Basis of Presentation and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2015

Summary of Significant Accounting Policies

Use of Estimates and Assumptions

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 to determine amounts and values of, but are not limited to: revenue recognition related to product sales and collaboration agreements; product sales allowances and accruals; potential other-than-temporary impairment of investments; acquisition date fair value and subsequent fair value estimates used to assess impairment of long-lived assets, including goodwill, in-process research and development (“IPR&D”) and other intangible assets; contingent consideration; debt obligations; accrued expenses; income taxes and equity-based compensation expense. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents consist 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 March 31, 2015 and December 31, 2014, substantially all of our cash and cash equivalents were held in either commercial bank accounts or money market funds.

Principles of Consolidation

Principles of Consolidation

The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. Our results of operations for the three months ended March 31, 2015, include the results of Lumara Health, which we acquired on November 12, 2014 (the “Lumara Acquisition Date”).

Revenue Recognition

Revenue Recognition

We recognize revenue from the sale of our products as well as license fee, collaboration and other revenues, including milestone payments, other product sale revenues, and royalties we receive from our licensees. Revenue is recognized when the following criteria are met: persuasive evidence of an arrangement exists; delivery of product has occurred or services have been rendered; the sales price charged is fixed or determinable; and collection is reasonably assured.

Our U.S. product sales, which primarily represented revenues from Makena and Feraheme in the first quarter of 2015 and Feraheme in the first quarter of 2014, were offset by provisions for allowances and accruals as follows (in thousands):

	Three Months Ended March 31,
	2015		2014
Gross U.S. product sales	$	125,517	$	31,661
Provision for U.S. product sales allowances and accruals:
Contractual adjustments	35,134		13,973
Governmental rebates	12,968		165
Total provision for U.S product sales allowances and accruals	48,102		14,138
U.S. product sales, net	$	77,415	$	17,523

We recognize U.S. product sales revenue net of certain allowances and accruals in our condensed consolidated statement of operations at the time of sale. Our contractual adjustments include provisions for returns, pricing and prompt payment discounts, as well as wholesaler distribution fees, and volume-based and other commercial rebates. Governmental rebates relate to our reimbursement arrangements with state Medicaid programs.

We did not materially adjust our product sales allowances and accruals during the three months ended March 31, 2015 or 2014. If we determine in future periods that our actual experience is not indicative of our expectations, if our actual experience changes, or if other factors affect our estimates, we may be required to adjust our allowances and accruals estimates, which would affect our net product sales in the period of the adjustment and could be significant.

The increases in contractual adjustments and governmental rebates primarily reflects the addition of Makena to our product portfolio in connection with the November 2014 acquisition of Lumara Health.

IPR&D

IPR&D

IPR&D acquired in a business combination is capitalized on our condensed consolidated balance sheet at the acquisition-date fair value, net of any accumulated impairment losses. IPR&D is tested for impairment on an annual basis or more frequently if indicators of impairment are present, until completion or abandonment of the projects. If we determine that IPR&D becomes impaired or is abandoned, the carrying value of the IPR&D is written down to its fair value with the related impairment charge recognized in our condensed consolidated statement of operations in the period in which the impairment occurs. Upon successful completion of each project and launch of the product, we will make a separate determination of the estimated useful life of the IPR&D intangible asset and the related amortization will be recorded as an expense prospectively over its estimated useful life.

Concentrations and Significant Customer Information

Concentrations and Significant Customer Information

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, investments, and accounts receivable. As of March 31, 2015, our cash, cash equivalents and investments amounted to approximately $361.1 million. We currently invest our excess cash primarily in corporate debt securities, commercial paper, certificates of deposit and municipal securities. As of March 31, 2015, approximately $193.9 million of our total $243.8 million cash and cash equivalents balance was invested in institutional money market funds, of which $190.8 million was invested in a single fund.

Our operations are located entirely within the U.S. We are focused principally on developing, manufacturing, and commercializing Makena and Feraheme 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 three months ended March 31, 2015 and 2014:

	Three Months Ended March 31,
	2015	2014
AmerisourceBergen Drug Corporation	30%	39%
Takeda Pharmaceuticals Company Limited	13%	11%
McKesson Corporation	10%	22%
Cardinal Health, Inc.	<10%	15%

In addition, approximately 23% and 28% of our Feraheme end-user demand during the three months ended March 31, 2015 and 2014, respectively, was generated by members of a single GPO with which we have contracted. Revenues from customers outside of the U.S. amounted to approximately 13% and 16% of our total revenues for the three months ended March 31, 2015 and 2014, respectively, and were principally related to Feraheme collaboration revenue recognized in connection with a license, development and commercialization agreement with our former partner Takeda Pharmaceutical Company Limited (“Takeda”), which is headquartered in Japan.

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