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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
12 Months Ended
Dec. 31, 2012
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of its wholly-owned subsidiary, Acura Pharmaceutical Technologies Inc., after elimination of intercompany accounts and transactions.

Use of Estimates

Use of Estimates

Management is required to make certain estimates and assumptions in order to prepare consolidated financial statements in conformity with GAAP. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based on such periodic evaluations.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers cash and cash equivalents to include cash in banks, U.S. Treasury Bills and money market funds. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Our cash and cash equivalents are governed by our investment policy as approved by our Board of Directors. The carrying amount of cash and cash equivalents approximates its fair value due to its short-term nature.

Fair Value of Other Financial Instruments

Fair Value of Other Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, marketable securities, accounts and other receivables, and trade accounts payable. The carrying amounts of these financial instruments, other than marketable securities, are representative of their respective fair values due to their relatively short maturities. As discussed below, marketable securities are recorded at fair value.

Marketable Securities

Marketable Securities

The Company’s marketable securities primarily consist of corporate bonds and other instruments that invest in U.S. Treasury, U.S. agency securities and agency mortgage-backed securities. Our marketable securities are governed by our investment policy as approved by our Board of Directors. The Company’s marketable securities are classified as available-for-sale and are recorded at fair value, based upon quoted market prices or net asset value. Unrealized temporary adjustments to fair value are included in a separate component of stockholders’ equity as unrealized gains and losses and reported as a component of accumulated other comprehensive income (loss). No gains or losses on marketable securities are realized until shares are sold or a decline in fair value is determined to be other-than-temporary. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

Concentration of Credit Risk

Concentration of Credit Risk

We invest our excess cash in accordance with the investment policy approved by our Board of Directors that seeks a combination of both liquidity and safety of principal, such as investments in instruments issued by the United States government and high grade corporate bonds.

 

Our accounts receivable arise from our product sales of Nexafed® and represents amounts due from wholesalers in the health care and pharmaceuticals industries. The Company has performed a credit evaluation of its customers and may maintain an allowance for potentially uncollectable accounts. We have not experienced any losses on uncollectable accounts due to the recent market launch of Nexafed® late in December 2012.

Inventories

Inventories

Inventories consist of finished goods held for sale and distribution on our Nexafed® product. Inventories are stated at the lower of cost (first-in, first-out method) or market (net realizable value). The Company writes down inventories to net realizable value based on forecasted demand and market conditions, which may differ from actual results. We had inventory valued at $0.2 million at December 31, 2012. We had no inventory at December 31, 2011. Purchases of active pharmaceutical ingredients and raw materials required for our development and clinical trial manufacture of product candidates utilizing our Aversion® or Impede™ Technologies are expensed as incurred.

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. We have no leasehold improvements. Betterments are capitalized and maintenance and repairs are charged to operations as incurred. When a depreciable asset is retired from service, the cost and accumulated depreciation is removed from the respective accounts.

 

Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the related assets. The estimated useful lives of the major classification of depreciable assets are:

 

Building and improvements 10 - 40 years
Land improvements 20 - 40 years
Machinery and equipment   7 - 10 years
Scientific equipment   5 - 10 years
Computer hardware and software   3 - 10 years
Office equipment   5 - 10 years

 

Revenue Recognition

Revenue Recognition

Revenue is generally realized or realizable and earned when there is persuasive evidence an arrangement exists, delivery has occurred or services rendered, the price is fixed and determinable, and collection is reasonably assured. The Company records revenue from its Nexafed product sales when the price is fixed and determinable at the date of sale, title and risk of ownership have been transferred to the customer, and returns can be reasonably estimated.

 

Nexafed was launched in the fourth quarter of 2012. The Company sells Nexafed in the United States to wholesale pharmaceutical distributors subject to the right of return for a period of up to six months after the product expiration. Nexafed currently has a shelf life of twenty-four months from the date of manufacture. Given the limited sales history of Nexafed, the Company currently cannot reliably estimate expected returns of the product at the time of shipment. Accordingly, the Company defers recognition of revenue on the product shipments of Nexafed until the right of return no longer exists or adequate history and information is available to estimate product returns.

 

In connection with our License, Development, and Commercialization Agreement dated October 30, 2007 with King Pharmaceuticals Research and Development, Inc., now a subsidiary of Pfizer Inc. (the “Pfizer Agreement”), we recognize program fee revenue, collaboration revenue and milestone revenue.

 

Program fee revenue is derived from amortized upfront payments, such as the $30.0 million upfront payment from Pfizer received in December 2007, and license fees, such as the $3.0 million option exercise fee paid by Pfizer to us in each of May 2008 and December 2008 upon the exercise of its option to license a third and fourth opioid analgesic product candidate under the Pfizer Agreement. We assigned an equal portion of Pfizer’s $30.0 million upfront payment to each of three product candidates identified in the Pfizer Agreement and recognize the upfront payment as program fee revenue ratably over our estimate of the development period for each identified product candidate. We recognized no program fee revenue in 2012 and $0.5 million and $1.1 million of program fee revenue in 2011 and 2010, respectively.

 

Collaboration revenue is derived from reimbursement of development expenses, which are invoiced quarterly in arrears, and are recognized when costs are incurred pursuant to the Pfizer Agreement. The research and development services provided to Pfizer under the collaboration are priced at fair value based upon the reimbursement of expenses incurred pursuant to the collaboration with Pfizer. We recognized $2.2 million of collaboration revenue in 2010. There are no ongoing research and development services being provided to Pfizer and we had no collaboration revenue in 2012 or 2011.

 

Milestone revenue is contingent upon the achievement of certain pre-defined events in the development of Oxecta Tablets and other product candidates licensed to Pfizer under the Pfizer Agreement. Milestone payments from Pfizer are recognized as revenue upon achievement of the “at risk” milestone events, which represent the culmination of the earnings process related to that milestone. Milestone payments are triggered either by the results of our research and development efforts or by events external to us, such as regulatory approval to market a product. As such, the milestones are substantially at risk at the inception of the Pfizer Agreement, and the amounts of the payments assigned thereto are commensurate with the milestone achieved. In addition, upon the achievement of a milestone event, we have no future performance obligations related to that milestone payment. Each milestone payment is non-refundable and non-creditable when made. In June 2011, Pfizer paid us a $20.0 million milestone relating to the receipt of FDA approval of the NDA for Oxecta.

Shipping and Handling Costs

Shipping and Handling Costs

The Company records shipping and handling costs in selling expenses. The amounts recorded from the launch of Nexafed in the fourth quarter of 2012 were not material.

Research and Development Activities

Research and Development Activities

Research and Development (“R&D”) expenses include internal R&D activities, external Contract Research Organization (“CRO”) services and their clinical research sites, and other activities. Internal R&D activity expenses include facility overhead, equipment and facility maintenance and repairs, laboratory supplies, pre-clinical laboratory experiments, depreciation, salaries, benefits, and share-based compensation expenses. CRO activity expenses include preclinical laboratory experiments and clinical trial studies. Other activity expenses include regulatory consulting, and regulatory legal counsel. Internal R&D activities and other activity expenses are charged to operations as incurred. We make payments to the CRO's based on agreed upon terms and may include payments in advance of a study starting date. We review and accrue CRO expenses and clinical trial study expenses based on services performed and rely on estimates of those costs applicable to the stage of completion of a study as provided by the CRO. Accrued CRO costs are subject to revisions as such studies progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known. We had no accrued CRO costs at December 31, 2012 and had accrued $28 thousand of CRO and clinical trial study expenses at December 31, 2011.

Income Taxes

Income Taxes

We account for income taxes under the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and the income tax basis of assets and liabilities and are measured using the enacted income tax rates and laws that will be in effect when the differences are expected to reverse. Additionally, net operating loss and tax credit carryforwards are reported as deferred income tax assets. The realization of deferred income tax assets is dependent upon future earnings. A valuation allowance is required against deferred income tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred income tax assets may not be realized. At both December 31, 2012 and 2011, 100% of all remaining net deferred income tax assets were offset by a valuation allowance due to uncertainties with respect to future utilization of net operating loss carryforwards. If in the future it is determined that additional amounts of our deferred income tax assets would likely be realized, the valuation allowance would be reduced in the period in which such determination is made and an additional benefit from income taxes in such period would be recognized.

Comprehensive Income

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. Other comprehensive income (loss) refers to revenues, expenses, gains and losses that, under GAAP, are included in comprehensive income (loss), but excluded from net income (loss) as these amounts are recorded directly as an adjustment to stockholders’ equity. Acura’s other comprehensive income (loss) is composed of unrealized gains (losses) on certain holdings of marketable securities, net of any realized gains (losses) included in net income (loss).

Earnings Per Share ("EPS")

Earnings Per Share (“EPS”)

Basic EPS is computed by dividing net income or loss by the weighted average common shares outstanding during a period, including shares weighted related to vested RSUs (See Note 9). Diluted EPS is based on the treasury stock method and computed based on the same number of shares used in the basic share calculation and includes the effect from potential issuance of common stock, such as shares issuable pursuant to the exercise of stock options and stock warrants, assuming the exercise of all in-the-money stock options and warrants. Common stock equivalents are excluded from the computation where their inclusion would be anti-dilutive. No such adjustments were made for either 2012 or 2010 as the Company reported a net loss for the years and including the effects of common stock equivalents in the diluted EPS calculation would have been antidilutive. In 2011, stock awards to purchase 2.8 million common shares were outstanding but not included in the computation of diluted EPS as the awards were anti-dilutive.

 

A reconciliation of the numerators and denominators of basic and diluted EPS consisted of the following:

 

    Years ended December 31,  
    2012     2011     2010  
    (in thousands except per share data)  
EPS - basic                        
Numerator: net income (loss)   $ (9,668 )   $ 10,385     $ (12,707 )
Denominator:                        
Common shares     45,863       45,016       43,842  
Vested RSUs     1,658       2,480       3,187  
Basic weighted average shares outstanding     47,521       47,496       47,029  
EPS - basic   $ (0.20 )   $ 0.22     $ (0.27 )
                         
EPS – assuming dilution                        
Numerator: net income (loss)   $ (9,668 )   $ 10,385     $ (12,707 )
Denominator:                        
Common shares     45,863       45,016       43,842  
Vested RSUs     1,658       2,489       3,187  
Stock options     -       366       -  
Common stock warrants     -       136       -  
Diluted weighted average shares outstanding     47,521       48,007       47,029  
EPS - diluted   $ (0.20 )   $ 0.22     $ (0.27 )
                         
Excluded dilutive securities:                        
Common stock issuable:                        
Stock options     3,296       2,805       4,243  
Common stock warrants     1,856       -       2,193  
RSUs     -       -       49  
Total excluded potentially dilutive shares
Share-Based Compensation

Share-based Compensation

We have three share-based compensation plans covering stock options and Restricted Stock Units (“RSU”) for our employees and directors, which are described more fully in Note 9.

 

We measure our compensation cost related to share-based payment transactions based on fair value of the equity or liability instrument issued. For purposes of estimating the fair value of each stock option unit on the date of grant, we utilize the Black-Scholes option-pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected volatility factor of the market price of our common stock (as determined by reviewing our historical public market closing prices). Our accounting for share-based compensation for RSUs is based on the fair-value method. The fair value of the RSUs is the market price of our common stock on the date of grant, less its exercise cost.

 

Our share-based compensation expense recognized in the Company’s results of operations comprised the following:

 

    Year Ended December 31,  
    2012     2011     2010  
    (in thousands)  
Research and development:                        
Stock option awards   $ 375     $ 457     $ 1,419  
RSU awards     -       75       278  
      375       532       1,697  
Selling, general and administrative:                        
Stock option awards     1,358       1,698       4,365  
RSU awards     -       228       684  
      1,358       1,926       5,049  
Total   $ 1,733     $ 2,458     $ 6,746  
Recent Accounting Pronouncements

Recent Accounting Pronouncements

In June 2011, the FASB issued a final standard requiring entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The new standard eliminates the option to present items of other comprehensive income in the statement of changes in equity. The new requirements do not change which components of comprehensive income are recognized in net income or other comprehensive income, or when an item of other comprehensive income must be reclassified to net income. Also, earnings per share computations do not change. The new requirements are effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. Full retrospective application is required. The Company adopted this standard for the annual period ended December 31, 2011 but because we had no other comprehensive income, there was no change in our financial statement presentations. During 2012 we had other comprehensive income and had applied retroactive application to the annual periods ended December 31, 2011 and 2010. The Company elected to present net income and other comprehensive income in a single continuous statement of net income and other comprehensive income. As this standard related only to the presentation of other comprehensive income, the adoption of this accounting standard did not have an impact on the Company’s consolidated financial statements.