UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 26, 2013
DEPOMED, INC.
(Exact name of registrant as specified in its charter)
001-13111
(Commission File Number)
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California |
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94-3229046 |
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(State or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
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incorporation) |
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7999 Gateway Blvd, Suite 300, Newark, California 94560
(Address of principal executive offices, with zip code)
(510) 744-8000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition or Disposition of Assets
On August 1, 2013, Depomed, Inc., a California corporation (“Depomed”), filed a Current Report on Form 8-K (the “Initial Report”) reporting Depomed’s acquisition from each of Archimedes Pharma US Inc., a Delaware corporation, Archimedes Pharma Ltd., a corporation registered under the laws of England and Wales, and Archimedes Development Ltd., a company registered under the laws of England and Wales (collectively, “Archimedes”), all of the U.S. and Canadian rights to Lazanda® (fentanyl) nasal spray (“Lazanda”).
This Current Report on Form 8-K/A (this “Current Report”) amends the Initial Report to include the financial statements, pro forma financial information and consent specified below.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
Archimedes has advised Depomed that is impracticable to prepare complete financial statements related to Lazanda in order to enable Depomed to file such financial statements as required by Rule 3-05 of Regulation S-X in connection with Depomed’s acquisition of Lazanda. Archimedes has further advised Depomed that Lazanda was not maintained within a separate legal entity of Archimedes and that separate audited financial statements relating to Lazanda were never prepared or maintained by Archimedes. As a result, Depomed is filing as Exhibit 99.1 to this Current Report the following financial statements and notes thereto related to Lazanda for purposes of complying with the requirements of Rule 3-05 of Regulation S-X (collectively, the “Lazanda Financial Statements”), which are incorporated herein by reference:
· the audited statement of net revenues and direct expenses relating to Lazanda for the two year period ended December 31, 2012 ;
· the audited statement of assets acquired and liabilities assumed as of December 31, 2012 and 2011;
· the unaudited statement of assets acquired and liabilities assumed as of June 30, 2013; and
· the unaudited statements of net revenues and direct expenses relating to Lazanda for the six months ended June 30, 2013 and 2012.
Pursuant to a letter dated August 21, 2013 (the “Letter”) from the staff of the Division of Corporate Finance (the “Division”) of the Securities and Exchange Commission, the Division stated that it will not object to Depomed’s conclusion that the filing of the above-identified financial statements represents substantial compliance with the requirements of Rule 3-05 of Regulation S-X.
(b) Pro Forma Financial Information
The unaudited pro forma condensed combined balance sheet as of June 30, 2013 reflecting Depomed’s acquisition of Lazanda is filed as Exhibit 99.2 to this Current Report and is incorporated herein by reference (the “Unaudited Pro Forma Balance Sheet”).
Pursuant to the Letter, the Division further stated that it would waive the requirement to provide a pro forma statement of operations if the use of forward-looking information is necessary to meaningfully present the effects of the acquisition of Lazanda by Depomed. Depomed’s expense structure and commercialization infrastructure related to Lazanda are anticipated to differ significantly from the expense structure and commercialization infrastructure maintained by Archimedes with regard to Lazanda. As a result, Depomed has concluded that the use of forward-looking information is necessary to meaningfully present the effects of the acquisition. Based on the guidance provided by the Division in the Letter, Depomed is not filing a pro forma statement of operations with this Current Report.
(d) Exhibits
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Exhibit |
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Description |
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23.1 |
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Consent of KPMG LLP |
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99.1 |
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Lazanda Financial Statements |
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99.2 |
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Unaudited Pro Forma Condensed Combined Balance Sheet and the notes related thereto |
Cautionary Note Regarding Forward-Looking Statements
This current report on Form 8-K/A contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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DEPOMED, INC. | |
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Date: October 9, 2013 |
By: |
/s/ Matthew M. Gosling |
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Matthew M. Gosling |
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Senior Vice President and General Counsel |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements (Nos. 333-156539 and 333-181709) on Form S-3, and (Nos. 333-66923, 333-85419, 333-54982, 333-101796, 333-105994, 333-167015, 333-116697, 333-145291, 333-156538 and 333-181710) on Form S-8 of Depomed, Inc. (Depomed) of our report dated September 27, 2013, with respect to the statements of assets acquired and liabilities assumed by Depomed pursuant to an Asset Purchase Agreement dated July 29, 2013, of Lazanda (a Product Line of Archimedes Pharma Ltd.) as of December 31, 2012 and 2011 and related statements of net revenues and direct expenses for the years then ended which report appears in the Form 8-K/A of Depomed dated October 9, 2013.
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/s/ KPMG LLP |
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Short Hills, New Jersey |
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October 9, 2013 |
Exhibit 99.1
LAZANDA
(A Product Line of Archimedes Pharma Ltd.)
Financial Statements
December 31, 2012 and 2011
(With Independent Auditors’ Report Thereon)
Independent Auditors’ Report
The Board of Directors
Archimedes Pharma Ltd.:
Report on the Financial Statements
We have audited the accompanying statements of assets acquired and liabilities assumed by Depomed, Inc. (Depomed) pursuant to an Asset Purchase Agreement (Asset Purchase Agreement) dated July 29, 2013, of Lazanda (a Product Line of Archimedes Pharma Ltd.) as of December 31, 2012 and 2011 and related statements of net revenues and direct expenses for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly in all material respects, the assets acquired and liabilities assumed of Lazanda as of December 31, 2012 and 2011, and the net revenues and direct expenses for the years then ended, in accordance with U.S. generally accepted accounting principles.
Emphasis of Matter
As described in note 2, the financial statements referred to above have been prepared on a basis consistent with the Asset Purchase Agreement between Archimedes and Depomed and are not intended to be a complete presentation of the financial position or results of operations of Lazanda.
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/s/ KPMG LLP |
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Short Hills, New Jersey |
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September 27, 2013 |
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LAZANDA
(A Product Line of Archimedes Pharma Ltd.)
Statements of Assets Acquired and Liabilities Assumed
December 31, 2012 and 2011 and
June 30, 2013
(U.S. dollars in thousands)
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December 31 |
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June 30, |
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2012 |
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2011 |
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2013 |
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(Unaudited) |
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Assets acquired: |
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Inventory, net: |
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Finished goods |
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$ |
792 |
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1,041 |
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145 |
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Work in process |
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126 |
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96 |
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133 |
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Raw materials and components |
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1,018 |
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2,232 |
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647 |
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Total inventory, net |
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1,936 |
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3,369 |
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925 |
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Machinery and equipment, net |
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407 |
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470 |
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375 |
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Total assets acquired |
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$ |
2,343 |
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3,839 |
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1,300 |
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Liabilities assumed: |
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Accrued expenses |
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$ |
240 |
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— |
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240 |
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Total liabilities assumed |
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$ |
240 |
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— |
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240 |
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See accompanying notes to financial statements.
LAZANDA
(A Product Line of Archimedes Pharma Ltd.)
Statements of Net Revenues and Direct Expenses
Years ended December 31, 2012 and 2011 and
the six-month periods ended June 30, 2013 and 2012
(U.S. dollars in thousands)
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Six month periods ended |
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Year ended December 31 |
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June 30 |
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2012 |
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2011 |
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2013 |
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2012 |
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(Unaudited) |
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Net product revenue and cost of goods sold: |
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Net product revenue |
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$ |
984 |
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52 |
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1,622 |
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510 |
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Cost of product sold |
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1,610 |
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1,349 |
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1,032 |
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36 |
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Gross profit(loss) |
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(626 |
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(1,297 |
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590 |
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474 |
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Direct costs and operating expenses: |
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Marketing and selling |
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16,056 |
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17,227 |
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4,410 |
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12,140 |
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Distribution and supply |
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1,122 |
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945 |
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110 |
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560 |
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Research and development |
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4,159 |
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3,665 |
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1,220 |
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2,480 |
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General and administrative |
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7,073 |
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5,287 |
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1,770 |
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5,560 |
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Total direct costs and operating expenses |
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28,410 |
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27,124 |
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7,510 |
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20,740 |
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Net revenue less product expenses |
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$ |
(29,036 |
) |
(28,421 |
) |
(6,920 |
) |
(20,266 |
) |
See accompanying notes to financial statements.
LAZANDA
(A Product Line of Archimedes Pharma Ltd.)
Notes to Financial Statements
December 31, 2012 and 2011
(1) Description of Business
Pursuant to an Asset Purchase Agreement, dated as of July 29, 2013 (the Asset Purchase Agreement), Archimedes Pharma U.S. Inc., Archimedes Development Ltd. and Archimedes Pharma Ltd (collectively, Archimedes) agreed to sell to Depomed, Inc. the rights to sell the Lazanda product in the United States (U.S.) and Canada, along with certain related assets and agreements including supply, distribution, and manufacturing contracts.
Archimedes received U.S. Food and Drug Administration (FDA) approval in June 2011 to market Lazanda (fentanyl pectin nasal spray) (Lazanda or the Product) in the U.S. for the management of break-through pain in opioid-tolerant cancer patients. Archimedes launched the Product in the U.S. in October 2011.
(2) Basis of Presentation
The statements of net revenues and direct expenses of Lazanda have been prepared in accordance with accounting principles generally accepted in the United States of America. These statements were prepared for the purpose of complying with the rules and regulations of Rule 3-05 of Regulation S-X of the Securities and Exchange Commission. The net revenues and direct expenses have been derived from the historical accounting records of the Archimedes. Historically, financial statements have not been prepared for Lazanda as Archimedes did not maintain separate discrete financial statements of the Lazanda product line. The statements of net revenues and direct expenses set forth the net revenues and direct expenses attributable to Lazanda and do not purport to reflect all the costs, expenses, and resultant results of operations had Lazanda been operated as a stand-alone, separate company. Net revenues include gross sales less product-specific sales returns, cash discounts, government and commercial rebates, and customer chargebacks. Direct expenses consist principally of Product related cost of sales, distribution, marketing, selling, regulatory, development and administrative expenses.
As noted in note 6, general corporate overhead such as corporate management and administrative services are performed by Archimedes and allocated to its business units. These costs have been excluded from the statements of net revenues and direct expenses as there is no reasonable basis to allocate them to the Product. Costs of product sold primarily includes the purchase price of raw materials, components and packaging materials, contract manufacturing service costs and shipping costs to the warehouse. Cost of product sold also includes third party royalty expense which amounted to $41,000 and $2,000 for the years ended December 31, 2012 and 2011, respectively.
Marketing and selling expense includes the cost of the Lazanda commercial team, including product line management, sales force, marketing, trade relations and commercial contracting and expenses related to promotional activities, educational materials, sales meetings and conferences, and market research. Lazanda was launched in late 2011 and therefore these expenses represent a significant portion of total operating expense in 2012 and 2011.
Distribution and supply expense includes the management of Product logistics including warehousing, order processing, shipments, billing and collections.
Research and development expense includes clinical, medical affairs, regulatory affairs and pharmacovigilance personnel costs, systems costs and related fees.
(Continued)
LAZANDA
(A Product Line of Archimedes Pharma Ltd.)
Notes to Financial Statements
December 31, 2012 and 2011
General and administrative expense includes direct Product support costs for functional areas such as finance, human resources, IT, legal and facilities.
Included in marketing and selling expenses and general and administrative expenses for the six month period June 30, 2012 are one-time charges for consulting expenses of $950,000 related to a study of the U.S. market for Lazanda and competing products as well as a charge of $2,200,000 related to the downsizing of the U.S. Lazanda workforce in late May 2012.
(3) Summary of Significant Accounting Policies
(a) Revenue Recognition
Lazanda is sold to wholesale pharmaceutical distributors, our customers, at wholesale acquisition cost and are subject to specified rights of return. We defer recognition of revenue on product shipments of Lazanda to our customers until the right of return no longer exists, which occurs at the earlier of the time Lazanda units are dispensed through patient prescriptions or expiration of the right of return. Revenue from the sale of the Product is recognized net of applicable discounts and allowances. We estimate patient prescriptions dispensed based on TIRF REMS (Risk Evaluation and Mitigation Strategy) mandated data. REMS is required by the FDA to minimize the risk of misuse, abuse, addiction, overdose and other complications. Pharmacies, distributors, and prescribers are required to enroll in the REMS program to dispense, distribute and prescribe Lazanda. Patients must also enroll in REMS to use the Product.
(b) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. As discussed in note 2, the financial statements exclude certain amounts that are not necessarily indicative of the costs and expenses that would have resulted if the Lazanda Product Line had been operated as a separate entity.
(c) Rebates and Chargebacks, Cash Discounts, and Sales Returns
Revenue is recorded net of provision, made at the time of sale for rebates, chargebacks and cash discounts, as described below. Archimedes entered into contracts with certain managed care organizations to provide access to Lazanda through formularies. Based on the managed care organization’s market share performance and utilization of Lazanda, the organization receives managed care rebates from Archimedes. Managed care rebates charged to Lazanda are determined by estimating the actual usage of the Product by managed care participants covered by the contracted prices. In addition, during 2011 a discount of $215,000 was provided to wholesalers for the initial stocking of Lazanda during the product launch.
Wholesaler Fee for Services are amounts credited to wholesalers to reimburse the wholesaler for certain expenses in connection with the storage and distribution services provided.
Archimedes offers a cash discount to customers if invoices are paid within a certain time period.
(Continued)
LAZANDA
(A Product Line of Archimedes Pharma Ltd.)
Notes to Financial Statements
December 31, 2012 and 2011
(d) Inventory
Inventory is stated at the lower of cost or market. Cost is generally determined on a first in, first out basis and includes expenditures incurred in acquiring the inventory, production or conversion costs and other costs to bring the inventory to its finished goods condition. A provision for impairment of inventories is established when there is objective evidence that the inventory cannot be sold due to, for example, the expiry of product life. The amount of the provision is the difference between the asset’s carrying amount and the net realizable value.
(e) Subsequent Events
The Company evaluated subsequent events through September 27, 2013, the date on which the financial statements were issued. The Company concluded there were no subsequent events to disclose.
(4) Net Product Revenues
Returns, chargebacks, and discounts and rebates charged to gross product revenues are as follows (U.S. dollars in thousands):
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Years ended December 31 |
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2012 |
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2011 |
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Lazanda: |
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Gross product revenues |
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$ |
1,389 |
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724 |
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Returns |
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(30 |
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(87 |
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Wholesaler Fee for Service |
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(289 |
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(283 |
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Discounts and rebates |
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(86 |
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(302 |
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$ |
984 |
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52 |
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(5) Assets Acquired and Liabilities Assumed
In addition to the assets included in the Statement of Assets Acquired and Liabilities Assumed, certain other assets and liabilities were included in the Asset Purchase Agreement. Those assets are primarily intangible assets and royalty payments to be paid by Depomed, Inc. to Archimedes Pharma, Ltd. on a go forward basis. The intangible assets had no historical cost book value as of the transaction date.
In addition, cost of product sold includes a charge of $1,538,000 and $1,337,000 for the years ended December 31, 2012 and 2011, respectively, and a charge of $961,000 for the six months ended June 30, 2013 for obsolete stock which is recorded on the statements of net revenues and direct expenses. Machinery and equipment has an estimated useful life of 10 years and was acquired primarily in 2009, with some additional acquisitions in 2010 and 2011. Liabilities of $240,000 were assumed in connection with obligations related to retaining exclusivity over certain manufacturing and supply agreements.
(Continued)
LAZANDA
(A Product Line of Archimedes Pharma Ltd.)
Notes to Financial Statements
December 31, 2012 and 2011
(6) Corporate Services (Unaudited)
Archimedes performed certain corporate functions for its businesses for the years ended December 31, 2012 and 2011, including, but not limited to, corporate management and administrative services. Cost allocations were made on a business unit basis, not on a product line basis. The costs of these corporate services allocated to Archimedes Pharma US Inc. were $6,400,000 and $9,920,000 in 2012 and 2011, respectively. These costs have been excluded from the statements of net revenues and direct expenses as there is no reasonable basis to allocate them to the Product.
(7) Selected Cash Flow Information (Unaudited)
The preparation of complete statements of cash flows was not practicable because of the integration of Lazanda into the total operations of Archimedes Pharma Ltd. prior to the divestiture of Lazanda. As such, below is selected cash flow information specific to Lazanda (U.S. dollars in thousands):
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Years ended December 31 |
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Six months ended June 30 |
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2012 |
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2011 |
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2013 |
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2012 |
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Source/(use) of cash: |
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Net revenue less operating expenses |
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$ |
(29,036 |
) |
(28,421 |
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(6,920 |
) |
(20,266 |
) |
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Change in inventory |
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1,433 |
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(4,350 |
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1,011 |
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50 |
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Purchases of equipment |
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— |
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(28 |
) |
— |
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— |
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Net selected cash flows |
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$ |
(27,603 |
) |
(32,799 |
) |
(5,909 |
) |
(20,216 |
) |
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited pro forma condensed combined balance sheet of Depomed, Inc. (“Depomed” or the “Company”) is presented to illustrate the effects of Depomed’s acquisition of the U.S. and Canadian rights to Lazanda® (fentanyl) nasal spray (“Lazanda”) on July 29, 2013. The unaudited pro forma condensed combined balance sheet as of June 30, 2013 presented herein is based on the historical financial statements of Depomed and on the financial statements of Lazanda described below, as well as on the assumptions and adjustments described in the accompanying notes to these unaudited pro forma condensed combined balance sheet.
The unaudited pro forma condensed combined balance sheet as of June 30, 2013 gives effect to Depomed’s acquisition of Lazanda as if it had occurred on June 30, 2013, and combines the historical balance sheet of Depomed as of June 30, 2013 with the statement of assets acquired and liabilities assumed as part of the Lazanda acquisition, which statement is included as Exhibit 99.1 to the Company’s Current Report on Form 8-K/A to which this unaudited pro forma condensed combined balance sheet is attached as Exhibit 99.2. The Company has determined that the acquisition of Lazanda as of July 29, 2013 constitutes a business acquisition as defined by Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805, Business Combinations. Accordingly, the assets acquired and the liabilities assumed are presented at their acquisition-date fair values as required by that statement. Fair values are determined based on the requirements of FASB ASC 820, Fair Value Measurements and Disclosures. Management has made a preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on various estimates, as noted in Note 3 to the unaudited pro forma condensed combined balance sheet. Management is continuing to refine those estimates and consequently, the final determination of these estimated fair values may differ materially from those presented.
Pursuant to a letter dated August 21, 2013 (the “Letter”) from the staff of the Division of Corporate Finance (the “Division”) of the Securities and Exchange Commission, the Division stated that it would waive the requirement to provide a pro forma statement of operations if the use of forward-looking information is necessary to meaningfully present the effects of the acquisition of Lazanda by Depomed. Depomed’s expense structure and commercialization infrastructure related to Lazanda are anticipated to differ significantly from the expense structure and commercialization infrastructure maintained by Archimedes with regard to Lazanda. As a result, Depomed has concluded that the use of forward-looking information is necessary to meaningfully present the effects of the acquisition. Based on the guidance provided by the Division in the Letter, Depomed is not filing a pro forma statement of operations with this Current Report.
Depomed anticipates expenses and revenues relating to Lazanda will be modest through the end of 2013. In 2013, Depomed expects total revenues, including Lazanda, to be in the range of $125 to $135 million and operating expenses, including Lazanda, to be in the range of $118 to $125 million.
In 2014, Depomed anticipates that revenues relating to Lazanda will increase significantly as compared to 2013 as new commercialization efforts are finalized and fully implemented. Depomed’s anticipated revenues attributable to Lazanda in 2014 and beyond will depend on a number of factors including the success of such commercialization efforts, market acceptance of Lazanda and the success of competitive products. Depomed will incur additional expenses in 2014 in connection with the commercialization efforts relating to Lazanda. Depomed expects these costs will be significantly less than those incurred by Archimedes in 2013 and are not expected to have a material impact on Depomed’s total operating expenses in 2014.
The following unaudited pro forma condensed combined balance sheet as of June 30, 2013 is presented for illustrative purposes only, in accordance with Article 11 of Regulation S-X, and should be read in conjunction with:
· the Company’s historical audited financial statements and accompanying notes as of and for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 22, 2013;
· the Company’s historical unaudited financial statements and accompanying notes as of and for the six months ended June 30, 2013 included in the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 8, 2013; and
· the Lazanda financial statements and accompanying notes included as Exhibit 99.1 to the Form 8-K/A.
DEPOMED, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2013
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Depomed Inc |
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Lazanda |
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Pro Forma |
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Notes |
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Pro Forma |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
44,934 |
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— |
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(4,000 |
) |
3 |
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$ |
40,934 |
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Marketable securities |
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24,618 |
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— |
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24,618 |
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Accounts receivable |
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6,717 |
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— |
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6,717 |
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Receivables from collaborative partners |
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8,066 |
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— |
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8,066 |
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Inventories |
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7,226 |
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925 |
|
933 |
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3(c) |
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9,084 |
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Prepaid and other current assets |
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5,953 |
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— |
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— |
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5,953 |
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Total current assets |
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97,514 |
|
925 |
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(3,067 |
) |
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|
95,372 |
| |||
|
Marketable securities, long-term |
|
4,669 |
|
— |
|
|
|
|
|
4,669 |
| |||
|
Property and equipment, net |
|
8,169 |
|
375 |
|
— |
|
|
|
8,544 |
| |||
|
Intangible assets, net |
|
23,304 |
|
— |
|
10,360 |
|
3(b) |
|
33,664 |
| |||
|
Other assets |
|
324 |
|
— |
|
|
|
|
|
324 |
| |||
|
|
|
$ |
133,980 |
|
$ |
1,300 |
|
7,293 |
|
|
|
$ |
142,573 |
|
|
|
|
|
|
|
|
|
|
|
|
— |
| |||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
— |
| |||
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
— |
| |||
|
Accounts payable and accrued liabilities |
|
$ |
24,357 |
|
— |
|
|
|
|
|
$ |
24,357 |
| |
|
Deferred license revenue |
|
3,041 |
|
— |
|
|
|
|
|
3,041 |
| |||
|
Other current liabilities |
|
649 |
|
240 |
|
|
|
|
|
889 |
| |||
|
Total current liabilities |
|
28,047 |
|
240 |
|
— |
|
|
|
28,287 |
| |||
|
Deferred license revenue, non-current portion |
|
13,995 |
|
— |
|
|
|
|
|
13,995 |
| |||
|
Other long-term liabilities |
|
9,007 |
|
— |
|
8,032 |
|
3(a) |
|
17,039 |
| |||
|
Commitments |
|
|
|
|
|
|
|
|
|
|
| |||
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
| |||
|
Preferred stock, no par value, 5,000,000 shares authorized; Series A convertible preferred stock, 25,000 shares designated, 18,158 shares issued and surrendered, and zero shares outstanding at June 30, 2013 and December 31, 2012 |
|
— |
|
— |
|
|
|
|
|
— |
| |||
|
Common stock, no par value, 100,000,000 shares authorized; 56,676,259 and 56,383,713 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively |
|
215,317 |
|
— |
|
|
|
|
|
215,317 |
| |||
|
Accumulated deficit |
|
(132,363 |
) |
— |
|
321 |
|
3(d) |
|
(132,042 |
) | |||
|
Accumulated other comprehensive gain, net of tax |
|
(23 |
) |
— |
|
|
|
|
|
(23 |
) | |||
|
Total shareholders’ equity |
|
82,931 |
|
— |
|
321 |
|
|
|
83,252 |
| |||
|
|
|
$ |
133,980 |
|
240 |
|
8,353 |
|
|
|
$ |
142,573 |
| |
The accompanying notes are an integral part of the pro forma condensed combined balance sheet.
DEPOMED, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
1. Description of Transaction and Basis of Presentation
Description of Transaction
On July 29, 2013, the Company acquired certain assets from Archimedes Pharma US Inc., a Delaware corporation, Archimedes Pharma Ltd., a corporation registered under the laws of England and Wales, and Archimedes Development Ltd., a company registered under the laws of England and Wales (collectively, “Archimedes”), related to Archimedes’ proprietary fentanyl pectin nasal spray product for the management of break-through pain in opioid-tolerant cancer patients referred to as Lazanda® (the “Product”) and the use, development, formulation, distribution, testing, marketing, offer for sale, assembly, packaging, transportation and manufacture of the Product in the United States and Canada. The purchase price for these assets included (i) a closing payment of $4,000,000, (ii) certain sales milestones payments totaling $16,000,000 if certain annual net sales milestones described in the Agreement are met and (iii) certain product royalties for sales occurring during a specified period.
Basis of Presentation
The unaudited pro forma condensed combined balance sheet as of June 30, 2013 gives effect to Depomed’s acquisition of Lazanda as if it had occurred on June 30, 2013, and combines the historical balance sheet of Depomed as of June 30, 2013 with the statement of assets acquired and liabilities assumed as part of the Lazanda acquisition, which statement is included as Exhibit 99.1 to the Company’s Current Report on Form 8-K/A to which this unaudited pro forma condensed combined balance sheet is attached as Exhibit 99.2. The Company has determined that the acquisition of Lazanda as of July 29, 2013 constitutes a business acquisition as defined by Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805, Business Combinations. Accordingly, the assets acquired and the liabilities assumed are presented at their acquisition-date fair values as required by that statement. Fair values are determined based on the requirements of FASB ASC 820, Fair Value Measurements and Disclosures. Management has made a preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on various estimates, as noted in Note 3 to the unaudited pro forma condensed combined balance sheet. Management is continuing to refine those estimates and consequently, the final determination of these estimated fair values may differ materially from those presented.
2. Summary of Significant Accounting Policies
The unaudited pro forma condensed combined balance sheet has been compiled in a manner consistent with the accounting policies adopted by the Company. A summary of the Company’s significant accounting policies can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on February 22, 2013. The accounting policies of Archimedes relating to the statement of assets acquired and liabilities assumed were not deemed to be materially different from those adopted by the Company.
DEPOMED, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
3. Pro Forma adjustments
The adjustments made in preparing the Pro Forma Financial Information reflect the total purchase price and related preliminary deficit of total purchase price over fair value of net assets acquired which is as follows (in thousands):
|
Cash for Lazanda and related inventories |
|
4,000 |
| |
|
Fair value of contingent consideration |
|
8,032 |
| |
|
Purchase price |
|
$ |
12,032 |
|
|
|
|
|
| |
|
Intangible asset - Lazanda product rights |
|
10,360 |
| |
|
Inventories |
|
1,858 |
| |
|
Property, plant and equipment |
|
375 |
| |
|
Current liabilities |
|
(240 |
) | |
|
Bargain purchase |
|
(321 |
) | |
|
|
|
$ |
12,032 |
|
(a) Fair value of contingent consideration:
The fair value of the contingent consideration of $8.0 million has been recorded in other long term liabilities in the accompanying unaudited pro forma condensed combined balance sheet. The Company determined the acquisition date fair value of contingent consideration obligations based on a probability-weighted income approach derived from revenue estimates and a probability assessment with respect to the likelihood of achieving the contingent payments in the form of milestone obligations and the royalty obligations. At each reporting date, the Company will re-measure the contingent consideration obligation to estimate fair value. Any changes in the fair value of contingent consideration will be recognized in operating expenses until the contingent consideration arrangement is settled.
(b) Intangible asset — Lazanda product rights:
The fair value of the Lazanda product rights of $10.4 million has been recorded as intangible assets on the accompanying unaudited pro forma condensed combined balance sheet and will be amortized over the estimated useful life of the asset on a straight-line basis through 2022. The fair value of the intangible assets was based on management’s forecasted cash inflows and outflows using a multi-period excess earnings method to calculate the fair value of assets purchased.
(c) Inventories:
The $0.6 million increase in inventories relates to the recognition of the fair value of these inventories. The fair value of inventories was determined based on quantities acquired, selling prices at the date of acquisition and management’s assumptions regarding units that have future value and costs to sell such inventories .
(d) Bargain purchase:
The adjustment of $0.3 million reflects the bargain purchase amount. This allocation is based on preliminary estimates; the final acquisition cost allocation may differ materially from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the assets and liabilities will be allocated to the bargain purchase.