Long-Term Related Party Payable

Long-term related party payable and related activity are reported at fair value and consist of the following at March 31, 2019 and December 31, 2018:



				Activity during the Three Months Ended March 31, 2019
							Changes in Fair Value of Related Party Payable
Long-Term Related Party Payable:	Balance, December 31, 2018			Payments to Related Parties			Operating Expense		Other Expense		Balance, March 31, 2019

Acquisition-related contingent consideration:
Earn-out payments - Éclat Pharmaceuticals (a)	$	25,615		$	(3,180	)	$	2,134	$	—	$	24,569
Financing-related:											—
Royalty agreement - Deerfield (b)	2,184			(344		)	—		208		2,048
Royalty agreement - Broadfin (c)	1,041			(164		)	—		99		976
Total related party payable	28,840			$	(3,688	)	$	2,134	$	307	27,593
Less: Current portion	(9,439		)								(9,391		)
Total long-term related party payable	$	19,401									$	18,202

(a) In March 2012, the Company acquired all of the membership interests of Éclat from Breaking Stick Holdings, L.L.C. (“Breaking Stick”, formerly Éclat Holdings), an affiliate of Deerfield. Breaking Stick is majority owned by Deerfield, with a minority interest owned by the Company’s CEO, and certain other current and former employees. As part of the consideration, the Company committed to provide quarterly earn-out payments equal to 20% of any gross profit generated by certain Éclat products. These payments will continue in perpetuity, to the extent gross profit of the related products also continue in perpetuity.

(b)

As part of a February 2013 debt financing transaction conducted with Deerfield, the Company received cash of $2,600 in exchange for entering into a royalty agreement whereby the Company shall pay quarterly a 1.75% royalty on the net sales of certain Éclat products until December 31, 2024. In connection with such debt financing transaction, the Company granted Deerfield a security interest in the product registration rights of the Eclat products.


(c)	As part of a December 2013 debt financing transaction conducted with Broadfin Healthcare Master Fund, a related party and current shareholder, the Company received cash of $2,200 in exchange for entering into a royalty agreement whereby the Company shall pay quarterly a 0.834% royalty on the net sales of certain Éclat products until December 31, 2024.

At March 31, 2019, the fair value of each related party payable listed in (a), (b) and (c) above was estimated using a discounted cash flow model based on estimated and projected annual net revenues or gross profit, as appropriate, of each of the specified Éclat products using an appropriate risk-adjusted discount rate of 15%. These fair value measurements are based on significant inputs not observable in the market and thus represent a level 3 measurement as defined in ASC 820. Subsequent changes in the fair value of the acquisition-related related party payables, resulting primarily from management’s revision of key assumptions, will be recorded in the unaudited condensed consolidated statements of loss in the line items entitled “Changes in fair value of related party contingent consideration” for items noted in (b) above and in “Other expense - changes in fair value of related party payable” for items (b) and (c) above. See Note 1: Summary of Significant Accounting Policies under the caption Acquisition-related Contingent Consideration and Financing-related Royalty Agreements in Part II, Item 8 of the Company’s 2018 Annual Report on Form 10-K for more information on key assumptions used to determine the fair value of these liabilities.

The Company has chosen to make a fair value election pursuant to ASC 825, “Financial Instruments” for its royalty agreements detailed in items (b) and (c) above. These financing-related liabilities are recorded at fair market value on the unaudited condensed consolidated balance sheets and the periodic change in fair market value is recorded as a component of “Other expense – change in fair value of related party payable” on the unaudited condensed consolidated statements of loss.

The following table summarizes changes to the related party payables, a recurring Level 3 measurement, for the three-month periods ended March 31, 2019 and 2018, respectively:



Related Party Payable Rollforward:	Balance

Balance, December 31, 2017	$	98,925
Payments of related party payable	(7,017		)
Fair value adjustments ⁽¹⁾	3,363
Expiration of warrants	(2,167		)
Disposition of the pediatric assets	(20,337		)
Balance, March 31, 2018	$	72,767

Balance, December 31, 2018	$	28,840
Payments of related party payable	(3,688		)
Fair value adjustments ⁽¹⁾	2,441
Balance, March 31, 2019	$	27,593

⁽¹⁾Fair value adjustments are reported as changes in fair value of related party contingent consideration and other expense - changes in fair value of related party payable in the unaudited condensed consolidated statements of loss.