NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
NOTE 1: Summary of Significant Accounting Policies
Nature of Operations. Avadel Pharmaceuticals plc (Nasdaq: AVDL) (“Avadel,” the “Company,” “we,” “our,” or “us”) is a biopharmaceutical company. Our lead product candidate, FT218, is an investigational once-nightly, extended-release formulation of sodium oxybate for the treatment of excessive daytime sleepiness (“EDS”) and cataplexy in adults with narcolepsy. We are primarily focused on the development and potential United States (“U.S.”) Food and Drug Administration (“FDA”) approval of FT218. In December 2020, we submitted a New Drug Application (“NDA”) to the FDA for FT218 to treat excessive daytime sleepiness and cataplexy in adults with narcolepsy. The NDA for FT218 was accepted by the FDA in February 2021 and assigned a Prescription Drug User Fee Act (“PDUFA”) target action date of October 15, 2021.
Outside of our lead product candidate, we continue to evaluate opportunities to expand our product portfolio. As of March 31, 2021, we do not have any approved and commercialized products in our portfolio.
We are registered as an Irish public limited company. Our headquarters are in Dublin, Ireland and we have operations in St. Louis, Missouri, U.S.
FT218
FT218 is a once-nightly formulation of sodium oxybate that uses our Micropump controlled release drug-delivery technology for the treatment of EDS and cataplexy in adults suffering from narcolepsy. Sodium oxybate is the sodium salt of gamma hydroxybutyrate, an endogenous compound and metabolite of the neurotransmitter gamma-aminobutyric acid. Sodium oxybate is approved in the U.S. for the treatment of EDS and cataplexy in patients with narcolepsy and is approved in Europe for the treatment of cataplexy in patients with narcolepsy. Since 2002, sodium oxybate has only been available as a formulation that must be taken twice nightly, first at bedtime, and then again 2.5 to 4 hours later.
On December 16, 2020, we announced the submission of our NDA to the FDA for FT218. On February 26, 2021, the FDA notified us of formal acceptance of the NDA with an assigned PDUFA target action date of October 15, 2021.
We conducted a Phase 3 clinical trial of FT218, the REST-ON trial, which was a randomized, double-blind, placebo-controlled study that enrolled 212 patients and was conducted in clinical sites in the U.S., Canada, Western Europe and Australia. The last patient, last visit was completed at the end of the first quarter of 2020 and positive top line data from the REST-ON trial was announced on April 27, 2020. Patients who received 9 g of once-nightly FT218, the highest dose administered in the trial, demonstrated a statistically significant and clinically meaningful improvement compared to placebo across the three co-primary endpoints of the trial: maintenance of wakefulness test, or MWT, clinical global impression-improvement, or CGI-I, and mean weekly cataplexy attacks. The lower doses assessed, 6 g and 7.5 g also demonstrated a statistically significant and clinically meaningful improvement on all three co-primary endpoints compared to placebo. We observed the 9 g dose of once-nightly FT218 to be generally well tolerated. Adverse reactions commonly associated with sodium oxybate were observed in a small number of patients (nausea 1.3%, vomiting 5.2%, decreased appetite 2.6%, dizziness 5.2%, somnolence 3.9%, tremor 1.3% and enuresis 9%), and 3.9% of the patients who received 9 g of FT218 discontinued the trial due to adverse reactions.
In January 2018, the FDA granted FT218 Orphan Drug Designation, which makes the drug eligible for certain development and commercial incentives, including potential U.S. market exclusivity for up to seven years. Additionally, several FT218-related U.S. patents have been issued, and there are additional patent applications currently in development and/or pending at the U.S. Patent and Trademark Office (“USPTO”), as well as foreign patent offices.
In July 2020, we announced that the first patient was dosed initiating an open-label extension (“OLE”)/switch study of FT218 as a potential treatment for EDS and cataplexy in patients with narcolepsy. The OLE/switch study is examining the long-term safety and maintenance of efficacy of FT218 in patients with narcolepsy who participated in the REST-ON study, as well as dosing and preference data for patients switching from twice-nightly sodium oxybate to once-nightly FT218, regardless of whether they participated in REST-ON. We anticipate that the study could enroll up to 250 patients, many of whom would be enrolled in North American clinical trial sites that participated in the REST-ON study.
New secondary endpoints from the REST-ON trial were presented at the American Academy of Neurology, beginning April 17, 2021. FT218 demonstrated improvements in disturbed nocturnal sleep (“DNS”), defined in REST-ON as the number of shifts
from stages N1, N2, N3, and rapid eye movement (“REM”) sleep to wake and from stages N2, N3, and REM sleep to stage N1. FT218 also decreased the number of nocturnal arousals as measured on polysomnography. Improvements in DNS were further supported by post-hoc analyses demonstrating increased time in deep sleep (N3, also known as slow wave sleep), and less time in N1. A second poster described the statistically significant improvements in the Epworth Sleepiness Scale, both the quality of sleep and the refreshing nature of sleep, and a decrease in sleep paralysis. These clinically relevant improvements were observed for all doses, beginning at Week 3, for the lowest 6 g dose, compared to placebo. FT218 did not demonstrate significant improvement for hypnagogic hallucinations compared to placebo.
Previously Approved FDA Products
On June 30, 2020 (the “Closing Date”), we announced the sale by Avadel Legacy Pharmaceuticals, LLC (the “Avadel Seller”) of the portfolio of sterile injectable drugs used in the hospital setting (the “Hospital Products”), which included our three commercial products, Akovaz, Bloxiverz and Vazculep, as well as Nouress, to Exela Sterile Medicines LLC (“Exela Buyer”) pursuant to an asset purchase agreement (the “Purchase Agreement”) by and among the Avadel Seller, Avadel US Holdings, Inc., the Exela Buyer and Exela Holdings, Inc. This sale included the following FDA approved products:
•Bloxiverz (neostigmine methylsulfate injection) - Bloxiverz is a drug used intravenously in the operating room to reverse the effects of non-depolarizing neuromuscular blocking agents after surgery.
•Vazculep (phenylephrine hydrochloride injection) - Vazculep is indicated for the treatment of clinically important hypotension occurring in the setting of anesthesia.
•Akovaz (ephedrine sulfate injection) - Akovaz was the first FDA approved formulation of ephedrine sulfate, an alpha- and beta- adrenergic agonist and a norepinephrine-releasing agent that is indicated for the treatment of clinically important hypotension occurring in the setting of anesthesia.
•Nouress (cysteine hydrochloride injection) - Nouress is a sterile injectable product for use in the hospital setting to provide parenteral nutrition to neonates.
See Note 3: Disposition of the Hospital Products.
Basis of Presentation. The unaudited condensed consolidated balance sheet as of March 31, 2021, which is derived from the prior year 2020 audited consolidated financial statements, and the interim unaudited condensed consolidated financial statements presented herein, have been prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP), the requirements of Form 10-Q and Article 10 of Regulation S-X and, consequently, do not include all information or footnotes required by U.S. GAAP for complete financial statements or all the disclosures normally made in an Annual Report on Form 10-K. Accordingly, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s 2020 Annual Report on Form 10-K filed with the SEC on March 9, 2021.
The unaudited condensed consolidated financial statements include the accounts of the Company and subsidiaries, and reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. All intercompany accounts and transactions have been eliminated. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period.
Revenue. Prior to June 30, 2020, revenue was earned from the sales of pharmaceutical products.
Product Sales
Prior to June 30, 2020, we sold products primarily through wholesalers and considered these wholesalers to be our customers. Under ASC 606, revenue from product sales is recognized when the customer obtains control of our product, which occurs typically upon receipt by the customer. Our gross product sales are subject to a variety of price adjustments in arriving at reported net product sales. These adjustments include estimates of product returns, chargebacks, payment discounts, rebates, and other sales allowances and are estimated based on analysis of historical data for the product or comparable products, future expectations for such products and other judgments and analysis.
For a complete discussion of the accounting for net product revenue, see Note 4: Revenue Recognition.
NOTE 2: Newly Issued Accounting Standards
Recently Adopted Accounting Guidance
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. The FASB’s amendments primarily impact ASC 740, Income Taxes, and may impact both interim and annual reporting periods. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years and early adoption is permitted. We adopted the provisions of ASU 2019-12 on January 1, 2021. Adoption of ASU 2019-12 did not have any impact on our unaudited condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40), to reduce the complexity associated with applying U.S. GAAP principles for certain financial instruments with characteristics of liabilities and equity. The amendments in this ASU reduce the number of accounting models for convertible instruments and expand the existing disclosure requirements over earnings per share as it relates to convertible instruments. Convertible debt will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The update also requires the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. This ASU will be effective for our fiscal year beginning January 1, 2022 and interim periods therein. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The amendments may be adopted through either a modified retrospective method, or a fully retrospective method.
The Company has elected to early adopt ASU 2020-06 as of January 1, 2021 using a modified retrospective method. The Company’s 4.50% exchangeable senior notes due 2023 (the “2023 Notes”) are a convertible instrument with a cash-conversion feature that is accounted for within the scope of Subtopic 470-20. The Company calculated the cumulative-effect adjustment as of January 1, 2021 by comparing (i) the historical amortization schedule for the 2023 Notes through December 31, 2020 and (ii) an updated amortization schedule wherein the conversion feature within the 2023 Notes would not be separated as an equity component and subsequently recognized as non-cash interest expense under ASC 835-30. The adoption resulted in a $26,699 decrease in additional paid-in capital, a $12,939 increase in long-term debt, and a $13,760 increase to the opening balance of retained earnings.
NOTE 3: Disposition of the Hospital Products
On the Closing Date, we announced the sale of our Hospital Products to the Exela Buyer pursuant to the Purchase Agreement (the “Transaction”).
Pursuant to the Purchase Agreement, the Exela Buyer agreed to pay a total aggregate consideration amount of $42,000, of which $14,500 was paid on the Closing Date and an additional $27,500 was to be paid in ten equal monthly installments following the Closing Date. During the year ended December 31, 2020, we collected four installment payments, totaling $11,000 and during the three months ended March 31, 2021, we collected three installment payments, totaling $8,250. In connection with the sale of the Hospital Products, the parties also agreed to cause the dismissal of the pending civil litigation related to Nouress in the District Court for the District of Delaware.
We were party to a Membership Interest Purchase Agreement, dated March 13, 2012, by and among us, Avadel Legacy, Breaking Stick Holdings, LLC, Deerfield Private Design International II, L.P. (“Deerfield International”), Deerfield Private Design Fund II, L.P. (“Deerfield Fund”) and Horizon Santé FLML, Sarl (“Horizon”) (the “Deerfield MIPA”) and a Royalty Agreement, dated February 4, 2013, by and among us, Avadel Legacy, the Deerfield Fund and Horizon (the “Deerfield Royalty Agreement”). In connection with the closing of the sale of the Hospital Products, the Deerfield MIPA (with respect to certain sections thereof) and the Royalty Agreement were assigned to the Exela Buyer. Pursuant to the Purchase Agreement, the Exela Buyer assumed and will pay, perform, satisfy and discharge the liabilities and obligations of Avadel Legacy under the Deerfield Royalty Agreement for obligations that arise after the Closing Date.
We were also party to a Royalty Agreement, dated December 3, 2013, by and between us, Avadel Legacy and Broadfin Healthcare Master Fund, Ltd. (the “Broadfin Royalty Agreement”). In connection with the closing of the sale of the Hospital Products, the Broadfin Royalty Agreement was assigned to the Exela Buyer and the Exela Buyer assumed and shall pay,
perform, satisfy and discharge the liabilities and obligations of Avadel Legacy under the Broadfin Royalty Agreement for obligations that arise after the Closing Date.
The following table represents the major classes of assets and liabilities either transferred to the Exela Buyer or eliminated by us due to the sale of the Hospital Products in exchange for aggregate consideration of $42,000, less transaction fees of $2,928.
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|
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|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
Prepaid expenses and other current assets
|
|
$
|
(134)
|
|
|
|
Inventories
|
|
(4,922)
|
|
|
|
Goodwill
|
|
(1,654)
|
|
|
|
Intangible assets, net
|
|
(407)
|
|
|
|
Other non-current assets
|
|
(1,095)
|
|
|
|
Total long-term contingent consideration payable
|
|
14,900
|
|
|
|
Net liabilities disposed of
|
|
6,688
|
|
|
|
Aggregate consideration
|
|
42,000
|
|
|
|
Less transaction fees
|
|
(2,928)
|
|
|
|
Net gain on the sale of the Hospital Products
|
|
$
|
45,760
|
|
|
|
We evaluated various qualitative and quantitative factors related to the disposition of the Hospital Products and determined that it did not meet the criteria for presentation as a discontinued operation.
The unaudited pro forma condensed combined statement of loss for the three months ended March 31, 2020 included below is being provided for information purposes only and are not necessarily indicative of the results of operations that would have resulted if the Transaction had actually occurred on the date indicated. The pro forma adjustments are based on available information and assumptions that the Company believes are attributable to the sale.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Condensed Combined Statement of Loss
|
|
|
Three Months Ended March 31, 2020
|
|
|
As Reported
|
|
Pro Forma Adjustments
|
|
Notes
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
12,243
|
|
|
$
|
(12,264)
|
|
|
(a)
|
|
$
|
(21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
18,740
|
|
|
(5,773)
|
|
|
(b)
|
|
12,967
|
|
Operating loss
|
|
(6,497)
|
|
|
(6,491)
|
|
|
|
|
(12,988)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(10,375)
|
|
|
$
|
(6,181)
|
|
|
(c)
|
|
$
|
(16,556)
|
|
Adjustments to the pro forma unaudited condensed combined statements of loss
(a) This adjustment reflects Product sales attributable to the Hospital Products.
(b) This adjustment reflects the following estimated expenses attributable to the Hospital Products:
•Cost of products of $2,449.
•Research and development expenses of $196.
•Selling, general and administrative expenses of $447.
•Intangible asset amortization on acquired development technology for Vazculep of $203.
•Changes in fair value of related party contingent consideration of $2,478. The Company will no longer be responsible for these payments.
(c) This amount reflects the adjustments noted in (a) and (b) above, as well as estimated Changes in fair value of related party payable of $310 attributable to the Hospital Products. The Company will no longer be responsible for these payments.
NOTE 4: Revenue Recognition
Prior to June 30, 2020, we generated revenue primarily from the sale of pharmaceutical products to customers. On June 30, 2020, we sold the Hospital Products. See Note 3: Disposition of the Hospital Products.
Product Sales
Prior to June 30, 2020, we sold products primarily through wholesalers and considered these wholesalers to be our customers. Revenue from product sales was recognized when the customer obtained control of our product and our performance obligations were met, which occurred typically upon receipt of delivery to the customer. As is customary in the pharmaceutical industry, our gross product sales were subject to a variety of price adjustments in arriving at reported net product sales. These adjustments included estimates for product returns, chargebacks, payment discounts, rebates, and other sales allowances and are estimated when the product is delivered based on analysis of historical data for the product or comparable products, as well as future expectations for such products.
Reserves to Reduce Gross Revenues to Net Revenues
Revenues from product sales were recorded at the net selling price, which included estimated reserves to reduce gross product sales to net product sales resulting from product returns, chargebacks, payment discounts, rebates, and other sales allowances that are offered within contracts between the Company and its customers and end users. These reserves were based on the amounts earned or to be claimed on the related sales and were classified as reductions of accounts receivable if the amount is payable to the customer, except in the case of the estimated reserve for future expired product returns, which are classified as a liability. The reserves are classified as a liability if the amount is payable to a party other than a customer. Where appropriate, these estimated reserves take into consideration relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates to reduce gross selling price to net selling price to which it expects to be entitled based on the terms of its contracts. The actual selling price ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.
Product Returns
Consistent with industry practice, the Company maintained a returns policy that generally offered customers a right of return for product that has been purchased from the Company. The Company estimated the amount of product returns and records this estimate as a reduction of revenue in the period the related product revenue was recognized. The Company estimated product return liabilities based on analysis of historical data for the product or comparable products, as well as future expectations for such products and other judgments and analysis.
Chargebacks, Discounts and Rebates
Chargebacks, discounts and rebates represent the estimated obligations resulting from contractual commitments to sell products to its customers or end users at prices lower than the list prices charged to our wholesale customers. Customers charge the Company for the difference between the gross selling price they pay for the product and the ultimate contractual price agreed to between the Company and these end users. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Chargebacks, discounts and rebates are estimated at the time of sale to the customer.
Disaggregation of revenue
The Company’s source of revenue was from the sale of pharmaceutical products, which are equally affected by the same economic factors as it relates to the nature, amount, timing, and uncertainty of revenue and cash flows. For further detail about the Company’s revenues by product, see Note 15: Revenue by Product.
Contract Balances
The Company does not recognize revenue in advance of invoicing its customers and therefore has no related contract assets.
A receivable is recognized in the period the Company sells its products and when the Company’s right to consideration is unconditional.
There were no material deferred contract costs at March 31, 2021 or December 31, 2020.
Transaction Price Allocated to the Remaining Performance Obligation
For product sales, the Company generally satisfied its performance obligations within the same period the product was delivered. Product sales recognized in the first quarter of 2020 from performance obligations satisfied (or partially satisfied) in previous periods were immaterial.
The Company has elected certain of the practical expedients from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. Accordingly, the Company applies the practical expedient in ASC 606 to its stand-alone contracts and does not disclose information about variable consideration from remaining performance obligations for which the Company recognizes revenue.
NOTE 5: Fair Value Measurement
The Company is required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. For example, we use fair value extensively when accounting for and reporting certain financial instruments, when measuring certain contingent consideration liabilities and in the initial recognition of net assets acquired in a business combination. Fair value is estimated by applying the hierarchy described below, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement.
ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as a market-based measurement that should be determined based on the assumptions that marketplace participants would use in pricing an asset or liability. When estimating fair value, depending on the nature and complexity of the asset or liability, we may generally use one or each of the following techniques:
•Income approach, which is based on the present value of a future stream of net cash flows.
•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.
As a basis for considering the assumptions used in these techniques, the standard establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
•Level 1 - Quoted prices for identical assets or liabilities in active markets.
•Level 2 - Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.
•Level 3 - Unobservable inputs that reflect estimates and assumptions.
The following table summarizes the financial instruments measured at fair value on a recurring basis classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation in the accompanying unaudited condensed consolidated balance sheets:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
As of December 31, 2020
|
Fair Value Measurements:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities (see Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual and money market funds
|
|
$
|
101,696
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
104,672
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate bonds
|
|
—
|
|
|
23,591
|
|
|
—
|
|
|
—
|
|
|
22,155
|
|
|
—
|
|
Government securities - U.S.
|
|
—
|
|
|
17,353
|
|
|
—
|
|
|
—
|
|
|
18,999
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed-income securities
|
|
—
|
|
|
3,163
|
|
|
—
|
|
|
—
|
|
|
3,854
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
101,696
|
|
|
$
|
44,107
|
|
|
$
|
—
|
|
|
$
|
104,672
|
|
|
$
|
45,008
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. During the periods ended March 31, 2021 and December 31, 2020, respectively, there were no transfers in and out of Level 1, 2, or 3. During the three months ended March 31, 2021 and 2020, respectively, we did not recognize any other-than-temporary impairment loss.
Some of the Company’s financial instruments, such as cash and cash equivalents, accounts receivable and accounts payable, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.
Debt
We estimate the fair value of our $143,750 aggregate principal amount of the 2023 Notes based on interest rates that would be currently available to the Company for issuance of similar types of debt instruments with similar terms and remaining maturities or recent trading prices obtained from brokers (a Level 2 input). The estimated fair value of the 2023 Notes at March 31, 2021 is $161,090.
See Note 9: Long-Term Debt for additional information regarding our debt obligations.
NOTE 6: Marketable Securities
The Company has investments in equity and available-for-sale debt securities which are recorded at fair market value. The change in the fair value of equity investments is recognized in our unaudited condensed consolidated statements of loss and the change in the fair value of available-for-sale debt investments is recorded as other comprehensive loss in shareholders’ equity, net of income tax effects. As of March 31, 2021, we considered any decreases in fair value on our marketable securities to be driven by factors other than credit risk, including market risk.
The following tables show the Company’s available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category as of March 31, 2021 and December 31, 2020, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
Marketable Securities:
|
|
Adjusted Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual and money market funds
|
|
$
|
100,704
|
|
|
$
|
1,138
|
|
|
$
|
(146)
|
|
|
$
|
101,696
|
|
Corporate bonds
|
|
23,448
|
|
|
206
|
|
|
(63)
|
|
|
23,591
|
|
Government securities - U.S.
|
|
17,401
|
|
|
88
|
|
|
(136)
|
|
|
17,353
|
|
|
|
|
|
|
|
|
|
|
Other fixed-income securities
|
|
3,155
|
|
|
16
|
|
|
(8)
|
|
|
3,163
|
|
Total
|
|
$
|
144,708
|
|
|
$
|
1,448
|
|
|
$
|
(353)
|
|
|
$
|
145,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Marketable Securities:
|
|
Adjusted Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual and money market funds
|
|
$
|
103,404
|
|
|
$
|
1,288
|
|
|
$
|
(20)
|
|
|
$
|
104,672
|
|
Corporate bonds
|
|
21,811
|
|
|
350
|
|
|
(6)
|
|
|
22,155
|
|
Government securities - U.S.
|
|
18,849
|
|
|
155
|
|
|
(5)
|
|
|
18,999
|
|
Other fixed-income securities
|
|
3,839
|
|
|
22
|
|
|
(7)
|
|
|
3,854
|
|
Total
|
|
$
|
147,903
|
|
|
$
|
1,815
|
|
|
$
|
(38)
|
|
|
$
|
149,680
|
|
We determine realized gains or losses on the sale of marketable securities on a specific identification method. We reflect these gains and losses as a component of investment and other income in the accompanying unaudited condensed consolidated statements of loss.
We recognized gross realized gains of $11 and $276 for the three months ended March 31, 2021 and 2020, respectively. These realized gains were offset by realized losses of $68 and $872 for the three months ended March 31, 2021 and 2020, respectively.
The following table summarizes the estimated fair value of our investments in marketable debt securities, accounted for as available-for-sale debt securities and classified by the contractual maturity date of the securities as of March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
|
Marketable Debt Securities:
|
|
Less than 1 Year
|
|
1-5 Years
|
|
5-10 Years
|
|
Greater than 10 Years
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
5,225
|
|
|
$
|
17,352
|
|
|
$
|
1,014
|
|
|
$
|
—
|
|
|
$
|
23,591
|
|
Government securities - U.S.
|
|
2,109
|
|
|
11,440
|
|
|
1,883
|
|
|
1,921
|
|
|
17,353
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed-income securities
|
|
1,009
|
|
|
1,888
|
|
|
266
|
|
|
—
|
|
|
3,163
|
|
Total
|
|
$
|
8,343
|
|
|
$
|
30,680
|
|
|
$
|
3,163
|
|
|
$
|
1,921
|
|
|
$
|
44,107
|
|
We have classified our investment in available-for-sale marketable debt securities as current assets in the unaudited condensed consolidated balance sheets as the securities need to be available for use, if required, to fund current operations. There are no restrictions on the sale of any securities in our investment portfolio.
Total gross unrealized losses of our available-for-sale debt securities at March 31, 2021 were immaterial. The unrealized losses are driven by factors other than credit risk and have been in an unrealized loss position for less than one year. We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases.
NOTE 7: Goodwill
The Company’s unamortizable goodwill is $16,836 at March 31, 2021 and December 31, 2020.
The Company recorded amortization expense related to an amortizable intangible asset that was assumed by the Exela Buyer as part of the disposition of the Hospital Products on June 30, 2020 of $203 for the three months ended March 31, 2020. Refer to
Note 3: Disposition of the Hospital Products. There was no amortization expense recorded during the three months ended March 31, 2021.
NOTE 8: Contingent Consideration Payable
Prior to the sale of the Hospital Products on June 30, 2020, we computed the fair value of the contingent consideration using several significant assumptions and when these assumptions change, due to underlying market conditions, the fair value of these liabilities change as well. Each of the underlying assumptions used to determine the fair values of these contingent liabilities can, and often do, change based on adjustments in current market conditions, competition and other factors. These changes had a material impact on our unaudited condensed consolidated statements of loss and balance sheets. As part of the sale of the Hospital Products on June 30, 2020, the Exela Buyer assumed and will pay, perform, satisfy and discharge the liabilities and obligations of Avadel Legacy and the Company under the Deerfield Royalty Agreement. As of March 31, 2021 and December 31, 2020, the balance of the contingent consideration payable is $0.
The following table summarizes changes to the contingent consideration payables, a recurring Level 3 measurement, for the three-month period ended March 31, 2020:
|
|
|
|
|
|
|
|
|
Contingent Consideration Payable Rollforward:
|
|
Balance
|
|
|
|
Balance, December 31, 2019
|
|
$
|
17,327
|
|
Payments of contingent consideration
|
|
(2,065)
|
|
Fair value adjustments (1)
|
|
2,788
|
|
Balance, March 31, 2020
|
|
$
|
18,050
|
|
(1) Fair value adjustments are reported as changes in fair value of contingent consideration and other expense - changes in fair value of contingent consideration payable in the unaudited condensed consolidated statements of loss.
NOTE 9: Long-Term Debt
Long-term debt is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Principal amount of 4.50% exchangeable senior notes due 2023
|
|
$
|
143,750
|
|
|
$
|
143,750
|
|
Less: unamortized debt discount and issuance costs, net
|
|
(2,289)
|
|
|
(15,540)
|
|
Net carrying amount of liability component
|
|
141,461
|
|
|
128,210
|
|
|
|
|
|
|
|
|
|
|
|
Less: current maturities
|
|
—
|
|
|
—
|
|
Long-term debt
|
|
$
|
141,461
|
|
|
$
|
128,210
|
|
|
|
|
|
|
Equity component:
|
|
|
|
|
Equity component of exchangeable notes, net of issuance costs
|
|
$
|
—
|
|
|
$
|
(26,699)
|
|
For the three months ended March 31, 2021 and 2020, the total interest expense was $1,929 and $3,190, respectively, with coupon interest expense of $1,617 for each period and the amortization of debt issuance costs and debt discount of $312 and $1,573, respectively.
As described in Note 2: Newly Issued Accounting Standards, the Company has elected to early adopt ASU 2020-06 as of January 1, 2021 using a modified retrospective method. The adoption resulted in a $12,939 increase in long-term debt and a $26,699 decrease in the equity component of the 2023 Notes.
2023 Notes
On February 16, 2018, Avadel Finance Cayman Limited, a Cayman Islands exempted company (the “Issuer”) and an indirect wholly-owned subsidiary of the Company, issued $125,000 aggregate principal amount of 4.50% exchangeable senior notes due 2023 (the “2023 Notes”) in a private placement (the “Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act. In connection with the Offering, the Issuer granted the initial purchasers of the 2023 Notes a 30-day option to purchase up to an additional $18,750 aggregate principal amount of the 2023 Notes, which was fully exercised on February 16, 2018. Net proceeds received by the Company, after issuance costs and discounts of $6,190, were approximately $137,560. The 2023 Notes are the Company’s senior unsecured obligations and rank equally in right of payment with all of the
Company’s existing and future senior unsecured indebtedness and effectively junior to any of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness.
The 2023 Notes will be exchangeable at the option of the holders at an initial exchange rate of 92.6956 ADSs per $1 principal amount of 2023 Notes, which is equivalent to an initial exchange price of approximately $10.79 per ADS. Such initial exchange price represents a premium of approximately 20% to the $8.99 per ADS closing price on The Nasdaq Global Market on February 13, 2018. Upon the exchange of any 2023 Notes, the Issuer will pay or cause to be delivered, as the case may be, cash, ADSs or a combination of cash and ADSs, at the Issuer’s election. Holders of the 2023 Notes may convert their 2023 Notes, at their option, only under the following circumstances prior to the close of business on the business day immediately preceding August 1, 2022, under the circumstances and during the periods set forth below and regardless of the conditions described below, on or after August 1, 2022 and prior to the close of business on the business day immediately preceding the maturity date:
•Prior to the close of business on the business day immediately preceding August 1, 2022, a holder of the 2023 Notes may surrender all or any portion of its 2023 Notes for exchange at any time during the five business day period immediately after any five consecutive trading day period (the “Measurement Period”) in which the trading price per $1 principal amount of 2023 Notes, as determined following a request by a holder of the 2023 Notes, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the ADSs and the exchange rate on each such trading day.
•If a transaction or event that constitutes a fundamental change or a make-whole fundamental change occurs prior to the close of business on the business day immediately preceding August 1, 2022, regardless of whether a holder of the 2023 Notes has the right to require the Company to repurchase the 2023 Notes, or if Avadel is a party to a merger event that occurs prior to the close of business on the business day immediately preceding August 1, 2022, all or any portion of a the holder’s 2023 Notes may be surrendered for exchange at any time from or after the date that is 95 scheduled trading days prior to the anticipated effective date of the transaction (or, if later, the earlier of (x) the business day after the Company gives notice of such transaction and (y) the actual effective date of such transaction) until 35 trading days after the actual effective date of such transaction or, if such transaction also constitutes a fundamental change, until the related fundamental change repurchase date.
•Prior to the close of business on the business day immediately preceding August 1, 2022, a holder of the 2023 Notes may surrender all or any portion of its 2023 Notes for exchange at any time during any calendar quarter commencing after the calendar quarter ending on June 30, 2018 (and only during such calendar quarter), if the last reported sale price of the ADSs for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the exchange price on each applicable trading day.
•If the Company calls the 2023 Notes for redemption pursuant to Article 16 to the Indenture prior to the close of business on the business day immediately preceding August 1, 2022, then a holder of the 2023 Notes may surrender all or any portion of its 2023 Notes for exchange at any time prior to the close of business on the second business day prior to the redemption date, even if the 2023 Notes are not otherwise exchangeable at such time. After that time, the right to exchange shall expire, unless the Company defaults in the payment of the redemption price, in which case a holder of the 2023 Notes may exchange its 2023 Notes until the redemption price has been paid or duly provided for.
We considered the guidance in ASC 815-15, Embedded Derivatives, to determine if this instrument contains an embedded feature that should be separately accounted for as a derivative. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40. We determined that this exception applies due, in part, to our ability to settle the 2023 Notes in cash, ADSs or a combination of cash and ADSs, at our option. We have therefore applied the guidance provided by ASC 470-20, Debt with Conversion and Other Options, as amended by ASU 2020-06.
NOTE 10: Income Taxes
The income tax benefit was $2,607 for the three months ended March 31, 2021 resulting in an effective tax rate of 16.2%. The income tax benefit was $9,510 for the three months ended March 31, 2020 resulting in an effective tax rate of 91.7%. The decrease in the income tax benefit for the three months ended March 31, 2021, as compared to the same period in 2020, is primarily due to the discrete tax benefits recognized under the CARES Act enacted in 2020 and an agreement with the IRS in the first quarter of 2020 on audit adjustments resulting from the U.S. Federal Income Tax audit of the tax years 2015, 2016 and
2017, all of which was recorded during the three months ended March 31, 2020. Benefits from these prior year items did not recur during the three months ended March 31, 2021.
NOTE 11: Other Assets and Liabilities
Various other assets and liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid Expenses and Other Current Assets:
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
Valued-added tax recoverable
|
|
$
|
258
|
|
|
$
|
341
|
|
Prepaid and other expenses
|
|
4,990
|
|
|
1,018
|
|
Short-term deposit
|
|
1,477
|
|
|
1,477
|
|
Guarantee from Armistice
|
|
272
|
|
|
318
|
|
Income tax receivable
|
|
18,835
|
|
|
18,615
|
|
Receivable from Exela (see Note 3)
|
|
8,250
|
|
|
16,500
|
|
Other
|
|
149
|
|
|
457
|
|
Total
|
|
$
|
34,231
|
|
|
$
|
38,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Non-Current Assets:
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
20,790
|
|
|
$
|
18,256
|
|
|
|
|
|
|
Guarantee from Armistice
|
|
980
|
|
|
1,050
|
|
Right of use assets at contract manufacturing organizations
|
|
5,550
|
|
|
5,201
|
|
Other
|
|
397
|
|
|
432
|
|
Total
|
|
$
|
27,717
|
|
|
$
|
24,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
Accrued compensation
|
|
$
|
738
|
|
|
$
|
1,697
|
|
Accrued restructuring (see Note 12)
|
|
287
|
|
|
520
|
|
Customer allowances
|
|
912
|
|
|
1,030
|
|
Accrued contract research organization charges
|
|
690
|
|
|
473
|
|
Other
|
|
1,670
|
|
|
2,781
|
|
Total
|
|
$
|
4,297
|
|
|
$
|
6,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities:
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
Accrued interest
|
|
$
|
1,078
|
|
|
$
|
2,695
|
|
Due to Exela
|
|
—
|
|
|
2,026
|
|
Guarantee to Deerfield
|
|
272
|
|
|
319
|
|
Other
|
|
165
|
|
|
160
|
|
Total
|
|
$
|
1,515
|
|
|
$
|
5,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Non-Current Liabilities:
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits
|
|
$
|
3,143
|
|
|
$
|
3,143
|
|
Guarantee to Deerfield
|
|
983
|
|
|
1,053
|
|
Other
|
|
13
|
|
|
16
|
|
Total
|
|
$
|
4,139
|
|
|
$
|
4,212
|
|
NOTE 12: Restructuring Costs
2019 French Restructuring
During the second quarter of 2019, the Company initiated a plan to substantially reduce all of its workforce at its Vénissieux, France site (“2019 French Restructuring”). This reduction was part of an effort to align the Company’s cost structure with our ongoing and future planned projects. The reduction in workforce was completed during 2020. Restructuring (income) charges associated with this plan recognized during the three months ended March 31, 2021 and 2020 were immaterial.
The following table sets forth activities for the Company’s cost reduction plan obligations for the three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
2019 French Restructuring Obligation:
|
|
2021
|
|
|
|
|
|
|
|
Balance of restructuring accrual at January 1,
|
|
$
|
248
|
|
|
|
Income for employee severance, benefits and other costs
|
|
(122)
|
|
|
|
Payments
|
|
(1)
|
|
|
|
Foreign currency impact
|
|
(8)
|
|
|
|
Balance of restructuring accrual at March 31,
|
|
$
|
117
|
|
|
|
The 2019 French Restructuring liabilities of $117 are included in the unaudited condensed consolidated balance sheet in accrued expenses at March 31, 2021.
2019 Corporate Restructuring
During the first quarter of 2019, the Company announced a plan to reduce its Corporate workforce by more than 50% (“2019 Corporate Restructuring”). The reduction in workforce is primarily a result of the exit of Noctiva during the first quarter of 2019, as well as an effort to better align the Company’s remaining cost structure at our U.S. and Ireland locations with our ongoing and future planned projects. The reduction in workforce was completed during 2020. The restructuring charges associated with this plan recognized during the three months ended March 31, 2021 and 2020 were immaterial.
The following table sets forth activities for the Company’s cost reduction plan obligations for the three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Corporate Restructuring Obligation:
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
Balance of restructuring accrual at January 1,
|
|
$
|
272
|
|
|
|
|
|
Charges for employee severance, benefits and other costs
|
|
—
|
|
|
|
|
|
Payments
|
|
(102)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of restructuring accrual at March 31,
|
|
$
|
170
|
|
|
|
|
|
The 2019 Corporate Restructuring liabilities of $170 are included in the unaudited condensed consolidated balance sheet in accrued expenses at March 31, 2021.
NOTE 13: Net Loss Per Share
Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during each period. Diluted net loss per share is calculated by dividing net loss - diluted by the diluted number of shares outstanding during each period. Except where the result would be anti-dilutive to net loss, diluted net loss per share would be calculated assuming the impact of the conversion of the 2023 Notes, the conversion of our preferred shares, the exercise of outstanding equity compensation awards, and ordinary shares expected to be issued under our employee stock purchase plan (“ESPP”).
We have a choice to settle the conversion obligation under the 2023 Notes in cash, shares or any combination of the two. We utilize the if-converted method to reflect the impact of the conversion of the 2023 Notes, unless the result is anti-dilutive. This method assumes the conversion of the 2023 Notes into shares of our ordinary shares and reflects the elimination of the interest expense related to the 2023 Notes.
The dilutive effect of the stock options, restricted stock units, preferred shares and ordinary shares expected to be issued under our ESPP has been calculated using the treasury stock method. The dilutive effect of the performance share units (“PSUs”) will be calculated using the treasury stock method, if and when the contingent vesting condition is achieved.
A reconciliation of basic and diluted net loss per share, together with the related shares outstanding in thousands is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Net Loss Per Share:
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
$
|
(13,445)
|
|
|
$
|
(865)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
|
|
|
58,443
|
|
|
41,057
|
|
Effect of dilutive securities—employee and director equity awards outstanding, preferred shares and 2023 Notes
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
|
|
|
58,443
|
|
|
41,057
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic
|
|
|
|
|
|
$
|
(0.23)
|
|
|
$
|
(0.02)
|
|
Net loss per share - diluted
|
|
|
|
|
|
$
|
(0.23)
|
|
|
$
|
(0.02)
|
|
Potential ordinary shares of 15,275 and 15,858 were excluded from the calculation of weighted average shares for the three months ended March 31, 2021 and 2020, respectively, because either their effect was considered to be anti-dilutive or they were related to shares from PSUs for which the contingent vesting condition had not been achieved. For the three months ended March 31, 2021 and 2020, the effects of dilutive securities were entirely excluded from the calculation of net loss per share as a net loss was reported in this period.
NOTE 14: Comprehensive Loss
The following table shows the components of accumulated other comprehensive loss for the three months ended March 31, 2021 and 2020, respectively, net of tax effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Accumulated Other Comprehensive Loss:
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
|
|
|
$
|
(22,627)
|
|
|
$
|
(23,738)
|
|
Net other comprehensive loss
|
|
|
|
|
|
(718)
|
|
|
(177)
|
|
Balance at March 31,
|
|
|
|
|
|
$
|
(23,345)
|
|
|
$
|
(23,915)
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable debt securities, net
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
|
|
|
$
|
1,576
|
|
|
$
|
932
|
|
Net other comprehensive loss, net of $(55) and $(49) tax, respectively
|
|
|
|
|
|
(537)
|
|
|
(644)
|
|
Balance at March 31,
|
|
|
|
|
|
$
|
1,039
|
|
|
$
|
288
|
|
Accumulated other comprehensive loss at March 31,
|
|
|
|
|
|
$
|
(22,306)
|
|
|
$
|
(23,627)
|
|
The effect on the Company’s unaudited condensed consolidated financial statements of amounts reclassified out of accumulated other comprehensive loss was immaterial for all periods presented.
NOTE 15: Revenue by Product
The Company has determined that it operates in one segment, the development and commercialization of pharmaceutical products, including controlled-release therapeutic products based on our proprietary polymer based technology. The Company’s Chief Operating Decision Maker is the Chief Executive Officer (the “CEO”). The CEO reviews profit and loss information on a consolidated basis to assess performance and make overall operating decisions as well as resource allocations. All products were included in one segment because the Company’s products have similar economic and other characteristics, including the nature of the products and production processes, type of customers, distribution methods and regulatory environment.
The following table presents a summary of total product sales by these products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Product Sales by Product:
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
Bloxiverz
|
|
|
|
|
|
$
|
—
|
|
|
$
|
1,401
|
|
Vazculep
|
|
|
|
|
|
—
|
|
|
5,514
|
|
Akovaz
|
|
|
|
|
|
—
|
|
|
5,349
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
—
|
|
|
(21)
|
|
Total product sales
|
|
|
|
|
|
$
|
—
|
|
|
$
|
12,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 30, 2020, we sold the Hospital Products. See Note 3: Disposition of the Hospital Products.
NOTE 16: Commitments and Contingencies
Litigation
The Company is subject to potential liabilities generally incidental to our business arising out of present and future lawsuits and claims related to product liability, personal injury, contract, commercial, intellectual property, tax, employment, compliance and other matters that arise in the ordinary course of business. The Company accrues for potential liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. At March 31, 2021 and December 31, 2020, there were no contingent liabilities with respect to any litigation, arbitration or administrative or other proceeding that are reasonably likely to have a material adverse effect on the Company’s unaudited condensed consolidated financial position, results of operations, cash flows or liquidity.
Material Commitments
Other than commitments disclosed in Note 17: Contingent Liabilities and Commitments to the Company's consolidated financial statements included in the 2020 Annual Report on Form 10-K, there were no other material commitments outside of the normal course of business.
Guarantees
Deerfield Guarantee
The fair values of our guarantee to Deerfield and the guarantee received by us from Armistice largely offset and when combined are not material.
In connection with our February 2018 divestiture of our pediatric assets, we guaranteed to Deerfield the quarterly royalty payment of 15% on net sales of the FSC products through February 6, 2026 (“FSC Product Royalties”), in an aggregate amount of up to approximately $10,300. Given our explicit guarantee to Deerfield, the Company recorded the guarantee in accordance with ASC 460. The balance of this guarantee liability was $1,255 at March 31, 2021. This liability is being amortized proportionately based on undiscounted cash outflows through the remainder of the contract with Deerfield.
Armistice Guarantee
In connection with our February 2018 divestiture of the pediatric assets, Armistice Capital Master Fund, Ltd., the majority shareholder of Cerecor, guaranteed to us the FSC Product Royalties. The Company recorded the guarantee in accordance with ASC 460. The balance of this guarantee asset was $1,252 at March 31, 2021. This asset is being amortized proportionately based on undiscounted cash outflows through the remainder of the contract with Deerfield.
Off-Balance Sheet Arrangements
As of March 31, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.