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EX-10.2 - EX-10.2 - Aegerion Pharmaceuticals, Inc.aegr-20160331ex102a5f962.htm
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EX-32.1 - EX-32.1 - Aegerion Pharmaceuticals, Inc.aegr-20160331ex321e25a0a.htm
EX-32.2 - EX-32.2 - Aegerion Pharmaceuticals, Inc.aegr-20160331ex3228bb88d.htm
EX-10.3 - EX-10.3 - Aegerion Pharmaceuticals, Inc.aegr-20160331ex1033e9e56.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

Commission File Number 001-34921


AEGERION PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


 

 

 

 

 

DELAWARE

20-2960116

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

One Main Street, Suite 800

Cambridge, Massachusetts 02142

(Address of principal executive offices, including zip code)

(617) 500-7867

(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-Accelerated Filer

  (Do not check if a smaller reporting company)

Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No    

The number of shares outstanding of the registrant’s Common Stock as of May 9, 2016 was 29,501,132.

 

 

 


 

AEGERION PHARMACEUTICALS, INC.

INDEX

 

 

 

 

 

 

 

 

 

Page

Part I. Financial Information 

 

 

 

Item 1. 

Unaudited Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2016 and 2015

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

45 

 

 

 

Item 4. 

Controls and Procedures

45 

 

 

Part II. Other Information 

46 

 

 

 

Item 1. 

Legal Proceedings

46 

 

 

 

Item 1A. 

Risk Factors

48 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

100 

 

 

 

Item 3. 

Defaults Upon Senior Securities

100 

 

 

 

Item 4. 

Mine Safety Disclosure

100 

 

 

 

Item 5. 

Other Information

100 

 

 

 

Item 6. 

Exhibits

101 

 

 

Signatures 

102 

 

 

 

 

 

2

 


 

Forward-Looking Statements

All statements included or incorporated by reference into this Quarterly Report on Form 10-Q, or Quarterly Report, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “forecasts,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing” and similar expressions, and variations or negatives of these words. Examples of forward-looking statements contained in this Quarterly Report include our statements regarding: the commercial potential for our products; our estimates as to the potential number of patients with the diseases for which our products are approved; our expectations with respect to reimbursement of our products in the United States; our expectations with respect to pricing and reimbursement approvals required for lomitapide in countries of the European Union where we have not received such approvals, Mexico, Canada, Taiwan, South Korea, and other countries in which we receive, or have received, marketing approval for lomitapide; our expectations with respect to named patient sales of our products in Brazil and in other countries where such sales are permitted; the potential for and possible timing of approval of our products in countries where we have not yet obtained approval, including with respect to lomitapide in Japan; our plans for further clinical development of our products; our expectations regarding future regulatory filings for our products, including planned marketing approval applications with respect to metreleptin in the European Union; our plans for commercial marketing, sales, manufacturing and distribution of our products; our expectations with respect to the impact of competition on our future operations and results; our beliefs with respect to our intellectual property portfolio for our products and the extent to which it protects us; our expectations regarding the availability of data and marketing exclusivity in the United States, the European Union, Japan and other countries; our view of ongoing government investigations, including the terms of preliminary agreements in principle with the U.S. Department of Justice and the U.S. Securities and Exchange Commission, and stockholder litigation and the possible impact and additional consequences of each on our business; our forecasts regarding sales of our products, our future expenses, our cash position and the timing of any future need for additional capital to fund operations; and our ability to work with Silicon Valley Bank to obtain a further forbearance or waiver of our breach of certain covenants of our loan agreement with Silicon Valley Bank and to otherwise avoid an acceleration of our debt.  

The forward-looking statements contained in this Quarterly Report and in the documents incorporated into this Quarterly Report by reference are based on our current beliefs and assumptions with respect to future events, all of which are subject to change. Forward-looking statements are not guarantees of future performance, and are subject to risks, uncertainties and assumptions that are difficult to predict, including those discussed in “Risk Factors” in Part I, Item 1A of this Quarterly Report. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors may impact our operations or results. New risks may emerge from time to time. Past financial or operating performance is not necessarily a reliable indicator of future performance. Given these risks and uncertainties, we can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does occur, what impact such event will have on our results of operations and financial condition. Our actual results could differ materially and adversely from those expressed in any forward-looking statement in this Quarterly Report or in our other filings with the Securities and Exchange Commission.

Except as required by law, we undertake no obligation to revise our forward-looking statements to reflect events or circumstances that arise after the date of this Quarterly Report or the respective dates of documents incorporated into this Quarterly Report by reference that include forward-looking statements. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in these forward-looking statements.

In this Quarterly Report, “Aegerion Pharmaceuticals, Inc.,” “Aegerion,” the “Company,” “we,” “us” and “our” refer to Aegerion Pharmaceuticals, Inc. taken as a whole, unless otherwise noted.

Trademarks

Aegerion, JUXTAPID, LOJUXTA and MYALEPT are trademarks of Aegerion. All other trademarks referenced in this Form 10-Q are the property of their respective owners.

3

 


 

 

PART I. FINANCIAL INFORMATION 

Aegerion Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Balance Sheets 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2016

 

2015

 

Assets

    

 

    

    

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

42,718

 

$

64,501

 

Restricted cash

 

 

25,535

 

 

25,529

 

Accounts receivable

 

 

10,821

 

 

13,557

 

Inventories

 

 

54,966

 

 

58,706

 

Prepaid expenses and other current assets

 

 

13,099

 

 

13,645

 

Total current assets

 

 

147,139

 

 

175,938

 

Property and equipment, net

 

 

4,862

 

 

4,893

 

Intangible assets, net

 

 

237,871

 

 

242,917

 

Goodwill

 

 

9,600

 

 

9,600

 

Other assets

 

 

952

 

 

850

 

Total assets

 

$

400,424

 

$

434,198

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

9,366

 

$

10,784

 

Accrued liabilities

 

 

35,724

 

 

39,103

 

Contingent litigation accrual (Note 13)

 

 

40,313

 

 

12,000

 

Long-term debt in default

 

 

25,000

 

 

25,000

 

Total current liabilities

 

 

110,403

 

 

86,887

 

Long-term liabilities:

 

 

 

 

 

 

 

Convertible 2.0% senior notes, net

 

 

235,117

 

 

229,782

 

Other liabilities

 

 

1,426

 

 

1,984

 

Total liabilities

 

 

346,946

 

 

318,653

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000 shares authorized; none issued and outstanding at March 31, 2016 and December 31, 2015

 

 

 -

 

 

 -

 

Common stock, $0.001 par value, 125,000 shares authorized at March 31, 2016 and December 31, 2015; 30,724 and 30,715 shares issued at March 31, 2016 and December 31, 2015, respectively;  29,472 and 29,464 shares outstanding at March 31, 2016 and December 31, 2015, respectively

 

 

31

 

 

31

 

Treasury Stock, at cost; 1,251 shares at March 31, 2016 and December 31, 2015

 

 

(35,000)

 

 

(35,000)

 

Additional paid-in-capital

 

 

523,104

 

 

519,166

 

Accumulated deficit

 

 

(434,358)

 

 

(368,804)

 

Accumulated other comprehensive items

 

 

(299)

 

 

152

 

Total stockholders’ equity

 

 

53,478

 

 

115,545

 

Total liabilities and stockholders’ equity

 

$

400,424

 

$

434,198

 

 

See accompanying notes.

4

 


 

 

Aegerion Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Operations 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

2015

 

Net product sales

    

$

35,716

    

$

59,384

 

Cost of product sales

 

 

14,966

 

 

11,838

 

Operating expenses

 

 

 

 

 

 

 

Selling, general and administrative

 

 

39,690

 

 

46,928

 

Research and development

 

 

9,880

 

 

9,798

 

Provision for contingent litigation

 

 

28,313

 

 

 -

 

Restructuring

 

 

1,700

 

 

 -

 

Total operating expenses

 

 

79,583

 

 

56,726

 

Loss from operations

 

 

(58,833)

 

 

(9,180)

 

Interest expense, net

 

 

(7,202)

 

 

(6,931)

 

Other income, net

 

 

738

 

 

485

 

Loss before provision for income taxes

 

 

(65,297)

 

 

(15,626)

 

Provision for income taxes

 

 

(257)

 

 

(199)

 

Net loss

 

$

(65,554)

 

$

(15,825)

 

Net loss per common share—basic and diluted

 

$

(2.22)

 

$

(0.55)

 

Weighted-average shares outstanding—basic and diluted

 

 

29,471

 

 

28,529

 

 

See accompanying notes.

 

 

 

 

5

 


 

Aegerion Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Loss 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months

 

 

 

 

Ended March 31,

 

 

 

 

2016

 

2015

 

 

Net loss

    

$

(65,554)

    

$

(15,825)

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(451)

 

 

(294)

 

 

Other comprehensive loss

 

 

(451)

 

 

(294)

 

 

Comprehensive loss

 

$

(66,005)

 

$

(16,119)

 

 

 

See accompanying notes.

 

 

6

 


 

Aegerion Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

March 31,

 

 

 

 

2016

 

2015

 

 

Operating activities

    

 

    

    

 

    

 

 

Net loss

 

$

(65,554)

 

$

(15,825)

 

 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

490

 

 

398

 

 

Amortization of intangible assets

 

 

5,046

 

 

5,235

 

 

Stock-based compensation

 

 

3,925

 

 

7,159

 

 

Noncash interest expense

 

 

5,416

 

 

5,154

 

 

Provision for inventory excess and obsolescence

 

 

3,641

 

 

407

 

 

Unrealized foreign exchange gain

 

 

(724)

 

 

 -

 

 

Deferred income taxes

 

 

88

 

 

53

 

 

Deferred rent

 

 

234

 

 

(19)

 

 

Changes in assets and liabilities, excluding the effect of acquisition:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,736

 

 

(2,962)

 

 

Inventories

 

 

150

 

 

746

 

 

Prepaid expenses and other assets

 

 

356

 

 

(3,368)

 

 

Accounts payable

 

 

(1,354)

 

 

(2,794)

 

 

Accrued and other liabilities

 

 

(4,289)

 

 

579

 

 

Contingent litigation accrual

 

 

28,313

 

 

 -

 

 

Net cash used in operating activities

 

 

(21,526)

 

 

(5,237)

 

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(524)

 

 

(316)

 

 

Payment for acquisition of MYALEPT

 

 

 -

 

 

(325,000)

 

 

Net cash used in investing activities

 

 

(524)

 

 

(325,316)

 

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from long-term debt, net

 

 

 -

 

 

24,962

 

 

Increase in restricted cash to collateralize long-term debt in default

 

 

(6)

 

 

 -

 

 

Principal repayment of long-term debt

 

 

 -

 

 

(4,011)

 

 

Proceeds from exercises of stock options

 

 

 -

 

 

1,551

 

 

Net cash provided by (used in) financing activities

 

 

(6)

 

 

22,502

 

 

Exchange rate effect on cash

 

 

273

 

 

(504)

 

 

Net decrease in cash and cash equivalents

 

 

(21,783)

 

 

(308,555)

 

 

Cash and cash equivalents, beginning of period

 

 

64,501

 

 

375,937

 

 

Cash and cash equivalents, end of period

 

$

42,718

 

$

67,382

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,440

 

$

3,379

 

 

Cash paid for taxes

 

$

458

 

$

417

 

 

Non-cash investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable

 

$

65

 

$

74

 

 

 

See accompanying notes.

7

 


 

Aegerion Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements 

March 31, 2016

1. Description of Business and Significant Accounting Policies

Organization

Aegerion Pharmaceuticals, Inc. (the “Company” or “Aegerion”) is a biopharmaceutical company dedicated to the development and commercialization of innovative therapies for patients with debilitating rare diseases.

The Company’s first product, lomitapide, received marketing approval, under the brand name JUXTAPID® (lomitapide) capsules (“JUXTAPID”), from the U.S. Food and Drug Administration (“FDA”) on December 21, 2012, as an adjunct to a low-fat diet and other lipid-lowering treatments, including low-density lipoprotein (“LDL”) apheresis, where available to reduce low-density lipoprotein cholesterol (“LDL-C”), total cholesterol (“TC”), apolipoprotein B (“apo B”) and non-high-density lipoprotein cholesterol (“non-HDL-C”) in adult patients with homozygous familial hypercholesterolemia (“HoFH”). The Company launched JUXTAPID in the U.S. in late January 2013. In July 2013, the Company received marketing authorization for lomitapide in the European Union (“EU”), under the brand name LOJUXTA® (lomitapide) hard capsules (“LOJUXTA”), as a treatment for adult patients with HoFH. Lomitapide is also approved for the treatment of adult HoFH in Mexico, Canada, Taiwan, South Korea and a small number of other countries. Pricing and reimbursement approval has not yet been received in many of the countries in which the product is approved. Lomitapide is also sold on a named patient basis in Brazil and in a limited number of other countries as a result of the approval of lomitapide in the U.S. or the EU.

The Company acquired its second product, metreleptin, in January 2015, pursuant to an asset purchase agreement (the “Asset Purchase Agreement”) dated November 5, 2014 with Amylin Pharmaceuticals, LLC (“Amylin”) and AstraZeneca Pharmaceuticals LP, an affiliate of Amylin (together referred to as “AstraZeneca”). Metreleptin, a recombinant analog of human leptin, is currently marketed in the U.S. under the brand name MYALEPT® (metreleptin) for injection (“MYALEPT”). MYALEPT received marketing approval from the FDA in February 2014 as an adjunct to diet as replacement therapy to treat the complications of leptin deficiency in patients with congenital or acquired generalized lipodystrophy (“GL”).

In the near term, the Company’s ability to generate revenue is primarily dependent upon sales of lomitapide in the U.S. and, on a named patient basis, in Brazil and on sales of MYALEPT in the U.S. The Company has incurred substantial losses in every fiscal period since inception, and expects operating losses and negative cash flows during 2016. As of March 31, 2016, the Company had an accumulated deficit of $434.4 million.

 

The unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. However, at March 31, 2016, the Company had unrestricted cash of $42.7 million and an accumulated deficit of $434.4 million. In the three months ended March 31, 2016, the Company incurred a net loss of $65.6 million.  Due to the recent introduction of two competitive therapies during 2015, the Company incurred a significant reduction in net sales of JUXTAPID during the second half of 2015 and the first quarter of 2016, and expects total 2016 net sales to be significantly lower than 2015.  Additionally, as described further in Note 12, the Company is the subject of ongoing government investigations in the U.S. and Brazil.  The Company has reached preliminary agreements in principle with the U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) to resolve these investigations. However, the preliminary agreements in principle and any final settlements are subject to final approvals and do not cover the DOJ and SEC’s inquiries concerning the Company’s operations in Brazil. The Company is also the subject of an ongoing government investigation in Brazil.  The outcome of these investigations has had and could have additional material negative consequences for the Company’s business, financial position, results of operations and/or cash flows. As a result of these factors, there is substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. The Company is currently considering several activities to finance its operations, including raising additional capital and reductions in its ongoing expenses through the headcount reductions described in Note 8. 

8

 


 

However, there can be no assurances that these activities will be successful and/or mitigate the risks associated with the factors noted above.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments (including normal recurring accruals) considered necessary for fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Operating results for the current interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. This Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”). Certain prior period amounts have been reclassified to conform to the current period presentation, including the classification of contingent litigation accrual in the unaudited condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in one segment, pharmaceuticals.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in these consolidated financial statements have been made in connection with the calculation of net product sales, inventories, certain accruals related to contingencies and the Company’s research and development expenses, stock-based compensation, valuation procedures for the fair value of intangible assets, tangible assets and goodwill from the acquisition of MYALEPT, useful lives of acquired intangibles, impairments of goodwill and long-lived assets and the provision for or benefit from income taxes. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

 Revenue Recognition

The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-15, Revenue Recognition—Products. The Company recognizes revenue from product sales when there is persuasive evidence that an arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable, collectability is reasonably assured and the Company has no further performance obligations.

Lomitapide

In the U.S., JUXTAPID is only available for distribution through a specialty pharmacy, and is shipped directly to the patient. JUXTAPID is not available in retail pharmacies. Prior authorization and confirmation of coverage level by the patient’s private insurance plan or government payer are currently prerequisites to the shipment of product to a patient in the U.S. Revenue from sales in the U.S. covered by the patient’s private insurance plan or government payer is recognized once the product has been received by the patient. For uninsured amounts billed directly to the patient, revenue is recognized at the time of cash receipt as collectability is not reasonably assured at the time the product is received by the patient. To the extent amounts are billed in advance of delivery to the patient, the Company defers revenue until the product has been received by the patient.

The Company also records revenue on sales in Brazil and other countries where lomitapide is available on a named patient basis, and typically paid for by a government authority or institution. In many cases, these sales are facilitated through a third-party distributor that takes title to the product upon acceptance. Because of factors such as the pricing of lomitapide, the limited number of patients, the short period from product sale to delivery to the end-customer and the limited contractual return rights, these distributors typically only hold inventory to supply specific orders for the product. The Company generally recognizes revenue for sales under these named patient programs once the product is shipped

9

 


 

through to the government authority or institution. In the event the payer’s creditworthiness has not been established, the Company recognizes revenue on a cash basis if all other revenue recognition criteria have been met.

The Company records distribution and other fees paid to its distributors as a reduction of revenue, unless the Company receives an identifiable and separate benefit for the consideration and the Company can reasonably estimate the fair value of the benefit received. If both conditions are met, the Company records the consideration paid to the distributor as an operating expense. At this time, neither condition has been met and therefore, the fees paid to the Company’s distributors are recorded as a reduction to revenue. The Company records revenue net of estimated discounts and rebates, including those provided to Medicare, Medicaid, Tricare and other government programs in the U.S. and other countries. Allowances are recorded as a reduction of revenue at the time revenues from product sales are recognized. Allowances for government rebates and discounts are established based on the actual payer information, which is reasonably estimable at the time of delivery. These allowances are adjusted to reflect known changes in the factors that may impact such allowances in the quarter those changes are known.

The Company also provides financial support to a 501(c)(3) organization, which assists patients in the U.S. in accessing treatment for HoFH. This organization assists HoFH patients according to eligibility criteria defined independently by the organization. The Company records donations made to the 501(c)(3) organization as selling, general and administrative expense. Any payments received from the 501(c)(3) organization on behalf of a patient, who is taking lomitapide for the treatment of HoFH are recorded as a reduction of selling, general and administrative expense rather than as revenue. Effective January 2015, the Company also offers a branded co-pay assistance program for certain patients in the U.S. with HoFH who are on JUXTAPID therapy. The branded co-pay assistance program assists commercially insured patients who have coverage for JUXTAPID, and is intended to reduce each participating patient’s portion of the financial responsibility for JUXTAPID’s purchase price up to a specified dollar amount of assistance. The Company records revenue net of amounts paid under the branded specific co-pay assistance program for each patient.

Metreleptin

In the U.S., MYALEPT is only available through an exclusive third-party distributor that takes title to the product upon shipment. MYALEPT is not available in retail pharmacies. The distributor may only contractually acquire up to 21 business days worth of inventory. The Company recognizes revenue for these sales once the product is received by the patient, as it is currently unable to reasonably estimate the rebates owed to certain government payers at the time of receipt by the distributor. Prior authorization and confirmation of coverage level by the patient’s private insurance plan or government payer are currently prerequisites to the shipment of product to a patient in the U.S.

The Company records distribution and other fees paid to its distributor as a reduction of revenue, unless the Company receives an identifiable and separate benefit for the consideration and the Company can reasonably estimate the fair value of the benefit received. If both conditions are met, the Company records the consideration paid to the distributor as an operating expense. At this time, neither condition has been met and therefore, these fees paid to the distributor of MYALEPT are recorded as reduction to revenue. The Company records revenue from sales of MYALEPT net of estimated discounts and rebates, including those provided to Medicare and Medicaid in the U.S. Allowances for government rebates and discounts are established based on the actual payer information, which is reasonably estimable at the time of delivery. These allowances are adjusted to reflect known changes in the factors that may impact such allowances in the quarter those changes are known.

The Company also provides financial support to a 501(c)(3) organization, which assists patients in the U.S. in accessing treatment for lipodystrophy. This organization assists lipodystrophy patients according to eligibility criteria defined independently by the organization. The Company records donations made to the 501(c)(3) organization as selling, general and administrative expense. Any payments received from the 501(c)(3) organization on behalf of a patient, who is taking metreleptin for the treatment of lipodystrophy are recorded as a reduction of selling, general and administrative expense rather than as revenue. The Company also offers co-pay assistance for patients in the U.S. with GL who are on MYALEPT therapy. The co-pay assistance program assists commercially insured patients who have coverage for MYALEPT, and is intended to reduce each participating patient’s portion of the financial responsibility for MYALEPT’s purchase price up to a specified dollar amount of assistance. The Company records revenue net of amounts paid under the MYALEPT co-pay assistance program for each patient.

10

 


 

Business Combinations

The Company evaluates acquisitions of assets and other similar transactions to assess whether or not each such transaction should be accounted for as a business combination by assessing whether or not the Company has acquired inputs and processes that have the ability to create outputs. If the Company determines that an acquisition qualifies as a business, the Company assigns the value of consideration transferred in such business combination to the appropriate accounts on the Company’s consolidated balance sheet based on their fair value as of the effective date of the transaction. Transaction costs associated with business combinations are expensed as incurred.

Fair Value of Purchased Tangible Assets, Intangibles and In-process Research and Development Assets in Business Combinations

The present-value models used to estimate the fair values of purchased tangible assets, intangibles and in-process research and development assets incorporate significant assumptions, include, but are not limited to: assumptions regarding the probability of obtaining marketing approval and/or achieving relevant development milestones for a drug candidate; estimates regarding the timing of and the expected costs to develop a drug candidate; estimates of future cash flows from potential product sales; and the appropriate discount and tax rates.

The Company records the fair value of purchased intangible assets with definite useful lives as of the transaction date of a business combination. Purchased intangible assets with definite useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment if certain events occur. Impairment testing and assessments of remaining useful lives are also performed when a triggering event occurs that could indicate a potential impairment. Such test first entails comparison of the carrying value of the intangible asset to the undiscounted cash flows expected from that asset. If impairment is indicated by this test, the intangible asset is written down by the amount, if any, by which the discounted cash flows expected from the intangible asset exceeds its carrying value.

The Company records the fair value of in-process research and development assets as of the transaction date of a business combination. Each of these assets is accounted for as an indefinite-lived intangible asset and is maintained on the Company’s consolidated balance sheet until either the project underlying it is completed or the asset becomes impaired. If the asset becomes impaired or is abandoned, the carrying value of the related intangible asset is written down to its fair value, and an impairment charge is recorded in the period in which the impairment occurs. If a project is completed, the carrying value of the related intangible asset is amortized as a part of cost of product revenues over the remaining estimated life of the asset beginning in the period in which the project is completed. In-process research and development assets are tested for impairment on an annual basis as of October 31, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist.

The Company records the fair value of purchased tangible assets as of the transaction date of a business combination. These tangible assets are accounted for as either inventory or clinical and compassionate use materials, which are classified as other assets on the Company’s consolidated balance sheet. Inventory is maintained on the Company’s consolidated balance sheet until the inventory is sold, donated as part of the Company’s compassionate use program, used for clinical development, or determined to be in excess of expected requirements. Inventory that is sold or determined to be in excess of expected requirements is recognized as cost of product sales in the consolidated statement of operations, inventory that is donated as part of the Company’s compassionate use program is recognized as a selling, general and administrative expense in the consolidated statement of operations, and inventory used for clinical development is recognized as research and development expense in the consolidated statement of operations. Other assets are maintained on the Company’s consolidated balance sheet until these assets are consumed. If the asset becomes impaired or is abandoned, the carrying value is written down to its fair value, and an impairment charge is recorded in the period in which the impairment occurs.

Goodwill

The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated to goodwill. Goodwill is evaluated for impairment on an annual basis as of October 31, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. See Note 4 for further discussion of the Company’s interim goodwill impairment analysis.

11

 


 

 Concentration of Credit Risk

The Company’s financial instruments that are exposed to credit risks consist primarily of cash, cash equivalents, restricted cash and accounts receivable. The Company maintains its cash, cash equivalents and restricted cash in bank accounts, which, at times, exceed federally insured limits. The Company has not experienced any credit losses in these accounts and does not believe it is exposed to any significant credit risk on these funds.

The Company is subject to credit risk from its accounts receivable related to its product sales of lomitapide and metreleptin. The majority of the Company’s accounts receivable arise from product sales in the U.S. For accounts receivable that have arisen from named patient sales outside of the U.S., the payment terms are predetermined and the Company evaluates the creditworthiness of each customer or distributor on a regular basis. The Company periodically assesses the financial strength of the holders of its accounts receivable to establish allowances for anticipated losses, if necessary. The Company does not recognize revenue for uninsured amounts billed directly to a patient until the time of cash receipt as collectability is not reasonably assured at the time the product is received. To date, the Company has not incurred any credit losses.

Inventories and Cost of Sales

Inventories are stated at the lower of cost or market price with cost determined on a first-in, first-out basis. Inventories are reviewed periodically to identify slow-moving or obsolete inventory based on sales activity, both projected and historical, as well as product shelf-life. In evaluating the recoverability of inventories produced, the Company considers the probability that revenue will be obtained from the future sale of the related inventory. The Company writes down inventory quantities in excess of expected requirements. Expired inventory is disposed of and the related costs are recognized as cost of product sales in the consolidated statement of operations.

 

Cost of product sales includes the cost of inventory sold, manufacturing and supply chain costs, product shipping and handling costs, charges for excess and obsolete inventory, amortization of acquired intangibles, as well as royalties payable to The Trustees of the University of Pennsylvania (“UPenn”) related to the sale of lomitapide and royalties payable to Amgen, Rockefeller University and Bristol-Myers Squibb (“BMS”) related to the sale of metreleptin.

Stock-Based Compensation

The Company accounts for its stock-based compensation to employees in accordance with ASC 718, Compensation-Stock Compensation and to non-employees in accordance with ASC 505-50, Equity Based Payments to Non-Employees. For service-based awards, compensation expense is recognized using the ratable method over the requisite service period, which is typically the vesting period. For awards that vest or begin vesting upon achievement of a performance condition, the Company recognizes compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution model over the implicit service period. Certain of the Company’s awards that contain performance conditions also require the Company to estimate the number of awards that will vest, which the Company estimates when the performance condition is deemed probable of achievement. For awards that vest upon the achievement of a market condition, the Company recognizes compensation expense over the derived service period. For equity awards that have previously been modified, any incremental increase in the fair value over the original award has been recorded as compensation expense on the date of the modification for vested awards or over the remaining service period for unvested awards. See Note 9 for further information about the Company’s stock option plans.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid instruments purchased with an original maturity of three months or less at the date of purchase.  As of March 31, 2016 and December 31, 2015, the Company held $42.7 million and $64.5 million in cash and cash equivalents, respectively, consisting of cash and money market funds.

Restricted Cash

 

Restricted cash represents amounts deposited with Silicon Valley Bank to collateralize balances related to outstanding obligations under the Loan and Security Agreement. These amounts are restricted for all uses until the full

12

 


 

and final payment of all obligations, as determined by Silicon Valley Bank in its sole and exclusive discretion. See Note 6 for further discussion.    

 Recent Accounting Pronouncements – Not Yet Adopted

In May 2014, the FASB issued a comprehensive Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends revenue recognition principles and provides a single set of criteria for revenue recognition among all industries. The new standard provides a five step framework whereby revenue is recognized when promised goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures pertaining to revenue recognition in both interim and annual periods. The standard is effective for interim and annual periods beginning after December 15, 2016 and allows for adoption using a full retrospective method, or a modified retrospective method. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year, but permits entities to adopt one year earlier if they choose (i.e., the original effective date). As such, ASU 2014-09 will be effective for interim and annual reporting periods ending after December 15, 2017. The Company is currently assessing the method of adoption and the expected impact the new standard has on its financial position and results of operations.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern, which provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern within one year from the date the financial statements are issued for each reporting period. This new accounting guidance is effective for interim and annual periods ending after December 15, 2016. Early adoption is permitted. The Company does not expect the new guidance to have a significant effect on its consolidated financial statements, but may require further disclosure in its financial statements once adopted. 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  ASU 2016-02 requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous GAAP. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-02 on its consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). ASU 2016-08 provides clarification on principal versus agent considerations, including identifying the unit of account at which an entity should assess whether it is a principal or an agent, identifying the nature of the good or the service provided to the customer, applying the control principle to certain types of transactions, and interaction of the control principle with the indicators provided to assist in the principal versus agent evaluation. ASU 2016-08 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-08 on its consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-09 on its consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). ASU 2016-10 provides clarification on the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance. ASU 2016-10 is effective for fiscal years beginning after December 15, 2018, and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-10 on its consolidated financial statements and related disclosures.

13

 


 

 

2. Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820, Fair Value Measurements and Disclosures established a fair value hierarchy for those instruments measured at fair value that distinguishes between fair value measurements based on market data (observable inputs) and those based on the Company’s own assumptions (unobservable inputs). This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

·

Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The Company’s Level 1 assets consist of cash and money market investments.

·

Level 2 — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

·

Level 3 — Inputs that are unobservable for the asset or liability.

The fair value measurements of the Company’s financial instruments at March 31, 2016 is summarized in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Significant

    

 

 

    

 

 

 

 

 

Quoted Prices in

 

Other

 

Significant

 

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

Balance at

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

March 31,

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

2016

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

21,719

 

$

 -

 

$

 -

 

$

21,719

 

Money market funds

 

 

20,999

 

 

 -

 

 

 -

 

 

20,999

 

Restricted cash

 

 

25,535

 

 

 -

 

 

 -

 

 

25,535

 

Total assets

 

$

68,253

 

$

 -

 

$

 -

 

$

68,253

 

 

The fair value measurements of the Company’s financial instruments at December 31, 2015 is summarized in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

Quoted Prices in

 

Other

 

Significant

 

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

Balance at

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

December 31,

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

2015

 

 

 

(in thousands)

 

Assets:

    

 

    

    

 

    

    

 

    

    

 

    

 

Cash

 

$

14,021

 

$

 -

 

$

 -

 

$

14,021

 

Money market funds

 

 

50,480

 

 

 -

 

 

 -

 

 

50,480

 

Restricted cash

 

 

25,529

 

 

 -

 

 

 -

 

 

25,529

 

Total assets

 

$

90,030

 

$

 -

 

$

 -

 

$

90,030

 

 

Term Loan

The carrying value of the Company’s long-term debt in default approximates fair value due its current classification and callable nature, and was $25.0 million at March 31, 2016 and December 31, 2015. The carrying value is computed pursuant to a discounted cash flow technique using the effective interest rate method based on a current market interest rate for the Company’s term loan, which are considered Level 2 inputs.

14

 


 

Convertible 2.0% Senior Notes

In August 2014, the Company issued $325.0 million of 2.0% convertible senior notes due August 15, 2019 (the “Convertible Notes”). Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2015. The Company separately accounted for the liability and equity components of the Convertible Notes by allocating the proceeds between the liability component and equity component, as further discussed in Note 6. The fair value of the Convertible Notes, which differs from their carrying value, is influenced by interest rates, the Company’s stock price and stock price volatility and is determined by prices for the Convertible Notes observed in market trading which are Level 2 inputs. The estimated fair value of the Convertible Notes at March 31, 2016 was approximately $163.7 million.

3. Inventories

The components of inventory are as follows:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2016

 

2015

 

 

 

(in thousands)

 

 

Work-in-process

$

2,615

    

$

4,179

 

 

Finished goods

 

52,351

 

 

54,527

 

 

Total

$

54,966

 

$

58,706

 

 

 

 

 

The inventory reserve balance at March 31, 2016 and December 31, 2015 was $4.2 million and $2.4 million, respectively. During the three months ended March 31, 2016 and March 31, 2015, the Company recorded charges in the condensed consolidated statement of operations for excess and obsolete inventory of $3.6 million and $0.4 million, respectively. The determination of excess or obsolete inventory requires the Company to estimate future demand for its products based on its internal sales forecasts which it then compares to inventory on hand after consideration of expiration dates. To the extent the Company’s actual sales or subsequent sale forecasts decrease, the Company could be required to record additional inventory reserves in future periods, which could have a material negative impact on its gross margin.

 

4. Goodwill and Intangible Assets

Goodwill.  Goodwill relates to the acquisition of MYALEPT in the first quarter of 2015. The carrying amount of goodwill was $9.6 million as of March 31, 2016 and December 31, 2015.

In accordance with the relevant accounting guidance, goodwill is not amortized. However, it must be assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstances warrant such a review. All goodwill has been assigned to the Company’s single reporting unit, which is also the single operating segment by which the chief operating decision maker manages the Company. For purposes of assessing the impairment of goodwill, the Company estimates the fair value of its single reporting unit using a discounted cash flow methodology, which it then reconciles to the total fair value of its market capitalization, taking into account an appropriate control premium. If the carrying amount of the net assets of the Company exceeds the fair value, then a goodwill impairment test is performed to measure the amount of the impairment loss, if any.

 

During the first quarter of 2016, the Company’s stock price traded at prices which resulted in a market capitalization in excess of the Company’s carrying value, except for the last seven trading days of the first quarter of 2016. Due to the decline in the Company’s stock price and other qualitative factors, the Company performed an interim goodwill impairment test under ASC 350, Intangibles- Goodwill and Other (“ASC 350”), and concluded that the fair value of the Company was in excess of the carrying value, and therefore no impairment of goodwill was indicated. Should the Company continue to experience declines in market capitalization and/or its financial performance or other negative business factors as indicated in ASC 350, the Company may be required to perform another interim goodwill impairment analysis, which could result in an impairment of goodwill. 

Intangible Assets.  Intangible asset balances were as follows (in thousands):

15

 


 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

Gross

 

 

 

Net

 

 

Carrying

 

Accumulated

 

Carrying

 

 

Value

 

Amortization

 

Value

Purchased intangibles

    

$

242,200

    

$

(25,229)

    

$

216,971

In-process research and development assets

 

 

20,900

 

 

 -

 

 

20,900

Total intangible assets

 

$

263,100

 

$

(25,229)

 

$

237,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

Gross

 

 

 

Net

 

 

Carrying

 

Accumulated

 

Carrying

 

 

Value

 

Amortization

 

Value

Purchased intangibles

    

$

242,200

    

$

(20,183)

    

$

222,017

In-process research and development assets

 

 

20,900

 

 

 -

 

 

20,900

Total intangible assets

 

$

263,100

 

$

(20,183)

 

$

242,917

Amortization expense was $5.0 million and $5.2 million in the three months ended March 31, 2016 and March 31, 2015, respectively.  In conjunction with the interim goodwill impairment test described above, the Company assessed whether there were indicators of impairment for the purchased intangibles and the in-process research and development assets and noted there were none as of March 31, 2016.

As of March 31, 2016, technological feasibility had not been established for the in-process research and development assets; they have no alternative future use and, as such, continue to be accounted for as indefinite-lived intangible assets.

At March 31, 2016, the estimated amortization expense of purchased intangibles for future periods is as follows (in thousands): 

 

 

 

 

 

 

 

 

 

Years Ending December 31,

 

 

 

 

2016 (remaining 9 months)

 

$

15,138

 

2017

 

 

20,183

 

2018

 

 

20,183

 

2019

 

 

20,183

 

2020 and thereafter

 

 

141,284

 

Total intangible assets subject to amortization

 

$

216,971

 

 

 

5. Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes changes in equity that are excluded from net loss, such as foreign currency translation adjustments.

The following table summarizes other comprehensive loss for years ended March 31, 2016 and 2015(in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Accumulated

 

 

 

Foreign Currency

 

Other

 

 

 

Translation

 

Comprehensive

 

 

 

Adjustment

 

Items

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

    

$

152

    

$

152

 

Other comprehensive loss

 

 

(451)

 

 

(451)

 

Balance at March 31, 2016

 

$

(299)

 

$

(299)

 

 

16

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Accumulated

 

 

 

Foreign Currency

 

Other

 

 

 

Translation

 

Comprehensive

 

 

 

Adjustment

 

Items

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

    

$

(263)

    

$

(263)

 

Other comprehensive loss

 

 

(294)

 

 

(294)

 

Balance at March 31, 2015

 

$

(557)

 

$

(557)

 

 

 

 

6. Debt Financing

Term Loan

On January 9, 2015, the Company amended its Loan and Security Agreement with Silicon Valley Bank to provide for a $25.0 million term loan (the “2015 Term Loan Advance”) with per annum interest of 3.0%. The proceeds received from the 2015 Term Loan Advance were used by the Company to repay an aggregate of $4.0 million outstanding due to Silicon Valley Bank under the Company’s term loan and equipment line of credit under the Loan and Security Agreement. The amendment provided for interest-only payments on the 2015 Term Loan Advance through January 31, 2017, and, starting on February 1, 2017, payment of principal in 30 equal monthly installments, plus accrued interest. The maturity date of the 2015 Term Loan Advance is the earlier of (a) July 1, 2019 and (b) the maturity date of the Convertible Notes (the “2015 Term Loan Maturity Date”) and can be accelerated by Silicon Valley Bank upon an event of default. If the Company prepays or is required to repay as a result of an acceleration following an event of default the 2015 Term Loan Advance on or prior to the first anniversary of the funding date of the 2015 Term Loan Advance, then the Company will owe 2.0% of the then outstanding principal amount, whereas if the Company prepays the 2015 Term Loan Advance after the first anniversary of the funding date of the 2015 Term Loan Advance but prior to the 2015 Term Loan Maturity Date, then the Company will owe 1.0% of the then outstanding principal amount. If the Company or Silicon Valley Bank terminates the 2015 Term Loan Advance prior to the maturity date, then the Company will owe a $0.3 million termination fee.  In addition, the 2015 Term Loan Advance is subject to a final payment of $1.25 million upon maturity or prior payment thereof.

The Company evaluated the 2015 amendment and concluded that it was a modification of the original Loan and Security Agreement rather than an extinguishment.

In connection with the Loan and Security Agreement, the Company granted Silicon Valley Bank a security interest in all of the Company’s personal property then owned or thereafter acquired, excluding intellectual property and assets held within the Company’s securities corporation, and a negative pledge on intellectual property. The Loan and Security Agreement also provides for standard indemnification of Silicon Valley Bank and contains representations, warranties and a material adverse change clause. The Company is also required to achieve certain covenants, including a specified level of liquidity and either a minimum quarterly revenue level or a minimum free cash flow level. As described below, the Company is currently in default with respect to the Loan and Security Agreement.

On October 30, 2015, the Company notified Silicon Valley Bank that it had breached one or more covenants under the Loan and Security Agreement and it is currently in default.  On November 9, 2015, the Company and Silicon Valley Bank entered into the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed not to take any action as a result of such default, including an agreement to waive the increase in the per annum interest rate under the loan from 3.0% to 8.0% until December 7, 2015, subject to certain conditions, including the deposit of cash into one or more accounts at Silicon Valley Bank to collateralize balances related to the outstanding obligations due to Silicon Valley Bank.  These amounts are restricted for all uses until the full and final payment of all obligations, as determined by Silicon Valley Bank in its sole and exclusive discretion.  On December 7, 2015, the Company and Silicon Valley Bank entered into an amendment (the “First Amendment”), pursuant to which Silicon Valley Bank agreed to extend the forbearance period relating to the Company’s default under the Loan and Security Agreement through January 7, 2016.   On January 7, 2016, the Company and Silicon Valley Bank entered into a second amendment (the “Second Amendment”), pursuant to which Silicon Valley Bank has agreed to extend the forbearance period relating to the Company’s default under the Loan and Security Agreement through June 30, 2016. Pursuant to the terms of the Second Amendment, the Company and Silicon Valley Bank agreed to terminate the Revolving Line, for which the Company

17

 


 

accrued a termination fee of $0.5 million as of March 31, 2016.  On February 26, 2016, the Company and Silicon Valley Bank entered into a third amendment (the “Third Amendment”), pursuant to which Silicon Valley Bank has agreed to forbear exercising its rights that will arise under the Loan and Security Agreement as a result of the Company’s failure to deliver an unqualified opinion (without a going concern explanatory paragraph) of its independent auditors with its annual financial statements for the fiscal year ended December 31, 2015.  The forbearance period pursuant to the Forbearance Agreement, as amended, is subject to early termination upon the occurrence of certain events, including the occurrence of additional events of default.   Upon the occurrence of a termination event, the Company would be required to repay all of the outstanding obligations, including, but not limited to, the $25.0 million outstanding principal of the 2015 Term Loan Advance and certain fees totaling $2.05 million.  As the obligations may be accelerated at the election of Silicon Valley Bank upon the expiration of the Forbearance Agreement, as amended, or earlier if a termination event occurs, these amounts have been presented as current liabilities on the condensed consolidated balance sheets.  Amounts deposited with Silicon Valley Bank to collateralize balances related to outstanding obligations under the Loan and Security Agreement, which include the $25.0 million outstanding principal of the 2015 Term Loan Advance and $0.5 million related to a cash collateral account for letters of credit, have been presented as restricted cash as of March 31, 2016 and December 31, 2015 on the condensed consolidated balance sheets. The Company plans to continue to engage in discussions with Silicon Valley Bank during the forbearance period regarding the loan and the defaults to seek a resolution of this matter.  The Company can provide no assurances that it will be able to resolve this matter, which could result in the loan being accelerated and have a material negative impact on our cash flows and business.

The January 9, 2015 amendment to the Loan and Security Agreement also provides for the Revolving Line of up to $15.0 million.  The Revolving Line was terminated by the Second Amendment.

Convertible 2.0% Senior Notes

In August 2014, the Company issued Convertible Notes with an aggregate principal amount of $325.0 million. The Company received net proceeds of approximately $316.6 million from the sale of the Convertible Notes, after deducting fees and expenses of approximately $8.4 million. The Company used approximately $26.1 million of the net proceeds from the sale of the Convertible Notes to pay the net cost of the convertible bond hedges, as described below (after such cost was partially offset by the proceeds to the Company from the sale of warrants in the warrant transactions described below) and used $35.0 million to repurchase shares of the Company’s common stock.

The Convertible Notes are governed by the terms of an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as the Trustee. The Convertible Notes are senior unsecured obligations and bear interest at a rate of 2.0% per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2015. The Convertible Notes will mature on August 15, 2019, unless earlier repurchased or converted. The Convertible Notes will be convertible into shares of the Company’s common stock at an initial conversion rate of 24.2866 shares of common stock per $1,000 principal amount of the Convertible Notes, which corresponds to an initial conversion price of approximately $41.175 per share of the Company’s common stock. The Company can settle the conversion of the Convertible Notes through payment or delivery of cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election.

On or after February 15, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.

The indenture does not contain any financial covenants or restrict the Company’s ability to repurchase the Company’s securities, pay dividends or make restricted payments in the event of a transaction that substantially increases the Company’s level of indebtedness. The indenture contains customary terms and covenants and events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Convertible Notes by written notice to the Company and the Trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all of the Convertible Notes to be due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal and accrued and unpaid interest, if any, on the Convertible Notes will become due and payable automatically. Notwithstanding the foregoing, the indenture provides that, upon the Company’s election, and for up to 180 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the indenture consists exclusively of the right to receive additional interest on the Convertible Notes.  If

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Silicon Valley Bank elects to accelerate the principal amount due under the Loan and Security Agreement and the Company fails to pay such amount, the Trustee or holders of at least 25% of the aggregate principal amount of the Notes may deliver a notice of default to the Company. The Company’s failure to pay the amount due under the Loan and Security Agreement within 30 days following its receipt of such notice would be deemed an event of default under the indenture and, among other remedies, the Trustee or holders of at least 25% of the aggregate principal amount of the Notes could declare all unpaid principal of the Notes immediately due and payable.  The default provision, which applies to the failure to repay the outstanding 2015 Term Loan Advance, or other indebtedness, is not considered probable to occur as the Company has sufficient capital to repay the outstanding obligations under the Loan and Security Agreement if such amounts are accelerated by Silicon Valley Bank.

In accordance with accounting guidance for debt with conversion and other options, the Company separately accounted for the liability and equity components of the Convertible Notes by allocating the proceeds between the liability component and the embedded conversion option, or equity component, due to the Company’s ability to settle the Convertible Notes in cash, common stock, or a combination of cash and common stock at the option of the Company. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The equity component of the Convertible Notes was recognized as a debt discount and represents the difference between the gross proceeds from the issuance of the Convertible Notes and the fair value of the liability of the Convertible Notes on their respective dates of issuance. The excess of the principal amount of the liability component over its carrying amount, or debt discount, is amortized to interest expense using the effective interest method over five years, or the life of the Convertible Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

 The Company’s outstanding Convertible Note balances as of March 31, 2016 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31,

 

December 31,

 

Liability component:

 

2016

 

2015

 

Principal

 

$

325,000

 

$

325,000

 

Less: deferred financing costs

 

 

(3,976)

 

 

(4,212)

 

Less: debt discount, net

 

 

(85,907)

 

 

(91,006)

 

Net carrying amount

 

$

235,117

 

$

229,782

 

Equity component

 

$

116,900

 

$

116,900

 

In connection with the issuance of the Convertible Notes, the Company incurred approximately $8.4 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs to the liability and equity components based on the allocation of the proceeds. Of the total $8.4 million of debt issuance costs, $3.0 million were allocated to the equity component and recorded as a reduction to additional paid-in capital and $5.4 million were allocated to the liability component and recorded as other assets on the balance sheet. The portion allocated to the liability component is amortized to interest expense over the expected life of the Convertible Notes using the effective interest method.

The Company determined that the expected life of the Convertible Notes was equal to the five year term on the Convertible Notes. The effective interest rate on the liability component was 11.53% for the period from the date of

19

 


 

issuance through March 31, 2016. The following table sets forth total interest expense recognized related to the Convertible Notes during the three months ended March 31, 2016 and 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Year ended 

 

 

 

March 31, 2016

 

March 31, 2015

 

 

Contractual interest expense

$

1,625

    

$

1,625

 

 

Amortization of debt issuance costs

 

236

 

 

207

 

 

Amortization of debt discount

 

5,099

 

 

4,478

 

 

Total

$

6,960

 

$

6,310

 

 

Future payments under the Company’s Convertible Notes as of March 31, 2016, are as follows (in thousands):

 

 

 

 

 

 

Years Ending December 31,

    

 

    

 

2016 (9 months remaining)

 

$

3,250

 

2017

 

 

6,500

 

2018

 

 

6,500

 

2019

 

 

331,500

 

 

 

 

347,750

 

Less amounts representing interest

 

 

(22,750)

 

Less: deferred financing costs

 

 

(3,976)

 

Less debt discount, net

 

 

(85,907)

 

Net carrying amount of convertible notes

 

$

235,117

 

Convertible Bond Hedge and Warrant Transactions

In connection with the offering of the Convertible Notes and in order to reduce the potential dilution to the Company’s common stock and/or offset cash payments due upon conversion of the Convertible Notes, the Company entered into convertible bond hedge transactions convertible into approximately 7.9 million shares of the Company’s common stock (or the value thereof), subject to adjustment, underlying the $325.0 million aggregate principal amount of the Convertible Notes. The convertible bond hedges have an exercise price of approximately $41.175 per share, subject to adjustment upon certain events, and are exercisable when and if the Convertible Notes are converted. If upon conversion of the Convertible Notes, the price of the Company’s common stock is above the exercise price of the convertible bond hedges, shares of the Company’s common stock and/or cash will be delivered with an aggregate value approximately equal to the difference between the price of the Company’s common stock at the conversion date and the exercise price, multiplied by the number of shares of the Company’s common stock related to the convertible bond hedges being exercised. The convertible bond hedges are separate transactions entered into by the Company and are not part of the terms of the Convertible Notes or the warrants, discussed below.

At the same time, the Company also entered into separate warrant transactions relating to, in the aggregate, approximately 7.9 million shares of the Company’s common stock, subject to customary adjustments but capped at a maximum of approximately 15.8 million shares of the Company’s common stock underlying the $325.0 million aggregate principal amount of the Convertible Notes. The initial exercise price of the warrants is $53.375 per share, subject to adjustment upon certain events. The warrants would separately have a dilutive effect to the extent that the market value per share of the Company’s common stock, as measured under the terms of the warrants, exceeds the applicable exercise price of the warrants. The Company received $60.5 million for these warrants and recorded this amount to additional paid-in capital.

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 7. Accrued Liabilities

Accrued liabilities as of March 31, 2016 and December 31, 2015 consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

 

2016

 

2015

 

 

 

 

(in thousands)

 

 

Accrued employee compensation and related costs

    

$

5,977

    

$

10,315

 

 

Accrued professional fees

 

 

5,497

 

 

3,206

 

 

Accrued sales allowances

 

 

11,550

 

 

10,837

 

 

Accrued royalties

 

 

3,252

 

 

4,137

 

 

Accrued research and development costs

 

 

1,932

 

 

1,561

 

 

Accrued sales and marketing costs

 

 

339

 

 

490

 

 

Accrued interest

 

 

877

 

 

2,502

 

 

Accrued manufacturing costs

 

 

928

 

 

1,224

 

 

Other accrued liabilities

 

 

5,372

 

 

4,831

 

 

Total

 

$

35,724

 

$

39,103

 

 

 

 

 

 

8. Restructuring

 

In February 2016, the Company’s Board of Directors approved a cost-reduction plan that eliminated approximately 80 positions from the Company’s workforce, representing a reduction in employees of approximately 25%. The reduction in force was substantially completed on February 10, 2016.  This cost-reduction plan is part of a broad program to significantly reduce the Company’s operating expenses and extend its cash position as lomitapide sales in the U.S. are impacted by the introduction of competitive therapies.  The positions impacted are across substantially all of the Company’s functions.  The Company accounted for these actions in accordance with ASC 420, Exit or Disposal Cost Obligations.  A restructuring charge of $1.7 million was recorded during the three months ended March 31, 2016, which consisted primarily of severance and benefits costs. No further charges are expected to be incurred related to this cost reduction plan.

 

The following table sets forth the components of the restructuring charge and payments made against the reserve for the three months ended March 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

Severance

 

 

 

and Benefits

 

 

 

(in thousands)

 

Restructuring balance at December 31, 2015

    

$

40

    

Costs incurred

 

 

1,700

 

Cash paid

 

 

(1,411)

 

Restructuring balance at March 31, 2016

 

$

329

 

 

The Company expects to substantially complete the payment of employee severance and benefits by the end of the second quarter of 2016.

 

9. Capital Structure

Preferred Stock

At March 31, 2016, the Company was authorized to issue 5,000,000 shares of $0.001 par value preferred stock. There were no shares issued and outstanding. Dividends on the preferred stock will be paid when, and if, declared by the Board of Directors.

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Common Stock

At March 31, 2016, the Company was authorized to issue 125,000,000 shares of $0.001 par value common stock. Dividends on the common stock will be paid when, and if, declared by the Board of Directors. Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held.

Treasury Stock

In August 2014, the Company’s Board of Directors authorized the Company to use a portion of the net proceeds of the Convertible 2.0% Senior Notes offering to repurchase up to an aggregate of $35.0 million of its common stock. In connection with the close of the transaction, the Company repurchased 1,147,540 shares of its common stock.

At March 31, 2016, the Company held 1,251,297 shares of common stock in treasury.

The Company will, at all times, reserve and keep available, out of its authorized but unissued shares of common stock, sufficient shares to effect the conversion of shares for stock options, restricted stock units and Convertible Notes.

10. Stock-Based Compensation

The Company issues stock options, restricted stock and restricted stock units (“RSUs”) with service conditions, which are generally the vesting periods of the awards. The Company has issued stock options and RSUs that vest upon the satisfaction of certain performance conditions. The Company also has issued stock options and RSUs that vest upon the satisfaction of certain market conditions.

Determining the Fair Value of Stock Awards and Restricted Stock Unit Awards

Stock Options

The Company measures the fair value of stock options with service-based and performance-based vesting criteria to employees, consultants and directors on the date of grant using the Black-Scholes option pricing model. The fair value of equity instruments issued to non-employees is remeasured as the award vests. For awards that vest upon the achievement of a market condition, the Company calculates the estimated fair value of the stock-based awards using a Monte Carlo simulation.

 The Company does not have sufficient history to support a calculation of volatility and expected term using only its historical data. As such, the Company has used a weighted-average volatility considering the Company’s own volatility since its initial public offering in October 2010 and the volatilities of several guideline companies. For purposes of identifying similar entities, the Company considered characteristics such as industry, length of trading history, and stage of life cycle. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The average expected life was determined according to the “simplified method” as described in SAB 110, which is the mid-point between the vesting date and the end of the contractual term. The risk-free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. Forfeitures are estimated based on the Company’s historical

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analysis of both options and awards that forfeited prior to vesting. The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows:

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

March 31,

 

 

 

2016

    

2015

    

 

Expected stock price volatility

62.5

%

61.5

%

 

Risk-free interest rate

1.71

%

1.48

%

 

Expected life of options (years)

6.25

 

6.30

 

 

Expected dividend yield

 -

%

 -

%

 

The Company’s stock option activity for the three months ended March 31, 2016 is as follows (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Weighted

    

 

 

 

 

 

 

 

Weighted-

 

Average

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

Number of

 

Exercise Price

 

Contractual

 

Intrinsic

 

 

 

Stock Options

 

Per Share

 

Life (years)

 

Value

 

Outstanding at December 31, 2015

 

6,235

 

$

27.32

 

 

 

$

33

 

Granted

 

970

 

$

7.71

 

 

 

 

 

 

Forfeited/cancelled

 

(1,953)

 

$

25.09

 

 

 

 

 

 

Outstanding at March 31, 2016

 

5,252

 

$

24.43

 

6.9

 

$

7

 

Vested and expected to vest at March 31, 2016

 

4,350

 

$

25.80

 

6.4

 

$

7

 

Exercisable at March 31, 2016

 

2,429

 

$

28.55

 

4.7

 

$

7

 

Restricted Stock Units (RSUs)

RSUs are generally subject to forfeiture if employment terminates prior to the satisfaction of the vesting conditions. The Company expenses the cost of RSUs with service-based vesting conditions, which is determined to be the fair value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse. Additionally, the Company grants RSUs that vest upon the achievement of a market condition. The fair value of RSUs with market-based vesting conditions is determined using a Monte Carlo simulation and the Company recognizes compensation expense over the derived service period.

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The Company’s RSU activity for the three months ended March 31, 2016 is as follows (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted

 

 

 

 

 

Weighted-

 

Average

 

 

 

 

 

Average

 

Remaining

 

 

 

Number of

 

Grant  Date

 

Contractual

 

 

 

RSUs

 

Fair Value

 

Life (years)

 

Outstanding at December 31, 2015

 

616

 

$

23.45

 

1.6

 

Vested

 

(13)

 

$

21.81

 

 

 

Forfeited/cancelled

 

(109)

 

$

25.34

 

 

 

Outstanding at March 31, 2016

 

494

 

$

23.07

 

1.6

 

 Stock-based Compensation Expense

The Company recorded stock-based compensation expense in the Company’s consolidated statements of operations as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

(in thousands)

 

 

Stock-based compensation expense by type of award:

 

    

    

 

    

 

 

Stock options

$

3,498

 

$

6,692

 

 

Restricted stock units

 

478

 

 

570

 

 

Less stock-based compensation capitalized to inventories

 

(51)

 

 

(103)

 

 

Total stock-based compensation expense included in costs and expenses

$

3,925

 

$

7,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

March 31,

 

 

 

 

2016

 

2015

 

 

 

 

(in thousands)

 

 

Selling, general and administrative

    

$

3,578

    

$

6,169

 

 

Research and development

 

 

347

 

 

990

 

 

Total stock-based compensation expense included in costs and expenses

 

$

3,925

 

$

7,159

 

 

Total unrecognized stock-based compensation cost related to unvested stock options and RSUs as of March 31, 2016 was approximately $28.3 million. This unrecognized cost is expected to be recognized over a weighted-average period of approximately 2.5 years. In addition, the Company has 47,970 shares of outstanding unvested stock options and RSUs that contain performance and market criteria that impact the vesting of the award. Of the 47,970 outstanding unvested stock options and RSUs, 15,000 options require judgment to assess whether the criteria is deemed probable to be achieved and for certain of the awards the number of options that will ultimately vest upon meeting the criteria. Total unrecognized compensation related to those awards was approximately $0.9 million at March 31, 2016.

 

11. Basic and Diluted Net Loss per Common Share

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period.

In August 2014, in connection with the issuance of the Convertible Notes, the Company entered into convertible bond hedges. The convertible bond hedges are not included for purposes of calculating the number of diluted shares outstanding, as their effect would be anti-dilutive. The convertible bond hedges are generally expected, but not guaranteed, to reduce the potential dilution upon conversion of the Convertible Notes. See Note 6, “Debt Financing” for additional information.

Diluted net loss per common share is computed by dividing the net loss by the weighted-average number of unrestricted common shares and dilutive common share equivalents outstanding for the period, determined using the

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treasury-stock and if-converted methods. Since the Company has had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and diluted net loss per common share are equal.

 The following table sets forth potential common shares issuable upon the exercise of outstanding options, warrants, the vesting of RSUs and the conversion of the Convertible Notes (prior to consideration of the treasury stock and if-converted methods), which were excluded from the computation of diluted net loss per share because such instruments were anti-dilutive (in thousands):

 

 

 

 

 

 

 

 

As of March 31,

 

 

 

2016

    

2015

 

 

Stock options

5,252

    

6,430

 

 

Unvested restricted stock units

494

 

282

 

 

Warrants

7,893

 

7,893

 

 

Convertible notes

7,893

 

7,893

 

 

Total

21,532

 

22,498

 

 

 

 

 

12. Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. The Company provides a valuation allowance when it is more likely than not that deferred tax assets will not be realized. 

The Company recorded a provision for income taxes of $0.3 million and $0.2 million in the three months ended March 31, 2016 and March 31, 2015, respectively. The provision for income taxes consists of current tax expense, which relates primarily to the Company’s profitable operations in its foreign tax jurisdictions, and deferred tax expense, which relates primarily to the amortization of tax deductible goodwill and indefinite-lived intangible assets associated with the MYALEPT acquisition. 

The Company does not recognize a tax benefit for uncertain tax positions unless it is more likely than not that the position will be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit that is recorded for these positions is measured at the largest amount of cumulative benefit that has greater than a 50 percent likelihood of being realized upon ultimate settlement. Deferred tax assets that do not meet these recognition criteria are not recorded and the Company recognizes a liability for uncertain tax positions that may result in tax payments. If such unrecognized tax benefits were realized and not subject to valuation allowances, the entire amount would impact the tax provision. As of March 31, 2016, the Company had no material uncertain tax positions.

13. Commitments and Contingencies

In late 2013, the Company received a subpoena from the DOJ, represented by the U.S. Attorney’s Office in Boston, requesting documents regarding the Company’s marketing and sale of JUXTAPID in the U.S., as well as related disclosures.  The Company believes the DOJ is seeking to determine whether it, or any of its current or former employees, violated civil and/or criminal laws, including but not limited to, the securities laws, the Federal False Claims Act, the Food and Drug Cosmetic Act, the Anti-Kickback Statute, and the Foreign Corrupt Practices Act.  The investigation is continuing.

In late 2014, the Company received a subpoena from the SEC requesting certain information related to its sales activities and disclosures related to JUXTAPID. The SEC also has requested documents and information on a number of other topic