Delaware
|
11-3054851
|
|
(State or Other Jurisdiction
|
(I.R.S. Employer
|
|
of Incorporation or Organization)
|
Identification No.)
|
Large accelerated filer
|
☐
|
Accelerated filer
|
☒
|
Non-accelerated filer
|
☐ (Do not check if a smaller reporting company)
|
Smaller reporting company
|
☐
|
Emerging growth company
|
☐
|
Class of Stock
|
Outstanding May 9, 2017
|
Common Stock ($.001 par value)
|
7,171,510
|
Page
|
||
PART I – FINANCIAL INFORMATION
|
||
ITEM 1.
|
Financial Statements
|
|
4
|
||
5
|
||
6
|
||
7
|
||
ITEM 2.
|
17
|
|
ITEM 3.
|
24
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|
ITEM 4.
|
24
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PART II – OTHER INFORMATION
|
||
ITEM 1.
|
24
|
|
ITEM 1A.
|
25
|
|
ITEM 2.
|
25
|
|
ITEM 6.
|
25
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|
26
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March 31,
2017 |
December 31,
2016 |
|||||||
(unaudited)
|
(audited)
|
|||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
9,031,808
|
$
|
4,763,364
|
||||
Short term investments
|
38,839,967
|
44,254,862
|
||||||
Accounts receivable
|
4,928,293
|
3,810,792
|
||||||
Income tax receivable
|
282,537
|
494,711
|
||||||
Deferred royalty buy-down
|
1,491,948
|
1,451,893
|
||||||
Prepaid expenses and other current assets
|
583,636
|
624,345
|
||||||
Total current assets
|
55,158,189
|
55,399,967
|
||||||
Long-term investments
|
8,101,594
|
3,771,380
|
||||||
Deferred royalty buy-down – long term, net
|
1,573,428
|
1,976,456
|
||||||
Deferred tax assets, net
|
3,192,614
|
3,290,122
|
||||||
Patent costs, net
|
248,193
|
258,355
|
||||||
Total assets
|
$
|
68,274,018
|
$
|
64,696,280
|
||||
Liabilities and stockholders’ equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable and accrued expenses
|
1,161,443
|
$
|
738,649
|
|||||
Deferred revenue
|
1,362,890
|
1,179,848
|
||||||
Accrued liabilities of discontinued operations
|
78,138
|
78,138
|
||||||
Total current liabilities
|
2,602,471
|
1,996,635
|
||||||
Long-term deferred revenue
|
5,974,947
|
6,417,702
|
||||||
Stockholders’ equity:
|
||||||||
Series A Preferred stock, $.50 par value, 700,000 shares authorized; none outstanding
|
-
|
-
|
||||||
Common stock, $.001 par value; 10,000,000 shares authorized; 7,575,167 and 7,555,167 shares issued, 7,172,021 and 7,156,281 shares outstanding as of March 31, 2017 and December 31, 2016, respectively
|
7,575
|
7,555
|
||||||
Additional paid-in capital
|
33,236,946
|
32,945,240
|
||||||
Retained earnings
|
33,955,602
|
30,610,849
|
||||||
Treasury stock, 403,146 and 398,886 shares at cost as of March 31, 2017 and December 31, 2016, respectively
|
(7,503,523
|
)
|
(7,281,701
|
)
|
||||
Total stockholders’ equity
|
59,696,600
|
56,281,943
|
||||||
Total liabilities and stockholders’ equity
|
$
|
68,274,018
|
$
|
64,696,280
|
Three Months Ended
March 31,
|
||||||||
2017
|
2016
|
|||||||
Revenues:
|
||||||||
Royalties
|
$
|
7,686,210
|
$
|
6,555,647
|
||||
Licensing revenues
|
4,409
|
12,344
|
||||||
Total Revenues
|
7,690,619
|
6,567,991
|
||||||
Costs and expenses:
|
||||||||
Research and development
|
254,781
|
248,500
|
||||||
General and administrative
|
2,425,717
|
2,164,333
|
||||||
Total Cost and Expenses
|
2,680,498
|
2,412,833
|
||||||
Operating income
|
5,010,121
|
4,155,158
|
||||||
Other income:
|
||||||||
Interest income
|
101,753
|
52,703
|
||||||
Other income
|
2,562
|
21,358
|
||||||
104,315
|
74,061
|
|||||||
Income before income tax expense
|
5,114,436
|
4,229,219
|
||||||
Provision for income tax expense
|
(1,769,683
|
)
|
(1,400,095
|
)
|
||||
Net income
|
$
|
3,344,753
|
$
|
2,829,124
|
||||
Basic net income per share
|
$
|
0.47
|
$
|
0.40
|
||||
Diluted net income per share
|
$
|
0.46
|
$
|
0.39
|
||||
Shares used in computation of basic net income per share
|
7,164,248
|
7,011,664
|
||||||
Shares used in computation of diluted net income per share
|
7,332,736
|
7,274,966
|
Three Months Ended
March 31,
|
||||||||
Cash flows from operating activities:
|
2017
|
2016
|
||||||
Net income
|
$
|
3,344,753
|
$
|
2,829,124
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Amortization
|
545,067
|
414,744
|
||||||
Stock-based compensation expense
|
33,476
|
33,476
|
||||||
Deferred tax expense
|
97,508
|
(2,819,285
|
)
|
|||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(1,117,501
|
)
|
(1,239,234
|
)
|
||||
Income tax receivable
|
212,174
|
(12,000
|
)
|
|||||
Prepaid expenses and other current assets
|
40,709
|
(83,320
|
)
|
|||||
Patent costs
|
-
|
(5,414
|
)
|
|||||
Accounts payable and accrued expenses
|
422,793
|
26,739
|
||||||
Deferred revenue
|
(259,713
|
)
|
8,237,655
|
|||||
Net cash provided by operating activities
|
3,319,266
|
7,382,485
|
||||||
Cash flows from investing activities:
|
||||||||
Maturity of marketable investments
|
18,217,000
|
12,233,583
|
||||||
Purchases of marketable investments
|
(17,304,251
|
)
|
(15,169,104
|
)
|
||||
Net cash provided by (used in) investing activities
|
912,749
|
(2,935,521
|
)
|
|||||
Cash flows from financing activities:
|
||||||||
Proceeds from stock option exercises
|
258,250
|
177,250
|
||||||
Payments for repurchase of common stock
|
(221,821
|
)
|
(398,976
|
)
|
||||
Excess tax benefits from share-based payment arrangements
|
-
|
151,380
|
||||||
Net cash provided by (used in) financing activities
|
36,429
|
(70,346
|
)
|
|||||
Increase in cash and cash equivalents
|
4,268,444
|
4,376,618
|
||||||
Cash and cash equivalents at beginning of year
|
4,763,364
|
5,137,875
|
||||||
Cash and cash equivalents at end of period
|
$
|
9,031,808
|
$
|
9,514,493
|
||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
-
|
-
|
||||||
Taxes
|
$
|
1,460,000
|
$
|
4,080,000
|
|
Maturities as of
March 31, 2017
|
Maturities as of
December 31, 2016
|
||||||||||||||
|
1 Year or
Less
|
Greater than
1 Year
|
1 Year or
Less
|
Greater than
1 Year
|
||||||||||||
Municipal bonds
|
$
|
5,386,078
|
$
|
326,178
|
$
|
6,967,954
|
$
|
586,074
|
||||||||
Corporate Bonds
|
28,801,989
|
7,775,416
|
30,418,120
|
2,936,287
|
||||||||||||
Certificates of deposit
|
4,651,900
|
-
|
6,868,788
|
249,019
|
||||||||||||
Total
|
$
|
38,839,967
|
$
|
8,101,594
|
$
|
44,254,862
|
$
|
3,771,380
|
March 31, 2017
|
Type of Instrument
|
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Cash equivalents
|
Institutional Money Market
|
$
|
4,472,856
|
$
|
4,472,856
|
-
|
-
|
||||||||||
Investments
|
Municipal Bonds
|
5,712,256
|
-
|
$
|
5,712,256
|
-
|
|||||||||||
Investments
|
Corporate Bonds
|
36,578,305
|
-
|
36,578,305
|
-
|
||||||||||||
Investments
|
Certificates of Deposit
|
4,651,900
|
4,651,900
|
-
|
-
|
December 31, 2016
|
Type of Instrument
|
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Cash equivalents
|
Institutional Money Market
|
$
|
2,290,331
|
$
|
2,290,331
|
-
|
-
|
||||||||||
Investments
|
Municipal Bonds
|
7,554,028
|
-
|
7,554,028
|
-
|
||||||||||||
Investments
|
Corporate Bonds
|
33,354,407
|
-
|
33,354,407
|
-
|
||||||||||||
Investments
|
Certificates of Deposit
|
7,117,807
|
7,117,807
|
-
|
-
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding at December 31, 2016
|
297,000
|
$
|
20.14
|
3.10
|
10,561,380
|
|||||||||||
Grants
|
-
|
-
|
-
|
-
|
||||||||||||
Exercised
|
(20,000
|
)
|
12.91
|
-
|
-
|
|||||||||||
Forfeitures or expirations
|
-
|
-
|
-
|
-
|
||||||||||||
Outstanding at March 31, 2017
|
277,000
|
$
|
20.66
|
2.99
|
$
|
9,456,330
|
||||||||||
Exercisable at March 31, 2017
|
230,750
|
$
|
18.31
|
2.47
|
$
|
8,420,093
|
Three Months Ended
March 31,
|
||||||||
2017
|
2016
|
|||||||
Stock options
|
20,000
|
20,000
|
March 31,
2017
|
December 31,
2016
|
|||||||
Trade accounts payable
|
$
|
251,648
|
$
|
505,098
|
||||
Accrued third party royalties
|
491,243
|
-
|
||||||
Accrued legal and other professional fees
|
189,132
|
51,000
|
||||||
Accrued payroll and related costs
|
173,158
|
182,551
|
||||||
Other accruals
|
56,262
|
-
|
||||||
Total
|
$
|
1,161,443
|
$
|
738,649
|
March 31,
2017 |
December 31,
2016 |
|||||||
Patents
|
$
|
720,601
|
$
|
720,601
|
||||
Accumulated amortization
|
(472,408
|
)
|
(462,246
|
)
|
||||
$
|
248,193
|
$
|
258,355
|
April 1, 2017-December 31, 2017
|
$
|
30,500
|
||
2018
|
40,600
|
|||
2019
|
40,600
|
|||
2020
|
28,600
|
|||
2021
|
16,600
|
|||
Thereafter
|
$
|
91,200
|
Three Months Ended
March 31, 2017
|
Three Months Ended
March 31, 2016
|
|||||||
Program
|
||||||||
Human Lipoma
|
$
|
-
|
$
|
35,969
|
||||
Uterine Fibroids
|
120,386
|
16,337
|
||||||
Pre-clinical/other research projects
|
134,395
|
196,194
|
· |
the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects;
|
· |
the anticipated completion dates for our drug candidate projects;
|
· |
the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drug candidate projects;
|
· |
the scope, rate of progress of our preclinical studies and other R&D activities related to our drug candidate projects;
|
· |
clinical trial results for our drug candidate projects;
|
· |
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidate projects;
|
· |
the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drug candidate projects;
|
· |
the cost and timing of regulatory approvals with respect to our drug candidate projects; and
|
· |
the cost of establishing clinical supplies for our drug candidate projects.
|
Period
|
Total Number of
Shares
Purchased (2)
|
Average
Price Paid
Per Share (3)
|
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plan
|
Maximum
Number (or
Dollar Value) of
Shares that may
yet be Purchased
under the Plan
|
||||||||||||
$
|
571,419
|
(1)
|
||||||||||||||
January 1, 2017 – January 31, 2017
|
1,625
|
$
|
52.75
|
264,591
|
485,708
|
|||||||||||
February 1, 2017 – February 28, 2017
|
1,915
|
$
|
50.99
|
266,506
|
388,069
|
|||||||||||
March 1, 2017 – March 31, 2017
|
720
|
$
|
53.43
|
267,226
|
$
|
349,598
|
(1) |
On August 17, 2015, we announced that our Board of Directors had authorized the repurchase of up to $2.5 million of our common stock under the stock repurchase program.
|
(2) |
The purchases were made in open-market transactions in compliance with rule 10b-18 or under the company’s 10b-18 plan.
|
(3) |
Includes commissions paid, if any, related to the stock repurchase transactions.
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule13a-14(a)/15d-14(a).
|
||
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of
|
||
101*
|
The following materials from BioSpecifics Technologies Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements.
|
*
|
filed herewith
|
**
|
furnished herewith
|
BIOSPECIFICS TECHNOLOGIES CORP.
|
|
(Registrant)
|
|
Date: May 10, 2017
|
/s/ Thomas L. Wegman
|
Thomas L. Wegman
|
|
President, Principal Executive Officer and
|
|
Principal Financial Officer
|
1. |
I have reviewed this report on Form 10-Q for the quarterly period ended March 31, 2017 of BioSpecifics Technologies Corp.;
|
2. |
Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
Date: May 10, 2017
|
|
/s/ Thomas L. Wegman
|
|
Thomas L. Wegman
|
|
President, Principal Executive Officer and Principal Financial Officer
|
1. |
The Company’s report on Form 10-Q for the quarterly period ended March 31, 2017 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act); and
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
|
/s/ Thomas L. Wegman
|
|
Thomas L. Wegman
|
|
President, Principal Executive Officer and Principal Financial Officer
|
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
May 09, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | BIOSPECIFICS TECHNOLOGIES CORP | |
Entity Central Index Key | 0000875622 | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | No | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 7,171,510 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2017 |
Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Stockholders' equity: | ||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, authorized (in shares) | 10,000,000 | 10,000,000 |
Common stock, issued (in shares) | 7,575,167 | 7,555,167 |
Common stock, outstanding (in shares) | 7,172,021 | 7,156,281 |
Treasury stock, shares (in shares) | 403,146 | 398,886 |
Series A Preferred Stock [Member] | ||
Stockholders' equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.50 | $ 0.50 |
Preferred stock, authorized (in shares) | 700,000 | 700,000 |
Preferred stock, outstanding (in shares) | 0 | 0 |
Condensed Consolidated Income Statements (unaudited) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Revenues: | ||
Royalties | $ 7,686,210 | $ 6,555,647 |
Licensing revenues | 4,409 | 12,344 |
Total Revenues | 7,690,619 | 6,567,991 |
Costs and expenses: | ||
Research and development | 254,781 | 248,500 |
General and administrative | 2,425,717 | 2,164,333 |
Total Cost and Expenses | 2,680,498 | 2,412,833 |
Operating income | 5,010,121 | 4,155,158 |
Other income: | ||
Interest income | 101,753 | 52,703 |
Other income | 2,562 | 21,358 |
Total Other Income | 104,315 | 74,061 |
Income before income tax expense | 5,114,436 | 4,229,219 |
Provision for income tax expense | (1,769,683) | (1,400,095) |
Net income | $ 3,344,753 | $ 2,829,124 |
Basic net income per share (in dollars per share) | $ 0.47 | $ 0.40 |
Diluted net income per share (in dollars per share) | $ 0.46 | $ 0.39 |
Shares used in computation of basic net income per share (in shares) | 7,164,248 | 7,011,664 |
Shares used in computation of diluted net income per share (in shares) | 7,332,736 | 7,274,966 |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
ORGANIZATION AND DESCRIPTION OF BUSINESS [Abstract] | |
ORGANIZATION AND DESCRIPTION OF BUSINESS | 1. ORGANIZATION AND DESCRIPTION OF BUSINESS We are a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum for multiple indications. We currently have a development and license agreement with Endo Global Ventures, a Bermuda unlimited liability company (“Endo Global Ventures”), an affiliate of Endo International plc (“Endo”), for injectable collagenase for marketed indications and indications in development. Endo assumed this agreement when Endo acquired Auxilium Pharmaceuticals, Inc. (“Auxilium”) on January 29, 2015 (the “Acquisition”). Injectable collagenase clostridium histolyticum is marketed as XIAFLEX® (or Xiapex® in Europe). On August 31, 2011, we entered into the Second Amended and Restated Development and License Agreement (the “License Agreement”) with Auxilium for XIAFLEX. The License Agreement was filed with the Securities and Exchange Commission (the “SEC”) on September 1, 2011 as Exhibit 10.1 to a Current Report on Form 8-K. Auxilium subsequently assigned the License Agreement to Auxilium Bermuda ULC. As a result of the Acquisition and resulting internal restructuring, the counterparty to the agreement is now Endo Global Ventures. On February 1, 2016, we entered into with Endo the First Amendment (the “First Amendment”) to the Second Amended and Restated Development and Licensing Agreement (the “Auxilium Agreement”), by and between us and Auxilium, now a wholly-owned subsidiary of Endo, to amend certain provisions of the Auxilium Agreement (as amended by the First Amendment, the “License Agreement”). The First Amendment was filed with the SEC on February 5, 2016 as Exhibit 10.1 to a Current Report on Form 8-K. The effective date of the First Amendment was January 1, 2016. Pursuant to the First Amendment, we and Endo mutually agreed that in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016 and began recognizing this income over time based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy in the second quarter of 2016. Additionally, we agreed that Endo may opt-in early to indications, prior to our submission of a clinical trial report, with our consent, such consent not to be unreasonably withheld. For early opt-ins, Endo will be required to make an opt-in payment of $0.5 million on a per indication basis. For regular opt-ins, following our submission of a clinical trial report, Endo will be required to make an opt-in payment of $0.75 million on a per indication basis. The two marketed indications involving our injectable collagenase are Dupuytren’s contracture and Peyronie’s disease. Prior to the Acquisition, Auxilium had, and after the Acquisition, Endo has, opted-in to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosis and human lipoma. Endo exercised, with our consent, an early opt-in for lateral hip fat and plantar fibromatosis in November 2015. Endo opted-in for human lipoma in July 2016. We manage the development of XIAFLEX for uterine fibroids and initiate the development of XIAFLEX in new potential indications, not licensed by Endo. On November 8, 2016, following a change in Endo management, Endo announced that a commercial review is ongoing of the XIAFLEX exercised but non-marketed indications, including frozen shoulder, cellulite, lateral hip fat, plantar fibromatosis and human lipoma, so that Endo can best prioritize its R&D efforts and determine clinical trial timelines moving forward. We are awaiting an update on Endo’s ongoing commercial review. Endo is currently selling XIAFLEX in the U.S. for the treatment of Dupuytren’s contracture and Peyronie’s disease and has an agreement with Swedish Orphan Biovitrum AB (“Sobi”), pursuant to which Sobi has marketing rights for Xiapex for Dupuytren’s contracture and Peyronie’s disease in Europe and certain Eurasian countries. Sobi is currently selling Xiapex in Europe and certain Eurasian countries for the treatment of Dupuytren’s contracture and Peyronie’s disease. In addition, Endo has an agreement with Asahi Kasei Pharma Corporation (“Asahi”) pursuant to which Asahi has the right to commercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Japan. Asahi is selling XIAFLEX for the treatment of Dupuytren’s contracture in Japan. Endo also had an agreement with Actelion Pharmaceuticals Ltd. (“Actelion”), pursuant to which Actelion had the right to commercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Canada and Australia. Actelion received regulatory approval in Canada and Australia for XIAFLEX for the treatment of Dupuytren’s contracture and was selling XIAFLEX in Canada and Australia. Endo terminated its agreement with Actelion as of July 4, 2016 and a transitional services agreement was put in place to cover both Canada and Australia. Endo is currently distributing XIAFLEX in Canada through Paladin Labs Inc. In December 2016, Endo entered into a new out-licensing agreement with Actelion, pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX in Australia and New Zealand. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying condensed consolidated financial statements are unaudited, but include all adjustments (consisting only of normal, recurring adjustments) which we consider necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for those periods. Although we believe that the disclosures in our financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reporting. The information included in this Report should be read in conjunction with the risk factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 16, 2017. Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its subsidiary, Advance Biofactures Corp. (“ABC-NY”). All intercompany balances and transactions have been eliminated. Critical Accounting Policies, Estimates and Assumptions The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the use of management’s estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company makes certain assumptions and estimates for its deferred tax assets and deferred royalty buy-down. For further details see notes “Provision for Income Taxes” and “Third-Party Royalties and Royalty Buy-Down.” Actual results may differ from those estimates. Cash, Cash Equivalents and Investments Cash equivalents include only securities having a maturity of three months or less at the time of purchase. Investments are stated on an amortized cost basis. The Company limits its credit risk associated with cash, cash equivalents and investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, certificates of deposit and municipal bonds. All investments are classified as held to maturity. As of March 31, 2017 and December 31, 2016, the aggregate fair value of these cash, cash equivalents and investments was $56.0 million and $52.8 million, respectively. Fair Value Measurements Management believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents, held to maturity investments, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of those instruments. As of March 31, 2017 and December 31, 2016, there were no recorded unrealized gains or losses on our investments as they are held to maturity. As of March 31, 2017, amortized cost basis of the investments approximate their fair value. At March 31, 2017 and December 31, 2016, the amortized premium included in interest income was $172,000 and $610,000, respectively. The following table presents the Company’s schedule of maturities at March 31, 2017 and December 31, 2016:
The authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developed assumptions) in which little or no market data exists. As of March 31, 2017, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tables present the Company’s fair value hierarchy for these financial assets as of March 31, 2017 and December 31, 2016:
Concentration of Credit Risk and Major Customers The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash. The Company maintains investments in FDIC insured certificates of deposits with several banks, municipal bonds and corporate bonds. The Company is currently dependent on one customer, Endo, who generates almost all its revenues. For the three months ended March 31, 2017 and 2016, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $7.7 million and $6.6 million, respectively. At March 31, 2017 and December 31, 2016, our accounts receivable balances were $4.9 million and $3.8 million, respectively. Revenue Recognition We currently recognize revenues resulting from the licensing and sublicensing of the use of our technology and from services we sometimes perform in connection with the licensed technology under the guidance of Accounting Standards Codification 605, Revenue Recognition (“ASC 605”). If we determine that separate elements exist in a revenue arrangement under ASC 605, we recognize revenue for delivered elements only when the fair values of undelivered elements are known, when the associated earnings process is complete, when payment is reasonably assured and, to the extent the milestone amount relates to our performance obligation, when our customer confirms that we have met the requirements under the terms of the agreement. Revenues, and their respective treatment for financial reporting purposes, are as follows: Royalty / Mark-Up on Cost of Goods Sold For those arrangements for which royalty and mark-up on cost of goods sold information becomes available and collectability is reasonably assured, we recognize revenue during the applicable period in which it is earned. For interim quarterly and year-end reporting purposes, when collectability is reasonably assured, but a reasonable estimate of royalty and mark-up on cost of goods sold cannot be made, the royalty and mark-up on cost of goods sold are generally recognized in the quarter that the applicable licensee provides the written report and related information to us. Under the License Agreement, we do not participate in the selling, marketing or manufacturing of products for which we receive royalties and a mark-up on the cost of goods sold. The royalty and mark-up on cost of goods sold will generally be recognized in the quarter that Endo provides the written reports and related information to us; that is, royalty and mark-up on cost of goods sold are generally recognized one quarter following the quarter in which the underlying sales by Endo occurred. The royalties payable by Endo to us are subject to set-off for certain patent costs. Pursuant to the First Amendment with Endo, in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016. We classified this payment as deferred revenue in our balance sheet and began recognizing this income over time in the second quarter of 2016 based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy. We recognized approximately $255,000 and zero for the three months ended March 31, 2017 and 2016, respectively. Licensing Revenue We include revenue recognized from upfront licensing, sublicensing and milestone payments in “License Revenues” in our condensed consolidated statements of income in this Quarterly Report on Form 10-Q. Upfront License and Sublicensing Fees We generally recognize revenue from upfront licensing and sublicensing fees when the license or sublicense agreement is signed, we have completed the earnings process and we have no ongoing performance obligation with respect to the arrangement. Nonrefundable upfront technology license fees for product candidates for which we are providing continuing services related to product development are deferred and recognized as revenue over the development period. We recognized deferred revenue of $4,409 and $12,344 for the three months ended March 31, 2017 and 2016, respectively. Milestones Milestones, in the form of additional license fees, typically represent nonrefundable payments to be received in conjunction with the achievement of a specific event identified in the license or sublicense agreement, such as completion of specified development activities and/or regulatory submissions and/or approvals. We believe that a milestone represents the culmination of a distinct earnings process when it is not associated with ongoing research, development or other performance on our part. We recognize such milestones as revenue when they become due and collection is reasonably assured. When a milestone does not represent the culmination of a distinct earnings process, we recognize revenue in a manner similar to that of an upfront license fee. The timing and amount of revenue that we recognize from licenses of technology, either from upfront fees or milestones where we are providing continuing services related to product development, are primarily dependent upon our estimates of the development period. We define the development period as the point from which research activities commence up to regulatory approval of either our or our partners’ submission, assuming no further research is necessary. As product candidates move through the development process, it is necessary to revise these estimates to consider changes to the product development cycle, such as changes in the clinical development plan, regulatory requirements, or various other factors, many of which may be outside of our control. Should the U.S. Food and Drug Administration (“FDA”) or other regulatory agencies require additional data or information, we would adjust our development period estimates accordingly. The impact on revenue of changes in our estimates and the timing thereof is recognized prospectively over the remaining estimated product development period. We did not recognize any milestone revenue in the three month periods ended March 31, 2017 and 2016. Treasury Stock The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. For the three months ended March 31, 2017, we repurchased 4,260 shares at an average price of $52.07 as compared to the repurchase of 10,615 shares at an average price of $37.59 in the corresponding 2016 period. Receivables and Doubtful Accounts Trade accounts receivable are stated at the amount the Company expects to collect. We may maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Our accounts receivable balance is typically due from Endo, our one large specialty pharmaceutical customer. Endo has historically paid timely and has been a financially stable organization. Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal. If the financial condition of our customer were to deteriorate, adversely affecting its ability to make payments, additional allowances would be required. We may provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At March 31, 2017 and December 31, 2016 our accounts receivable balance was $4.9 million and $3.8 million, respectively, and was from one customer, Endo. Deferred Revenue Deferred revenue consists of the remaining $7.2 million related to the First Amendment with Endo of mark-up on cost of goods sold revenue for sales by non-affiliated sublicensees, approximately $53,000 related to nonrefundable upfront product license fees for product candidates for which we are providing continuing services related to product development and $100,000 related to a milestone payment withheld by Endo due to a foreign tax withholding which remains uncollected. Currently, the Company expects to recover the full amount. As of March 31, 2017 and December 31, 2016, deferred revenue was $7.3 million and $7.6 million, respectively. Reimbursable Third-Party Patent Costs We accrue patent costs that are reimbursable to Endo by us under the License Agreement. We capitalize certain patent costs related to patent prosecution and maintenance and expense others. As of March 31, 2017 and December 31, 2016, our net reimbursable third party patent expense was approximately $222,000 and $25,000, respectively. Third-Party Royalties We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC. No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are generally expensed under general and administrative in the quarter that Endo provides the written reports and related information to us; that is, generally one quarter following the quarter in which the underlying sales by Endo occurred. For the three month periods ended March 31, 2017 and 2016, third-party royalty expenses were $0.5 million and $0.4 million, respectively. Our third-party royalty expense under general and administrative expenses may increase if net sales by Endo and its partners for XIAFLEX and Xiapex increase and potential new indications for XIAFLEX and Xiapex are approved, marketed and sold. Royalty Buy-Down On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with Peyronie’s disease. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, four of which have been paid as of March 31, 2017. We are currently making the payments to buy down the future royalty obligations, which royalty obligations terminate five years after first commercial sale. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of XIAFLEX and Xiapex for Peyronie’s disease on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three months ended March 31, 2017 and 2016, we amortized approximately $363,000 and $274,000 related to this agreement, respectively. As of March 31, 2017 and 2016, the remaining capitalized balances were approximately $3.1 million and $3.4 million, respectively. We perform an evaluation of the recoverability of the carrying value to determine if facts and circumstances indicate that the carrying value of the assets may be impaired and if any adjustment is warranted. As of March 31, 2017, there was no indicator that an impairment existed. Research and Development Expenses R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees and costs associated with clinical study arrangements. We may fund R&D at medical research institutions under agreements that are generally cancelable. All of these costs are charged to R&D as incurred, which may be measured by percentage of completion, contract milestones, patient enrollment, or the passage of time. Clinical Trial Expenses Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centers and clinical research organizations. In the normal course of business we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, the completion of portions of the clinical trial, or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual cost of services received and efforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized ratably beginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates and assumptions could differ significantly from the amounts that may actually be incurred. Stock-Based Compensation The Company has one stock-based compensation plan in effect. Accounting Standards Codification 718, Compensation - Stock Compensation (“ASC 718”), requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock options including stock options and common stock issued to our employees and directors under our stock plans. ASC 718 requires companies to estimate the fair value of stock option awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our condensed consolidated statements of operations. Under ASC 718, we estimate the fair value of our employee stock option awards at the date of grant using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of the expected volatility of the market price of our stock and the expected term of an award. When establishing an estimate of the expected term of an option award, we consider the vesting period for the award, our recent historical experience of employee stock option exercises (including forfeitures) and the expected volatility of our common stock. As required under the accounting rules, we review our estimates at each grant date and, as a result, the valuation assumptions that we use to value employee stock-based awards granted in future periods may change. No stock options were granted during the three months ended March 31, 2017 and 2016. Further, ASC 718 requires that employee stock-based compensation costs be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line are estimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and revised, if necessary, in future periods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the current period. Stock-based compensation expense recognized in general and administrative expenses was approximately $33,000 for each three month period ended March 31, 2017 and 2016. Stock Option Activity A summary of our stock option activity during the three months ended March 31, 2017 is presented below:
During the three months ended March 31, 2017 and 2016, the Company received $258,250 and $177,250, respectively, from stock options exercised by option holders. Aggregate intrinsic value represents the total pre-tax intrinsic value based on the closing price of our common stock of $54.80 on March 31, 2017, which would have been received by the option holders had all option holders exercised their options as of that date. We have approximately $234,000 in unrecognized compensation cost related to stock options outstanding as of March 31, 2017, which we expect to recognize over the next 2.0 years. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on a straight-line basis over their estimated useful lives of five to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining life of the lease. At each of March 31, 2017 and December 31, 2016, property and equipment were fully depreciated. Comprehensive Income For each of the three months periods ended March 31, 2017 and 2016, we had no components of other comprehensive income other than net income itself. Provision for Income Taxes Deferred tax assets and liabilities are recognized based on the expected future tax consequences, using current tax rates, of temporary differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We use the asset and liability method of accounting for income taxes, as set forth in Accounting Standards Codification 740-10-25-2. Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities at the statutory rates enacted for future periods. In accordance with Accounting Standards Codification 740-10-45-25, Income Statement Classification of Interest and Penalties, we classify interest associated with income taxes under interest expense and tax penalties under other. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement. As of March 31, 2017 and December 31, 2016, the Company has not recorded any unrecognized tax benefits. Commitments and Contingencies On November 1, 2016, the Company entered into an agreement with the Landlord to extend the term of the lease to the Headquarters for an additional one year period (the “Extended Lease Agreement”). The one year extension will end on November 30, 2017. Pursuant to the Extended Lease Agreement, the base rent is $10,757 per month and the Company may cancel the lease with three months’ prior written notice to the Landlord at any time during the term. The Extended Lease Agreement was filed with the SEC as Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q on November 9, 2016. Adopted Accounting Standard In March 2016, the FASB issued ASU 2016-09, which amends the existing accounting standards for share-based payments, including the accounting for income taxes and forfeitures, as well as the classifications on the statements of cash flows. We adopted this guidance effective January 1, 2017. Beginning January 1, 2017, stock-based compensation excess tax benefits or tax deficiencies are reflected in the consolidated statements of operations as a component of the provision for taxes, whereas they previously were recognized as additional paid in capital in the stockholders’ deficit in the consolidated balance sheets. We have elected to continue to estimate forfeitures expected to occur to determine stock-based compensation expense. Additionally, beginning with the three months ended March 31, 2017, and on a prospective basis, the consolidated statements of cash flows now requires excess tax benefits be presented as an operating activity rather than as a financing activity, while the payment of withholding taxes on the settlement of stock-based compensation awards continues to be presented as a financing activity. The implementation of this guidance did not have a material impact on the consolidated financial statements for the three months ended March 31, 2017. New Accounting Pronouncements The Financial Accounting Standards Board, or FASB, issued in May 2014, in August 2015, March 2016 and April 2016, respectively, Accounting Standards Updates No. 2014-09, No. 2015-14, No. 2016-08, and No. 2016-10 (the “ASUs”). These ASUs were issued in connection with revenue from contracts with customers. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. In August 2015, the FASB deferred the effective date of the guidance to reporting periods, including interim periods, beginning after December 15, 2017, and will be applied retrospectively. Early adoption is not permitted. We are currently evaluating the timing, method of adoption and the expected impact that the standard could have on our consolidated financial statements and related disclosures. We expect to complete our evaluation by the second half of 2017. In January 2016, the FASB issued new guidance on recognition and measurement of financial assets and financial liabilities. The new guidance will impact the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. All equity investments in unconsolidated entities (other than those accounted for under the equity method of accounting) will generally be measured at fair value with changes in fair value recognized through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other comprehensive income (loss) for equity securities with readily determinable fair values. In addition, the FASB clarified the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale debt securities. In general, the new guidance will require modified retrospective application to all outstanding instruments, with a cumulative effect adjustment recorded to opening retained earnings. This guidance will be effective for us on January 1, 2018. We are currently evaluating the expected impact that the standard could have on our consolidated financial statements and related disclosures. In February 2016, FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the lease commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. We are currently evaluating the expected impact that the standard could have on our consolidated financial statements and related disclosures. In May 2016, FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. We are currently evaluating the expected impact that the standard could have on our consolidated financial statements and related disclosures. In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. The Company is required to adopt this standard starting in the first quarter of fiscal year 2021. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures. |
NET INCOME PER SHARE |
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NET INCOME PER SHARE [Abstract] | ||||||||||||||||||||||||||||
NET INCOME PER SHARE | 3. NET INCOME PER SHARE In accordance with Accounting Standards Codification 260, Earnings Per Share, basic net income per share amount is computed using the weighted-average number of shares of common stock outstanding during the periods presented, while diluted net income per share is computed using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted earnings per share result from the assumed exercise of stock options using the treasury stock method. The following table summarizes the number of common equivalent shares that were excluded for the calculation of diluted net income per share reported in the condensed consolidated statement of operations.
At March 31, 2017, the Company had 20,000 options, which have an exercise price of $29.21, and will vest upon the achievement of certain performance criteria, which have not yet been met. These options expire on December 2, 2019. |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
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ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following:
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PATENT COSTS |
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PATENT COSTS [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PATENT COSTS | 5. PATENT COSTS We amortize intangible assets with definite lives on a straight-line basis over their remaining estimated useful lives, ranging from two to ten years, and review for impairment on a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We analyze our intangible assets, specifically, capitalized patent costs, on an annual basis for any indicator that an impairment exist. We capitalized legal patent costs related to patent prosecution and maintenance. For the three months ended March 31, 2017, we did not increase our capitalized patent costs based on reports provided to us by Endo. Patent costs may be creditable against future royalty revenues. For each period presented below, net patent costs consisted of:
The amortization expense for patents for the three months ended March 31, 2017 and 2016 was approximately $10,200 and $9,600, respectively. The estimated aggregate amortization expense for the remaining nine months of 2017 and each of the years below is approximately as follows:
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PROVISION FOR INCOME TAXES |
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PROVISION FOR INCOME TAXES [Abstract] | |
PROVISION FOR INCOME TAXES | 6. PROVISION FOR INCOME TAXES In determining our provision for income taxes, we consider all available information, including operating results, ongoing tax planning, and forecasts of future taxable income. The significant components of the Company’s deferred tax assets consist of stock-based compensation and deferred revenues. For the three months ended March 31, 2017 and 2016, the provision for income taxes was $1.8 million and $1.4 million, respectively. As of March 31, 2017 and December 31, 2016, our remaining deferred tax assets were approximately $3.2 million and $3.3 million, respectively. As of March 31, 2017, the Company believes that there are no significant uncertain tax positions and no amounts have been recorded for interest and penalties. |
SUBSEQUENT EVENTS |
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SUBSEQUENT EVENTS [Abstract] | |
SUBSEQUENT EVENTS | 7. SUBSEQUENT EVENTS On April 18, 2017, we announced that we initiated an open-label, dose escalation Phase 1 clinical trial of XIAFLEX for the treatment of uterine fibroids. The Phase 1 open-label dose escalation study is being conducted at the Department of Gynecology & Obstetrics at Johns Hopkins University and will enroll 15 female subjects treated prior to hysterectomy. Three subjects have been injected with saline only to evaluate the safety and effectiveness of the injection method and the remaining 12 subjects will now be injected with increasing doses of XIAFLEX. The primary endpoint will assess the safety and tolerability of a single injection of XIAFLEX directly into the uterine fibroids at one of three doses under transvaginal ultrasound guidance. The secondary endpoints will assess symptoms of pain and bleeding, quality of life throughout the study, shrinkage of XIAFLEX treated fibroids in size, increased rates of apoptosis in treated fibroids and a decrease in the collagen content of treated fibroids. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements are unaudited, but include all adjustments (consisting only of normal, recurring adjustments) which we consider necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for those periods. Although we believe that the disclosures in our financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reporting. The information included in this Report should be read in conjunction with the risk factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 16, 2017. |
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Principles of Consolidation | Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its subsidiary, Advance Biofactures Corp. (“ABC-NY”). All intercompany balances and transactions have been eliminated. |
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Critical Accounting Policies, Estimates and Assumptions | Critical Accounting Policies, Estimates and Assumptions The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the use of management’s estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company makes certain assumptions and estimates for its deferred tax assets and deferred royalty buy-down. For further details see notes “Provision for Income Taxes” and “Third-Party Royalties and Royalty Buy-Down.” Actual results may differ from those estimates. |
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Cash, Cash Equivalents and Investments | Cash, Cash Equivalents and Investments Cash equivalents include only securities having a maturity of three months or less at the time of purchase. Investments are stated on an amortized cost basis. The Company limits its credit risk associated with cash, cash equivalents and investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, certificates of deposit and municipal bonds. All investments are classified as held to maturity. As of March 31, 2017 and December 31, 2016, the aggregate fair value of these cash, cash equivalents and investments was $56.0 million and $52.8 million, respectively. |
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Fair Value Measurements | Fair Value Measurements Management believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents, held to maturity investments, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of those instruments. As of March 31, 2017 and December 31, 2016, there were no recorded unrealized gains or losses on our investments as they are held to maturity. As of March 31, 2017, amortized cost basis of the investments approximate their fair value. At March 31, 2017 and December 31, 2016, the amortized premium included in interest income was $172,000 and $610,000, respectively. The following table presents the Company’s schedule of maturities at March 31, 2017 and December 31, 2016:
The authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developed assumptions) in which little or no market data exists. As of March 31, 2017, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tables present the Company’s fair value hierarchy for these financial assets as of March 31, 2017 and December 31, 2016:
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Concentration of Credit Risk and Major Customers | Concentration of Credit Risk and Major Customers The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash. The Company maintains investments in FDIC insured certificates of deposits with several banks, municipal bonds and corporate bonds. The Company is currently dependent on one customer, Endo, who generates almost all its revenues. For the three months ended March 31, 2017 and 2016, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $7.7 million and $6.6 million, respectively. At March 31, 2017 and December 31, 2016, our accounts receivable balances were $4.9 million and $3.8 million, respectively. |
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Revenue Recognition | Revenue Recognition We currently recognize revenues resulting from the licensing and sublicensing of the use of our technology and from services we sometimes perform in connection with the licensed technology under the guidance of Accounting Standards Codification 605, Revenue Recognition (“ASC 605”). If we determine that separate elements exist in a revenue arrangement under ASC 605, we recognize revenue for delivered elements only when the fair values of undelivered elements are known, when the associated earnings process is complete, when payment is reasonably assured and, to the extent the milestone amount relates to our performance obligation, when our customer confirms that we have met the requirements under the terms of the agreement. Revenues, and their respective treatment for financial reporting purposes, are as follows: |
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Royalty / Mark-Up on Cost of Goods Sold | Royalty / Mark-Up on Cost of Goods Sold For those arrangements for which royalty and mark-up on cost of goods sold information becomes available and collectability is reasonably assured, we recognize revenue during the applicable period in which it is earned. For interim quarterly and year-end reporting purposes, when collectability is reasonably assured, but a reasonable estimate of royalty and mark-up on cost of goods sold cannot be made, the royalty and mark-up on cost of goods sold are generally recognized in the quarter that the applicable licensee provides the written report and related information to us. Under the License Agreement, we do not participate in the selling, marketing or manufacturing of products for which we receive royalties and a mark-up on the cost of goods sold. The royalty and mark-up on cost of goods sold will generally be recognized in the quarter that Endo provides the written reports and related information to us; that is, royalty and mark-up on cost of goods sold are generally recognized one quarter following the quarter in which the underlying sales by Endo occurred. The royalties payable by Endo to us are subject to set-off for certain patent costs. Pursuant to the First Amendment with Endo, in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016. We classified this payment as deferred revenue in our balance sheet and began recognizing this income over time in the second quarter of 2016 based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy. We recognized approximately $255,000 and zero for the three months ended March 31, 2017 and 2016, respectively. |
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Licensing Revenue | Licensing Revenue We include revenue recognized from upfront licensing, sublicensing and milestone payments in “License Revenues” in our condensed consolidated statements of income in this Quarterly Report on Form 10-Q. Upfront License and Sublicensing Fees We generally recognize revenue from upfront licensing and sublicensing fees when the license or sublicense agreement is signed, we have completed the earnings process and we have no ongoing performance obligation with respect to the arrangement. Nonrefundable upfront technology license fees for product candidates for which we are providing continuing services related to product development are deferred and recognized as revenue over the development period. We recognized deferred revenue of $4,409 and $12,344 for the three months ended March 31, 2017 and 2016, respectively. Milestones Milestones, in the form of additional license fees, typically represent nonrefundable payments to be received in conjunction with the achievement of a specific event identified in the license or sublicense agreement, such as completion of specified development activities and/or regulatory submissions and/or approvals. We believe that a milestone represents the culmination of a distinct earnings process when it is not associated with ongoing research, development or other performance on our part. We recognize such milestones as revenue when they become due and collection is reasonably assured. When a milestone does not represent the culmination of a distinct earnings process, we recognize revenue in a manner similar to that of an upfront license fee. The timing and amount of revenue that we recognize from licenses of technology, either from upfront fees or milestones where we are providing continuing services related to product development, are primarily dependent upon our estimates of the development period. We define the development period as the point from which research activities commence up to regulatory approval of either our or our partners’ submission, assuming no further research is necessary. As product candidates move through the development process, it is necessary to revise these estimates to consider changes to the product development cycle, such as changes in the clinical development plan, regulatory requirements, or various other factors, many of which may be outside of our control. Should the U.S. Food and Drug Administration (“FDA”) or other regulatory agencies require additional data or information, we would adjust our development period estimates accordingly. The impact on revenue of changes in our estimates and the timing thereof is recognized prospectively over the remaining estimated product development period. We did not recognize any milestone revenue in the three month periods ended March 31, 2017 and 2016. |
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Treasury Stock | Treasury Stock The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. For the three months ended March 31, 2017, we repurchased 4,260 shares at an average price of $52.07 as compared to the repurchase of 10,615 shares at an average price of $37.59 in the corresponding 2016 period. |
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Receivables and Doubtful Accounts | Receivables and Doubtful Accounts Trade accounts receivable are stated at the amount the Company expects to collect. We may maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Our accounts receivable balance is typically due from Endo, our one large specialty pharmaceutical customer. Endo has historically paid timely and has been a financially stable organization. Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal. If the financial condition of our customer were to deteriorate, adversely affecting its ability to make payments, additional allowances would be required. We may provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At March 31, 2017 and December 31, 2016 our accounts receivable balance was $4.9 million and $3.8 million, respectively, and was from one customer, Endo. |
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Deferred Revenue | Deferred Revenue Deferred revenue consists of the remaining $7.2 million related to the First Amendment with Endo of mark-up on cost of goods sold revenue for sales by non-affiliated sublicensees, approximately $53,000 related to nonrefundable upfront product license fees for product candidates for which we are providing continuing services related to product development and $100,000 related to a milestone payment withheld by Endo due to a foreign tax withholding which remains uncollected. Currently, the Company expects to recover the full amount. As of March 31, 2017 and December 31, 2016, deferred revenue was $7.3 million and $7.6 million, respectively. |
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Reimbursable Third-Party Patent Costs | Reimbursable Third-Party Patent Costs We accrue patent costs that are reimbursable to Endo by us under the License Agreement. We capitalize certain patent costs related to patent prosecution and maintenance and expense others. As of March 31, 2017 and December 31, 2016, our net reimbursable third party patent expense was approximately $222,000 and $25,000, respectively. |
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Third-Party Royalties | Third-Party Royalties We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC. No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are generally expensed under general and administrative in the quarter that Endo provides the written reports and related information to us; that is, generally one quarter following the quarter in which the underlying sales by Endo occurred. For the three month periods ended March 31, 2017 and 2016, third-party royalty expenses were $0.5 million and $0.4 million, respectively. Our third-party royalty expense under general and administrative expenses may increase if net sales by Endo and its partners for XIAFLEX and Xiapex increase and potential new indications for XIAFLEX and Xiapex are approved, marketed and sold. |
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Royalty Buy-Down | Royalty Buy-Down On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with Peyronie’s disease. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, four of which have been paid as of March 31, 2017. We are currently making the payments to buy down the future royalty obligations, which royalty obligations terminate five years after first commercial sale. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of XIAFLEX and Xiapex for Peyronie’s disease on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three months ended March 31, 2017 and 2016, we amortized approximately $363,000 and $274,000 related to this agreement, respectively. As of March 31, 2017 and 2016, the remaining capitalized balances were approximately $3.1 million and $3.4 million, respectively. We perform an evaluation of the recoverability of the carrying value to determine if facts and circumstances indicate that the carrying value of the assets may be impaired and if any adjustment is warranted. As of March 31, 2017, there was no indicator that an impairment existed. |
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Research and Development Expenses | Research and Development Expenses R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees and costs associated with clinical study arrangements. We may fund R&D at medical research institutions under agreements that are generally cancelable. All of these costs are charged to R&D as incurred, which may be measured by percentage of completion, contract milestones, patient enrollment, or the passage of time. |
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Clinical Trial Expenses | Clinical Trial Expenses Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centers and clinical research organizations. In the normal course of business we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, the completion of portions of the clinical trial, or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual cost of services received and efforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized ratably beginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates and assumptions could differ significantly from the amounts that may actually be incurred. |
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Stock-Based Compensation | Stock-Based Compensation The Company has one stock-based compensation plan in effect. Accounting Standards Codification 718, Compensation - Stock Compensation (“ASC 718”), requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock options including stock options and common stock issued to our employees and directors under our stock plans. ASC 718 requires companies to estimate the fair value of stock option awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our condensed consolidated statements of operations. Under ASC 718, we estimate the fair value of our employee stock option awards at the date of grant using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of the expected volatility of the market price of our stock and the expected term of an award. When establishing an estimate of the expected term of an option award, we consider the vesting period for the award, our recent historical experience of employee stock option exercises (including forfeitures) and the expected volatility of our common stock. As required under the accounting rules, we review our estimates at each grant date and, as a result, the valuation assumptions that we use to value employee stock-based awards granted in future periods may change. No stock options were granted during the three months ended March 31, 2017 and 2016. Further, ASC 718 requires that employee stock-based compensation costs be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line are estimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and revised, if necessary, in future periods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the current period. Stock-based compensation expense recognized in general and administrative expenses was approximately $33,000 for each three month period ended March 31, 2017 and 2016. Stock Option Activity A summary of our stock option activity during the three months ended March 31, 2017 is presented below:
During the three months ended March 31, 2017 and 2016, the Company received $258,250 and $177,250, respectively, from stock options exercised by option holders. Aggregate intrinsic value represents the total pre-tax intrinsic value based on the closing price of our common stock of $54.80 on March 31, 2017, which would have been received by the option holders had all option holders exercised their options as of that date. We have approximately $234,000 in unrecognized compensation cost related to stock options outstanding as of March 31, 2017, which we expect to recognize over the next 2.0 years. |
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Property and Equipment | Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on a straight-line basis over their estimated useful lives of five to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining life of the lease. At each of March 31, 2017 and December 31, 2016, property and equipment were fully depreciated. |
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Comprehensive Income | Comprehensive Income For each of the three months periods ended March 31, 2017 and 2016, we had no components of other comprehensive income other than net income itself. |
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Provision for Income Taxes | Provision for Income Taxes Deferred tax assets and liabilities are recognized based on the expected future tax consequences, using current tax rates, of temporary differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We use the asset and liability method of accounting for income taxes, as set forth in Accounting Standards Codification 740-10-25-2. Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities at the statutory rates enacted for future periods. In accordance with Accounting Standards Codification 740-10-45-25, Income Statement Classification of Interest and Penalties, we classify interest associated with income taxes under interest expense and tax penalties under other. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement. As of March 31, 2017 and December 31, 2016, the Company has not recorded any unrecognized tax benefits. |
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Commitments and Contingencies | Commitments and Contingencies On November 1, 2016, the Company entered into an agreement with the Landlord to extend the term of the lease to the Headquarters for an additional one year period (the “Extended Lease Agreement”). The one year extension will end on November 30, 2017. Pursuant to the Extended Lease Agreement, the base rent is $10,757 per month and the Company may cancel the lease with three months’ prior written notice to the Landlord at any time during the term. The Extended Lease Agreement was filed with the SEC as Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q on November 9, 2016. |
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Adopted Accounting Standard | Adopted Accounting Standard In March 2016, the FASB issued ASU 2016-09, which amends the existing accounting standards for share-based payments, including the accounting for income taxes and forfeitures, as well as the classifications on the statements of cash flows. We adopted this guidance effective January 1, 2017. Beginning January 1, 2017, stock-based compensation excess tax benefits or tax deficiencies are reflected in the consolidated statements of operations as a component of the provision for taxes, whereas they previously were recognized as additional paid in capital in the stockholders’ deficit in the consolidated balance sheets. We have elected to continue to estimate forfeitures expected to occur to determine stock-based compensation expense. Additionally, beginning with the three months ended March 31, 2017, and on a prospective basis, the consolidated statements of cash flows now requires excess tax benefits be presented as an operating activity rather than as a financing activity, while the payment of withholding taxes on the settlement of stock-based compensation awards continues to be presented as a financing activity. The implementation of this guidance did not have a material impact on the consolidated financial statements for the three months ended March 31, 2017. |
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New Accounting Pronouncements | New Accounting Pronouncements The Financial Accounting Standards Board, or FASB, issued in May 2014, in August 2015, March 2016 and April 2016, respectively, Accounting Standards Updates No. 2014-09, No. 2015-14, No. 2016-08, and No. 2016-10 (the “ASUs”). These ASUs were issued in connection with revenue from contracts with customers. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. In August 2015, the FASB deferred the effective date of the guidance to reporting periods, including interim periods, beginning after December 15, 2017, and will be applied retrospectively. Early adoption is not permitted. We are currently evaluating the timing, method of adoption and the expected impact that the standard could have on our consolidated financial statements and related disclosures. We expect to complete our evaluation by the second half of 2017. In January 2016, the FASB issued new guidance on recognition and measurement of financial assets and financial liabilities. The new guidance will impact the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. All equity investments in unconsolidated entities (other than those accounted for under the equity method of accounting) will generally be measured at fair value with changes in fair value recognized through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other comprehensive income (loss) for equity securities with readily determinable fair values. In addition, the FASB clarified the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale debt securities. In general, the new guidance will require modified retrospective application to all outstanding instruments, with a cumulative effect adjustment recorded to opening retained earnings. This guidance will be effective for us on January 1, 2018. We are currently evaluating the expected impact that the standard could have on our consolidated financial statements and related disclosures. In February 2016, FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the lease commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. We are currently evaluating the expected impact that the standard could have on our consolidated financial statements and related disclosures. In May 2016, FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. We are currently evaluating the expected impact that the standard could have on our consolidated financial statements and related disclosures. In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. The Company is required to adopt this standard starting in the first quarter of fiscal year 2021. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Maturities | The following table presents the Company’s schedule of maturities at March 31, 2017 and December 31, 2016:
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Fair Value Assets Measured on Recurring Basis | The following tables present the Company’s fair value hierarchy for these financial assets as of March 31, 2017 and December 31, 2016:
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Summary of Stock Option Activity | A summary of our stock option activity during the three months ended March 31, 2017 is presented below:
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NET INCOME PER SHARE (Tables) |
3 Months Ended | |||||||||||||||||||||||||||
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Mar. 31, 2017 | ||||||||||||||||||||||||||||
NET INCOME PER SHARE [Abstract] | ||||||||||||||||||||||||||||
Number of Common Equivalent Shares Excluded from the Calculation of Diluted Net Income Per Share | The following table summarizes the number of common equivalent shares that were excluded for the calculation of diluted net income per share reported in the condensed consolidated statement of operations.
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ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCOUNTS PAYABLE AND ACCRUED EXPENSES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Payable and Accrued Expenses | Accounts payable and accrued expenses consisted of the following:
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PATENT COSTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
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PATENT COSTS [Abstract] | |||||||||||||||||||||||||||||||||||||
Net Patent Costs | For each period presented below, net patent costs consisted of:
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Estimated Aggregate Future Amortization Expense | The estimated aggregate amortization expense for the remaining nine months of 2017 and each of the years below is approximately as follows:
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ORGANIZATION AND DESCRIPTION OF BUSINESS (Details) - Endo [Member] - USD ($) $ in Thousands |
1 Months Ended | |
---|---|---|
Feb. 29, 2016 |
Mar. 31, 2017 |
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Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items] | ||
Deferred revenue on licensing agreements | $ 8,250 | |
Proceeds from licensing agreement | $ 8,250 | |
Opt-in fee receivable for each indication | 500 | |
Regular opt-in fee receivable for each indication | $ 750 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Cash, Cash Equivalents and Investments (Details) - USD ($) $ in Millions |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Cash, Cash Equivalents and Investments [Abstract] | ||
Aggregate fair value of investments | $ 56.0 | $ 52.8 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Concentration of Credit Risk and Major Customers and Revenue Recognition (Details) |
1 Months Ended | 3 Months Ended | ||
---|---|---|---|---|
Feb. 29, 2016
USD ($)
|
Mar. 31, 2017
USD ($)
Customer
|
Mar. 31, 2016
USD ($)
|
Dec. 31, 2016
USD ($)
|
|
Concentration Risk [Line Items] | ||||
Royalty revenue | $ 7,686,210 | $ 6,555,647 | ||
Accounts receivable | 4,928,293 | $ 3,810,792 | ||
Royalty / Mark-Up on Cost of Goods Sold [Abstract] | ||||
Deferred revenue recognized | 4,409 | 12,304 | ||
Licensing Revenue [Abstract] | ||||
Recognized milestone revenue | $ 0 | 0 | ||
Endo [Member] | ||||
Concentration Risk [Line Items] | ||||
Number of customers | Customer | 1 | |||
Royalty revenue | $ 7,700,000 | 6,600,000 | ||
Accounts receivable | 4,900,000 | $ 3,800,000 | ||
Royalty / Mark-Up on Cost of Goods Sold [Abstract] | ||||
Deferred revenue on licensing agreements | 8,250,000 | |||
Proceeds from licensing agreement | $ 8,250,000 | |||
Deferred revenue recognized | $ 255,000 | $ 0 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Treasury Stock, Receivables and Doubtful Accounts and Deferred Revenue (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
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Treasury Stock [Abstract] | |||
Treasury stock purchased (in shares) | 4,260 | 10,615 | |
Average price of share (in dollars per share) | $ 52.07 | $ 37.59 | |
Receivables and Doubtful Accounts [Abstract] | |||
Accounts receivable | $ 4,928,293 | $ 3,810,792 | |
Deferred Revenue [Abstract] | |||
Deferred revenue | 7,300,000 | 7,600,000 | |
Nonrefundable upfront product license fees | 53,000 | ||
Deferred revenue from foreign tax withholding | 100,000 | ||
Endo [Member] | |||
Receivables and Doubtful Accounts [Abstract] | |||
Accounts receivable | 4,900,000 | $ 3,800,000 | |
Deferred Revenue [Abstract] | |||
Deferred revenue | $ 7,200,000 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Reimbursable Third-Party Patent Costs, Third party Royalties and Royalty Buy-Down (Details) $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2017
USD ($)
Payment
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Mar. 31, 2016
USD ($)
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Mar. 31, 2012
USD ($)
Payment
|
Dec. 31, 2016
USD ($)
|
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Reimbursable Third-Party Patent Costs [Abstract] | ||||
Accrued patent costs | $ 222 | $ 25 | ||
Third-Party Royalties [Abstract] | ||||
Royalty expenses | 500 | $ 400 | ||
Royalty Buy-Down [Abstract] | ||||
Initial payment for royalty buy down | $ 600 | $ 1,500 | ||
Number of additional cash payments for royalty buy-down | Payment | 5 | |||
Number of cash payments made for royalty obligation | Payment | 4 | |||
Deferred costs, amortization period | 5 years | |||
Amount amortized related to agreement | $ 363 | 274 | ||
Deferred royalty buy-down - long term | $ 3,100 | $ 3,400 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Property and Equipment, Comprehensive Income, Provision for Income Taxes and Commitments and Contingencies (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Comprehensive Income [Abstract] | ||
Other comprehensive income | $ 0 | $ 0 |
Provision for Income Taxes [Abstract] | ||
Unrecognized tax benefits | $ 0 | $ 0 |
Commitments and Contingencies [Abstract] | ||
Additional lease term extension period | 1 year | |
Monthly base rent | $ 10,757 | |
Notice period to cancel lease agreements | 3 months | |
Minimum [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Estimated useful life | 5 years | |
Maximum [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Estimated useful life | 10 years |
NET INCOME PER SHARE (Details) - Stock Options [Member] - $ / shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
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Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive securities excluded from earnings per share calculation (in shares) | 20,000 | 20,000 |
Exercise price (in dollars per share) | $ 29.21 |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Accounts payable and accrued expenses [Abstract] | ||
Trade accounts payable | $ 251,648 | $ 505,098 |
Accrued third party royalties | 491,243 | 0 |
Accrued legal and other professional fees | 189,132 | 51,000 |
Accrued payroll and related costs | 173,158 | 182,551 |
Other accruals | 56,262 | 0 |
Total | $ 1,161,443 | $ 738,649 |
PATENT COSTS (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Net Patent Costs [Abstract] | |||
Net patent costs | $ 248,193 | $ 258,355 | |
Patents [Member] | |||
Net Patent Costs [Abstract] | |||
Patents | 720,601 | 720,601 | |
Accumulated amortization | (472,408) | (462,246) | |
Net patent costs | 248,193 | $ 258,355 | |
Amortization expense for patents | 10,200 | $ 9,600 | |
Estimated aggregate amortization expense [Abstract] | |||
April 1, 2017-December 31, 2017 | 30,500 | ||
2018 | 40,600 | ||
2019 | 40,600 | ||
2020 | 28,600 | ||
2021 | 16,600 | ||
Thereafter | $ 91,200 | ||
Patents [Member] | Minimum [Member] | |||
Finite-Lived Intangible Assets [Line Items] | |||
Estimated useful lives | 2 years | ||
Patents [Member] | Maximum [Member] | |||
Finite-Lived Intangible Assets [Line Items] | |||
Estimated useful lives | 10 years |
PROVISION FOR INCOME TAXES (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
PROVISION FOR INCOME TAXES [Abstract] | ||
Provision for income taxes | $ 1,769,683 | $ 1,400,095 |
Deferred tax assets | 3,200,000 | 3,300,000 |
Uncertain tax positions | 0 | $ 0 |
Interest and penalties | $ 0 |
SUBSEQUENT EVENTS (Details) - Subsequent Event [Member] |
Apr. 18, 2017
Subject
|
---|---|
Subsequent Event [Line Items] | |
Number of female subjects enrolled for phase 1 clinical trial of XIAFLEX | 15 |
Number of female subjects injected with saline | 3 |
Number of female subjects injected with increasing doses of XIAFLEX | 12 |
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