XML 29 R13.htm IDEA: XBRL DOCUMENT v3.8.0.1
Contract Manufacturing Agreement with Endo and Associated Exit Activities
 12 Months Ended
Dec. 31, 2017
Discontinued Operations and Disposal Groups [Abstract]  
Contract Manufacturing Agreement with Endo and Associated Exit Activities
5. Divestiture and Sale of Zohydro ER business
In March 2015, the Company entered into an asset purchase agreement with Pernix Ireland Limited and Pernix Therapeutics (collectively, Pernix) whereby the Company agreed to divest its Zohydro ER business to Pernix, and in April 2015, the Company completed the divestiture to Ferrimill Limited, a subsidiary of Pernix, as a substitute purchaser. The Zohydro ER business divestiture included the registered patents and trademarks, certain contracts, the new drug application and other regulatory approvals, documentation and authorizations, the books and records, marketing materials and product data relating to Zohydro ER.
The Company received consideration of $80.0 million in cash, subject to an escrow holdback of $10.0 million, and $10.6 million in Pernix Therapeutics common stock. The escrow period expired in March 2016. The Company may receive additional cash payments, not to exceed $283.5 million based on the achievement of certain regulatory and sales milestones. As of December 31, 2017, the Company had not received and does not expect to receive any additional cash payments. The Company recorded an after-tax gain of $75.4 million from the divestiture of its Zohydro ER business in discontinued operations in 2015.
The results of operations for discontinued operations presented below include certain allocations that management believes fairly reflect the utilization of services provided to the Zohydro ER business. The allocations do not include amounts related to general corporate administrative expenses or interest expense. Therefore, the results of operations from the Zohydro ER business do not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity.
The following table summarizes the results of discontinued operations presented in the consolidated statements of operations for the periods indicated (in thousands):
 
 
Year Ended December 31,
Discontinued operations
 
2017
 
2016
 
2015
Net product revenue
 
$
57

 
$
532

 
$
11,299

 
 
 
 
 
 
 
Operating expense (income):
 
 
 
 
 
 
   Cost of product sold
 
—

 
15

 
2,205

   Royalty expense
 
3

 
32

 
835

   Research and development
 
—

 
—

 
5,504

   Selling, general and administrative
 
920

 
1,594

 
14,820

Restructuring expense
 
—

 
—

 
588

Gain on sale of business
 
—

 
—

 
(89,484
)
Total operating expense (income)
 
923

 
1,641

 
(65,532
)
Other income
 
—

 
—

 
5,077

Net (loss) income from discontinued operations before tax
 
(866
)
 
(1,109
)
 
81,908

Tax benefit (expense)
 
71

 
88

 
(14,060
)
Net loss (income) from discontinued operations
 
$
(795
)
 
$
(1,021
)
 
$
67,848


Other income of $5.1 million in 2015 was attributed to payment received for the Company’s waiver of its regulatory exclusivity rights. Assets and liabilities for discontinued operations as of December 31, 2017 and 2016 were not material. Noncash expenses related to stock-based compensation, and depreciation and amortization expense included in discontinued operations in 2015 was $0.7 million and $0.2 million, respectively. These noncash expenses were not material in 2017 or 2016.
Contract Manufacturing Agreement with Endo and Associated Exit Activities
The Company divested its Sumavel DosePro business to Endo in May 2014. In connection with the divestiture, the Company entered into the Endo Supply Agreement for an initial term of 8 years. As a result of the Company’s continuing involvement through the Endo Supply Agreement, the divestiture did not qualify for discontinued operations presentation based on the accounting guidance applicable at the time. To support the Company’s Sumavel DosePro manufacturing operations, Endo provided the Company with an interest-free working capital advance of $7.0 million under a promissory note (see Note 8). The working capital advance matured upon the termination of the Endo Supply Agreement.
In the fourth quarter of 2016, the Company was informed by Endo of their decision to discontinue Sumavel DosePro and the Company commenced the wind down of its manufacturing operations related to the supply of Sumavel DosePro to Endo (see Note 6). As a result, the Company performed an analysis to estimate cash flows from property and equipment used in the production of Sumavel DosePro in the fourth quarter of 2016. Based on this analysis, the Company recognized an impairment charge for long-lived assets of $6.4 million. In addition, the Company wrote-off the carrying value of prepaid royalties of $2.0 million related to certain licensed drug-delivery technology used Sumavel DosePro to impairment charges in the consolidated statements of operations.
In 2017, the Company recorded an additional asset impairment charge of $0.8 million for long-lived manufacturing assets associated with the production of Sumavel DosePro and a $2.2 million reduction to inventory to reflect its current net realizable value. These additional charges reflected ongoing negotiations over the course of finalizing the termination of the Endo Supply Agreement and were included as a component of operating expenses and cost of contract manufacturing, respectively, in the consolidated statements of operations.
In September 2017, the Company and Endo executed a termination agreement which resolved all matters under the Supply Agreement. Pursuant to the termination agreement, the Company received cash consideration of $1.5 million from Endo for reimbursement of a portion of the Company’s termination costs for its third-party suppliers and manufacturers related to Sumavel DosePro product. As part of the termination agreement, both parties also agreed to net settle outstanding accounts receivable of $4.7 million due from Endo and the Company’s remaining purchased raw materials and other costs of $2.3 million against the $7.0 million working capital advance note payable due to Endo. In connection with the Endo termination agreement, the Company also executed termination agreements with its third-party suppliers and manufacturers related to the Sumavel DosePro product and incurred contract termination costs of $2.5 million. Excluding the non-cash loss on extinguishment of debt due to the write-off of unamortized discount related to imputed interest (see Note 8), these termination agreements resulted in a net loss on contract termination of $0.5 million, which has been included in loss on contract termination within continuing operations in the consolidated statements of operations.