Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2019 | May 01, 2019 | |
Document and Entity Information | ||
Entity Registrant Name | SUPERNUS PHARMACEUTICALS INC | |
Entity Central Index Key | 0001356576 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Common Stock, Shares Outstanding | 52,384,248 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q1 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 |
Current assets | ||
Cash and cash equivalents | $ 122,778 | $ 192,248 |
Marketable securities | 170,165 | 163,770 |
Accounts receivable, net | 79,950 | 102,922 |
Inventories, net | 26,518 | 25,659 |
Prepaid expenses and other current assets | 20,556 | 8,888 |
Total current assets | 419,967 | 493,487 |
Long term marketable securities | 522,551 | 418,798 |
Property and equipment, net | 4,226 | 4,095 |
Intangible assets, net | 30,063 | 31,368 |
Lease assets | 20,049 | |
Deferred income taxes | 27,967 | 29,683 |
Other assets | 625 | 380 |
Total assets | 1,025,448 | 977,811 |
Current liabilities | ||
Accounts payable | 7,240 | 3,195 |
Accrued product returns and rebates | 88,200 | 107,063 |
Accrued expenses and other current liabilities | 36,607 | 36,535 |
Income taxes payable | 17,233 | 12,377 |
Non-recourse liability related to sale of future royalties, current portion | 2,426 | 2,183 |
Total current liabilities | 151,706 | 161,353 |
Convertible notes, net | 333,310 | 329,462 |
Non-recourse liability related to sale of future royalties, long term | 21,957 | 22,575 |
Lease liabilities, long term | 27,824 | |
Other non-current liabilities | 10,633 | 11,398 |
Total liabilities | 545,430 | 524,788 |
Stockholders' equity | ||
Common stock, $0.001 par value, 130,000,000 shares authorized 52,374,248 and 52,316,583 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | 52 | 52 |
Additional paid-in capital | 373,707 | 369,637 |
Accumulated other comprehensive earnings (loss), net of tax | 1,427 | (3,158) |
Retained earnings | 104,832 | 86,492 |
Total stockholders' equity | 480,018 | 453,023 |
Total liabilities and stockholders' equity | $ 1,025,448 | $ 977,811 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2019 | Dec. 31, 2018 |
Condensed Consolidated Balance Sheets | ||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 130,000,000 | 130,000,000 |
Common stock, shares issued | 52,374,248 | 52,316,583 |
Common stock, shares outstanding | 52,374,248 | 52,316,583 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Earnings - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenues | ||
Total revenues | $ 85,474 | $ 90,429 |
Costs and expenses | ||
Cost of product sales | 3,684 | 3,278 |
Research and development | 15,394 | 18,908 |
Selling, general and administrative | 40,968 | 36,849 |
Total costs and expenses | 60,046 | 59,035 |
Operating earnings | 25,428 | 31,394 |
Other expenses, net | (1,189) | (212) |
Earnings before income taxes | 24,239 | 31,182 |
Income tax expense | 5,899 | 4,830 |
Net earnings | $ 18,340 | $ 26,352 |
Earnings per share | ||
Basic (in dollars per share) | $ 0.35 | $ 0.51 |
Diluted (in dollars per share) | $ 0.34 | $ 0.49 |
Weighted-average shares outstanding | ||
Basic (in shares) | 52,336,443 | 51,536,474 |
Diluted (in shares) | 53,985,385 | 53,788,346 |
Product | ||
Revenues | ||
Total revenues | $ 83,099 | $ 89,120 |
Royalty | ||
Revenues | ||
Total revenues | $ 2,375 | $ 1,309 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Comprehensive Earnings - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Condensed Consolidated Statements of Comprehensive Earnings | ||
Net earnings | $ 18,340 | $ 26,352 |
Other comprehensive earnings (loss) | ||
Unrealized gain (loss) on marketable securities, net of tax | 4,585 | (1,544) |
Other comprehensive earnings (loss) | 4,585 | (1,544) |
Comprehensive earnings | $ 22,925 | $ 24,808 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Changes in Stockholder's Equity - USD ($) $ in Thousands | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Earnings (Loss) | Retained Earnings (Accumulated Deficit) | Total |
Increase (Decrease) in Stockholders' Equity | |||||
Cumulative-effect of adoption of ASU | ASU 2014-09 | $ 2,322 | $ 2,322 | |||
Adjusted Balance | $ 51 | $ 294,999 | $ (747) | (24,501) | 269,802 |
Beginning balance at Dec. 31, 2017 | $ 51 | 294,999 | (747) | (26,823) | 267,480 |
Beginning balance (in shares) at Dec. 31, 2017 | 51,314,850 | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Share-based compensation | 2,635 | 2,635 | |||
Exercise of stock options | $ 1 | 2,857 | 2,858 | ||
Exercise of stock options (in shares) | 319,141 | ||||
Equity component of convertible notes issuance, net of tax | 56,215 | 56,215 | |||
Purchases of convertible note hedges, net of tax | (70,137) | (70,137) | |||
Issuance of warrants | 65,688 | 65,688 | |||
Net earnings | 26,352 | 26,352 | |||
Unrealized gains (loss) on marketable securities, net of tax | (1,544) | (1,544) | |||
Ending balance at Mar. 31, 2018 | $ 52 | 352,257 | (2,291) | 1,851 | 351,869 |
Ending balance (in shares) at Mar. 31, 2018 | 51,633,991 | ||||
Adjusted Balance at Dec. 31, 2017 | 51,314,850 | ||||
Beginning balance at Dec. 31, 2018 | $ 52 | 369,637 | (3,158) | 86,492 | 453,023 |
Beginning balance (in shares) at Dec. 31, 2018 | 52,316,583 | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Share-based compensation | 3,287 | 3,287 | |||
Exercise of stock options | 783 | 783 | |||
Exercise of stock options (in shares) | 57,665 | ||||
Net earnings | 18,340 | 18,340 | |||
Unrealized gains (loss) on marketable securities, net of tax | 4,585 | 4,585 | |||
Ending balance at Mar. 31, 2019 | $ 52 | $ 373,707 | $ 1,427 | $ 104,832 | $ 480,018 |
Ending balance (in shares) at Mar. 31, 2019 | 52,374,248 |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Cash flows from operating activities | ||
Net earnings | $ 18,340 | $ 26,352 |
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||
Realized loss on sales of securities | (8) | |
Depreciation and amortization | 1,679 | 1,707 |
Amortization of operating lease assets | 879 | |
Amortization of deferred financing costs and debt discount | 3,848 | 612 |
Amortization of premium/discount on marketable securities | (1,094) | 89 |
Non-cash interest expense | 1,437 | 701 |
Non-cash royalty revenue | (1,576) | (1,300) |
Share-based compensation expense | 3,287 | 2,635 |
Deferred income tax (benefit) provision | 279 | (1,120) |
Changes in operating assets and liabilities: | ||
Accounts receivable | 23,013 | (798) |
Inventories | (859) | (2,771) |
Prepaid expenses and other current assets | (1,799) | (62) |
Other non-current assets | (196) | (342) |
Accounts payable | 4,045 | (3,440) |
Accrued product returns and rebates | (18,863) | 4,691 |
Accrued expenses and other current liabilities | (3,177) | (1,132) |
Income taxes payable | 4,856 | 327 |
Other non-current liabilities | (1,098) | 984 |
Net cash provided by operating activities | 32,993 | 27,133 |
Cash flows from investing activities | ||
Purchases of marketable securities | (150,167) | (57,757) |
Sales and maturities of marketable securities | 47,143 | 7,343 |
Purchases of property and equipment | (221) | (253) |
Deferred legal fees | (1) | (343) |
Net cash used in investing activities | (103,246) | (51,010) |
Cash flows from financing activities | ||
Proceeds from issuance of convertible notes | 402,500 | |
Convertible notes issuance financing costs | (10,435) | |
Proceeds from issuance of warrants | 65,688 | |
Purchases of convertible note hedges | (92,897) | |
Proceeds from issuance of common stock | 783 | 2,857 |
Net cash provided by financing activities | 783 | 367,713 |
Net change in cash and cash equivalents | (69,470) | 343,836 |
Cash and cash equivalents at beginning of year | 192,248 | 100,304 |
Cash and cash equivalents at end of period | 122,778 | 444,140 |
Supplemental cash flow information | ||
Cash paid for interest on convertible notes | 1,258 | |
Income taxes paid | 800 | 5,623 |
Cash paid for amounts included in the measurement of lease liabilities | ||
Operating cash flows from operating leases | 1,313 | 1,385 |
Non-cash investing and financing activities | ||
Deferred legal fees included in accounts payable and accrued expenses | 250 | $ 304 |
Lease assets and tenant receivable obtained for new operating leases | $ 17,136 |
Organization and Business
Organization and Business | 3 Months Ended |
Mar. 31, 2019 | |
Organization and Business | |
Organization and Business | 1. Organization and Business Supernus Pharmaceuticals, Inc. (the Company) was incorporated in Delaware and commenced operations in 2005. The Company is a pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases. The Company markets two products; Oxtellar XR for the treatment of epilepsy and Trokendi XR for the prophylaxis of migraine headache and treatment of epilepsy. The Company has several proprietary product candidates in clinical development that address the CNS market. The Company launched Oxtellar XR and Trokendi XR for the treatment of epilepsy in 2013, launched Trokendi XR for the prophylaxis of migraine headache in adolescents and adults in April 2017 and launched Oxtellar XR with an expanded indication to include monotherapy for partial seizures in January 2019. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2019 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The Company’s condensed consolidated financial statements include the accounts of Supernus Pharmaceuticals, Inc., Supernus Europe Ltd., Biscayne Neurotherapeutics, Inc. and its wholly-owned subsidiary, Biscayne Neurotherapeutics Australia Pty Ltd., collectively referred to herein as “Supernus” or “the Company.” All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (SEC) for interim financial information. As permitted under Generally Accepted Accounting Principles in the United States (U.S. GAAP), certain notes and other information have been omitted from the interim unaudited condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s most recent annual report on Form 10-K for the year ended December 31, 2018, filed with the SEC. In management’s opinion, the condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for any interim period are not necessarily indicative of the Company’s future quarterly or annual results. The Company, which is primarily located in the United States (U.S.), operates in one operating segment. Use of Estimates The Company bases its estimates on: historical experience; various forecasts; information received from its service providers; and other assumptions that the Company believes are reasonable under the circumstances. Actual results could differ materially from the Company’s estimates. The Company evaluates the methodology employed in its estimates on an ongoing basis. Revenue Recognition The Company recognizes revenue when control of goods or provision of services are transferred to the Company's customers, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company does not adjust revenue for any financing effects for transactions where the Company expects the period between the transfer of the goods or services and collection to be less than one year. There were no contract assets or liabilities recorded as of March 31, 2019. Revenue from Product Sales The Company’s products are distributed through a third party fulfillment center. The Company’s customers, who are primarily pharmaceutical wholesalers and distributors, purchase product to fulfill orders from retail pharmacy chains and independent pharmacies of varying size and buying power. The Company recognizes gross revenue when its products are shipped from its fulfillment center to its customers and the customers take control of the products. The Company’s customers take control of the products, including title and ownership, upon physical receipt of the products at their facilities. Product sales are recorded net of various forms of variable consideration, including estimated rebates, discounts, allowances, and an estimated liability for future product returns (collectively, “sales deductions”). Variability in the net transaction price for the Company’s products primarily arises from sales deductions, as described below. Significant judgment is required in estimating sales deductions. In estimating sales deductions the Company considers: historical experience; current contract prices under applicable programs; unbilled claims; processing time lags; and inventory levels in the distribution channel. The Company adjusts its estimates of revenue either when the most likely amount of consideration it expects to receive changes, or when the consideration becomes fixed. If actual results in the future vary from estimates, the Company adjusts these estimates. These adjustments could materially affect net product sales and earnings in the period that such adjustments become known. Sales Deductions Sales deductions are primarily comprised of rebates, product returns and sales discounts. The Company records product sales net of the following sales deductions: · Rebates : Rebates are discounts which the Company pays under either private sector or public sector health care programs. Public sector rebate programs encompass: various Medicaid Drug Rebate Programs; Medicare Coverage Gap Programs; and programs covering public health service institutions and government entities. All federal employees and agencies purchase drugs under the Federal Supply Schedule. Private sector rebate programs include: contractual agreements with managed care providers, under which the Company pays fees to gain access to that provider's patient drug formulary; Company sponsored programs, under which the Company defrays or eliminates patient co-payment charges that the patient would otherwise pay to their managed care provider. Rebates paid under public sector programs are generally mandated under law, whereas private sector rebates are generally contractually negotiated by the Company with managed care providers. Rebates are owed upon dispensing product to a patient (i.e., filling a prescription. The accrual balance consists of three components). First, because rebates are generally invoiced and paid quarterly in arrears, the accrual balance consists of an estimate of the amount expected to be incurred for prescriptions dispensed in the current quarter. Second, the accrual balance also includes an estimate for known or estimated prior quarters' unpaid rebates, to cover prescriptions dispensed in past quarters. Third, the accrual balance includes an estimate for rebates that will be prospectively owed, for prescriptions filled in future quarters (i.e., for product which has been sold to wholesalers or distributors, and which resides either as wholesaler/distributor inventory, or is held as inventory at pharmacies). Because the period from the date on which the prescription is filled to the date the Company receives and pays the invoice varies, the Company's estimates of expected rebate claims vary by program and by type of customer. For each of its products, the Company bases its estimates of expected rebate claims on multiple factors, including historical levels of deductions; contractual terms with managed care providers; actual and anticipated changes in product price; prospective changes in managed care fee for service contractual agreements; prospective changes in co-pay assistance programs; and anticipated changes in program utilization rates (i.e., patient participation rates). The sensitivity of the Company's estimates can vary by program and by type of customer. If actual rebates vary from estimated amounts, the Company may need to adjust the balances of such accrued rebates to reflect actual expenditures with respect to these programs. These changes could materially affect net product sales and earnings in the period of adjustment. The Company records an estimated liability for rebates at the time the customer takes title to the product (i.e., at the time of sale to wholesalers/distributors), and records this liability as a reduction to gross product sales and an increase in Accrued product returns and rebates in current liabilities. · Returns : Sale of the Company's products are not subject to a general right of return. Product that has been used to fill patient prescriptions is no longer subject to any right of return. However, the Company will accept return of product that is damaged or defective when shipped from its warehouse. In addition, the Company will accept return of expired product six months prior to and up to 12 months subsequent to the product's expiry date. Expired or defective returned product cannot be re-sold and is therefore destroyed. The Company estimates the liability for returns based on the actual returns experience for its two commercial products, in conjunction with industry experience for return of similar products (i.e., ambient temperature storage for oral formulations). Because the Company's products have not reached maturity, the return rate of its products has and is expected to continue to vary. The Company records an estimated liability for product returns at the time the customer takes title to the product (i.e., at time of sale) as a reduction to gross product sales and an increase in Accrued product returns and rebates in current liabilities. The Company's estimated liability for product returns is also affected by price increases taken subsequent to the date of sale. The Company's products have a shelf life of 36 to 48 months from date of manufacture. Because of the extended shelf life coupled with its return policy, there typically is a significant time lag between the time at which the product is sold and when the Company issues credit on expired product. The Company's policy generally permits product returns to be processed at current wholesaler price rather than historical price. Therefore, price increase(s) taken during the current period increase(s) the provision for product returns because it affects the estimated liability for product returns for both sales made in the current period as well as sales made in prior periods. When the Company adjusts its estimates for product returns, either favorably or unfavorably, this affects product sales and earnings in the period of adjustment. · Sales discounts : Distributors and wholesalers of pharmaceutical products are generally offered various forms of consideration, including allowances, service fees and prompt payment discounts, for distributing products. Distributor and wholesaler allowances and service fees arise from contractual agreements and are estimated as a percentage of the price at which the Company sells product to them. In addition, they are offered a prompt pay discount for payment within a specified period. The Company accounts for these discounts at the time of sale as a reduction to gross product sales, and records these amounts as an Accounts receivable valuation allowance . Customer orders are generally fulfilled within a few days of receipt, resulting in minimal order backlog. Open purchase orders for products from customers are expected to be fulfilled within the next 12 months. There are no minimum product purchase requirements. License Revenues License and Collaboration Agreements The Company has entered into collaboration agreements to commercialize both Oxtellar XR and Trokendi XR outside of the U.S., which involve the right to use the Company’s intellectual property as a functional license. These agreements generally include an up-front license fee and ongoing milestone payments upon the achievement of specific events. These agreements may also require minimum royalty payments based on sales of products developed from the applicable intellectual property. Up-front license fees are recognized once the license has been delivered to the customer. Milestones are a form of variable consideration that are recognized when either the underlying events have been achieved (i.e., event-based milestone) or the sales-based targets have been met by the collaborative partner (i.e., sales-based milestone). Both types of milestone payments are non-refundable. The Company evaluates whether achieving the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. This can involve management's judgment that includes assessing factors that are outside of the Company's influence, such as: likelihood of regulatory success; availability of third party information; and expected duration of time until achievement of event. These factors are evaluated based on the specific facts and circumstances. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Event-based milestones are recognized in the period that the related event, such as regulatory approval, occurs. Milestone payments that are not within the control of the Company, such as approval from regulatory authorities, or where attainment of the specified event is dependent on the success of a third-party, are not considered probable of being achieved until the specified event occurs. Sales-based milestones are recognized as revenue when the sales-based target is achieved. Revenue is recognized from the satisfaction of performance obligations in the amount billable to the customer. Revenue associated with future milestones will be recognized when the related event occurs or sales-based target is achieved. There are no guaranteed minimum amounts owed to the Company related to license and collaboration agreements. Royalty Revenues The Company recognizes non-cash royalty revenue for amounts earned pursuant to a royalty agreement with United Therapeutics Corporation (United Therapeutics) that involves the right to use the Company’s intellectual property as a functional license. In 2014, the Company sold certain of these royalty rights to Healthcare Royalty Partners III, L.P. (HC Royalty) (see Note 17, Commitments and Contingencies ). Accordingly, the Company records non-cash royalty revenue based on estimated product sales by United Therapeutics, in which those product sales result in payments made from United Therapeutics to HC Royalty in connection with these agreements. Royalty revenue also includes royalty amounts received from collaboration partners, including from Shire Plc (Shire) (now a subsidiary of Takeda Pharmaceutical Company Ltd), based on net product sales of Shire's product, Mydayis, in the current period. Royalty revenue is only recognized when the underlying product sale by Shire occurs. The Shire arrangement also involves the right to use the Company's intellectual property as a functional license. There are no guaranteed minimum amounts owed to the Company related to any royalty revenue agreement. Preclinical Study and Clinical Trial Accruals The Company estimates preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions, clinical investigators, clinical research organizations (CROs) and other service providers that conduct activities on the Company’s behalf. In recording service fees, the Company estimates the time period over which the related services are performed and compares the level of effort expended through the end of each period with the cumulative expenses recorded and payments made for such services. As appropriate, the Company accrues additional service fees or defers any non-refundable advance payments until the related services are performed. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts its accrued expenses or its deferred advance payments accordingly. If the Company later determines that it no longer expects the services associated with a nonrefundable advance payment to be rendered, the remaining portion of that advance payment is charged to expense in the period in which such determination is made. Share-Based Compensation The Company recognizes share-based compensation expense over the service period using the straight-line method. Employee share-based compensation is measured based on estimated fair value as of the grant date. The Company uses the Black-Scholes option-pricing model in calculating the fair value of option grants as of the grant date. The Company uses the following assumptions for estimating fair value of option grants: Fair Value of Common Stock —The fair value of the common stock underlying the option grants is determined based on observable market prices of the Company's common stock. Expected Volatility —Volatility is a measure of the amount by which the Company’s share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Beginning in the first quarter of 2019, the Company uses the historical volatility of its common stock to measure expected volatility for future option grants. Prior to 2019, the Company used the volatility of the common stock of several public entities of similar size, complexity, and stage of development. Prior to the first quarter of 2019, volatility was estimated using the volatility of the stock of these companies, as well as taking into consideration the Company's actual volatility since the Company's IPO in 2012. Dividend Yield —The Company has never declared or paid dividends, and has no plans to do so in the foreseeable future. Expected Term — This is the period of time during which options are expected to remain unexercised. Options have a maximum contractual term of ten years. Beginning in the first quarter of 2019, the Company determines the average expected life of stock options using its historical experience. Prior to the first quarter of 2019, the Company determined the average expected life of stock options according to the "simplified method", as described in Staff Accounting Bulletin 110, which is the mid-point between the vesting date and the end of the contractual term. Risk-Free Interest Rate —This is the U.S. Treasury note rate as of the week each option grant is issued, with a term that most closely resembles the expected term of the option. Expected Forfeiture Rate —Forfeitures are accounted for as they occur. Self-insurance Liabilities As of January 1, 2019, the Company self-insures its employee medical insurance liability. The self-insurance liability is undiscounted and determined actuarially. It is based on claims filed, historical and industry claims experience, and an estimate of claims incurred but not yet paid. The Company has established stop-loss amounts that limit the Company’s further exposure after a claim reaches the designated stop-loss threshold. The stop-loss limit for self-insured employee medical claims is $150,000 per employee per year. The Company recorded self-insurance liability of approximately $515,000 as of March 31, 2019 in Accrued expenses and other current liabilities in the condensed consolidated balance sheets. Advertising Expense Advertising expense includes costs of promotional materials and activities, such as marketing materials, marketing programs and speaker programs. The costs of the Company’s advertising efforts are expensed as incurred. The Company incurred approximately $9.9 million and $7.9 million in advertising costs for the three month periods ended March 31, 2019 and 2018, respectively. These expenses are recorded in Selling, general and administrative expenses in the condensed consolidated statements of earnings. Recently Issued Accounting Pronouncement s Accounting Pronouncements Adopted In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842)” and its related amendments (New Lease Standard). The New Lease Standard requires a lessee to recognize a right-of-use (ROU) lease asset and a corresponding lease liability on the balance sheet. The Company adopted the New Lease Standard on January 1, 2019 using the modified retrospective method, which applies the provision of the New Lease Standard at the effective date without adjusting comparative periods presented. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the New Lease Standard which, among other things, allowed the Company to carry forward the historical lease classification. The adoption of the New Lease Standard resulted in the recognition of lease assets and lease liabilities for operating leases as of January 1, 2019 of approximately $4.0 million. Financial reporting for periods on or after January 1, 2019 are presented under the new guidance. Prior period amounts are not adjusted and continue to be reported in accordance with previous guidance. The standard did not materially impact the Company’s condensed consolidated net earnings and had no impact on cash flows (see Note 14, Leases ). New Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13 , Financial Instruments—Credit Losses (Topic 326), which requires credit losses on financial assets measured on an amortized cost basis to be presented at the net amount expected to be collected, rather than based on incurred losses. Further, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses, limited to the amount by which fair value is below amortized cost. The new standard also requires enhanced disclosure of credit risk associated with respective assets. The standard is effective for fiscal years beginning after December 15, 2019, for interim and annual periods within those years, with early adoption permitted. The Company is currently assessing the impact of this new standard. The Company does not expect it to have a material impact. |
Fair Value of Financial Instrum
Fair Value of Financial Instruments | 3 Months Ended |
Mar. 31, 2019 | |
Fair Value of Financial Instruments | |
Fair Value of Financial Instruments | 3. Fair Value of Financial Instruments The fair value of an asset or liability represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company reports assets and liabilities measured at fair value using a three level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows: · Level 1—Inputs are unadjusted quoted prices in active markets for identical assets that the Company has the ability to access as of the measurement date. · Level 2—Inputs are: quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.); and inputs that are derived principally from or corroborated by observable market data by correlation or other means (i.e., market corroborated inputs). · Level 3—Unobservable inputs that reflect the Company’s own assumptions, based on the best information available, including the Company’s own data. The Company's financial assets that are required to be measured at fair value on a recurring basis are as follows, in thousands of dollars: Fair Value Measurements at March 31, 2019 (unaudited) Significant Total Fair Quoted Prices Other Significant Value at in Active Markets Observable Unobservable March 31, for Identical Assests Inputs Inputs 2019 (Level 1) (Level 2) (Level 3) Assets: Cash and cash equivalents $ 122,778 $ 122,778 $ — $ — Marketable securities Corporate debt securities 170,165 246 169,919 — Long term marketable securities Corporate debt securities 521,398 450 520,948 — Government debt securities 1,153 — 1,153 — Other non-current assets Marketable securities - restricted (SERP) 375 1 374 — Total assets at fair value $ 815,869 $ 123,475 $ 692,394 $ — Fair Value Measurements at December 31, 2018 Significant Total Fair Quoted Prices Other Significant Value at in Active Markets Observable Unobservable December 31, for Identical Assests Inputs Inputs 2018 (Level 1) (Level 2) (Level 3) Assets: Cash and cash equivalents $ 192,248 $ 192,248 $ — $ — Marketable securities Corporate debt securities 163,770 245 163,525 — Long term marketable securities Corporate debt securities 415,650 445 415,205 — Government debt securities 3,148 — 3,148 — Other non-current assets Marketable securities - restricted (SERP) 326 1 325 — Total assets at fair value $ 775,142 $ 192,939 $ 582,203 $ — Level 1 assets include cash held at banks, certificates of deposit, money market funds, and investment grade corporate and government debt securities. Level 2 assets include the SERP (Supplemental Executive Retirement Plan) assets, commercial paper and investment grade corporate and government debt securities and other fixed income securities. Level 2 securities are valued using third-party pricing sources that apply applicable inputs and other relevant data in their models to estimate fair value. The fair value of the restricted marketable securities is recorded in Other Assets in the condensed consolidated balance sheets. The carrying amounts of other financial instruments, including accounts receivable, accounts payable and accrued expenses approximate fair value due to their short-term maturities. The following table sets forth the Company’s financial liabilities that are not carried at fair value, in thousands of dollars: March 31, 2019 December 31, 2018 (unaudited) Carrying Value Fair Value Carrying Value Fair Value 2023 Notes $ 333,310 $ 388,664 $ 329,462 $ 375,834 The fair value is estimated based on actual trade information as well as quoted prices provided by bond traders and is characterized within Level 2 of the fair value hierarchy. Unrestricted available-for-sale marketable securities held by the Company are as follows, in thousands of dollars: March 31, 2019 December 31, 2018 (unaudited) Corporate and government debt securities Amortized cost $ 690,853 $ 586,726 Gross unrealized gains 2,905 55 Gross unrealized losses (1,042) (4,213) Total fair value $ 692,716 $ 582,568 The contractual maturities of the unrestricted available-for-sale marketable securities held by the Company are as follows, in thousands of dollars: March 31, 2019 (unaudited) Less than 1 year $ 170,165 1 year to 2 years 170,246 2 years to 3 years 181,872 3 years to 4 years 170,433 Greater than 4 years — Total $ 692,716 The Company has not experienced any other-than-temporary losses on its marketable securities. |
Inventories
Inventories | 3 Months Ended |
Mar. 31, 2019 | |
Inventories | |
Inventories | 4. Inventories Inventories consist of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Raw materials $ 5,377 $ 5,742 Work in process 5,661 7,275 Finished goods 15,480 12,642 Total $ 26,518 $ 25,659 |
Property and Equipment
Property and Equipment | 3 Months Ended |
Mar. 31, 2019 | |
Property and Equipment | |
Property and Equipment | 5. Property and Equipment Property and equipment consists of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Lab equipment and furniture $ 9,056 $ 8,995 Leasehold improvements 3,014 2,731 Software 2,197 2,181 Computer equipment 1,313 1,313 Construction-in-progress 238 94 15,818 15,314 Less accumulated depreciation and amortization (11,592) (11,219) Total $ 4,226 $ 4,095 Depreciation and amortization expense on property and equipment was approximately $0.4 million for both three month periods ended March 31, 2019 and 2018. The Company performs its annual impairment assessment in the fourth quarter, or earlier if impairment indicators exist. As of March 31, 2019, there were no identified indicators of impairment. |
Intangible Assets
Intangible Assets | 3 Months Ended |
Mar. 31, 2019 | |
Intangible Assets | |
Intangible Assets | 6. Intangible Assets Intangible assets consist of patent defense costs, which are legal fees incurred in conjunction with defending patents for Oxtellar XR and Trokendi XR. The Company amortizes those costs over the useful life of the respective patents. The following sets forth the gross carrying amount and related accumulated amortization of the intangible assets, in thousands of dollars: Weighted- March 31, December 31, Average Life 2019 2018 (unaudited) Capitalized patent defense costs 3.75 - 8.00 years $ 44,725 $ 44,724 Less accumulated amortization (14,662) (13,356) Total $ 30,063 $ 31,368 Amortization expense on intangible assets was approximately $1.3 million for both three month periods ended March 31, 2019 and 2018. The Company performs its annual impairment assessment in the fourth quarter, or earlier, if impairment indicators exist. As of March 31, 2019, there were no identified indicators of impairment. |
Accrued Expenses and Other Curr
Accrued Expenses and Other Current Liabilities | 3 Months Ended |
Mar. 31, 2019 | |
Accrued Expenses and Other Current Liabilities | |
Accrued Expenses and Other Current Liabilities | 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Accrued clinical trial and clinical supply costs $ 15,420 $ 14,034 Accrued compensation 11,545 13,546 Accrued professional fees 3,336 3,706 Accrued interest expense — 650 Accrued product costs 751 38 Lease liabilities, current 3,250 — Other accrued expenses 2,305 4,561 Total $ 36,607 $ 36,535 |
Accrued Product Returns and Reb
Accrued Product Returns and Rebates | 3 Months Ended |
Mar. 31, 2019 | |
Accrued Product Returns and Rebates | |
Accrued Product Returns and Rebates | 8. Accrued Product Returns and Rebates Accrued product returns and rebates consist of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Accrued rebates $ 66,090 $ 85,003 Accrued product returns 22,110 22,060 Total $ 88,200 $ 107,063 |
Convertible Senior Secured Note
Convertible Senior Secured Notes | 3 Months Ended |
Mar. 31, 2019 | |
Convertible Senior Notes Due 2023 | |
Convertible Senior Secured Notes | 9. Convertible Senior Notes Due 2023 The 0.625% Convertible Senior Notes Due 2023 (2023 Notes), which were issued in March 2018, bear interest at an annual rate of 0.625%, payable semi-annually in arrears on April 1 and October 1 of each year. The 2023 Notes will mature on April 1, 2023, unless earlier converted or repurchased by the Company. The Company may not redeem the 2023 Notes at its option before maturity. The 2023 Notes were issued pursuant to an Indenture between the Company and Wilmington Trust, National Association, as trustee. The Indenture includes customary terms and covenants, including certain events of default upon which the 2023 Notes may be due and payable immediately. The Indenture does not contain any financial or operating covenants or restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at its election, based on the applicable conversion rate. The initial conversion rate is 16.8545 shares per $1,000 principal amount of the 2023 Notes, which represents an initial conversion price of approximately $59.33 per share, and is subject to adjustment as specified in the Indenture. In the event of conversion, if converted in cash, the holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. If a “make-whole fundamental change,” as defined in the Indenture, occurs, then the Company will in certain circumstances increase the conversion rate for a specified period of time. If a “fundamental change,” as defined in the Indenture, occurs, then noteholders may require the Company to repurchase their 2023 Notes at a cash repurchase price equal to the principal amount of the 2023 Notes to be repurchased, plus accrued and unpaid interest, if any. Contemporaneous with the issuance of the 2023 Notes, the Company also entered into separate privately negotiated convertible note hedge transactions (collectively, the Convertible Note Hedge Transactions) with each of the call spread counterparties. The Company issued 402,500 convertible note hedge options. In the event that shares or cash are deliverable to holders of the 2023 Notes upon conversion at limits defined in the Indenture, counterparties to the convertible note hedges will be required to deliver up to approximately 6.8 million shares of the Company’s common stock or pay cash to the Company in a similar amount as the value that the Company delivers to the holders of the 2023 Notes based on a conversion price of $59.33 per share. Concurrently with entering into the Convertible Note Hedge Transactions, the Company also entered into separate privately negotiated warrant transactions (collectively, the Warrant Transactions) with each of the call spread counterparties. The Company issued a total of 6,783,939 warrants. The warrants entitle the holder to one share per warrant at the strike price through 2023. The strike price of the Warrant Transactions will initially be $80.9063 per share of the Company’s common stock (subject to adjustment). The Convertible Note Hedge Transactions are expected to generally reduce the potential dilution with respect to the Company’s common stock upon conversion of the 2023 Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2023 Notes, as the case may be. The Warrant Transactions are intended to partially offset the cost to the Company of the purchased Convertible Note Hedge Transactions; however, the Warrant Transactions could have a dilutive effect with respect to the Company’s common stock to the extent that the market price per share of the Company’s common stock, as measured under the terms of the Warrant Transactions, exceeds the strike price of the warrants. The liability component of the 2023 Notes consists of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Principal amount of the 2023 Notes $ 402,500 $ 402,500 Debt discount (76,434) (76,434) Deferred financing costs (8,452) (8,452) Accretion of debt discount and deferred financing costs 15,696 11,848 Total carrying value $ 333,310 $ 329,462 No 2023 Notes were converted as of March 31, 2019. |
Other Expenses
Other Expenses | 3 Months Ended |
Mar. 31, 2019 | |
Other Expenses | |
Other Expenses | 10. Other Expenses Other expenses consist of the following, in thousands of dollars: Three Months ended March 31, 2019 2018 (unaudited) Interest income $ 4,681 $ 1,206 Interest expense (4,710) (717) Interest expense-nonrecourse liability related to sale of future royalties (1,160) (701) Total $ (1,189) $ (212) Interest expense includes non-cash interest expense relates to amortization of deferred financing costs and debt discount in the amount of $3.8 million and $0.6 million for the three month periods ended March 31, 2019 and 2018, respectively. |
Share-Based Payments
Share-Based Payments | 3 Months Ended |
Mar. 31, 2019 | |
Share-Based Payments | |
Share-Based Payments | 11. Share-Based Payments Share-based compensation expense is as follows, in thousands of dollars: Three Months ended March 31, 2019 2018 (unaudited) Research and development $ 574 $ 418 Selling, general and administrative 2,713 2,217 Total $ 3,287 $ 2,635 The following table summarizes stock options and SAR activities: Weighted- Average Weighted- Remaining Number of Average Contractual Options Exercise Price Term (in years) Outstanding, December 31, 2018 3,916,963 $ 19.98 7.10 Granted (unaudited) 831,835 $ 36.75 Exercised (unaudited) (57,665) $ 13.57 Forfeited (unaudited) (10,437) $ 30.69 Outstanding, March 31, 2019 (unaudited) 4,680,696 $ 23.01 7.40 As of December 31, 2018: Vested and expected to vest 3,916,963 $ 19.98 7.10 Exercisable 1,889,947 $ 12.47 5.96 As of March 31, 2019: Vested and expected to vest (unaudited) 4,680,696 $ 23.01 7.40 Exercisable (unaudited) 2,605,591 $ 15.33 6.22 |
Earnings per Share
Earnings per Share | 3 Months Ended |
Mar. 31, 2019 | |
Earnings per Share | |
Earnings per Share | 12. Earnings per Share Basic earnings per share (EPS) is calculated using the weighted-average number of common shares outstanding. Diluted earnings per share is calculated using the weighted-average number of common shares outstanding including the dilutive effect of the Company's stock option grants, stock appreciation rights (SAR), warrants, employee stock purchase plan (ESPP) awards and the 2023 Notes, as determined per the treasury stock method. The following common stock equivalents are excluded in the calculation of diluted earnings per share because their inclusion would be anti-dilutive, as applied to the earnings from continuing operations, and as applicable to common stockholders, for the three month periods ended March 31, 2019 and 2018: Three Months ended March 31, 2019 2018 (unaudited) Warrants to purchase common stock 7,966,488 1,752,793 Convertible notes 239,272 22,634 Convertible notes hedges 240 23 Stock options, SAR and ESPP awards 608,948 208,661 The following table sets forth the computation of basic and diluted earnings per share for the three month periods ended March 31, 2019 and 2018, in thousands of dollars, except share and per share amounts: Three Months ended March 31, 2019 2018 (unaudited) Numerator, in thousands: Net earnings used for calculation of basic and diluted EPS $ 18,340 $ 26,352 Denominator: Weighted average shares outstanding, basic 52,336,443 51,536,474 Effect of dilutive potential common shares: Stock options and SAR 1,648,942 2,251,872 Total dilutive potential common shares 1,648,942 2,251,872 Weighted average shares outstanding, diluted 53,985,385 53,788,346 Earnings per share, basic $ 0.35 $ 0.51 Earnings per share, diluted $ 0.34 $ 0.49 |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2019 | |
Income Taxes | |
Income Taxes | 13. Income Taxes The following table provides a comparative summary of the Company’s income tax expense and effective tax rate for the three month periods ended March 31, 2019 and 2018, in thousands of dollars: Three Months ended March 31, 2019 2018 (unaudited) Income tax expense $ 5,899 $ 4,830 Effective tax rate 24.34 % 15.49 % The income tax expense for the three month period ended March 31, 2019 was attributable to U.S. federal and state income taxes. For the three month period ended March 31, 2019, the Company recorded $5.9 million of income tax expense, an increase from $4.8 million as compared to the same period of 2018. The increase in income tax expense and in the effective tax rate for the three month period ended March 31, 2019, as compared to the same period in 2018, was primarily attributable to the larger excess tax benefits realized in 2018 related to exercises of employee stock options. The Company recorded income tax benefits related to exercises of employee stock options of approximately $0.3 million and $2.0 million for the three month periods ended March 31, 2019 and 2018, respectively. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2019 | |
Leases | |
Leases | 14. Leases The Company determines if an arrangement is a lease at inception. Some leases include options to terminate or to extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The Company has lease arrangements that contain lease components (e.g., minimum rent payments) and non-lease components (e.g., maintenance, labor charges, etc.) and accounts for these components as a single lease component. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating leases are included in Lease assets, Accrued expenses and other current liabilities, and Lease liabilities, long term on the condensed consolidated balance sheets. Operating lease assets and lease liabilities are recognized at the commencement date, based on the present value of the future minimum lease payments over the lease term. Lease expense for operating leases is recognized as an operating cost. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company uses its incremental borrowing rate based on the information available at commencement date of the lease in determining the present value of future payments. The Company has operating leases for its current headquarters office and lab space and for the fleet vehicles. The Company’s existing leases for its current headquarters office and lab space run through April 2020. The Company applies a portfolio approach for the fleet vehicle leases to effectively account for the operating lease assets and liabilities, given the volume of individual leases involved in the overall arrangement. New Headquarters Lease The Company entered into a new lease agreement, effective January 31, 2019, with Advent Key West, LLC (Landlord), for its new headquarters in Rockville, MD (Premises). The term of the new headquarters lease commenced on February 1, 2019 (the Commencement Date) and will continue until April 30, 2034, unless earlier terminated in accordance with the terms of the lease. The lease includes options to extend the lease for up to 10 years. Fixed rent with respect to the Premises begins on the Commencement Date; however, the Landlord agreed to a rent abatement from the Commencement Date through April 30, 2020. The initial fixed rental rate is approximately $195,000 per month for the first 12 months. The rate will automatically increase by 2% on each anniversary of the Commencement Date. Under the terms of the Lease, the Company provided a security deposit of approximately $195,000 and will be required to pay all utility charges for the Premises and its pro rata share of any operating expenses and real estate taxes. The lease also provides for a tenant improvement allowance of approximately $10.2 million in aggregate. Any unspent tenant improvement allowance as of January 31, 2020 will be forfeited. The full amount of tenant improvement allowance was initially recorded in Prepaid expenses and other current assets in the condensed consolidated balance sheets. Lease assets, lease-related assets and lease liabilities are as follows, in thousands of dollars: March 31, 2019 (unaudited) Assets Balance Sheet Classification Operating leases Lease assets $ 20,049 Tenant receivable Prepaid expenses and other current assets 10,151 Total lease and lease-related assets $ 30,200 Liabilities Current Operating leases Accrued expenses and other current liabilities $ 3,250 Non-current Operating leases Lease liabilities, long term 27,824 Total lease liabilities $ 31,074 Lease costs for the three month period ended March 31, 2019 is as follows, in thousands of dollars: Three Months ended March 31, 2019 (unaudited) Operating leases cost Fixed lease cost $ 1,032 Variable lease cost 465 Total operating leases cost $ 1,497 Weighted average lease term and discount rate for the three month period ended March 31, 2019 are as follows: Three Months ended March 31, 2019 (unaudited) Weighted-average remaining lease term (years) Operating leases 13.53 Weighted-average discount rate Operating leases 4.37 % Future minimum lease payments under non-cancellable leases as of March 31, 2019 are as follows, in thousands of dollars: Operating leases Year ending December 31: 2019 (remaining) $ 2,512 2020 2,938 2021 2,527 2022 2,486 2023 2,536 Thereafter 29,371 Total future minimum lease payments $ 42,370 Less: Imputed interest (1) 11,296 Present value of lease liabilities $ 31,074 (1) Calculated using the interest rate for each lease. Dislcosure Related to Periods Prior to Adoption of the New Lease Standard Rent expense for the leased facilities and leased vehicles for the years ended December 31, 2018, 2017 and 2016 was approximately $3.6 million, $2.7 million and $2.7 million, respectively. Future minimum lease payments under non-cancelable operating leases as of December 31, 2018 are as follows, in thousands of dollars: Year ending December 31: 2019 $ 3,400 2020 2,287 Thereafter 1,840 Total $ 7,527 |
Accounts Receivable
Accounts Receivable | 3 Months Ended |
Mar. 31, 2019 | |
Accounts Receivable | |
Accounts Receivable | 15. Accounts Receivable The Company recorded an allowance of approximately $7.8 million and $11.5 million for expected sales discounts and allowances related to prompt pay discounts and contractual fees for service arrangements with the Company’s customers, who are primarily pharmaceutical wholesalers and distributors, as of March 31, 2019 and December 31, 2018, respectively. |
Disaggregated Revenues
Disaggregated Revenues | 3 Months Ended |
Mar. 31, 2019 | |
Disaggregated Revenues | |
Disaggregated Revenues | 16. Disaggregated Revenues The following table summarizes the disaggregation of revenues by nature, in thousands of dollars: Three Months ended March 31, 2019 2018 (unaudited) Net product sales Trokendi XR $ 63,693 $ 70,555 Oxtellar XR 19,406 18,565 Total net product sales 83,099 89,120 Royalty revenues 2,375 1,309 Total revenues $ 85,474 $ 90,429 The majority of the Company’s product sales are with pharmaceutical wholesalers and distributors who, in turn, sell the products to chain and independent pharmacies, hospitals and other customers. Three pharmaceutical wholesalers/distributors collectively accounted for more than 90% of the Company's total net product sales and accounts receivables as of and for the three month periods ended March 31, 2019 and 2018. The Company recognized non-cash royalty revenue of $1.6 million and $1.3 for the three month periods ended March 31, 2019 and 2018, respectively. No milestone revenue was recorded for the three month periods ended March 31, 2019 and 2018, respectively. For the three month period ended March 31, 2019, revenues recognized from performance obligations related to prior periods (e.g., due to changes in transaction price) were not material in the aggregate to Net Product Sales and Royalty Revenues. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2019 | |
Commitments and Contingencies | |
Commitments and Contingencies | 17. Commitments and Contingencies Product Licenses The Company has obtained exclusive licenses from third parties for proprietary rights to support the product candidates in the Company's neurology and psychiatry portfolio. Under these license agreements, the Company may be required to pay certain amounts upon the achievement of certain milestones. The Company is also obligated to pay royalties to third parties, as percentage of net product sales, for each respective product under license agreement, if these products are ultimately commercialized. Royalty Agreement In the third quarter of 2014, the Company received a $30.0 million payment pursuant to a Royalty Interest Acquisition Agreement related to the purchase by HC Royalty of certain of the Company's rights under the Company's agreement with United Therapeutics related to the commercialization of Orenitram (treprostinil) Extended-Release Tablets. The Company will retain full ownership of the royalty rights if and when a certain cumulative payment threshold is reached per the terms of the agreement. The Company recorded a non-recourse liability related to this transaction, and amortizes this amount as non-cash royalty revenue. The Company also recognizes non-cash interest expense related to this liability and accrues at an effective interest rate. That rate is determined based on projections of HC Royalty's rate of return (see Notes 10 and 16). |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2019 | |
Summary of Significant Accounting Policies | |
Basis of Presentation | Basis of Presentation The Company’s condensed consolidated financial statements include the accounts of Supernus Pharmaceuticals, Inc., Supernus Europe Ltd., Biscayne Neurotherapeutics, Inc. and its wholly-owned subsidiary, Biscayne Neurotherapeutics Australia Pty Ltd., collectively referred to herein as “Supernus” or “the Company.” All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (SEC) for interim financial information. As permitted under Generally Accepted Accounting Principles in the United States (U.S. GAAP), certain notes and other information have been omitted from the interim unaudited condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s most recent annual report on Form 10-K for the year ended December 31, 2018, filed with the SEC. In management’s opinion, the condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for any interim period are not necessarily indicative of the Company’s future quarterly or annual results. The Company, which is primarily located in the United States (U.S.), operates in one operating segment. |
Use of Estimates | Use of Estimates The Company bases its estimates on: historical experience; various forecasts; information received from its service providers; and other assumptions that the Company believes are reasonable under the circumstances. Actual results could differ materially from the Company’s estimates. The Company evaluates the methodology employed in its estimates on an ongoing basis. |
Revenue Recognition | Revenue Recognition The Company recognizes revenue when control of goods or provision of services are transferred to the Company's customers, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company does not adjust revenue for any financing effects for transactions where the Company expects the period between the transfer of the goods or services and collection to be less than one year. There were no contract assets or liabilities recorded as of March 31, 2019. Revenue from Product Sales The Company’s products are distributed through a third party fulfillment center. The Company’s customers, who are primarily pharmaceutical wholesalers and distributors, purchase product to fulfill orders from retail pharmacy chains and independent pharmacies of varying size and buying power. The Company recognizes gross revenue when its products are shipped from its fulfillment center to its customers and the customers take control of the products. The Company’s customers take control of the products, including title and ownership, upon physical receipt of the products at their facilities. Product sales are recorded net of various forms of variable consideration, including estimated rebates, discounts, allowances, and an estimated liability for future product returns (collectively, “sales deductions”). Variability in the net transaction price for the Company’s products primarily arises from sales deductions, as described below. Significant judgment is required in estimating sales deductions. In estimating sales deductions the Company considers: historical experience; current contract prices under applicable programs; unbilled claims; processing time lags; and inventory levels in the distribution channel. The Company adjusts its estimates of revenue either when the most likely amount of consideration it expects to receive changes, or when the consideration becomes fixed. If actual results in the future vary from estimates, the Company adjusts these estimates. These adjustments could materially affect net product sales and earnings in the period that such adjustments become known. Sales Deductions Sales deductions are primarily comprised of rebates, product returns and sales discounts. The Company records product sales net of the following sales deductions: · Rebates : Rebates are discounts which the Company pays under either private sector or public sector health care programs. Public sector rebate programs encompass: various Medicaid Drug Rebate Programs; Medicare Coverage Gap Programs; and programs covering public health service institutions and government entities. All federal employees and agencies purchase drugs under the Federal Supply Schedule. Private sector rebate programs include: contractual agreements with managed care providers, under which the Company pays fees to gain access to that provider's patient drug formulary; Company sponsored programs, under which the Company defrays or eliminates patient co-payment charges that the patient would otherwise pay to their managed care provider. Rebates paid under public sector programs are generally mandated under law, whereas private sector rebates are generally contractually negotiated by the Company with managed care providers. Rebates are owed upon dispensing product to a patient (i.e., filling a prescription. The accrual balance consists of three components). First, because rebates are generally invoiced and paid quarterly in arrears, the accrual balance consists of an estimate of the amount expected to be incurred for prescriptions dispensed in the current quarter. Second, the accrual balance also includes an estimate for known or estimated prior quarters' unpaid rebates, to cover prescriptions dispensed in past quarters. Third, the accrual balance includes an estimate for rebates that will be prospectively owed, for prescriptions filled in future quarters (i.e., for product which has been sold to wholesalers or distributors, and which resides either as wholesaler/distributor inventory, or is held as inventory at pharmacies). Because the period from the date on which the prescription is filled to the date the Company receives and pays the invoice varies, the Company's estimates of expected rebate claims vary by program and by type of customer. For each of its products, the Company bases its estimates of expected rebate claims on multiple factors, including historical levels of deductions; contractual terms with managed care providers; actual and anticipated changes in product price; prospective changes in managed care fee for service contractual agreements; prospective changes in co-pay assistance programs; and anticipated changes in program utilization rates (i.e., patient participation rates). The sensitivity of the Company's estimates can vary by program and by type of customer. If actual rebates vary from estimated amounts, the Company may need to adjust the balances of such accrued rebates to reflect actual expenditures with respect to these programs. These changes could materially affect net product sales and earnings in the period of adjustment. The Company records an estimated liability for rebates at the time the customer takes title to the product (i.e., at the time of sale to wholesalers/distributors), and records this liability as a reduction to gross product sales and an increase in Accrued product returns and rebates in current liabilities. · Returns : Sale of the Company's products are not subject to a general right of return. Product that has been used to fill patient prescriptions is no longer subject to any right of return. However, the Company will accept return of product that is damaged or defective when shipped from its warehouse. In addition, the Company will accept return of expired product six months prior to and up to 12 months subsequent to the product's expiry date. Expired or defective returned product cannot be re-sold and is therefore destroyed. The Company estimates the liability for returns based on the actual returns experience for its two commercial products, in conjunction with industry experience for return of similar products (i.e., ambient temperature storage for oral formulations). Because the Company's products have not reached maturity, the return rate of its products has and is expected to continue to vary. The Company records an estimated liability for product returns at the time the customer takes title to the product (i.e., at time of sale) as a reduction to gross product sales and an increase in Accrued product returns and rebates in current liabilities. The Company's estimated liability for product returns is also affected by price increases taken subsequent to the date of sale. The Company's products have a shelf life of 36 to 48 months from date of manufacture. Because of the extended shelf life coupled with its return policy, there typically is a significant time lag between the time at which the product is sold and when the Company issues credit on expired product. The Company's policy generally permits product returns to be processed at current wholesaler price rather than historical price. Therefore, price increase(s) taken during the current period increase(s) the provision for product returns because it affects the estimated liability for product returns for both sales made in the current period as well as sales made in prior periods. When the Company adjusts its estimates for product returns, either favorably or unfavorably, this affects product sales and earnings in the period of adjustment. · Sales discounts : Distributors and wholesalers of pharmaceutical products are generally offered various forms of consideration, including allowances, service fees and prompt payment discounts, for distributing products. Distributor and wholesaler allowances and service fees arise from contractual agreements and are estimated as a percentage of the price at which the Company sells product to them. In addition, they are offered a prompt pay discount for payment within a specified period. The Company accounts for these discounts at the time of sale as a reduction to gross product sales, and records these amounts as an Accounts receivable valuation allowance . Customer orders are generally fulfilled within a few days of receipt, resulting in minimal order backlog. Open purchase orders for products from customers are expected to be fulfilled within the next 12 months. There are no minimum product purchase requirements. License Revenues License and Collaboration Agreements The Company has entered into collaboration agreements to commercialize both Oxtellar XR and Trokendi XR outside of the U.S., which involve the right to use the Company’s intellectual property as a functional license. These agreements generally include an up-front license fee and ongoing milestone payments upon the achievement of specific events. These agreements may also require minimum royalty payments based on sales of products developed from the applicable intellectual property. Up-front license fees are recognized once the license has been delivered to the customer. Milestones are a form of variable consideration that are recognized when either the underlying events have been achieved (i.e., event-based milestone) or the sales-based targets have been met by the collaborative partner (i.e., sales-based milestone). Both types of milestone payments are non-refundable. The Company evaluates whether achieving the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. This can involve management's judgment that includes assessing factors that are outside of the Company's influence, such as: likelihood of regulatory success; availability of third party information; and expected duration of time until achievement of event. These factors are evaluated based on the specific facts and circumstances. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Event-based milestones are recognized in the period that the related event, such as regulatory approval, occurs. Milestone payments that are not within the control of the Company, such as approval from regulatory authorities, or where attainment of the specified event is dependent on the success of a third-party, are not considered probable of being achieved until the specified event occurs. Sales-based milestones are recognized as revenue when the sales-based target is achieved. Revenue is recognized from the satisfaction of performance obligations in the amount billable to the customer. Revenue associated with future milestones will be recognized when the related event occurs or sales-based target is achieved. There are no guaranteed minimum amounts owed to the Company related to license and collaboration agreements. Royalty Revenues The Company recognizes non-cash royalty revenue for amounts earned pursuant to a royalty agreement with United Therapeutics Corporation (United Therapeutics) that involves the right to use the Company’s intellectual property as a functional license. In 2014, the Company sold certain of these royalty rights to Healthcare Royalty Partners III, L.P. (HC Royalty) (see Note 17, Commitments and Contingencies ). Accordingly, the Company records non-cash royalty revenue based on estimated product sales by United Therapeutics, in which those product sales result in payments made from United Therapeutics to HC Royalty in connection with these agreements. Royalty revenue also includes royalty amounts received from collaboration partners, including from Shire Plc (Shire) (now a subsidiary of Takeda Pharmaceutical Company Ltd), based on net product sales of Shire's product, Mydayis, in the current period. Royalty revenue is only recognized when the underlying product sale by Shire occurs. The Shire arrangement also involves the right to use the Company's intellectual property as a functional license. There are no guaranteed minimum amounts owed to the Company related to any royalty revenue agreement. |
Preclinical Study and Clinical Trial Accruals | Preclinical Study and Clinical Trial Accruals The Company estimates preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions, clinical investigators, clinical research organizations (CROs) and other service providers that conduct activities on the Company’s behalf. In recording service fees, the Company estimates the time period over which the related services are performed and compares the level of effort expended through the end of each period with the cumulative expenses recorded and payments made for such services. As appropriate, the Company accrues additional service fees or defers any non-refundable advance payments until the related services are performed. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts its accrued expenses or its deferred advance payments accordingly. If the Company later determines that it no longer expects the services associated with a nonrefundable advance payment to be rendered, the remaining portion of that advance payment is charged to expense in the period in which such determination is made. |
Share-Based Compensation | Share-Based Compensation The Company recognizes share-based compensation expense over the service period using the straight-line method. Employee share-based compensation is measured based on estimated fair value as of the grant date. The Company uses the Black-Scholes option-pricing model in calculating the fair value of option grants as of the grant date. The Company uses the following assumptions for estimating fair value of option grants: Fair Value of Common Stock —The fair value of the common stock underlying the option grants is determined based on observable market prices of the Company's common stock. Expected Volatility —Volatility is a measure of the amount by which the Company’s share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Beginning in the first quarter of 2019, the Company uses the historical volatility of its common stock to measure expected volatility for future option grants. Prior to 2019, the Company used the volatility of the common stock of several public entities of similar size, complexity, and stage of development. Prior to the first quarter of 2019, volatility was estimated using the volatility of the stock of these companies, as well as taking into consideration the Company's actual volatility since the Company's IPO in 2012. Dividend Yield —The Company has never declared or paid dividends, and has no plans to do so in the foreseeable future. Expected Term — This is the period of time during which options are expected to remain unexercised. Options have a maximum contractual term of ten years. Beginning in the first quarter of 2019, the Company determines the average expected life of stock options using its historical experience. Prior to the first quarter of 2019, the Company determined the average expected life of stock options according to the "simplified method", as described in Staff Accounting Bulletin 110, which is the mid-point between the vesting date and the end of the contractual term. Risk-Free Interest Rate —This is the U.S. Treasury note rate as of the week each option grant is issued, with a term that most closely resembles the expected term of the option. Expected Forfeiture Rate —Forfeitures are accounted for as they occur. |
Self-insurance Liabilities | Self-insurance Liabilities As of January 1, 2019, the Company self-insures its employee medical insurance liability. The self-insurance liability is undiscounted and determined actuarially. It is based on claims filed, historical and industry claims experience, and an estimate of claims incurred but not yet paid. The Company has established stop-loss amounts that limit the Company’s further exposure after a claim reaches the designated stop-loss threshold. The stop-loss limit for self-insured employee medical claims is $150,000 per employee per year. The Company recorded self-insurance liability of approximately $515,000 as of March 31, 2019 in Accrued expenses and other current liabilities in the condensed consolidated balance sheets. |
Advertising Expense | Advertising Expense Advertising expense includes costs of promotional materials and activities, such as marketing materials, marketing programs and speaker programs. The costs of the Company’s advertising efforts are expensed as incurred. The Company incurred approximately $9.9 million and $7.9 million in advertising costs for the three month periods ended March 31, 2019 and 2018, respectively. These expenses are recorded in Selling, general and administrative expenses in the condensed consolidated statements of earnings. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncement s Accounting Pronouncements Adopted In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842)” and its related amendments (New Lease Standard). The New Lease Standard requires a lessee to recognize a right-of-use (ROU) lease asset and a corresponding lease liability on the balance sheet. The Company adopted the New Lease Standard on January 1, 2019 using the modified retrospective method, which applies the provision of the New Lease Standard at the effective date without adjusting comparative periods presented. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the New Lease Standard which, among other things, allowed the Company to carry forward the historical lease classification. The adoption of the New Lease Standard resulted in the recognition of lease assets and lease liabilities for operating leases as of January 1, 2019 of approximately $4.0 million. Financial reporting for periods on or after January 1, 2019 are presented under the new guidance. Prior period amounts are not adjusted and continue to be reported in accordance with previous guidance. The standard did not materially impact the Company’s condensed consolidated net earnings and had no impact on cash flows (see Note 14, Leases ). New Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13 , Financial Instruments—Credit Losses (Topic 326), which requires credit losses on financial assets measured on an amortized cost basis to be presented at the net amount expected to be collected, rather than based on incurred losses. Further, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses, limited to the amount by which fair value is below amortized cost. The new standard also requires enhanced disclosure of credit risk associated with respective assets. The standard is effective for fiscal years beginning after December 15, 2019, for interim and annual periods within those years, with early adoption permitted. The Company is currently assessing the impact of this new standard. The Company does not expect it to have a material impact. |
Fair Value of Financial Instr_2
Fair Value of Financial Instruments (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Fair Value of Financial Instruments | |
Schedule of fair value of the financial assets and liabilities | The Company's financial assets that are required to be measured at fair value on a recurring basis are as follows, in thousands of dollars: Fair Value Measurements at March 31, 2019 (unaudited) Significant Total Fair Quoted Prices Other Significant Value at in Active Markets Observable Unobservable March 31, for Identical Assests Inputs Inputs 2019 (Level 1) (Level 2) (Level 3) Assets: Cash and cash equivalents $ 122,778 $ 122,778 $ — $ — Marketable securities Corporate debt securities 170,165 246 169,919 — Long term marketable securities Corporate debt securities 521,398 450 520,948 — Government debt securities 1,153 — 1,153 — Other non-current assets Marketable securities - restricted (SERP) 375 1 374 — Total assets at fair value $ 815,869 $ 123,475 $ 692,394 $ — Fair Value Measurements at December 31, 2018 Significant Total Fair Quoted Prices Other Significant Value at in Active Markets Observable Unobservable December 31, for Identical Assests Inputs Inputs 2018 (Level 1) (Level 2) (Level 3) Assets: Cash and cash equivalents $ 192,248 $ 192,248 $ — $ — Marketable securities Corporate debt securities 163,770 245 163,525 — Long term marketable securities Corporate debt securities 415,650 445 415,205 — Government debt securities 3,148 — 3,148 — Other non-current assets Marketable securities - restricted (SERP) 326 1 325 — Total assets at fair value $ 775,142 $ 192,939 $ 582,203 $ — |
Schedule of financial liabilities that are not carried at fair value | The following table sets forth the Company’s financial liabilities that are not carried at fair value, in thousands of dollars: March 31, 2019 December 31, 2018 (unaudited) Carrying Value Fair Value Carrying Value Fair Value 2023 Notes $ 333,310 $ 388,664 $ 329,462 $ 375,834 |
Schedule of unrestricted available-for-sale marketable securities | Unrestricted available-for-sale marketable securities held by the Company are as follows, in thousands of dollars: March 31, 2019 December 31, 2018 (unaudited) Corporate and government debt securities Amortized cost $ 690,853 $ 586,726 Gross unrealized gains 2,905 55 Gross unrealized losses (1,042) (4,213) Total fair value $ 692,716 $ 582,568 |
Schedule of contractual maturities of the unrestricted available-for-sale marketable securities held | The contractual maturities of the unrestricted available-for-sale marketable securities held by the Company are as follows, in thousands of dollars: March 31, 2019 (unaudited) Less than 1 year $ 170,165 1 year to 2 years 170,246 2 years to 3 years 181,872 3 years to 4 years 170,433 Greater than 4 years — Total $ 692,716 |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Inventories | |
Schedule of inventories | Inventories consist of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Raw materials $ 5,377 $ 5,742 Work in process 5,661 7,275 Finished goods 15,480 12,642 Total $ 26,518 $ 25,659 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Property and Equipment | |
Schedule of property and equipment | Property and equipment consists of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Lab equipment and furniture $ 9,056 $ 8,995 Leasehold improvements 3,014 2,731 Software 2,197 2,181 Computer equipment 1,313 1,313 Construction-in-progress 238 94 15,818 15,314 Less accumulated depreciation and amortization (11,592) (11,219) Total $ 4,226 $ 4,095 |
Intangible Assets (Tables)
Intangible Assets (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Intangible Assets | |
Schedule of gross carrying amount and related accumulated amortization of the intangible assets | The following sets forth the gross carrying amount and related accumulated amortization of the intangible assets, in thousands of dollars: Weighted- March 31, December 31, Average Life 2019 2018 (unaudited) Capitalized patent defense costs 3.75 - 8.00 years $ 44,725 $ 44,724 Less accumulated amortization (14,662) (13,356) Total $ 30,063 $ 31,368 |
Accrued Expenses and Other Cu_2
Accrued Expenses and Other Current Liabilities (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Accrued Expenses and Other Current Liabilities | |
Schedule of accrued expenses and other current liabilities | Accrued expenses and other current liabilities consist of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Accrued clinical trial and clinical supply costs $ 15,420 $ 14,034 Accrued compensation 11,545 13,546 Accrued professional fees 3,336 3,706 Accrued interest expense — 650 Accrued product costs 751 38 Lease liabilities, current 3,250 — Other accrued expenses 2,305 4,561 Total $ 36,607 $ 36,535 |
Accrued Product Returns and R_2
Accrued Product Returns and Rebates (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Accrued Product Returns and Rebates | |
Schedule of accrued product returns and rebates | Accrued product returns and rebates consist of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Accrued rebates $ 66,090 $ 85,003 Accrued product returns 22,110 22,060 Total $ 88,200 $ 107,063 |
Convertible Senior Secured No_2
Convertible Senior Secured Notes (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Convertible Senior Notes Due 2023 | |
Summary of liability component of 2023 Notes | The liability component of the 2023 Notes consists of the following, in thousands of dollars: March 31, December 31, 2019 2018 (unaudited) Principal amount of the 2023 Notes $ 402,500 $ 402,500 Debt discount (76,434) (76,434) Deferred financing costs (8,452) (8,452) Accretion of debt discount and deferred financing costs 15,696 11,848 Total carrying value $ 333,310 $ 329,462 |
Other Expenses (Tables)
Other Expenses (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Other Expenses | |
Schedule of other expenses | Other expenses consist of the following, in thousands of dollars: Three Months ended March 31, 2019 2018 (unaudited) Interest income $ 4,681 $ 1,206 Interest expense (4,710) (717) Interest expense-nonrecourse liability related to sale of future royalties (1,160) (701) Total $ (1,189) $ (212) |
Share-Based Payments (Tables)
Share-Based Payments (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Share-Based Payments | |
Schedule of share-based compensation expense | Share-based compensation expense is as follows, in thousands of dollars: Three Months ended March 31, 2019 2018 (unaudited) Research and development $ 574 $ 418 Selling, general and administrative 2,713 2,217 Total $ 3,287 $ 2,635 |
Summary of stock options and SAR activities | Weighted- Average Weighted- Remaining Number of Average Contractual Options Exercise Price Term (in years) Outstanding, December 31, 2018 3,916,963 $ 19.98 7.10 Granted (unaudited) 831,835 $ 36.75 Exercised (unaudited) (57,665) $ 13.57 Forfeited (unaudited) (10,437) $ 30.69 Outstanding, March 31, 2019 (unaudited) 4,680,696 $ 23.01 7.40 As of December 31, 2018: Vested and expected to vest 3,916,963 $ 19.98 7.10 Exercisable 1,889,947 $ 12.47 5.96 As of March 31, 2019: Vested and expected to vest (unaudited) 4,680,696 $ 23.01 7.40 Exercisable (unaudited) 2,605,591 $ 15.33 6.22 |
Earnings per Share (Tables)
Earnings per Share (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Earnings per Share | |
Schedule of common stock equivalents excluded in the calculation of diluted earnings per share | Three Months ended March 31, 2019 2018 (unaudited) Warrants to purchase common stock 7,966,488 1,752,793 Convertible notes 239,272 22,634 Convertible notes hedges 240 23 Stock options, SAR and ESPP awards 608,948 208,661 |
Schedule of computation of basic and diluted earnings per share | The following table sets forth the computation of basic and diluted earnings per share for the three month periods ended March 31, 2019 and 2018, in thousands of dollars, except share and per share amounts: Three Months ended March 31, 2019 2018 (unaudited) Numerator, in thousands: Net earnings used for calculation of basic and diluted EPS $ 18,340 $ 26,352 Denominator: Weighted average shares outstanding, basic 52,336,443 51,536,474 Effect of dilutive potential common shares: Stock options and SAR 1,648,942 2,251,872 Total dilutive potential common shares 1,648,942 2,251,872 Weighted average shares outstanding, diluted 53,985,385 53,788,346 Earnings per share, basic $ 0.35 $ 0.51 Earnings per share, diluted $ 0.34 $ 0.49 |
Income Taxes (Tables)
Income Taxes (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Income Taxes | |
Schedule of reconciliation of income tax expense at the U.S Federal statutory income tax rate to the entity's effective income tax rate | The following table provides a comparative summary of the Company’s income tax expense and effective tax rate for the three month periods ended March 31, 2019 and 2018, in thousands of dollars: Three Months ended March 31, 2019 2018 (unaudited) Income tax expense $ 5,899 $ 4,830 Effective tax rate 24.34 % 15.49 % |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Leases | |
Schedule of balance sheet information related to leases | Lease assets, lease-related assets and lease liabilities are as follows, in thousands of dollars: March 31, 2019 (unaudited) Assets Balance Sheet Classification Operating leases Lease assets $ 20,049 Tenant receivable Prepaid expenses and other current assets 10,151 Total lease and lease-related assets $ 30,200 Liabilities Current Operating leases Accrued expenses and other current liabilities $ 3,250 Non-current Operating leases Lease liabilities, long term 27,824 Total lease liabilities $ 31,074 |
Schedule of lease costs | Lease costs for the three month period ended March 31, 2019 is as follows, in thousands of dollars: Three Months ended March 31, 2019 (unaudited) Operating leases cost Fixed lease cost $ 1,032 Variable lease cost 465 Total operating leases cost $ 1,497 |
Schedule of weighted average remaining lease term and discount rate information | Weighted average lease term and discount rate for the three month period ended March 31, 2019 are as follows: Three Months ended March 31, 2019 (unaudited) Weighted-average remaining lease term (years) Operating leases 13.53 Weighted-average discount rate Operating leases 4.37 % |
Schedule of maturities of operating lease liabilities | Future minimum lease payments under non-cancellable leases as of March 31, 2019 are as follows, in thousands of dollars: Operating leases Year ending December 31: 2019 (remaining) $ 2,512 2020 2,938 2021 2,527 2022 2,486 2023 2,536 Thereafter 29,371 Total future minimum lease payments $ 42,370 Less: Imputed interest (1) 11,296 Present value of lease liabilities $ 31,074 (1) Calculated using the interest rate for each lease. |
Schedule of future minimum lease payments under non-cancelable operating leases | Future minimum lease payments under non-cancelable operating leases as of December 31, 2018 are as follows, in thousands of dollars: Year ending December 31: 2019 $ 3,400 2020 2,287 Thereafter 1,840 Total $ 7,527 |
Disaggregated Revenues (Tables)
Disaggregated Revenues (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Disaggregated Revenues | |
Summary of disaggregation of revenues by nature | Three Months ended March 31, 2019 2018 (unaudited) Net product sales Trokendi XR $ 63,693 $ 70,555 Oxtellar XR 19,406 18,565 Total net product sales 83,099 89,120 Royalty revenues 2,375 1,309 Total revenues $ 85,474 $ 90,429 |
Organization and Business (Deta
Organization and Business (Details) | 3 Months Ended |
Mar. 31, 2019product | |
Organization and Business | |
Number of commercial products | 2 |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies - Segments (Details) | 3 Months Ended |
Mar. 31, 2019segment | |
Basis of Presentation | |
Number of operating segments | 1 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies - Revenue Recognition (Details) $ in Thousands | 3 Months Ended |
Mar. 31, 2019USD ($)product | |
Revenue Recognition | |
Sales return period prior to expiry date | 6 months |
Sales return period subsequent to expiry date | 12 months |
Number of commercial products | product | 2 |
Contract assets | $ 0 |
Contract liabilities | $ 0 |
Minimum | |
Revenue Recognition | |
Product shelf life | 36 months |
Maximum | |
Revenue Recognition | |
Product shelf life | 48 months |
License and collaboration agreements | |
Revenue Recognition | |
Guaranteed minimum amounts | $ 0 |
Royalty revenue agreements | |
Revenue Recognition | |
Guaranteed minimum amounts | $ 0 |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies - Share-based Compensation and Self-insurance Liabilities (Details) | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Share-based Compensation | |
Maximum contractual term of share-based grants | 10 years |
Self-insurance Liabilities | |
Stop-loss limit per employee, per year, for self-insured employee medical claims | $ 150,000 |
Self-insurance liability | $ 515,000 |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies - Advertising Expense (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Selling, general and administrative | ||
Advertising Expense | ||
Advertising costs | $ 9.9 | $ 7.9 |
Summary of Significant Accoun_7
Summary of Significant Accounting Policies - Accounting Pronouncements Adopted (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Jan. 01, 2019 | |
Recently Issued Accounting Pronouncements | ||
Practical Expedients | true | |
Lease assets | $ 20,049 | |
Operating lease liabilities | $ 31,074 | |
ASU 2016 - 02 | Restatement Adjustment | ||
Recently Issued Accounting Pronouncements | ||
Lease assets | $ 4,000 | |
Operating lease liabilities | $ 4,000 |
Fair Value of Financial Instr_3
Fair Value of Financial Instruments - Carrying Value (Details) - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 |
Fair value of financial instruments | ||
Carrying value | $ 333,310 | $ 329,462 |
Total Fair Value | Recurring | ||
Assets: | ||
Cash and cash equivalents | 122,778 | 192,248 |
Marketable securities | ||
Corporate debt securities | 170,165 | 163,770 |
Long term marketable securities | ||
Corporate debt securities | 521,398 | 415,650 |
Government debt securities | 1,153 | 3,148 |
Other non-current assets | ||
Marketable securities - restricted (SERP) | 375 | 326 |
Total assets at fair value | 815,869 | 775,142 |
Quoted Prices in Active Markets for Identical Assets (Level 1) | Recurring | ||
Assets: | ||
Cash and cash equivalents | 122,778 | 192,248 |
Marketable securities | ||
Corporate debt securities | 246 | 245 |
Long term marketable securities | ||
Corporate debt securities | 450 | 445 |
Other non-current assets | ||
Marketable securities - restricted (SERP) | 1 | 1 |
Total assets at fair value | 123,475 | 192,939 |
Significant Other Observable Inputs (Level 2) | Recurring | ||
Marketable securities | ||
Corporate debt securities | 169,919 | 163,525 |
Long term marketable securities | ||
Corporate debt securities | 520,948 | 415,205 |
Government debt securities | 1,153 | 3,148 |
Other non-current assets | ||
Marketable securities - restricted (SERP) | 374 | 325 |
Total assets at fair value | 692,394 | 582,203 |
0.625% Convertible Senior Notes due 2023 | Significant Other Observable Inputs (Level 2) | ||
Fair value of financial instruments | ||
Carrying value | 333,310 | 329,462 |
Fair value | $ 388,664 | $ 375,834 |
Fair Value of Financial Instr_4
Fair Value of Financial Instruments - Unrestricted Marketable Securities (Details) - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 |
Fair Value of Financial Instruments | ||
Corporate and government debt securities, Amortized cost | $ 690,853 | $ 586,726 |
Corporate and government debt securities, Gross unrealized gains | 2,905 | 55 |
Corporate and government debt securities, Gross unrealized losses | (1,042) | (4,213) |
Corporate and government debt securities, Fair Value | 692,716 | 582,568 |
Contractual maturities of the unrestricted available for sale marketable securities held | ||
Less than 1 year | 170,165 | |
1 year to 2 years | 170,246 | |
2 years to 3 years | 181,872 | |
3 years to 4 years | 170,433 | |
Corporate debt securities, Fair Value | $ 692,716 | $ 582,568 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 |
Inventories | ||
Raw materials | $ 5,377 | $ 5,742 |
Work in process | 5,661 | 7,275 |
Finished goods | 15,480 | 12,642 |
Total inventories | $ 26,518 | $ 25,659 |
Property and Equipment (Details
Property and Equipment (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Property and equipment | |||
Property and equipment, gross | $ 15,818 | $ 15,314 | |
Less accumulated depreciation and amortization | (11,592) | (11,219) | |
Property and equipment, net | 4,226 | 4,095 | |
Depreciation and amortization expense | 400 | $ 400 | |
Lab equipment and furniture | |||
Property and equipment | |||
Property and equipment, gross | 9,056 | 8,995 | |
Leasehold improvements | |||
Property and equipment | |||
Property and equipment, gross | 3,014 | 2,731 | |
Software | |||
Property and equipment | |||
Property and equipment, gross | 2,197 | 2,181 | |
Computer equipment | |||
Property and equipment | |||
Property and equipment, gross | 1,313 | 1,313 | |
Construction-in-progress | |||
Property and equipment | |||
Property and equipment, gross | $ 238 | $ 94 |
Intangible Assets (Details)
Intangible Assets (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Intangible Assets | |||
Less accumulated amortization | $ (14,662) | $ (13,356) | |
Net book value of intangible assets | 30,063 | 31,368 | |
Additional disclosures | |||
Amortization expense | 1,300 | $ 1,300 | |
Capitalized patent defense costs | |||
Intangible Assets | |||
Gross carrying amount | $ 44,725 | $ 44,724 | |
Capitalized patent defense costs | Minimum | |||
Intangible Assets | |||
Weighted-Average Life | 3 years 9 months | 3 years 9 months | |
Capitalized patent defense costs | Maximum | |||
Intangible Assets | |||
Weighted-Average Life | 8 years | 8 years |
Accrued Expenses and Other Cu_3
Accrued Expenses and Other Current Liabilities (Details) - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 |
Accrued Expenses and Other Current Liabilities | ||
Accrued clinical trial and clinical supply costs | $ 15,420 | $ 14,034 |
Accrued compensation | 11,545 | 13,546 |
Accrued professional fees | 3,336 | 3,706 |
Accrued interest expense | 650 | |
Accrued product costs | 751 | 38 |
Lease liabilities, current | 3,250 | |
Other accrued expenses | 2,305 | 4,561 |
Total | $ 36,607 | $ 36,535 |
Accrued Product Returns and R_3
Accrued Product Returns and Rebates (Details) - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 |
Accrued Product Returns and Rebates | ||
Accrued rebates | $ 66,090 | $ 85,003 |
Accrued product returns | 22,110 | 22,060 |
Total | $ 88,200 | $ 107,063 |
Convertible Senior Notes Due 20
Convertible Senior Notes Due 2023 (Details) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Notes payable | ||||
Total cost of the convertible note hedge transactions | $ 92,897 | |||
Strike price of the Warrant Transactions (in dollars per share) | $ 80.9063 | $ 80.9063 | ||
Proceeds from sale of warrants | $ 65,688 | |||
Debt financing costs | $ 10,435 | |||
Liability component of the 2023 Notes | ||||
December 31, 2018 carrying value | $ 333,310 | $ 329,462 | ||
2023 Notes | ||||
Notes payable | ||||
Aggregate principal amount | $ 402,500 | 402,500 | ||
Interest rate (as a percent) | 0.625% | 0.625% | ||
Conversion rate for the Notes (in shares) | 16.8545 | |||
Conversion ratio, principal amount | $ 1,000 | |||
Conversion price, per share of Common Stock | $ 59.33 | $ 59.33 | $ 59.33 | |
Convertible note hedge options issued (in shares) | 402,500 | |||
Shares of common stock issued upon conversion of Notes | 6,800,000 | |||
Warrants issued | 6,783,939 | 6,783,939 | ||
Number of shares per warrant entitled to holder | 1 | |||
Liability component of the 2023 Notes | ||||
Principal amount of the 2023 Notes | $ 402,500 | 402,500 | ||
Debt discount | (76,434) | (76,434) | ||
Deferred financing costs | (8,452) | (8,452) | ||
Accretion of debt discount and deferred financing costs | 15,696 | 11,848 | ||
December 31, 2018 carrying value | 333,310 | $ 329,462 | ||
Conversion of debt to equity | $ 0 |
Other Expenses (Details)
Other Expenses (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Other Expenses | ||
Interest income | $ 4,681 | $ 1,206 |
Interest expense | (4,710) | (717) |
Interest expense-nonrecourse liability related to sale of future royalties | (1,160) | (701) |
Total | (1,189) | (212) |
Non-cash interest expense | $ 3,848 | $ 612 |
Share-Based Payments - Share-ba
Share-Based Payments - Share-based Compensation Expense (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Share-based payments | ||
Share-based compensation recognized | $ 3,287 | $ 2,635 |
Research and development | ||
Share-based payments | ||
Share-based compensation recognized | 574 | 418 |
Selling, general and administrative | ||
Share-based payments | ||
Share-based compensation recognized | $ 2,713 | $ 2,217 |
Share-Based Payments - Activity
Share-Based Payments - Activity (Details) - Stock option and Stock Appreciation Rights - $ / shares | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Number of Options and SAR | ||
Outstanding at the beginning of the period (in shares) | 3,916,963 | |
Granted (in shares) | 831,835 | |
Exercised (in shares) | (57,665) | |
Forfeited (in shares) | (10,437) | |
Outstanding at the end of the period (in shares) | 4,680,696 | 3,916,963 |
Vested and expected to vest (in shares) | 4,680,696 | 3,916,963 |
Exercisable (in shares) | 2,605,591 | 1,889,947 |
Weighted-Average Exercise Price | ||
Outstanding at the beginning of the period (in dollars per share) | $ 19.98 | |
Granted (in dollars per share) | 36.75 | |
Exercised (in dollars per share) | 13.57 | |
Forfeited (in dollars per share) | 30.69 | |
Outstanding at the end of the period (in dollars per share) | 23.01 | $ 19.98 |
Vested and expected to vest (in dollars per share) | 23.01 | 19.98 |
Exercisable (in dollars per share) | $ 15.33 | $ 12.47 |
Weighted-Average Remaining Contractual Term (in years) | ||
Outstanding at the end of the period | 7 years 4 months 24 days | 7 years 1 month 6 days |
Vested and expected to vest | 7 years 4 months 24 days | 7 years 1 month 6 days |
Exercisable | 6 years 2 months 19 days | 5 years 11 months 16 days |
Earnings per Share (Details)
Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Numerator, in thousands: | ||
Net earnings used for calculation of basic and diluted EPS | $ 18,340 | $ 26,352 |
Denominator: | ||
Weighted average shares outstanding, basic | 52,336,443 | 51,536,474 |
Effect of dilutive potential common shares: | ||
Stock options and SAR | 1,648,942 | 2,251,872 |
Total dilutive potential common shares | 1,648,942 | 2,251,872 |
Weighted average shares outstanding, diluted | 53,985,385 | 53,788,346 |
Earnings per share, basic | $ 0.35 | $ 0.51 |
Earnings per share, diluted | $ 0.34 | $ 0.49 |
Warrants to purchase common stock | ||
Income per share | ||
Common stock equivalents excluded in the calculation of diluted income per share | 7,966,488 | 1,752,793 |
Convertible notes | ||
Income per share | ||
Common stock equivalents excluded in the calculation of diluted income per share | 239,272 | 22,634 |
Convertible notes hedges | ||
Income per share | ||
Common stock equivalents excluded in the calculation of diluted income per share | 240 | 23 |
Stock options, SAR, and ESPP awards | ||
Income per share | ||
Common stock equivalents excluded in the calculation of diluted income per share | 608,948 | 208,661 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Income Taxes | ||
Income tax expense | $ 5,899 | $ 4,830 |
Effective tax rate | 24.34% | 15.49% |
Excess tax benefits related to employee exercise of stock options | $ 300 | $ 2,000 |
Leases - General (Details)
Leases - General (Details) | 3 Months Ended |
Mar. 31, 2019 | |
Leases | |
Operating lease - Option to extend | true |
Operating lease - Option to terminate | true |
Leases - New Headquarters Lease
Leases - New Headquarters Lease (Details) - Advent Key West, LLC (Landlord) - USD ($) | Feb. 01, 2019 | Mar. 31, 2019 |
Leases | ||
Optional lease renewal term | 10 years | |
Initial fixed monthly rental rate | $ 195,000 | |
Increase in fixed monthly rental payments (as a percent) | 2.00% | |
Required security deposit | $ 195,000 | |
Tenant improvement allowance | $ 10,200,000 |
Leases - Leases Balance Sheet I
Leases - Leases Balance Sheet Information (Details) $ in Thousands | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Balance sheet information related to leases | |
Operating leases, Assets | $ 20,049 |
Operating leases, Assets (Balance Sheet Location) | us-gaap:OperatingLeaseRightOfUseAsset |
Tenant receivable, Assets | $ 10,151 |
Tenant receivable, Assets (Balance Sheet Location) | us-gaap:PrepaidExpenseAndOtherAssetsCurrent |
Total lease assets | $ 30,200 |
Operating leases, Current Liabilities | $ 3,250 |
Operating leases, Current Liabilities (Balance Sheet Location) | us-gaap:OtherAccountsPayableAndAccruedLiabilities |
Operating leases, Non-current Liabilities | $ 27,824 |
Operating leases, Non-current Liabilities (Balance Sheet Location) | us-gaap:OperatingLeaseLiabilityNoncurrent |
Total lease liabilities | $ 31,074 |
Leases - Lease Costs (Details)
Leases - Lease Costs (Details) $ in Thousands | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Operating leases cost | |
Fixed lease cost | $ 1,032 |
Variable lease cost | 465 |
Total operating leases cost | $ 1,497 |
Leases - Schedule of Weighted A
Leases - Schedule of Weighted Average Remaining Lease Term and Discount Rate Information (Details) | Mar. 31, 2019 |
Leases | |
Operating leases, Weighted-average remaining lease term (in years) | 13 years 6 months 11 days |
Operating leases, Weighted-average discount rate (as a percent) | 4.37% |
Leases - Schedule of Maturities
Leases - Schedule of Maturities of Lease Liabilities (Details) $ in Thousands | Mar. 31, 2019USD ($) |
Operating leases | |
2019 | $ 2,512 |
2020 | 2,938 |
2021 | 2,527 |
2022 | 2,486 |
2023 | 2,536 |
After 2023 | 29,371 |
Total lease payments | 42,370 |
Less: Interest | 11,296 |
Present value of lease liabilities | $ 31,074 |
Leases - Future Minimum Lease P
Leases - Future Minimum Lease Payments Under Non-cancelable Operating Leases (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Leases | |||
Rent expense | $ 3,600 | $ 2,700 | $ 2,700 |
Year ending December 31: | |||
2019 | 3,400 | ||
2020 | 2,287 | ||
Thereafter | 1,840 | ||
Total | $ 7,527 |
Accounts Receivable (Details)
Accounts Receivable (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Accounts Receivable | ||
Allowance for expected sales discounts and allowances | $ 7.8 | $ 11.5 |
Disaggregated Revenues (Details
Disaggregated Revenues (Details) $ in Thousands | 3 Months Ended | |
Mar. 31, 2019USD ($)customer | Mar. 31, 2018USD ($)customer | |
Revenue Recognition | ||
Total revenues | $ 85,474 | $ 90,429 |
Non-cash royalty revenue | $ (1,576) | $ (1,300) |
Revenues | Customer Concentration Risk | Wholesale pharmaceutical distributors | ||
Revenue Recognition | ||
Number of customers | customer | 3 | 3 |
Revenues | Customer Concentration Risk | Wholesale pharmaceutical distributors | Minimum | ||
Revenue Recognition | ||
Concentration risk percentage | 90.00% | 90.00% |
Product | ||
Revenue Recognition | ||
Total revenues | $ 83,099 | $ 89,120 |
Trokendi XR | ||
Revenue Recognition | ||
Total revenues | 63,693 | 70,555 |
Oxtellar XR | ||
Revenue Recognition | ||
Total revenues | 19,406 | 18,565 |
Royalty | ||
Revenue Recognition | ||
Total revenues | 2,375 | 1,309 |
Milestone revenue | ||
Revenue Recognition | ||
Total revenues | $ 0 | $ 0 |
Commitments and Contingencies (
Commitments and Contingencies (Details) - USD ($) $ in Thousands | Mar. 31, 2019 | Dec. 31, 2018 | Sep. 30, 2014 |
Commitments and Contingencies | |||
Non-recourse liability related to sale of future royalties, long term | $ 21,957 | $ 22,575 | $ 30,000 |