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Nature of business </b></font></p> <p style="FONT-FAMILY: times"><font size="2">Radius Health,&#160;Inc. ("Radius" or the "Company"), which was formerly known as MPM Acquisition Corp., is a biopharmaceutical company focused on acquiring and developing new therapeutics for the treatment of osteoporosis and other women's health conditions. The Company's lead product candidate, currently in Phase&#160;3 clinical development, is BA058 Injection, a daily subcutaneous injection of novel synthetic peptide analog of human parathyroid hormone-related protein (hPTHrP) for the treatment of osteoporosis. The BA058 Injection Phase&#160;3 study began dosing patients in April 2011. The Company is also developing BA058 Microneedle Patch, a short wear time, transdermal form of BA058 delivered using a microneedle technology from 3M Drug Delivery Systems (3M), currently in Phase&#160;1 clinical development. The Company also has two other product candidates, RAD1901, a selective estrogen receptor modulator, or SERM, in Phase&#160;2 clinical development for the treatment of vasomotor symptoms (hot flashes) in women entering menopause and RAD140, a selective androgen receptor modulator, or SARM, currently in preclinical development as a potential treatment for age-related muscle loss, frailty, weight loss associated with cancer cachexia and osteoporosis. As used throughout these financial statements, the terms "Radius," "Company," "we," "us" and "our" refer to Radius Health,&#160;Inc. (f/k/a MPM Acquisition Corp.). </font></p> <p style="FONT-FAMILY: times"><font size="2">Pursuant to an Agreement and Plan of Merger (the "Merger Agreement" or the "Merger") entered into in April 2011 by and among the Company (a public-reporting, Form&#160;10 shell company at the time), RHI Merger Corp., a Delaware corporation and wholly owned subsidiary of the Company ("MergerCo"), and Radius Health,&#160;Inc., a privately-held Delaware corporation ("Former Operating Company"), MergerCo merged with and into the Former Operating Company, with the Former Operating Company remaining as the surviving entity and a wholly-owned subsidiary of the Company. This transaction is herein referred to as the "Merger". The Merger was effective on May&#160;17, 2011, upon the filing of a certificate of merger with the Delaware Secretary of State. Following the Merger on May&#160;17, 2011, the Company's board of directors approved the Merger of the Former Operating Company with and into the Company, leaving the Company as the surviving corporation (the "Short-Form Merger"). As part of the Short-Form Merger, the Company, then named MPM Acquisition Corp., changed its name to Radius Health,&#160;Inc. and assumed the operations of the Former Operating Company. </font></p> <p style="FONT-FAMILY: times"><font size="2">The Company is subject to the risks associated with emerging, technology-oriented companies with a limited operating history, including dependence on key individuals, a developing business model, market acceptance of the Company's product candidates, competition for its product candidates, and the continued ability to obtain adequate financing to fund the Company's future operations. The Company has an accumulated deficit of $122,359 through December&#160;31, 2011. The Company has incurred losses and expects to continue to incur additional losses for the foreseeable future. The Company intends to obtain additional equity and/or debt financing in order to meet working capital requirements and to further develop its product candidates. As part of the Merger and Short-Form Merger in May 2011, the Company assumed the Former Operating Company's agreement with existing and new investors pursuant to which the Former Operating Company received an irrevocable, legally binding commitment for proceeds of $64,284 from the issuance of shares of Series&#160;A-1 Convertible Preferred Stock in three closings. The proceeds from each closing were generally due to the Company upon its written request. The first of the three closings was completed prior to the Merger on May&#160;17, 2011 for gross proceeds of $21,428, the second closing was completed on November&#160;18, 2011 for gross proceeds of $21,428, and the third closing was completed on December&#160;14, 2011 for gross proceeds of $21,428. The Company believes that its existing cash and cash equivalents and marketable securities, coupled with its remaining borrowing capacity under the Loan and Security Agreement described in Note&#160;11, are sufficient to finance its operations, including its obligations under the Nordic agreement described in Note&#160;16, into the first quarter of 2013. </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>2. Summary of significant accounting policies </b></font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Use of estimates </b></font></p> <p style="FONT-FAMILY: times"><font size="2">The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company's management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Cash equivalents </b></font></p> <p style="FONT-FAMILY: times"><font size="2">The Company considers all highly liquid investment instruments with an original maturity when purchased of three months or less to be cash equivalents. 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The Company periodically reviews the portfolio of securities to determine whether an other-than-temporary impairment has occurred. No such losses have occurred to date. There were no realized gains or losses on the sale of securities for the years ended December&#160;31, 2011 and 2010. </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Fair value measurements </b></font></p> <p style="FONT-FAMILY: times"><font size="2">The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level&#160;1), and the lowest priority to unobservable inputs (Level&#160;3). The Company's financial assets are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy, and its applicability to the Company's financial assets, are described below: </font></p> <p style="FONT-FAMILY: times"><font size="2"><i>Level&#160;1</i></font><font size="2">&#8212;Unadjusted quoted prices in active markets that are accessible at the measurement date of identical, unrestricted assets. </font></p> <p style="FONT-FAMILY: times"><font size="2"><i>Level&#160;2</i></font><font size="2">&#8212;Quoted prices for similar assets, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. 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Convertible preferred stock and redeemable convertible preferred stock </b></font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Redeemable Convertible Preferred Stock </b></font></p> <p style="FONT-FAMILY: times"><font size="2">The rights, preferences, and privileges of the Series&#160;A Preferred Stock, Series&#160;B Preferred Stock, and Series&#160;C Preferred Stock (collectively, the "Old Preferred Stock") which were outstanding as of December&#160;31, 2010 are as follows: </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Conversion </b></font></p> <p style="FONT-FAMILY: times"><font size="2">Each Preferred stockholder has the right, at their option at any time, to convert any such shares of Old Preferred Stock into such number of fully paid shares as is determined by dividing the original purchase price by the conversion price. The conversion price of the Old Preferred Stock as of December&#160;31, 2009 and 2010 was $8.14 and $15.00 per share for Series&#160;C Preferred Stock and for Series&#160;B and A Preferred Stock, respectively, which in each case represents a 1 for 1 conversion ratio to common stock. </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Redemption </b></font></p> <p style="FONT-FAMILY: times"><font size="2">At the request of holders of at least 68% in voting power of the shares of Series&#160;B and Series&#160;C Preferred Stock then outstanding, made at any time on or after the fourth anniversary of the original Series&#160;C Preferred Stock issuance date, the Company will be required to redeem all of the outstanding shares of Series&#160;B and Series&#160;C Preferred Stock at a redemption price equal to the original Series&#160;B or Series&#160;C Preferred Stock purchase price of $15.00 and $8.14, respectively, plus any declared or accrued but unpaid dividends. 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Dividends will be payable, as accrued, upon liquidation, event of sale, redemption date, and conversion to common stock (whether declared or not) as specified in the Stockholders' Agreement. The holders of shares of Series&#160;B Preferred Stock are also entitled to dividends declared or paid on any shares of common stock. </font></p> <p style="FONT-FAMILY: times"><font size="2">Series&#160;C Preferred Stockholders are entitled to receive dividends at the rate of 8% per annum, compounding annually, which will accrue on a quarterly basis commencing on the date of issuance of the Series&#160;C Preferred Stock. Dividends will be payable, as accrued, upon liquidation, event of sale, redemption date, and conversion to common stock as (whether declared or not) specified in the Stockholders' Agreement. The holders of shares of Series&#160;C Preferred Stock are also entitled to dividends declared or paid on any shares of common stock. </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Voting </b></font></p> <p style="FONT-FAMILY: times"><font size="2">The Old Preferred Stockholders are entitled to vote together with the holders of the common stock as one class on an as if converted basis. </font></p> <p style="FONT-FAMILY: times"><font size="2">In addition, the Series&#160;B and Series&#160;C Preferred Stockholders, voting as a separate class (Senior Preferred Stockholders), have the exclusive right to elect six members of the board of directors. </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Liquidation </b></font></p> <p style="FONT-FAMILY: times"><font size="2">The Series&#160;C Preferred Stock ranks senior and prior to the Series&#160;B Preferred Stock, Series&#160;A Preferred Stock, and the Company's common stock. The Series&#160;B Preferred Stock ranks senior and prior to the Series&#160;A Preferred Stock and the Company's common stock, and junior to the Series&#160;C Preferred Stock. The Series&#160;A Preferred Stock ranks senior and prior to the Company's common stock. </font></p> <p style="FONT-FAMILY: times"><font size="2">In the event of a liquidation, dissolution, or winding-up of the Company, the holders of the Series&#160;C Preferred Stock are entitled to be paid first out of the assets available for distribution, before any payment shall be made to the Series&#160;B and Series&#160;A Preferred Stockholders. Payment to the Series&#160;C Preferred Stockholders shall consist of the original issuance price of $8.14, plus all accrued but unpaid dividends and interest. After the distribution to the Series&#160;C Preferred Stockholders, the holders of Series&#160;B Preferred Stock, and then Series&#160;A Preferred Stock, will be entitled to receive an amount per share equal to the original purchase price per share of $15.00, plus any declared and unpaid dividends. If the assets of the Company are insufficient to pay the full preferential amounts to the Series&#160;C Preferred Stockholders, the assets will be distributed ratably among the Series&#160;C Preferred Stockholders in proportion to their aggregate liquidation preference amounts. If the assets of the Company are insufficient to pay the full preferential amounts to the Series&#160;B and Series&#160;A Preferred Stockholders, after payment to the Series&#160;C Preferred Stockholders, the Series&#160;B Stockholders shall first share ratably in any remaining distribution of assets according to the respective amounts which would be repayable to them in respect of the shares of Series&#160;B Preferred Stock held upon such distribution. The Series&#160;A Preferred Stockholders would only share in the distribution of assets once the Series&#160;B Preferred Stockholders have received their full preferential amounts. </font></p> <p style="FONT-FAMILY: times"><font size="2">In the event of, and simultaneously with, the closing of an Event of Sale of the Company (as defined in the Stockholders' Agreement), the Company shall redeem all of the shares of Series&#160;A, Series&#160;B, and Series&#160;C Preferred Stock then outstanding at the Special Liquidation Price. If the Event of Sale involves consideration other than cash, the Special Liquidation Price may be paid with such consideration having a value equal to the Special Liquidation Price. The Special Liquidation Price shall be equal to an amount per share, which would be received by each Old Preferred Stockholder if, in connection with the Event of Sale, all the consideration paid in exchange for the assets or the shares of capital stock of the Company was actually paid to and received by the Company, and the Company was immediately liquidated thereafter and its assets distributed pursuant to the liquidation terms above. </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Convertible Preferred Stock </b></font></p> <p style="FONT-FAMILY: times"><font size="2">The rights, preferences, and privileges of the Series&#160;A-1, Series&#160;A-2, Series&#160;A-3, Series&#160;A-4, Series&#160;A-5 and Series&#160;A-6 Preferred Stock (collectively, the "New Preferred Stock"), which were authorized as part of the recapitalization and financing, and in connection with the Merger, are as follows: </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>Conversion </b></font></p> <p style="FONT-FAMILY: times"><font size="2">Each holder of New Preferred Stock has the right, at their option at any time, to convert any such shares of New Preferred Stock into such number of fully paid shares of Common Stock as is determined by dividing the original purchase price of $81.42 by the conversion price ("Optional Conversion"). The conversion price of the New Preferred Stock as of December&#160;31, 2011 was $8.142 per share (the "Conversion Price"), which represents a conversion ratio of one share of New Preferred Stock into ten shares of Common Stock. Upon the Optional Conversion, the holder of the converted New Preferred Stock is entitled to payment of all accrued, whether or not declared, but unpaid dividend in shares of the Common Stock of the Company at the then effective conversion price of shares of New Preferred Stock. </font></p> <p style="FONT-FAMILY: times"><font size="2">In the event an investor does not timely and completely fulfill their future funding obligations as defined in the Purchase Agreement (as described in Note&#160;4) (i)&#160;the shares of the New Preferred Stock then held by the investor automatically convert into shares of the Company's common stock at a rate of one share of common stock for every ten shares of New Preferred Stock to be converted and (ii)&#160;the Company has the right to repurchase all of the shares of Common Stock issued upon conversion at a purchase price equal to the par value of the repurchased shares of Common Stock ("Subsequent Closing Adjustment"). Upon a Subsequent Closing Adjustment, the holder of the converted New Preferred Stock is entitled to payment of any declared or accrued, but unpaid, dividends in shares of the Common Stock of the Company. </font></p> <p style="FONT-FAMILY: times"><font size="2">Each share of the New Preferred Stock is automatically convertible into fully paid and non-assessable shares of Common Stock at the applicable Conversion Price then in effect upon (i)&#160;a vote of the holders of at least 70% of the outstanding shares of Series&#160;A-1, Series&#160;A-2 and Series&#160;A-3 to convert all shares of New Preferred Stock or (ii)&#160;the Common Stock becoming listed for trading on a national stock exchange ("Special Mandatory Conversion"). 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For the valuations prepared as of December&#160;3, 2008, December&#160;2, 2009 and October&#160;1, 2010, the option-pricing method treats common stock and preferred stock as call options on the enterprise's value, with exercise prices based on the liquidation preference of the preferred stock. Under this method, the common stock has value only if the funds available for distribution to stockholders exceed the value of the liquidation preference at the time of a liquidity event (for example, merger of sale), assuming the enterprise has funds available to make a liquidation preference meaningful and collectible by the shareholders. </font></p> <p style="FONT-FAMILY: times"><font size="2">In the model, the exercise price is based on a comparison with the enterprise value rather than, as in the case of a "regular" call option, a comparison with a per-share stock price. 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PWERM is complex as it requires numerous assumptions relating to potential future outcomes of equity, hence, the use of this method can be applied: (i)&#160;when possible future outcomes can be predicted with reasonable certainty; and (ii)&#160;when there is a complex capital structure (i.e., several classes of preferred and common stock). The Company utilized the fair value of common stock derived from the September&#160;30, 2011 valuation for purposes of the November&#160;7, 2011 option grants and the fair value of common stock derived from the November&#160;28, 2011 valuation for purposes of the December&#160;15, 2011 option grants. The Company concluded, for purposes of the November&#160;7, 2011 grants, that there were no significant changes to the assumptions used in the PWERM model between September&#160;30, 2011 and November&#160;7, 2011 that would impact the fair value of common stock. The Company concluded, for purposes of the December&#160;15, 2011 grants, that there were no significant changes to the assumptions used in the PWERM model between November&#160;28, 2011 and December&#160;15, 2011 that would impact the fair value of common stock. The Company also used this methodology to estimate the fair value of preferred stock, which was used in the preferred stock extinguishment (Note 4), and to determine the fair value of shares of series A-6 convertible preferred stock due to Nordic (Note&#160;16). </font></p> <p style="FONT-FAMILY: times"><font size="2"><b>15. License agreements </b></font></p> <p style="FONT-FAMILY: times"><font size="2">On September&#160;27, 2005, the Company entered into a license agreement (the "Ipsen Agreement"), as amended, with SCRAS&#160;S.A.S, a French corporation on behalf of itself and its affiliates (collectively, "Ipsen"). Under the Ipsen Agreement, Ipsen granted to the Company an exclusive right and license under certain Ipsen compound technology and related patents to research, develop, manufacture and commercialize certain compounds and related products in all countries, except Japan and (subject to certain co-marketing and co-promotion rights retained by Ipsen) France. With respect to France, if Ipsen exercises its co-marketing and co-promotion rights then Ipsen may elect to receive a percentage of the aggregate revenue from the sale of products by both parties in France (subject to a mid-double digit percentage cap) and Ipsen shall bear a corresponding percentage of the costs and expenses incurred by both parties with respect to such marketing and promotion efforts in France; Ipsen shall also pay Radius a mid-single digit royalty on Ipsen's allocable portion of aggregate revenue from the sale of products by both parties in France. BA058 (the Company's bone growth drug) is subject to the Ipsen Agreement. Ipsen also granted the Company an exclusive right and license under the Ipsen compound technology and related patents to make and have made compounds or product in Japan. Ipsen also granted the Company an exclusive right and license under certain Ipsen formulation technology and related patents solely for purposes of enabling the Company to develop, manufacture and commercialize compounds and products covered by the compound technology license in all countries, except Japan and (subject to certain co-marketing and pro-promotion rights retained by Ipsen) France. In consideration for these licenses, the Company made a nonrefundable, non-creditable payment of $250 to Ipsen, which was expensed during 2005. The Ipsen Agreement provides for further payments in the range of &#8364;10,000 to &#8364;36,000 ($12,973 to $46,702) to Ipsen upon the achievement of certain development and commercialization milestones specified in the Ipsen Agreement, and for the payment of fixed 5% royalties on net sales of any product by the Company or our sublicensees on a country-by-country basis until the later of the last to expire of the licensed patents or for a period of 10&#160;years after the first commercial sale in such country of any product that includes the compound licensed from Ipsen or any analog thereof. </font></p> <p style="FONT-FAMILY: times"><font size="2">If the Company sublicenses the rights licensed from Ipsen, then the Company will also be required to pay Ipsen a percentage of certain payments received from such sublicensee (in lieu of milestone payments not achieved at the time of such sublicense). The applicable percentage is in the low double digit range. In addition, if the Company or its affiliates sublicensees commercialize a product that includes a compound discovered by it based on or derived from confidential Ipsen know-how, it will be obligated to pay to Ipsen a fixed low single digit royalty on net sales of such product on a country-by-country basis until the later of the last to expire of its patents that cover such product or for a period of 10&#160;years after the first commercial sale of such product in such country. In connection with the Ipsen Agreement, the Company recorded approximately $1,007, $1,227 and $1,117 in research and developments costs in the years ended December&#160;31, 2011, 2010 and 2009, respectively. 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