Discontinued Operations

12 Months Ended

Dec. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

On December 1, 2014, the Company signed an Asset Purchase Agreement with Recipharm AB (“Recipharm”) to divest its development and manufacturing facility and associated business located in Pessac, France. The assets included in the divestiture were tangible equipment, furniture and fixtures, inventories and all intellectual property rights relating to the operation and technological know-how necessary in manufacturing the products that are produced in the facility, as well as the assignment to Recipharm of all employees, customer contracts and liabilities which primarily relate to agreements of the Company with GlaxoSmithKline (“GSK”) for the manufacture and sale of Coreg CR®, which was Avadel’s lead product at the time, using its Micropump drug delivery platform and manufactured in the Pessac Facility. 

The aggregate consideration received for the divested assets and business was $13,200, plus the value of divested inventory as determined using inventory valuation methodology as defined by the two parties. All cash and receivables pertaining to the Pessac Facility business prior to the sale were retained by the Company. A contribution of $700 was made by the Company to finance potential future retirement indemnities payable on transferred employees. The business was accounted for as a discontinued operation in the fourth quarter of 2014 and, therefore, the operating results of our Pessac Facility business were included in Discontinued Operations in the Company’s consolidated financial statements for all applicable years presented. The Company recognized a $5,007 gain on disposal, which was included in our income from Discontinued Operations, in fiscal year 2014. Concurrently with the above, Recipharm made an investment of $13,000 in newly issued Avadel (formerly Flamel) shares, the purchase price of which was based on the average of the trailing 20 days’ trading prices of the Company’s shares prior to the closing date.

In connection with the Asset Purchase Agreement, the Company also entered into a number of other agreements with Recipharm:

Master Agreement on Supply and Services of Products (“MSA”)

Recipharm will provide various services in the domain of R&D and manufacture of pharmaceutical products for an initial non-cancellable period of five years. 

Over the initial term, any services to be provided shall include internal and external costs incurred by Recipharm plus 20%, which has been determined to be the fair value for such services. The minimum amount of services per year, for a cumulative total of $22,500 as follows: 

Annual Service Minimum:	Amount
Year 1	$	4,250
Year 2	4,250
Year 3	4,250
Year 4	4,875
Year 5	4,875
Total	$	22,500

During the year ended December 31, 2016 and December 31, 2015, the Company recorded $4,541 and $4,089 of research and development expenses, and cash outflows of $939 and $5,679, related to this commitment to Recipharm.

Option Agreement

Recipharm has a first option (right of first refusal) to discuss and negotiate licenses of the Company’s intellectual property rights for the sale of certain products in Europe. Upon exercise of the option, Recipharm and the Company shall agree in good faith on terms and conditions of the related license agreement within forty-five (45) days from the exercise of the option. The term of the Option Agreement is from the signing of the agreement through December 31, 2017. The Company received no compensation related to the option agreement. 

Summary results of operations for the divested Pessac business were as follows for the years ended December 31: 

Net Income from Discontinued Operations:	2016		2015		2014
Revenues	$	—	$	—	$	14,967
Operating income (loss)	—		—		(875		)
Gain on disposal	—		—		5,007
Interest expense	—		—		(4		)
Income tax provision	—		—		(110		)
Net income from discontinued operations	$	—	$	—	$	4,018

The major cash flows related to Discontinued Operations as included in the consolidated statements of cash flows are as follows for the years ended December 31:

Cash Flow Related to Discontinued Operation:	2016		2015		2014
Capital expenditures	$	—	$	—	$	1,271
Depreciation and amortization	—		—		1,709
Operating and investing non-cash elements	—		—		(740		)