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. As of March 31, 2018, we have two marketed products: SUBSYS®, a proprietary sublingual fentanyl spray for BTCP in opioid-tolerant adult patients; and SYNDROS®, a proprietary, orally administered liquid formulation of dronabinol for the treatment of CINV and anorexia associated with weight loss in patients with AIDS.
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. Certain recurring seasonal factors relating to the commencement of a new calendar year may have an adverse effect on net revenue in the first quarter. 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, 2017, included in our Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2018, 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported period. On an ongoing 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, fair value of investments, legal liabilities and settlements, stock-based compensation expense, uncertain tax positions, 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 could 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.
Recently Adopted Accounting Pronouncements
Effective January 1, 2018, we adopted the requirements of ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)” and all the related amendments (“new revenue standard”). The new revenue 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 revenue standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We used the modified retrospective transition method for all contracts that were not completed as of the adoption date. In addition, we have applied the practical expedient to contract modifications, as allowed by the SEC, but did not have any material contract modifications to be included in the initial adoption of ASC Topic 606. The comparative information in these condensed consolidated financial statements has not been restated and continues to be reported under ASC Topic 605, “Revenue Recognition”. We expect the impact of the adoption of the new standard to be immaterial to our net income (loss) on an ongoing basis. We recognize revenue when we transfer control of our products to our customers, as our contracts have a single performance obligation (delivery of our product to their preferred location). Our sales revenue from SUBSYS® continues to be recognized when product is delivered to wholesale pharmaceutical distributors and specialty retail pharmacies (collectively, our customers). In accordance with the new revenue standard, our sales revenue from SYNDROS® is now recognized when product is delivered to our customers, where revenue was previously deferred until the right of return no longer existed, which occurred at the earlier of the time SYNDROS® units were sold to health care facilities or dispensed through patient prescriptions, or expiration of the right of return. It is common for our contracts to include product sales allowances that can decrease the transaction price and are
5
Table of Contents
therefore considered to be variable consideration. In accordance with the new revenue standard, we estimate the amount of variabl
e consideration promised in the contract using the expected value (probability weighted estimate) method. We do not have any significant extended payment terms as payment is received shortly after the point of sale. See Note 2,
Revenue Recognition
, for add
itional discussion of our revenue recognition policy, variable consideration estimates, and the impact of adopting the new revenue standard on our condensed consolidated balance sheets and statements of operations and comprehensive loss for the three month
s ended March 31, 2018.
Overall, the adoption of the new revenue standard did not have a material impact on the amounts reported in our condensed consolidated financial statements and there were no other significant changes impacting the timing or measurem
ent of our revenue or our business processes and controls.
The cumulative effect of the changes made to our January 1, 2018 condensed consolidated balance sheets for the adoption of the new revenue standard was as follows (in thousands):
|
|
|
Balance at
December 31,
2017
|
|
|
Adjustments
due to
adoption of
ASC Topic
606
|
|
|
Balance at
January 1,
2018
|
|
|
Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
|
17,408
|
|
|
|
(59
|
)
|
|
|
17,349
|
|
|
Accrued sales allowances
|
|
|
16,290
|
|
|
|
320
|
|
|
|
16,610
|
|
|
Deferred revenue
|
|
|
1,109
|
|
|
|
(1,109
|
)
|
|
|
—
|
|
|
Accumulated deficit
|
|
|
(215,351
|
)
|
|
|
848
|
|
|
|
(214,503
|
)
|
The impact of adopting the new revenue standard on our condensed consolidated
statements of operations and comprehensive loss
was as follows (in thousands):
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2018
|
|
|
|
|
Balances
without
Adopting ASC
Topic 606
|
|
|
Impact of
Adopting ASC
Topic 606
|
|
|
As Reported
|
|
|
Condensed Consolidated Statements of
Operations and Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
23,746
|
|
|
$
|
165
|
|
|
$
|
23,911
|
|
|
Cost of revenue
|
|
|
2,194
|
|
|
|
10
|
|
|
|
2,204
|
|
|
Gross profit
|
|
|
21,552
|
|
|
|
155
|
|
|
|
21,707
|
|
|
Operating loss
|
|
|
(20,388
|
)
|
|
|
155
|
|
|
|
(20,233
|
)
|
|
Loss before income taxes
|
|
|
(20,354
|
)
|
|
|
155
|
|
|
|
(20,199
|
)
|
|
Net loss
|
|
|
(20,525
|
)
|
|
|
155
|
|
|
|
(20,370
|
)
|
The impact of adopting the new revenue standard on our condensed consolidated balance sheets was as follows (in thousands):
|
|
|
March 31, 2018
|
|
|
|
|
Balances
without
Adopting ASC
Topic 606
|
|
|
Impact of
Adopting ASC
Topic 606
|
|
|
As Reported
|
|
|
Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
16,232
|
|
|
|
68
|
|
|
$
|
16,300
|
|
|
Total current assets
|
|
|
166,626
|
|
|
|
68
|
|
|
|
166,694
|
|
|
Total assets
|
|
|
253,871
|
|
|
|
68
|
|
|
|
253,939
|
|
|
Accrued sales allowances
|
|
|
12,741
|
|
|
|
92
|
|
|
|
12,833
|
|
|
Deferred revenue
|
|
|
1,366
|
|
|
|
(1,366
|
)
|
|
|
—
|
|
|
Total liabilities
|
|
|
207,850
|
|
|
|
(1,274
|
)
|
|
|
206,576
|
|
|
Accumulated deficit
|
|
|
(235,028
|
)
|
|
|
155
|
|
|
|
(234,873
|
)
|
|
Total stockholders' equity
|
|
|
47,208
|
|
|
|
155
|
|
|
|
47,363
|
|
6
Table of Contents
Effective January 1, 2018, we adopted
ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, and ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities”. These standards amended the Financial Instruments topic of the ASC to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Th
e standard requires that unrealized gains and losses on investments in equity securities to be recognized in net income. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
Effective January 1, 2018, we adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The guidance clarifies how certain cash flow transactions are classified in the statement of cash flows. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
Effective January 1, 2018, we adopted ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”. Prior to January 1, 2018, U. S. GAAP prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset was sold to an outside party, which was an exception to the principle of comprehensive recognition of current and deferred income taxes in U. S. GAAP. This guidance eliminates the exception for an intra-entity transfer of an asset other than inventory. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
Effective January 1, 2018, we adopted ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”. The ASU requires modification accounting to a share-based payment award unless all of the following are the same immediately before and after the change: the award’s fair value; the award’s vesting conditions; and the award’s classification as an equity instrument or a liability instrument. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
Effective January 1, 2018, we adopted ASU No. 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update)”. The standard addresses any uncertainty or diversity of views in practice regarding the application of ASC Topic 740 in situations where a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting under ASC Topic 740 for certain income tax effects of the 2017 Tax Cuts and Jobs Act (the “Act”) for the reporting period in which the Act was enacted. The Company recognized the provisional tax impacts of the Act in the fourth quarter of 2017. During the first quarter of 2018, the Company did not receive any additional information regarding these provisional calculations. As a result, the Company continues to anticipate finalizing its analysis in connection with the completion of the Company's tax return for 2017 to be filed in 2018.
Recent Accounting Pronouncements
In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, to amend the amortization period for certain purchased callable debt securities held at a premium. The ASU shortens the amortization period for the premium to the earliest call date. Under current U.S. GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The amendments should be applied on a modified retrospective basis and are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact of this amendment on our condensed consolidated 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 effected by this ASU 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, and early adoption is permitted. 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 do not expect this amendment to have a material impact on our condensed consolidated 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
7
Table of Contents
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 principa
l 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 g
uidance. 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 lea
ses 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 commenced 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 currently expect that most of our operating lease commitments will be subject to the update and recognized as right-of-use assets and operating lease liabilities upon adoption.
We expect the standard to have a material impact on our ass
ets and liabilities for the addition of right-of-use assets and lease liabilities, but we do not expect it to have a material impact to our results of operations or liquidity.
To determine revenue recognition for contractual arrangements that we determine are within the scope of ASC Topic 606, we perform the following five steps: (i) identify each contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligation. 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 we transfer to the customer. We recognize revenue from the sale of our commercially approved products, SUBSYS® and SYNDROS®, when we transfer control of our products to our customers, as our contracts have a single performance obligation (delivery of our product to their preferred location)
. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Any shipping and handling activities that we perform, whether before or after a customer has obtained control of the products, are considered activities to fulfill our obligation to transfer the products, and are recorded as incurred within sales and marketing expenses.
SUBSYS® was commercially launched in March 2012 and is monitored by an FDA-mandated REMS program known as the TIRF REMS. SYNDROS® was commercially launched in July 2017. We sell all of our products in the United States to wholesale pharmaceutical distributors and directly to specialty retail pharmacies (collectively, our customers). See Note 9,
Product Lines, Concentration of Credit Risk and Significant Customers,
for information on revenues disaggregated by product line and route to market.
As is customary in the pharmaceutical industry, it is common for our contracts to include product sales allowances that can decrease the transaction price and are therefore considered to be variable consideration. Product sales allowances are based on amounts owed or to be claimed on the related sales. We estimate variable consideration when determining the transaction price using the expected value method. We assess whether variable consideration is constrained and only include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on historical data, and take into consideration the terms of our agreements with customers and third-party payers and the levels of inventory within the distribution channels that may result in future discounts taken. In certain cases, such as patient assistance programs, our estimates are based on estimated utilization. If actual future results vary, we may need to adjust these estimates, which could have an effect on 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. SUBSYS® currently has a shelf life of 36 or 48 months from the date of manufacture, depending on the manufacture date, and SYNDROS® currently has a shelf life of 24 or 36 months from the date of manufacture, depending on the manufacture date. 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 following, 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 products. Accordingly, we may have to adjust these
8
Table of Contents
estimates, which could have an effect on net revenue 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 of the discount.
Stocking Allowances
. We may offer discounts and extended payment terms, generally in the month of the initial commercial launch of a new product and on the first order made by certain wholesale distributors and retail pharmacies 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. The extended payment terms are not greater than 12 months and therefore do not include a financing component.
Patient Discount Programs
. We offer discount card programs to patients, in which patients receive discounts on their prescriptions that are reimbursed by us to the retailer. We estimate the total amount that will be redeemed based on a percentage of actual redemptions applied to inventory in the distribution and retail channels. 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 and estimated future contract prices, historical and estimated future percentages of products prescribed to qualified patients and estimated levels of inventory in the distribution channel. The allowance for rebates is included in accrued sales allowances.
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 and estimated future 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.
As of March 31, 2018, the majority of our accounts receivables were related to product sales. For the three months ended March 31, 2018, the Company had no material bad-debt expense and there were no contract assets, contract liabilities or deferred contract costs
recorded on the condensed consolidated balance sheets as of March 31, 2018.
|
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, commercial paper, as well as certificates of deposit that have maturity dates that are greater than 90 days. Certificates of deposit and commercial paper are carried at cost, which approximates fair value. We classify our marketable securities as available-for-sale in accordance with FASB ASC Topic 320, “Investments — Debt and Equity Securities”. Investments in debt securities that are classified as available-for-sale are carried at fair value with unrealized gains and losses reported in stockholders’ equity, net of related tax effects. There were no reclassifications on available-for-sale securities during the three months ended March 31, 2018. 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. If we had unrealized 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 operations and comprehensive loss. 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 March 31, 2018, our certificates of deposit and commercial paper as well as our marketable securities have been recorded at an estimated fair value of $0, $95,895,000, and $31,633,000 in cash and cash equivalents, short-term and long-term investments, respectively.
9
Table of Contents
Investments consisted of the following at March 31, 2018 (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 and cash equivalents
|
|
$
|
10,647
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,647
|
|
|
$
|
10,647
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Money market securities
|
|
|
7,902
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,902
|
|
|
|
7,902
|
|
|
|
—
|
|
|
|
—
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
16,248
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,248
|
|
|
|
—
|
|
|
|
7,198
|
|
|
|
9,050
|
|
|
Commercial paper
|
|
|
15,604
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,604
|
|
|
|
—
|
|
|
|
15,604
|
|
|
|
—
|
|
|
Corporate securities
|
|
|
51,670
|
|
|
|
—
|
|
|
|
(297
|
)
|
|
|
—
|
|
|
|
51,373
|
|
|
|
—
|
|
|
|
42,509
|
|
|
|
8,864
|
|
|
Federal agency securities
|
|
|
38,262
|
|
|
|
—
|
|
|
|
(232
|
)
|
|
|
—
|
|
|
|
38,030
|
|
|
|
—
|
|
|
|
25,701
|
|
|
|
12,329
|
|
|
Municipal securities
|
|
|
6,294
|
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
6,273
|
|
|
|
—
|
|
|
|
4,883
|
|
|
|
1,390
|
|
|
Total marketable securities
|
|
|
128,078
|
|
|
|
—
|
|
|
|
(550
|
)
|
|
|
—
|
|
|
|
127,528
|
|
|
|
—
|
|
|
|
95,895
|
|
|
|
31,633
|
|
|
|
|
$
|
146,627
|
|
|
$
|
—
|
|
|
$
|
(550
|
)
|
|
$
|
—
|
|
|
$
|
146,077
|
|
|
$
|
18,549
|
|
|
$
|
95,895
|
|
|
$
|
31,633
|
|
Investments consisted of the following at December 31, 2017 (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 and cash equivalents
|
|
$
|
12,183
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,183
|
|
|
$
|
12,183
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Money market securities
|
|
|
15,317
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,317
|
|
|
|
15,317
|
|
|
|
—
|
|
|
|
—
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
18,447
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,447
|
|
|
|
—
|
|
|
|
7,474
|
|
|
|
10,973
|
|
|
Commercial paper
|
|
|
10,560
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,560
|
|
|
|
1,499
|
|
|
|
9,061
|
|
|
|
—
|
|
|
Corporate securities
|
|
|
59,613
|
|
|
|
—
|
|
|
|
(206
|
)
|
|
|
—
|
|
|
|
59,407
|
|
|
|
1,500
|
|
|
|
39,622
|
|
|
|
18,285
|
|
|
Federal agency securities
|
|
|
37,793
|
|
|
|
—
|
|
|
|
(203
|
)
|
|
|
—
|
|
|
|
37,590
|
|
|
|
1,500
|
|
|
|
20,015
|
|
|
|
16,075
|
|
|
Municipal securities
|
|
|
10,446
|
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
—
|
|
|
|
10,417
|
|
|
|
—
|
|
|
|
9,017
|
|
|
|
1,400
|
|
|
Total marketable securities
|
|
|
136,859
|
|
|
|
—
|
|
|
|
(438
|
)
|
|
|
—
|
|
|
|
136,421
|
|
|
|
4,499
|
|
|
|
85,189
|
|
|
|
46,733
|
|
|
|
|
$
|
164,359
|
|
|
$
|
—
|
|
|
$
|
(438
|
)
|
|
$
|
—
|
|
|
$
|
163,921
|
|
|
$
|
31,999
|
|
|
$
|
85,189
|
|
|
$
|
46,733
|
|
The amortized cost and estimated fair value of the marketable securities by maturity, are shown below (in thousands):
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
96,406
|
|
|
$
|
96,144
|
|
|
$
|
90,071
|
|
|
$
|
89,937
|
|
|
Due after one year through 5 years
|
|
|
31,672
|
|
|
|
31,384
|
|
|
|
46,788
|
|
|
|
46,484
|
|
|
Due after 5 years through 10 years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Due after 10 years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
$
|
128,078
|
|
|
$
|
127,528
|
|
|
$
|
136,859
|
|
|
$
|
136,421
|
|
10
Table of Contents
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-temporar
ily impaired aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
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
|
|
$
|
42,298
|
|
|
$
|
(219
|
)
|
|
$
|
8,556
|
|
|
$
|
(77
|
)
|
|
$
|
245
|
|
|
$
|
(153
|
)
|
|
$
|
7,839
|
|
|
$
|
(52
|
)
|
|
Federal agency securities
|
|
|
25,382
|
|
|
|
(125
|
)
|
|
|
12,648
|
|
|
|
(107
|
)
|
|
|
26,244
|
|
|
|
(89
|
)
|
|
|
11,346
|
|
|
|
(114
|
)
|
|
Municipal securities
|
|
|
4,637
|
|
|
|
(12
|
)
|
|
|
1,036
|
|
|
|
(10
|
)
|
|
|
50,537
|
|
|
|
(18
|
)
|
|
|
1,145
|
|
|
|
(12
|
)
|
|
|
|
$
|
72,317
|
|
|
$
|
(356
|
)
|
|
$
|
22,240
|
|
|
$
|
(194
|
)
|
|
$
|
77,026
|
|
|
$
|
(260
|
)
|
|
$
|
20,330
|
|
|
$
|
(178
|
)
|
We did not have any unrealized gains or losses or decline in values judged to be other than temporary during the three months ended March 31, 2018. This review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the expectation for that security’s performance and the creditworthiness of the issuer.
|
4.
|
Fair Value Measurement
|
FASB ASC Topic 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 March 31, 2018 and December 31, 2017, 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. We had no assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2018 and December 31, 2017. Substantially all available-for-sale investments held by us at March 31, 2018 and December 31, 2017, have been valued based on Level 2 inputs. Available-for-sale securities classified within Level 2 of the fair value hierarchy are valued utilizing reports from an independent third-party public quotation service based on closing prices on the last business day of the period presented. In addition, we use the public quotation service to perform price testing by comparing quoted prices listed in reports provided by the asset managers that hold our investments to quotes listed through the public quotation service. 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. Our Level 3 asset represents our investment in a long-term corporate convertible promissory note and a warrant to purchase shares issued in connection with the convertible promissory note, which converted to convertible preferred stock on December 30, 2016. This stock is not listed on any security exchange. The fair value of the preferred stock approximates its carrying value at March 31, 2018 and December 31, 2017.
11
Table of Contents
Our investments measured at fair value on a recurring basis subject to the disclosure requirements of ASC Topic
820 at March 31, 2018, were as follows (in thousands):
|
|
|
Fair Value Measurement at Reporting Date
|
|
|
|
|
Total
|
|
|
Quoted Prices
in active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
16,248
|
|
|
$
|
—
|
|
|
$
|
16,248
|
|
|
$
|
—
|
|
|
Commercial paper
|
|
|
15,604
|
|
|
|
—
|
|
|
|
15,604
|
|
|
|
—
|
|
|
Corporate securities
|
|
|
51,373
|
|
|
|
—
|
|
|
|
50,855
|
|
|
|
518
|
|
|
Federal agency securities
|
|
|
38,030
|
|
|
|
—
|
|
|
|
38,030
|
|
|
|
—
|
|
|
Municipal securities
|
|
|
6,273
|
|
|
|
—
|
|
|
|
6,273
|
|
|
|
—
|
|
|
Total assets measured at fair value
|
|
$
|
127,528
|
|
|
$
|
—
|
|
|
$
|
127,010
|
|
|
$
|
518
|
|
Our investments measured at fair value on a recurring basis subject to the disclosure requirements of ASC Topic 820 at December 31, 2017, were as follows (in thousands):
|
|
|
Fair Value Measurement at Reporting Date
|
|
|
|
|
Total
|
|
|
Quoted Prices
in active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
18,447
|
|
|
$
|
—
|
|
|
$
|
18,447
|
|
|
$
|
—
|
|
|
Commercial paper
|
|
|
10,560
|
|
|
|
—
|
|
|
|
10,560
|
|
|
|
—
|
|
|
Corporate securities
|
|
|
59,407
|
|
|
|
—
|
|
|
|
58,889
|
|
|
|
518
|
|
|
Federal agency securities
|
|
|
37,590
|
|
|
|
—
|
|
|
|
37,590
|
|
|
|
—
|
|
|
Municipal securities
|
|
|
10,417
|
|
|
|
—
|
|
|
|
10,417
|
|
|
|
—
|
|
|
Total assets measured at fair value
|
|
$
|
136,421
|
|
|
$
|
—
|
|
|
$
|
135,903
|
|
|
$
|
518
|
|
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 for the three months ended March 31, 2018 (in thousands):
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
518
|
|
|
$
|
500
|
|
|
Change in fair value
|
|
|
—
|
|
|
|
18
|
|
|
Purchases
|
|
|
—
|
|
|
|
—
|
|
|
Balance, end of period
|
|
$
|
518
|
|
|
$
|
518
|
|
Inventories are stated at lower of cost or NRV. 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.
12
Table of Contents
The components of invento
ries, net of allowances, are as follows (in thousands):
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Finished goods
|
|
$
|
4,879
|
|
|
$
|
4,709
|
|
|
Work-in-process
|
|
|
5,471
|
|
|
|
5,752
|
|
|
Raw materials and supplies
|
|
|
5,950
|
|
|
|
6,947
|
|
|
Total inventories
|
|
|
16,300
|
|
|
|
17,408
|
|
|
Plus: non-current raw materials and finished goods
|
|
|
430
|
|
|
|
826
|
|
|
|
|
$
|
16,730
|
|
|
$
|
18,234
|
|
As of March 31, 2018 and December 31, 2017, raw materials inventories consisted of raw materials used in the manufacture of the dronabinol API for SYNDROS® in our U.S.-based, state-of-the-art dronabinol manufacturing facility, the fentanyl API for SUBSYS®, and component parts and packaging materials used in the manufacture of both SUBSYS® and SYNDROS®. Work-in-process consisted of actual production costs, including facility overhead and tooling costs of in-process dronabinol, SUBSYS® and SYNDROS® products. Finished goods inventories consisted of finished SUBSYS® and SYNDROS® products and deferred SYNDROS® cost of revenue of $0 and $59,000 as of March 31, 2018 and December 31, 2017, respectively. There was no deferred SYNDROS® cost of revenue as of March 31, 2018, due to the adoption of ASC Topic 606 on January 1, 2018. Non-current raw materials and finished goods represent those inventories not expected to be consumed or sold within 12 months of the balance sheet date and are included in other assets in our condensed consolidated balance sheets. As of March 31, 2018 and December 31, 2017, 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 NRV. Inventories at March 31, 2018 and December 31, 2017, were reported net of these reserves of $9,123,000 and $13,664,000, respectively. During the three months ended March 31, 2018
, we decreased these reserves by approximately $5,000,000 for the destruction of previously reserved product, partially offset by an increase to the reserves of approximately $500,000. During the three months ended March 31, 2017, we increased these reserves by approximately $2,100,000.
|
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.
We record accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. We have established reserves for certain of our legal matters. Our loss estimates are generally developed in consultation with outside counsel and outside accounting experts and are based on analyses of potential outcomes. As legal and governmental proceedings, disputes and investigations are inherently unpredictable and in part, beyond our control, unless otherwise indicated, we cannot 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. While our liability in connection with certain claims cannot be currently estimated, the resolution in any reporting period of one or more of these matters could have a significant impact on our consolidated financial condition, results of operations, liquidity, and cash flows for that future period, and could ultimately have a material adverse effect on our consolidated financial position and could cause the market value of our common shares to decline. While we believe we have valid defenses in these matters, litigation and governmental and regulatory investigations are inherently uncertain, and we may in the future incur material judgments or enter into material settlements of claims.
13
Table of Contents
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 that we believe are potentially or actually material at this time. It is possible that criminal charges and substantial payments, fines and/or civil penalties or damages or exclusion from federal health care programs or other administrative actions, as well as a corporate integrity agreement, deferred prosecution agreement, or similar government mandated compliance document that institutes significant restrictions or obligations, could result for us from any government investigation or proceeding. In addition, even certain investigations that are not discussed below and which we do not deem to be material at this time could be determined to be material and could have a material adverse effect on our financial condition, results of operations and cash flows.
HHS Investigation
. We received a subpoena, dated December 9, 2013, from the Office of Inspector General of the HHS in connection with an investigation of potential violations involving HHS programs. This subpoena was issued in connection with an investigation by the U.S. Attorney’s Office for the Central District of California and requested documents regarding our business, including the commercialization of SUBSYS®. We continue to cooperate with this investigation and have produced substantial 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. Attorney’s Office for the District of Massachusetts. The subpoena requested 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 continue to cooperate with this investigation and have produced substantial documents in response to the subpoena and have provided other requested information.
DOJ Investigation Accrual
. We collectively refer to the HHS and HIPAA investigations discussed above as the “DOJ Investigation”. In connection with our cooperation, we have been engaged in discussions with the DOJ about these matters, including a resolution of potential liability exposure. Management accrued, as of September 30, 2017, an aggregate of $150,000,000, which represents our current best estimate of the minimum liability exposure which we expect to be paid out over five years in connection with the DOJ Investigation. This current best estimate, on the terms reflected in the foregoing sentence, reflects a minimum exposure at which management has determined a willingness to settle these matters. The accrual was recorded in accrued litigation award and settlements on our condensed consolidated balance sheets and as an operating expense on our condensed consolidated statements of operations and comprehensive loss. There can be no assurance that future discussions with the government to resolve these matters will be successful, that the approvals we need will be obtained or that any potential settlement will be agreed to on terms and conditions acceptable to us or the DOJ. We are unable to predict when these matters will be resolved or what further action, if any, the government will take in connection with them. In addition, there are ongoing discussions related to contingency based payments to the government associated with future events, that if triggered, would require payments of up to $75,000,000 in the aggregate. At this time, we are unable to predict if these future events are probable and as a result, no accrual has been recorded. Based on the ongoing uncertainties and potentially wide range of outcomes and contingencies associated with any potential resolution of the matter under investigation by the DOJ, the ultimate amount of potential liability may materially exceed the $150,000,000 accrual we have established. This accrual does not currently meet the more likely than not standard for tax deductibility; therefore, we have recognized no tax benefit for it in the condensed consolidated financial statements. Due to the uncertainty around the ultimate outcome of this matter, it is possible that some or all of this accrual may meet the more likely than not standard in the future, at which time the benefit would be recognized.
SEC Investigation
.
On January 11, 2018, the SEC's Los Angeles Regional office requested that the Company voluntarily provide information on the Company's: (1) restatement of the Company’s interim unaudited condensed consolidated financial statements as of and for the quarters ended September 30, June 30, and March 31, 2016 and 2015, filed on April 7, 2017; (2) sales and marketing practices; and (3) compliance program, internal controls and enhancements thereto. The Company has provided such information and continues to cooperate with the SEC's investigation, including by responding to requests or demands for documents and other information.
Health Care Professionals and Former Employees Related Investigations.
Investigations of Health Care Professionals.
A number of health care practitioners who formerly interacted with our company are under investigation or have been charged in criminal proceedings. In addition to the below investigations that are specifically directed at us, we have received governmental agency requests for information, including subpoenas, from at least the following governmental bodies: the USAO and/or HHS OIG of California (Los Angeles), Colorado, Connecticut, Eastern District of Michigan, Florida (Jacksonville), Kansas, Middle District of Florida, Middle District of Pennsylvania, New Hampshire, New Jersey, Northern District of California, Northern District of Texas, Rhode Island, Southern District of Alabama, Southern District of New York, Southern District of Ohio, Western District of New York, and the states of New York, Maryland and Delaware, regarding specific health care professionals that we have interacted with in those states. In addition, at least the following health care practitioners formerly interacting with our company have been charged as follows:
14
Table of Contents
On or about June 23, 2015, a nurse practitioner located in Connecticut, who served on our speaker bureau in connection with our speaker programs desig
ned 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 February 23, 2017, two Alabama health care professionals, who served on our speaker bureau were convicted on 19 of 20 counts brought against them, which included charges related to distribution of a controlled substance, drug conspiracy, health care fraud conspiracy and money laundering.
On or about March 22, 2017, the U.S. Attorney’s Office for the District of New Hampshire filed an indictment against a physician assistant, who served on our speaker bureau, charging him with violating the federal Anti-Kickback Statute and conspiring to violate the federal Anti-Kickback Statute in connection with payments received for serving as an Insys promotional speaker. The physician assistant pled not guilty.
On or about October 20, 2017, a health care professional in Rhode Island, who served on our speaker bureau pled guilty to health care fraud and conspiracy to receive kickbacks in connection with payments of approximately $188,000 from us.
On or about March 14, 2018, the U.S. Attorney’s Office for the Southern District of New York filed an indictment against five health care professionals who served on our speaker bureau, charging them with conspiracy to violate the federal Anti-Kickback Statute, violation of the federal Anti-Kickback Statute, and conspiracy to commit honest services fraud, and charged certain of them with aggravated identity theft, false statements, and wrongful disclosure of individually identifiable health information.
Investigations of Former Employees.
A number of our former employees have been charged in criminal proceedings related to our federal investigations and the following is certain information related thereto.
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 connection with two convicted Alabama health care professionals mentioned above. On or about April 23, 2018, the former sales employee was sentenced to six months home confinement.
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.
On June 1, 2017, the former district sales manager was charged in a superseding indictment with additional charges of honest services wire fraud and aggravated identity theft in connection with falsifying sign-in sheets for our speaker programs. On or about March 16, 2018, records were unsealed indicating that the two former employees each pled guilty to conspiracy to violate the Anti-Kickback Statue, violation of the Anti-Kickback Statue, violation of HIPAA, conspiracy to commit honest services wire fraud, and aggravated identity theft, and that the former sales representative also pled guilty to health care fraud.
On or about December 8, 2016, the U.S. Attorney’s Office for the District of Massachusetts issued an indictment against six former employees, including Michael L. Babich, our former President, CEO and director, on charges including racketeering conspiracy, conspiracy to commit mail fraud, conspiracy to commit wire fraud, conspiracy to violate the Anti-Kickback Statute and forfeiture (the “Original Indictment”).
On or about February 8, 2017, a former district sales manager in the Northeast was charged in federal court in New Haven, Connecticut, 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.
On April 5, 2017, the U.S. Attorney’s Office for the District of Massachusetts filed an information charging a former prior authorization specialist and manager of our patient services hub with one count of wire fraud conspiracy; the former employee pled guilty to that information on June 19, 2017.
On or about July 11, 2017, a former district sales manager pled guilty to conspiring to violate the federal Anti-Kickback Statute related to her activities in the Southern District of Alabama, as well as the Middle and Southern Districts of Florida, including in connection with the two convicted Alabama health care professionals mentioned above.
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On or about October 26, 201
7, the U.S. Attorney’s Office for the District of Massachusetts issued a superseding indictment in connection with the Original Indictment and added charges against our former President, CEO and director, Dr. John N. Kapoor. After Dr. Kapoor’s indictment,
he agreed to put his ownership in our common stock in a trust to be controlled independently, which was executed on February 27, 2018 and filed with the Securities and Exchange Commission on a Current Report on Form 8-K on March 1, 2018.
Except as otherwise indicated, we understand that each of these indicted individuals have entered pleas of not guilty to the charges against them.
Given the ongoing investigations related to our company and our current and former employees, as well as other individuals associated with our company, including health care professionals, it is possible that additional individual or company criminal charges and convictions and pleas could result from our ongoing federal and state government investigations and related proceedings and the foregoing disclosure and the disclosure below is merely intended to provide general insight into the comprehensive nature of the scope and breadth of investigations that are being conducted related to our company and is not, nor is it intended to be, an exhaustive listing of every charge, conviction or pleading in connection with our company. We continue to assess these matters to ensure we have an effective compliance program.
Ongoing State Related Investigations
. We have received CIDs or subpoenas, as the case may be, from at least each of the following state’s Office of the Attorney General (or similarly named and authorized office) which have ongoing investigations directed at our company: Arizona, Colorado, Florida, Kansas, Kentucky, Maryland, Minnesota, Missouri, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Virginia and Washington. Moreover, we have received an administrative subpoena from the California Insurance Commissioner. In addition, we understand that numerous physicians practicing within several of the aforementioned states have received subpoenas from certain state Attorney General or Department of Justice offices in connection with interactions with us. Generally, 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, or anticipate producing, documents in response to these CIDs, subpoenas and related requests for information from each office.
Resolved State Related Investigations.
Our company has resolved investigations conducted by certain states’ Office of the Attorney General (or similarly named and authorized office) as follows:
In connection with the investigation by the ODOJ, we entered into a settlement agreement with the ODOJ, referred to as an AVC, and 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 a result of our cooperation with the ODOJ's 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.
In connection with the investigation by the Illinois Office of the Attorney General, such office filed a complaint against us on behalf of the State of Illinois on August 25, 2016, in the Circuit Court of Cook County, Illinois, Chancery Division, asserting a claim for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act in connection with the sales and marketing of SUBSYS®. On August 18, 2017, the Circuit Court of Cook County entered a Final Judgment and Consent Decree, which, among other things, provided for a monetary payment of $4,450,000 by Insys and requires us to maintain certain controls and processes around our promotional and sales activity related to SUBSYS® in Illinois. The Final Judgment and Consent Decree expressly provides that we do not admit any violation of law or regulation. All monetary payments in connection with this Final Judgment and Consent Decree were accrued in the consolidated balance sheets as of June 30, 2017 and the payments in connection with this settlement were made prior to September 30, 2017.
In connection with the investigation by the State of New Hampshire, we entered into a settlement agreement with the State of New Hampshire referred to as an assurance of discontinuance, and made monetary payments totaling approximately $2,900,000 to the State of New Hampshire and a charitable contribution of $500,000 to be used by a New Hampshire charitable foundation in preventing or remediating problems related to abuse, misuse or misprescribing of opioid drugs. The assurance of discontinuance expressly provides that we do not admit any violation of law or regulation and requires us to maintain certain controls and processes around our promotional and sales activity related to SUBSYS® in New Hampshire. This settlement was reached as a result of our cooperation with the State of New Hampshire investigation and after producing documents in response to certain requests for information by the State of New Hampshire. These amounts were accrued in the consolidated balance sheets as of December 31, 2016 and the payments in connection with this settlement were made during the three months ended March 31, 2017.
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In connection with the investigation by the State of Massachusetts, we entered into a settlement with the State of Massachusetts, which was entered by the Sup
erior Court of the Commonwealth of Massachusetts in a Final Judgment by Consent on October 5, 2017. The Final Judgment by Consent provided for a monetary payment of $500,000 and requires us to maintain certain controls and processes around our promotional
and sales activity related to Massachusetts. The Final Judgment by Consent expressly provides that we do not admit any liability or wrongdoing. The amount of the monetary payment was accrued in the consolidated balance sheets as of September 30, 2017 and t
he payments in connection with this settlement were made during the three months ended December 31, 2017.
Ongoing Complaints filed in connection with State AG Investigations
. Our Company has several ongoing legal proceedings related to complaints filed in connection with investigations conducted by certain states’ Office of the Attorney General (or similarly named and authorized office) as follows:
In connection with the investigation by the State of Arizona, on August 30, 2017, the Arizona Attorney General filed a complaint on behalf of the State of Arizona against us in the Maricopa County, Arizona Superior Court. The complaint asserts claims for violations of the Arizona Consumer Fraud Act in connection with the sales and marketing of SUBSYS® in Arizona and in connection with our patient services hub. The complaint seeks a permanent injunction preventing us from engaging in practices in violation of the Arizona Consumer Fraud Act, restitution to consumers and other persons, disgorgement of profits, civil penalties, and investigative costs. On or about November 10, 2017, we filed a motion to dismiss. On January 17, 2018, the Court dismissed, based upon preemption by the federal Sunshine Act, the State’s claim to the extent related to remedies that are based upon the payment and disclosure of speaker fees, but did not dismiss the rest of the complaint. The State filed a motion for leave to amend its complaint, which the Court granted. We filed our answer to the amended complaint on April 5, 2018.
In connection with the investigation by the State of New Jersey, on October 5, 2017, the New Jersey Attorney General, on behalf of the State of New Jersey, and the Acting Director of the New Jersey Division of Consumer Affairs filed a complaint against us in the Superior Court of New Jersey, Chancery Division, Middlesex Vicinage. The complaint asserts claims for violations of the New Jersey Consumer Fraud Act and for violations of the New Jersey False Claims Act in connection with the sales and marketing of SUBSYS® in New Jersey and in connection with our patient services hub. The complaint seeks a permanent injunction preventing us from engaging in practices in violation of the New Jersey Consumer Fraud Act, disgorgement of profits, civil penalties, treble damages for alleged violations of the New Jersey False Claims Act, and costs and attorneys’ fees.
On November 16, 2017, the New Jersey Attorney General filed an Amended Complaint, which we moved to dismiss on January 8, 2018. The New Jersey Attorney General opposed our motion on March 28, 2018, and our reply brief is due on May 17, 2018.
On December 21, 2017, Attorney General of the State of North Carolina filed a complaint in Wake County, North Carolina Superior Court against us. The complaint asserts claims related to alleged violations of the North Carolina Consumer Protection Act. Our response to this complaint is due on May 27, 2018.
On February 1, 2018, the Attorney General of the State of New York, filed a complaint against us in the Supreme Court of the State of New York, County of New York. The complaint asserts claims related to alleged deceptive acts and practices. We moved to dismiss the complaint on April 18, 2018.
On February 5, 2018, the Consumer Protection Division, Office of the Attorney General of Maryland, filed a petition to enforce an administrative subpoena against us. Our response to this petition was filed on April 2, 2018.
Multi-District Prescription Opioid Litigation
. We have been named along with various other opioid manufacturers, opioid distributors, prescribers, pharmacies, and others in complaints focused on the national opioid epidemic filed by various cities, counties, states, Native American tribes, and third-party payers in many state and federal courts in Alabama, Arizona, Arkansas, California, Connecticut, Florida, Georgia, Indiana, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah and West Virginia. We are involved in more than 200 of these cases, the majority of which have been consolidated into multi-district litigation (No. 2804) in the Northern District of Ohio. Most of the cases in the multi-district litigation are presently stayed while the Court seeks to facilitate a resolution. On April 2, 2018, the Unites States filed a motion to participate in settlement discussions and as a friend of the court. Additionally, the Court set certain cases for a litigation track, and those cases will move forward toward trial, which is scheduled to commence on March 18, 2019.
Putative Class Action Litigation
.
We have been named, along with various other opioid manufacturers and distributors, in putative class action complaints that seek to assert claims allegedly related to the national opioid epidemic on behalf of
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purchasers of health insuran
ce between 1996 and the present in the states of California, Illinois, Massachusetts, New Jersey, and New York.
Congressional and Other Inquiries
. Many federal agencies and branches 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. Moreover, President Trump has declared the opioid crisis to be a public health emergency and has made it a priority to address this crisis.
Members of our U.S. Congress have been conducting hearings and other inquiries into causes and solutions to the national opioid epidemic that have involved inquiries in our Company’s practices. For example, on March 28, 2017, the Ranking Member of the Committee on Homeland Security and Governmental Affairs of the United States Senate distributed a letter to five manufacturers of opioid products, including us, requesting documents and information intended to aid such committee in understanding the challenges industry practices pose to efforts to curb opioid addiction and stem rising prescription drug costs for the federal government. This letter requested documents regarding our business, including the commercialization of SUBSYS®. This inquiry continues and has resulted in at least two reports that mention or address our Company. We continue to cooperate with this inquiry.
With the exception of the investigations by the ODOJ, the State of New Hampshire, the State of Illinois, the State of Massachusetts, and the DOJ, which we have quantified above, we believe a loss from an unfavorable outcome of these federal and state 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 stockholders 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 Complaints
Federal Securities Litigation.
On or about February 2, 2016, a complaint (captioned Richard Di Donato v. Insys Therapeutics, Inc., et al., Case 2:16-cv-00302-NVW) was filed in the United States District Court for the District of Arizona against us and certain of our current and former officers. The 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 the anti-fraud provisions of the federal securities laws by making materially false and misleading statements regarding our business, operations and compliance with laws during the class period, thereby artificially inflating the price of our common stock. On June 3, 2016, the Court appointed Clark Miller to serve as lead plaintiff. On June 24, 2016, the plaintiff filed a first amended complaint naming a former employee of Insys Therapeutics, Inc. as an additional defendant and extending the class period. On December 22, 2016, the plaintiff filed a second amended complaint, primarily to add allegations relating to an indictment of Michael L. Babich and certain of our former employees announced on December 8, 2016, and to extend the class period from August 12, 2014 through December 8, 2016. On January 12, 2017, the defendants moved to dismiss the second amended complaint. Oral arguments were heard by the Court on July 28, 2017, and the Court granted the motion in part and denied it in part. The plaintiff subsequently moved for leave to further amend the complaint, which we opposed. The Court denied Plaintiff’s motion on March 31, 2018, and Insys filed its answer on April 13, 2018. The plaintiff seeks unspecified monetary damages and other relief. We continue to vigorously defend this matter.
On or about March 17, 2017, a complaint (captioned Kayd Currier v. Insys Therapeutics, Inc., et al., Case 1:17-cv-01954-PAC) was filed in United States District Court for the Southern District of New York against us and certain of our current and former officers. The complaint was brought as a purported class action on behalf of purchasers of our securities between February 23, 2016, and March 15, 2017. In general, the plaintiffs allege that the defendants violated the anti-fraud provisions of the federal securities laws by making materially false and misleading statements regarding our business and financial results during the class period, thereby artificially inflating the price of our securities. On or about March 28, 2017, a second complaint making similar allegations (captioned Hans E. Erdmann v. Insys Therapeutics, Inc., et al., Case 1:17-cv-02225-PAC) was filed in the same Court. On May 31, 2017, the Court consolidated the first and second complaint and appointed lead counsel in the consolidated action. On July 31, 2017, the lead counsel filed a consolidated complaint. On October 11, 2017, the Court held a pre-motion conference, at which the Court granted leave to plaintiffs to again amend the complaint. The amendment was filed on October 27, 2017, and we moved to dismiss. The Motion to Dismiss remains pending. The plaintiffs in both actions seek unspecified monetary damages and other relief. We continue to vigorously defend this matter.
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Derivative Litigation.
On or about August 26, 2016, Gary Hirt and Precieux Art Jewelers Inc. filed a derivative complaint in the Court of Chancery of Delaware against members of our Board of Director
s and Michael L. Babich. 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) consciously disregarding their duty of ove
rsight of our compliance with laws and (c) trading on the basis of material non-public information. On November 8, 2016, the plaintiffs filed an amended derivative complaint, and on January 26, 2017, the plaintiffs supplemented the amended derivative compl
aint, primarily to add allegations relating to the indictment of Michael L. Babich and certain of our former employees announced on December 8, 2016. On November 22, 2016, the defendants moved to dismiss the action.
On or about February 2, 2017, Michael Bourque filed a derivative complaint in the Court of Chancery against members of our Board of Directors; Michael L. Babich; Franc Del Fosse, our General Counsel; and Sanga Emmanuel, our Vice President and Chief Compliance Officer. The Bourque derivative complaint contains similar claims as the other derivative complaint. All parties stipulated to consolidate the two actions, and the consolidated action is captioned In re Insys Therapeutics, Inc. Derivative Litigation, C.A. No. 12696-VCMR. Following the submission of motions for appointment as lead counsel, the Court held a hearing on March 23, 2017, and appointed counsel for Gary Hirt and Precieux Art Jewelers Inc. as lead counsel. Lead counsel is required to designate an operative complaint or file a consolidated complaint. The plaintiffs seek unspecified monetary damages and other relief derivatively on behalf of Insys Therapeutics, Inc.
On or about April 28, 2017, lead counsel filed a consolidated and amended complaint which maintained the original defendants this lead counsel had included in its original complaint and did not include any additional defendants included in the Bourque complaint. On May 31, 2017, we subsequently moved to stay or to dismiss the complaint and, on or about July 28, 2017, lead counsel filed an answering brief in opposition to our motion to stay or dismiss. On November 30, 2017, the Court granted our motion to stay but has required us to provide certain discovery to the plaintiffs. On February 8, 2018, in response to the plaintiffs’ motion to alter or clarify judgment, the Court ordered us to provide additional discovery to the plaintiffs. On March 16, 2018, the Court entered the parties’ stipulated proposed order implementing the Court’s ruling of February 8, 2018. We continue to vigorously defend this matter.
Paragraph IV Challenges
On June 26, 2017, we received a Paragraph IV Notice Letter from Par Pharmaceutical related to SYNDROS®. The letter asserts that (i) the FDA received an ANDA from Par Pharmaceutical, and (ii) that Par Pharmaceutical’s formulation does not infringe SYNDROS® patents and/or that our patents for SYNDROS® are invalid. On August 3, 2017, we filed suit in United States District Court for the District of Delaware, in which we claim the ANDA was not sufficiently complete and allege patent infringement. On September 1, 2017, Par Pharmaceutical filed an answer and counterclaims, to which we have replied. On March 6, 2018, we provided to Par Pharmaceutical a covenant not to sue. The parties agreed to dismiss the case without prejudice.
On November 7, 2017, we submitted to the FDA a citizen petition under sections 505(j) and 505(q) of the Federal Food, Drug, and Cosmetic Act (“FDC Act”) and the related regulations, 21 C.F.R. §§ 10.30-31, to request that the Commissioner of Food and Drugs (i) decline to receive or approve any ANDA application for generic dronabinol oral solution that relies on SYNDROS® as the Reference Listed Drug if the ANDA relies on a waiver in lieu of establishing in vivo bioequivalence to SYNDROS® and (ii) require that ANDA applicants for generic versions of SYNDROS® include federal and fasted state bioequivalence studies. On April 6, 2018, the FDA denied our citizen petition.
On or about August 2, 2017, we received a Paragraph IV Notice Letter from counsel for TEVA USA related to SUBSYS® 0.4mg. The letter asserts that (i) the FDA received an ANDA from TEVA USA and (ii) that TEVA USA’s formulation does not infringe SUBSYS® patents and/or that our patents for SUBSYS® are invalid. On September 13, 2017, we filed suit in United States District Court for the District of Delaware, in which we allege patent infringement. On January 15, 2018, TEVA USA filed an answer and counterclaims, to which we have replied. We intend to represent our interests vigorously in this matter.
On or about August 31, 2017, we received a Paragraph IV Notice Letter from counsel for Alkem Pharmaceuticals (“Alkem”) related to SYNDROS®. The letter asserts that (i) the FDA received an ANDA from Alkem Pharmaceuticals and (ii) Alkem Pharmaceuticals’ formulation does not infringe SYNDROS® patents and/or that our patents for SYNDROS® are invalid. On October 10, 2017, we filed suit in the United States District Court for the District of Delaware, in which we allege patent infringement. On November 22, 2017, Alkem Pharmaceuticals filed a motion to dismiss Insys’s complaint, which the Court subsequently denied. Alkem filed its answer and counterclaims, and Insys filed its answer to Alkem’s counterclaims on February 27, 2018. We intend to represent our interests vigorously in this matter.
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On or about December 6, 2017, we received a Paragraph IV Notice Letter from counsel for TEVA USA related to SYNDROS®. The letter asserts that (i) the FDA received an ANDA from TEVA USA and (ii) that T
EVA USA’s formulation does not infringe SYNDROS® patents and/or that our patents for SYNDROS® are invalid. We continue to evaluate this matter.
On or about January 31, 2018, we received a Paragraph IV Notice Letter from counsel for TEVA USA related to SUBSYS® 0.1mg, 0.2mg, 0.6mg, 1.2mg and 1.6mg. The letter asserts that (i) the FDA received an ANDA from TEVA USA and (ii) that TEVA USA’s formulation does not infringe SUBSYS® patents and/or that our patents for SUBSYS® are invalid. We filed a patent infringement lawsuit against TEVA USA on March 16, 2018. We intend to represent our interests vigorously in this matter.
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.
In February 2010, Insys Pharma and the other defendants answered and filed counter-claims to Dr. Kottayil’s 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.
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, which included a finding in favor of Kottayil and against Insys Pharma on Insys Pharma’s counterclaims of breach of fiduciary duty, fraud, and negligent misrepresentation.
On October 2, 2015, the Court denied Kottayil’s request to submit an application for attorneys’ fees for his defense of the Insys Pharma counterclaims, finding that the request was premature.
On or around November 1, 2015, we received a notice from the plaintiff’s attorneys demanding indemnification for legal and other defense costs alleged to have been incurred in connection with Dr. Kottayil’s defense of the Insys Pharma counterclaims in the amount of $3,630,000. We responded to these demands by, among other things, requesting 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.
Insurance Litigation.
On June 23, 2017, Aetna, Inc. and a subsidiary filed an action against us and a number of former employees in the Pennsylvania Court of Common Pleas, Philadelphia County (captioned Aetna Inc. v. Insys Therapeutics, Inc., Case No. 170602779). Plaintiffs bring claims against us for: (1) insurance fraud; (2) civil conspiracy; (3) common law fraud; (4) unjust enrichment; (5) negligent misrepresentation; and (6) negligence. Through all of the claims, Aetna seeks recovery of millions of dollars paid for SUBSYS® prescriptions that, allegedly, were not properly covered. It also seeks punitive damages, investigative expenses and costs of suit, reasonable attorneys’ fees and expenses, and prejudgment and post-judgment interest. Plaintiffs served their complaint on September 25, 2017. On October 25, 2017, we removed this matter to federal court. Aetna subsequently moved to remand the case to state court. On January 6, 2018, the district court denied Aetna’s motion to remand. We moved to dismiss Aetna’s claims and the motion has been fully briefed since November 30, 2017. We intend to vigorously defend this matter.
On July 12, 2017, numerous subsidiaries of Anthem, Inc. filed a complaint in the U.S. District Court for the District Court for the District Court for the District of Arizona against us (captioned Blue Cross of California, Inc. d/b/a Anthem Blue Cross of California v. Insys Therapeutics, Inc., Case No. 2:17-cv-02286-DLR). Plaintiffs brought claims against us for: (1) violation of various state laws prohibiting deceptive, unfair, and unlawful business practices (i.e., consumer fraud); (2) fraud; (3) negligent misrepresentation; (4) unjust enrichment; and (5) civil conspiracy to commit fraud and unfair business practices. Through all of the claims, Anthem seeks recovery of more than $19,000,000 paid for SUBSYS® prescriptions that, allegedly, were not
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properly covered. It also seeks punitive
damages and an injunction to prevent Insys from continuing to engage in the conduct underlying its claims. Plaintiffs served their complaint on July 14, 2017. On August 4, 2017, we filed an answer to such complaint. On February 2, 2018, Plaintiffs filed a
motion for leave to file a second amended complaint and on February 16, 2018, we filed (i) an opposition to Plaintiff’s motion to file a second amended complaint and (ii) a motion to stay the case. The motions remain pending. We intend to vigorously defend
this matter.
On October 31, 2017, we received correspondence from Horizon Blue Cross Blue Shield of New Jersey requesting reimbursement for allegedly fraudulently induced off-label purchases of SUBSYS® in connection with alleged claim value of approximately $4,000,000. We intend to vigorously defend this matter.
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 Insys Therapeutics, Inc. The complaint states that 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 U.S. District Court in the Middle District of Florida. On September 2, 2016, we filed a motion to dismiss. The Court granted our motion on September 15, 2017. The plaintiff subsequently filed a notice of appeal, and the opening brief on appeal was filed on March 9, 2018. Our answering brief is due on May 24, 2018. We continue to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our 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, Case No. C-02-cv-16-002718, against Dr. William Tham, Physical Medicine & Pain Management Associates, Maryland Neurological Institute, various physician assistants, and Insys Therapeutics, Inc. Plaintiff’s 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 filed a motion to dismiss and on or about May 6, 2017, the Court denied the motion to dismiss. On March 22, 2018, Plaintiff filed a motion to file a second amended complaint. We opposed the Motion on April 12, 2018. The Motion remains pending. We continue to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
Colby
. On or about January 25, 2017, Mackenzie Colby filed a complaint in the State of New Hampshire Strafford County Superior Court, Case No. 219-2017-CV-00040, against Christopher Clough, PA, Dr. O’Connell’s Pain Care Centers, Inc., and Insys Therapeutics, Inc. Plaintiff’s complaint states it is a personal injury action against Mr. Clough related to medical negligence, against O’Connell’s Pain Care Centers, Inc. for respondeat superior claims, and against Insys Therapeutics, Inc. for negligence, all under state laws. The lawsuit seeks unspecified compensatory and punitive damages. We filed a motion to dismiss/strike on April 5, 2017 and plaintiff filed a motion to amend the complaint on April 25, 2017. On June 16, 2017, the Court dismissed the complaint with leave to refile. The complaint was refiled on June 21, 2017, and we again moved to dismiss. On October 21, 2017, the Court denied our motion to dismiss, and we filed an answer. The parties have resolved this matter, which resolution when taken individually will not have a material adverse effect on the Company’s business, financial position or future results of operations.
Perusse.
On or about February 21, 2017, John Perusse filed a complaint in the State of New Hampshire Strafford County Superior Court, Case No. 219-2017-CV-00067, against Christopher Clough, PA, Dr. John J. Schermerhorn, Dr. O’Connell’s Pain Care Centers, Inc., and Insys Therapeutics, Inc. Plaintiff’s complaint states it is a personal injury action against Mr. Clough related to medical negligence, against O’Connell’s Pain Care Centers, Inc. for respondeat superior claims, and against Insys Therapeutics, Inc. and Dr. Schermerhorn for negligence, all under state laws. The lawsuit seeks unspecified compensatory and punitive damages. We filed a motion to dismiss/strike on April 20, 2017 and plaintiff filed a motion to amend the complaint on April 25, 2017. On June 16, 2017, the Court dismissed the complaint with leave to refile, and we again moved to dismiss. The complaint was refiled on June 21, 2017, and we again moved to dismiss. On October 21, 2017, the Court denied our motion to dismiss, and we filed an answer. The parties have resolved this matter, which resolution when taken individually will not have a material adverse effect on the Company’s business, financial position or future results of operations.
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Cassell
. On or about March 8, 2017, Jerome Cassell filed a complaint in the State of New Hampshire Strafford County Superior Court, Case No.
219-2017-CV-00085, against Christopher Clough, PA, Dr. John J. Schermerhorn, Dr. O’Connell’s Pain Care Centers, Inc., and Insys Therapeutics, Inc. Plaintiff’s complaint states it is a personal injury action against Mr. Clough related to medical negligence
, against O’Connell’s Pain Care Centers, Inc. for respondeat superior claims, and against Insys Therapeutics, Inc. and Dr. Schermerhorn for negligence, all under state laws. The lawsuit seeks unspecified compensatory and punitive damages. We filed a motion
to dismiss/strike on April 18, 2017, and plaintiff filed a motion to amend the complaint on April 25, 2017. On June 16, 2017, the Court dismissed the complaint with leave to refile. The complaint was refiled on June 21, 2017, and we again moved to dismiss
. On October 21, 2017, the Court denied our motion to dismiss, and we filed an answer. The parties have resolved this matter, which resolution when taken individually will not have a material adverse effect on the Company’s business, financial position or
future results of operations.
Fuller
. On or about March 23, 2017, Deborah Fuller & David Fuller, as Administrators Ad Prosequendum for the Estate of Sarah A. Fuller, deceased, and Deborah Fuller and David Fuller, individually, filed a complaint in the Superior Court of New Jersey Law Division, Middlesex County, Case No. L1859-17, against Vivienne Matalon, M.D., TLC Healthcare 2, LLC, Linden Care and Insys Therapeutics, Inc. The plaintiff’s complaint alleges negligence violations under the Wrongful Death Act pursuant to N.J.S.A 2A:31,
et seq.
and also brings claims for fraud and negligent misrepresentation. We filed a motion to dismiss the complaint on May 19, 2017, and the Court held oral argument on the motion on June 29, 2017. On July 27, 2017, the Court issued a ruling on the multi-party motion to dismiss. The Court dismissed some claims but denied the motion to dismiss on certain of plaintiffs’ claims. We answered the complaint, and, after plaintiffs dismissed the treating physician, on October 4, 2017, we removed the case to U.S. District Court for the District of New Jersey. Plaintiffs subsequently filed a motion to remand the case to state court on October 11, 2017. On January 19, 2018, the Magistrate Judge issued a Report and Recommendation, recommending that the District Court deny plaintiffs’ motion to remand. On February 5, 2018, the District Court adopted the Report and Recommendation. On February 6, 2018, plaintiffs filed a motion for leave to amend, seeking to add as defendants certain former Insys officers and a former employee. Insys filed its opposition to the motion for leave to amend on February 21, 2018. The motion remains pending. We continue to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
Cantone
. On or about June 15, 2017, we received service of a complaint filed by Angela Mistrulli Cantone and Philip L. Cantone in the State Court of South Carolina, County of Greenville, C.A. No.: 2017-CP-23 against Insys Therapeutics, Inc., Linden Care, LLC, Aathirayen Thiyagarajah, M.D. and Spine and Pain, LLC. The plaintiffs’ complaint alleges medical negligence, negligence, negligent misrepresentation, unjust enrichment, common law fraud, unfair and deceptive trade practices, aiding and abetting and loss of consortium. We filed a motion to dismiss, which the Court denied. We filed our answer on November 14, 2017. We continue to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
Ballou
.
On or about September 1, 2017, Carey Ballou filed a complaint in the circuit Court of Johnson County, Kansas, Case No. 17CV05004, against Insys Therapeutics, Inc., Insys Pharma, Inc., Torgny Andersson, Mid-America Physiatrist, P.A., Steven Simon M.D., Donna Ruck, Pharma Consultants KC, LLC, AmerisourceBergen Corporation, and Morris & Dickson Co., LLC. The plaintiffs bring claims against Insys for negligence, common law fraud, negligent misrepresentation, unfair and deceptive trade practices, unjust enrichment, conspiracy, and aiding and abetting. On December 26, 2017, Plaintiff filed a second amended complaint, which added as defendants certain former officers and employees. Insys moved to dismiss the second amended complaint on February 26, 2018. We intend to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
Whitham
.
On or about September 1, 2017, James “Mike” Whitham and Ashley Whitham filed a complaint in the Circuit Court of Johnson County, Kansas, Case No. 17CV05005, against Insys Therapeutics, Inc., Insys Pharma, Inc., Torgny Andersson, Mid-America Physiatrist, P.A., Steven Simon M.D., Donna Ruck, Pharma Consultants KC, LLC, AmerisourceBergen Corporation, and Morris & Dickson Co., LLC. The plaintiff brings claims against Insys for negligence, common law fraud, negligent misrepresentation, unfair and deceptive trade practices, unjust enrichment, loss of consortium, conspiracy, and aiding and abetting. On December 26, 2017, Plaintiff filed a second amended complaint, which added as defendants certain former officers and employees. Insys moved to dismiss the second amended complaint on February 26, 2018. We intend to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
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Hartsfield
.
On or about October 4, 2017, Cheryl Hartsfield filed a complaint in the Circuit Court of Pulaski County, Arkansas, Case No. 60CV-17-5581, against Insys Therapeutics, Inc., Linden Care, LLC, Mahmood Ahmad, and United Pain Car
e, Ltd. The plaintiff brings claims against Insys for common law fraud and deceit, breach of fiduciary duty, violations of the Arkansas deceptive trade practices act, civil conspiracy, acting in concert, and negligence. Insys filed its answer to the compla
int on November 27, 2017. We intend to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial posi
tion, or future results of operations.
Matalon.
On September 15, 2017, Vivienne Matalon, M.D. filed a complaint in the Superior Court of New Jersey, Law Division, Camden County, Case No. L-3224-17, against Insys Therapeutics, Inc., Linden Care, LLC, and Melina Ebu-Isaac. The action was subsequently transferred to Middlesex County Superior Court, Law Division. On April 6, 2018, the plaintiff filed a notice of dismissal with prejudice.
Breitenbach.
On December 18, 2017, Michelle Breitenbach filed a complaint in the Superior Court of New Jersey, Chancery Division, Monmouth County, against Insys Therapeutics, Inc. The plaintiff brings claims against Insys for breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel. On January 5, 2018, we removed the case to U.S. District Court for the District of New Jersey. The parties have agreed to resolve this matter, which resolution when taken individually will not have a material adverse effect on the Company’s business, financial position or future results of operations.
Jordan.
On January 5, 2018, Bobby Ray Jordan, individually and as Special Administrator of the Estate of Doris L. Jordan, deceased, filed a complaint in the District Court of Leavensworth County, Kansas against Insys Therapeutics, Inc., Insys Pharma, Inc., Torgny Andersson, Mid-America Physiatrist, P.A., Steven Simon, M.D., Donna Ruck, Pharma Consultants KC, LLC, John N. Kapoor, Michael L. Babich, and Alec Burlakoff. The plaintiff brings claims against Insys for negligence, conspiracy to commit fraud and breach of fiduciary duty, negligent misrepresentation, unfair and deceptive trade practices, unjust enrichment, survival action, and wrongful death action. On January 31, 2018, Insys moved to consolidate this case with the Ballou and Witham actions, which the Court denied. On April 16, 2018, we moved to transfer venue to Johnson County, Kansas. The motion remains pending. We intend to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
Mencucci.
On February 23, 2018, Lisa Mencucci and Angelo Mencucci filed a complaint in the Superior Court of Providence, Rhode Island against Insys Therapeutics, Inc. and Jerrold Rosenberg, M.D. Plaintiffs bring claims against Insys for common law fraud, common law fraud and misrepresentation – punitive damages, conscious misrepresentation involving risk of physical harm, conscious misrepresentation involving risk of physical harm – punitive damages, Rhode Island General Law 9-1-2, Rhode Island General Law 9-1-2 – punitive damages, negligent misrepresentation, negligent misrepresentation involving risk of physical harm, negligence, and violation of the Rhode Island Deceptive trade practices act. Our answer to the Complaint was filed on April 26, 2018. We intend to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
Hemmings
.
On March 21, 2018, William Hemmings filed a complaint in the United States District Court for the Northern District of Illinois against Insys Therapeutics, Inc. Plaintiff brings claims against Insys for negligence, fraud, and consumer fraud. Our response to the Complaint is due on May 16, 2018. We intend to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
Hampton.
On March 8, 2018, Scott Hampton, as Heir, Executor and Personal Representative of the Estate of Diana Hampton, individually and on behalf of his minor children I.S. and S.M., filed a complaint in Clark County, Nevada District Court against Steven A. Holper and Insys Therapeutics, Inc. Plaintiffs bring claims against Insys for wrongful death: negligence, survivor action: negligence, wrongful death: intentional/reckless conduct, survivor’s action: intentional/reckless conduct, negligence, strict liability – defect in design – product liability, strict liability – failure to warn, and punitive damages. On April 16, 2018, Insys removed this case to the United States District Court for the District of Nevada. On April 17, 2018, the District Judge entered an Order to Show Cause why the case should not be remanded to state court. The brief was filed on May 1, 2018. We intend to vigorously defend this matter and based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
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Munson.
On April 4, 2018, Morgan Michelle Munson and Christopher Edward Munson filed a complaint in Duval County, Florida Circuit Court
against Insys Therapeutics, Inc. and Linden Care, LLC. Plaintiffs bring claims against Insys for civil conspiracy, negligence, and aiding and abetting. Plaintiffs have not yet served Insys with the Complaint. We intend to vigorously defend this matter and
based on currently available information, we do not believe any resolution of this matter, when taken individually, will have a material adverse effect on our business, financial position, or future results of operations.
Except as it pertains to (i) the final settlements addressed above, (ii) the accrual of $150,000,000 related to the DOJ Investigation, and (iii) 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 of 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.
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.
Material Agreements
Aptar
In October 2015, we entered into an amended and restated supply, development and exclusive licensing agreement with Aptargroup, Inc. (“Aptar”), which, among other things, extended our exclusive supply rights to the current sublingual spray 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 supply, development and exclusive licensing agreement with Aptar from our parent to our manufacturing subsidiary as part of a corporate restructuring.
In April 2017, we, through our manufacturing subsidiary, entered into a further amendment to our Aptar supply, development and exclusive licensing agreement. This amendment effectively eliminates any prior minimum purchase obligations that had been set forth in the amendment dated October 30, 2015, and beginning in 2019, replaces them with a new annual flat fee of up to $500,000 if the quantity of devices purchased in a calendar year is less than one million devices. As a result, the cumulative effect related to this amendment reduces our aggregated purchase commitment with Aptar from $20,790,000 to $9,000,000 through December 21, 2022.
As of March 31, 2018, our remaining estimated annual contractual obligation under our agreement with Aptar was $7,500,000.
Renaissance
In April 2015, we entered into an amendment to our Renaissance manufacturing and supply agreement dated May 24, 2011, as amended, 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 January 2016, we assigned our rights, title, duties and obligations under our manufacturing and supply agreement with Renaissance from our parent to our manufacturing subsidiary as part of a corporate restructuring.
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In April 2018, we, through our manufacturing subsidiary, entered into a further amendment to our Renaissance manufacturing and supply agreement. This amendment effectively eliminates any prior minimum purchase (and batch)
obligations that had been set forth in the amendment dated July 2016, and replaces them with a new annual purchase commitment of $3,000,000 for the calendar year ended December 31, 2018, and $2,000,000 for the calendar years ending December 31, 2019 and 2
020. As a result, the cumulative effect related to this amendment reduces our aggregated purchase commitment with Renaissance from $12,000,000 to $7,000,000 through December 31, 2020.
As of March 31, 2018, our remaining estimated annual contractual obligation under our agreement with Renaissance was $6,065,000.
The following table sets forth our aggregate minimum purchase commitments with Renaissance and Aptar under these agreements (in thousands):
|
Years ending December 31,
|
|
|
|
|
|
Remainder of 2018
|
|
$
|
3,565
|
|
|
2019
|
|
|
4,000
|
|
|
2020
|
|
|
4,000
|
|
|
2021
|
|
|
2,000
|
|
|
2022
|
|
|
—
|
|
|
Thereafter
|
|
|
—
|
|
|
Total
|
|
$
|
13,565
|
|
|
7.
|
Stock-based Compensation
|
Amounts recognized in the condensed consolidated statements of operations and comprehensive loss with respect to our stock-based compensation plans were as follows (in thousands):
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Research and development
|
|
$
|
847
|
|
|
$
|
1,033
|
|
|
General and administrative
|
|
|
2,323
|
|
|
|
2,959
|
|
|
Total cost of stock-based compensation
|
|
$
|
3,170
|
|
|
$
|
3,992
|
|
The following table summarizes stock option activity during the three months ended March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (in years)
|
|
|
(in millions)
|
|
|
Vested and exercisable as of December 31, 2017
|
|
|
3,499,957
|
|
|
$
|
11.43
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
|
|
6,332,415
|
|
|
$
|
12.10
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,166,200
|
|
|
$
|
8.06
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(329,629
|
)
|
|
$
|
14.86
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(146,859
|
)
|
|
$
|
3.56
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2018
|
|
|
7,022,127
|
|
|
$
|
11.47
|
|
|
|
7.7
|
|
|
$
|
5.0
|
|
|
Vested and exercisable as of March 31, 2018
|
|
|
3,441,452
|
|
|
$
|
11.82
|
|
|
|
6.1
|
|
|
$
|
4.7
|
|
As of March 31, 2018, we expected to recognize $23,394,000 of stock-based compensation for outstanding options over a weighted-average period of 2.8 years.
From time to time we grant restricted stock units to certain employees and directors. Restricted stock units are valued at the closing market price of our common stock on the day of grant and the total value of the units is recognized as expense ratably over the vesting period of the grants. The following table summarizes restricted stock unit activity during the three months ended March 31, 2018:
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Table of Contents
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
|
Units
|
|
|
Per Unit
|
|
|
Outstanding as of December 31, 2017
|
|
|
381,900
|
|
|
$
|
10.27
|
|
|
Granted
|
|
|
277,770
|
|
|
$
|
8.08
|
|
|
Exercised
|
|
|
(49,910
|
)
|
|
$
|
12.65
|
|
|
Cancelled
|
|
|
(16,200
|
)
|
|
$
|
9.73
|
|
|
Outstanding as of March 31, 2018
|
|
|
593,560
|
|
|
$
|
9.06
|
|
As of March 31, 2018, we expected to recognize $4,591,000 of stock-based compensation for outstanding restricted stock units over a weighted-average period of 2.3 years.
Cash received from option exercises under all stock-based payment arrangements for the three months ended March 31, 2018 and 2017 was $524,000 and $654,000, respectively. For the three months ended March 31, 2018 and 2017, we recorded net reductions of $440,000 and $192,000, respectively, of our federal and state income tax liability, with an offsetting credit within income tax expense, resulting from the excess tax benefits of stock options. A full valuation allowance was recorded against these reductions during the three months ended March 31, 2018.
Basic net loss per common share is computed by dividing the net loss 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 loss per common share (dollars in thousands, except per share amounts):
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Historical net loss per share - Basic
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,370
|
)
|
|
$
|
(6,524
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding
|
|
|
73,745,202
|
|
|
|
71,945,743
|
|
|
Basic net loss per common share
|
|
$
|
(0.28
|
)
|
|
$
|
(0.09
|
)
|
|
Historical net loss per share - Diluted
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,370
|
)
|
|
$
|
(6,524
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding
|
|
|
73,745,202
|
|
|
|
71,945,743
|
|
|
Effect of dilutive stock options
|
|
|
—
|
|
|
|
—
|
|
|
Weighted average number of common shares
outstanding
|
|
|
73,745,202
|
|
|
|
71,945,743
|
|
|
Diluted net loss per common share
|
|
$
|
(0.28
|
)
|
|
$
|
(0.09
|
)
|
As we have incurred a net loss for three months ended March 31, 2018 and 2017, basic and diluted per share amounts are the same, since the effect of potential common share equivalents is anti-dilutive.
Anti-dilutive share equivalents included 5,807,921 and 74,665 outstanding stock options as of March 31, 2018 and 2017, respectively.
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Table of Contents
|
9.
|
Product Lines, Concentration of Credit Risk and Significant Customers
|
We are engaged in the business of developing and selling pharmaceutical products. During the three months ended March 31, 2018, we had two product lines, SUBSYS® and SYNDROS®. Our CODM evaluates revenues based on product lines.
The following tables summarizes our net revenue by product line, as well as the percentage of revenue by route to market (in thousands):
|
|
|
Net Revenue by Product Line
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
SUBSYS
®
|
|
$
|
23,274
|
|
|
$
|
35,962
|
|
|
SYNDROS
®
|
|
|
637
|
|
|
|
—
|
|
|
Total net revenue
|
|
$
|
23,911
|
|
|
$
|
35,962
|
|
|
|
|
Percent of Revenue by Route
to Market
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Pharmaceutical wholesalers
|
|
|
61
|
%
|
|
|
66
|
%
|
|
Specialty pharmaceutical retailers
|
|
|
39
|
%
|
|
|
34
|
%
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
All our products are sold in the United States of America.
Product shipments to our two largest pharmaceutical wholesalers accounted for 31% and 18% of total shipments and product shipments to our two largest specialty pharmaceutical retailers accounted for 22% and 17% of total shipments for the three months ended March 31, 2018. Product shipments to our four largest pharmaceutical wholesalers accounted for 21%, 20%, 11% and 10% of total shipments and product shipments to one specialty pharmaceutical retailer accounted for 31% of total shipments for the three months ended March 31, 2017. Our two largest pharmaceutical wholesalers’ accounts receivable balances accounted for 47% and 13% of gross accounts receivable and our two largest specialty pharmaceutical retailers’ accounts receivable balances accounted for 24% and 11% of gross accounts receivable balance as of March 31, 2018. Three pharmaceutical wholesalers’ accounts receivable balances accounted for 44%, 18%, and 10% of gross accounts receivable balance as of December 31, 2017, and two specialty pharmaceutical retailers’ accounts receivable balances accounted for 13% and 12% of gross accounts receivable as of December 31, 2017.
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