B.Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

These condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments necessary for a fair statement of the financial position and results of operations of the Company for the interim periods presented. Such adjustments consisted only of normal recurring items. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America, or GAAP.

In accordance with GAAP for interim financial reports and the instructions for Form 10-Q and the rules of the Securities and Exchange Commission, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. Our accounting policies are described in the Notes to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013. Interim results are not necessarily indicative of the results of operations for the full year. These interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013.

Use of Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. The most significant estimates and assumptions are used in, but are not limited to, revenue recognition related to product sales and collaboration agreements, product sales allowances and accruals, assessing investments for potential other-than-temporary impairment, determining the fair values of our investments, assets acquired in a business combination, debt obligations, and contingent consideration, the impairment of long-lived assets, including intangible assets, accrued expenses, and equity-based compensation expense. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consists principally of cash held in commercial bank accounts, money market funds and U.S. Treasury securities having an original maturity of less than three months. We consider all highly liquid investments with a maturity of three months or less as of the acquisition date to be cash equivalents. At June 30, 2014, substantially all of our cash and cash equivalents were held in either commercial bank accounts or money market funds.

Principles of Consolidation

The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany account balances and transactions between the companies have been eliminated.

Fair Value Measurements

Under current accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Current accounting guidance establishes a hierarchy used to categorize how fair value is measured and which is based on three levels of inputs, of which the first two are considered observable and the third unobservable, as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We hold certain assets and liabilities that are required to be measured at fair value on a recurring basis, including our cash equivalents, investments, and contingent consideration.

Revenue Recognition and Related Sales Allowances and Accruals

An analysis of our U.S. Feraheme product sales allowances and accruals for the three and six months ended June 30, 2014 and 2013 is as follows (in thousands):

	Three Months Ended June 30,
	2014			2013
Provision for U.S. Feraheme product sales allowances and accruals
Discounts and chargebacks	$	13,415		$	9,227
Government and other rebates	3,952			2,732
Returns	146			239
Total provision for U.S. Feraheme product sales allowances and accruals	17,513			12,198

Total gross U.S. Feraheme product sales	$	39,738		$	29,654

Total provision for U.S. Feraheme product sales allowances and accruals as a percent of total gross U.S. Feraheme product sales	44		%	41		%

	Six Months Ended June 30,
	2014			2013
Provision for U.S. Feraheme product sales allowances and accruals
Discounts and chargebacks	$	23,948		$	16,720
Government and other rebates	7,139			5,119
Returns	372			432
Total provision for U.S. Feraheme product sales allowances and accruals	31,459			22,271

Total gross U.S. Feraheme product sales	$	71,059		$	55,305

Total provision for U.S. Feraheme product sales allowances and accruals as a percent of total gross U.S. Feraheme product sales	44		%	40		%

Consistent with industry practice, we generally offer our wholesalers, specialty distributors and other customers a limited right to return Feraheme based on the product’s expiration date which, once packaged, is currently five years in the U.S. We estimate product returns based on the historical return patterns and known or expected changes in the marketplace. We track actual returns by individual production lots. Returns on lots eligible for credits under our returned goods policy are monitored and compared with historical return trends and rates.

We consider several additional factors in our product return estimation process, including our internal sales forecasts and inventory levels in the distribution channel. We expect that wholesalers and healthcare providers will not stock significant inventory due to the cost and expense to store Feraheme. Based on these factors, we determine whether an adjustment to the sales return reserve is appropriate.

We record an estimate of returns at the time of sale. If necessary, our estimated rate of returns may be adjusted for actual return experience as it becomes available and for known or expected changes in the marketplace. During the six months ended June 30, 2014, we reduced our reserve for product returns by $0.2 million due to the lapse of the product return period on certain manufactured Feraheme lots. We did not significantly adjust our reserve for product returns during the six months ended June 30, 2013. To date, returns of Feraheme have been relatively limited and returns experience may change over time. A future adjustment to our product returns estimate would result in a corresponding change to our net product sales in the period of adjustment and could be significant.

In addition, as part of our sales allowances and accruals, we reserve for estimated Medicaid rebates associated with instances where Medicaid will act as the insurer and for which we are required to pay a statutory rebate to Medicaid. We regularly assess our Medicaid reserve balance and the rate at which we accrue for claims against product sales. We did not adjust our Medicaid reserve balance during the six months ended June 30, 2014 or 2013. If we determine in future periods that our actual rebate experience is not indicative of expected claims, if our actual claims experience changes, or if other factors affect estimated claims rates, we may be required to adjust our current Medicaid accumulated reserve estimate, which would affect our net product sales in the period of the adjustment and could be significant.

Concentrations and Significant Customer Information

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash, investments, and accounts receivable. As of June 30, 2014, our cash, cash equivalents and investments amounted to approximately $386.5 million. We currently invest our excess cash primarily in U.S. government and agency money market funds, and investments in corporate debt securities, U.S. treasury and government agency securities, and commercial paper. As of June 30, 2014, we had approximately $196.8 million of our total $202.1 million cash and cash equivalents balance invested in institutional money market funds, of which $179.9 million was invested in a single fund.

Our operations are located solely within the U.S. We are focused principally on developing, manufacturing, and commercializing Feraheme/Rienso and commercializing MuGard. We perform ongoing credit evaluations of our customers and generally do not require collateral. The following table sets forth customers who represented 10% or more of our total revenues for the six months ended June 30, 2014 and 2013:

	Six Months Ended June 30,
	2014		2013
AmerisourceBergen Drug Corporation	38	%	43	%
McKesson Corporation	25	%	23	%
Cardinal Health, Inc.	17	%	15	%
Takeda Pharmaceuticals Company Limited	10	%	11	%

In addition, approximately 27% and 32% of our end-user demand during the six months ended June 30, 2014 and 2013, respectively, was generated by members of a single group purchasing organization, or GPO, with which we have contracted. Revenues from customers outside of the U.S. amounted to approximately 12% of our total revenues for each of the six months ended June 30, 2014 and 2013 and were principally related to collaboration revenue recognized in connection with our collaboration agreement with Takeda, which is headquartered in Japan.

We are currently solely dependent on a single supply chain for our Feraheme/Rienso drug substance and finished drug product. We would be exposed to a significant loss of revenue from the sale of Feraheme/Rienso if our suppliers and/or manufacturers cannot fulfill demand for any reason.