.76
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|
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5.5
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|
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$
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116
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The weighted average grant date fair value of stock options granted during 2019, 2018 and 2017 was $6.33, $10.76 and $9.52, respectively. A total of 728,758 stock options vested during 2019. The aggregate intrinsic value of options exercised during 2019, 2018 and 2017, excluding purchases made pursuant to our 2015 ESPP, measured as of the exercise date, was approximately $0.0 million, $0.6 million and $0.4 million, respectively. The intrinsic value of a stock option is the amount by which the fair market value of the underlying stock on a specific date exceeds the exercise price of the common stock option.
The following table summarizes details regarding RSUs granted under our equity incentive plans for the year ended December 31, 2019:
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December 31, 2019
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Restricted Stock Units
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Weighted Average Grant Date Fair Value
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Outstanding at beginning of year
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1,128,535
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|
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$
|
23.42
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Granted
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1,186,874
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|
15.65
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|
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Vested
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(404,305
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)
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|
22.49
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|
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Forfeited
|
(331,667
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)
|
|
19.71
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|
|
Outstanding at end of year
|
1,579,437
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|
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$
|
18.60
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|
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Outstanding at end of year and expected to vest
|
1,462,952
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|
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$
|
18.88
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|
The weighted average grant date fair value of RSUs granted during 2019, 2018 and 2017 was $15.65, $22.32 and $24.18, respectively. The total fair value of RSUs that vested during 2019, 2018 and 2017 was $9.1 million, $12.4 million and $12.3 million, respectively.
At December 31, 2019, the amount of unrecorded equity-based compensation expense for both option and RSU awards, attributable to future periods was approximately $28.1 million. Of this amount, $11.5 million was associated with stock options and is expected to be amortized on a straight-line basis to expense over a weighted average period of approximately 2.5 years, $12.3 million was associated with RSUs and is expected to be amortized on a straight-line basis to expense over a weighted average period of approximately 1.7 years, and $4.3 million was associated with performance-based RSUs and is expected to be amortized on a straight-line basis to expense over a weighted average period of approximately 1.5 years. Such amounts will be amortized primarily to research and development or selling, general and administrative expense. These future estimates are subject to change based upon a variety of future events, which include, but are not limited to, changes in estimated forfeiture rates, employee turnover, and the issuance of new stock options and other equity-based awards.
N. EMPLOYEE SAVINGS PLAN
We provide a 401(k) Plan to our employees by which they may defer compensation for income tax purposes under Section 401(k) of the Internal Revenue Code. Each employee may elect to defer a percentage of his or her salary up to a specified maximum. As of December 31, 2019 our 401(k) Plan provided, among other things, for a company contribution of 4% of each employee’s combined salary and certain other compensation for the plan year. Contributions by us to the 401(k) Plan are not taxable to employees until withdrawn from the 401(k) Plan and contributions are deductible by us when made. The amount of our company contribution for the 401(k) Plan was $3.7 million, $4.0 million and $2.3 million for 2019, 2018 and 2017, respectively.
O. STOCKHOLDERS’ EQUITY
As of January 1, 2019, we had $20.5 million available under our previously approved program to repurchase up to $60.0 million in shares of our common stock. In March 2019, our Board authorized additional repurchases of shares in an amount up to $20.0 million under this program. The repurchase program does not have an expiration date and may be suspended for periods or discontinued at any time. Under the program, we may purchase our stock from time to time at the discretion of management in the open market or in privately negotiated transactions. The number of shares repurchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, along with working capital requirements, general business conditions and other factors. We may also from time to time establish a trading plan under Rule 10b5-1 of the Securities and Exchange Act of 1934 to facilitate purchases of our shares under this program. During 2019, we repurchased and retired 1,074,800 shares of common stock under this repurchase program for $13.7 million. During 2018, we did not repurchase shares of common stock under this program. As of December 31, 2019, $26.8 million remains available for the repurchase of shares under the program.
P. COMMITMENTS AND CONTINGENCIES
Commitments
Our long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business. These include commitments related to our facility and vehicle leases, purchases of inventory, debt obligations, and other purchase obligations.
Operating Lease Obligations
During 2019, we had operating leases for real estate, including our lease for use as our principal executive offices, vehicles and office equipment. As of January 1, 2019, we recorded operating lease liabilities of $8.5 million and related ROU assets of $7.6 million in connection with our adoption of ASC 842. During the fourth quarter of 2019, we modified the operating lease for our principal executive offices to extend the term through July 2028. As of December 31, 2019, we had operating lease liabilities of $23.9 million and related ROU assets of $23.3 million. As of December 31, 2019, our leases have remaining terms of one to 8.5 years. The weighted average remaining lease term and discount rate for our operating leases was 7.95 years and 5.1% at December 31, 2019, respectively.
Lease costs for our operating leases were $5.1 million, $5.1 million and $3.0 million for the years ended December 31, 2019, 2018 and 2017, respectively. Operating cash outflows for operating leases were $5.2 million for the year ended December 31, 2019.
Future minimum payments under our non-cancelable operating leases as of December 31, 2019 are as follows (in thousands):
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Period
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Future Minimum Lease Payments
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Year Ending December 31, 2020
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|
$
|
4,077
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|
|
Year Ending December 31, 2021
|
|
3,207
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|
|
Year Ending December 31, 2022
|
|
3,734
|
|
|
Year Ending December 31, 2023
|
|
3,230
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|
|
Year Ending December 31, 2024
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|
3,246
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Thereafter
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12,192
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Total
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$
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29,686
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Less: Interest
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$
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5,818
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Operating lease liability
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$
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23,868
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|
Purchase Obligations
Purchase obligations primarily represent minimum purchase commitments for inventory. As of December 31, 2019, our minimum purchase commitments totaled $105.9 million.
Contingent Regulatory and Commercial Milestone Payments
We are required to make payments contingent on the achievement of certain regulatory and/or commercial milestones under the terms of our collaboration, license and other strategic agreements. Please refer to Note Q, “Collaboration, License and Other Strategic Agreements” for additional details regarding these contingent payments.
Employment Arrangements
We have entered into employment agreements or other arrangements with most of our executive officers and certain other employees, which provide for the continuation of salary and certain benefits and, in certain instances, the acceleration of the vesting of certain equity awards to such individuals in the event that the individual is terminated other than for cause, as defined in the applicable employment agreements or arrangements.
Indemnification Obligations
As permitted under Delaware law, pursuant to our certificate of incorporation, by-laws and agreements with all of our current directors, executive officers, and certain of our employees, we are obligated to indemnify such individuals for certain events or occurrences while the officer, director or employee is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification obligations is not capped. Our director and officer insurance policy limits our initial exposure and our policy provides significant coverage. As a result, we believe the estimated fair value of these indemnification obligations is likely to be immaterial.
We are also a party to a number of other agreements entered into in the ordinary course of business, typically with business partners, contract manufacturers, clinical sites and customers, which contain typical provisions and which obligate us to indemnify the other parties to such agreements upon the occurrence of certain events. Such indemnification obligations are usually in effect from the date of execution of the applicable agreement for a period equal to the applicable statute of limitations. Our aggregate maximum potential future liability under such indemnification provisions is uncertain. We have not incurred any expenses as a result of such indemnification provisions during the years ended December 31, 2019, 2018 or 2017. Accordingly, we have determined that the estimated aggregate fair value of our potential liabilities under such indemnification provisions is not significant, and we have not recorded any liability related to such indemnification.
Contingencies
Legal Proceedings
We accrue a liability for legal contingencies when we believe that it is both probable that a liability has been incurred and that we can reasonably estimate the amount of the loss. We review these accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and our views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in our accrued liabilities would be recorded in the period in which such determination is made. For certain matters referenced below, the liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made. In addition, in accordance with the relevant authoritative guidance, for any matters in which the likelihood of material loss is at least reasonably possible, we will provide disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, we will provide disclosure to that effect. We expense legal costs as they are incurred.
On November 6, 2019, we were served with a summons in a case filed in the U.S. District Court, Northern District of Ohio, captioned Civil Case in Saginaw Chippewa Indian Tribe v. Purdue Pharma et al (Case No. 1-19-op-45841). The complaint names K-V Pharmaceutical Company (“KV”) (Lumara Health’s predecessor company), certain of its successor entities, subsidiaries and affiliate entities as defendants, along with over forty other pharmaceutical companies. We acquired Lumara Health in November 2014, a year after KV emerged from bankruptcy protection, at which time it and its then-existing subsidiaries became our wholly-owned subsidiaries. The plaintiff in this action alleges that KV’s subsidiary, Ethex Corporation (as well as the other pharmaceutical companies named in the complaint), manufactured, promoted, sold, and distributed opioids, including a generic version of morphine. We are in discussions with the plaintiff’s counsel to dismiss all claims in the Chippewa case. At this time, based on available information, we are currently unable to predict the outcome or reasonably estimate the range of potential loss associated with this matter, if any.
On November 1, 2019, we were named as a defendant in a class action lawsuit filed in the United States District Court for the Western District of Missouri, captioned Barnes v. AMAG Pharmaceuticals, Inc., Case No. 3:19-cv-05088-RK (W.D. Mo.). Subsequently, other plaintiffs represented by the same law firm have filed four similar class action lawsuits in other jurisdictions, captioned Gill v. AMAG Pharmaceuticals, Inc., Case No. 2:19-cv-02681-DDC-JPO (D. Kan., filed Nov. 4, 2019), Faughnan, et al. v. AMAG Pharmaceuticals, Inc., Case No. 3:19-cv-01394-FJS-ML (N.D.N.Y, filed Nov. 12, 2019), Zamifrova v. AMAG Pharmaceuticals, Inc., Case No. 2:20-cv-00152-JMV-SCM (D.N.J., filed Jan. 3, 2020) and Nelson v. AMAG Pharmaceuticals, Inc., Case No. 2:20-cv-00089-WBS-DMC (E.D. Cal., filed Jan. 13, 2020). The plaintiffs in these actions, on behalf of themselves and purported state-wide classes of similarly situated consumers, assert claims for violation of state consumer protection laws and unjust enrichment based on allegations that we and/or our predecessor companies made misrepresentations and omissions regarding the effectiveness of Makena in connection with the sale and marketing of that product from 2011 through the present. Because these cases are in the earliest stages, we are currently unable to predict the outcome or reasonably estimate the range of potential loss associated with this matter, if any.
On August 29, 2019, Lunar Representative, LLC (“Plaintiff”), on behalf of the former equityholders of Lumara Health Inc. (“Lumara”), filed a complaint against us in the Delaware Court of Chancery, captioned Lunar Representative, LLC v. AMAG Pharmaceuticals, Inc. (No. 2019-0688-JTL). On September 25, 2019, we filed a motion to dismiss the complaint. On January 9,
2020, Plaintiff filed an amended complaint. Plaintiff alleges that we did not exercise commercially reasonable efforts to market and sell the drug product Makena, and failed to achieve sales milestones for Makena, in breach of certain provisions of the September 28, 2014 Agreement and Plan of Merger between, among other parties, us and Lumara. On January 24, 2020, we filed a motion to dismiss the amended complaint. Plaintiff is seeking damages of $50.0 million, together with pre- and post-judgment interest, as well as attorneys’ fees and costs. At this time, based on available information, we are unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.
On or about April 6, 2016, we received Notice of a Lawsuit and Request to Waive Service of a Summons in a case entitled Plumbers’ Local Union No. 690 Health Plan v. Actavis Group et. al. (“Plumbers’ Union”), which was filed in the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania and, after removal to federal court, is now pending in the United States District Court for the Eastern District of Pennsylvania (Civ. Action No. 16-65-AB). Thereafter, we were also made aware of a related complaint entitled Delaware Valley Health Care Coalition v. Actavis Group et. al. (“Delaware Valley”), which was filed with the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania District Court of Pennsylvania (Case ID: 160200806). The complaints name K-V Pharmaceutical Company (“KV”) (Lumara Health’s predecessor company), certain of its successor entities, subsidiaries and affiliate entities (the “Subsidiaries”), along with a number of other pharmaceutical companies. We acquired Lumara Health in November 2014, a year after KV emerged from bankruptcy protection, at which time it, along with its then existing subsidiaries, became our wholly-owned subsidiary. We have not been served with process or waived service of summons in either case. The actions are being brought alleging unfair and deceptive trade practices with regard to certain pricing practices that allegedly resulted in certain payers overpaying for certain of KV’s generic products. On July 21, 2016, the Plaintiff in the Plumbers’ Union case dismissed KV with prejudice to refiling and on October 6, 2016, all claims against the Subsidiaries were dismissed without prejudice. We are in discussions with Plaintiff’s counsel to similarly dismiss all claims in the Delaware Valley case. Because we have not been served with process in the Delaware Valley case, we are currently unable to predict the outcome or reasonably estimate the range of potential loss associated with this matter, if any.
On July 20, 2015, the Federal Trade Commission (the “FTC”) notified us that it is conducting an investigation into whether Lumara Health or its predecessor engaged in unfair methods of competition with respect to Makena or any hydroxyprogesterone caproate product. The FTC noted in its letter that the existence of the investigation does not indicate that the FTC has concluded that Lumara Health or its predecessor has violated the law and we believe that our contracts and practices comply with relevant law and policy, including the federal Drug Quality and Security Act (the “DQSA”), which was enacted in November 2013, and public statements from and enforcement actions by the FDA regarding its implementation of the DQSA. We have provided the FTC with a response providing a brief overview of the DQSA for context, which we believe was helpful, including: (a) how the statute outlined that large-scale compounding of products that are copies or near-copies of FDA-approved drugs (like Makena) is not in the interests of public safety; (b) our belief that the DQSA has had a significant impact on the compounding of hydroxyprogesterone caproate; and (c) how our contracts with former compounders allow those compounders to continue to serve physicians and patients with respect to supplying medically necessary alternative/altered forms of hydroxyprogesterone caproate. We believe we have fully cooperated with the FTC and we have had no further interactions with the FTC on this matter since we provided our response to the FTC in August 2015.
We may periodically become subject to other legal proceedings and claims arising in connection with ongoing business activities, including claims or disputes related to patents that have been issued or that are pending in the field of research on which we are focused. Other than the above actions, we are not aware of any material claims against us as of December 31, 2019 or 2018.
Q. COLLABORATION, LICENSE AND OTHER STRATEGIC AGREEMENTS
During 2019, we were a party to the following collaboration, license or other strategic agreements:
Perosphere
On January 16, 2019, we acquired Perosphere Pharmaceuticals Inc. (“Perosphere”) pursuant to the Agreement and Plan of Merger (the “Perosphere Agreement”), dated as of December 12, 2018 between AMAG and Perosphere. Pursuant to the Perosphere Agreement, in January 2019, we paid approximately $50.0 million (the “Upfront Merger Consideration”). Of the Upfront Merger Consideration, approximately $40.0 million was funded from our available cash and approximately $10.0 million was deemed paid in connection with the cancellation of a convertible note in the principal amount of $10.0 million issued to us by Perosphere in October 2018. In addition to the Upfront Merger Consideration, we used available cash to repay $12.0 million of Perosphere’s term loan indebtedness and approximately $6.2 million of Perosphere’s other liabilities. We are also required to pay regulatory and sales milestone payments to Perosphere as described in more detail below. Further, we were
a party to a clinical trial collaboration agreement with a pharmaceutical company, which we acquired through the Perosphere transaction, which provided for partial funding of the Phase 3 program for ciraparantag if certain clinical milestones were met. In December 2019, the clinical trial collaboration agreement with the pharmaceutical company was terminated as described in more detail in Note D, “Revenue Recognition.”
Substantially all of the fair value of the assets acquired in conjunction with the Perosphere transaction was concentrated in the IPR&D asset. As a result, we accounted for this transaction as an asset acquisition under ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The acquired IPR&D was charged to expense at acquisition, as it relates to a development stage compound with no alternative future use. A summary of the assets and liabilities acquired in exchange for cash consideration of $60.8 million and $10.0 million that was deemed paid in connection with the cancellation of the convertible note, described above, is presented in the following table (in millions):
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Assets:
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Cash
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$
|
2.6
|
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Operating lease right-of-use asset
|
0.8
|
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|
Property and equipment
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1.4
|
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IPR&D
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74.9
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|
|
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$
|
79.7
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Liabilities:
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Accrued severance liabilities
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$
|
(1.7
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)
|
|
Deferred revenue
|
(6.4
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)
|
|
Operating lease liability
|
(0.8
|
)
|
|
|
$
|
(8.9
|
)
|
Excluded from the table above are contingent payments associated with achievement of potential regulatory and sales milestones as described below, which were not deemed probable at the date of acquisition. The fair values of certain of the assets and liabilities acquired are classified as Level 3 estimates under the fair value hierarchy as they have been valued using unobservable inputs. These inputs include: (a) the estimated amount and timing of projected cash flows; (b) the probability of the achievement of key development and regulatory objectives; and (c) the risk-adjusted discount rate used to present value the probability-weighted cash flows. The fair values of the assets and liabilities acquired were initially valued and recorded based on various market factors, including an analysis of estimated sales using a discount rate of approximately 34%.
Under and subject to the terms and conditions set forth in the Perosphere Agreement, we are obligated to pay future contingent consideration of up to an aggregate of $365.0 million (the “Milestone Payments”), including (a) up to an aggregate of $140.0 million that becomes payable upon the achievement of specified regulatory milestones for ciraparantag (the “Regulatory Milestone Payments”), including a $40.0 million milestone payment upon approval of ciraparantag by the European Medicines Agency and (b) up to an aggregate of $225.0 million that becomes payable conditioned upon the achievement of specified sales milestones (the “Sales Milestone Payments”). If the final label approved for ciraparantag in the U.S. includes a boxed warning, the Regulatory Milestone Payments shall no longer be payable, and any previously paid Regulatory Milestone Payments shall be credited against 50% of any future Milestone Payments that otherwise becomes payable. The first sales milestone payment of $20.0 million will be payable upon annual net sales of ciraparantag of at least $100.0 million.
Velo
In September 2018, we exercised our option to acquire the global rights to AMAG-423 pursuant to an option agreement entered into in July 2015 with Velo Bio, LLC (“Velo”), the terms of which were amended at the time of exercise. Under the terms of the agreement, we paid Velo an upfront option exercise fee of $12.5 million and are obligated to pay Velo a $30.0 million milestone payment upon FDA approval of AMAG-423. In addition, we are obligated to pay sales milestone payments to Velo of up to $240.0 million in the aggregate, triggered at various annual net sales thresholds between $300.0 million and $900.0 million and low-single digit royalties based on net sales. Further, we have assumed additional obligations under a previous agreement entered into by Velo with a third-party, including a $5.0 million milestone payment upon regulatory approval and $10.0 million following the first commercial sale of AMAG-423, payable in quarterly installments as a percentage of quarterly gross commercial sales until the obligation is met. We are also obligated to pay the third-party low-single digit royalties based on net sales. We accounted for this transaction as an asset acquisition under ASU 2017-01.
Prasco
In December 2017, we entered into a Distribution and Supply Agreement (the “Prasco Agreement”) with Prasco, LLC (“Prasco”), under which Prasco was granted an exclusive, non-sublicensable, nontransferable license to purchase, distribute and sell a generic version of Makena in the U.S. (the “Makena authorized generic”). In July 2018, Prasco launched the Makena authorized generic of both the single-dose and multi-dose IM injections and in August 2019, we and Prasco terminated the Prasco Agreement based on our determination that it was not commercially viable to continue the relationship. Under the Prasco Agreement, we were responsible for the manufacture and supply of the Makena authorized generic to be sold to Prasco at a predetermined supply price. Prasco was also required to pay us a certain percentage of the net distributable profits from the sale of the Makena authorized generic. We accounted for revenue recognized under the Prasco Agreement in accordance with ASC 606. Pursuant to the terms of the Prasco Agreement, in certain circumstances we have reimbursed Prasco as a result of our failure to supply a certain percentage of product ordered by Prasco in a prespecified timeframe. During the year ended December 31, 2019, we incurred $3.5 million of failure to supply penalties, the majority of which were incurred in the first quarter of 2019.
Antares
We are party to a development and license agreement (the “Antares License Agreement”) with Antares Pharma, Inc. (“Antares”), which grants us an exclusive, worldwide, royalty-bearing license, with the right to sublicense, to certain intellectual property rights, including know-how, patents and trademarks, to develop, use, sell, offer for sale and import and export the Makena auto-injector. Under the terms of the Antares License Agreement, as amended in March 2018, we are responsible for the clinical development and preparation, submission and maintenance of all regulatory applications in each country where we desire to market and sell the Makena auto-injector, including the U.S. We are required to pay royalties to Antares on net sales of the Makena auto-injector until the Antares License Agreement is terminated (the “Antares Royalty Term”). The royalty rates range from high single digit to low double digits and are tiered based on levels of net sales of the Makena auto-injector and decrease after the expiration of licensed patents or where there are generic equivalents to the Makena auto-injector being sold in a particular country. In addition, we are required to pay Antares sales milestone payments upon the achievement of certain annual net sales. The Antares License Agreement terminates at the end of the Antares Royalty Term, but is subject to early termination by us for convenience and by either party upon an uncured breach by or bankruptcy of the other party. In March 2018, the Antares License Agreement was amended to, among other things, transfer the agreement to AMAG from our subsidiary, amend certain confidentiality provisions, and to provide for co-termination with the Antares Manufacturing Agreement (described below).
We are also party to a Manufacturing Agreement with Antares (the “Antares Manufacturing Agreement”) that sets forth the terms and conditions pursuant to which Antares agreed to sell to us on an exclusive basis, and we agreed to purchase, the fully packaged Makena auto-injector for commercial distribution. Antares remains responsible for the manufacture and supply of the device components and assembly of the Makena auto-injector. We are responsible for the supply of the drug to be used in the assembly of the finished auto-injector product. The Antares Manufacturing Agreement terminates at the expiration or earlier termination of the Antares License Agreement, but is subject to early termination by us for certain supply failure situations, and by either party upon an uncured breach by or bankruptcy of the other party or our permanent cessation of commercialization of the Makena auto-injector for efficacy or safety reasons.
Endoceutics
In February 2017, we entered into the Endoceutics License Agreement with Endoceutics, Inc. (“Endoceutics”) to obtain an exclusive right to commercialize Intrarosa for the treatment of vulvar and vaginal atrophy (“VVA”) and FSD in the United States. We have agreed to use commercially reasonable efforts to market, promote and otherwise commercialize Intrarosa for the treatment of VVA. The transactions contemplated by the Endoceutics License Agreement closed on April 3, 2017. We accounted for the Endoceutics License Agreement as an asset acquisition under ASU 2017-01.
Upon the closing of the Endoceutics License Agreement, we made an upfront payment of $50.0 million and issued 600,000 shares of unregistered common stock to Endoceutics, which had a value of $13.5 million, as measured on April 3, 2017, the date of closing. In addition, we paid Endoceutics $10.0 million in the third quarter of 2017 upon the delivery by Endoceutics of Intrarosa launch quantities and $10.0 million in 2018 following the first anniversary of the closing. In the second quarter of 2017, we recorded a total of $83.5 million of consideration, of which $77.7 million was allocated to the Intrarosa developed technology intangible asset and $5.8 million was recorded as IPR&D expense based on their relative fair values.
Under the terms of the Endoceutics License Agreement, we pay tiered royalties to Endoceutics equal to a percentage of net sales of Intrarosa in the U.S. ranging from mid-teens to mid twenty percent. Endoceutics is also eligible to receive certain sales
milestone payments up to an aggregate of $895.0 million, including a first sales milestone payment of $15.0 million, which would be triggered when Intrarosa annual net U.S. sales exceed $150.0 million.
In April 2017, we entered into an exclusive commercial supply agreement with Endoceutics pursuant to which Endoceutics, itself or through affiliates or contract manufacturers, agreed to manufacture and supply Intrarosa to us (the “Endoceutics Supply Agreement”) and is our exclusive supplier of Intrarosa in the U.S., subject to certain rights for us to manufacture and supply Intrarosa in the event of a cessation notice or supply failure (as such terms are defined in the Endoceutics Supply Agreement). The Endoceutics Supply Agreement will generally remain in effect until the termination of the Endoceutics License Agreement.
The Endoceutics License Agreement expires on the date of expiration of all royalty obligations due thereunder unless earlier terminated in accordance with the Endoceutics License Agreement.
Palatin
In January 2017, we entered into a license agreement with Palatin Technologies, Inc. (“Palatin”) under which we acquired (a) an exclusive license in all countries of North America (the “Palatin Territory”), with the right to grant sub-licenses, to research, develop and commercialize the Vyleesi Products, (b) a worldwide non-exclusive license, with the right to grant sub-licenses, to manufacture the Vyleesi Products, and (c) a non-exclusive license in all countries outside the Palatin Territory, with the right to grant sub-licenses, to research and develop (but not commercialize) the Vyleesi Products (the “Palatin License Agreement”). The transaction closed in February 2017 and was accounted for as an asset acquisition under ASU 2017-01.
Under the terms of the Palatin License Agreement, in February 2017 we paid Palatin $60.0 million as a one-time upfront payment and subject to agreed-upon deductions reimbursed Palatin approximately $25.0 million for reasonable, documented, out-of-pocket expenses incurred by Palatin in connection with the development and regulatory activities necessary to submit the Vyleesi New Drug Application (“NDA”) in the U.S. The $60.0 million upfront payment made in February 2017 to Palatin was recorded as IPR&D expense as the product candidate had not received regulatory approval. In June 2018, our NDA submission to the FDA for Vyleesi was accepted, which triggered a $20.0 million milestone payment, which we paid in the second quarter of 2018 and recorded as an IPR&D expense in the first quarter of 2018 when acceptance was deemed probable. In June 2019, the FDA approval of Vyleesi triggered a $60.0 million milestone payment to Palatin, which we paid in July 2019 and recorded as a developed technology intangible asset in the second quarter of 2019.
In addition, the Palatin License Agreement requires us to make contingent payments of up to $300.0 million of aggregate sales milestone payments upon the achievement of certain annual net sales milestones over the course of the license. The first sales milestone payment of $25.0 million will be triggered when Vyleesi annual net sales exceed $250.0 million. We are also obligated to pay Palatin tiered royalties on annual net sales of the Vyleesi Products, on a product-by-product basis, in the Palatin Territory ranging from the high-single digits to the low double-digits. After the expiration of the applicable royalties for any Vyleesi Product in a given country, the license for such Vyleesi Product in such country would become a fully paid-up, royalty-free, perpetual and irrevocable license. The Palatin License Agreement expires on the date of expiration of all royalty obligations due thereunder, unless earlier terminated in accordance with the Palatin License Agreement.
Abeona
We acquired the U.S. commercial rights to MuGard, a prescription oral mucoadhesive, under a June 2013 license agreement with Abeona (the “MuGard Rights”). We ceased selling MuGard at the end of 2019.
R. DEBT
Our outstanding debt obligations as of December 31, 2019 and December 31, 2018 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
2022 Convertible Notes
|
$
|
277,034
|
|
|
$
|
261,933
|
|
|
2019 Convertible Notes
|
—
|
|
|
21,276
|
|
|
Total long-term debt
|
277,034
|
|
|
283,209
|
|
|
Less: current maturities
|
—
|
|
|
21,276
|
|
|
Long-term debt, net of current maturities
|
$
|
277,034
|
|
|
$
|
261,933
|
|
Convertible Notes
The outstanding balances of our Convertible Notes as of December 31, 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2022 Convertible Notes
|
|
Liability component:
|
|
|
|
|
Principal
|
|
$
|
320,000
|
|
|
Less: debt discount and issuance costs, net
|
|
42,966
|
|
|
Net carrying amount
|
|
$
|
277,034
|
|
|
Gross equity component
|
|
$
|
72,576
|
|
In accordance with accounting guidance for debt with conversion and other options, we separately account for the liability and equity components of our Convertible Notes by allocating the proceeds between the liability component and the embedded conversion option (the “Equity Component”) due to our ability to settle the Convertible Notes in cash, common stock or a combination of cash and common stock, at our option. 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 allocation was performed in a manner that reflected our non-convertible debt borrowing rate for similar debt. The Equity Component of the Convertible Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the Convertible Notes and the fair value of the liability of the Convertible Notes on their respective dates of issuance. The excess of the principal amount of the liability component over its carrying amount (the “Debt Discount”) is amortized to interest expense using the effective interest method over five years. The Equity Component is not remeasured as long as it continues to meet the conditions for equity classification.
2022 Convertible Notes
In the second quarter of 2017, we issued $320.0 million aggregate principal amount of convertible senior notes due in 2022 and received net proceeds of $310.4 million from the sale of the 2022 Convertible Notes, after deducting fees and expenses of $9.6 million. The approximately $9.6 million of debt issuance costs 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 $9.6 million of debt issuance costs, $2.2 million was allocated to the Equity Component and recorded as a reduction to additional paid-in capital and $7.4 million was allocated to the liability component and is now recorded as a reduction of the 2022 Convertible Notes in our consolidated balance sheet. The portion allocated to the liability component is amortized to interest expense using the effective interest method over five years.
The 2022 Convertible Notes are governed by the terms of an indenture between us, as issuer, and Wilmington Trust, National Association, as the trustee. The 2022 Convertible Notes are senior unsecured obligations and bear interest at a rate of 3.25% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2017. The 2022 Convertible Notes will mature on June 1, 2022, unless earlier repurchased or converted. Upon conversion of the 2022 Convertible Notes, such 2022 Convertible Notes will be convertible into, at our election, cash, shares of our common stock, or a combination thereof, at a conversion rate of 36.5464 shares of common stock per $1,000 principal amount of the 2022 Convertible Notes, which corresponds to an initial conversion price of approximately $27.36 per share of our common stock.
The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends. At any time prior to the close of business on the business day immediately preceding March 1, 2022, holders may convert their 2022 Convertible Notes at their option only under the following circumstances:
|
|
|
|
1)
|
during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending September 30, 2017, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
|
|
|
|
|
2)
|
during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2022 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or
|
|
|
|
|
3)
|
upon the occurrence of specified corporate events.
|
On or after March 1, 2022, until the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their 2022 Convertible Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. The 2022 Convertible Notes were not convertible as of December 31, 2019.
We determined the expected life of the debt was equal to the five-year term on the 2022 Convertible Notes. The effective interest rate on the liability component was 9.49% for the period from the date of issuance through December 31, 2019. As of December 31, 2019, the “if-converted value” did not exceed the remaining principal amount of the 2022 Convertible Notes.
2019 Convertible Notes
In February 2014, we issued $200.0 million aggregate principal amount of 2019 Convertible Notes. We received net proceeds of $193.3 million from the sale of the 2019 Convertible Notes, after deducting fees and expenses of $6.7 million. We used $14.1 million of the net proceeds from the sale of the 2019 Convertible Notes to pay the cost of the convertible bond hedges, as described below (after such cost was partially offset by the proceeds to us from the sale of warrants in the warrant transactions described below). The 2019 Convertible Notes are senior unsecured obligations and bear interest at a rate of 2.5% per year, payable semi-annually in arrears on February 15 and August 15 of each year.
In 2017, we entered into two privately negotiated transactions with certain investors to repurchase approximately $178.5 million aggregate principal amount of the 2019 Convertible Notes for an aggregate repurchase price of approximately $192.7 million, including accrued interest. Pursuant to ASC Topic 470, Debt (“ASC 470”), we concluded that the 2017 repurchases of 2019 Convertible Notes should be accounted for as extinguishments and we recorded a net debt extinguishment loss of $0.1 million related to the difference between the consideration paid, the fair value of the liability component and carrying values at the repurchase date. The remaining $21.4 million of 2019 Convertible Notes matured on February 15, 2019 and were settled with cash.
Convertible Notes Interest Expense
The following table sets forth total interest expense recognized related to the 2022 Convertible Notes and 2019 Convertible Notes during 2019, 2018, and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Contractual interest expense
|
$
|
10,467
|
|
|
$
|
10,935
|
|
|
$
|
8,961
|
|
|
Amortization of debt issuance costs
|
1,412
|
|
|
1,403
|
|
|
1,275
|
|
|
Amortization of debt discount
|
13,830
|
|
|
13,414
|
|
|
11,071
|
|
|
Total interest expense
|
$
|
25,709
|
|
|
$
|
25,752
|
|
|
$
|
21,307
|
|
Convertible Bond Hedge and Warrant Transactions
In February 2014 we entered into convertible bond hedge transactions and separate warrant transactions of our common stock underlying the aggregate principal amount of the 2019 Convertible Notes with certain financial institutions (the “call spread counterparties”). In connection with our 2017 repurchases of the 2019 Convertible Notes, as discussed above, we entered into agreements with the call spread counterparties to terminate a portion of the then existing convertible bond hedge transactions in an amount corresponding to the amount of such 2019 Convertible Notes repurchased and to terminate a portion of the then-existing warrant transactions. In February 2019, the 2019 Convertible Notes were settled with cash and the remaining bond hedge and warrant transactions expired.
2023 Senior Notes
In August 2015, in connection with the CBR acquisition, we completed a private placement of $500 million aggregate principal amount of 7.875% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes were issued pursuant to an Indenture, dated as of August 17, 2015 (the “Indenture”), by and among us, certain of our subsidiaries acting as guarantors of the 2023 Senior Notes and Wilmington Trust, National Association, as trustee. In October 2017, we repurchased $25.0 million of the 2023 Senior Notes in a privately negotiated transaction, resulting in a loss on extinguishment of debt of $1.1 million. In September 2018, we repurchased the remaining $475.0 million of the 2023 Senior Notes at a premium of $28.1 million using the proceeds from the CBR sale, which resulted in a loss on extinguishment of debt of $35.9 million, inclusive of the premium paid.
2015 Term Loan Facility
In August 2015, we entered into a credit agreement with a group of lenders, including Jefferies Finance LLC as administrative and collateral agent, that provided us with, among other things, a six-year $350.0 million term loan facility,
under which we borrowed the full amount (the “2015 Term Loan Facility”). In May 2017, we repaid the remaining outstanding borrowings and accrued interest of the 2015 Term Loan Facility and, in accordance with ASC 470, recognized a $9.7 million loss on debt extinguishment.
Future Payments
Future annual principal payments on our long-term debt as of December 31, 2019 include $320.0 million due during the year ended December 31, 2022.
S. RESTRUCTURING EXPENSES
In February 2019, we completed a restructuring to combine our women’s health and maternal health sales forces into one integrated sales team. Approximately 110 employees were displaced through this workforce reduction. We recorded one-time restructuring charges of $7.4 million primarily related to severance and related benefits on our consolidated statement of operations for the year ended December 31, 2019. We expect the restructuring charges incurred to date under this program to be substantially paid in cash by the end of the first quarter of 2020.
The following table displays charges taken related to restructuring activities during the year ended December 31, 2019 and a rollforward of the changes to the accrued balances as of December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reduction
|
|
Contract termination
|
|
Other
|
|
Total
|
|
Balance accrued at December 31, 2018
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
2019 restructuring charges
|
7,034
|
|
|
229
|
|
|
157
|
|
|
7,420
|
|
|
Payments
|
(6,237
|
)
|
|
(229
|
)
|
|
(157
|
)
|
|
(6,623
|
)
|
|
Balance accrued at December 31, 2019
|
$
|
797
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
797
|
|
T. CONSOLIDATED QUARTERLY FINANCIAL DATA - UNAUDITED
The following tables provide unaudited consolidated quarterly financial data for 2019 and 2018, which have been revised to correct for immaterial errors in prior periods as detailed below and further described in Note X, “Revision of Prior Period Financial Statements” (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
June 30, 2019
|
|
September 30, 2019
|
|
December 31, 2019
|
|
Total revenues
|
$
|
75,488
|
|
|
$
|
77,767
|
|
|
$
|
83,808
|
|
|
$
|
89,483
|
|
|
Gross profit
|
57,011
|
|
|
53,477
|
|
|
62,703
|
|
|
46,162
|
|
|
Operating expenses (1)
|
175,024
|
|
|
169,662
|
|
|
81,050
|
|
|
240,329
|
|
|
Net loss from continuing operations
|
$
|
(122,400
|
)
|
|
$
|
(121,169
|
)
|
|
$
|
(23,940
|
)
|
|
$
|
(200,152
|
)
|
|
Net income (loss) from discontinued operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net loss
|
$
|
(122,400
|
)
|
|
$
|
(121,169
|
)
|
|
$
|
(23,940
|
)
|
|
$
|
(200,152
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(3.55
|
)
|
|
$
|
(3.58
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(5.90
|
)
|
|
Income (loss) from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
(3.55
|
)
|
|
$
|
(3.58
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(5.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
June 30, 2018
|
|
September 30, 2018
|
|
December 31, 2018
|
|
Total revenues
|
$
|
116,867
|
|
|
$
|
145,663
|
|
|
$
|
121,646
|
|
|
$
|
87,871
|
|
|
Gross profit
|
52,955
|
|
|
68,887
|
|
|
75,157
|
|
|
59,155
|
|
|
Operating expenses (2)
|
104,239
|
|
|
27,591
|
|
|
95,084
|
|
|
78,241
|
|
|
Net loss from continuing operations
|
$
|
(58,994
|
)
|
|
$
|
(26,795
|
)
|
|
$
|
(65,282
|
)
|
|
$
|
(21,004
|
)
|
|
Net income (loss) from discontinued operations
|
$
|
3,856
|
|
|
$
|
5,736
|
|
|
$
|
95,517
|
|
|
$
|
(1,531
|
)
|
|
Net (loss) income
|
$
|
(55,138
|
)
|
|
$
|
(21,059
|
)
|
|
$
|
30,235
|
|
|
$
|
(22,535
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(1.72
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(1.89
|
)
|
|
$
|
(0.61
|
)
|
|
Income (loss) from discontinued operations
|
0.11
|
|
|
0.17
|
|
|
2.77
|
|
|
(0.04
|
)
|
|
Total
|
$
|
(1.61
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
0.88
|
|
|
$
|
(0.65
|
)
|
The sum of quarterly earnings per share totals differ from annual earnings per share totals due to rounding.
|
|
|
|
(1)
|
Operating expenses for the first quarter of 2019 include $74.9 million relating to IPR&D acquired through the Perosphere acquisition and $7.4 million relating to the restructuring expenses for the consolidation of the women’s health and maternal health sales forces. Operating expenses for the second quarter of 2019 include $77.4 million of impairment charges relating to the Makena base technology intangible asset. Operating expenses for the fourth quarter of 2019 include $155.0 million of impairment charges relating to the Makena auto-injector, Intrarosa and Vyleesi asset groups.
|
|
|
|
|
(2)
|
Operating expenses for the second quarter of 2018 include the reversal of $49.8 million relating to the fair value of a contingent consideration liability that was no longer expected to be paid.
|
The following tables present the effect of the revisions to our unaudited condensed consolidated statements of operations for the three months ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 to correct for immaterial errors in prior periods as further described in Note X, “Revision of Prior Period Financial Statements” (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Three Months Ended June 30, 2019
|
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
Product sales, net
|
$
|
75,729
|
|
|
$
|
(316
|
)
|
|
$
|
75,413
|
|
|
$
|
77,976
|
|
|
$
|
(342
|
)
|
|
$
|
77,634
|
|
|
Total revenues
|
75,804
|
|
|
(316
|
)
|
|
75,488
|
|
|
78,109
|
|
|
(342
|
)
|
|
77,767
|
|
|
Income tax (benefit) expense
|
(137
|
)
|
|
—
|
|
|
(137
|
)
|
|
(120
|
)
|
|
—
|
|
|
(120
|
)
|
|
Net loss
|
$
|
(122,084
|
)
|
|
$
|
(316
|
)
|
|
$
|
(122,400
|
)
|
|
$
|
(120,827
|
)
|
|
$
|
(342
|
)
|
|
$
|
(121,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
$
|
(3.54
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(3.55
|
)
|
|
$
|
(3.57
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(3.58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Three Months Ended December 31, 2019
|
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
Product sales, net
|
$
|
84,107
|
|
|
$
|
(323
|
)
|
|
$
|
83,784
|
|
|
$
|
73,378
|
|
|
$
|
(224
|
)
|
|
$
|
73,154
|
|
|
Total revenues
|
84,131
|
|
|
(323
|
)
|
|
83,808
|
|
|
89,707
|
|
|
(224
|
)
|
|
89,483
|
|
|
Income tax (benefit) expense
|
232
|
|
|
—
|
|
|
232
|
|
|
(21
|
)
|
|
—
|
|
|
(21
|
)
|
|
Net loss
|
$
|
(23,617
|
)
|
|
$
|
(323
|
)
|
|
$
|
(23,940
|
)
|
|
$
|
(199,928
|
)
|
|
$
|
(224
|
)
|
|
$
|
(200,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
$
|
(0.70
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(5.89
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(5.90
|
)
|
The following tables present the effect of the revisions to our unaudited condensed consolidated statements of operations for the three months ended March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018 to correct for immaterial errors in prior periods as further described in Note X, “Revision of Prior Period Financial Statements” (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Three Months Ended June 30, 2018
|
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
Product sales, net
|
$
|
117,348
|
|
|
$
|
(520
|
)
|
|
$
|
116,828
|
|
|
$
|
146,219
|
|
|
$
|
(591
|
)
|
|
$
|
145,628
|
|
|
Total revenues
|
117,387
|
|
|
(520
|
)
|
|
116,867
|
|
|
146,254
|
|
|
(591
|
)
|
|
145,663
|
|
|
Income tax (benefit) expense
|
(8,000
|
)
|
|
376
|
|
|
(7,624
|
)
|
|
52,556
|
|
|
387
|
|
|
52,943
|
|
|
Net loss
|
$
|
(54,242
|
)
|
|
$
|
(896
|
)
|
|
$
|
(55,138
|
)
|
|
$
|
(20,081
|
)
|
|
$
|
(978
|
)
|
|
$
|
(21,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
$
|
(1.59
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(1.61
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Three Months Ended December 31, 2018
|
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
Product sales, net
|
$
|
122,238
|
|
|
$
|
(592
|
)
|
|
$
|
121,646
|
|
|
$
|
88,047
|
|
|
$
|
(251
|
)
|
|
$
|
87,796
|
|
|
Total revenues
|
122,238
|
|
|
(592
|
)
|
|
121,646
|
|
|
88,122
|
|
|
(251
|
)
|
|
87,871
|
|
|
Income tax (benefit) expense
|
(2,352
|
)
|
|
12
|
|
|
(2,340
|
)
|
|
(2,550
|
)
|
|
7
|
|
|
(2,543
|
)
|
|
Net loss
|
$
|
30,839
|
|
|
$
|
(604
|
)
|
|
$
|
30,235
|
|
|
$
|
(22,277
|
)
|
|
$
|
(258
|
)
|
|
$
|
(22,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
$
|
0.89
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.88
|
|
|
$
|
(0.64
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.65
|
)
|
|
|
|
|
U.
|
VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
Additions (2)
|
|
Deductions Charged to Reserves
|
|
Balance at End of Period
|
|
Year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
Accounts receivable allowances(1)
|
$
|
9,543
|
|
|
$
|
324,542
|
|
|
$
|
(310,668
|
)
|
|
$
|
23,417
|
|
|
Rebates, fees and returns reserves(2)
|
$
|
81,868
|
|
|
$
|
321,210
|
|
|
$
|
(283,653
|
)
|
|
$
|
119,425
|
|
|
Valuation allowance for deferred tax assets (3)
|
$
|
114,516
|
|
|
$
|
104,858
|
|
|
$
|
(1,083
|
)
|
|
$
|
218,291
|
|
|
Year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
Accounts receivable allowances(1)
|
$
|
12,060
|
|
|
$
|
229,509
|
|
|
$
|
(232,026
|
)
|
|
$
|
9,543
|
|
|
Rebates, fees and returns reserves(2)
|
$
|
103,846
|
|
|
$
|
272,913
|
|
|
$
|
(294,891
|
)
|
|
$
|
81,868
|
|
|
Valuation allowance for deferred tax assets (3)
|
$
|
4,740
|
|
|
$
|
109,800
|
|
|
$
|
(24
|
)
|
|
$
|
114,516
|
|
|
Year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
Accounts receivable allowances(1)
|
$
|
9,533
|
|
|
$
|
168,945
|
|
|
$
|
(166,418
|
)
|
|
$
|
12,060
|
|
|
Rebates, fees and returns reserves(2)
|
$
|
90,809
|
|
|
$
|
257,273
|
|
|
$
|
(244,236
|
)
|
|
$
|
103,846
|
|
|
Valuation allowance for deferred tax assets (3)
|
$
|
1,429
|
|
|
$
|
3,875
|
|
|
$
|
(564
|
)
|
|
$
|
4,740
|
|
________________________
|
|
|
|
(1)
|
Accounts receivable allowances represent discounts and other chargebacks related to the provision of our product sales.
|
|
|
|
|
(2)
|
Additions to rebates, fees and returns reserves are recorded as a reduction of revenues.
|
|
|
|
|
(3)
|
As of December 31, 2019 and 2018, we have established a valuation allowance on our net deferred tax assets other than refundable AMT credits. At December 31, 2017, our valuation allowance related primarily to certain of our state NOL and credit carryforwards.
|
V. RECENTLY ISSUED AND PROPOSED ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by us as of the specified effective date.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. We adopted ASU 2016-13 effective January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements.
W. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASC 842”). This standard requires an entity to recognize on its balance sheet assets and liabilities associated with the rights and obligations created by leases with terms greater than twelve months. We adopted the standard effective January 1, 2019. We chose to apply the provisions of ASC 842 as of the effective date with no restatement of prior periods or cumulative adjustment to retained earnings. Upon adoption, we elected to utilize the package of transition practical expedients, which allowed us to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases. We also made accounting policy elections to not separate lease and non-lease components for our real estate lease and to not recognize leases with an initial term of twelve months or less within our condensed consolidated balance sheets and to recognize those lease payments on a straight-line basis on our condensed consolidated statements of income over the lease term.
In preparation for adoption of the standard, we implemented internal controls to enable the preparation of the related financial information. The adoption of this standard resulted in the recognition of operating lease liabilities of $8.5 million and related ROU assets of $7.6 million on our condensed consolidated balance sheets as of January 1, 2019, but did not have an impact on our consolidated statements of operations.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”). This standard clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In
addition, ASU 2018-18 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. We adopted ASU 2018-18 during the first quarter of 2019 and applied the provisions of this update retrospectively to all contracts that were not completed as of the date of our initial adoption of ASC 606. The adoption of ASU 2018-18 did not have a material impact on our financial position or results of operations.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The new standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. We adopted ASU 2016-09 during the first quarter of 2017 and will now record all excess tax benefits and deficiencies related to share-based compensation in our condensed consolidated statements of operations as discrete events in the interim reporting period in which the benefit or deficiency occurs. Such benefits and deficiencies will not be considered in the calculation of our annual estimated effective tax rate. Any excess tax benefits that were not previously recognized because the related tax deduction had not reduced current taxes payable (i.e. was not realized) are to be recorded using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the new guidance is adopted. We recorded a cumulative-effect adjustment to our accumulated deficit from previously unrecognized excess tax benefits of $21.6 million during the first quarter of 2017. Lastly, we will continue to use the current method of estimated forfeitures each period rather than accounting for forfeitures as they occur.
X. REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS
Subsequent to the issuance of our Form 10-K for the year ended December 31, 2019, management identified certain individually immaterial errors aggregating to $6.3 million related to governmental rebate accruals associated with Makena sales from 2016 through 2019.
From 2016 through 2019, we understated our GTN adjustments for governmental rebates and the related accrual for a certain state program. We concluded that the errors were not material to any prior annual or interim period; however, we determined that correcting the aggregate error would be material to the three and six months ended June 30, 2020. As a result, we have revised our historical financial statements to properly reflect GTN adjustments and the related accrual in the appropriate periods.
The effect of the corrections to our consolidated balance sheet for the years ended December 31, 2019 and 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
As reported
|
|
Adjustment
|
|
As adjusted
|
|
Accrued expenses
|
177,079
|
|
|
6,303
|
|
|
183,382
|
|
|
Accumulated deficit
|
$
|
(1,008,898
|
)
|
|
$
|
(6,303
|
)
|
|
$
|
(1,015,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
As reported
|
|
Adjustment
|
|
As adjusted
|
|
Accrued expenses
|
129,537
|
|
|
5,098
|
|
|
134,635
|
|
|
Accumulated deficit
|
$
|
(542,442
|
)
|
|
$
|
(5,098
|
)
|
|
$
|
(547,540
|
)
|
The effect of the corrections to our consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
As reported
|
|
Adjustment
|
|
As adjusted
|
|
Product sales, net
|
$
|
311,190
|
|
|
$
|
(1,205
|
)
|
|
$
|
309,985
|
|
|
Total revenues
|
327,751
|
|
|
(1,205
|
)
|
|
326,546
|
|
|
Income tax (benefit) expense
|
(47
|
)
|
|
—
|
|
|
(47
|
)
|
|
Net loss from continuing operations
|
(466,456
|
)
|
|
(1,205
|
)
|
|
(467,661
|
)
|
|
Net loss
|
$
|
(466,456
|
)
|
|
$
|
(1,205
|
)
|
|
$
|
(467,661
|
)
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
$
|
(13.71
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(13.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
As reported
|
|
Adjustment
|
|
As adjusted
|
|
Product sales, net
|
$
|
473,852
|
|
|
$
|
(1,954
|
)
|
|
$
|
471,898
|
|
|
Total revenues
|
474,002
|
|
|
(1,954
|
)
|
|
472,048
|
|
|
Income tax (benefit) expense
|
39,654
|
|
|
782
|
|
|
40,436
|
|
|
Net loss from continuing operations
|
(169,339
|
)
|
|
(2,736
|
)
|
|
(172,075
|
)
|
|
Net loss
|
$
|
(65,761
|
)
|
|
$
|
(2,736
|
)
|
|
$
|
(68,497
|
)
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
$
|
(1.91
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
As reported
|
|
Adjustment
|
|
As adjusted
|
|
Product sales, net
|
$
|
495,645
|
|
|
$
|
(1,802
|
)
|
|
$
|
493,843
|
|
|
Total revenues
|
495,769
|
|
|
(1,802
|
)
|
|
493,967
|
|
|
Income tax (benefit) expense
|
(175,254
|
)
|
|
(267
|
)
|
|
(175,521
|
)
|
|
Net loss from continuing operations
|
(205,153
|
)
|
|
(1,535
|
)
|
|
(206,688
|
)
|
|
Net loss
|
$
|
(199,228
|
)
|
|
$
|
(1,535
|
)
|
|
$
|
(200,763
|
)
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
$
|
(5.71
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(5.75
|
)
|
The consolidated statements of other comprehensive loss for the years ended December 31, 2019, 2018 and 2017 have been revised to include the changes to “net loss” summarized above.
The consolidated statements of stockholders’ equity for the years ended December 31, 2019, 2018 and 2017 have been revised to include the changes to “net loss” summarized above as well as an increase of $0.8 million to the beginning “accumulated deficit” as of January 1, 2017, representing the accumulated error through that date.
The impact on our consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017, was limited to the offsetting corrections between “net loss” and changes in “accounts payable and accrued expenses” and “deferred income taxes” presented within “net cash used in operating activities” in each year, as summarized in the above tables.
Y. SUBSEQUENT EVENTS (unaudited)
In connection with the amendment of our financial statements, we have evaluated subsequent events through the date the financial statements were available to be reissued.
May 2020 Restructuring
In May 2020, we completed a restructuring to reduce the size of our organization in conjunction with the planned divestiture of Intrarosa and Vyleesi and expected declines in our revenue due to the COVID-19 pandemic. Approximately 110 employees were displaced through this workforce reduction. We recorded a one-time restructuring charge of $8.2 million primarily related to severance and related benefits on our condensed consolidated statement of operations during the second quarter of 2020 and expect the restructuring charges incurred to date under this program to be substantially paid in cash by the end of the second quarter of 2021.
Sale of Intrarosa
On May 21, 2020, we sold our rights to commercialize and have manufactured Intrarosa in the United States to Millicent Pharma Limited (“Millicent”) pursuant to an Asset Purchase Agreement between the Company and Millicent, dated May 21, 2020. Under the terms of the Asset Purchase Agreement, we received an upfront payment of $20.9 million in cash, subject to customary purchase price adjustments, including in connection with the transfer of certain inventory. We are eligible to receive up to $105.0 million in aggregate milestone payments upon the achievement of certain sales milestones, namely: (a) $25.0 million the first time net sales during any consecutive twelve month period exceeds $65.0 million, (b) $35.0 million the first time net sales during any consecutive twelve month period exceeds $115.0 million and (c) $45.0 million the first time net sales during any consecutive twelve month period exceeds $175.0 million. We recognized a Gain on Sale of Assets of $14.4 million on our condensed consolidated statements of operations for the three and six months ended June 30, 2020 related to this transaction.
Cessation of the AMAG-423 Study
In July 2020, we decided to stop the AMAG-423 Phase 2b/3a study. This decision was based primarily on the independent Data Safety Monitoring Board’s (the “DSMB”) unanimous recommendation to stop the study following an interim analysis of the data collected to date in the study, which analysis we asked the DSMB to conduct due to extended and ongoing delays in enrollment of the trial (based primarily on the effect of COVID-19 on clinical trial research and the nature of the patient population). There were no safety concerns raised during this study and safety was not a contributing factor to our decision to terminate the study. We are currently focused on ensuring an appropriate closeout of the study in partnership with investigators and other relevant stakeholders. In connection with the cessation of the AMAG-423 Phase 2b/3a study, on August 6, 2020, we terminated our supply agreement (including termination of significant minimum purchase obligations) with our third party supplier in exchange for a one-time payment by us of $12.5 million and our grant to our third party supplier of a 9-month option (subject to extension under certain situations) to acquire the AMAG-423 program rights and assume our related obligations, including our obligations under the Velo Option Agreement.
License to Develop and Commercialize ciraparantag in Europe, Australia and New Zealand
In July 2020, we entered into a License and Commercialization Agreement with Norgine B.V. (“Norgine”, and such agreement, the “Norgine Agreement”), pursuant to which we granted Norgine an exclusive license to develop and commercialize ciraparantag in certain countries in Europe, Australia and New Zealand. We received a $30.0 million upfront payment upon signing. In addition, pursuant to the terms and conditions of the Norgine Agreement (a) Norgine will pay us one-
third of the actual and reasonable out-of-pocket costs of the Phase 3 program, pursuant to a mutually agreed upon budget, (b) we are eligible to receive up to $70.0 million upon the achievement of certain regulatory milestones (of which we will pay $40.0 million to the former equity holders of Perosphere pursuant to the terms of the Perosphere Agreement), (c) we are eligible to receive up to $190.0 million contingent upon meeting certain sales milestones, and (d) Norgine will pay us tiered double-digit royalties on net sales in the licensed territory. We will be responsible for manufacturing and supplying Norgine with its requirements of clinical and commercial product pursuant to supply agreement(s) to be entered into by the parties.
Settlement
On July 14, 2020, we entered into a Confidential Settlement Agreement and Release with a third-party manufacturer to resolve outstanding disputes. Pursuant to this agreement, we were paid a sum of $17.4 million, and the parties exchanged mutual releases to resolve all disputes between them.
Termination of the Palatin Agreement
In July 2020, we entered into a termination agreement with Palatin detailing the terms and conditions for the termination of our rights and obligations to develop and commercialize Vyleesi under the Palatin License Agreement and for the transfer of full ownership of Vyleesi to Palatin (the “Termination Agreement”). In accordance with the terms of the Termination Agreement, we transferred and assigned to Palatin the regulatory approval for Vyleesi, inventory, certain third party contracts, intellectual property rights and regulatory files and commercial materials of AMAG related to Vyleesi in the AMAG Territory. In consideration for the early termination of the License Agreement, the assumption of certain liabilities by Palatin (including significant minimum purchase obligations), and in lieu of any future milestone payments, royalties and other payments by AMAG to Palatin contemplated by the Palatin License Agreement, we paid Palatin $12.0 million following the termination, and we will pay an additional $4.3 million on March 31, 2021. In addition, we agreed to provide certain transitional services to Palatin for a period of time following the closing pursuant to a transition services agreement.