Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Mar. 31, 2015 | 8-May-15 | |
Document and Entity Information | ||
Entity Registrant Name | OSIRIS THERAPEUTICS, INC. | |
Entity Central Index Key | 1360886 | |
Document Type | 10-Q | |
Document Period End Date | 31-Mar-15 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -19 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 34,390,313 | |
Document Fiscal Year Focus | 2015 | |
Document Fiscal Period Focus | Q1 |
CONDENSED_BALANCE_SHEETS
CONDENSED BALANCE SHEETS (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
In Thousands, unless otherwise specified | ||
Current assets: | ||
Cash | $3,704 | $2,208 |
Investments available for sale | 35,367 | 37,305 |
Trading securities | 8,162 | 10,591 |
Trade accounts receivable, net of reserves | 32,022 | 24,307 |
Other receivables | 7,579 | 9,951 |
Inventory | 11,939 | 10,924 |
Prepaids and other current assets | 579 | 650 |
Total current assets | 99,352 | 95,936 |
Property and equipment, net | 2,165 | 2,087 |
Other assets | 95 | 95 |
Total assets | 101,612 | 98,118 |
Current liabilities: | ||
Accounts payable and accrued expenses | 9,830 | 8,854 |
Capital lease obligations, current portion | 45 | 45 |
Deferred commissions payable, current portion | 1,667 | 1,667 |
Total current liabilities | 11,542 | 10,566 |
Other long-term liabilities | 3,586 | 3,589 |
Total liabilities | 15,128 | 14,155 |
Commitments and contingencies | ||
Stockholders' equity | ||
Common stock, $.001 par value, 90,000 shares authorized, 34,390 shares outstanding - 2015, 34,346 shares outstanding - 2014 | 35 | 35 |
Additional paid-in-capital | 288,759 | 287,525 |
Accumulated other comprehensive loss | -144 | -54 |
Accumulated deficit | -202,166 | -203,543 |
Total stockholders' equity | 86,484 | 83,963 |
Total liabilities and stockholders' equity | $101,612 | $98,118 |
CONDENSED_BALANCE_SHEETS_Paren
CONDENSED BALANCE SHEETS (Parenthetical) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
In Thousands, except Per Share data, unless otherwise specified | ||
CONDENSED BALANCE SHEETS | ||
Common stock, par value (in dollars per share) | $0.00 | $0.00 |
Common stock, shares authorized | 90,000 | 90,000 |
Common stock, shares outstanding | 34,390 | 34,346 |
CONDENSED_STATEMENTS_OF_COMPRE
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) | 3 Months Ended | |
In Thousands, except Per Share data, unless otherwise specified | Mar. 31, 2015 | Mar. 31, 2014 |
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS | ||
Product revenues | $21,003 | $10,054 |
Cost of product revenues | 4,609 | 2,212 |
Gross profit | 16,394 | 7,842 |
Operating expenses: | ||
Research and development | 1,640 | 670 |
Selling, general and administrative | 12,835 | 7,235 |
Fees paid to related parties | 76 | 149 |
Share based payments to related parties | 403 | |
Total operating expenses | 14,551 | 8,457 |
Income (loss) from operations of continuing operations | 1,843 | -615 |
Other income (expense), net | 146 | -126 |
Income (Loss) from continuing operations, before income taxes | 1,989 | -741 |
Income tax (expense) benefit | -612 | 130 |
Income (loss) from continuing operations | 1,377 | -611 |
Discontinued operations: | ||
Loss from operations of discontinued operations, net of income taxes of $165 in 2014 | -754 | |
Loss from discontinued operations | -754 | |
Net income (loss) | 1,377 | -1,365 |
Other comprehensive income (loss) | ||
Unrealized (loss) gain on investments available for sale | -90 | 88 |
Comprehensive income (loss) | $1,287 | ($1,277) |
Basic income (loss) per share | ||
Income (loss) from continuing operations (in dollars per share) | $0.04 | ($0.02) |
Loss from discontinued operations (in dollars per share) | ($0.02) | |
Basic income (loss) per share, (in dollars per share) | $0.04 | ($0.04) |
Diluted income (loss) per share | ||
Income (loss) from continuing operations (in dollars per share) | $0.04 | ($0.02) |
Loss from discontinued operations (in dollars per share) | ($0.02) | |
Diluted income (loss) per share (in dollars per share) | $0.04 | ($0.04) |
Weighted average common shares basic (in shares) | 34,358 | 34,148 |
Weighted average common shares diluted (in shares) | 34,821 | 34,148 |
CONDENSED_STATEMENTS_OF_COMPRE1
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) (USD $) | 3 Months Ended |
In Thousands, unless otherwise specified | Mar. 31, 2014 |
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS | |
Income tax expense, which was offset against the income from discontinued operations | $165 |
CONDENSED_STATEMENTS_OF_CHANGE
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total |
In Thousands, except Share data, unless otherwise specified | |||||
Balance at Dec. 31, 2014 | $35 | $287,525 | ($54) | ($203,543) | $83,963 |
Balance (in shares) at Dec. 31, 2014 | 34,345,688 | 34,346,000 | |||
Increase (Decrease) in Stockholders' Equity | |||||
Exercise of options to purchase common stock ($.40- $12.91 per share) | 328 | 328 | |||
Exercise of options to purchase common stock (in shares) | 44,625 | ||||
Share-based compensation employees | 852 | 852 | |||
Net income | 1,377 | 1,377 | |||
Unrealized loss on investments available for sale | -90 | -90 | |||
Windfall tax benefit from stock-based compensation | 54 | 54 | |||
Balance at Mar. 31, 2015 | $35 | $288,759 | ($144) | ($202,166) | $86,484 |
Balance (in shares) at Mar. 31, 2015 | 34,390,313 | 34,390,000 |
CONDENSED_STATEMENTS_OF_CHANGE1
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) (USD $) | 3 Months Ended |
Mar. 31, 2015 | |
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY | |
Exercise of options to purchase common stock, per share, low end of range | $0.40 |
Exercise of options to purchase common stock, per share, high end of range | $12.91 |
CONDENSED_STATEMENTS_OF_CASH_F
CONDENSED STATEMENTS OF CASH FLOWS (USD $) | 3 Months Ended | |
In Thousands, unless otherwise specified | Mar. 31, 2015 | Mar. 31, 2014 |
Cash flows from operating activities: | ||
Income (loss) from continuing operations | $1,377 | ($611) |
Adjustments to reconcile income (loss) from continuing operations to net cash used in operations of continuing operations: | ||
Unrealized loss on trading securities | 179 | |
Realized loss (gain) on investments available for sale | 19 | -54 |
Depreciation and amortization | 267 | 214 |
Non cash share-based payments | 852 | 883 |
Changes in operating assets and liabilities: | ||
Accounts receivable | -7,715 | -4,204 |
Inventory | -1,015 | -408 |
Prepaid expenses, and other current assets | 4,872 | 72 |
Lease reserves | -25 | |
Accounts payable, accrued expenses, and other liabilities | 984 | -817 |
Net cash used in operating activities of continuing operations | -359 | -4,771 |
Discontinued operations | ||
Loss from discontinued operations | -754 | |
Changes in operating assets and liabilities: | ||
Accounts receivable and other current assets | -5 | |
Accounts payable and accrued expenses | -40 | |
Net cash used in operations of discontinued operations | -799 | |
Net cash used in operating activities | -359 | -5,570 |
Cash flows from investing activities: | ||
Purchases of property and equipment | -345 | -127 |
Proceeds from sale of investments available for sale | 22,221 | 5,000 |
Purchases of investments available for sale | -20,392 | |
Net cash provided by investing activities | 1,484 | 4,873 |
Cash flows from financing activities: | ||
Principal payments on capital lease obligations | -11 | -11 |
Proceeds from the exercise of options to purchase common stock | 328 | 634 |
Windfall tax benefit from stock-based compensation | 54 | |
Net cash provided by financing activities | 371 | 623 |
Net increase (decrease) in cash | 1,496 | -74 |
Cash at beginning of period | 2,208 | 2,416 |
Cash at end of period | 3,704 | 2,342 |
Supplemental disclosure of cash flows information: | ||
Cash paid for income taxes | 422 | |
Supplemental disclosure of non cash activities: | ||
Guaranteed payment related to trading securities | 2,429 | |
Unrealized loss on investments available for sale | 90 | |
Unrealized gain on investments available for sale | $88 |
Description_of_Business_and_Si
Description of Business and Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2015 | |
Description of Business and Significant Accounting Policies | |
Description of Business and Significant Accounting Policies | |
1. Description of Business and Significant Accounting Policies | |
Description of Business | |
Osiris Therapeutics, Inc. (“we,” “us,” “our,” or the “Company”) is a Maryland corporation headquartered in Columbia, Maryland. We began operations on December 23, 1992 and were a Delaware corporation until, with approval of our stockholders, we reincorporated as a Maryland corporation on May 31, 2010. We are a leading cellular and regenerative medicine company focused on researching, developing and marketing products in the wound, orthopedic, and sports medicine markets. | |
From 2010 to 2013, we operated our business in two segments, Biosurgery and Therapeutics. We now operate only our Biosurgery business, as a result of the sale of our Therapeutics segment assets in the fourth quarter of 2013, as discussed further below. Our Biosurgery business focuses on products for wound care, orthopedics, and sports medicine to harness the ability of cells and novel constructs to promote the body’s natural healing. Until it was sold, our Therapeutics business focused on developing biologic stem cell drug candidates from a readily available and non-controversial source—adult bone marrow. | |
Our Biosurgery business has continued to grow since its inception, and we have increased our organizational focus on the development and commercialization of products in this segment. Consistent with this organizational focus, as discussed further in Note 2— Discontinued Operations below, on October 10, 2013, we entered into a Purchase Agreement to sell our Therapeutics segment, including all of our culture expanded mesenchymal stem cell business, including Prochymal and other related assets. We eliminated the Therapeutics segment from our continuing operations as a result of the disposal transaction, and have presented the assets, liabilities, and results of the segment’s operations as a discontinued operation for all periods presented. Our continuing operations now represent the portion of our business previously referred to as our Biosurgery segment. | |
Unaudited Interim Financial Statements | |
Except for the Balance Sheet as of December 31, 2014, which was derived from audited financial statements, the accompanying condensed financial statements are unaudited. The accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of our results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. This Quarterly Report on Form 10-Q should be read in conjunction with our financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. | |
Use of Estimates | |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Due to the inherent uncertainty involved in making those assumptions, actual results could differ from those estimates. We believe that the most significant estimates that affect our financial statements are those that relate to deferred tax assets, inventory valuation, share-based compensation and the value of the derivative obtained in connection with the sale of our former Therapeutics business. | |
Reclassifications | |
We have reclassified certain prior-year amounts for comparative purposes. These reclassifications did not affect our results of operations or financial positions for the periods presented. | |
Cash and Cash Equivalents | |
Amounts listed as cash on our balance sheets are maintained in depository accounts at a commercial bank. Cash and cash equivalents, which include highly liquid investments with maturities of three months or less when purchased, held in our brokerage investment accounts are classified as investments available for sale, as the amounts represent investments that have matured and are anticipated to be reinvested in debt securities in the near future, and are disclosed at fair value, which approximates cost. | |
Investments Available for Sale | |
Investments available for sale consist primarily of marketable securities with maturities less than one year. Investments available for sale are valued at their fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income (loss). All realized gains and losses on our investments available for sale are recognized in results of operations as other income. | |
Investments available for sale are evaluated periodically to determine whether a decline in their value is “other than temporary.” The term “other than temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security. We review criteria such as the magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary. If a decline in value is determined to be other than temporary, the carrying value of the security is reduced and a corresponding charge to earnings is recognized. | |
Trading Securities - Derivative and Securities Received in Business Disposition | |
As discussed in Note 2 — Discontinued Operations, we disposed of our Therapeutics segment in October 2013. A portion of the consideration for the sale of that business was stock of Mesoblast Limited (“Mesoblast”), the parent of the purchaser. We were required to hold that stock for one year from the date of receipt. Mesoblast is a public company and its stock is traded on the Australian stock exchange. | |
The Mesoblast stock was previously subject to limited price protection for the one year required holding period. To the extent the value of those shares decreased during the holding period, Mesoblast was required to pay us for the decrease in value. This payment was to be made at least one half in cash and at the option of Mesoblast, up to one half in additional shares of Mesoblast stock. Any additional Mesoblast stock would also have to be held for one year during which period there was no further price protection. The price protection was accounted for as a derivative under ASC 815, Derivatives and Hedging, and, as such was recorded on the balance sheets at fair value, with changes recognized in net income. We elected to measure the Mesoblast stock at fair value with changes in fair value reflected in net income, as permitted under ASC 825-10, Financial Instruments—Fair Value Option. In December 2014, the price protection on these shares expired, although Mesoblast agreed to pay us $15 million in cash for the stock in the first half of fiscal 2015. Accordingly, as of March 31, 2015 and December 31, 2014, we reflect the stock as a current asset in Trading Securities. As of March 31, 2015, this $15 million is shown as $8.2 million in Trading Securities and $6.8 million in Other Receivables on our Balance Sheets. As of December 31, 2014, this $15 million is shown as $10.6 million in Trading Securities and $4.4 million in Other Receivables on our Balance Sheets. | |
Trade Accounts Receivable | |
Trade accounts receivable are reported at their net realizable value. We charge off uncollectible receivables when the likelihood of collection is remote. We set credit terms with individual customers, and consider receivables outstanding longer than the time specified in the respective customer’s contract, typically 45-days, to be past due. As of March 31, 2015 and December 31, 2014, accounts receivable in the accompanying balance sheets are each reported net of $1.3 million allowance for doubtful accounts. Trade accounts receivable balances are not collateralized. We did not have bad debt expense in the first quarters of fiscal 2015 or 2014. | |
Other Receivables | |
Other receivables at March 31, 2015 include the $6.8 million difference between the market value of the Mesoblast ordinary shares held by us and the $15 million agreed to be paid to us by Mesoblast. Other receivables at December 31, 2014 included the $5.0 million fee payable from Stryker, as further described below, and the $4.4 million difference between the market value of the Mesoblast ordinary shares held by us and the $15 million to be paid to us by Mesoblast for such shares. | |
Inventory | |
We began carrying inventory of our Biosurgery products on our balance sheet following commercial launch of such products. Inventory consists of raw materials, biologic products in process, and products available for distribution. We determine our inventory values using the first-in, first-out method. Inventory is valued at the lower of cost or market, and excludes units that we anticipate distributing for clinical evaluation. Materials and supplies purchased for product development and product improvement activities are expensed as incurred. | |
Property and Equipment | |
Property and equipment, including improvements that extend useful lives, are valued at cost, while maintenance and repairs are charged to operations as incurred. Depreciation is calculated using the straight-line method based on estimated useful lives ranging from three to seven years for furniture, equipment and internal use software. Leasehold improvements and assets under capital leases are amortized over the shorter of the estimated useful life of the asset or the term of the lease. | |
Valuation of Long-lived Assets | |
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized for the difference between the fair value and carrying value of assets. Fair value is generally determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk. There were no impairment losses recognized during the first quarter of fiscal 2015 or during fiscal year 2014. | |
Biosurgery Revenue Recognition | |
We recognize revenue from product distribution when title passes to the customer. Title usually passes when the product is shipped to the customer and leaves our loading dock. In some situations, we store consigned inventory on site in freezers at hospital or clinic facilities. No revenue is recognized upon the placement of inventory into consignment as we retain title and maintain the inventory on our balance sheets. For these products, revenue is recognized when we receive appropriate notification that the product has been used in a surgical procedure. We verify the condition and status of all consigned inventory on at least a quarterly basis. Due to the nature of our products and the need to ensure they are maintained at the proper frozen temperature, we generally do not allow product returns. | |
In December 2014, we entered into an exclusive distribution agreement with a subsidiary of Stryker Corporation for the marketing and distribution of BIO(4), our viable bone matrix allograft. Pursuant to the agreement, Stryker has been granted worldwide distribution rights to the product and any improvements, for all surgical applications. We are responsible for supply, manufacturing, inventory management, shipments to customers, continued research and product improvement activities. We recognize as revenue the amounts charged to customers for the allografts. Commissions and administrative fees paid to Stryker are accounted for as selling expenses, as Stryker is acting as outside sales and marketing agent for Osiris. We received an initial exclusivity fee of $5.0 million in the first quarter of fiscal 2015 and are entitled to receive additional fees upon any exercise by Stryker of its right to extend the initial term, whether on an exclusive or non-exclusive basis. The exclusivity fee and any extension fees subsequently received are considered to be adjustments of the selling expenses. As such, we recognize the exclusively fee as a liability, which will be amortized over the related exclusivity period in proportion to the expected fees to be paid to Stryker, as an offset to selling expenses. During the first quarter of fiscal 2015, we amortized $59,000. At December 31, 2014, we recorded a $5.0 million receivable with the offset to short-term deferred commissions of $1.7 million and long-term deferred commissions of $3.3 million. At March 31, 2015, the short-term and long-term deferred commissions were $1.7 million and $3.2 million, respectively. | |
In October 2014, we entered into an exclusive commercial and development partnership for our cartilage product, Cartiform, with Arthrex, Inc. The agreement provides Arthrex with exclusive commercial distribution rights to Cartiform beginning in 2015. We are responsible for manufacturing, continued research and product improvement activities. The responsibilities related to the design and conduct of future clinical development programs are shared between both organizations. Pursuant to the agreement, Arthrex is entitled to a certain commission on Cartiform sales. We recognize the full sales price as revenue and account for the payment to Arthrex as commission expense. | |
Therapeutics Revenue Recognition | |
In our former Therapeutics business, we evaluated revenues from agreements that had multiple elements to determine whether the components of the arrangement represent separate units of accounting. To recognize a delivered item in a multiple element arrangement, the delivered items must have value on a standalone basis and the delivery or performance must be probable and within our control for any delivered items that have a right of return. The determination of whether multiple elements of a collaboration agreement meet the criteria for separate units of accounting required us to exercise judgment. We account for the activities of our former Therapeutics business as discontinued operations. | |
Revenues from research licenses associated with our former Therapeutics business were recognized as earned upon either the incurring of reimbursable expenses directly related to the particular research plan or the completion of certain development milestones as defined within the terms of the agreement. Payments received in advance of research performance were designated as deferred revenue. Non-refundable upfront license fees and certain other related fees associated with our former Therapeutics business were recognized on a straight-line basis over the development periods of the contract deliverables. Fees associated with substantive at risk performance based milestones are recognized as revenue upon their completion, as defined in the respective agreements. Incidental assignment of technology rights were recognized as revenue when and if it was earned and received. | |
Research and Development Costs | |
We expense internal and external research and development (“R&D”) costs, including costs of funded R&D arrangements and the manufacture of clinical batches of Biosurgery products used in clinical trials, in the period incurred. | |
Income Taxes | |
Deferred tax liabilities and assets are recognized for the estimated future tax consequences of temporary differences, income tax credits and net operating loss carry-forwards. Temporary differences are primarily the result of the differences between the tax bases of assets and liabilities and their financial reporting values. Deferred tax liabilities and assets are measured by applying the enacted statutory tax rates applicable to the future years in which deferred tax liabilities or assets are expected to be settled or realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense, if any, consists of the taxes payable for the current period and the change during the period in deferred tax assets and liabilities. | |
We recognize in our financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties related to income tax matters are recorded as income tax expense. At March 31, 2015 and December 31, 2014 we had no accruals for interest or penalties related to income tax matters. | |
Income per Common Share | |
Basic income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted income per common share adjusts basic income per share for the potentially dilutive effects of common share equivalents, using the treasury stock method, and includes the incremental effect of shares that would be issued upon the assumed exercise of stock options and warrants. | |
Diluted income per common share for the three months ended March 31, 2015 includes the dilutive impact of options equivalent to 462,903 shares. | |
Diluted loss per common share for the three months ended March 31, 2014 excluded all 1,481,708 of our outstanding options as of March 31, 2014, as their impact on our net loss is anti-dilutive. As a result, basic and diluted weighted average common shares outstanding are identical for this period. | |
Share-Based Compensation | |
We account for share-based payments using the fair value method. | |
We recognize all share-based payments to employees and non-employee directors in our financial statements based on their grant date fair values, calculated using the Black-Scholes option pricing model. Compensation expense related to share-based awards is recognized on a straight-line basis for each vesting tranche based on the value of share awards that are expected to vest on the grant date, which is revised if actual forfeitures differ materially from original expectations. | |
Comprehensive Income | |
Comprehensive income consists of net income and all changes in equity from non-stockholder sources, which consist of changes in unrealized gains and losses on investments. | |
Concentration of Risk | |
We maintain cash and short-term investment balances in accounts that exceed federally insured limits, although we have not experienced any losses on such accounts. We also invest excess cash in investment grade securities, generally with maturities of one year or less. We have historically provided credit in the normal course of business to contract counterparties and to the distributors of our product. Trade accounts receivable in the accompanying balance sheets consist primarily of amounts due from distributors of our Biosurgery products within the United States. During the first fiscal quarters of fiscal 2015 and 2014, revenues from one of the distributors of our Biosurgery products, Stability Biologics, comprised approximately 13% and 15%, respectively, of our total Biosurgery product revenues. As of March 31, 2015 and December 31, 2014, receivables from this distributor comprised 14% and 13%, respectively, of our trade receivables. We are experiencing some collection issues due to the termination of distributorships related to our new strategic partnerships with Arthrex and Stryker, and accordingly we have recorded an allowance. As discussed under “Trade Accounts Receivable,” we have not incurred any bad debt expense for the three months ended March 31, 2015 or 2014. | |
Recent Accounting Guidance at March 31, 2015 | |
We evaluated the accounting standards updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) and determined they are either (i) not applicable or (ii) have an immaterial impact on our financial statements. | |
Discontinued_Operations
Discontinued Operations | 3 Months Ended | |||||||
Mar. 31, 2015 | ||||||||
Discontinued Operations | ||||||||
Discontinued Operations | ||||||||
2. Discontinued Operations | ||||||||
On October 10, 2013, we entered into a Purchase Agreement with a wholly-owned subsidiary of Mesoblast Limited, pursuant to the terms of which we sold our culture expanded mesenchymal stem cell (ceMSC) business, including Prochymal and other related assets. The Purchase Agreement provides for payment to us of $50 million in initial consideration, and payment of up to an additional $50 million upon the achievement by Mesoblast of certain clinical and regulatory milestones. Additionally, we will be entitled to earn low single to double digit cash royalties on future sales by Mesoblast of Prochymal and other products utilizing the acquired ceMSC technology. | ||||||||
The Purchase Agreement provides for the $50.0 million of initial payments and up to $50.0 million of contingent additional payments to us upon our achievement of milestone events, as follows: | ||||||||
Amount | ||||||||
Milestone | $0 | |||||||
Initial consideration | ||||||||
Letter of intent payments | $ | 3,500 | ||||||
Initial closing payment | 16,500 | |||||||
Additional closing payment, received in April 2014 | 15,000 | |||||||
Delivery of all scheduled assets under the Transfer Agreement | 15,000 | |||||||
Total initial consideration | 50,000 | |||||||
Contingent Consideration | ||||||||
First marketing authorization received in the U.S. | 20,000 | |||||||
First marketing authorization received from France, Germany, or European Union. | 10,000 | |||||||
Completion of the enrollment of the Phase 3 Crohn’s Trial or Mesoblast’s election to discontinue the trial | 10,000 | |||||||
Receipt of final data for the Crohn’s trial or first marketing approval for Crohn’s | 10,000 | |||||||
Total conditional consideration | 50,000 | |||||||
Total possible purchase price | $ | 100,000 | ||||||
Of the $50 million in total initial consideration, we received payment of $35 million in cash, and $15 million in Mesoblast ordinary shares, which were delivered to us upon completed delivery of the ceMSC assets. Our ability to receive the second $50 million is subject to satisfaction of the milestones indicated above all of which are largely dependent upon the clinical and regulatory success of Mesoblast and other factors not in our control. These include many if not all of the risks and uncertainties that our ceMSC business was subject to prior to its sale to Mesoblast, including product development, efficacy and regulatory risks. We have received no such payments thus far, nor do we have any expectation of receiving any such payments in the foreseeable future. Our ability to earn royalties from Mesoblast is subject to these same risks and will require performance by Mesoblast that results in its meeting some or all of the milestones referred to above, and is thereafter also dependent upon the commercial success of Mesoblast’s ceMSC business. Royalties, if any, are payable to us in cash. Any portion of the second $50 million that becomes payable to us will be payable, at the discretion of Mesoblast, in Mesoblast ordinary shares, based on a then current valuation of such shares. Any such Mesoblast ordinary shares that we receive will be subject to a one year holding period, with the same limited downside protection for a drop in the Mesoblast share price over the holding period. | ||||||||
We eliminated the Therapeutics segment from our continuing operations as a result of the disposal transaction and have presented the assets, liabilities, and results of the segment’s operations as a discontinued operation for all periods. Our continuing operations now represent the portion of our business previously referred to as our Biosurgery segment. | ||||||||
During fiscal 2014, we completed all of our responsibilities under a separate transition services agreement with Mesoblast and all involvement in our former Therapeutics business has ceased. The only continuing cash flows to us related to our former Therapeutics business will be the contingent consideration and royalties provided for under the purchase agreement, as described above. We received no such contingent payments or royalties in the first quarter of fiscal 2015 or full fiscal year 2014. | ||||||||
Summarized operating results of discontinued operations are as follows: | ||||||||
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2015 | 2014 | |||||||
($000s) | ($000s) | |||||||
Revenue from collaborative research agreements and royalties | $ | — | $ | — | ||||
Operating expenses: | ||||||||
Research and development | $ | — | 73 | |||||
Selling, general and administrative | — | 516 | ||||||
— | 589 | |||||||
Loss from discontinued operations before income tax expense | — | (589 | ) | |||||
Income tax expense | — | 165 | ||||||
Loss from discontinued operations | $ | — | $ | (754 | ) | |||
Revenues from our former Therapeutics business historically consisted primarily of collaborative research agreements and royalties. Because of the disposition of our Therapeutics business in 2013, we will no longer incur related research and development expenses related to these discontinued operations. Our discontinued operations also earned royalty revenues and cost reimbursement under an adult expanded access program. Royalties were earned on the sale of human mesenchymal stem cells sold for research purposes. We recognized this revenue as sales were made. | ||||||||
Segment_Reporting
Segment Reporting | 3 Months Ended |
Mar. 31, 2015 | |
Segment Reporting | |
Segment Reporting | |
3. Segment Reporting | |
Prior to the sale of our Therapeutics business in 2013, we managed our business in two operating segments: our Biosurgery segment and our Therapeutics segment. | |
Our Biosurgery segment is focused on the development, manufacture and distribution of biologic products for wound care, cartilage repair, and orthopedics to harness the ability of cells and novel constructs to promote the body’s natural healing. We launched Grafix for commercial distribution in 2010, began distribution of Ovation in early fiscal 2011, and began distribution of Cartiform during 2013. We transitioned Ovation to OvationOS (now branded as BIO(4)) during the second half of 2014. The initial commercial sale of BIO(4) through our collaboration with Stryker occurred in the first quarter of fiscal 2015. We have continued to increase our distribution volume of these products since their respective commercial launches and are developing additional products for future commercialization. | |
Our Therapeutics segment focused on developing and marketing products to treat medical conditions in the inflammatory and cardiovascular disease areas. Its operations focused on clinical trials and discovery efforts. As disclosed in Note 2 — Discontinued Operations, in October 2013 we entered into a Purchase Agreement with Mesoblast, pursuant to the terms of which we sold our culture expanded mesenchymal stem cell business, including Prochymal and other related assets. | |
Given the sale of our former Therapeutics segment, we now have only one operating segment. As such, our financial statements present the assets, liabilities, and results of the former Therapeutics segment as discontinued operations for all periods presented, and our continuing operations now represent what was formerly our Biosurgery segment. | |
Property_and_Equipment
Property and Equipment | 3 Months Ended | |||||||
Mar. 31, 2015 | ||||||||
Property and Equipment | ||||||||
Property and Equipment | ||||||||
4. Property and Equipment | ||||||||
Property and equipment at March 31, 2015 and December 31, 2014 are as follows: | ||||||||
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
($000s) | ($000s) | |||||||
Laboratory and manufacturing equipment | $ | 1,395 | $ | 1,211 | ||||
Computer hardware, furniture and fixtures | 1,486 | 1,377 | ||||||
Leased assets | 228 | 228 | ||||||
Leasehold improvements | 4,417 | 4,365 | ||||||
7,526 | 7,181 | |||||||
Accumulated depreciation and amortization | (5,361 | ) | (5,094 | ) | ||||
Property and equipment, net | $ | 2,165 | $ | 2,087 | ||||
Depreciation and amortization expense for property and equipment was $267,000 and $214,000 for three months ended March 31, 2015 and 2014, respectively. | ||||||||
Inventory
Inventory | 3 Months Ended | |||||||
Mar. 31, 2015 | ||||||||
Inventory | ||||||||
Inventory | ||||||||
5. Inventory | ||||||||
As of March 31, 2015 and December 31, 2014, inventory for our Biosurgery business consists of the following: | ||||||||
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
($000s) | ($000s) | |||||||
Inventory | ||||||||
Raw materials and supplies | $ | 1,088 | $ | 1,025 | ||||
Work-in-process | 148 | 19 | ||||||
Finished goods | 10,703 | 9,880 | ||||||
Total Biosurgery inventory | $ | 11,939 | $ | 10,924 | ||||
Prior to the transaction described in Note 2—Discontinued Operations, we did not carry any inventory for our Therapeutics products, as we had yet to launch Prochymal for commercial distribution. | ||||||||
ShareBased_Compensation
Share-Based Compensation | 3 Months Ended | |||||||||||
Mar. 31, 2015 | ||||||||||||
Share-Based Compensation | ||||||||||||
Share-Based Compensation | ||||||||||||
6. Share-Based Compensation | ||||||||||||
In April 2006, we adopted our 2006 Omnibus Plan. We amended and restated this plan in 2008 and 2010, and further amended it in 2012 and 2014, in each case to, among other things, increase the number of shares available for grant. In addition, we had previously established our Amended and Restated 1994 Stock Incentive Plan. Both Plans authorize the issuance of various forms of stock-based awards, including incentive and non-qualified stock options, stock purchase rights, stock appreciation rights and restricted and unrestricted stock awards. A total of 3,000,000 shares of our common stock have been reserved for issuance under the Amended and Restated 2006 Omnibus Plan, and 736,378 shares were reserved under our Amended and Restated 1994 Stock Incentive Plan. We ceased all grants under the Amended and Restated 1994 Stock Incentive Plan concurrent with our initial public offering in August 2006. As a result, no shares are currently available for future awards under the Amended and Restated 1994 Stock Incentive Plan. At March 31, 2015, there were 306,906 shares available for future awards under the Amended and Restated 2006 Omnibus Plan. | ||||||||||||
In connection with the stock options exercised during the three months ended March 31, 2015, we received cash proceeds of $328,000. At March 31, 2015, there was $5.4 million of total unrecognized compensation costs related to non-vested stock options, which is expected to be recognized through fiscal 2019. | ||||||||||||
A summary of stock option activity for the three months ended March 31, 2015 is as follows: | ||||||||||||
Weighted | Weighted | |||||||||||
Average | Average | Aggregate | ||||||||||
Number of | Exercise | Remaining | Intrinsic Value | |||||||||
Shares | Price | Contractual Life | (in thousands) | |||||||||
Outstanding at December 31, 2014 | 1,608,557 | $ | 12.01 | 7.92 years | $ | 6,774 | ||||||
Granted | 207,000 | $ | 17.97 | |||||||||
Exercised | (44,625 | ) | $ | 7.1 | $ | 419 | ||||||
Forfeited or canceled | (57,750 | ) | $ | 14.35 | ||||||||
Balance, March 31, 2015 | 1,713,182 | $ | 12.68 | 8.08 years | $ | 8,837 | ||||||
Exercisable at March 31, 2015 | 556,807 | $ | 10.39 | 5.97 years | $ | 4,409 | ||||||
The weighted fair value of options granted during the three months ended March 31, 2015 was $8.66 per share. | ||||||||||||
Income_Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2015 | |
Income Taxes | |
Income Taxes | |
7. Income Taxes | |
We calculate our interim tax provision in accordance with the guidance for accounting for income taxes in interim periods. At the end of each interim period, we estimate the annual effective tax rate and apply that tax rate to our ordinary quarterly pre-tax income from continuing operations. The tax expense or benefit related to significant, unusual or extraordinary discrete events during the interim period is recognized in the interim period in which those events occurred. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs. For the period ended March 31, 2015, the tax expense from continuing operations was $612,000. For the period ended March 31, 2014, the tax benefit from continuing operations was $130,000. | |
Investments_Available_for_Sale
Investments Available for Sale | 3 Months Ended | |||||||||||||||||||||||||
Mar. 31, 2015 | ||||||||||||||||||||||||||
Investments Available for Sale | ||||||||||||||||||||||||||
Investments Available for Sale | ||||||||||||||||||||||||||
8. Investments Available for Sale | ||||||||||||||||||||||||||
Investments available for sale consisted of the following as of March 31, 2015 and December 31, 2014: | ||||||||||||||||||||||||||
March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
($000s) | ($000s) | |||||||||||||||||||||||||
Unrealized | Unrealized | Fair | ||||||||||||||||||||||||
Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Value | |||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||||||||
Money market funds & certificates of deposit | $ | 110 | $ | — | $ | — | $ | 110 | $ | 1,043 | $ | — | $ | — | $ | 1,043 | ||||||||||
Corporate debt securities & commercial paper | 10,795 | 37 | (39 | ) | 10,793 | 12,835 | 21 | (24 | ) | 12,832 | ||||||||||||||||
10,905 | 37 | (39 | ) | 10,903 | 13,878 | 21 | (24 | ) | 13,875 | |||||||||||||||||
Investments: | ||||||||||||||||||||||||||
Municipal securities | 11,640 | 2 | (124 | ) | 11,518 | 12,400 | 13 | (47 | ) | 12,366 | ||||||||||||||||
Agency obligations | 7,257 | 18 | (31 | ) | 7,244 | 5,401 | 12 | (28 | ) | 5,385 | ||||||||||||||||
US & international government agencies | 5,709 | — | (7 | ) | 5,702 | 5,680 | 1 | (2 | ) | 5,679 | ||||||||||||||||
24,606 | 20 | (162 | ) | 24,464 | 23,481 | 26 | (77 | ) | 23,430 | |||||||||||||||||
Investments available for sale | $ | 35,511 | $ | 57 | $ | (201 | ) | $ | 35,367 | $ | 37,359 | $ | 47 | $ | (101 | ) | $ | 37,305 | ||||||||
The cash equivalents detailed above represent highly liquid investments with maturities of three months or less when purchased that are held in our brokerage investment accounts. They are classified as investments available for sale as the amounts represent investments that have matured and are anticipated to be reinvested in debt securities in the near future. | ||||||||||||||||||||||||||
The following tables summarize the securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2015 and December 31, 2014: | ||||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||||
March 31, 2015 ($000s) | ||||||||||||||||||||||||||
Municipal securities | $ | 8,709 | $ | (66 | ) | $ | 1,024 | $ | (58 | ) | $ | 9,733 | $ | (124 | ) | |||||||||||
Agency obligations | 4,442 | (31 | ) | — | — | 4,442 | (31 | ) | ||||||||||||||||||
Corporate debt securities & commercial paper | 5,212 | (39 | ) | — | — | 5,212 | (39 | ) | ||||||||||||||||||
US & international government agencies | 3,070 | (7 | ) | — | — | 3,070 | (7 | ) | ||||||||||||||||||
Total temporarily impaired | $ | 21,433 | $ | (143 | ) | $ | 1,024 | $ | (58 | ) | $ | 22,457 | $ | (201 | ) | |||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||||
December 31, 2014 ($000s) | ||||||||||||||||||||||||||
Municipal securities | $ | 1,000 | $ | (1 | ) | $ | 1,032 | $ | (46 | ) | $ | 2,032 | $ | (47 | ) | |||||||||||
Agency obligations | 3,939 | (28 | ) | — | — | 3,939 | (28 | ) | ||||||||||||||||||
Corporate debt securities & commercial paper | 7,073 | (24 | ) | — | — | 7,073 | (24 | ) | ||||||||||||||||||
US & international government agencies | 2,873 | (2 | ) | — | — | 2,873 | (2 | ) | ||||||||||||||||||
Total temporarily impaired | $ | 14,885 | $ | (55 | ) | $ | 1,032 | $ | (46 | ) | $ | 15,917 | $ | (101 | ) | |||||||||||
The following table summarizes maturities of our investments available for sale as of March 31, 2015 and December 31, 2014: | ||||||||||||||||||||||||||
March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
($000s) | ($000s) | |||||||||||||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||||||||||||
Maturities: | ||||||||||||||||||||||||||
Within 3 months | $ | 2,303 | $ | 2,286 | $ | 3,056 | $ | 3,056 | ||||||||||||||||||
Between 3—12 months | 11,514 | 11,474 | 12,658 | 12,660 | ||||||||||||||||||||||
More than 1 year | 21,694 | 21,607 | 21,645 | 21,589 | ||||||||||||||||||||||
Investments available for sale | $ | 35,511 | $ | 35,367 | $ | 37,359 | $ | 37,305 | ||||||||||||||||||
Realized gains (losses) and investment interest income net of management fees earned on investments available for sale were $151,000 and $54,000, respectively, for the three months ended March 31, 2015 and 2014, and have been included as a component of “Other income (expense), net” in the accompanying financial statements. | ||||||||||||||||||||||||||
Fair_Value
Fair Value | 3 Months Ended | |||||||||||||
Mar. 31, 2015 | ||||||||||||||
Fair Value | ||||||||||||||
Fair Value | ||||||||||||||
9. Fair Value | ||||||||||||||
Fair value is defined as the price at which an asset could be exchanged or a liability transferred (an exit price) in an orderly transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. | ||||||||||||||
Financial assets recorded at fair value in the accompanying financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, and are as follows: | ||||||||||||||
Level 1 | Inputs are unadjusted, quoted prices in active markets for identical assets at the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. | |||||||||||||
The fair valued assets we hold that are generally included in this category are money market securities and the Mesoblast shares received in the disposition of the Therapeutics business, where fair value is based on publicly quoted prices. | ||||||||||||||
Level 2 | Inputs are other than quoted prices included in Level 1, which are either directly or indirectly observable for the asset or liability through correlation with market data at the reporting date and for the duration of the instrument’s anticipated life. | |||||||||||||
The fair valued assets we hold that are generally included in this category are investment grade short-term securities. | ||||||||||||||
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the reporting date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. | |||||||||||||
We do not currently hold any assets in this category. | ||||||||||||||
When quoted prices in active markets for identical assets are available, we use these quoted market prices to determine the fair value of financial assets and classify these assets as Level 1. In other cases where a quoted market price for identical assets in an active market is either not available or not observable, we obtain the fair value from a third party vendor that uses pricing models, such as matrix pricing, to determine fair value. These financial assets would then be classified as Level 2. In the event quoted market prices were not available, we would determine fair value using broker quotes or an internal analysis of each investment’s financial statements and cash flow projections. In these instances, financial assets would be classified based upon the lowest level of input that is significant to the valuation. Thus, financial assets might be classified in Level 3 even though there could be some significant inputs that may be readily available. | ||||||||||||||
The price protection derivative related to the Mesoblast shares was classified in Level 3. Its fair value was determined through use of the Black-Scholes valuation method, a standard industry methodology for valuing equity options, because the price protection is economically equivalent to a put option on the Mesoblast shares at a price of $15 million. Significant inputs to the model include the following: | ||||||||||||||
Fair value of underlying Mesoblast stock: $15,000,000 | ||||||||||||||
Contractual life: 1.0 year | ||||||||||||||
Volatility: 40% | ||||||||||||||
Risk-free interest rate: 0.13% | ||||||||||||||
Expected dividends: $0 | ||||||||||||||
The price protection related to Mesoblast shares ended in December 2014. There were no transfers in and out of Level 3 during the first quarter of fiscal 2015. The following table represents a rollforward of the fair value of Level 3 instruments, comprised solely of the limited price protection derivative related to the Mesoblast stock issued to us in connection with the sale of our former Therapeutics business: | ||||||||||||||
March 31, | December 31, | |||||||||||||
2015 | 2014 | |||||||||||||
($000s) | ($000s) | |||||||||||||
Balance at beginning of period | $ | — | $ | 1,685 | ||||||||||
Fair value upon receipt of Mesoblast stock | — | — | ||||||||||||
Change in fair value | — | 2,252 | ||||||||||||
Settlements | — | (3,937 | ) | |||||||||||
Balance at end of period | $ | — | $ | — | ||||||||||
Assets and liabilities measured at fair value on a recurring basis are summarized below as of March 31, 2015 and December 31, 2014: | ||||||||||||||
March 31, 2015 | ||||||||||||||
($000s) | ||||||||||||||
Level I | Level II | Level III | Total | |||||||||||
Assets | ||||||||||||||
Investments: Available for Sale Securities | ||||||||||||||
Cash & cash equivalents | $ | 110 | $ | — | $ | — | $ | 110 | ||||||
US & international government agencies | — | 5,702 | — | 5,702 | ||||||||||
Agency obligations | — | 7,244 | — | 7,244 | ||||||||||
Corporate debt securities & commercial paper | — | 10,793 | — | 10,793 | ||||||||||
Municipal securities | — | 11,518 | — | 11,518 | ||||||||||
Total investments available for sale | 110 | 35,257 | — | 35,367 | ||||||||||
Securities received in business disposition | ||||||||||||||
Restricted shares of Mesoblast common stock | 8,162 | — | — | 8,162 | ||||||||||
Total securities | 8,162 | — | — | 8,162 | ||||||||||
Total assets | $ | 8,272 | $ | 35,257 | $ | — | $ | 43,529 | ||||||
December 31, 2014 | ||||||||||||||
($000s) | ||||||||||||||
Level I | Level II | Level III | Total | |||||||||||
Assets | ||||||||||||||
Investments: Available for Sale Securities | ||||||||||||||
Cash & cash equivalents | $ | 1,043 | $ | — | $ | — | $ | 1,043 | ||||||
US & international government agencies | — | 5,679 | — | 5,679 | ||||||||||
Certificates of deposit | — | — | — | — | ||||||||||
Agency obligations | — | 5,385 | — | 5,385 | ||||||||||
Corporate debt securities & commercial paper | — | 12,832 | — | 12,832 | ||||||||||
Municipal securities | — | 12,366 | — | 12,366 | ||||||||||
Total investments available for sale | $ | 1,043 | $ | 36,262 | $ | — | $ | 37,305 | ||||||
Securities received in business disposition | ||||||||||||||
Restricted shares of Mesoblast common stock | $ | 10,591 | $ | — | $ | — | $ | 10,591 | ||||||
Total securities | 10,591 | — | — | 10,591 | ||||||||||
Total assets | $ | 11,634 | $ | 36,262 | $ | — | $ | 47,896 | ||||||
Subsequent_Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2015 | |
Subsequent Events | |
Subsequent Events | |
10. Subsequent Events | |
We evaluated our March 31, 2015 financial statements for subsequent events through the date the consolidated financial statements were issued. We are not aware of any subsequent events that would require recognition of disclosure in the financial statements. Furthermore, there have been no material changes, outside of the normal course of business, to any of the contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. | |
Description_of_Business_and_Si1
Description of Business and Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2015 | |
Description of Business and Significant Accounting Policies | |
Use of Estimates | |
Use of Estimates | |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Due to the inherent uncertainty involved in making those assumptions, actual results could differ from those estimates. We believe that the most significant estimates that affect our financial statements are those that relate to deferred tax assets, inventory valuation, share-based compensation and the value of the derivative obtained in connection with the sale of our former Therapeutics business. | |
Reclassifications | |
Reclassifications | |
We have reclassified certain prior-year amounts for comparative purposes. These reclassifications did not affect our results of operations or financial positions for the periods presented. | |
Cash and Cash Equivalents | |
Cash and Cash Equivalents | |
Amounts listed as cash on our balance sheets are maintained in depository accounts at a commercial bank. Cash and cash equivalents, which include highly liquid investments with maturities of three months or less when purchased, held in our brokerage investment accounts are classified as investments available for sale, as the amounts represent investments that have matured and are anticipated to be reinvested in debt securities in the near future, and are disclosed at fair value, which approximates cost. | |
Investments Available for Sale | |
Investments Available for Sale | |
Investments available for sale consist primarily of marketable securities with maturities less than one year. Investments available for sale are valued at their fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income (loss). All realized gains and losses on our investments available for sale are recognized in results of operations as other income. | |
Investments available for sale are evaluated periodically to determine whether a decline in their value is “other than temporary.” The term “other than temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security. We review criteria such as the magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary. If a decline in value is determined to be other than temporary, the carrying value of the security is reduced and a corresponding charge to earnings is recognized. | |
Trading Securities - Derivative and Securities Received in Business Disposition | |
Trading Securities - Derivative and Securities Received in Business Disposition | |
As discussed in Note 2 — Discontinued Operations, we disposed of our Therapeutics segment in October 2013. A portion of the consideration for the sale of that business was stock of Mesoblast Limited (“Mesoblast”), the parent of the purchaser. We were required to hold that stock for one year from the date of receipt. Mesoblast is a public company and its stock is traded on the Australian stock exchange. | |
The Mesoblast stock was previously subject to limited price protection for the one year required holding period. To the extent the value of those shares decreased during the holding period, Mesoblast was required to pay us for the decrease in value. This payment was to be made at least one half in cash and at the option of Mesoblast, up to one half in additional shares of Mesoblast stock. Any additional Mesoblast stock would also have to be held for one year during which period there was no further price protection. The price protection was accounted for as a derivative under ASC 815, Derivatives and Hedging, and, as such was recorded on the balance sheets at fair value, with changes recognized in net income. We elected to measure the Mesoblast stock at fair value with changes in fair value reflected in net income, as permitted under ASC 825-10, Financial Instruments—Fair Value Option. In December 2014, the price protection on these shares expired, although Mesoblast agreed to pay us $15 million in cash for the stock in the first half of fiscal 2015. Accordingly, as of March 31, 2015 and December 31, 2014, we reflect the stock as a current asset in Trading Securities. As of March 31, 2015, this $15 million is shown as $8.2 million in Trading Securities and $6.8 million in Other Receivables on our Balance Sheets. As of December 31, 2014, this $15 million is shown as $10.6 million in Trading Securities and $4.4 million in Other Receivables on our Balance Sheets. | |
Trade Accounts Receivable | |
Trade Accounts Receivable | |
Trade accounts receivable are reported at their net realizable value. We charge off uncollectible receivables when the likelihood of collection is remote. We set credit terms with individual customers, and consider receivables outstanding longer than the time specified in the respective customer’s contract, typically 45-days, to be past due. As of March 31, 2015 and December 31, 2014, accounts receivable in the accompanying balance sheets are each reported net of $1.3 million allowance for doubtful accounts. Trade accounts receivable balances are not collateralized. We did not have bad debt expense in the first quarters of fiscal 2015 or 2014. | |
Other Receivables | |
Other Receivables | |
Other receivables at March 31, 2015 include the $6.8 million difference between the market value of the Mesoblast ordinary shares held by us and the $15 million agreed to be paid to us by Mesoblast. Other receivables at December 31, 2014 included the $5.0 million fee payable from Stryker, as further described below, and the $4.4 million difference between the market value of the Mesoblast ordinary shares held by us and the $15 million to be paid to us by Mesoblast for such shares. | |
Inventory | |
Inventory | |
We began carrying inventory of our Biosurgery products on our balance sheet following commercial launch of such products. Inventory consists of raw materials, biologic products in process, and products available for distribution. We determine our inventory values using the first-in, first-out method. Inventory is valued at the lower of cost or market, and excludes units that we anticipate distributing for clinical evaluation. Materials and supplies purchased for product development and product improvement activities are expensed as incurred. | |
Property and Equipment | |
Property and Equipment | |
Property and equipment, including improvements that extend useful lives, are valued at cost, while maintenance and repairs are charged to operations as incurred. Depreciation is calculated using the straight-line method based on estimated useful lives ranging from three to seven years for furniture, equipment and internal use software. Leasehold improvements and assets under capital leases are amortized over the shorter of the estimated useful life of the asset or the term of the lease. | |
Valuation of Long-lived Assets | |
Valuation of Long-lived Assets | |
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized for the difference between the fair value and carrying value of assets. Fair value is generally determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk. There were no impairment losses recognized during the first quarter of fiscal 2015 or during fiscal year 2014. | |
Biosurgery Revenue Recognition | |
Biosurgery Revenue Recognition | |
We recognize revenue from product distribution when title passes to the customer. Title usually passes when the product is shipped to the customer and leaves our loading dock. In some situations, we store consigned inventory on site in freezers at hospital or clinic facilities. No revenue is recognized upon the placement of inventory into consignment as we retain title and maintain the inventory on our balance sheets. For these products, revenue is recognized when we receive appropriate notification that the product has been used in a surgical procedure. We verify the condition and status of all consigned inventory on at least a quarterly basis. Due to the nature of our products and the need to ensure they are maintained at the proper frozen temperature, we generally do not allow product returns. | |
In December 2014, we entered into an exclusive distribution agreement with a subsidiary of Stryker Corporation for the marketing and distribution of BIO(4), our viable bone matrix allograft. Pursuant to the agreement, Stryker has been granted worldwide distribution rights to the product and any improvements, for all surgical applications. We are responsible for supply, manufacturing, inventory management, shipments to customers, continued research and product improvement activities. We recognize as revenue the amounts charged to customers for the allografts. Commissions and administrative fees paid to Stryker are accounted for as selling expenses, as Stryker is acting as outside sales and marketing agent for Osiris. We received an initial exclusivity fee of $5.0 million in the first quarter of fiscal 2015 and are entitled to receive additional fees upon any exercise by Stryker of its right to extend the initial term, whether on an exclusive or non-exclusive basis. The exclusivity fee and any extension fees subsequently received are considered to be adjustments of the selling expenses. As such, we recognize the exclusively fee as a liability, which will be amortized over the related exclusivity period in proportion to the expected fees to be paid to Stryker, as an offset to selling expenses. During the first quarter of fiscal 2015, we amortized $59,000. At December 31, 2014, we recorded a $5.0 million receivable with the offset to short-term deferred commissions of $1.7 million and long-term deferred commissions of $3.3 million. At March 31, 2015, the short-term and long-term deferred commissions were $1.7 million and $3.2 million, respectively. | |
In October 2014, we entered into an exclusive commercial and development partnership for our cartilage product, Cartiform, with Arthrex, Inc. The agreement provides Arthrex with exclusive commercial distribution rights to Cartiform beginning in 2015. We are responsible for manufacturing, continued research and product improvement activities. The responsibilities related to the design and conduct of future clinical development programs are shared between both organizations. Pursuant to the agreement, Arthrex is entitled to a certain commission on Cartiform sales. We recognize the full sales price as revenue and account for the payment to Arthrex as commission expense. | |
Therapeutics Revenue Recognition | |
Therapeutics Revenue Recognition | |
In our former Therapeutics business, we evaluated revenues from agreements that had multiple elements to determine whether the components of the arrangement represent separate units of accounting. To recognize a delivered item in a multiple element arrangement, the delivered items must have value on a standalone basis and the delivery or performance must be probable and within our control for any delivered items that have a right of return. The determination of whether multiple elements of a collaboration agreement meet the criteria for separate units of accounting required us to exercise judgment. We account for the activities of our former Therapeutics business as discontinued operations. | |
Revenues from research licenses associated with our former Therapeutics business were recognized as earned upon either the incurring of reimbursable expenses directly related to the particular research plan or the completion of certain development milestones as defined within the terms of the agreement. Payments received in advance of research performance were designated as deferred revenue. Non-refundable upfront license fees and certain other related fees associated with our former Therapeutics business were recognized on a straight-line basis over the development periods of the contract deliverables. Fees associated with substantive at risk performance based milestones are recognized as revenue upon their completion, as defined in the respective agreements. Incidental assignment of technology rights were recognized as revenue when and if it was earned and received. | |
Research and Development Costs | |
Research and Development Costs | |
We expense internal and external research and development (“R&D”) costs, including costs of funded R&D arrangements and the manufacture of clinical batches of Biosurgery products used in clinical trials, in the period incurred. | |
Income Taxes | |
Income Taxes | |
Deferred tax liabilities and assets are recognized for the estimated future tax consequences of temporary differences, income tax credits and net operating loss carry-forwards. Temporary differences are primarily the result of the differences between the tax bases of assets and liabilities and their financial reporting values. Deferred tax liabilities and assets are measured by applying the enacted statutory tax rates applicable to the future years in which deferred tax liabilities or assets are expected to be settled or realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense, if any, consists of the taxes payable for the current period and the change during the period in deferred tax assets and liabilities. | |
We recognize in our financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties related to income tax matters are recorded as income tax expense. At March 31, 2015 and December 31, 2014 we had no accruals for interest or penalties related to income tax matters. | |
Income per Common Share | |
Income per Common Share | |
Basic income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted income per common share adjusts basic income per share for the potentially dilutive effects of common share equivalents, using the treasury stock method, and includes the incremental effect of shares that would be issued upon the assumed exercise of stock options and warrants. | |
Diluted income per common share for the three months ended March 31, 2015 includes the dilutive impact of options equivalent to 462,903 shares. | |
Diluted loss per common share for the three months ended March 31, 2014 excluded all 1,481,708 of our outstanding options as of March 31, 2014, as their impact on our net loss is anti-dilutive. As a result, basic and diluted weighted average common shares outstanding are identical for this period. | |
Share-Based Compensation | |
Share-Based Compensation | |
We account for share-based payments using the fair value method. | |
We recognize all share-based payments to employees and non-employee directors in our financial statements based on their grant date fair values, calculated using the Black-Scholes option pricing model. Compensation expense related to share-based awards is recognized on a straight-line basis for each vesting tranche based on the value of share awards that are expected to vest on the grant date, which is revised if actual forfeitures differ materially from original expectations. | |
Comprehensive Income | |
Comprehensive Income | |
Comprehensive income consists of net income and all changes in equity from non-stockholder sources, which consist of changes in unrealized gains and losses on investments. | |
Concentration of Risk | |
Concentration of Risk | |
We maintain cash and short-term investment balances in accounts that exceed federally insured limits, although we have not experienced any losses on such accounts. We also invest excess cash in investment grade securities, generally with maturities of one year or less. We have historically provided credit in the normal course of business to contract counterparties and to the distributors of our product. Trade accounts receivable in the accompanying balance sheets consist primarily of amounts due from distributors of our Biosurgery products within the United States. During the first fiscal quarters of fiscal 2015 and 2014, revenues from one of the distributors of our Biosurgery products, Stability Biologics, comprised approximately 13% and 15%, respectively, of our total Biosurgery product revenues. As of March 31, 2015 and December 31, 2014, receivables from this distributor comprised 14% and 13%, respectively, of our trade receivables. We are experiencing some collection issues due to the termination of distributorships related to our new strategic partnerships with Arthrex and Stryker, and accordingly we have recorded an allowance. As discussed under “Trade Accounts Receivable,” we have not incurred any bad debt expense for the three months ended March 31, 2015 or 2014. | |
Recent Accounting Guidance at March 31, 2015 | |
Recent Accounting Guidance at March 31, 2015 | |
We evaluated the accounting standards updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) and determined they are either (i) not applicable or (ii) have an immaterial impact on our financial statements. | |
Discontinued_Operations_Tables
Discontinued Operations (Tables) | 3 Months Ended | |||||||
Mar. 31, 2015 | ||||||||
Discontinued Operations | ||||||||
Schedule of initial consideration and contingent additional payments upon achievement of milestone events provided under Purchase Agreement | ||||||||
Amount | ||||||||
Milestone | $0 | |||||||
Initial consideration | ||||||||
Letter of intent payments | $ | 3,500 | ||||||
Initial closing payment | 16,500 | |||||||
Additional closing payment, received in April 2014 | 15,000 | |||||||
Delivery of all scheduled assets under the Transfer Agreement | 15,000 | |||||||
Total initial consideration | 50,000 | |||||||
Contingent Consideration | ||||||||
First marketing authorization received in the U.S. | 20,000 | |||||||
First marketing authorization received from France, Germany, or European Union. | 10,000 | |||||||
Completion of the enrollment of the Phase 3 Crohn’s Trial or Mesoblast’s election to discontinue the trial | 10,000 | |||||||
Receipt of final data for the Crohn’s trial or first marketing approval for Crohn’s | 10,000 | |||||||
Total conditional consideration | 50,000 | |||||||
Total possible purchase price | $ | 100,000 | ||||||
Summary of operating results of discontinued operations | ||||||||
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2015 | 2014 | |||||||
($000s) | ($000s) | |||||||
Revenue from collaborative research agreements and royalties | $ | — | $ | — | ||||
Operating expenses: | ||||||||
Research and development | $ | — | 73 | |||||
Selling, general and administrative | — | 516 | ||||||
— | 589 | |||||||
Loss from discontinued operations before income tax expense | — | (589 | ) | |||||
Income tax expense | — | 165 | ||||||
Loss from discontinued operations | $ | — | $ | (754 | ) | |||
Property_and_Equipment_Tables
Property and Equipment (Tables) | 3 Months Ended | |||||||
Mar. 31, 2015 | ||||||||
Property and Equipment | ||||||||
Schedule of property and equipment | ||||||||
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
($000s) | ($000s) | |||||||
Laboratory and manufacturing equipment | $ | 1,395 | $ | 1,211 | ||||
Computer hardware, furniture and fixtures | 1,486 | 1,377 | ||||||
Leased assets | 228 | 228 | ||||||
Leasehold improvements | 4,417 | 4,365 | ||||||
7,526 | 7,181 | |||||||
Accumulated depreciation and amortization | (5,361 | ) | (5,094 | ) | ||||
Property and equipment, net | $ | 2,165 | $ | 2,087 | ||||
Inventory_Tables
Inventory (Tables) | 3 Months Ended | |||||||
Mar. 31, 2015 | ||||||||
Inventory | ||||||||
Schedule of inventory for Biosurgery business | ||||||||
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
($000s) | ($000s) | |||||||
Inventory | ||||||||
Raw materials and supplies | $ | 1,088 | $ | 1,025 | ||||
Work-in-process | 148 | 19 | ||||||
Finished goods | 10,703 | 9,880 | ||||||
Total Biosurgery inventory | $ | 11,939 | $ | 10,924 | ||||
ShareBased_Compensation_Tables
Share-Based Compensation (Tables) | 3 Months Ended | |||||||||||
Mar. 31, 2015 | ||||||||||||
Share-Based Compensation | ||||||||||||
Summary of stock option activity | ||||||||||||
Weighted | Weighted | |||||||||||
Average | Average | Aggregate | ||||||||||
Number of | Exercise | Remaining | Intrinsic Value | |||||||||
Shares | Price | Contractual Life | (in thousands) | |||||||||
Outstanding at December 31, 2014 | 1,608,557 | $ | 12.01 | 7.92 years | $ | 6,774 | ||||||
Granted | 207,000 | $ | 17.97 | |||||||||
Exercised | (44,625 | ) | $ | 7.1 | $ | 419 | ||||||
Forfeited or canceled | (57,750 | ) | $ | 14.35 | ||||||||
Balance, March 31, 2015 | 1,713,182 | $ | 12.68 | 8.08 years | $ | 8,837 | ||||||
Exercisable at March 31, 2015 | 556,807 | $ | 10.39 | 5.97 years | $ | 4,409 | ||||||
Investments_Available_for_Sale1
Investments Available for Sale (Tables) | 3 Months Ended | |||||||||||||||||||||||||
Mar. 31, 2015 | ||||||||||||||||||||||||||
Investments Available for Sale | ||||||||||||||||||||||||||
Schedule of investments available for sale | ||||||||||||||||||||||||||
March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
($000s) | ($000s) | |||||||||||||||||||||||||
Unrealized | Unrealized | Fair | ||||||||||||||||||||||||
Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Value | |||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||||||||
Money market funds & certificates of deposit | $ | 110 | $ | — | $ | — | $ | 110 | $ | 1,043 | $ | — | $ | — | $ | 1,043 | ||||||||||
Corporate debt securities & commercial paper | 10,795 | 37 | (39 | ) | 10,793 | 12,835 | 21 | (24 | ) | 12,832 | ||||||||||||||||
10,905 | 37 | (39 | ) | 10,903 | 13,878 | 21 | (24 | ) | 13,875 | |||||||||||||||||
Investments: | ||||||||||||||||||||||||||
Municipal securities | 11,640 | 2 | (124 | ) | 11,518 | 12,400 | 13 | (47 | ) | 12,366 | ||||||||||||||||
Agency obligations | 7,257 | 18 | (31 | ) | 7,244 | 5,401 | 12 | (28 | ) | 5,385 | ||||||||||||||||
US & international government agencies | 5,709 | — | (7 | ) | 5,702 | 5,680 | 1 | (2 | ) | 5,679 | ||||||||||||||||
24,606 | 20 | (162 | ) | 24,464 | 23,481 | 26 | (77 | ) | 23,430 | |||||||||||||||||
Investments available for sale | $ | 35,511 | $ | 57 | $ | (201 | ) | $ | 35,367 | $ | 37,359 | $ | 47 | $ | (101 | ) | $ | 37,305 | ||||||||
Summary of securities with unrealized losses | ||||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||||
March 31, 2015 ($000s) | ||||||||||||||||||||||||||
Municipal securities | $ | 8,709 | $ | (66 | ) | $ | 1,024 | $ | (58 | ) | $ | 9,733 | $ | (124 | ) | |||||||||||
Agency obligations | 4,442 | (31 | ) | — | — | 4,442 | (31 | ) | ||||||||||||||||||
Corporate debt securities & commercial paper | 5,212 | (39 | ) | — | — | 5,212 | (39 | ) | ||||||||||||||||||
US & international government agencies | 3,070 | (7 | ) | — | — | 3,070 | (7 | ) | ||||||||||||||||||
Total temporarily impaired | $ | 21,433 | $ | (143 | ) | $ | 1,024 | $ | (58 | ) | $ | 22,457 | $ | (201 | ) | |||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||||
December 31, 2014 ($000s) | ||||||||||||||||||||||||||
Municipal securities | $ | 1,000 | $ | (1 | ) | $ | 1,032 | $ | (46 | ) | $ | 2,032 | $ | (47 | ) | |||||||||||
Agency obligations | 3,939 | (28 | ) | — | — | 3,939 | (28 | ) | ||||||||||||||||||
Corporate debt securities & commercial paper | 7,073 | (24 | ) | — | — | 7,073 | (24 | ) | ||||||||||||||||||
US & international government agencies | 2,873 | (2 | ) | — | — | 2,873 | (2 | ) | ||||||||||||||||||
Total temporarily impaired | $ | 14,885 | $ | (55 | ) | $ | 1,032 | $ | (46 | ) | $ | 15,917 | $ | (101 | ) | |||||||||||
Schedule of maturities of investments available for sale | ||||||||||||||||||||||||||
March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
($000s) | ($000s) | |||||||||||||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||||||||||||
Maturities: | ||||||||||||||||||||||||||
Within 3 months | $ | 2,303 | $ | 2,286 | $ | 3,056 | $ | 3,056 | ||||||||||||||||||
Between 3—12 months | 11,514 | 11,474 | 12,658 | 12,660 | ||||||||||||||||||||||
More than 1 year | 21,694 | 21,607 | 21,645 | 21,589 | ||||||||||||||||||||||
Investments available for sale | $ | 35,511 | $ | 35,367 | $ | 37,359 | $ | 37,305 | ||||||||||||||||||
Fair_Value_Tables
Fair Value (Tables) | 3 Months Ended | |||||||||||||
Mar. 31, 2015 | ||||||||||||||
Fair Value | ||||||||||||||
Schedule of significant inputs used to measure fair value using Black-Scholes valuation method | ||||||||||||||
Fair value of underlying Mesoblast stock: $15,000,000 | ||||||||||||||
Contractual life: 1.0 year | ||||||||||||||
Volatility: 40% | ||||||||||||||
Risk-free interest rate: 0.13% | ||||||||||||||
Expected dividends: $0 | ||||||||||||||
Schedule of rollforward of the fair value of Level 3 instruments, comprised solely of the limited price protection derivative related to the Mesoblast stock issued to entity in connection with the sale of entity's former Therapeutics business | ||||||||||||||
March 31, | December 31, | |||||||||||||
2015 | 2014 | |||||||||||||
($000s) | ($000s) | |||||||||||||
Balance at beginning of period | $ | — | $ | 1,685 | ||||||||||
Fair value upon receipt of Mesoblast stock | — | — | ||||||||||||
Change in fair value | — | 2,252 | ||||||||||||
Settlements | — | (3,937 | ) | |||||||||||
Balance at end of period | $ | — | $ | — | ||||||||||
Schedule of assets and liabilities measured at fair value on a recurring basis | ||||||||||||||
March 31, 2015 | ||||||||||||||
($000s) | ||||||||||||||
Level I | Level II | Level III | Total | |||||||||||
Assets | ||||||||||||||
Investments: Available for Sale Securities | ||||||||||||||
Cash & cash equivalents | $ | 110 | $ | — | $ | — | $ | 110 | ||||||
US & international government agencies | — | 5,702 | — | 5,702 | ||||||||||
Agency obligations | — | 7,244 | — | 7,244 | ||||||||||
Corporate debt securities & commercial paper | — | 10,793 | — | 10,793 | ||||||||||
Municipal securities | — | 11,518 | — | 11,518 | ||||||||||
Total investments available for sale | 110 | 35,257 | — | 35,367 | ||||||||||
Securities received in business disposition | ||||||||||||||
Restricted shares of Mesoblast common stock | 8,162 | — | — | 8,162 | ||||||||||
Total securities | 8,162 | — | — | 8,162 | ||||||||||
Total assets | $ | 8,272 | $ | 35,257 | $ | — | $ | 43,529 | ||||||
December 31, 2014 | ||||||||||||||
($000s) | ||||||||||||||
Level I | Level II | Level III | Total | |||||||||||
Assets | ||||||||||||||
Investments: Available for Sale Securities | ||||||||||||||
Cash & cash equivalents | $ | 1,043 | $ | — | $ | — | $ | 1,043 | ||||||
US & international government agencies | — | 5,679 | — | 5,679 | ||||||||||
Certificates of deposit | — | — | — | — | ||||||||||
Agency obligations | — | 5,385 | — | 5,385 | ||||||||||
Corporate debt securities & commercial paper | — | 12,832 | — | 12,832 | ||||||||||
Municipal securities | — | 12,366 | — | 12,366 | ||||||||||
Total investments available for sale | $ | 1,043 | $ | 36,262 | $ | — | $ | 37,305 | ||||||
Securities received in business disposition | ||||||||||||||
Restricted shares of Mesoblast common stock | $ | 10,591 | $ | — | $ | — | $ | 10,591 | ||||||
Total securities | 10,591 | — | — | 10,591 | ||||||||||
Total assets | $ | 11,634 | $ | 36,262 | $ | — | $ | 47,896 | ||||||
Description_of_Business_and_Si2
Description of Business and Significant Accounting Policies(Details) | 3 Months Ended | 48 Months Ended |
Mar. 31, 2015 | Dec. 31, 2013 | |
segment | segment | |
Description of Business and Significant Accounting Policies | ||
Number of business segments | 1 | 2 |
Description_of_Business_and_Si3
Description of Business and Significant Accounting Policies (Details 2) (USD $) | 0 Months Ended | 3 Months Ended | |
Oct. 10, 2013 | Mar. 31, 2015 | Dec. 31, 2014 | |
Derivative and Securities Received in Business Disposition | |||
Trading securities | $8,162,000 | $10,591,000 | |
Other receivables | 7,579,000 | 9,951,000 | |
Therapeutics segment | Purchase Agreement with Mesoblast | |||
Derivative and Securities Received in Business Disposition | |||
Holding period for any payments made in ordinary shares | 1 year | ||
Holding period of stock subject to limited price protection | 1 year | ||
Consideration in restricted stock | 15,000,000 | 15,000,000 | |
Trading securities | 8,200,000 | 10,600,000 | |
Other receivables | $6,800,000 | $4,400,000 | |
Minimum | Therapeutics segment | Purchase Agreement with Mesoblast | |||
Derivative and Securities Received in Business Disposition | |||
Aggregate compensation to be received for decrease in value of shares payable in cash (as a percent) | 50.00% | ||
Maximum | Therapeutics segment | Purchase Agreement with Mesoblast | |||
Derivative and Securities Received in Business Disposition | |||
Aggregate compensation to be received for decrease in value of shares (as a percent) | 50.00% |
Description_of_Business_and_Si4
Description of Business and Significant Accounting Policies (Details 3) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Dec. 31, 2014 | Oct. 10, 2013 | |
Accounts Receivable | |||
Typical trade accounts receivable due period | 45 days | ||
Allowance for doubtful accounts related to accounts receivable | $1,300,000 | $1,300,000 | |
Deferred commissions payable, current portion | 1,667,000 | 1,667,000 | |
Other receivables | 7,579,000 | 9,951,000 | |
Discontinued Operation Initial Consideration | 50,000 | ||
Therapeutics segment | Purchase Agreement with Mesoblast | |||
Accounts Receivable | |||
Other receivables | 6,800,000 | 4,400,000 | |
Discontinued Operation Initial Consideration | 50,000,000 | ||
Therapeutics segment | Purchase Agreement with Mesoblast | Delivery of all scheduled assets under the Transfer Agreement | |||
Accounts Receivable | |||
Discontinued Operation Initial Consideration | 15,000,000 | 15,000,000 | |
Stryker | |||
Accounts Receivable | |||
Other receivables | 5,000,000 | ||
Biosurgery segment | |||
Accounts Receivable | |||
Deferred commissions payable, current portion | 1,700,000 | 1,700,000 | |
Deferred commissions payable, non-current portion | 3,200,000 | 3,300,000 | |
Amortized liability | 59,000,000,000 | ||
Other receivables | $5,000,000 |
Description_of_Business_and_Si5
Description of Business and Significant Accounting Policies (Details 4) (USD $) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2015 | Dec. 31, 2014 | |
Valuation of Long-lived Assets | ||
Impairment losses | $0 | $0 |
Income Taxes | ||
Accruals for interest or penalties related to income tax matters | $0 | $0 |
Minimum | ||
Property and Equipment | ||
Estimated useful lives | 3 years | |
Maximum | ||
Property and Equipment | ||
Estimated useful lives | 7 years |
Description_of_Business_and_Si6
Description of Business and Significant Accounting Policies (Details 5) (Stock options) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Stock options | ||
Income per Common Share | ||
Anti-dilutive securities not included in diluted income (loss) per common share | 462,903 | 1,481,708 |
Description_of_Business_and_Si7
Description of Business and Significant Accounting Policies (Details 6) (Distributors) | 3 Months Ended | 12 Months Ended | 3 Months Ended |
Mar. 31, 2015 | Dec. 31, 2014 | Mar. 31, 2014 | |
Distributor | |||
Receivables | |||
Concentration of Risk | |||
Concentration of risk (as a percent) | 14.00% | 13.00% | |
Revenue | Biosurgery segment | |||
Concentration of Risk | |||
Number of significant distributors | 1 | 1 | |
Concentration of risk (as a percent) | 13.00% | 15.00% |
Discontinued_Operations_Detail
Discontinued Operations (Details) (USD $) | 3 Months Ended | 12 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2015 | Dec. 31, 2014 | Oct. 10, 2013 | |
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Initial consideration | $50,000 | |||
Operating expenses: | ||||
Income tax expense | -165,000 | |||
Loss from discontinued operations | -754,000 | |||
Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Contingent milestone payments received | 0 | 0 | ||
Royalty revenue | 0 | 0 | ||
Operating expenses: | ||||
Research and development | 73,000 | |||
Selling, general and administrative | 516,000 | |||
Total operating expenses | 589,000 | |||
Loss from discontinued operations before income tax expense | -589,000 | |||
Income tax expense | -165,000 | |||
Loss from discontinued operations | -754,000 | |||
Purchase Agreement with Mesoblast | Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Initial consideration | 50,000,000 | |||
Contingent Consideration | 50,000,000 | |||
Total possible purchase price | 100,000,000 | |||
Consideration in restricted stock | 15,000,000 | 15,000,000 | ||
Total initial consideration paid in cash | 35,000,000 | |||
Initial consideration paid in ordinary shares | 15,000,000 | |||
Purchase Agreement with Mesoblast | Letter of intent payments | Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Initial consideration | 3,500,000 | |||
Purchase Agreement with Mesoblast | Initial closing payment | Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Initial consideration | 16,500,000 | |||
Purchase Agreement with Mesoblast | Additional closing payment, received in April 2014 | Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Initial consideration | 15,000,000 | |||
Purchase Agreement with Mesoblast | Delivery of all scheduled assets under the Transfer Agreement | Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Initial consideration | 15,000,000 | 15,000,000 | ||
Purchase Agreement with Mesoblast | First marketing authorization received in the U.S. | Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Contingent Consideration | 20,000,000 | |||
Purchase Agreement with Mesoblast | First marketing authorization received from France, Germany, or European Union | Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Contingent Consideration | 10,000,000 | |||
Purchase Agreement with Mesoblast | Completion of the enrollment of the Phase 3 Crohn's Trial or Mesoblast's election to discontinue the trial | Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Contingent Consideration | 10,000,000 | |||
Purchase Agreement with Mesoblast | Receipt of final data for the Crohn's trial or first marketing approval for Crohn's | Therapeutics segment | ||||
Initial consideration and contingent additional payments provided under Purchase Agreement | ||||
Contingent Consideration | $10,000,000 |
Segment_Reporting_Details
Segment Reporting (Details) | 3 Months Ended | 48 Months Ended |
Mar. 31, 2015 | Dec. 31, 2013 | |
segment | segment | |
Segment Reporting | ||
Number of Operating Segments Historically Managed by Entity | 2 | |
Number of operating segments | 1 | 2 |
Property_and_Equipment_Details
Property and Equipment (Details) (USD $) | 3 Months Ended | ||
In Thousands, unless otherwise specified | Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 |
Property and Equipment | |||
Property and equipment, gross | $7,526 | $7,181 | |
Accumulated depreciation and amortization | -5,361 | -5,094 | |
Property and equipment, net | 2,165 | 2,087 | |
Depreciation, Depletion and Amortization | 267 | 214 | |
Laboratory and manufacturing equipment | |||
Property and Equipment | |||
Property and equipment, gross | 1,395 | 1,211 | |
Computer hardware, furniture and fixtures | |||
Property and Equipment | |||
Property and equipment, gross | 1,486 | 1,377 | |
Leased assets | |||
Property and Equipment | |||
Property and equipment, gross | 228 | 228 | |
Leasehold improvements | |||
Property and Equipment | |||
Property and equipment, gross | $4,417 | $4,365 |
Inventory_Details
Inventory (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
In Thousands, unless otherwise specified | ||
Total Biosurgery inventory, net | $11,939 | $10,924 |
Biosurgery segment | ||
Raw materials and supplies | 1,088 | 1,025 |
Work-in-process | 148 | 19 |
Finished goods | 10,703 | 9,880 |
Total Biosurgery inventory, net | $11,939 | $10,924 |
ShareBased_Compensation_Detail
Share-Based Compensation (Details) (USD $) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2015 | Dec. 31, 2014 | |
Stock options | ||
Share-Based Compensation | ||
Proceeds for exercise of options | $328,000 | |
Total unrecognized compensation costs related to non-vested stock options | 5,400,000 | |
Number of Shares | ||
Outstanding at the beginning of the period (in shares) | 1,608,557 | |
Granted (in shares) | 207,000 | |
Exercised (in shares) | -44,625 | |
Forfeited or Canceled (in shares) | -57,750 | |
Outstanding at the end of the period (in shares) | 1,713,182 | 1,608,557 |
Exercisable at the end of the period (in shares) | 556,807 | |
Weighted Average Exercise Price Per Share | ||
Outstanding at the beginning of the period (in dollars per share) | $12.01 | |
Granted (in dollars per share) | $17.97 | |
Exercised (in dollars per share) | $7.10 | |
Canceled (in dollars per share | $14.35 | |
Outstanding at the end of the period (in dollars per share) | $12.68 | $12.01 |
Exercisable at the end of the period (in dollars per share) | $10.39 | |
Weighted Average Remaining Term Contractual Life | ||
Outstanding at the beginning of the period | 8 years 29 days | 7 years 11 months 1 day |
Outstanding at the end of the period | 8 years 29 days | 7 years 11 months 1 day |
Exercisable at the end of the period | 5 years 11 months 19 days | |
Aggregate Intrinsic Value | ||
Outstanding at the beginning of the period (in dollars) | 6,774,000 | |
Exercised (in dollars) | 419,000 | |
Outstanding at the end of the period (in dollars) | 8,837,000 | 6,774,000 |
Exercisable at the end of the period (in dollars) | $4,409,000 | |
Weighted average fair value of options granted (in dollars per share) | $8.66 | |
Amended and Restated 2006 Omnibus Plan | ||
Share-Based Compensation | ||
Common stock reserved for issuance (in shares) | 3,000,000 | |
Shares available for future issuance | 306,906 | |
Amended and Restated 1994 Stock Incentive Plan | ||
Share-Based Compensation | ||
Common stock reserved for issuance (in shares) | 736,378 | |
Shares available for future issuance | 0 |
Income_Taxes_Details
Income Taxes (Details) (USD $) | 3 Months Ended | |
In Thousands, unless otherwise specified | Mar. 31, 2015 | Mar. 31, 2014 |
Income Taxes | ||
Income tax expenses (benefit) from continuing operations | $612 | ($130) |
Investments_Available_for_Sale2
Investments Available for Sale (Details) (USD $) | 3 Months Ended | 12 Months Ended |
In Thousands, unless otherwise specified | Mar. 31, 2015 | Dec. 31, 2014 |
Investments available for sale | ||
Cost | $35,511 | $37,359 |
Unrealized Gain | 57 | 47 |
Unrealized loss | -201 | -101 |
Fair value of investments available for sale | 35,367 | 37,305 |
Fair Value | ||
Less than 12 Months | 21,433 | 14,885 |
12 Months or more | 1,024 | 1,032 |
Total | 22,457 | 15,917 |
Unrealized Loss | ||
Less than 12 Months | -143 | -55 |
12 Months or more | -58 | -46 |
Total | -201 | -101 |
Investments | ||
Investments available for sale | ||
Cost | 24,606 | 23,481 |
Unrealized Gain | 20 | 26 |
Unrealized loss | -162 | -77 |
Fair value of investments available for sale | 24,464 | 23,430 |
Municipal securities | ||
Investments available for sale | ||
Cost | 11,640 | 12,400 |
Unrealized Gain | 2 | 13 |
Unrealized loss | -124 | -47 |
Fair value of investments available for sale | 11,518 | 12,366 |
Fair Value | ||
Less than 12 Months | 8,709 | 1,000 |
12 Months or more | 1,024 | 1,032 |
Total | 9,733 | 2,032 |
Unrealized Loss | ||
Less than 12 Months | -66 | -1 |
12 Months or more | -58 | -46 |
Total | -124 | -47 |
Agency obligations | ||
Investments available for sale | ||
Cost | 7,257 | 5,401 |
Unrealized Gain | 18 | 12 |
Unrealized loss | -31 | -28 |
Fair value of investments available for sale | 7,244 | 5,385 |
Fair Value | ||
Less than 12 Months | 4,442 | 3,939 |
Total | 4,442 | 3,939 |
Unrealized Loss | ||
Less than 12 Months | -31 | -28 |
Total | -31 | -28 |
US and International government agencies | ||
Investments available for sale | ||
Cost | 5,709 | 5,680 |
Unrealized Gain | 1 | |
Unrealized loss | -7 | -2 |
Fair value of investments available for sale | 5,702 | 5,679 |
Fair Value | ||
Less than 12 Months | 3,070 | 2,873 |
Total | 3,070 | 2,873 |
Unrealized Loss | ||
Less than 12 Months | -7 | -2 |
Total | -7 | -2 |
Cash equivalents | ||
Investments available for sale | ||
Cost | 10,905 | 13,878 |
Unrealized Gain | 37 | 21 |
Unrealized loss | -39 | -24 |
Fair value of investments available for sale | 10,903 | 13,875 |
Money market funds and certificates of deposit | ||
Investments available for sale | ||
Cost | 110 | 1,043 |
Fair value of investments available for sale | 110 | 1,043 |
Corporate debt securities & commercial paper | ||
Investments available for sale | ||
Cost | 10,795 | 12,835 |
Unrealized Gain | 37 | 21 |
Unrealized loss | -39 | -24 |
Fair value of investments available for sale | 10,793 | 12,832 |
Fair Value | ||
Less than 12 Months | 5,212 | 7,073 |
Total | 5,212 | 7,073 |
Unrealized Loss | ||
Less than 12 Months | -39 | -24 |
Total | ($39) | ($24) |
Investments_Available_for_Sale3
Investments Available for Sale (Details 2) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Cost | |||
Maturities Within 3-months | $2,303,000 | $3,056,000 | |
Maturities Between 3 - 12 months | 11,514,000 | 12,658,000 | |
More than 1 year | 21,694,000 | 21,645,000 | |
Cost of investments available for sale | 35,511,000 | 37,359,000 | |
Fair Value | |||
Maturities Within 3-months | 2,286,000 | 3,056,000 | |
Maturities Between 3 - 12 months | 11,474,000 | 12,660,000 | |
More than 1 year | 21,607,000 | 21,589,000 | |
Fair value of investments available for sale | 35,367,000 | 37,305,000 | |
Realized gains (losses) and investment interest income earned on investments available for sale | $151,000 | $54,000 |
Fair_Value_Details
Fair Value (Details) (USD $) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2015 | Dec. 31, 2014 | |
Other transfers in and out of Level 3 | ||
Other transfers in Level 3 | $0 | |
Other transfers out of Level 3 | 0 | |
Price protection on restricted Mesoblast shares | ||
Rollforward of the fair value of Level 3 instruments | ||
Balance at beginning of period | 1,685,000 | |
Change in Fair Value | 2,252,000 | |
Expiration of the price protection derivative | -3,937,000 | |
Recurring | Price protection on restricted Mesoblast shares | Level III | ||
Significant inputs | ||
Fair value | $15,000,000 | |
Contractual life | 1 year | |
Volatility (as a percent) | 40.00% | |
Risk free interest rate (as a percent) | 0.13% | |
Expected dividends | $0 |
Fair_Value_Details_2
Fair Value (Details 2) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Assets | ||
Investments available for sale | $35,367,000 | $37,305,000 |
Recurring | Level I | ||
Assets | ||
Investments available for sale | 110,000 | 1,043,000 |
Fair value of securities | 8,162,000 | 10,591,000 |
Total assets | 8,272,000 | 11,634,000 |
Recurring | Level II | ||
Assets | ||
Investments available for sale | 35,257,000 | 36,262,000 |
Total assets | 35,257,000 | 36,262,000 |
Recurring | Total | ||
Assets | ||
Investments available for sale | 35,367,000 | 37,305,000 |
Fair value of securities | 8,162,000 | 10,591,000 |
Total assets | 43,529,000 | 47,896,000 |
Recurring | Cash equivalents | Level I | ||
Assets | ||
Investments available for sale | 110,000 | 1,043,000 |
Recurring | Cash equivalents | Total | ||
Assets | ||
Investments available for sale | 110,000 | 1,043,000 |
Recurring | US and International government agencies | Level II | ||
Assets | ||
Investments available for sale | 5,702,000 | 5,679,000 |
Recurring | US and International government agencies | Total | ||
Assets | ||
Investments available for sale | 5,702,000 | 5,679,000 |
Recurring | Agency obligations | Level II | ||
Assets | ||
Investments available for sale | 7,244,000 | 5,385,000 |
Recurring | Agency obligations | Total | ||
Assets | ||
Investments available for sale | 7,244,000 | 5,385,000 |
Recurring | Corporate debt securities & commercial paper | Level II | ||
Assets | ||
Investments available for sale | 10,793,000 | 12,832,000 |
Recurring | Corporate debt securities & commercial paper | Total | ||
Assets | ||
Investments available for sale | 10,793,000 | 12,832,000 |
Recurring | Municipal securities | Level II | ||
Assets | ||
Investments available for sale | 11,518,000 | 12,366,000 |
Recurring | Municipal securities | Total | ||
Assets | ||
Investments available for sale | 11,518,000 | 12,366,000 |
Recurring | Restricted shares of Mesoblast common stock | Level I | ||
Assets | ||
Fair value of securities | 8,162,000 | 10,591,000 |
Recurring | Restricted shares of Mesoblast common stock | Total | ||
Assets | ||
Fair value of securities | 8,162,000 | 10,591,000 |
Recurring | Price protection on restricted Mesoblast shares | Level III | ||
Assets | ||
Derivative instruments | $15,000,000 |