Basis Of Presentation (Policy) | 9 Months Ended |
Sep. 30, 2013 |
Basis Of Presentation [Abstract] | ' |
Basis Of Presentation | ' |
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, 2012 included in the Company’s Form 10-K as filed with the 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 presentation 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, 2012 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. |
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Use Of Estimates | ' |
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. |
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Customer Concentration | ' |
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 Lingyun Biopharmaceutical (Shanghai) 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 exceed 10% of the Company’s total net revenue were as follows: |
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| Three Months Ended | | Nine Months Ended | | |
| September 30, | | September 30, | | |
| 2013 | 2012 | | 2013 | 2012 | | |
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Customer A | | 68% | | 56% | | | 68% | | 56% | | |
Customer B | | 26% | | 20% | | | 26% | | 19% | | |
Customer C | | — | | 13% | | | — | | 16% | | |
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As of September 30, 2013, approximately $35.6 million, or 95%, of the Company's accounts receivable were attributable to three customers in China. The Company generally does not require collateral from its customers. |
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Accounts Receivable | ' |
Accounts Receivable |
Receivable Reserve. The Company records a receivable reserve based upon 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. As of September 30, 2013, the Company recorded a receivable reserve of approximately $2.1 million related to gross accounts receivable of $4.1 million involving two customers who are part of the same affiliated group. As of December 31, 2012, the Company recorded a receivable reserve of approximately $1.0 million related to gross accounts receivable from one customer of $3.5 million. The Company increased the accounts receivable reserve as of September 30, 2013 as a result of continual negotiations that indicate the accounts receivable balance may be only partially recoverable. The receivable reserve reflects the Company’s best estimate of the ultimate collection, though actual collections may vary and the Company continues to pursue the full amount of the accounts receivables. |
Reserve for Product Returns. The Company maintains a reserve for product returns based on estimates of the amount of product to be returned by its customers which may result from expired product 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 or are deemed to be damaged or defective when delivered. The calculation of the product returns reserve requires estimates and involves a high degree of subjectivity and judgment. As a result of the uncertainties involved in estimating the product returns reserve, there is a possibility that materially different amounts could be reported under different conditions or using different assumptions. As of September 30, 2013 and December 31, 2012, the Company had estimated a product returns reserve of $0 and $0.1 million, respectively, on its consolidated balance sheets related to sales of oncology products and Aggrastat®. |
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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, from the date of the acquisition of the NovaMed Pharmaceuticals (Shanghai) Co. Ltd. (“NovaMed”) subsidiary in April of 2011 into 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 upon 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 upon 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 the 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 is required to return or refund a portion of promotion services fees received during interim periods from pharmaceutical customers if defined annual sales targets are not achieved. Under the Company’s agreements with these customers, if the agreement is terminated, and provided such targets have been met on a “pro rata” basis at the date of contract termination, the Company is entitled to retain the amounts paid. Due to the ability to retain amounts paid upon contract termination, provided applicable targets have been met on a “pro rata” basis at any interim date, we 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 amount of revenue recognized during the three- and nine-month periods ended September 30, 2013 under this method that is potentially subject to refund if the Company does not achieve the defined annual sales targets through the fourth quarter of fiscal 2013 is $2.3 million and $6.2 million, respectively. If the Company achieves the defined annual sales targets, these amounts will not be refunded. |
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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. For the three- and nine-month periods ended September 30, 2013, the Company has not recorded any write-down related to inventory. |
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Net Income (Loss) Per Share | ' |
Net Income (Loss) Per Share |
Basic net income (loss) per share has been computed by dividing net income (loss) 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”) and the employee stock purchase plan using the treasury stock method. For the three months ended September 30, 2012, the impact of stock options, RSUs and the employee stock purchase plan were not included in the computation of diluted net loss per share because the inclusion would provide an anti-dilutive effect. |
The following is a reconciliation of the numerator and denominators of the basic and diluted net income (loss) per share computations (in thousands, except per share amounts): |
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Numerator: | | | | | | | | | | | |
Net income (loss) | $ | 8,708 | | $ | -13,161 | | $ | 10,928 | | $ | 7,732 |
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Denominator: | | | | | | | | | | | |
Weighted-average shares outstanding used to | | | | | | | | | | | |
compute basic net income (loss) per share | | 53,591 | | | 56,617 | | | 53,931 | | | 57,184 |
Effect of dilutive securities | | 1,479 | | | — | | | 1,399 | | | 1,977 |
Weighted-average shares outstanding used to | | | | | | | | | | | |
compute diluted net income (loss) per share | | 55,070 | | | 56,617 | | | 55,330 | | | 59,161 |
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Basic net income (loss) per share | $ | 0.16 | | $ | -0.23 | | $ | 0.20 | | $ | 0.14 |
Diluted net income (loss) per share | $ | 0.16 | | $ | -0.23 | | $ | 0.20 | | $ | 0.13 |
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For the three months ended September 30, 2013, outstanding stock options and RSUs for 3,187,073 shares were excluded from the calculation of diluted net income per share because the effect from the assumed exercise of these options and RSUs calculated under the treasury stock method would have been anti-dilutive. In addition, for the three months ended September 30, 2013, shares subject to market or performance conditions of 12,500 were excluded from the calculation of diluted net income per share because the performance or market criteria had not been met. For the three months ended September 30, 2012, outstanding stock options and RSUs for 5,298,836 shares, were not included in the computation of diluted net loss per share because the inclusion would provide an anti-dilutive effect. In addition, for the three months ended September 30, 2012, shares subject to market or performance conditions of 112,500 were excluded from the calculation of diluted net income per share because the performance or market criteria had not been met and the inclusion would provide an anti-dilutive effect. |
For the nine months ended September 30, 2013 and 2012, outstanding stock options and RSUs for 3,329,853, and 3,272,577 shares, respectively, were excluded from the calculation of diluted net income (loss) per share because the effect from the assumed exercise of these options and RSUs calculated under the treasury stock method would have been anti-dilutive. In addition, for the nine months ended September 30, 2013 and 2012, shares subject to market or performance conditions of 12,500 and 126,113 respectively, were excluded from the calculation of diluted net income per share because the performance or market criteria had not been met. |
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New Accounting Standard | ' |
New Accounting Standard |
In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 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 (“ASU 2013-11”). With certain exceptions, ASU 2013-11 requires entities to present an unrecognized tax benefit or portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. The guidance is effective for interim and annual periods beginning after December 15, 2013 on either a prospective or retrospective basis with early adoption permitted. The Company plans on adopting this guidance commencing in 2014 on a prospective basis. The Company does not expect adoption of this guidance to have a material impact on its consolidated results of operations and financial condition. |
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