Basis Of Presentation | Note 1 — Basis of Presentation The accompanying unaudited condensed consolidated financial statements of SciClone Pharmaceuticals, Inc. (“SciClone” or the “Company”) have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) consistent with those applied in, and should be read in conjunction with, the audited consolidated financial statements and the notes thereto for the year ended December 31, 2014 included in the Company’s Form 10-K as filed with the US Securities and Exchange Commission (“SEC”). The Company prepared the unaudited condensed consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under those rules, certain footnotes or other information that are normally required by GAAP can be condensed or omitted. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The interim financial information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The unaudited condensed consolidated balance sheet data as of December 31, 2014 is derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates. Revisions The Company reduced the line item “Inventories” and increased the line item “Provision for expiring inventory” in the amount of $0.4 million within the reconciling adjustments in its condensed consolidated statement of cash flows for the nine months ended September 30, 2014 to correct an error in the prior year presentation. This revision had no impact on cash provided by operating activities. For the full year 2014, the line item “Inventories” was overstated and the line item “Provision for expiring inventory” was understated by $0.5 million within the reconciling adjustments in its consolidated statement of cash flows as presented for the year ended December 31, 2014 included in the Company’s Form 10-K as filed with the SEC. The amounts of the errors are not material to the annual or interim periods of 2014. Customer Concentration 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 passage of title and risk of loss are transferred to Sinopharm at the time of shipment. After the Company’s sale of ZADAXIN to the importer, 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 (“Tier 2”) 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 (“Tier 3”) 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. Sinopharm revenues relate to the Company’s China segment. Sinopharm contributed 98% and 94% of the Company’s total net revenue for the three-month periods ended September 30, 2015 and 2014, respectively. Sinopharm contributed 92% and 93% of the Company’s total net revenue for the nine-month periods ended September 30, 2015 and 2014, respectively. There were no other customers that exceeded 10% of the Company’s total net revenue in the periods presented. As of September 30, 2015, approximately $ 37.4 million, or 91% , of the Company's accounts receivable was attributable to one customer, Sinopharm, in China. The Company generally does not require collateral from its customers. Accounts Receivable 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 written off at the point when they are considered uncollectible. As of September 30, 2015, the Company had a receivable reserve of $1.1 million. The reserve includes $0.5 million from one customer that is more than one year past due. In October 2014, the Company’s subsidiary, SciClone Pharmaceuticals International China Holding Ltd (“SPIL China”) executed an agreement with this particular customer providing for settlement of the receivable balance, which at the time was $1.9 million, of which $1.0 million was paid in 2014. The remaining $0.9 million was scheduled to be paid in installments as follows: (i) $0.4 million before May 31, 2015, and (ii) $0.5 million by December 31, 2015. The Company collected $0.4 million in May 2015, and this gain on recovery was recorded as a $0.4 million reduction to general and administrative expense for the nine-month period ended September 30, 2015. The Company will continue to maintain a full reserve on the remaining $0.5 million outstanding accounts receivable balance from this customer until payment is received. As of September 30, 2015, the Company had $0.5 million in fully reserved accounts receivable from another customer that are past due. The Company recognized $0.5 million of bad debt expense in general and administrative expense during the first quarter of 2015 due to uncertainty regarding the collectability of the customer’s outstanding receivable balance. 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. The Company recognizes revenue related to these products based on the “sell-in” method, when the medical products have been delivered to the importers or distributors. Payments by the importing agents and distributors are not contingent upon sale to the end user by the importing agents 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. 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, 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 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 September 30, 2015 and December 31, 2014, the Company’s revenue reserves were $0.6 million and $0. 1 million, respectively. Inventories Inventories consist of raw materials, work in progress and finished 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, including pharmaceutical products approaching their expiration dates. 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. For the three- and nine-month periods ended September 30, 2015, the Company recorded no inventory write-downs. For the three- and nine-month periods ended September 30, 2014, the Company recorded inventory write-downs of $0.6 million and $1.0 million, respectively, related to carrying value reductions for excess Aggrastat ® product. Loans Receivable Loans receivable are due from a single third party (see Note 4). Loans are initially recorded, and continue to be carried, at unpaid principal balances under “other assets” on the unaudited condensed 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 2) 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 September 30, 2015 and December 31, 2014, management concluded the loans receivable were not impaired, and there was no allowance for loan losses. 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, restricted stock units (RSUs), performance restricted stock units (PSUs) 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 (in thousands, except per share amounts): Three Months Ended Nine Months Ended September 30, September 30, 2015 2014 2015 2014 Numerator: Net income $ $ $ $ Denominator: Weighted-average shares outstanding used to compute basic net income per share Effect of dilutive securities Weighted-average shares outstanding used to compute diluted net income per share Basic net income per share $ $ $ $ Diluted net income per share $ $ $ $ For the three months ended September 30, 2015 and 2014, outstanding stock options for 1,514,534 and 3,733,555 shares, respectively, were excluded from the calculation of diluted net income per share because the effect from the assumed exercise of these options calculated under the treasury stock method would have been anti-dilutive. In addition, for the three months ended September 30, 2015 and 2014, outstanding stock options and awards for 312,500 and 50,000 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. For the nine months ended September 30, 2015 and 2014, outstanding stock options for 1,043,815 and 3,924,745 shares, respectively, were excluded from the calculation of diluted net income per share because the effect from the assumed exercise of these options calculated under the treasury stock method would have been anti-dilutive. In addition, for the nine months ended September 30, 2015 and 2014, outstanding stock options and awards for 325,137 and 50,000 shares, respectively, subject to performance conditions were excluded from the calculation of diluted net income per share because the performance criteria had not yet been met. New Accounting Standards Updates In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 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, 2018, which reflects a one year deferral approved by the FASB in July 2015, with early application permitted provided that the effective date is not earlier than the original effective date. 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. In July 2015, the FASB issued ASU 2015-11, " Inventory (Topic 330): Simplifying the Measurement of Inventory " (“ASU 2015-11”) which applies to inventory that is measured using first-in, first-out ("FIFO") or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, first-out ("LIFO"). This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company has evaluated the impact of adopting this guidance and has concluded it will likely have minimal effect on the financial statements as the Company already applies the concept of net realizable value; moreover, inventory provisions are generally full write-downs for the affected inventory. |