Revenue Recognition

6 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

Our major sources of revenue during the reporting periods were product revenues from Makena, Feraheme, and Intrarosa.

Product Revenue and Allowances and Accruals

The following table provides information about disaggregated revenue by products for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Product sales, net
Makena	$	30,935	$	105,172	$	62,192	$	195,156
Feraheme	42,074		37,699		82,089		62,833
Intrarosa	4,877		3,241		9,291		5,406
MuGard	90		107		133		172
Total product sales, net	$	77,976	$	146,219	$	153,705	$	263,567

Total gross product sales were offset by product sales allowances and accruals for the three and six months ended June 30, 2019 and 2018 as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Gross product sales	$	239,185	$	297,732	$	450,904	$	537,602
Provision for product sales allowances and accruals:
Contractual adjustments	128,641		111,539		237,526		197,683
Governmental rebates	32,568		39,974		59,673		76,352
Total	161,209		151,513		297,199		274,035
Product sales, net	$	77,976	$	146,219	$	153,705	$	263,567

The following table summarizes the product revenue allowance and accrual activity for the three and six months ended June 30, 2019 (in thousands):



	Contractual			Governmental
	Adjustments			Rebates			Total
Balance at December 31, 2018	$	57,199		$	29,114		$	86,313
Provisions related to current period sales	107,388			18,502			125,890
Adjustments related to prior period sales	1,540			8,603			10,143
Payments/returns relating to current period sales	(65,839		)	—			(65,839		)
Payments/returns relating to prior period sales	(27,275		)	(14,292		)	(41,567		)
Balance at March 31, 2019	$	73,013		$	41,927		$	114,940
Provisions related to current period sales	125,917			26,037			151,954
Adjustments related to prior period sales	2,660			6,531			9,191
Payments/returns relating to current period sales	(110,553		)	(11,909		)	(122,462		)
Payments/returns relating to prior period sales	(13,263		)	(22,070		)	(35,333		)
Balance at June 30, 2019	$	77,774		$	40,516		$	118,290

We receive payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional.

During the three and six months ended June 30, 2019, we recorded adjustments of $6.5 million and $15.1 million, respectively, for Medicaid rebates received that related to prior period sales and $2.7 million and $4.2 million, respectively, for contractual adjustments related to prior period sales. We concluded that these adjustments represented changes in estimate during the three and six months ended June 30, 2019 due to higher Medicaid utilization and payer rebate submissions than anticipated based on our historical experience.

Variable Consideration

Under ASC 606, we are required to make estimates of the net sales price, including estimates of variable consideration (such as rebates, chargebacks, discounts, copay assistance and other deductions), and recognize the estimated amount as revenue, when we transfer control of the product to our customers. In addition, we estimate variable consideration related to our share of net distributable profits from our authorized generic partner. We estimate variable consideration for our product revenues using an “expected value” method. No amounts recognized as part of our product revenues were constrained as of June 30, 2019.

Collaboration Revenue

During the first quarter of 2019, in conjunction with the Perosphere transaction, we assumed responsibility for a clinical trial collaboration agreement with a pharmaceutical company. This agreement provides for milestone payments to us, provided we meet certain clinical obligations in connection with our ciraparantag program. We also acquired $6.4 million of deferred revenue related to this agreement, which represents the fair value of upfront milestone payments received by Perosphere under this agreement prior to acquisition. We may receive additional milestone payments throughout the remainder of the development program of up to a total of $34.8 million based on completion of certain research and development activities.

Subsequent to June 30, 2019, we were informed by the pharmaceutical company of its intention to terminate the clinical trial collaboration agreement. See Note V, “Subsequent Events.”

In accordance with ASC 808, we considered the nature and contractual terms of the arrangement and the nature of our business operations to determine the classification of payments under this agreement and concluded that the pharmaceutical company meets the definition of a customer. As a result, this agreement was accounted for under ASC 606. We determined that the promises to perform various research and development activities related to our ciraparantag program are not distinct because they are all necessary and highly interdependent with one another for the purpose of pursuing regulatory approval of ciraparantag. As such, these promises are combined into a single performance obligation, which is the submission for regulatory approval of ciraparantag in the U.S. and the European Union.

In order to evaluate the appropriate transaction price, we considered that the remaining $34.8 million of potential milestone payments relate to activities which cannot progress until FDA clearance is received for a device needed to conduct the future clinical trials. As a result, these amounts were excluded from the transaction price and fully constrained based on the probability of achievement, which is outside of our control. Therefore, as of June 30, 2019, the transaction price is limited to the $6.4 million of deferred revenue acquired. We will reevaluate the transaction price, including all constrained amounts, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust our estimate of the transaction price.

We will recognize revenue from the $6.4 million of acquired deferred revenue and any future milestone payments received or considered probable based on an input method in the form of research effort relative to expected research effort at the completion of the performance obligation. This is based on the relative costs of the research and development activities incurred and expected to be incurred in the future to satisfy the performance obligation, which is estimated to be completed over approximately two years. The estimated period of performance to satisfy the performance obligation and project cost is reviewed quarterly and adjusted, as needed, to reflect our current expectations regarding the costs and timing of the deliverable. These estimates are subject to a number of assumptions and actual results could differ materially from our assumptions in future periods.

As of June 30, 2019, deferred revenue related to the agreement amounted to $6.3 million, of which $1.1 million was included in current liabilities. No milestone payments were received during the six months ended June 30, 2019.