| Significant Accounting Policies | (2) Significant Accounting Policies Revenue Recognition In accordance with Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers , or Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for net product revenue and licensing revenue, see Note 7—Revenue Recognition. Cash and Cash Equivalents and Restricted Cash Cash and cash equivalents consist of cash, deposits with banks and short-term highly liquid money market instruments with original maturities at the date of purchase of 90 days or less. Restricted cash represents cash and cash equivalents pledged to guarantee repayment of certain expenses which may be incurred for business travel under corporate credit cards held by employees. Accounts Receivable, net Accounts receivable, net, comprised of trade receivables, are generally due within 45 days and are stated at amounts due from customers. The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of any recoveries. The allowance is based primarily on assessment of specific identifiable customer accounts considered at risk or uncollectible, as well as an analysis of current receivables aging and expected future write-offs. The expense associated with the allowance for doubtful accounts is recognized as selling, general, and administrative expense. The Company has not historically experienced any significant credit losses. All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected. The following table summarizes the impact of accounts receivable reserves on the gross trade accounts receivable balances as of June 30, 2024 and December 31, 2023:
In thousands June 30, 2024 December 31, 2023
Gross trade accounts receivable $ 150,631 $ 160,686
Trade allowances ( 19,347 ) ( 18,834 )
Chargebacks ( 7,593 ) ( 8,289 )
Accounts receivable, net $ 123,691 $ 133,563 Inventory The Company states inventories at the lower of cost or net realizable value. Cost is determined based on actual cost using the average cost method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company classifies inventory as long-term inventory when consumption of the inventory is expected beyond the next 12 months. The Company classifies finished goods expected to be sold within the next 12 months, and all of VASCEPA's active pharmaceutical ingredient, or API, as current inventory. An allowance is established when management determines that certain inventories may not be saleable. If inventory cost exceeds expected net realizable value due to obsolescence, damage or quantities in excess of expected demand, changes in price levels or other causes, the Company will reduce the carrying value of such inventory to net realizable value and recognize the difference as a component of cost of goods sold in the period in which it occurs. The Company capitalizes inventory purchases of saleable product from approved suppliers while inventory purchases from suppliers prior to regulatory approval are included as a component of research and development expense. The Company expenses inventory identified for use as marketing samples when they are packaged. The average cost reflects the actual purchase price of VASCEPA API. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts and tax bases of assets and liabilities and operating loss carryforwards and other tax attributes using enacted rates expected to be in effect when those differences reverse. Valuation allowances are provided against deferred tax assets that are not more likely than not to be realized. Deferred tax assets and liabilities are classified as non-current in the condensed consolidated balance sheet. The Company provides reserves for potential payments of tax to various tax authorities and does not recognize tax benefits related to uncertain tax positions and other issues. Tax benefits for uncertain tax positions are based on a determination of whether a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized, assuming that the matter in question will be decided based on its technical merits. The Company’s policy is to record interest and penalties in the provision for income taxes, as applicable. The Company regularly assesses its ability to realize deferred tax assets. Changes in historical earnings performance, future earnings projections, and changes in tax laws, among other factors, may cause the Company to adjust its valuation allowance on deferred tax assets, which would impact the Company’s income tax expense in the period in which it is determined that these factors have changed. Excess tax benefits and deficiencies that arise upon vesting or exercise of stock-based payments are recognized as an income tax benefit and expense, respectively, in the condensed consolidated statement of operations. Excess income tax benefits are classified as cash flows from operating activities and cash paid to taxing authorities arising from the withholding of shares from employees are classified as cash flows from financing activities. The Company’s and its subsidiaries’ income tax returns are periodically examined by various tax authorities, including the Internal Revenue Service, or IRS, and state tax authorities. The Company is currently under audit by the IRS for its 2018 and 2019 U.S. income tax returns. Although the outcome of tax audits is always uncertain and could result in significant cash tax payments, the Company does not believe the outcome of these audits will have a material adverse effect on its condensed consolidated financial position or results of operations. Earnings (Loss) per Share Basic net earnings (loss) per share is determined by dividing net income (loss) by the weighted average shares of common stock outstanding during the period. Diluted net earnings (loss) per share is determined by dividing net income (loss) by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as from the exercise of stock options and vesting of restricted stock units calculated using the treasury stock method. In periods with reported net operating losses, all stock options and restricted stock units outstanding are deemed anti-dilutive such that basic and diluted net loss per share are equal. The calculation of net income (loss) and the number of shares used to compute basic and diluted net earnings (loss) per share for the three and six months ended June 30, 2024 and 2023 are as follows:
For the Three Months Ended June 30, For the Six Months Ended June 30,
In thousands 2024 2023 2024 2023
Net income (loss)—basic and diluted $ 1,522 $ ( 17,560 ) $ ( 8,431 ) $ ( 34,020 )
Weighted average shares outstanding—basic and diluted 410,851 407,848 410,565 407,017
Effect of dilutive securities:
Restricted stock and restricted stock units 545 — — —
Stock options — — — —
Weighted average shares outstanding—diluted 411,395 407,848 410,565 407,017
Earnings (loss) per share—basic $ 0.00 $ ( 0.04 ) $ ( 0.02 ) $ ( 0.08 )
Earnings (loss) per share—diluted $ 0.00 $ ( 0.04 ) $ ( 0.02 ) $ ( 0.08 ) (1) Excluding the licensing revenue change in estimates discussed in Note 7 – Revenue Recognition , net earnings per share, basic and diluted, for the three months ended June 30, 2024 would have been a loss per share of $( 0.01 ) and net loss per share for the three months ended June 30, 2023 would have been $( 0.06 ) and net loss per share for the six months ended June 30, 2024 and 2023 would have been $( 0.03 ) and $( 0.10 ) , respectively. For the three and six months ended June 30, 2024 and 2023, the following potentially dilutive securities were not included in the computation of net earnings (loss) per share because the effect would be anti-dilutive or because performance criteria were not yet met for awards contingent upon such measures:
For the Three Months Ended June 30, For the Six Months Ended June 30,
In thousands 2024 2023 2024 2023
Stock options 24,792 16,000 25,337 16,000
Restricted stock and restricted stock units 14,926 14,903 14,926 14,903 Stock options are anti-dilutive during periods of net earnings when the exercise price of the stock options exceeds the market price of the underlying shares on the last day of the reporting period. Restricted stock and restricted stock units are anti-dilutive during periods of net earnings when underlying performance-based vesting requirements were not achieved as of the last day of the reporting period. Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. The Company maintains substantially all of its cash and cash equivalents and short-term and long-term investments in financial institutions believed to be of high-credit quality. A significant portion of the Company’s sales are to wholesalers in the pharmaceutical industry. The Company monitors the creditworthiness of customers to whom it grants credit terms and has not experienced any credit losses. The Company does not require collateral or any other security to support credit sales. Three customers individually accounted for 10% or more of the Company’s gross product sales. Customers A, B, and C accounted for 28 % , 34 % , and 29 % , respectively, of gross product sales for the six months ended June 30, 2024, and represented 40 % , 30 % , and 21 % , respectively, of the gross accounts receivable balance as of June 30, 2024. Customers A, B, and C accounted for 30 % , 36 % , and 28 % , respectively, of gross product sales for the six months ended June 30, 2023 and represented 39 % , 34 % , and 22 % , respectively, of the gross accounts receivable balance as of June 30, 2023 . The Company has not experienced any significant write-offs of its accounts receivable. All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected. Concentration of Suppliers The Company has contractual freedom to source the API for VASCEPA and to procure other services supporting its supply chain and has entered into supply agreements with multiple suppliers. The Company’s supply of product for commercial sale and clinical trials is dependent upon relationships with third-party manufacturers and suppliers. The Company cannot provide assurance that its efforts to procure uninterrupted supply of VASCEPA to meet market demand will continue to be successful or that it will be able to renew current supply agreements on favorable terms or at all. Significant alteration to or disruption or termination of the Company’s current supply chain or the Company’s failure to enter into new and similar agreements in a timely fashion, if needed, could have a material adverse effect on its business, condition (financial and other), prospects or results of operations. The Company currently has manufacturing agreements with multiple independent API manufacturers and several independent API encapsulators and packagers for VASCEPA manufacturing. Each of these API manufacturers, encapsulators and packagers is U.S. FDA-approved and certain of these API manufacturers, encapsulators and packagers are also approved by the European Regulatory Authorities for manufacturing VAZKEPA in Europe. These suppliers are also used by the Company to source supply to meet the clinical trial and commercial demands of its partners in other countries. Each of these suppliers has qualified and validated its manufacturing processes. There can be no guarantee that these or other suppliers with which the Company may contract in the future to manufacture VASCEPA or VASCEPA API will remain qualified to do so to its specifications or that these and any future suppliers will have the manufacturing capacity to meet potential global demand for VASCEPA. Fair Value of Financial Instruments The Company provides disclosure of financial assets and financial liabilities that are carried at fair value based on the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements may be classified based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities using the following three levels: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3—Unobservable inputs that reflect the Company’s estimates of the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data. The following tables present information about the estimated fair value of the Company’s assets and liabilities as of June 30, 2024 and December 31, 2023 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
June 30, 2024
In thousands Total Level 1 Level 2 Level 3
Asset:
Money Market Fund $ 103,609 $ 103,609 $ — $ —
U.S. Treasury Securities 132,919 132,919 — —
Repo Securities 5,000 — 5,000 —
Total $ 241,528 $ 236,528 $ 5,000 $ —
December 31, 2023
In thousands Total Level 1 Level 2 Level 3
Asset:
U.S. Treasury Shares $ 123,992 $ 123,992 $ — $ —
Money Market Fund 99,226 99,226 — —
Agency Securities 8,912 — 8,912 —
Repo Securities 3,250 — 3,250 —
Total $ 235,380 $ 223,218 $ 12,162 $ — The carrying amount of the Company’s cash and cash equivalents approximates fair value because of their short-term nature. The cash and cash equivalents consist of cash, deposits with banks and short-term highly liquid money market instruments with remaining maturities at the date of the purchase of 90 days or less. The Company’s investments are stated at amortized cost, which approximates fair value. The Company does not intend to sell these investment securities and the contractual maturities are not greater than 24 months . Those with original maturities greater than 90 days and maturities less than 12 months are included in short-term investments on its condensed consolidated balance sheet. Those with remaining maturities in excess of 12 months are included in long-term investments on its condensed consolidated balance sheet. Unrealized gains or losses are not recognized until maturity, except other-than-temporary unrealized losses which are recognized in earnings in the period incurred. The Company evaluates securities with unrealized losses to determine whether such losses are other than temporary. The unrealized gain or loss for the six months ended June 30, 2024 and 2023 were both losses of less than $ 0.1 million. Interest on investments is reported in interest income. The carrying amounts of accounts payable and accrued liabilities approximate fair value because of their short-term nature. Segment and Geographical Information Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The Company currently operates in one business segment, which is the development and commercialization of VASCEPA. A single management team that reports to the Company’s chief decision-maker, who is the Chief Executive Officer, comprehensively manages the business. Accordingly, the Company does not have separately reportable segments. Restructuring The Company identifies a restructuring event as a program that is planned and controlled by management, and materially changes either the scope of the Company's business or the manner in which that business is conducted. The accounting for involuntary termination benefits that are provided pursuant to a one-time benefit arrangement are accounted for under ASC 420 – Exit or Disposal Cost Obligations whereas involuntary termination benefits that are part of an ongoing written or substantive plan are accounted for under ASC 712 – Compensation – Nonretirement Postemployment Benefits. The Company accrues a liability for termination benefits under ASC 712 when it is probable that a liability has been incurred and the amount can be reasonably estimated and under ASC 420 when the termination benefits are communicated. In June 2023, the Company approved and subsequently announced on July 18, 2023, an Organizational Restructuring Plan, or ORP, to right-size and strengthen the Company. As part of the plan, the Company completed a reduction of its entire U.S. sales field force, as well as a reduction of approximately 30% of its non-sales positions. The Company maintained its managed care and trade organization to support U.S. commercial efforts. During the three and six months ended June 30, 2023 , the Company recognized approximately $ 10.2 million within restructuring expense on the condensed consolidated statement of operations related to the reduction in forces. The Company continues to assess its contractual supplier purchase obligations and has taken steps to amend supplier agreements to align supply arrangements with current and future market demand. As a result of the ongoing assessment, the Company recognized $ 14.3 million during the three months ended June 30, 2023 and $ 26.6 million during the six months ended June 30, 2023, within cost of goods sold - restructuring inventory on the condensed consolidated statement of operations. The Company continues to negotiate with other contract suppliers to align its supply arrangements with current and future global demand, which may result in additional costs to the Company. The following table sets forth the components of the Company's restructuring charges for the three and six months ended June 30, 2023 (none in 2024):
For the Three Months Ended June 30, For the Six Months Ended June 30,
In thousands 2023 2023
Restructuring expense $ 10,154 $ 10,154
Vendor contract charges ( 122 ) ( 122 )
Total restructuring expense 10,032 10,032
Restructuring inventory 14,300 26,554
Total restructuring costs incurred $ 24,332 $ 36,586 The following table shows the change in restructuring liability which is included within accrued expenses and other current liabilities:
In thousands Restructuring Liability
Balance at December 31, 2023 $ 13,589
Costs incurred —
Payments ( 3,361 )
Balance at June 30, 2024 $ 10,228 Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, and are adopted early by the Company or adopted as of the specified effective date. The Company has evaluated all recently issued accounting pronouncements through the date of the financial statements and found that no recently issued accounting pronouncements, when adopted, will have a material impact on the Company’s condensed consolidated financial position, results of operations, and cash flows, or do not apply to the Company’s operations. |
