Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2016 | May. 03, 2016 | |
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2016 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | ZGNX | |
Entity Registrant Name | ZOGENIX, INC. | |
Entity Central Index Key | 1,375,151 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 24,771,568 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Mar. 31, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 132,184 | $ 155,349 |
Restricted cash | 10,002 | 10,002 |
Trade accounts receivable, net | 4,904 | 1,396 |
Inventory | 9,459 | 12,030 |
Prepaid expenses and other current assets | 6,463 | 5,518 |
Current assets of discontinued operations | 41 | 208 |
Total current assets | 163,053 | 184,503 |
Property and equipment, net | 8,959 | 9,254 |
Intangible assets | 102,500 | 102,500 |
Goodwill | 6,234 | 6,234 |
Other assets | 5,861 | 3,331 |
Total assets | 286,607 | 305,822 |
Current liabilities: | ||
Accounts payable | 3,482 | 5,290 |
Accrued expenses | 4,259 | 4,617 |
Accrued compensation | 1,924 | 3,711 |
Common stock warrant liabilities | 1,669 | 6,196 |
Long-term debt, current portion | 6,357 | 6,321 |
Deferred revenue | 661 | 945 |
Current liabilities of discontinued operations | 2,370 | 2,906 |
Total current liabilities | 20,722 | 29,986 |
Long term debt | 14,400 | 15,899 |
Deferred revenue, less current portion | 5,207 | 6,139 |
Contingent purchase consideration | 52,300 | 51,000 |
Deferred income taxes | 18,450 | 18,450 |
Other long-term liabilities | 1,669 | 1,588 |
Stockholders’ equity: | ||
Common stock, $0.001 par value; 50,000 shares authorized at March 31, 2016 and December 31, 2015; 24,772 shares issued and outstanding at March 31, 2016 and December 31, 2015 | 25 | 25 |
Additional paid-in capital | 559,739 | 558,251 |
Accumulated deficit | (385,905) | (375,516) |
Total stockholders’ equity | 173,859 | 182,760 |
Total liabilities and stockholders’ equity | $ 286,607 | $ 305,822 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2016 | Dec. 31, 2015 |
Statement of Financial Position [Abstract] | ||
Common Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 50,000,000 | 50,000,000 |
Common Stock, Shares, Issued | 24,772,000 | 24,772,000 |
Common Stock, Shares, Outstanding | 24,772,000 | 24,772,000 |
Consolidated Statements of Oper
Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Revenue: | ||
Contract manufacturing revenue | $ 9,206 | $ 4,181 |
Service and other product revenue | 0 | 433 |
Total revenue | 9,206 | 4,614 |
Operating expense: | ||
Cost of contract manufacturing | 7,804 | 3,923 |
Royalty expense | 71 | 72 |
Research and development | 7,987 | 5,150 |
Selling, general and administrative | 6,124 | 6,268 |
Change in fair value of contingent purchase consideration | 1,300 | (1,000) |
Total operating expense | 23,286 | 14,413 |
Loss from operations | (14,080) | (9,799) |
Other income (expense): | ||
Interest expense | (598) | (643) |
Change in fair value of warrant liabilities | 4,527 | 410 |
Other expense | (7) | (120) |
Total other income (expense) | 3,922 | (353) |
Net loss from continuing operations before income taxes | (10,158) | (10,152) |
Income tax expense | (62) | (13) |
Net loss from continuing operations | (10,220) | (10,165) |
Net loss from discontinued operations | (169) | (12,696) |
Net income | $ (10,389) | $ (22,861) |
Net loss per share, basic and diluted: | ||
Continuing operations, usd per share | $ (0.41) | $ (0.53) |
Discontinued operations, usd per share | (0.01) | (0.66) |
Total, usd per share | $ (0.42) | $ (1.19) |
Weighted average common shares outstanding, basic | 24,772 | 19,170 |
Statements of Comprehensive Loss | ||
Comprehensive loss | $ (10,389) | $ (22,861) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Operating activities: | ||
Net income | $ (10,389) | $ (22,861) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Stock-based compensation | 1,488 | 1,871 |
Depreciation and amortization | 378 | 393 |
Amortization of debt issuance costs and non-cash interest charges | 257 | 257 |
Change in fair value of warrant liabilities | (4,527) | (410) |
Change in fair value of contingent purchase consideration | 1,300 | (1,000) |
Changes in operating assets and liabilities: | ||
Trade accounts receivable | (3,504) | 4,207 |
Inventory | 2,586 | (450) |
Prepaid expenses and other current assets | (851) | (1,853) |
Other assets | (2,530) | (621) |
Accounts payable and accrued expenses | (4,275) | 947 |
Deferred rent | (23) | (26) |
Deferred revenue | (1,326) | (2,401) |
Net cash used by operating activities | (21,416) | (21,947) |
Investing activities: | ||
Purchases of property and equipment | (83) | (54) |
Net cash used by investing activities | (83) | (54) |
Financing activities: | ||
Proceeds from revolving credit facility | 0 | 1,450 |
Repayment of revolving credit facility | 0 | (343) |
Repayment of debt | (1,666) | 0 |
Proceeds from exercise of common stock options and warrants | 0 | 3 |
Net cash (used in) provided by financing activities | (1,666) | 1,110 |
Net decrease in cash and cash equivalents | (23,165) | (20,891) |
Cash and cash equivalents at beginning of period | 155,349 | 42,205 |
Cash and cash equivalents at end of period | $ 132,184 | $ 21,314 |
Organization and Basis of Prese
Organization and Basis of Presentation | 3 Months Ended |
Mar. 31, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Basis of Presentation | Organization and Basis of Presentation Zogenix, Inc. (together with its wholly-owned subsidiary, Zogenix Europe Limited (Zogenix Europe), the Company), is a pharmaceutical company committed to developing and commercializing central nervous system (CNS) therapies that address specific clinical needs for people living with orphan and other CNS disorders who need innovative treatment alternatives to help them improve their daily functioning. The Company's activities are focused on development of two product candidates, ZX008 and Relday, as well as performing contract manufacturing services in accordance with a supply agreement in conjunction with the sale of its Sumavel DosePro business in 2014. The Company divested its Zohydro ER® business on April 24, 2015 (see Note 4). Zohydro ER activity has been excluded from continuing operations for all periods herein and reported as discontinued operations as a result of the sale. On July 1, 2015, the Company effected a 1-for-8 reverse stock split of its common stock and changed its authorized shares of common stock to 50,000,000 shares. All historical per share information presented herein has been adjusted to reflect the effect of the reverse stock split and change to the authorized shares of common stock. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Financial Statement Preparation and Use of Estimates The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared by Zogenix, Inc. according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2015, each as filed with the SEC. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates. Principles of Consolidation The unaudited interim condensed consolidated financial statements include the accounts of Zogenix, Inc. and its wholly owned subsidiary Zogenix Europe, which was incorporated under the laws of England and Wales in June 2010. All intercompany transactions and investments have been eliminated in consolidation. Zogenix Europe's functional currency is the U.S. dollar which is the reporting currency of its parent. Restricted Cash The Company has restricted cash in escrow as of March 31, 2016 and December 31, 2015 to fund potential indemnification claims for 12 months from the closing date of its sale of the Zohydro ER business in April 2015. The Company received the full amount from escrow in April 2016. The Company classifies this cash flow as investing activities in the condensed consolidated statement of cash flows as the source of the restricted cash is related to the sale of the Zohydro ER business. Fair Value Measurements The carrying amount of financial instruments consisting of cash, restricted cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and accrued compensation included in the Company’s condensed consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value. Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The Company classifies its cash equivalents within Level 1 of the fair value hierarchy because it values its cash equivalents using quoted market prices. The Company classifies its common stock warrant liabilities and contingent purchase consideration within Level 3 of the fair value hierarchy because they are valued using valuation models with significant unobservable inputs. Assets and liabilities measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015 are as follows (in thousands): Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total At March 31, 2016 Assets Cash equivalents (1) $ 128,959 — — $ 128,959 Liabilities Common stock warrant liabilities (2) $ — — 1,669 $ 1,669 Contingent purchase consideration (3) $ — — 52,300 $ 52,300 At December 31, 2015 Assets Cash equivalents (1) $ 148,588 — — $ 148,588 Liabilities Common stock warrant liabilities (2) $ — — 6,196 $ 6,196 Contingent purchase consideration (3) $ — — 51,000 $ 51,000 (1) Cash equivalents are comprised of money market fund shares and are included as a component of cash and cash equivalents on the condensed consolidated balance sheets. (2) Common stock warrant liabilities were incurred in connection with the Company's July 2012 public offering of common stock and warrants and with the financing agreement (the Healthcare Royalty financing agreement) entered into with Healthcare Royalty Partners (Healthcare Royalty) (see Note 5), which are measured at fair value using the Black-Scholes option pricing valuation model. The assumptions used in the Black-Scholes option pricing valuation model for both common stock warrant liabilities were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; and (d) expected volatility based upon the Company's historical volatility. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the Healthcare Royalty financing agreement is the expected volatility. Significant increases in volatility would result in a higher fair value measurement. The following additional assumptions were used in the Black-Scholes option pricing valuation model to measure the fair value of the warrants sold in the July 2012 public offering: (a) management's projections regarding the probability of the occurrence of an extraordinary event and the timing of such event; and for the valuation scenario in which an extraordinary event occurs that is not an all cash transaction or an event whereby a public acquirer would assume the warrants, and (b) an expected volatility rate using the Company's historical volatility through the projected date of public announcement of an extraordinary transaction, blended with a rate equal to the lesser of 40% and the 180 -day volatility rate obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of an extraordinary transaction. The significant unobservable inputs used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering are the expected volatility and the probability of the occurrence of an extraordinary event. Significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement. The change in the fair value of the common stock warrant liabilities as of March 31, 2016 was primarily driven by the decrease in the market price of the Company's common shares at March 31, 2016 as compared against the December 31, 2015 measurement date. (3) Contingent purchase consideration was measured at fair value using the income approach based on significant unobservable inputs including management's estimates of the probabilities of achieving specific net sales levels and development milestones and appropriate risk adjusted discount rates. Significant changes of either unobservable input could have a significant effect on the calculation of fair value of the contingent purchase consideration liability. The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2016 (in thousands): Contingent Purchase Consideration Common Stock Warrant Liabilities Balance at December 31, 2015 $ 51,000 $ 6,196 Changes in fair value 1,300 (4,527 ) Balance at March 31, 2016 $ 52,300 $ 1,669 The changes in fair value of the liabilities shown in the table above are recorded through change in fair value of contingent consideration in operating expense and change in fair value of warrant liabilities in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. Net Loss per Share Basic and diluted net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period without consideration for common stock equivalents. Common stock equivalents that could potentially reduce net earnings per common share in the future that were not included in the determination of diluted net loss per common share as their effects were antidilutive are as follows (in thousands): Three Months Ended March 31, 2016 2015 Options to purchase common stock 6 91 Restricted stock units not yet vested and released 106 — Warrants to purchase common stock 32 64 Total 144 155 Goodwill and Intangible Assets Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired businesses. Goodwill has an indefinite useful life and is not amortized, but instead tested for impairment annually. Intangible assets consist of in-process research and development with an indefinite useful life that is not amortized, but instead tested for impairment until the successful completion and commercialization or abandonment of the associated research and development efforts, at which point the in-process research and development asset is either amortized over its estimated useful life or written-off immediately. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Revenue Recognition The Company recognized revenue from contract manufacturing, service fees earned on collaborative arrangements and the sale of Sumavel DosePro prior to its sale in May 2014. The Company also recognizes revenue from the sale of Zohydro ER, which is included in net loss from discontinued operations in the condensed consolidated statements of operations and comprehensive loss. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the Company’s price to the buyer is substantially fixed or determinable at the date of sale, (b) the buyer has paid the Company, or the buyer is obligated to pay the Company and the obligation is not contingent on resale of the product, (c) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product, (d) the buyer acquiring the product for resale has economic substance apart from that provided by the Company, (e) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (f) the amount of future returns can be reasonably estimated. The Company defers recognition of revenue on product shipments of Zohydro ER until the right of return no longer exists, as the Company was not able to reliably estimate expected returns of the product at the time of shipment given the limited sales history of Zohydro ER. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The application of the multiple element guidance requires subjective determinations, and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company's control. In determining the units of accounting, the Company evaluates certain criteria, including whether the deliverables have stand-alone value, based on the consideration of the relevant facts and circumstances for each arrangement. In addition, the Company considers whether the buyer can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s). Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria, as described above, are applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition. The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or management's best estimate of selling price (BESP) if neither VSOE nor TPE is available. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. Contract Manufacturing Revenue The Company and Endo entered into a supply agreement in connection with the sale of the Sumavel DosePro business to Endo in May 2014. Under the terms of the supply agreement, the Company retains the sole and exclusive right and the obligation to manufacture or supply Sumavel DosePro to Endo. The Company recognizes deferred revenue related to its supply of Sumavel DosePro as contract manufacturing revenue when earned on a "proportional performance" basis as product is delivered. The Company recognizes revenue related to its sale of Sumavel DosePro product, equal to the cost of contract manufacturing plus a low single-digit mark-up, upon the transfer of title to Endo. The Company supplies Sumavel DosePro product based on non-cancellable purchase orders. The Company initially defers revenue for any consideration received in advance of services being performed and product being delivered, and recognizes revenue pursuant to the related pattern of performance, based on total product delivered relative to the total estimated product delivery over the minimum eight year term of the supply agreement ending in May 2022. The Company continually evaluates the performance period and adjusts the period of revenue recognition if circumstances change. The Company recognized $800,000 of contract manufacturing revenue in continuing operations during the three months ended March 31, 2016 based on a change in estimated product to be delivered during the remaining term of the supply agreement. The effect of the change in estimated future product delivery reduced net loss per share from continuing operations and net loss per share, basic and diluted by $0.03 for the three months ended March 31, 2016. In addition, the Company recognized $2,900,000 of contract manufacturing revenue related to a cost of contract manufacturing charge of $2,800,000 for excess capacity and scrap in continuing operations during the three months ended March 31, 2016. There was no effect on net loss per share related to this activity for the three months ended March 31, 2016. In addition, the Company follows the authoritative accounting guidance when reporting revenue as gross when the Company acts as a principal versus reporting revenue as net when the Company acts as an agent. For transactions in which the Company acts as a principal, has discretion to choose suppliers, bears credit risk and performs a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services. Product Revenue, Net The Company sold Sumavel DosePro through May 2014, and sold Zohydro ER through April 2015, in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively the Company's customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. The Company recognized Sumavel DosePro product sales at the time title transferred to its customer, and reduced product sales for estimated future product returns and sales allowances in the same period the related revenue was recognized. The Company is responsible for all returns of Sumavel DosePro product distributed by the Company prior to the sale of the Sumavel DosePro business up to a maximum per unit amount as specified in the sales agreement. Given the limited sales history of Zohydro ER, the Company was not able to reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company deferred recognition of revenue on Zohydro ER product shipments until the right of return no longer exists, which occurs at the earlier of the time Zohydro ER is dispensed through patient prescriptions or expiration of the right of return. The Company estimates Zohydro ER patient prescriptions dispensed using an analysis of third-party syndicated data. Zohydro ER was launched in March 2014 and, accordingly, the Company did not have a significant history estimating the number of patient prescriptions dispensed. If the Company underestimated or overestimated patient prescriptions dispensed for a given period, adjustments to revenue from discontinued operations may be necessary in future periods. The deferred revenue balance does not have a direct correlation with future revenue recognition as the Company records sales deductions at the time the prescription unit was dispensed. In addition, the costs of Zohydro ER associated with the deferred revenue were recorded as deferred costs, which were included in inventory, until such time the related deferred revenue is recognized. The Company is responsible for returns for product sold prior to the sale of the business on April 24, 2015 and was responsible for rebates, chargebacks, and related fees for product sold until July 8, 2015 per terms of the asset purchase agreement (the Asset Purchase Agreement) the Company entered into with Pernix Ireland Limited and Pernix Therapeutics (collectively, Pernix). Revenue for Zohydro ER is included in discontinued operations in the condensed consolidated statements of operations and comprehensive loss. Segment Reporting Management has determined that the Company operates in one business segment, which is the development and commercialization of pharmaceutical products. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption of the guidance is permitted on the original effective date of fiscal years beginning after December 15, 2016. The Company is evaluating the transition method, timing and impact of adopting this new accounting standard on its financial statements and related disclosures. In April 2015, the FASB issued guidance which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability instead of as an asset. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2015. The Company adopted the guidance in the first quarter of 2016. The effect of adopting the guidance retrospectively was to decrease amounts previously reported on our consolidated balance sheet at December 31, 2015 for prepaid expenses and other current assets and decrease long term debt, current portion by $93,000 and to decrease other assets and long term debt balances by $72,000 . The balances for December 31, 2015 reflected in our condensed consolidated balance sheet in this Form 10-Q reflect these reclassifications. In July 2015, the FASB issued guidance which requires that certain inventory, including inventory measured using the first-in-first-out method, be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the timing and impact of adopting this new accounting standard on its financial statements and related disclosures. In November 2015, the FASB issued guidance simplifying the classification of deferred tax assets and liabilities. The new standard requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance is effective for interim and annual periods beginning after December 15, 2016 and early adoption is permitted. The Company adopted the guidance in 2015 on a prospective basis. Adoption of this guidance resulted in a reclassification of the Company's net current deferred tax asset and related valuation allowance to the net non-current deferred tax asset as of March 31, 2016 and December 31, 2015. No prior periods were retrospectively adjusted. In February 2016, the FASB issued guidance by requiring lessees to recognize the lease assets and lease liabilities that arise from both capital and operating leases with lease terms of more than 12 months and to disclose qualitative and quantitative information about lease transactions. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the timing and impact of adopting this new accounting standard on its financial statements and related disclosures. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting . The standard will revise accounting for share-based compensation arrangements, including the income tax impact and classification on the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact the adoption of this standard will have on our condensed consolidated financial statements. |
Inventory
Inventory | 3 Months Ended |
Mar. 31, 2016 | |
Disclosure Inventory Net [Abstract] | |
Inventory | Inventory Inventory consists of the following (in thousands): March 31, 2016 December 31, 2015 Raw materials $ 4,433 $ 3,775 Work in process 5,026 8,255 Total $ 9,459 $ 12,030 |
Discontinued operations
Discontinued operations | 3 Months Ended |
Mar. 31, 2016 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued operations | On March 10, 2015, the Company entered into the Asset Purchase Agreement whereby the Company agreed to sell its Zohydro ER business to Pernix, and on April 24, 2015, the Company completed the sale to Ferrimill Limited, a subsidiary of Pernix, as a substitute purchaser. As a result of the Company's strategic decision to sell the Zohydro ER business and focus on clinical development of ZX008 and Relday, the financial results from the Zohydro ER business and the related assets and liabilities have been presented as discontinued operations in the condensed consolidated financial statements. The results of operations from discontinued operations presented below include certain allocations that management believes fairly reflect the utilization of services provided to the Zohydro ER business. The allocations do not include amounts related to general corporate administrative expenses or interest expense, and therefore the results of operations from the Zohydro ER business do not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity. The following table summarizes the results of discontinued operations for the periods presented in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2016 and 2015 (in thousands): Three Months Ended March 31, Discontinued operations 2016 2015 Revenues: Net product revenue $ 334 $ 5,006 Operating expenses: Cost of product sold 15 1,340 Royalty expense 20 418 Research and development — 4,808 Selling, general and administrative 468 11,136 Total operating expense 503 17,702 Net loss from discontinued operations $ (169 ) $ (12,696 ) The following table summarizes the assets and liabilities of discontinued operations as of March 31, 2016 and December 31, 2015 related to the Zohydro ER business (in thousands): March 31, December 31, Assets Current assets Prepaid expenses and other current assets $ 41 $ 208 Total current assets of discontinued operations 41 208 Total assets of discontinued operations $ 41 $ 208 Liabilities Current liabilities Accrued expenses $ 2,370 $ 2,796 Deferred revenue and other current liabilities — 110 Total current liabilities of discontinued operations 2,370 2,906 Total liabilities of discontinued operations $ 2,370 $ 2,906 There was no stock-based compensation or amortization expense related to discontinued operations for the three months ended March 31, 2016. Total stock-based compensation expense related to discontinued operations was $522,000 and total amortization expense related to discontinued operations was $124,000 for the three months ended March 31, 2015. |
Common Stock Warrant Liability
Common Stock Warrant Liability | 3 Months Ended |
Mar. 31, 2016 | |
Disclosure Common Stock Warrants Additional Informational [Abstract] | |
Common Stock Warrant Liability | Common Stock Warrant Liability In July 2012, in connection with a public offering of common stock and warrants, the Company sold warrants to purchase 1,973,025 shares of common stock (including over-allotment purchase) and at March 31, 2016 of these warrants to purchase 1,901,918 shares of common stock are outstanding. The warrants are exercisable at an exercise price of $20.00 per share and will expire on July 27, 2017 , which is five years from the date of issuance. As the warrants contain a cash settlement feature upon the occurrence of certain events that may be outside of the Company’s control, the warrants are recorded as a current liability and are marked to market at each reporting period (see Note 2). None of these warrants were exercised during the three months ended March 31, 2016 or the year ended December 31, 2015. The fair value of the warrants outstanding was approximately $1,603,000 and $6,069,000 as of March 31, 2016 and December 31, 2015, respectively. In July 2011, upon the closing of and in connection with the Healthcare Royalty financing agreement, the Company issued a warrant to Healthcare Royalty exercisable into 28,125 shares of common stock. The warrant is exercisable at $72.00 per share of common stock and has a term of ten years. As the warrant contains covenants where compliance with such covenants may be outside of the Company’s control, the warrant was recorded as a current liability and is marked to market at each reporting date (see Note 2). The fair value of the warrant was approximately $66,000 and $127,000 as of March 31, 2016 and December 31, 2015, respectively. |
Stock-Based Compensation
Stock-Based Compensation | 3 Months Ended |
Mar. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | Stock-Based Compensation The Company uses the Black-Scholes option-pricing model for determining the estimated fair value of stock-based compensation for stock-based awards to employees and the board of directors. The assumptions used in the Black-Scholes option-pricing model for the three months ended March 31, 2016 and 2015 are as follows: Three Months Ended March 31, 2016 2015 Risk free interest rate 1.4% 1.5% Expected term 6.0 years 5.8 to 6.1 years Expected volatility 77.8% 78.5% Expected dividend yield — % — % The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The weighted average expected term of options was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation based on the lack of relevant historical data due to the Company’s limited historical experience. In addition, due to the Company’s limited historical data, the estimated volatility was calculated based upon the Company's historical volatility, supplemented with historical volatility of comparable companies whose share prices are publicly available for a sufficient period of time. The Company recognized stock-based compensation expense in continuing operations as follows (in thousands): Three Months Ended March 31, 2016 2015 Cost of goods sold $ 101 $ 93 Research and development 424 224 Selling, general and administrative 963 1,033 Total $ 1,488 $ 1,350 As of March 31, 2016 , there was approximately $13,200,000 of total unrecognized compensation costs related to outstanding employee and board of director stock options which is expected to be recognized over a weighted average period of 2.9 years, and $700,000 of total unrecognized compensation costs related to unvested employee performance stock units which is expected to be recognized over a weighted average period of 1.9 years. As of March 31, 2016 , there were 43,037 unvested stock options and 7,500 unvested restricted stock units outstanding to consultants, with approximately $369,000 of related unrecognized compensation expense based on a March 31, 2016 measurement date. These unvested stock awards outstanding to consultants are expected to vest over a weighted average period of 2.7 years . In accordance with accounting guidance for stock-based compensation, the Company remeasures the fair value of stock option grants to non-employees at each reporting date and recognizes the related income or expense during their vesting period. The income recognized from the revaluation of stock options and restricted stock units to consultants was immaterial for the three months ended March 31, 2016 and 2015. The expense for awards issued to consultants is included in the condensed consolidated statements of operations and comprehensive loss within selling, general and administrative expense. |
Summary of Significant Accoun12
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
Financial Statement Preparation and Use of Estimates | Financial Statement Preparation and Use of Estimates The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared by Zogenix, Inc. according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2015, each as filed with the SEC. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates. |
Principles of Consolidation | Principles of Consolidation The unaudited interim condensed consolidated financial statements include the accounts of Zogenix, Inc. and its wholly owned subsidiary Zogenix Europe, which was incorporated under the laws of England and Wales in June 2010. All intercompany transactions and investments have been eliminated in consolidation. Zogenix Europe's functional currency is the U.S. dollar which is the reporting currency of its parent. |
Restricted Cash | Restricted Cash The Company has restricted cash in escrow as of March 31, 2016 and December 31, 2015 to fund potential indemnification claims for 12 months from the closing date of its sale of the Zohydro ER business in April 2015. The Company received the full amount from escrow in April 2016. The Company classifies this cash flow as investing activities in the condensed consolidated statement of cash flows as the source of the restricted cash is related to the sale of the Zohydro ER business. |
Fair Value Measurements | Fair Value Measurements The carrying amount of financial instruments consisting of cash, restricted cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and accrued compensation included in the Company’s condensed consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value. Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The Company classifies its cash equivalents within Level 1 of the fair value hierarchy because it values its cash equivalents using quoted market prices. The Company classifies its common stock warrant liabilities and contingent purchase consideration within Level 3 of the fair value hierarchy because they are valued using valuation models with significant unobservable inputs. |
Net Loss per Share | Net Loss per Share Basic and diluted net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period without consideration for common stock equivalents. |
Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired businesses. Goodwill has an indefinite useful life and is not amortized, but instead tested for impairment annually. Intangible assets consist of in-process research and development with an indefinite useful life that is not amortized, but instead tested for impairment until the successful completion and commercialization or abandonment of the associated research and development efforts, at which point the in-process research and development asset is either amortized over its estimated useful life or written-off immediately. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. |
Revenue Recognition | evenue Recognition The Company recognized revenue from contract manufacturing, service fees earned on collaborative arrangements and the sale of Sumavel DosePro prior to its sale in May 2014. The Company also recognizes revenue from the sale of Zohydro ER, which is included in net loss from discontinued operations in the condensed consolidated statements of operations and comprehensive loss. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the Company’s price to the buyer is substantially fixed or determinable at the date of sale, (b) the buyer has paid the Company, or the buyer is obligated to pay the Company and the obligation is not contingent on resale of the product, (c) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product, (d) the buyer acquiring the product for resale has economic substance apart from that provided by the Company, (e) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (f) the amount of future returns can be reasonably estimated. The Company defers recognition of revenue on product shipments of Zohydro ER until the right of return no longer exists, as the Company was not able to reliably estimate expected returns of the product at the time of shipment given the limited sales history of Zohydro ER. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The application of the multiple element guidance requires subjective determinations, and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company's control. In determining the units of accounting, the Company evaluates certain criteria, including whether the deliverables have stand-alone value, based on the consideration of the relevant facts and circumstances for each arrangement. In addition, the Company considers whether the buyer can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s). Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria, as described above, are applied to each of the separate units of accounting in determining the appropriate period or pattern of recognition. The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or management's best estimate of selling price (BESP) if neither VSOE nor TPE is available. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. Contract Manufacturing Revenue The Company and Endo entered into a supply agreement in connection with the sale of the Sumavel DosePro business to Endo in May 2014. Under the terms of the supply agreement, the Company retains the sole and exclusive right and the obligation to manufacture or supply Sumavel DosePro to Endo. The Company recognizes deferred revenue related to its supply of Sumavel DosePro as contract manufacturing revenue when earned on a "proportional performance" basis as product is delivered. The Company recognizes revenue related to its sale of Sumavel DosePro product, equal to the cost of contract manufacturing plus a low single-digit mark-up, upon the transfer of title to Endo. The Company supplies Sumavel DosePro product based on non-cancellable purchase orders. The Company initially defers revenue for any consideration received in advance of services being performed and product being delivered, and recognizes revenue pursuant to the related pattern of performance, based on total product delivered relative to the total estimated product delivery over the minimum eight year term of the supply agreement ending in May 2022. The Company continually evaluates the performance period and adjusts the period of revenue recognition if circumstances change. The Company recognized $800,000 of contract manufacturing revenue in continuing operations during the three months ended March 31, 2016 based on a change in estimated product to be delivered during the remaining term of the supply agreement. The effect of the change in estimated future product delivery reduced net loss per share from continuing operations and net loss per share, basic and diluted by $0.03 for the three months ended March 31, 2016. In addition, the Company recognized $2,900,000 of contract manufacturing revenue related to a cost of contract manufacturing charge of $2,800,000 for excess capacity and scrap in continuing operations during the three months ended March 31, 2016. There was no effect on net loss per share related to this activity for the three months ended March 31, 2016. In addition, the Company follows the authoritative accounting guidance when reporting revenue as gross when the Company acts as a principal versus reporting revenue as net when the Company acts as an agent. For transactions in which the Company acts as a principal, has discretion to choose suppliers, bears credit risk and performs a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing services. Product Revenue, Net The Company sold Sumavel DosePro through May 2014, and sold Zohydro ER through April 2015, in the United States to wholesale pharmaceutical distributors and retail pharmacies, or collectively the Company's customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration. The Company recognized Sumavel DosePro product sales at the time title transferred to its customer, and reduced product sales for estimated future product returns and sales allowances in the same period the related revenue was recognized. The Company is responsible for all returns of Sumavel DosePro product distributed by the Company prior to the sale of the Sumavel DosePro business up to a maximum per unit amount as specified in the sales agreement. Given the limited sales history of Zohydro ER, the Company was not able to reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company deferred recognition of revenue on Zohydro ER product shipments until the right of return no longer exists, which occurs at the earlier of the time Zohydro ER is dispensed through patient prescriptions or expiration of the right of return. The Company estimates Zohydro ER patient prescriptions dispensed using an analysis of third-party syndicated data. Zohydro ER was launched in March 2014 and, accordingly, the Company did not have a significant history estimating the number of patient prescriptions dispensed. If the Company underestimated or overestimated patient prescriptions dispensed for a given period, adjustments to revenue from discontinued operations may be necessary in future periods. The deferred revenue balance does not have a direct correlation with future revenue recognition as the Company records sales deductions at the time the prescription unit was dispensed. In addition, the costs of Zohydro ER associated with the deferred revenue were recorded as deferred costs, which were included in inventory, until such time the related deferred revenue is recognized. The Company is responsible for returns for product sold prior to the sale of the business on April 24, 2015 and was responsible for rebates, chargebacks, and related fees for product sold until July 8, 2015 per terms of the asset purchase agreement (the Asset Purchase Agreement) the Company entered into with Pernix Ireland Limited and Pernix Therapeutics (collectively, Pernix). Revenue for Zohydro ER is included in discontinued operations in the condensed consolidated statements of operations and comprehensive loss. |
Segment Reporting | Segment Reporting Management has determined that the Company operates in one business segment, which is the development and commercialization of pharmaceutical products. |
Recent Accounting Pronouncements | ecent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption of the guidance is permitted on the original effective date of fiscal years beginning after December 15, 2016. The Company is evaluating the transition method, timing and impact of adopting this new accounting standard on its financial statements and related disclosures. In April 2015, the FASB issued guidance which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability instead of as an asset. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2015. The Company adopted the guidance in the first quarter of 2016. The effect of adopting the guidance retrospectively was to decrease amounts previously reported on our consolidated balance sheet at December 31, 2015 for prepaid expenses and other current assets and decrease long term debt, current portion by $93,000 and to decrease other assets and long term debt balances by $72,000 . The balances for December 31, 2015 reflected in our condensed consolidated balance sheet in this Form 10-Q reflect these reclassifications. In July 2015, the FASB issued guidance which requires that certain inventory, including inventory measured using the first-in-first-out method, be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the timing and impact of adopting this new accounting standard on its financial statements and related disclosures. In November 2015, the FASB issued guidance simplifying the classification of deferred tax assets and liabilities. The new standard requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance is effective for interim and annual periods beginning after December 15, 2016 and early adoption is permitted. The Company adopted the guidance in 2015 on a prospective basis. Adoption of this guidance resulted in a reclassification of the Company's net current deferred tax asset and related valuation allowance to the net non-current deferred tax asset as of March 31, 2016 and December 31, 2015. No prior periods were retrospectively adjusted. In February 2016, the FASB issued guidance by requiring lessees to recognize the lease assets and lease liabilities that arise from both capital and operating leases with lease terms of more than 12 months and to disclose qualitative and quantitative information about lease transactions. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the timing and impact of adopting this new accounting standard on its financial statements and related disclosures. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting . The standard will revise accounting for share-based compensation arrangements, including the income tax impact and classification on the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact the adoption of this standard will have on our condensed consolidated financial statements. |
Summary of Significant Accoun13
Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
Assets and Liabilities Measured at Fair Value on a Recurring Basis | Assets and liabilities measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015 are as follows (in thousands): Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total At March 31, 2016 Assets Cash equivalents (1) $ 128,959 — — $ 128,959 Liabilities Common stock warrant liabilities (2) $ — — 1,669 $ 1,669 Contingent purchase consideration (3) $ — — 52,300 $ 52,300 At December 31, 2015 Assets Cash equivalents (1) $ 148,588 — — $ 148,588 Liabilities Common stock warrant liabilities (2) $ — — 6,196 $ 6,196 Contingent purchase consideration (3) $ — — 51,000 $ 51,000 (1) Cash equivalents are comprised of money market fund shares and are included as a component of cash and cash equivalents on the condensed consolidated balance sheets. (2) Common stock warrant liabilities were incurred in connection with the Company's July 2012 public offering of common stock and warrants and with the financing agreement (the Healthcare Royalty financing agreement) entered into with Healthcare Royalty Partners (Healthcare Royalty) (see Note 5), which are measured at fair value using the Black-Scholes option pricing valuation model. The assumptions used in the Black-Scholes option pricing valuation model for both common stock warrant liabilities were: (a) a risk-free interest rate based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; (b) an assumed dividend yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; (c) an expected term based on the remaining contractual term of the warrants; and (d) expected volatility based upon the Company's historical volatility. The significant unobservable input used in measuring the fair value of the common stock warrant liabilities associated with the Healthcare Royalty financing agreement is the expected volatility. Significant increases in volatility would result in a higher fair value measurement. The following additional assumptions were used in the Black-Scholes option pricing valuation model to measure the fair value of the warrants sold in the July 2012 public offering: (a) management's projections regarding the probability of the occurrence of an extraordinary event and the timing of such event; and for the valuation scenario in which an extraordinary event occurs that is not an all cash transaction or an event whereby a public acquirer would assume the warrants, and (b) an expected volatility rate using the Company's historical volatility through the projected date of public announcement of an extraordinary transaction, blended with a rate equal to the lesser of 40% and the 180 -day volatility rate obtained from the HVT function on Bloomberg as of the trading day immediately following the public announcement of an extraordinary transaction. The significant unobservable inputs used in measuring the fair value of the common stock warrant liabilities associated with the July 2012 public offering are the expected volatility and the probability of the occurrence of an extraordinary event. Significant increases in volatility would result in a higher fair value measurement and significant increases in the probability of an extraordinary event occurring would result in a significantly lower fair value measurement. The change in the fair value of the common stock warrant liabilities as of March 31, 2016 was primarily driven by the decrease in the market price of the Company's common shares at March 31, 2016 as compared against the December 31, 2015 measurement date. (3) Contingent purchase consideration was measured at fair value using the income approach based on significant unobservable inputs including management's estimates of the probabilities of achieving specific net sales levels and development milestones and appropriate risk adjusted discount rates. Significant changes of either unobservable input could have a significant effect on the calculation of fair value of the contingent purchase consideration liability. |
Reconciliation of Liabilities Measured at Fair Value Using Significant Observable Inputs (Level 3) | The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2016 (in thousands): Contingent Purchase Consideration Common Stock Warrant Liabilities Balance at December 31, 2015 $ 51,000 $ 6,196 Changes in fair value 1,300 (4,527 ) Balance at March 31, 2016 $ 52,300 $ 1,669 |
Basic and Diluted Net Loss Per Share | Common stock equivalents that could potentially reduce net earnings per common share in the future that were not included in the determination of diluted net loss per common share as their effects were antidilutive are as follows (in thousands): Three Months Ended March 31, 2016 2015 Options to purchase common stock 6 91 Restricted stock units not yet vested and released 106 — Warrants to purchase common stock 32 64 Total 144 155 |
Inventory (Tables)
Inventory (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Disclosure Inventory Net [Abstract] | |
Inventory, Net | Inventory consists of the following (in thousands): March 31, 2016 December 31, 2015 Raw materials $ 4,433 $ 3,775 Work in process 5,026 8,255 Total $ 9,459 $ 12,030 |
Discontinued operations (Tables
Discontinued operations (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of Results of Discontinued Operations | The following table summarizes the results of discontinued operations for the periods presented in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2016 and 2015 (in thousands): Three Months Ended March 31, Discontinued operations 2016 2015 Revenues: Net product revenue $ 334 $ 5,006 Operating expenses: Cost of product sold 15 1,340 Royalty expense 20 418 Research and development — 4,808 Selling, general and administrative 468 11,136 Total operating expense 503 17,702 Net loss from discontinued operations $ (169 ) $ (12,696 ) The following table summarizes the assets and liabilities of discontinued operations as of March 31, 2016 and December 31, 2015 related to the Zohydro ER business (in thousands): March 31, December 31, Assets Current assets Prepaid expenses and other current assets $ 41 $ 208 Total current assets of discontinued operations 41 208 Total assets of discontinued operations $ 41 $ 208 Liabilities Current liabilities Accrued expenses $ 2,370 $ 2,796 Deferred revenue and other current liabilities — 110 Total current liabilities of discontinued operations 2,370 2,906 Total liabilities of discontinued operations $ 2,370 $ 2,906 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Assumptions used in the Black-Scholes Option-Pricing Model | The assumptions used in the Black-Scholes option-pricing model for the three months ended March 31, 2016 and 2015 are as follows: Three Months Ended March 31, 2016 2015 Risk free interest rate 1.4% 1.5% Expected term 6.0 years 5.8 to 6.1 years Expected volatility 77.8% 78.5% Expected dividend yield — % — % |
Stock-Based Compensation Expense | The Company recognized stock-based compensation expense in continuing operations as follows (in thousands): Three Months Ended March 31, 2016 2015 Cost of goods sold $ 101 $ 93 Research and development 424 224 Selling, general and administrative 963 1,033 Total $ 1,488 $ 1,350 |
Organization and Basis of Pre17
Organization and Basis of Presentation - Narrative (Details) | Jul. 01, 2015shares | Mar. 31, 2016productshares | Dec. 31, 2015shares |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Number of product candidates | product | 2 | ||
Common stock conversion ratio | 0.125 | ||
Common stock shares authorized | shares | 50,000,000 | 50,000,000 | 50,000,000 |
Summary of Significant Accoun18
Summary of Significant Accounting Policies - Additional Information (Details) $ / shares in Units, shares in Thousands | Jul. 01, 2015 | Mar. 31, 2016USD ($)segment$ / sharesshares | Mar. 31, 2015USD ($)shares | Dec. 31, 2015USD ($) |
Line of Credit Facility [Line Items] | ||||
Common stock conversion ratio | 0.125 | |||
Anti-dilutive securities excluded from computation of earnings per share amount | shares | 144 | 155 | ||
Number of business segments | segment | 1 | |||
Contract manufacturing revenue | $ 9,206,000 | $ 4,181,000 | ||
Cost of contract manufacturing | 7,804,000 | $ 3,923,000 | ||
Accounting Standards Update 2015-03 | Prepaid Expenses, Other Assets and Long Term Debt, Current | ||||
Line of Credit Facility [Line Items] | ||||
Deferred Finance Costs, Net | $ 93,000 | |||
Accounting Standards Update 2015-03 | Other Assets and Long Term Debt, Noncurrent | ||||
Line of Credit Facility [Line Items] | ||||
Deferred Finance Costs, Net | $ 72,000 | |||
Continuing Operations | ||||
Line of Credit Facility [Line Items] | ||||
Contract manufacturing revenue | $ 800,000 | |||
Change in Estimate, Effect of Change on Basic and Diluted Earnings Per Share | $ / shares | $ 0.03 | |||
Continuing Operations | Excess Capacity and Scrap | ||||
Line of Credit Facility [Line Items] | ||||
Contract manufacturing revenue | $ 2,900,000 | |||
Cost of contract manufacturing | $ 2,800,000 | |||
Endo Ventures Supply Agreement | Minimum | ||||
Line of Credit Facility [Line Items] | ||||
Term of supply agreement | 8 years | |||
Zohydro ER and Sumavel DosePro | ||||
Line of Credit Facility [Line Items] | ||||
Period to accept returned unused product prior to expiration | 6 months | |||
Period to accept returned unused product after product expiration | 12 months | |||
Short-term investments | ||||
Line of Credit Facility [Line Items] | ||||
Impairment loss on investments | $ 5,500,000 |
Summary of Significant Accoun19
Summary of Significant Accounting Policies - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2016 | Dec. 31, 2015 | |
Liabilities | ||
Expected volatility rate period | 180 days | |
Minimum | ||
Liabilities | ||
Maximum volatility rate | 40.00% | |
Common Stock Warrant Liabilities | ||
Liabilities | ||
Liabilities measured at fair value on a recurring basis | $ 1,669 | $ 6,196 |
Contingent Purchase Consideration | ||
Liabilities | ||
Liabilities measured at fair value on a recurring basis | 52,300 | 51,000 |
Money market fund shares | ||
Assets | ||
Assets measured at fair value on a recurring basis | 128,959 | 148,588 |
Quoted Prices in Active Markets for Identical Assets (Level 1) | Common Stock Warrant Liabilities | ||
Liabilities | ||
Liabilities measured at fair value on a recurring basis | 0 | 0 |
Quoted Prices in Active Markets for Identical Assets (Level 1) | Contingent Purchase Consideration | ||
Liabilities | ||
Liabilities measured at fair value on a recurring basis | 0 | 0 |
Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market fund shares | ||
Assets | ||
Assets measured at fair value on a recurring basis | 128,959 | 148,588 |
Significant Other Observable Inputs (Level 2) | Common Stock Warrant Liabilities | ||
Liabilities | ||
Liabilities measured at fair value on a recurring basis | 0 | 0 |
Significant Other Observable Inputs (Level 2) | Contingent Purchase Consideration | ||
Liabilities | ||
Liabilities measured at fair value on a recurring basis | 0 | 0 |
Significant Other Observable Inputs (Level 2) | Money market fund shares | ||
Assets | ||
Assets measured at fair value on a recurring basis | 0 | 0 |
Significant Unobservable Inputs (Level 3) | Common Stock Warrant Liabilities | ||
Liabilities | ||
Liabilities measured at fair value on a recurring basis | 1,669 | 6,196 |
Significant Unobservable Inputs (Level 3) | Contingent Purchase Consideration | ||
Liabilities | ||
Liabilities measured at fair value on a recurring basis | 52,300 | 51,000 |
Significant Unobservable Inputs (Level 3) | Money market fund shares | ||
Assets | ||
Assets measured at fair value on a recurring basis | $ 0 | $ 0 |
Summary of Significant Accoun20
Summary of Significant Accounting Policies - Reconciliation of Assets and Liabilities Measured at Fair Value Using Significant Observable Inputs Level 3 (Detail) $ in Thousands | 3 Months Ended |
Mar. 31, 2016USD ($) | |
Contingent Purchase Consideration | |
Liabilities | |
Beginning Balance | $ 51,000 |
Changes in fair value | 1,300 |
Ending Balance | 52,300 |
Common Stock Warrant Liabilities | |
Liabilities | |
Beginning Balance | 6,196 |
Changes in fair value | (4,527) |
Ending Balance | $ 1,669 |
Summary of Significant Accoun21
Summary of Significant Accounting Policies - Basic and Diluted Net Loss Per Share (Detail) - shares shares in Thousands | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||
Anti-dilutive securities excluded from computation of earnings per share amount | 144 | 155 |
Options to purchase common stock | ||
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||
Anti-dilutive securities excluded from computation of earnings per share amount | 6 | 91 |
Restricted stock units not yet vested and released | ||
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||
Anti-dilutive securities excluded from computation of earnings per share amount | 106 | 0 |
Warrants to purchase common stock | ||
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||
Anti-dilutive securities excluded from computation of earnings per share amount | 32 | 64 |
Inventory (Detail)
Inventory (Detail) - USD ($) $ in Thousands | Mar. 31, 2016 | Dec. 31, 2015 |
Disclosure Inventory Net [Abstract] | ||
Raw materials | $ 4,433 | $ 3,775 |
Work in process | 5,026 | 8,255 |
Inventory, net | $ 9,459 | $ 12,030 |
Discontinued operations - Narra
Discontinued operations - Narrative (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Stock-based compensation | $ 1,488,000 | $ 1,871,000 |
Zohydro ER | Discontinued Operations | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Stock-based compensation | 0 | 522,000 |
Amortization | $ 0 | $ 124,000 |
Discontinued operations - Incom
Discontinued operations - Income Statement and Balance Sheet Disclosures Related to Zohydro (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Dec. 31, 2015 | |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Net loss from discontinued operations | $ (169) | $ (12,696) | |
Disposal Group, Including Discontinued Operation, Balance Sheet Disclosures [Abstract] | |||
Total current assets of discontinued operations | 41 | $ 208 | |
Total current liabilities of discontinued operations | 2,370 | 2,906 | |
Zohydro ER | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Net product revenue | 334 | 5,006 | |
Cost of product sold | 15 | 1,340 | |
Royalty expense | 20 | 418 | |
Research and development | 0 | 4,808 | |
Selling, general and administrative | 468 | 11,136 | |
Total operating expense | 503 | 17,702 | |
Net loss from discontinued operations | (169) | $ (12,696) | |
Disposal Group, Including Discontinued Operation, Balance Sheet Disclosures [Abstract] | |||
Prepaid expenses and other current assets | 41 | 208 | |
Total current assets of discontinued operations | 41 | 208 | |
Total assets of discontinued operations | 41 | 208 | |
Accrued expenses | 2,370 | 2,796 | |
Deferred revenue and other current liabilities | 0 | 110 | |
Total current liabilities of discontinued operations | 2,370 | 2,906 | |
Total liabilities of discontinued operations | $ 2,370 | $ 2,906 |
Common Stock Warrant Liability
Common Stock Warrant Liability - Additional Informational (Detail) - USD ($) $ / shares in Units, $ in Thousands | Jul. 27, 2012 | Jul. 31, 2012 | Jul. 31, 2011 | Mar. 31, 2016 | Dec. 31, 2015 |
Schedule Of Common Stock [Line Items] | |||||
Shares of common stock exercisable through warrants | 1,901,918 | ||||
Warrants exercise price per share | $ 20 | ||||
Term of common stock warrant exercisable (years) | 5 years | 10 years | |||
Fair value of warrant liabilities | $ 1,603 | $ 6,069 | |||
Warrant exercisable to Healthcare Royalty, shares | 28,125 | ||||
Warrant exercisable to Healthcare Royalty, price per share (usd per share) | $ 72 | ||||
Healthcare Royalty | |||||
Schedule Of Common Stock [Line Items] | |||||
Fair value of warrant liabilities | $ 66 | $ 127 | |||
IPO | |||||
Schedule Of Common Stock [Line Items] | |||||
Number of shares issued in public offering | 1,973,025 |
Stock-Based Compensation - Assu
Stock-Based Compensation - Assumptions used in Black-Scholes Option-Pricing Model (Detail) - Stock Options | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Risk free interest rate (percent) | 1.40% | 1.50% |
Expected term | 6 years | |
Expected volatility rate (percent) | 77.80% | 78.50% |
Expected dividend yield (percent) | 0.00% | 0.00% |
Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term | 5 years 9 months | |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term | 6 years 1 month 6 days |
Stock-Based Compensation - Stoc
Stock-Based Compensation - Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Stock-based compensation expense | $ 1,488 | $ 1,350 |
Cost of goods sold | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Stock-based compensation expense | 101 | 93 |
Research and development | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Stock-based compensation expense | 424 | 224 |
Selling, general and administrative | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Stock-based compensation expense | $ 963 | $ 1,033 |
Stock-Based Compensation - Addi
Stock-Based Compensation - Additional Information (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock-based compensation expense | $ 1,488 | $ 1,350 |
Consultants [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of unvested stock options (in shares) | 43,037 | |
Unrecognized compensation expense | $ 369 | |
Stock Options | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Total unrecognized compensation costs | $ 13,200 | |
Recognition over weighted average periods | 2 years 11 months | |
Stock Options | Consultants [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Award vesting period | 2 years 8 months | |
Restricted stock units not yet vested and released | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Recognition over weighted average periods | 1 year 10 months 24 days | |
Total unrecognized compensation costs related to the unvested employee performance stock units | $ 700 | |
Restricted stock units not yet vested and released | Consultants [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of unvested restricted stock units (in shares) | 7,500 |