Discontinued Operations

Sale of Infectious Disease Business

On January 5, 2018, the Company completed the sale of its infectious disease business, consisting of the products Vabomere, Orbactiv and Minocin IV and line extensions thereof, and substantially all of the assets related thereto, other than certain pre-clinical assets, to Melinta. At the completion of the sale, the Company received approximately $166.4 million and 3,313,702 shares of Melinta common stock having a market value, based on Melinta's closing share price on January 5, 2018, of approximately $54.5 million. The Company’s common stock investment in Melinta was recorded as a short-term investment with a readily determinable fair value at September 30, 2018 of $13.1 million on the accompanying condensed consolidated balance sheet. See Note 6 “Cash, Cash Equivalents and Investments” for further details.

In addition, the Company is entitled to receive a cash payment payable 12 months following the closing of the transaction equal to $25.0 million and a cash payment payable 18 months following the closing of the transaction equal to $25.0 million. On January 5, 2018 the fair value of such payments was approximately $45.9 million, of which $23.3 million was originally recorded in prepaid expenses and other current assets and $22.6 million was originally recorded in other assets on the condensed consolidated balance sheet. Such fair value was estimated using a discounted cash flow model and was classified as a Level 3 fair value measurement due to the use of significant unobservable inputs. See Note 7, “Fair Value Measurements,” for definitions of hierarchy levels. The excess of the cash payments payable to the Company over the initial fair value is amortized to interest income over the 12 and 18 month periods using the effective interest rate method. As of September 30, 2018, the carrying amounts of these assets of $48.7 million approximate their fair value due to the short term nature of the payments.

The Company is also entitled to tiered royalty payments of 5% to 25% on worldwide net sales of (a) Vabomere and (b) Orbactiv and Minocin IV, collectively. On January 5, 2018, the fair value of these contingent payments to be received from Melinta was $246.2 million and was recorded as contingent purchase price from sale of businesses in the accompanying condensed consolidated balance sheet. Substantially all of the fair value was estimated using Monte Carlo simulation models to compute contractual payments which were present valued using a risk-adjusted discount rate. The Company classified this as a Level 3 fair value measurement due to the use of these significant unobservable inputs. See Note 7, “Fair Value Measurements,” for definitions of hierarchy levels.

As a result of the transaction, the Company accounted for the assets and liabilities of the infectious disease business that were sold as held for sale at December 31, 2017.

Financial results of the infectious disease business are presented as “Income (loss) from discontinued operations, net of tax” on the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017. Assets and liabilities of the infectious disease business to be disposed of are presented as “Current assets held for sale,” and “Current liabilities held for sale,” on the accompanying condensed consolidated balance sheet as of December 31, 2017.

The following table presents key financial results of the infectious disease business included in “Income (loss) from discontinued operations, net of tax” for the three and nine months ended September 30, 2018 and 2017.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(In thousands)
Net product revenues	$	—		$	9,003		$	(107	)	$	23,635
Operating expenses:
Cost of revenue	—			5,314			197			12,681
Research and development	24			12,761			534			34,566
Selling, general and administrative	(80		)	13,433			2,997			57,400
Total operating expenses	(56		)	31,508			3,728			104,647
Loss from operations	56			(22,505		)	(3,835		)	(81,012		)
Gain from sale of business	—			—			168,955			—
Other income (expense), net	(52		)	(452		)	358			(820		)
Income (loss) from discontinued operations before income taxes	4			(22,957		)	165,478			(81,832		)
Provision for (benefit from) income taxes	4,003			—			55,236			2
Income (loss) from discontinued operations, net of tax	$	(3,999	)	$	(22,957	)	$	110,242		$	(81,834	)

Cumulative translation adjustment (CTA) gains or losses of foreign subsidiaries related to divested businesses are reclassified into income once the liquidation of the respective foreign subsidiaries is substantially complete. At the completion of the sale of the infectious disease business, the Company reclassified $1.2 million of CTA gains from accumulated comprehensive loss to the Company’s results of discontinued operations. This amount was included in gain from sale of business for the nine months ended September 30, 2018.

Disposition related costs during the nine months ended September 30, 2018 of approximately $11.9 million for advisory, legal and regulatory fees incurred in connection with the sale of the infectious disease business were recorded in the gain from the sale of the business.

The following table presents the major classes of assets and liabilities at December 31, 2017 related to the infectious disease business which were reclassified as held for sale:



	December 31,
	2017
	(In thousands)
Assets:
Accounts receivable, net	$	9,595
Inventory	41,412
Other receivables	2,740
Intangibles, net	282,398
Goodwill	55,057
Total assets held for sale	$	391,202

Liabilities:
Accounts payable	$	1,127
Accrued expenses	22,945
Contingent purchase price	35,785
Deferred revenue	723
Total liabilities held for sale	$	60,580

Depreciation and amortization was ceased upon determination that the held for sale criteria were met in the fourth quarter of 2017. The significant cash flow items from discontinued operations for the nine months ended September 30, 2018 and 2017 were as follows:



	Nine months ended September 30,
	2018			2017
	(In thousands)
Amortization from discontinued operations	$	—		$	7,071
Changes in contingent purchase price	—			3,543
Gain on sale of business	(168,955		)	—
Reserve for excess or obsolete inventory	—			(435		)
Proceeds from sale of business	166,383			—
Payments on contingent purchase price	—			(62,618		)