The Company And Summary Of Significant Accounting Policies (Policy) | 12 Months Ended |
Dec. 31, 2014 |
The Company And Summary Of Significant Accounting Policies [Abstract] | |
Description Of Business | Description of Business |
SciClone Pharmaceuticals, Inc. (“SciClone” or the “Company”), incorporated in 1990, is a United States (“US”)-headquartered, China-focused, specialty pharmaceutical company with a substantial commercial business in China and a product portfolio of therapies for oncology, infectious diseases and cardiovascular disorders. The Company’s lead product, ZADAXIN® (thymalfasin) is approved in over 30 countries and may be used for the treatment of hepatitis B (HBV), hepatitis C (HCV), as a vaccine adjuvant, and certain cancers according to the local regulatory approvals. In addition to ZADAXIN, SciClone markets approximately 7 partnered and in-licensed products in China, including Aggrastat®, an interventional cardiology product. SciClone is also pursuing the registration of several other therapeutic products in China. |
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Presentation | Presentation |
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements. |
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Use Of Estimates | Use of Estimates |
The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make informed estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. |
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Cash Equivalents And Investments | Cash Equivalents and Investments |
Cash equivalents consist of highly liquid investments with original maturities of three months or less on the date of purchase. The Company records its investments at fair value, as determined by available information on the consolidated balance sheet date. The Company’s investment portfolio as of December 31, 2014 consisted of money market funds that were included in cash and cash equivalents, and a certificate of deposit that was included in short-term investments. |
Unrealized gains or losses on available-for-sale securities are included in accumulated other comprehensive income on the consolidated balance sheets. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in earnings. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity and is included in earnings. The cost of securities sold is based on the specific identification method. |
Available-for-sale investments are evaluated for impairment each reporting period. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss is recognized in the consolidated statement of income. No such losses were recorded in the periods presented. |
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Fair Value Of Financial Instruments | Fair Value of Financial Instruments |
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. The three levels of input are: |
Level 1 - Quoted prices in active markets for identical assets or liabilities. |
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
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. |
Where quoted prices are available in an active market, the Company determines fair value based on quoted market prices, and classifies these values in level 1 of the valuation hierarchy. If quoted market prices are not available, fair values are based on observable inputs such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities and are classified in level 2 of the valuation hierarchy. When quoted prices and observable inputs are unavailable, fair values are based on cash flow models and are classified in level 3 of the valuation hierarchy. The cash flow models use inputs specific to the asset or liabilities including estimates for interest rates and discount rates including yields of comparable traded instruments adjusted for illiquidity and other risk factors, amount of cash flows and expected holding periods of the assets and liabilities. These inputs reflect the Company’s assumptions about the assumptions market participants would use in pricing the assets and liabilities including assumptions about risk developed based on the best information available in the circumstances. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment, and may materially affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. |
Other financial instruments, including accrued short-term liabilities, are carried at cost, which the Company believes approximates fair value because of the short-term maturity of these instruments. |
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Concentration Of Risk | Concentration of Risk |
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, investments, accounts receivable and loans receivable. The Company is exposed to credit risk in the event of default by the institutions holding the cash, cash equivalents and investments, and by customers and partners in the event of default by the customer or partner to pay the amounts due to us on receivables and loans receivables, respectively, to the extent of the amounts recorded on the consolidated balance sheet. Most of the Company’s cash and cash equivalents are held by financial institutions that the Company believes are of high credit quality. At times, deposits may exceed government insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. |
In China, pharmaceutical products are imported and distributed through a tiered method of distribution. For the Company’s proprietary product ZADAXIN®, the Company manufactures its product using its US and European contract manufacturers, and it generates its product sales revenue through sales of ZADAXIN products to Sinopharm Holding Hong Kong Co. Ltd. (“Sinopharm”). Sinopharm and its affiliates act as an importer, and also as the top “tier” of the distribution system (“Tier 1”) in China. The Company’s ZADAXIN sales occur when the importer purchases product from the Company, without any right of return except for damaged product or quality control issues and after passage of title and risk of loss are transferred to Sinopharm at the time of shipment. After the Company’s sale, Sinopharm clears products through China import customs, sells directly to large hospitals and holds additional product it has purchased in inventory for sale to the next tier in the distribution system. The second-tier distributors are responsible for the further sale and distribution of the products they purchase from the importer, either through sales of product directly to the retail level (hospitals and pharmacies), or to third-tier local or regional distributors who, in turn, sell products to hospitals and pharmacies. The Company’s other product sales revenues result from the sale of the Company’s in-licensed products to importing agents and distributors. |
Promotion services revenues result from fees received for exclusively promoting products for certain pharmaceutical partners. These importing agents, distributors and partners are the Company’s customers. |
Customers that exceeded 10% of the Company’s total net revenue and related to our China segment were as follows: |
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| For the Year Ended December 31, | | | |
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| 2014 | | 2013 | | 2012 | | | |
Customer A | | 94% | | 75% | | 59% | | | |
Customer B | | — | | 20% | | 20% | | | |
Customer C | | — | | — | | 12% | | | |
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As of December 31, 2014, approximately $38.9 million, or 94%, of the Company's gross accounts receivable was attributable to one customer in China. The Company generally does not require collateral from its customers. The Company maintains reserves for potential credit losses and such actual losses may vary significantly from its estimates. |
The Company currently relies on two suppliers to provide key components to its ZADAXIN manufacturing supply. Although there are a limited number of manufacturers who would be able to meet the requirements to manufacture these components, the Company believes that other suppliers could provide similar components on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely. |
The majority of the Company’s product sales are in US dollars. However, a significant portion of the Company’s revenues and expenses are denominated in Chinese Yuan Renminbi (“RMB”) and a significant portion of the Company’s assets and liabilities are denominated in RMB and are exposed to foreign exchange risk. RMB is not freely convertible into foreign currencies. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions at the exchange rates quoted by People’s Bank of China. Remittances in currencies other than RMB by the Company in China require certain supporting documentation in order to affect the remittance. |
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Accounts Receivable Reserve | Accounts Receivable Reserve |
The Company records a receivable reserve based on a specific review of its overdue invoices. The Company’s estimate for a reserve is determined after considering its existing contractual payment terms, payment patterns of its customers and individual customer circumstances, the age of any outstanding receivables and its current customer relationships. Accounts receivable are charged off at the point when they are considered uncollectible. |
As of December 31, 2013, the Company had $3.5 million in fully reserved accounts receivable from one customer that were more than one year past due. As a result of its negotiations with the customer, the Company collected $0.5 million in July 2014 and in October 2014, the Company’s subsidiary, SciClone Pharmaceuticals International China Holding Ltd (“SPIL China”) executed an agreement with this customer providing for settlement of $1.9 million of the remaining outstanding $3.0 million due in installments. The settlement agreement provided that the customer will pay SPIL China $1.9 million in installment payments to be made as follows: $500,000 before October 31, 2014; $500,000 before November 30, 2014; $400,000 before May 31, 2015; and the remaining balance of $500,000 to be made by December 31, 2015. The terms of the settlement agreement resulted in the write-off of $1.1 million in previously fully reserved accounts receivable with an equivalent charge-off of the allowance for bad debt, which had no impact on net income in 2014, as the subsequent agreement provided direct evidence that the $1.1 million previously reserved will not be collected in the future. The Company received the first and second payments under the terms of the settlement agreement in October and December 2014 totaling $1.0 million, and these gains on recovery, as well as the $0.5 million payment received in July 2014, were recorded as $1.5 million of reductions to general and administrative expense for the year ended December 31, 2014. The remaining outstanding receivable balance of $0.9 million as of December 31, 2014 will remain fully reserved until payments are received. |
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Inventories | Inventories |
Inventories consist of raw materials, work in progress and finished goods products. Inventories are valued at the lower of cost or market (net realizable value), with cost determined on a first-in, first-out basis, and include amounts related to materials, labor and overhead. The Company periodically reviews the inventory in order to identify excess and obsolete items. If obsolete or excess items are observed and there are no alternate uses for the inventory, the Company will record a write-down to net realizable value in the period that the impairment is first recognized. During the years ended December 31, 2014, 2013, and 2012, the Company recorded inventory write-downs of $1.6 million, $0, and $0, respectively, principally related to carrying value reductions for excess Aggrastat product. |
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Property And Equipment | Property and Equipment |
Property and equipment is stated at cost, less accumulated depreciation. Depreciation is recorded over the estimated useful lives of the respective assets on the straight-line basis. Office furniture and fixtures are generally amortized over five years, office equipment and computer software are generally amortized over three years, and the Company’s vehicle is being amortized over four years. Leasehold improvements are amortized over the shorter of the estimated useful life or lease term on the straight-line basis. The Company’s policy is to identify and record impairment losses, if necessary, on property and equipment when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. |
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Intangible Assets | Intangible Assets |
Intangible assets are reviewed for impairment when changes in facts or circumstances suggest that the carrying value of these assets may not be recoverable. The Company's policy is to identify and record impairment losses, if necessary, on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. It is the Company’s policy to expense costs as incurred in connection with the renewal or extension of its intangible assets. |
As part of the acquisition of NovaMed Pharmaceuticals Ltd. (“NovaMed”) in April 2011, the Company recorded intangible assets related to promotion and distribution contract rights. During the year ended December 31, 2012, the Company identified impairment indicators related to the intangible assets and fully wrote off the intangible assets. Refer to Net Intangible Assets in Note 7 for further information. |
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Goodwill | Goodwill |
The Company accounted for the acquisition of NovaMed under the acquisition method of accounting in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Under the acquisition method of accounting, the total acquisition-date fair value of the assets and liabilities are recognized as of the closing date. The total consideration paid by SciClone to NovaMed consisted of cash, SciClone common stock, and contingent consideration. The excess of the fair value of the total consideration transferred over the acquisition-date fair value of net tangible and intangible assets and liabilities assumed was allocated to goodwill. Goodwill is tested for impairment at least annually, or whenever events or circumstances occur that indicate impairment might have occurred in accordance with ASC Topic 350, Intangibles — Goodwill and Other. Goodwill relates to the Company’s China segment which focuses on the Company’s primary pharmaceutical distribution market, consisting of the NovaMed business and the legacy China business, which represent a single reporting unit. As of December 31, 2014, 2013 and 2012, the Company tested for goodwill impairment by quantitatively comparing the fair value of the reporting unit to its carrying amount - step one of the two-step impairment test. In addition, during the third quarter of fiscal 2013, the Company performed an interim goodwill impairment analysis to determine if the goodwill was impaired as a result of the non-renewal of the Sanofi Aventis S.A. (“Sanofi”) promotional agreements as of December 31, 2013, by comparing the fair value of the reporting unit to its carrying amount. The Company estimated the fair value of the China reporting unit using a discounted cash flow model. This valuation approach considers a number of factors that include, but are not limited to, expected future cash flows, growth rates, discount rates, and requires us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business. If the Company determines that the carrying value of its reporting unit exceeds its fair value, the Company would then calculate the implied fair value of the reporting unit goodwill as compared to its carrying value to determine the appropriate impairment charge. After completing the Company’s impairment review for the reporting unit during the third quarter of 2013, and as of December 31, 2014, 2013, and 2012, the Company concluded that goodwill was not impaired in any of these years. |
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Loans Receivable | Loans Receivable |
Loans receivable consist of two loans to one third party (see Note 6). Loans are initially recorded, and continue to be carried, at unpaid principal balances under “other assets” on the consolidated balance sheet. Carried balances are subsequently adjusted for payments of principal or adjustments to the allowance for loan losses to account for any impairment. Interest income is recognized over the term of the loans and is calculated using the simple-interest method, as the loans do not have associated premium or discount. If the loans were to experience impairment, interest income would not be recognized unless the likelihood of further loss was remote. |
Although the measurement basis is unpaid principal (as adjusted for subsequent payments or impairment), not fair value, the loans receivable would qualify as Level 3 measurements under the fair value hierarchy (Note 3) due to the presence of significant unobservable inputs related to the counterparty, which is a private entity. |
Management considers impairment to exist when, based on current information or factors (such as payment history, value of collateral, and assessment of the counterparty’s current creditworthiness), it is probable that principal and interest payments will not be collected according to the contractual agreements. Management considers a loan payment delinquent when not received by the due date. As of December 31, 2014, management concluded the loans receivable were not impaired, and there was no allowance for loan losses. |
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Contingent Consideration | Contingent Consideration |
As part of the acquisition of NovaMed, the Company would have been required to pay up to an additional $43.0 million in earn-out on the successful achievement of revenue and earnings targets for the 2011 and 2012 fiscal years (the “earn-out” or “contingent consideration”). The fair value of the earn-out was re-measured each period, and changes in the fair value were recorded to “contingent consideration” in operating expenses. As of December 31, 2012, the earn-out was determined to be zero. Through September 30, 2012, the Company used the assistance of a third-party valuation expert to estimate the fair value of the contingent consideration using a Monte Carlo simulation model. Refer to Contingent Consideration in Note 3 and Escrow Settlement Agreement Note 10 for further information. |
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Accrued Expenses | Accrued Expenses |
The Company makes estimates of its accrued expenses as of each balance sheet date in its consolidated financial statements based on facts and circumstances known to them. Examples of estimated accrued expenses include fees paid to contract research organizations and investigative sites in connection with clinical trials, fees paid to contract manufacturers in connection with the production of clinical trial materials, and professional services. The Company periodically confirms the accuracy of its estimates with selected service providers and makes adjustments, if necessary, in the periods identified. |
Expenses related to clinical trials charged to research and development expense generally are accrued based on estimates of work performed or the level of patient enrollment and activities according to the protocols and agreements. The Company makes adjustments, if necessary, in the periods identified to reflect actual levels of work performed, and such adjustments have historically not been material. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under certain contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, and the completion of portions of the clinical trial or similar conditions. The objective of the Company’s accrual policy is to match the recording of expenses to the actual services received and efforts expended. The Company monitors planned protocols, work performed, patient enrollment levels and related activities to the extent possible and adjusts estimates accordingly. |
The Company records as liabilities estimated amounts for litigation, claims or other legal actions that are probable and can be reasonably estimated. The likelihood of a material change in these estimated reserves is dependent on the possible outcome of settlement negotiations, regulatory or judicial review and the development of facts and circumstances in extended litigation which could change claims or assessments when both the amount and range of loss on some outstanding litigation is uncertain. The Company discloses in the footnotes to the financial statements when it is unable to make a reasonable estimate of a material liability that is reasonably possible to result from unfavorable outcomes. As events occur, the Company assesses the potential liability related to any pending litigation, claims or other legal actions and adjusts its estimates accordingly. Such adjustments could materially impact its financial statements. |
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Foreign Currency Translation | Foreign Currency Translation |
The Company translates the assets and liabilities of its foreign subsidiaries stated in local functional currencies to US dollars at the rates of exchange in effect at the end of the period. Revenues and expenses are translated using average rates of exchange in effect during the period. Goodwill, and certain other balances, are generally recorded in the local currency which is the functional currency of the Company’s subsidiaries located in China. As a result, the carrying value of goodwill and certain other balances may fluctuate with the value of the RMB as compared to the US dollar. Gains and losses from the translation of financial statements denominated in foreign currencies are included as a separate component of accumulated other comprehensive income in the statement of stockholders' equity. |
The Company records foreign currency transactions at the exchange rate prevailing at the date of the transaction with resultant gains and losses being included in results of operations. Foreign currency transaction gains and losses have not been significant for any period presented. |
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Revenue Recognition | Revenue Recognition |
The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, the price to the buyer is fixed or determinable and collectability is reasonably assured. |
Product Revenue. The Company recognizes product revenue from selling manufactured ZADAXIN product at the time of delivery. Sales of ZADAXIN to Sinopharm and its affiliates are recognized at time of shipment when title to the product is transferred to them. The Company also earns product revenue from purchasing medical products from pharmaceutical companies and selling them directly to importers or distributors. Sales of Pfizer International Trading (Shanghai) Ltd. (“Pfizer”) products through October 2012 were based on the “sell-through” method as the Company’s distribution arrangement for these products allowed for payment terms dependent on when the distributor sold the product. The Company did not maintain information on the timing of “sell-through” of the Pfizer products by the distributor through this period; therefore, the Company applied the cash receipts approach for the application of the “sell-through” method as it was the most reliable information available. Accordingly, during this period of time, revenue for sales of the Pfizer products was recognized on receipt of cash from the distributor. On October 21, 2012, the Company amended the agreement with the distributor which amendment removed any contingent payment terms. Prior to the amendment, the agreement allowed for delayed payment based on the timing of sales from the distributor to the next tier customer. The amendment changed the payment terms to 60 days, thus ensuring that the distributor could not withhold payment until after the distributor received payment on sale of product to its next tier customer. The combination of the revised payment terms, together with all of the other contractual restrictions on the distributor (e.g., no return rights or other terms that may raise question as to whether or not they had taken title and assumed “risk of loss”), permitted revenue to be recognized on a “sell-in” basis upon the amendment. Therefore, from October 21, 2012 onward, the “sell-in” method was used by the Company for recognition of related revenue. All other product sales are also recognized on the “sell-in” method, or when the medical products have been delivered to the importers or distributors. |
Promotion Services Revenue. The Company recognizes promotion services revenue after designated medical products are delivered to the distributors as specified in a promotion services contract, which marks the period when marketing and promotion services have been rendered and the revenue recognition criteria are met. In certain arrangements, the Company was required to return or refund a portion of promotion services fees received during interim periods from a pharmaceutical customer if defined annual sales targets were not achieved. Under the Company’s agreements with this customer, if an agreement was terminated, and provided such targets had been met on a “pro rata” basis at the date of contract termination, the Company was entitled to retain the amounts paid. Due to the ability to retain amounts paid upon contract termination, provided applicable targets had been met on a “pro rata” basis at any interim date, the Company elected to recognize revenue during interim periods without reduction for amounts subject to refund based on Method 2 of Accounting Standards Codification 605-20-S99-1, “Accounting for Management Fees Based on a Formula.” |
The Company’s promotion agreements with Sanofi, consisting of individual promotional agreements for certain pharmaceutical products and supplementary agreements extending the terms thereof, were not renewed and expired on December 31, 2013. NovaMed Pharmaceuticals (Shanghai) Co. Ltd. (“NovaMed Shanghai”) and Sanofi negotiated a settlement of certain amounts in dispute, effective July 14, 2014, and NovaMed Shanghai received approximately 22 million RMB (approximately $3.5 million) in August 2014 as final payment from Sanofi. The terms of the settlement resulted in the recognition of promotion services revenue for the second quarter of 2014 of approximately $0.2 million of Sanofi revenue that had been deferred in the fourth quarter of 2013. The remaining approximately $2.6 million of deferred revenue recorded during the fourth quarter of 2013, was reversed with an equivalent write-down of accounts receivable. This contemporaneous write-down of accounts receivable and deferred revenue had no impact on net income during the second quarter of 2014 or the year ended December 31, 2014. |
Revenue Reserve: The Company generally maintains a revenue reserve for product returns based on estimates of the amount of product to be returned by its customers which may result from expired or damaged product on delivery or for price reductions on the related sales and is based on historical patterns, analysis of market demand and/or a percentage of sales based on industry trends, and management’s evaluation of specific factors that may increase the risk of product returns. Importing agents or distributors do not have contractual rights of return except under limited terms regarding product quality. However, the Company is expected to replace products that have expired on delivery or are deemed to be damaged or defective when delivered. The calculation of the revenue reserve requires estimates and involves a high degree of subjectivity and judgment. As a result of the uncertainties involved in estimating the revenue reserve, there is a possibility that materially different amounts could be reported under different conditions or using different assumptions. |
As of December 31, 2014 and 2013, the Company’s revenue reserves were $0.1 million and $0, respectively, on its consolidated balance sheets. |
The Company evaluates the need for a returns reserve quarterly and adjusts it when events indicate that a change in estimate is appropriate. Changes in estimates could materially affect the Company’s results of operations or financial position. It is possible that the Company may need to adjust its estimates in future periods. |
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Sales Tax And Surcharge Expense | Sales Tax and Surcharge Expense |
Sales taxes and surcharge costs are expensed as incurred and are included in sales and marketing expense. The Company is generally subject to a 5-6.42% business tax and surcharge for services provided related to marketing products under the relevant taxation laws in China. Sales tax and surcharge costs amounted to approximately $2.5 million, $3.5 million, and $3.8 million, for the years ended December 31, 2014, 2013, and 2012, respectively. |
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Research And Development Expenses | Research and Development Expenses |
Research and development costs are expensed as incurred. These costs include salaries and other personnel-related expenses, including associated stock-based compensation, facility-related expenses, depreciation of facilities and equipment, upfront payments under in-licensing agreements with certain business partners and other license-related fees, and services performed by clinical research organizations and research institutions and other outside service providers. |
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Shipping And Handling Costs | Shipping and Handling Costs |
Shipping and handling costs incurred for inventory purchases and product shipments are included in cost of product sales for all periods presented. |
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Advertising Expenses | Advertising Expenses |
Advertising costs are expensed as incurred and are included in sales and marketing expenses for all periods presented. Advertising expenses for the years ended December 31, 2014, 2013, and 2012, were $0.5 million, $0.1 million, and $0.2 million, respectively. |
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Legal Costs | Legal Costs |
Legal costs related to loss contingencies are expensed to general and administrative expense as incurred. |
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Stock-Based Compensation | Stock-Based Compensation |
The Company records stock-based compensation costs relating to share-based payment transactions, including stock options, restricted stock units (“RSUs”) and the employee stock purchase plan. Stock-based compensation expense for stock options and the employee stock purchase plan is estimated at the date of grant based on the fair value of the award using the Black-Scholes option-pricing model. Stock-based compensation expense for RSUs is estimated at the date of grant based on the number of shares granted and the quoted price of the Company’s common stock on the grant date. Stock-based compensation expense values are recognized as expense on a straight-line basis over the requisite service period, net of estimated forfeitures. The stock-based compensation costs that are ultimately expected to vest are recognized as expense ratably (as the awards vest) over the requisite service period, which is generally one or four years for stock options and RSUs and three months for the employee stock purchase plan. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The total expense recognized over the vesting period will only be for those awards that ultimately vest. |
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Income Taxes | Income Taxes |
Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more-likely-than-not that the deferred tax assets will not be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made. |
The Company records liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not believe any such uncertain tax positions currently pending will have a material adverse effect on its consolidated financial statements, although an adverse resolution of one or more of these uncertain tax positions in any period could have a material impact on the results of operations for that period. The Company’s policy is to recognize interest and penalties related to the liabilities for uncertain tax positions as a component of income tax expense. The amount of accrued interest related to tax positions taken on the Company’s tax returns and included in accrued and other current liabilities was $1.5 million and $1.2 million, as of December 31, 2014 and 2013, respectively. The amount of interest recognized as tax expense related to uncertain tax positions in the consolidated statements of income was $0.3 million and $0.4 million for the years ended December 31, 2014 and 2013, respectively. |
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Net Income Per Share | Net Income Per Share |
Basic net income per share has been computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is computed by dividing net income by the weighted-average number of common equivalent shares outstanding for the period. Diluted net income per share includes any dilutive impact from outstanding stock options and the employee stock purchase plan using the treasury stock method. |
The following is a reconciliation of the numerator and denominators of the basic and diluted net income per share computations for the years ended December 31 (in thousands, except per share amounts): |
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| | 2014 | | 2013 | | 2012 |
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Numerator: | | | | | | | | | |
Net income | | $ | 25,208 | | $ | 10,964 | | $ | 9,620 |
Denominator: | | | | | | | | | |
Weighted-average shares outstanding used to compute basic net income per share | | | 51,277 | | | 53,587 | | | 56,637 |
Effect of dilutive securities | | | 1,407 | | | 1,349 | | | 1,846 |
Weighted-average shares outstanding used to compute diluted net income per share | | | 52,684 | | | 54,936 | | | 58,483 |
Basic net income per share | | $ | 0.49 | | $ | 0.20 | | $ | 0.17 |
Diluted net income per share | | $ | 0.48 | | $ | 0.20 | | $ | 0.16 |
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For the years ended December 31, 2014, 2013, and 2012, approximately 3,541,071, 3,378,063, and 3,280,492 shares, respectively, related to outstanding stock options were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive. In addition, for the years ended December 31, 2014, 2013, and 2012, 50,000, 50,171, and 118,046 shares, respectively, subject to performance conditions were excluded from the calculation of diluted net income per share because the performance criteria had not been met. |
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Segment Information | Segment Information |
The Company operates in two segments (refer to Note 20). |
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Reclassifications | Reclassifications |
The Company reclassified approximately $0.4 million of deferred tax balances as of December 31, 2013 to conform to the current year presentation, as permitted by the optional retrospective presentation provisions of Accounting Standards Update (ASU) 2013-11 “Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss or a Tax Credit Carryforward Exists”. These reclassifications had no effect on prior years’ net income or stockholders’ equity. |
The Company revised its December 31, 2013 consolidated balance sheet and consolidated statement of cash flows by reducing accounts receivable and increasing prepaid expenses and other current assets by $0.2 million to conform to the current year presentation, and reclassified $0.5 million in accrued liabilities to accounts payable to conform to the current year presentation. In addition, the Company revised its consolidated statement of income for the year ended December 31, 2013 by reducing sales and marketing expense and increasing research and development expense by $0.6 million for costs incurred related to pre-market research activities. |
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Accounting Standards Updates | Accounting Standards Updates |
Recently Effective Accounting Standards. In March of 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, “Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. The amendments in the ASU clarify that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should generally be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss, similar tax loss, or tax credit carryforward, with certain limited exceptions. The amendments were effective for the Company beginning January 1, 2014 and they have been applied since the first quarter of 2014. The Company also has retrospectively applied the guidance to deferred tax and unrecognized tax benefit amounts as of December 31, 2013, as retrospective application is optional but not required – see Reclassifications above. The adoption of this ASU had an immaterial impact on consolidated deferred tax balances as of December 31, 2014 and 2013. |
Accounting Standards Issued and Not Yet Effective. In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (ASU 2014-09), which contains new accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for the Company’s fiscal year beginning January 1, 2017, with early application not permitted. The Company is in the process of determining what impact, if any, the adoption of ASU 2014-09 will have on its financial statements and related disclosures. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. |
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