See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Nature of Business and Basis of Presentation
|
Insys Therapeutics, Inc., which was incorporated in Delaware in June 1990, and our subsidiaries (collectively, we,
us, and our) maintain headquarters in Chandler, Arizona.
We are a commercial-stage specialty
pharmaceutical company that develops and commercializes innovative supportive care products. We have one marketed product: Subsys, a proprietary sublingual fentanyl spray for BTCP in opioid-tolerant adult patients.
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S.
GAAP, pursuant to rules and regulations of the SEC. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial
statements include normal recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with our audited
consolidated financial statements and notes thereto for the fiscal year ended December 31, 2015 included in our Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2016 and 2015 are not
necessarily indicative of results to be expected for the full fiscal year or any other periods.
The preparation of the
condensed consolidated financial statements in conformity with U.S. GAAP requires management to make a number of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition (which is affected by prescriptions dispensed, wholesaler discounts, patient discount programs, rebates and
chargebacks), inventories, stock-based compensation expense, and deferred tax valuation allowances. We base our estimates on historical experience and on various other assumptions that are believed by management to be reasonable under the
circumstances. Actual results may materially differ from these estimates.
Certain prior period amounts have been
reclassified to conform with current period presentation.
All significant intercompany balances and transactions have
been eliminated in the accompanying unaudited condensed consolidated financial statements.
Restatement of Financial Statements
We are filing this Amendment No. 1 to our Quarterly Report on Form 10-Q (the Amended Form 10-Q) to restate and
amend our previously issued, unaudited condensed consolidated financial statements and related financial information as of September 30, 2016 and 2015 and for the quarters ended September 30, 2016 and 2015, which was originally filed with
the U.S. Securities and Exchange Commission on November 3, 2016 (the Original Form 10-Q).
The restatement
is the result of a misapplication of the accounting guidance in Accounting Standards Codification (ASC) No. 605, Revenue Recognition related to accounting for rebate obligations on government payer and managed care
contracts. We reversed the out-of-period adjustment previously recorded during the three months ended September 30, 2016 related to rebate obligation on government payer and managed care contracts that related to prior periods. We also reversed
an out-of-period adjustment related to a stock option modification previously recorded during the three months ended March 31, 2016 that related to the fourth quarter of 2015. This resulted in a decrease in operating expenses of $1,500,000 for the
nine months ended September 30, 2016 and a corresponding increase in operating expenses during the three months ended December 31, 2015. We also reversed an out-of-period adjustment of $834,000 recorded during the three months ended December
31, 2016 that related to the deductible interest portion of an accrued litigation award recognized during the three months ended June 30, 2015. This resulted in an increase in income tax expense of $834,000 for the three months ended December 31,
2016 and a corresponding decrease in income tax expense for the nine months ended September 30, 2015. We assessed the impact of these errors on our prior unaudited condensed consolidated financial statements and concluded that the impact was
material to these unaudited condensed consolidated financial statements. In order to correctly present net revenue, operating expenses and income tax expense in the appropriate period during 2016 and 2015, we have restated the unaudited condensed
consolidated financial information included herein.
We also reclassified certain prior period amounts to conform with
current period presentation.
5
Effects of Restatement on Previously Filed September 30, 2016 Form 10-Q
The effect of the restatement on the previously filed unaudited condensed consolidated balance sheets as of September 30,
2016 and 2015 is as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
|
|
As
Reported
|
|
|
Reclassification
Adjustments
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Reclassification
Adjustments
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
Accounts receivable, net
|
|
$
|
33,911
|
|
|
$
|
(350
|
)
|
|
$
|
|
|
|
$
|
33,561
|
|
|
$
|
30,475
|
|
|
$
|
(38
|
)
|
|
$
|
|
|
|
$
|
30,437
|
|
Prepaid expenses and other current assets
|
|
|
3,684
|
|
|
|
1,261
|
|
|
|
(309
|
)
|
|
|
4,636
|
|
|
|
5,842
|
|
|
|
|
|
|
|
|
|
|
|
5,842
|
|
Deferred income tax assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,472
|
|
|
|
(5,472
|
)
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
235,228
|
|
|
|
911
|
|
|
|
(309
|
)
|
|
|
235,830
|
|
|
|
236,633
|
|
|
|
(5,510
|
)
|
|
|
|
|
|
|
231,123
|
|
Deferred income tax assets, net
|
|
|
21,609
|
|
|
|
|
|
|
|
2,492
|
|
|
|
24,101
|
|
|
|
8,822
|
|
|
|
5,472
|
|
|
|
971
|
|
|
|
15,265
|
|
Total assets
|
|
|
353,133
|
|
|
|
911
|
|
|
|
2,183
|
|
|
|
356,227
|
|
|
|
314,077
|
|
|
|
(38
|
)
|
|
|
971
|
|
|
|
315,010
|
|
Accounts payable and accrued expenses
|
|
|
17,513
|
|
|
|
1,261
|
|
|
|
|
|
|
|
18,774
|
|
|
|
24,196
|
|
|
|
|
|
|
|
(1,751
|
)
|
|
|
22,445
|
|
Accrued sales allowances
|
|
|
41,854
|
|
|
|
(350
|
)
|
|
|
355
|
|
|
|
41,859
|
|
|
|
25,607
|
|
|
|
(38
|
)
|
|
|
6,286
|
|
|
|
31,855
|
|
Total current liabilities
|
|
|
76,631
|
|
|
|
911
|
|
|
|
355
|
|
|
|
77,897
|
|
|
|
69,559
|
|
|
|
(38
|
)
|
|
|
4,535
|
|
|
|
74,056
|
|
Uncertain income tax position
|
|
|
7,699
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
7,608
|
|
|
|
7,913
|
|
|
|
|
|
|
|
(82
|
)
|
|
|
7,831
|
|
Total liabilities
|
|
|
84,330
|
|
|
|
911
|
|
|
|
264
|
|
|
|
85,505
|
|
|
|
77,472
|
|
|
|
(38
|
)
|
|
|
4,453
|
|
|
|
81,887
|
|
Additional paid in capital
|
|
|
253,781
|
|
|
|
|
|
|
|
2
|
|
|
|
253,783
|
|
|
|
245,463
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
245,459
|
|
Retained earnings (accumulated deficit)
|
|
|
14,399
|
|
|
|
|
|
|
|
1,917
|
|
|
|
16,316
|
|
|
|
(9,590
|
)
|
|
|
|
|
|
|
(3,478
|
)
|
|
|
(13,068
|
)
|
Total stockholders equity
|
|
|
268,803
|
|
|
|
|
|
|
|
1,919
|
|
|
|
270,722
|
|
|
|
236,605
|
|
|
|
|
|
|
|
(3,482
|
)
|
|
|
233,123
|
|
Total liabilities and stockholders equity
|
|
$
|
353,133
|
|
|
$
|
911
|
|
|
$
|
2,183
|
|
|
$
|
356,227
|
|
|
$
|
314,077
|
|
|
$
|
(38
|
)
|
|
$
|
971
|
|
|
$
|
315,010
|
|
6
The effect of the restatement on the previously filed unaudited condensed
consolidated statements of income and comprehensive income for the three months ended September 30, 2016 and 2015 is as follows, in thousands (except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
Three Months Ended September 30, 2015
|
|
|
|
As
Reported
|
|
|
Reclassification
Adjustments
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Reclassification
Adjustments
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
Net revenue
|
|
$
|
55,180
|
|
|
$
|
|
|
|
$
|
2,593
|
|
|
$
|
57,773
|
|
|
$
|
91,259
|
|
|
$
|
|
|
|
$
|
(2,742
|
)
|
|
$
|
88,517
|
|
Gross profit
|
|
|
50,503
|
|
|
|
|
|
|
|
2,593
|
|
|
|
53,096
|
|
|
|
83,552
|
|
|
|
|
|
|
|
(2,742
|
)
|
|
|
80,810
|
|
General and administrative
|
|
|
17,653
|
|
|
|
|
|
|
|
|
|
|
|
17,653
|
|
|
|
13,681
|
|
|
|
(1,101
|
)
|
|
|
|
|
|
|
12,580
|
|
Charges related to litigation award and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(789
|
)
|
|
|
1,101
|
|
|
|
|
|
|
|
312
|
|
Operating income (loss)
|
|
|
(328
|
)
|
|
|
|
|
|
|
2,593
|
|
|
|
2,265
|
|
|
|
39,121
|
|
|
|
|
|
|
|
(2,742
|
)
|
|
|
36,379
|
|
Income (loss) before income taxes
|
|
|
(47
|
)
|
|
|
|
|
|
|
2,593
|
|
|
|
2,546
|
|
|
|
39,212
|
|
|
|
|
|
|
|
(2,742
|
)
|
|
|
36,470
|
|
Less: income tax expense (benefit)
|
|
|
(237
|
)
|
|
|
|
|
|
|
(142
|
)
|
|
|
(379
|
)
|
|
|
13,084
|
|
|
|
|
|
|
|
(1,244
|
)
|
|
|
11,840
|
|
Net income
|
|
|
190
|
|
|
|
|
|
|
|
2,735
|
|
|
|
2,925
|
|
|
|
26,128
|
|
|
|
|
|
|
|
(1,498
|
)
|
|
|
24,630
|
|
Total comprehensive income
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
2,735
|
|
|
$
|
2,767
|
|
|
$
|
26,178
|
|
|
$
|
|
|
|
$
|
(1,498
|
)
|
|
$
|
24,680
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.36
|
|
|
$
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.34
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.34
|
|
|
$
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.32
|
|
The effect of the restatement on the previously filed unaudited condensed consolidated
statements of income and comprehensive income for the nine months ended September 30, 2016 and 2015 is as follows, in thousands (except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
Nine Months Ended September 30, 2015
|
|
|
|
As
Reported
|
|
|
Reclassification
Adjustments
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Reclassification
Adjustments
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
Net revenue
|
|
$
|
184,263
|
|
|
$
|
|
|
|
$
|
3,152
|
|
|
$
|
187,415
|
|
|
$
|
239,663
|
|
|
$
|
|
|
|
$
|
(3,253
|
)
|
|
$
|
236,410
|
|
Gross profit
|
|
|
168,675
|
|
|
|
|
|
|
|
3,152
|
|
|
|
171,827
|
|
|
|
217,276
|
|
|
|
|
|
|
|
(3,253
|
)
|
|
|
214,023
|
|
Research and development expenses
|
|
|
59,940
|
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
58,440
|
|
|
|
40,720
|
|
|
|
|
|
|
|
|
|
|
|
40,720
|
|
General and administrative
|
|
|
46,275
|
|
|
|
|
|
|
|
|
|
|
|
46,275
|
|
|
|
42,212
|
|
|
|
(1,101
|
)
|
|
|
|
|
|
|
41,111
|
|
Charges related to litigation award and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,515
|
|
|
|
1,101
|
|
|
|
|
|
|
|
10,616
|
|
Total operating expenses
|
|
|
162,368
|
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
160,868
|
|
|
|
154,566
|
|
|
|
|
|
|
|
|
|
|
|
154,566
|
|
Operating income (loss)
|
|
|
6,307
|
|
|
|
|
|
|
|
4,652
|
|
|
|
10,959
|
|
|
|
62,710
|
|
|
|
|
|
|
|
(3,253
|
)
|
|
|
59,457
|
|
Income (loss) before income taxes
|
|
|
7,113
|
|
|
|
|
|
|
|
4,652
|
|
|
|
11,765
|
|
|
|
63,062
|
|
|
|
|
|
|
|
(3,253
|
)
|
|
|
59,809
|
|
Less: income tax expense (benefit)
|
|
|
134
|
|
|
|
|
|
|
|
389
|
|
|
|
523
|
|
|
|
21,596
|
|
|
|
|
|
|
|
(1,698
|
)
|
|
|
19,898
|
|
Net income
|
|
|
6,979
|
|
|
|
|
|
|
|
4,263
|
|
|
|
11,242
|
|
|
|
41,466
|
|
|
|
|
|
|
|
(1,555
|
)
|
|
|
39,911
|
|
Total comprehensive income
|
|
$
|
7,057
|
|
|
$
|
|
|
|
$
|
4,263
|
|
|
$
|
11,320
|
|
|
$
|
41,523
|
|
|
$
|
|
|
|
$
|
(1,555
|
)
|
|
$
|
39,968
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
|
|
|
$
|
0.06
|
|
|
$
|
0.16
|
|
|
$
|
0.58
|
|
|
$
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.56
|
|
Diluted
|
|
$
|
0.09
|
|
|
$
|
|
|
|
$
|
0.06
|
|
|
$
|
0.15
|
|
|
$
|
0.55
|
|
|
$
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.53
|
|
7
The effect of the restatement on the previously filed condensed consolidated
statements of cash flows for the nine months ended September 30, 2016 and 2015 is as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
Nine Months Ended September 30, 2015
|
|
|
|
As
Reported
|
|
|
Reclassification
Adjustments
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Reclassification
Adjustments
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
Net income
|
|
$
|
6,979
|
|
|
$
|
|
|
|
$
|
4,263
|
|
|
$
|
11,242
|
|
|
$
|
41,466
|
|
|
$
|
|
|
|
$
|
(1,555
|
)
|
|
$
|
39,911
|
|
Stock-based compensation
|
|
|
18,971
|
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
17,471
|
|
|
|
12,267
|
|
|
|
|
|
|
|
|
|
|
|
12,267
|
|
Deferred income tax benefit, net
|
|
|
(5,278
|
)
|
|
|
|
|
|
|
(1,216
|
)
|
|
|
(6,494
|
)
|
|
|
(2,082
|
)
|
|
|
1
|
|
|
|
(491
|
)
|
|
|
(2,572
|
)
|
Excess tax benefits on stock options and awards
|
|
|
(122
|
)
|
|
|
|
|
|
|
(553
|
)
|
|
|
(675
|
)
|
|
|
(8,307
|
)
|
|
|
|
|
|
|
(550
|
)
|
|
|
(8,857
|
)
|
Change in accounts receivable
|
|
|
14,548
|
|
|
|
(837
|
)
|
|
|
|
|
|
|
13,711
|
|
|
|
(3,931
|
)
|
|
|
(3,004
|
)
|
|
|
|
|
|
|
(6,935
|
)
|
Change in inventories
|
|
|
6,253
|
|
|
|
|
|
|
|
|
|
|
|
6,253
|
|
|
|
(4,593
|
)
|
|
|
3,318
|
|
|
|
|
|
|
|
(1,275
|
)
|
Change in prepaid expenses and other current assets
|
|
|
291
|
|
|
|
(1,262
|
)
|
|
|
309
|
|
|
|
(662
|
)
|
|
|
(280
|
)
|
|
|
(278
|
)
|
|
|
34
|
|
|
|
(524
|
)
|
Change in accounts payable, accrued expenses and other current liabilities
|
|
|
(13,043
|
)
|
|
|
2,100
|
|
|
|
(1,856
|
)
|
|
|
(12,799
|
)
|
|
|
26,902
|
|
|
|
(37
|
)
|
|
|
2,012
|
|
|
|
28,877
|
|
Net cash provided by operating activities
|
|
|
34,725
|
|
|
|
1
|
|
|
|
(553
|
)
|
|
|
34,173
|
|
|
|
75,589
|
|
|
|
|
|
|
|
(550
|
)
|
|
|
75,039
|
|
Proceeds from sales of investments
|
|
|
7,147
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
7,146
|
|
|
|
11,595
|
|
|
|
|
|
|
|
|
|
|
|
11,595
|
|
Net cash used in investing activities
|
|
|
(9,784
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(9,785
|
)
|
|
|
(56,863
|
)
|
|
|
|
|
|
|
|
|
|
|
(56,863
|
)
|
Excess tax benefits on stock options and awards
|
|
|
122
|
|
|
|
|
|
|
|
553
|
|
|
|
675
|
|
|
|
8,307
|
|
|
|
|
|
|
|
550
|
|
|
|
8,857
|
|
Net cash provided by (used in) financing activities
|
|
$
|
(10,927
|
)
|
|
$
|
|
|
|
$
|
553
|
|
|
$
|
(10,374
|
)
|
|
$
|
17,148
|
|
|
$
|
|
|
|
$
|
550
|
|
|
$
|
17,698
|
|
8
Recent Accounting Pronouncements
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash flows (Topic 230): Measurement of Credit Losses on
Financial Instruments. The amendments affect entities required to present a statement of cash flows and provides specific guidance on a variety of cash flow issues to reduce current and potential future diversity in practice. The amendments are
effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments should be applied using a
retrospective transition method to each period presented. We are currently evaluating the impact of these amendments on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income, and are effective for fiscal years beginning after December 15,
2019, including interim periods within those fiscal years. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the timelier recognition of
losses. We are currently evaluating the impact of these amendments on our financial statements.
In March 2016, the FASB
issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to reduce complexity in accounting standards involving several aspects of the accounting for employee share-based
payment transactions, including (1) the income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. The amendments will be effective for financial
statements issued for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and early adoption is permitted.
9
Amendments related to the timing of when excess tax benefits are recognized,
minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition, amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer
withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively, amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating
expected term should be applied prospectively, and amendments related to the presentation of excess tax benefits on the statement of cash flows can be applied using either a prospective transition method or a retrospective transition method. An
entity that elects early adoption must adopt all of the amendments in the same period. We are currently evaluating the impact of these amendments on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases: (Topic 842), to provide guidance on recognizing lease
assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases. The core principle of Topic 842 is that a lessee should recognize the assets
and liabilities that arise from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP guidance. There continues to be a
differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the balance sheet. The
accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP guidance. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years,
and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes
a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced
before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account
for leases that commence before the effective date in accordance with previous U.S. GAAP guidance unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each
reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous U.S. GAAP guidance. We are currently evaluating the impact of these amendments on our financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities, which amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial
instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is not permitted. These amendments should be applied by means of a
cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied
prospectively to equity investments that exist as of the date of adoption. We are currently evaluating the impact of these amendments on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Subtopic 606). The new standard aims
to achieve a consistent application of revenue recognition within the United States, resulting in a single revenue model to be applied by reporting companies under U.S. GAAP. Under the new model, recognition of revenue occurs when a customer obtains
control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the
nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is required to be applied either retrospectively to each prior reporting period presented or retrospectively with the
cumulative effect of initially applying it recognized at the date of initial application. In March 2016 and April 2016, the FASB issued ASU No. 2016-08 and ASU No. 2016-10, respectively, which further clarified the implementation guidance
on principal versus agent considerations contained in ASU No. 2014-09 and the identification of performance obligations and licensing, respectively. In May 2016, the FASB issued ASU 2016-12, narrow-scope improvements and practical expedients
which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transition. These standards will be effective for annual periods beginning
after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect
certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is permitted, but
not before December 15, 2016, the original effective date of the standard. We are currently evaluating the impact of these amendments on our financial statements and have not yet selected a transition method.
10
In July 2015, the FASB issued guidance that requires entities to measure most
inventory at the lower of cost and NRV, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. Under the new guidance, inventory is measured at the lower of cost and NRV, which
eliminates the need to determine replacement cost and evaluate whether it is above the ceiling (NRV) or below the floor (NRV less a normal profit margin). The guidance defines NRV as the estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. We are
currently evaluating the impact of adoption of this guidance on our financial position and results of operations.
We recognize revenue from the sale of Subsys. Revenue is recognized when (i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.
Subsys was commercially launched in March 2012 and is monitored by an FDA mandated REMS program known as the TIRF REMS. We
sell Subsys in the United States to wholesale pharmaceutical distributors and directly to retail pharmacies, collectively our customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following,
product expiration. Subsys currently has a shelf life of 36 months from the date of manufacture. We record revenue for Subsys at the time the customer receives the shipment.
We recognize estimated product sales allowances as a reduction of product sales in the same period the related revenue is
recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with customers and third-party payors and the levels of inventory within the
distribution channels that may result in future discounts taken. In certain cases, such as patient assistance programs, we recognize the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results
vary, we may need to adjust these estimates, which could have an effect on product revenue in the period of adjustment. Our product sales allowances include:
Product Returns.
We allow customers to return product for credit beginning six months prior to, and ending
12 months following, the product expiration date. The shelf life of Subsys is currently 36 months from the date of manufacture. We have monitored actual return history since product launch, which provides us with a basis to reasonably
estimate future product returns, taking into consideration the shelf life of product at the time of shipment, shipment and prescription trends, estimated distribution channel inventory levels, and consideration of the introduction of competitive
products.
Because of the shelf life of our products and our return policy of issuing credits on returned product that is
within six months before and up to 12 months after the product expiration date, there may be a significant period of time between when the product is shipped and when we issue credits on returned product. Accordingly, we may have to adjust
these estimates, which could have an effect on product sales and earnings in the period of adjustment. The allowance for product returns is included in accrued sales allowances.
Wholesaler and Retailer Discounts.
We offer discounts to certain wholesale distributors and specialty retailers
based on contractually determined rates. We accrue the discount as a reduction of receivables due from the wholesalers and retailers upon shipment to the respective wholesale distributors and retail pharmacies.
Prompt Pay Discounts
. We offer cash discounts to our customers, generally 2% of the sales price, as an incentive
for prompt payment. We account for cash discounts by reducing accounts receivable by the full amount.
Patient Discount
Programs
. We offer discount card programs to patients for Subsys in which patients receive discounts on their prescriptions that are reimbursed to the retailer. We estimate the total amount that will be redeemed based on a percentage of
actual redemption applied to inventory in the distribution and retail channel. The allowance for patient discount programs is included in accrued sales allowances.
Rebates
. We participate in certain rebate programs, which provide discounted prescriptions to qualified insured
patients. Under these rebate programs, we pay a rebate to the third-party administrator of the program, generally two to three months after the quarter in which prescriptions subject to the rebate are filled. We estimate and accrue these rebates
based on current contract prices, historical and estimated future percentages of products sold to qualified patients and estimated levels of inventory in the distribution channel. The allowance for rebates is included in accrued sales
allowances.
11
Chargebacks.
We provide discounts primarily to authorized users of
the FSS of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs and various organizations under Medicaid contracts and regulations. These organizations purchase products from the wholesale
distributors at a discounted price, and the wholesale distributors then charge back to us the difference between the current retail price and the price the organization paid for the product. We estimate and accrue chargebacks based on estimated
wholesaler inventory levels, current contract prices and historical chargeback activity. Estimated chargebacks are recognized as a reduction of revenue in the same period the related revenue is recognized. The allowance for chargebacks is included
as a reduction to accounts receivable.
Accounts Receivable, Net.
Trade accounts receivable are recorded at
the invoice amount net of allowances for wholesaler discounts, prompt pay discounts, stocking allowances, and doubtful accounts. See Revenue Recognition above for a description of our wholesaler discounts, prompt pay discounts, stocking
allowances and chargebacks. In the ordinary course of business, and consistent with industry practices, we may from time to time offer extended payment terms to our customers as an incentive for new product launches or in other circumstances. These
extended payment terms do not represent a significant risk to the collectability of accounts receivable as of the period-end and are evaluated in accordance with
ASC 605 Revenue Recognition
as applicable. We evaluate the collectability
of our accounts receivable based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and historical experience. We write off accounts receivable against the allowance when a balance
is determined to be uncollectable.
3.
|
Short-Term and Long-Term Investments
|
Our policy for short-term and long-term investments is to establish a high-quality portfolio that preserves principal, meets
liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield in relationship to our investment guidelines and market conditions. Short-term and long-term investments consist of corporate and various government agency and
municipal debt securities, as well as certificates of deposit that have maturity dates that are greater than 90 days. Certificates of deposit are carried at cost which approximates fair value. We classify our marketable securities as
available-for-sale in accordance with FASB Accounting Standards Codification Topic 320,
Investments Debt and Equity Securities
. Available-for-sale securities are carried at fair value with unrealized gains and losses reported in
stockholders equity. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary, results in impairment of the fair value of the investment. We did not have any realized gains or losses
or decline in values judged to be other than temporary during the three and nine months ended September 30, 2016. If we had realized gains and losses and declines in value judged to be other than temporary, we would have been required to
include those changes in other income/expense in the condensed consolidated statements of income and comprehensive income. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security. The cost of
securities sold is calculated using the specific identification method. At September 30, 2016, our certificates of deposit as well as our marketable securities have been recorded at an estimated fair value of $2,100,000, $76,122,000 and
$47,524,000 in cash and cash equivalents, short-term and long-term investments, respectively.
Investments consisted of the
following at September 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Other-
Than-
Temporary
Impairment
Losses
|
|
|
Fair
Value
|
|
|
Cash and
Cash
Equivalents
|
|
|
Short-term
Investments
|
|
|
Long-term
Investments
|
|
Cash
|
|
$
|
59,874
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,874
|
|
|
$
|
59,874
|
|
|
$
|
|
|
|
$
|
|
|
Money market securities
|
|
|
31,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,555
|
|
|
|
31,555
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
24,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,792
|
|
|
|
|
|
|
|
12,261
|
|
|
|
12,531
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
|
36,874
|
|
|
|
4
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
36,833
|
|
|
|
|
|
|
|
24,654
|
|
|
|
12,179
|
|
Federal agency securities
|
|
|
25,519
|
|
|
|
2
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
25,502
|
|
|
|
1,600
|
|
|
|
11,153
|
|
|
|
12,749
|
|
Municipal securities
|
|
|
38,635
|
|
|
|
10
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
38,619
|
|
|
|
500
|
|
|
|
28,054
|
|
|
|
10,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
|
101,028
|
|
|
|
16
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
100,954
|
|
|
|
2,100
|
|
|
|
63,861
|
|
|
|
34,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
217,249
|
|
|
$
|
16
|
|
|
$
|
(90
|
)
|
|
$
|
|
|
|
$
|
217,175
|
|
|
$
|
93,529
|
|
|
$
|
76,122
|
|
|
$
|
47,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Investments consisted of the following at December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Other-
Than-
Temporary
Impairment
Losses
|
|
|
Fair
Value
|
|
|
Cash and
Cash
Equivalents
|
|
|
Short-term
Investments
|
|
|
Long-term
Investments
|
|
Cash
|
|
$
|
55,987
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
55,987
|
|
|
$
|
55,987
|
|
|
$
|
|
|
|
$
|
|
|
Money market securities
|
|
|
20,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,373
|
|
|
|
20,373
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
26,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,223
|
|
|
|
|
|
|
|
16,637
|
|
|
|
9,586
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
|
27,186
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
27,118
|
|
|
|
1,621
|
|
|
|
19,181
|
|
|
|
6,316
|
|
Federal agency securities
|
|
|
18,823
|
|
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
18,758
|
|
|
|
|
|
|
|
10,129
|
|
|
|
8,629
|
|
Municipal securities
|
|
|
53,870
|
|
|
|
16
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
53,851
|
|
|
|
1,534
|
|
|
|
33,629
|
|
|
|
18,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
|
99,879
|
|
|
|
16
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
99,727
|
|
|
|
3,155
|
|
|
|
62,939
|
|
|
|
33,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
202,462
|
|
|
$
|
16
|
|
|
$
|
(168
|
)
|
|
$
|
|
|
|
$
|
202,310
|
|
|
$
|
79,515
|
|
|
$
|
79,576
|
|
|
$
|
43,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of the marketable securities at September 30,
2016, by maturity, are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
65,991
|
|
|
$
|
65,961
|
|
|
$
|
66,148
|
|
|
$
|
66,094
|
|
Due after one year through 5 years
|
|
|
35,037
|
|
|
|
34,993
|
|
|
|
33,731
|
|
|
|
33,633
|
|
Due after 5 years through 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,028
|
|
|
$
|
100,954
|
|
|
$
|
99,879
|
|
|
$
|
99,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the gross unrealized losses and the fair value of our investments,
with unrealized losses that are not deemed to be other-than-temporarily impaired aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2016 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Less Than 12 Months
|
|
|
Greater Than 12
Months
|
|
|
Less Than 12 Months
|
|
|
Greater Than 12
Months
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
$
|
32,617
|
|
|
$
|
(45
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,137
|
|
|
$
|
(68
|
)
|
|
$
|
|
|
|
$
|
|
|
Federal agency securities
|
|
|
16,888
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
18,759
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
|
22,746
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
22,981
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,251
|
|
|
$
|
(90
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
66,877
|
|
|
$
|
(168
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016, we have concluded that all the unrealized losses on our
marketable securities are temporary in nature. Marketable securities are reviewed quarterly for possible other-than-temporary impairment. This review includes an analysis of the facts and circumstances of each individual investment such as the
severity of loss, the expectation for that securitys performance and the creditworthiness of the issuer. Additionally, we do not intend to sell, and it is not probable that we will be required to sell, any of the securities before the
recovery of their amortized cost basis.
13
4.
|
Fair Value Measurement
|
FASB ASC No. 820, Fair Value Measurement, defines fair value as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
|
|
Level 1:
|
|
Observable inputs such as quoted prices in active markets;
|
|
|
Level 2:
|
|
Inputs, other than the quoted prices in active markets, that are observable either directly or
indirectly; and
|
|
|
Level 3:
|
|
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own
assumptions.
|
At September 30, 2016, we held short-term and long-term investments, as discussed
in Note 3, that are required to be measured at fair value on a recurring basis. Our Level 2 assets consist of available-for-sale securities that are valued utilizing reports from third-party asset managers that hold our investments, showing
closing prices on the last business day of the period presented. These asset managers utilize an independent pricing source to obtain quotes for most fixed income securities, and utilize internal procedures to validate the prices obtained. In
addition, we use an independent third-party to perform price testing, comparing a sample of quoted prices listed in the asset managers reports to quotes listed through a public quotation service. Our Level 3 asset represents a long-term
corporate convertible promissory note and a warrant to purchase shares issued in connection with the convertible promissory note. The note is not listed on any security exchange. The fair value of the convertible promissory note and warrant
approximate their carrying values at September 30, 2016.
Our investments measured at fair value on a recurring basis
subject to the disclosure requirements of ASC 820 at September 30, 2016 and December 31, 2015 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date
|
|
|
|
September 30,
2016
|
|
|
Quoted
Prices in
active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
$
|
36,833
|
|
|
$
|
|
|
|
$
|
36,333
|
|
|
$
|
500
|
|
Federal agency securities
|
|
|
25,502
|
|
|
|
|
|
|
|
25,502
|
|
|
|
|
|
Municipal securities
|
|
|
38,619
|
|
|
|
|
|
|
|
38,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
100,954
|
|
|
$
|
|
|
|
$
|
100,454
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date
|
|
|
|
December 31,
2015
|
|
|
Quoted
Prices in
active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
$
|
27,118
|
|
|
$
|
|
|
|
$
|
27,118
|
|
|
$
|
|
|
Federal agency securities
|
|
|
18,758
|
|
|
|
|
|
|
|
18,758
|
|
|
|
|
|
Municipal securities
|
|
|
53,851
|
|
|
|
|
|
|
|
53,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
99,727
|
|
|
$
|
|
|
|
$
|
99,727
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The following table presents additional information about assets measured at fair value on a
recurring basis and for which we utilize Level 3 inputs to determine fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Convertible note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
500
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Change in fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
500
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories are stated at lower of cost or market. Cost, which includes amounts related to materials and costs incurred by our
contract manufacturers, is determined on a first-in, first-out basis. Inventories are reviewed periodically for potential excess, dated or obsolete status. Management evaluates the carrying value of inventories on a regular basis, taking into
account such factors as historical and anticipated future sales compared to quantities on hand, the price we expect to obtain for products in their respective markets compared with historical cost and the remaining shelf life of goods on hand.
The components of inventories, net of allowances, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Finished goods
|
|
$
|
11,154
|
|
|
$
|
28,216
|
|
Work-in-process
|
|
|
8,784
|
|
|
|
7,018
|
|
Raw materials and supplies
|
|
|
8,044
|
|
|
|
6,481
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
27,982
|
|
|
|
41,715
|
|
Plus: non-current finished goods
|
|
|
7,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,462
|
|
|
$
|
41,715
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016 and December 31, 2015, raw materials inventories consisted
of raw materials used in the manufacture of the API in our U.S.-based, state-of-the-art dronabinol manufacturing facility and component parts and packaging materials used in the manufacture of Subsys. Work-in-process consists of actual production
costs, including facility overhead and tolling costs of in-process dronabinol and Subsys products. Finished goods inventories consisted of finished Subsys products. Non-current finished goods represent those inventories not expected to be sold
within 12 months of the balance sheet date and are included in other assets in our condensed consolidated unaudited balance sheets. As of September 30, 2016, all work-in-process inventory is expected to be used within 12 months of the balance
sheet date and, therefore, is classified as current inventory. We maintain an allowance for excess and obsolete inventory, as well as inventory where its cost is in excess of its net realizable value. Inventory at September 30, 2016 and
December 31, 2015 were reported net of these reserves of $3.3 million and $0.1 million, respectively.
6.
|
Commitments and Contingencies
|
Legal Matters
Other than
the matters that we have disclosed below, we from time to time become involved in various ordinary course legal and administrative proceedings, which include intellectual property, commercial, governmental and regulatory investigations, employee
related issues and private litigation, which we do not currently believe are either individually or collectively material.
As legal and governmental proceedings are inherently unpredictable and, in part, beyond our control, unless otherwise
indicated, we cannot currently reasonably predict the outcome of these legal proceedings, nor can we estimate the amount of loss, or range of loss, if any, that may result from these proceedings. A future adverse outcome in any of these
proceedings could have a material adverse effect on our business, financial condition, results of operations and cash flows, and could cause the market value of our common stock to decline.
15
Government Proceedings
Like other companies in the pharmaceutical industry, we are subject to extensive regulation by national, state and local
government agencies in the United States. As a result, interaction with government agencies occurs in the normal course of our operations. The following is a brief description of pending governmental investigations which we believe are
potentially material at this time. It is possible that criminal charges (and related penalties that might follow from successful criminal actions) and substantial payments, fines and/or civil penalties or damages could result from any government
investigation or proceeding, as well as a corporate integrity agreement or similar government mandated compliance document, whether we deem an investigation or proceeding to be material or not at this time.
Department of Health and Human Services Investigation.
We received a subpoena, dated December 9, 2013, from
the Office of Inspector General of the Department of Health and Human Services, or HHS, in connection with an investigation of potential violations involving HHS programs. The subpoena was issued in connection with an investigation by the U.S.
Attorneys Office for the Central District of California. The subpoena requests documents regarding our business, including the commercialization of Subsys. We are cooperating with this investigation and have produced documents in response to
the subpoena and have provided other requested information.
HIPAA Investigation.
On September 8, 2014,
we received a subpoena issued pursuant to HIPAA from the U.S. Attorneys Office for the District of Massachusetts. The subpoena requests documents regarding Subsys, including our sales and marketing practices related to this product. This
investigation also relates to activities in our patient services hub. We are cooperating with this investigation and have produced documents in response to the subpoena and have provided other requested information.
On or about June 23, 2015, a nurse practitioner located in Connecticut, who served on our speaker bureau in connection
with our speaker programs designed to educate and promote product awareness and safety for external health care providers, pled guilty to violating the federal Anti-Kickback Statute in connection with payments of approximately $83,000 from
us. On or about February 18, 2016, one of our former sales employees located in Alabama pled guilty to a conspiracy to violate the federal Anti-Kickback Statute in regards to two Alabama health care professionals who prescribed our product
Subsys. Those two Alabama health care professionals served on our speaker bureau in connection with our speaker programs designed to educate and promote product awareness and safety for external health care providers. Moreover, on or about
June 19, 2016, a former district sales manager in New York and a former sales representative in New Jersey were charged in a federal court in Manhattan, New York with violating the federal Anti-Kickback Statute in connection with interacting
with health care professionals who prescribed our product and served on our speaker bureau. Both of these employees have pled not guilty. On or about October 13, 2016, a former employee of our patient services hub, which provides administrative
support assistance to help patients obtain payment by their insurance companies, was arrested in Arizona in connection with an alleged scheme to defraud insurers. It is possible that additional individual criminal charges and convictions and pleas
could result from our ongoing federal and state government investigations and related proceedings. We continue to assess these matters to ensure we have an effective compliance program.
State Related Investigations.
We have received CIDs from each of the Office of the Attorney General of the State
of Arizona, Illinois and the Commonwealth of Massachusetts and ODOJ and we have also received a subpoena from the Office of the Attorney General of the State of Florida and New Jersey, the State of Colorado Department of Law and the Chief Consumer
Protection and Antitrust Division of the State of New Hampshire. In addition, we understand that numerous physicians practicing in New Jersey have received subpoenas from the Department of Justice of the State of New Jersey in connection with these
physicians interactions with our company. These CIDs and subpoenas request documents regarding Subsys, including our sales and marketing practices related to Subsys in the applicable state, as well as our patient services hub. We are
cooperating with each of these investigations and have produced documents in response to these CIDs and related requests for information from each office.
In connection with the investigation by the ODOJ we have entered into a settlement agreement with the ODOJ referred to as an
AVC, and have made monetary payments totaling approximately $1,100,000. The AVC requires us to maintain certain controls and processes around our promotional and sales activity related to Subsys in Oregon. This AVC expressly provides that we do not
admit any violation of law or regulation. This settlement was reached as result of our cooperation with the ODOJs investigation and after producing documents in response to certain CIDs and related requests for information from the ODOJ. All
monetary payments in connection with this settlement were made prior to December 31, 2015.
Investigations of
Physicians.
In addition to the above investigations that are specifically directed at our company, we have received governmental agency requests for information, including subpoenas, from the USAO of Connecticut, Eastern District
of Michigan, Florida (Jacksonville), Kansas, New Hampshire, Rhode Island, Southern District of New York, Southern District of Alabama and Western District of New York regarding specific physicians that we have interacted with in those states.
16
Opioid Litigation
. Many federal and governmental agencies are
focused on the abuse of opioids in the United States and agencies such as the HHS have expressed their belief that the United States is in the midst of a prescription opioid abuse epidemic. Common prescription drugs that contain opioids are drugs
such as oxycodone, hydrocodone and fentanyl. Our product, Subsys, is a fentanyl-based product in the TIRF class. Certain stakeholders in the healthcare community, regulatory bodies and governmental agencies may associate us with, or determine that
we are a part of, this perceived opioid abuse epidemic. Like all TIRF products, our product is part of the mandatory TIRF REMS program which is designed to ensure informed risk-benefit decisions before initiating treatment, and while
patients are treated to ensure appropriate use of TIRF medicines and to mitigate the risk of misuse, abuse, addiction, overdose and serious complications due to medication errors with the use of TIRF medicines. Nevertheless, from
time to time, we may be included in litigation or investigations that are directed at the abuse of opioids in the United States. For example, in May 2014, Santa Clara and Orange Counties in California filed a complaint in state court in Orange
County, California against numerous pharmaceutical manufacturers alleging claims related to opioid marketing practices, including false advertising, unfair competition, and public nuisance. Despite the fact that we are not named specifically in the
complaint and this lawsuit was recently stayed, we have received a preservation notice letter from the Office of the County Counsel for the County of Santa Clara. From time to time, we may be included in these types of litigations as a result of the
fact that we market an opioid product.
With the exception of the ODOJ investigation which we have quantified above, we
believe a loss from an unfavorable outcome of these governmental proceedings is reasonably possible and an estimate of the amount or range of loss from an unfavorable outcome is not determinable at these stages. We believe we have meritorious
legal positions and will continue to represent our interests vigorously in these matters. However, responding to government investigations has and could continue to burden us with substantial legal costs in connection with defending any claims
raised. Any potential resulting fines, restitution, damages and penalties, settlement payments, pleas or exclusion from federal health care programs or other administrative actions, as well as any related actions brought by shareholders or
other third parties, could have a material adverse effect on our financial position, results of operations or cash flows. Additionally, these matters could also have a negative impact on our reputation and divert the attention of our management
from operating our business.
Federal Securities Litigation and Derivative Complaint
On or about February 2, 2016, a complaint (captioned Richard Di Donato v. Insys Therapeutics, Inc., Case
2:16-cv-00302-NVW) was filed in the Arizona District Court, against us and certain of our current and former officers. This complaint was brought as a purported class action, on behalf of purchasers of our common stock between March 3, 2015 and
January 25, 2016. In general, the plaintiffs allege that the defendants violated federal securities laws by making intentionally false and misleading statements regarding our business and operations, therefore artificially inflating the
price of our common stock. The plaintiffs seek unspecified monetary damages and other relief. We intend to vigorously defend this claim.
On August 31, 2016, Gary Hirt and Precieux Art Jewelers Inc. filed a Derivative Complaint in the Delaware Chancery Court
against our current members of the Board of Directors and Michael L. Babich our former CEO and director. The plaintiffs allege, among other things, that the defendants breached their fiduciary duties by (a) knowingly overseeing the
implementation of an illegal sales and marketing program, (b) failing to actively monitor or oversee the compliance program and (c) disregarding their duties to investigate. The plaintiffs seek unspecified monetary damages and other
relief. We intend to vigorously defend this claim.
General Litigation and Disputes
Kottayil vs. Insys Pharma, Inc.
On September 29, 2009, Insys Pharma, Inc., our wholly owned subsidiary, and
certain of our officers and the five directors who comprised the Insys Pharma board of directors as of June 2009, as well as their spouses, were named as defendants in a lawsuit in the Superior Court of the State of Arizona, Maricopa County, or the
Arizona Superior Court, brought by Santosh Kottayil, Ph.D., certain of his family members and a trust of which Dr. Kottayil is the trustee. Dr. Kottayil formerly served as President, Chief Scientific Officer and a director of Insys Pharma,
among other positions. The complaint brought a cause of action for statutory and common law appraisal of Dr. Kottayils Insys Pharma common stock. The cause of action for appraisal relates to a reverse stock split that Insys Pharma
effected in June 2009, which resulted in Dr. Kottayils ownership position becoming a fractional share of Insys Pharma common stock. Following the reverse stock split, Insys Pharma cancelled all resulting fractional shares, including the
fractional share held by Dr. Kottayil, and offered a cash payment in lieu of the fractional shares. The complaint also brought causes of action for breach of fiduciary duty, fraud and negligent misrepresentation in the defendants dealings
with Dr. Kottayil on the subject of his compensation and stock ownership in Insys Pharma. In January 2010, the plaintiffs added claims seeking to rescind Dr. Kottayils assignment to Insys Pharma of his interest in all of the fentanyl
and dronabinol patent applications previously assigned to Insys Pharma and to recover the benefits of those interests. Dr. Kottayil was seeking, among other relief, the fair value of his Insys Pharma common stock as of June 2, 2009,
compensatory and punitive damages, and rescission of all assignments to Insys Pharma of his interest in the patent applications, as well as attorneys fees, costs and interest.
17
In February 2010, Insys Pharma and the other defendants answered and filed
counter-claims to Dr. Kottayils amended complaint. The counter-claims include actions for breach of fiduciary duty, fraud and negligent misrepresentations and omissions with respect to the time during which Dr. Kottayil was employed
at Insys Pharma. The counter-claims, among other relief, sought compensatory and punitive damages.
On January 29,
2014, the plaintiffs filed a second amended complaint in the Arizona Superior Court in which Insys Therapeutics, Inc. was also named as defendant in this lawsuit. This amended complaint filed by plaintiffs re-alleged substantially the same claims
set forth in the prior complaint, except that plaintiffs also alleged that they were entitled to rescissory damages, added our majority stockholder, a private trust, as a defendant to the breach of fiduciary duty claim and revised their fraud claim
against the Insys Pharma director defendants.
The trial commenced on December 1, 2014 with the evidence phase of the
trial completed on January 29, 2015.
On June 8, 2015, the court issued findings of fact and conclusions of law
in its final trial ruling. Specifically, the court found (i) in favor of Insys Pharma, our majority stockholder, a private trust and four of the Insys Pharma directors who were on the board in July 2008 on plaintiffs claim for breach of
fiduciary duty arising out of transactions the board approved in July 2008, (ii) found in favor of plaintiffs and against Insys Pharma, Inc., our majority stockholder, a private trust and three of the Insys Pharma directors who were on the
board in June 2009 on plaintiffs claims under Delaware law and for breach of fiduciary duties arising out of the reverse stock split the board approved in June 2009 in the amount of $7,317,450, along with pre-judgment and post-judgment
interest and court costs, (iii) found in favor of two of the Insys Pharma directors who were on the Insys Pharma board as of June 2009 and against plaintiffs on plaintiffs breach of fiduciary duty claims, (iv) found in favor of Insys
Pharma and against plaintiff (Kottayil) on his claim for rescission of the patent application assignments that he entered in favor of Insys Pharma before and after his employment terminated, (v) found in favor of Insys Therapeutics, Inc. and
against plaintiff on plaintiffs claims of successor liability and fraudulent transfer, and (vi) found in favor of Kottayil and against Insys Pharma on Insys Pharmas counterclaims of breach of fiduciary duty, fraud, and negligent
misrepresentation.
On October 2, 2015, the court entered a final judgment, awarding plaintiffs the amount of
$7,317,450, along with pre-judgment interest from June 2, 2009, and post-judgment interest, from October 2, 2015, at the rate of 4.25% per annum, compounded quarterly and taxable costs in the amount of $93,163. On the same date, the
court denied Kottayils request to submit an application for attorneys fees for his defense of the Insys Pharma counterclaims, finding that the request was premature.
As a result of the final ruling, we have accrued $9,567,000 at September 30, 2016, including $2,249,000 of estimated
pre-and post-judgement interest. The final outcome of the appeal could cause the estimates to vary materially from the final award.
On October 20, 2015, plaintiffs appealed the foregoing judgment and on November 4, 2015, Insys Pharma and the other
defendants against whom judgment was entered filed a notice of cross-appeal. The appeal and cross-appeal remain pending before the Court of Appeals for the State of Arizona.
On or around November 1, 2015 we received a notice from the Plaintiffs attorneys demanding indemnification for
legal and other defense costs alleged to have been incurred in connection with Dr. Kottayils defense of the Insys Pharma counterclaims in the amount of $3,630,000. We responded to these demands by, among other things, requesting for
supporting documents and information from the Plaintiffs counsel which we have not received yet. Accordingly, we are still in the process of assessing the merit of such claims as well as evaluating the basis for the costs claimed. Because of
the uncertainty surrounding the ultimate outcome we have not accrued for this claim at this time; however, we believe that that it is reasonably possible that there may be a material loss associated with this claim and we currently estimate the
range of the reasonably possible loss to be between $0 and the $3,630,000 claimed.
As of August 1, 2016, Plaintiffs
have filed opening and reply and cross response briefs and we have filed our answering and cross-appeal brief and our reply in support of our cross-appeal. The parties have requested oral argument and the court may set a hearing date.
Except as it pertains to the $9,567,000 accrued for the dispute with Dr. Kottayil and the potential for damages in the
Federal Securities litigation and derivative action that we believe should be sufficiently covered by our director and officers insurance policies (once we have met any applicable retainage requirement under the applicable policy), we believe that
the probability of unfavorable outcome or loss related to all of the above litigation matters and an estimate of the amount or range of loss, if any, from an unfavorable outcome are not determinable at this time. We believe we have meritorious legal
positions and will continue to represent our interests vigorously in these matters but the range possible outcomes on these matters is very broad and we are not able to provide a reasonable estimate of our potential liability, if any, nor are we
able to predict the outcome of each litigation matter.
18
Responding to each of these litigation matters, defending any claims raised, and
any resulting fines, restitution, damages and penalties, or settlement payments as well as any related actions brought by shareholders or other third parties, could have a material impact on our reputation, business and financial condition and
divert the attention of our management from operating our business.
Wayne Automatic Fire Sprinklers
. On or
about January 26, 2016, Wayne Automatic Fire Sprinklers, Inc. (Wayne), which installs, repairs, and monitors fire sprinkler and fire alarm systems throughout Florida and provides health insurance benefits to its employees and
covered dependents through its self-funded health benefit plan, filed a complaint in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida. Wayne was seeking injunctive relief and damages in excess of $75,000, exclusive
of interest, costs and attorneys fees, against Insys Therapeutics, Inc., Gessler Clinic, P.A., Edward Lubin, M.D., UMR, Inc. and OptumRx, Inc., as defendants, for claims based under the Florida Racketeer Influenced and Corrupt Organization Act
pursuant to section 895.03(3), Florida Statutes, the Florida Civil Remedies for Criminal Practices Act pursuant to section 772.103(3), Florida Statutes, the Florida Deceptive and Unfair Trade Practices Act under sections 501.201-501.203, Florida
Statutes, common law fraud, and civil conspiracy, as well as breach of contract against UMR and OptumRx. The parties jointly reached a resolution and this legal proceeding has been dismissed with prejudice. We believe that any amount associated with
the resolution of this matter is not material to our financial results.
Markland.
On July 1, 2016,
Robert N. Markland, as the Personal Representative of the Estate of Carolyn S. Markland filed a complaint in the Circuit Court, Fourth Judicial Circuit, in and for Duval County Florida against our parent, Insys Therapeutics, Inc. The complaint
states it is a wrongful death products liability action brought pursuant to Section 768.16, et seq. under Florida law in connection with a death occurring in July 2014 and includes a claim of negligent marketing. The lawsuit seeks unspecified
damages for past expenses and costs, pain and suffering and loss of consortium and earnings. On August 4, 2016, we removed this case to federal district court in the Middle District of Florida. We intend to vigorously defend this matter
and based on currently available information, we do not believe any resolution of this matter will have a material adverse effect on the Companys business, financial position, or future results of operations.
Buchalter
. On September 9, 2016, Jeffrey Buchalter filed a complaint in the Circuit Court for Anne Arundel
County, Maryland against Dr. William Tham, Physical Medicine & Pain Management Associates, Maryland Neurological Institute, various physician assistants, and Insys Therapeutics, Inc. Plaintiffs complaint states it is a personal
injury action against Insys related to negligent misrepresentation, failure to warn and fraud under state laws. The lawsuit seeks unspecified compensatory and punitive damages. We intend to vigorously defend this matter and based on currently
available information, we do not believe any resolution of this matter will have a material adverse effect on the Companys business, financial position, or future results of operations.
Material Agreements
In April 2015, we entered into an amendment to our manufacturing and supply agreement with DPT, which extends our existing
manufacturing and supply agreement to produce Subsys until the end of 2020. In addition to extending the term, this amendment added certain minimum purchase commitments.
In October 2015, we entered into an amended and restated supply, development & exclusive licensing agreement
with Aptar which, among other things, extended our exclusive supply rights to the current sublingual device, currently utilized by Subsys, as well any new device(s) jointly developed by the two companies for a period of seven years. In addition to
extending the term, this amendment added certain minimum purchase commitments and requires certain tiered royalties as a percentage of net revenue to be paid by us ranging from less than one percent to the low single digits, commencing in
March 2016 through the term of this agreement, from our sales of Subsys and future products that use the Aptar spray device technology.
In January 2016, we assigned our rights, title, duties and obligations of our manufacturing and supply agreement with DPT and
our supply, development & exclusive licensing agreement with Aptar from our parent to our manufacturing subsidiary as part of a corporate restructuring.
In July 2016, we, through our manufacturing subsidiary, entered into a further amendment to our DPT manufacturing and supply
agreement dated May 24, 2011. This amendment effectively eliminates any prior minimum purchase (and batch) obligations that had been set forth in the amendment dated April 30, 2015 and replaces it with a new annual purchase commitment of
$4,000,000 per calendar year commencing January 1, 2017 through December 31, 2020. As a result, the cumulative effect related to this amendment reduces our aggregated minimum purchase commitments with DPT from $49,740,000 to $16,000,000.
19
The following table sets forth our aggregate minimum purchase commitments with
DPT and Aptar under these agreements (in thousands):
|
|
|
|
|
Years ending December 31,
|
|
|
|
Remainder of 2016
|
|
$
|
1,685
|
|
2017
|
|
|
6,000
|
|
2018
|
|
|
7,500
|
|
2019
|
|
|
8,410
|
|
2020
|
|
|
8,550
|
|
Thereafter
|
|
|
4,330
|
|
|
|
|
|
|
Total
|
|
$
|
36,475
|
|
|
|
|
|
|
7.
|
Stock-based Compensation
|
Amounts recognized in the condensed consolidated statements of income and comprehensive income with respect to our stock-based
compensation plans were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
(As Restated)
|
|
|
|
|
Research and development
|
|
$
|
1,014
|
|
|
$
|
573
|
|
|
$
|
2,938
|
|
|
$
|
1,362
|
|
General and administrative
|
|
|
7,385
|
|
|
|
3,747
|
|
|
|
14,533
|
|
|
|
10,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of stock-based compensation
|
|
$
|
8,399
|
|
|
$
|
4,320
|
|
|
$
|
17,471
|
|
|
$
|
12,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in stock-based compensation for the nine months ended September 30, 2016 was
approximately $3,878,000 of expense associated with the accelerated vesting of option awards related to a terminated employee. There was no such accelerated vesting of option awards for the nine months ended September 30, 2015.
The following table summarizes stock option activity as of December 31, 2015 and for the nine months ended
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (in
years)
|
|
|
Aggregate
Intrinsic
Value (in
millions)
|
|
Vested and exercisable as of December 31, 2015
|
|
|
3,772,736
|
|
|
$
|
6.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
7,138,089
|
|
|
$
|
12.33
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,314,543
|
|
|
$
|
14.90
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(930,964
|
)
|
|
$
|
17.16
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(557,558
|
)
|
|
$
|
6.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2016
|
|
|
7,964,110
|
|
|
$
|
12.94
|
|
|
|
7.6
|
|
|
$
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of September 30, 2016
|
|
|
4,545,680
|
|
|
$
|
9.82
|
|
|
|
6.7
|
|
|
$
|
24.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016, we expected to recognize $36,914,000 of stock-based
compensation for outstanding options over a weighted-average period of 2.8 years.
Cash received from option exercises
under all share-based payment arrangements for the nine months ended September 30, 2016 and 2015 was $3,475,000 and $7,362,000, respectively. For the nine months ended September 30, 2016 and 2015, we recorded net reductions of $675,000 and
$8,857,000 respectively, of our federal and state income tax liability, with an offsetting credit to additional paid-in capital, resulting from the excess tax benefits of stock options.
20
Basic net income per common share is computed by dividing the net income allocable to the common stockholders by the weighted
average number of common shares outstanding during the period. The diluted income per share further includes any common shares available to be issued upon exercise of outstanding stock options if such inclusion would be dilutive.
The following table sets forth the computation of basic and diluted net income per common share (dollars in thousands, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(As Restated)
|
|
|
(As Restated)
|
|
Historical net income per share - Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,925
|
|
|
$
|
24,630
|
|
|
$
|
11,242
|
|
|
$
|
39,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
71,640,536
|
|
|
|
71,905,183
|
|
|
|
71,592,145
|
|
|
|
71,446,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.04
|
|
|
$
|
0.34
|
|
|
$
|
0.16
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical net income per share - Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,925
|
|
|
$
|
24,630
|
|
|
$
|
11,242
|
|
|
$
|
39,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
71,640,536
|
|
|
|
71,905,183
|
|
|
|
71,592,145
|
|
|
|
71,446,485
|
|
Effect of dilutive stock options
|
|
|
2,688,427
|
|
|
|
4,086,147
|
|
|
|
2,953,678
|
|
|
|
4,095,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
74,328,963
|
|
|
|
75,991,330
|
|
|
|
74,545,823
|
|
|
|
75,542,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.04
|
|
|
$
|
0.32
|
|
|
$
|
0.15
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive share equivalents included 5,575,979 and 1,122,185 outstanding stock options as
of September 30, 2016 and 2015, respectively.
9.
|
Product Lines, Concentration of Credit Risk and Significant Customers
|
We are engaged in the business of developing and selling pharmaceutical products. In 2016, we have one product line, Subsys.
Our chief operating decision-maker evaluates revenues based on product lines.
The following tables summarize our net
revenue by product line, as well as the percentages of revenue by route to market (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenue by Product Line
|
|
|
|
Three Months
Ended September
30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(As Restated)
|
|
|
(As Restated)
|
|
Subsys
|
|
$
|
57,773
|
|
|
$
|
88,397
|
|
|
$
|
187,415
|
|
|
$
|
235,127
|
|
Dronabinol SG Capsule
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
1,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
57,773
|
|
|
$
|
88,517
|
|
|
$
|
187,415
|
|
|
$
|
236,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Revenue by Route to Market
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Pharmaceutical wholesalers
|
|
|
66
|
%
|
|
|
98
|
%
|
|
|
69
|
%
|
|
|
98
|
%
|
Specialty pharmaceutical retailers
|
|
|
34
|
%
|
|
|
2
|
%
|
|
|
31
|
%
|
|
|
1
|
%
|
Generic pharmaceutical distributors
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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All our products are sold in the United States of America.
Product shipments to our four largest pharmaceutical wholesalers accounted for 17%, 16%, 15%, and 15% of total shipments and
product shipments to one specialty pharmaceutical retailer accounted for 30% of total shipments for the nine months ended September 30, 2016. Product shipments to our four largest pharmaceutical wholesalers accounted for 33%, 20%, 18% and 15%
of total shipments for the nine months ended September 30, 2015. Our four largest pharmaceutical wholesalers accounts receivable balances accounted for 20%, 18%, 18%, and 16% of gross accounts receivable and one specialty pharmaceutical
retailers accounts receivable balance accounted for 18% of gross accounts receivable balance as of September 30, 2016. Our four largest pharmaceutical wholesalers accounts receivable balances accounted for 35%, 22%, 16% and 11% of
gross accounts receivable as of September 30, 2015.
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