Earnings (Loss) per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016			2015
	(in thousands, except per share amounts)
Net income (loss) from continuing operations attributable to The Medicines Company	$	181,823	$	(67,445	)	$	91,480		$	(63,072	)
Income (loss) from discontinued operations, net of tax	619		20,853			(1,486		)	21,514
Net income (loss) attributable to The Medicines Company	$	182,442	$	(46,592	)	$	89,994		$	(41,558	)

Weighted average common shares outstanding, basic	69,711		65,903			69,464			65,541
Plus: net effect of dilutive stock options, warrants, restricted common shares and shares issuable upon conversion of notes	2,798		—			2,848			—
Weighted average common shares outstanding, diluted	72,509		65,903			72,312			65,541

Basic earnings (loss) per common share attributable to The Medicines Company:
Earnings (loss) from continuing operations	$	2.61	$	(1.02	)	$	1.32		$	(0.96	)
Earnings (loss) from discontinued operations	0.01		0.31			(0.02		)	0.33
Basic earnings (loss) per share	$	2.62	$	(0.71	)	$	1.30		$	(0.63	)

Diluted earnings (loss) per common share attributable to The Medicines Company:
Earnings (loss) from continuing operations	$	2.51	$	(1.02	)	$	1.27		$	(0.96	)
Earnings (loss) from discontinued operations	0.01		0.31			(0.02		)	0.33
Diluted earnings (loss) per share	$	2.52	$	(0.71	)	$	1.25		$	(0.63	)

Basic earnings (loss) per share is computed by dividing consolidated net income (loss) attributable to The Medicines Company by the weighted average number of shares of common stock outstanding during the period, excluding unvested restricted common shares. The potentially dilutive effect of the Company’s stock options and unvested restricted common stock on earnings per share is computed under the treasury stock method. The Company has either the obligation or the option to pay cash for the aggregate amount due upon conversion for all of the Company’s convertible senior notes. Since it is the Company’s current intent to settle in cash the principal amount of all of its convertible senior notes upon conversion, the potentially dilutive effect of such notes on earnings per share is computed under the treasury stock method.

For periods of net income when the effects are not anti-dilutive, diluted earnings per share is computed by dividing the net income attributable to The Medicines Company by the weighted average number of shares outstanding and the impact of all potential dilutive common shares, consisting primarily of stock options, unvested restricted common stock, shares issuable upon conversion of convertible senior notes due 2017, 2022 and 2023 and stock purchase warrants.

For periods of net loss, diluted loss per share is calculated similar to basic loss per share as the effect of including all potentially dilutive common share equivalents is anti-dilutive. Due to the period of net loss from continuing operations attributable to The Medicines Company, the calculation of diluted loss per share for the three and six months ended June 30, 2015 excluded 1,463,326 and 1,608,762, respectively, of potentially dilutive stock options, warrants, restricted common shares, and shares issuable upon conversion of the 2017 and 2022 Notes as their inclusion would have an anti-dilutive effect.

For the three and six months ended June 30, 2016, options to purchase 3,102,640 and 3,199,586 shares, respectively, of common stock that could potentially dilute basic earnings per share were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive.

For the three and six months ended June 30, 2016, there were 27,408 and 13,704 shares, respectively, of unvested restricted stock excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive.

In June 2016, the Company issued the 2023 Notes (see Note 10, “Convertible Senior Notes”). The conversion rate for the 2023 Notes was initially, and remains, 20.4198 shares of the Company’s common stock per $1,000 principal amount of the 2023 Notes, which is equivalent to an initial conversion price of approximately $48.97 per share of the Company’s common stock. For the three and six months ended June 30, 2016, there was no dilutive effect of the 2023 Notes as the stock price did not exceed the conversion price.

To minimize the impact of potential dilution upon conversion of the 2023 Notes, the Company entered into capped call transactions separate from the issuance of the 2023 Notes with certain counterparties. The capped calls have a strike price of $48.97 and a cap price of $64.68 and are exercisable when and if the 2023 Notes are converted. If upon conversion of the 2023 Notes, the price of the Company’s common stock is above the strike price of the capped calls, the counterparties will deliver shares of the Company’s common stock and/or cash with an aggregate value equal to the difference between the price of the Company’s common stock at the conversion date and the strike price, multiplied by the number of shares of the Company’s common stock related to the capped calls being exercised. The capped call transactions that are part of the 2023 Notes are not considered for purposes of calculating the total shares outstanding under the basic and diluted net income per share, as their effect would be anti-dilutive.

In January 2015, the Company issued the 2022 Notes (see Note 10, “Convertible Senior Notes”). The conversion rate for the 2022 Notes was initially, and remains, 29.8806 shares of the Company’s common stock per $1,000 principal amount of the 2022 Notes, which is equivalent to an initial conversion price of approximately $33.47 per share of the Company’s common stock. For the three and six months ended June 30, 2016, there were 605,658 and 302,829 shares, respectively, of common stock issuable upon conversion of the 2022 Notes included in diluted shares.

In June 2012, the Company issued the 2017 Notes (see Note 10, “Convertible Senior Notes”). In connection with the issuance of the 2017 Notes, the Company entered into convertible note hedge transactions with respect to its common stock (2017 Note Hedges) with several of the initial purchasers of the 2017 Notes, their affiliates and other financial institutions (2017 Hedge Counterparties). The options that are part of the 2017 Note Hedges are not considered for purposes of calculating the total shares outstanding under the basic and diluted net income per share, as their effect would be anti-dilutive. The 2017 Note Hedges are expected generally to reduce the potential dilution with respect to shares of the Company’s common stock upon any conversion of the 2017 Notes in the event that the market price per share of the Company’s common stock, as measured under the terms of the 2017 Note Hedges, is greater than the strike price of the 2017 Note Hedges, which initially corresponded to the conversion price of the 2017 Notes and are subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the 2017 Notes. In June 2016, as part of the repurchase of $220.0 million in aggregate principal amount of the 2017 Notes, the Company settled the hedges related to the repurchased bonds. For the three and six months ended June 30, 2016, there were 409,193 and 917,449 shares, respectively, of common stock issuable upon conversion of the 2017 Notes included in diluted shares.

In addition, in connection with the 2017 Note Hedges, the Company entered into warrant transactions with the 2017 Hedge Counterparties, pursuant to which the Company sold warrants (2017 Warrants) to the Hedge Counterparties to purchase, subject to customary anti-dilution adjustments, up to two million shares of the Company’s common stock at a strike price of $34.20 per share. The 2017 Warrants will have a dilutive effect with respect to the Company’s common stock to the extent that the market price per share of the Company’s common stock, as measured under the terms of the 2017 Warrants, exceeds the applicable strike price of the 2017 Warrants. However, subject to certain conditions, the Company may elect to settle all of the 2017 Warrants in cash. In June 2016, as part of the repurchase of $220.0 million in aggregate principal amount of the 2017 Notes, the Company settled the warrants related to the repurchased bonds. For the three and six months ended June 30, 2016, there were 59,013 and 29,506 shares, respectively, of common stock issuable upon the exercise of the 2017 Warrants included in diluted shares.