3. Sale of Commercial Business

Ipsen

On April 3, 2017, the Company completed the sale of the Commercial Business to Ipsen. Pursuant to the Asset Sale Agreement, the Company may be entitled to up to $450.0 million in additional payments based on the achievement by or on behalf of Ipsen of certain milestone events if the U.S. Food and Drug Administration (the “FDA”) approves ONIVYDE for certain indications as follows: (i) $225.0 million upon the regulatory approval by the FDA of ONIVYDE for the first-line treatment of metastatic adenocarcinoma of the pancreas (a) in combination with fluorouracil and leucovorin (with or without oxaliplatin), (b) in combination with gemcitabine and abraxane or (c) following submission and filing of regulatory approval by Ipsen for purposes of commercialization by Ipsen; (ii) $150.0 million upon the regulatory approval by the FDA of ONIVYDE for the treatment of small cell lung cancer after failure of first-line chemotherapy; and (iii) $75.0 million upon the regulatory approval by the FDA of ONIVYDE for an additional indication unrelated to those described above.

In connection with the sale of the Commercial Business, on April 3, 2017, the Company entered into a transition services agreement with Ipsen pursuant to which the Company and Ipsen are providing certain services to each other for a period of 24 months following the closing, including Ipsen’s agreement to manufacture MM-310 and to perform certain quality related services in accordance with a manufacturing services agreement, the accounting impact of which is immaterial.

In connection with the completion of the Asset Sale, on April 3, 2017, the Company irrevocably deposited the redemption price of the 11.50% senior secured notes due 2022 (the “2022 Notes”) of $175.0 million outstanding aggregate principal amount, interest of $7.4 million through the redemption date and an additional make-whole premium payment of approximately $20.1 million with U.S. Bank National Association as trustee (the “Trustee”) under the Indenture dated as of December 22, 2015 (the “Indenture”) and irrevocably instructed the Trustee to apply such amount to the redemption in full of the 2022 Notes on the redemption date of April 27, 2017. The Indenture was satisfied and discharged on April 3, 2017.

In connection with the completion of the Asset Sale, on April 3, 2017, the Company entered into a sublease with Ipsen, pursuant to which Ipsen is subleasing from the Company approximately 70,237 square feet of leased space in the Company’s Cambridge, Massachusetts facility through the end of the term of the lease on June 30, 2019. Payments under the sublease are recorded as an offset to rent expense in the condensed consolidated statement of operations and comprehensive income (loss).

Also in connection with the completion of the Asset Sale, on April 3, 2017, the Company entered into an intellectual property license agreement with Ipsen, pursuant to which Ipsen granted to the Company a perpetual, worldwide, non-exclusive, royalty-free, fully paid-up license in and to all patents included in the transferred intellectual property, other than certain patents relating to generic liposomal technology, with respect to which the license will be exclusive, in each case for use outside of the Commercial Business. The Company granted to Ipsen a non-exclusive, royalty-free, fully paid up, perpetual, irrevocable and worldwide license to all patents it owned at the time of the closing of the transaction contemplated by the Asset Sale Agreement for use in connection with the Commercial Business. This transfer of intellectual property did not impact the financial statements as no amounts related to the intellectual property had previously been recorded.

On April 5, 2017, the Company announced that its Board of Directors authorized and declared a special cash dividend of $140.0 million on the Company's common stock. The special dividend was payable on May 26, 2017 to stockholders of record as of the close of business on May 17, 2017. The special dividend resulted in a decrease to additional paid-in capital.

Discontinued Operations and Assets Held for Sale

The condensed consolidated financial statements for the three and six months ended June 30, 2017 and 2016 reflect the operations of the Commercial Business as a discontinued operation. The Company recorded a gain of approximately $598.2 million on the Asset Sale, which is included in gain from discontinued operations on the condensed consolidated statements of operations and comprehensive income (loss). Discontinued operations for the three and six months ended June 30, 2017 and 2016 includes the following:

(in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues:
Product revenues, net	$	—		$	12,851		$	16,135		$	22,819
License and collaboration revenues		—			19,332			7,797			30,645
Other revenues		—			1,498			1,973			1,498
Total revenues		—			33,681			25,905			54,962
Costs and expenses:
Cost of revenues		—			1,872			3,890			2,583
Research and development expenses		—			13,302			3,700			18,181
Selling, general and administrative expenses		—			12,542			8,709			23,885
Restructuring expenses		4,216			—			9,535			—
Total costs and expenses		4,216			27,716			25,834			44,649
Other income and expenses:
Interest expense		(1,509	)		(5,290	)		(6,743	)		(10,581	)
Gain on sale of commercial business		598,120			—			598,120			—
Income (loss) from discontinued operations	$	592,395		$	675		$	591,448		$	(268	)
Income tax expense		(51,910	)		—			(51,910	)		—
Total income (loss) from discontinued operations	$	540,485		$	675		$	539,538		$	(268	)

The carrying value of the assets and liabilities of the Commercial Business classified as “Discontinued operations” in the condensed consolidated balance sheets is as follows:

(in thousands)	December 31, 2016
Assets
Current assets:
Accounts receivable, net	$	17,194
Inventory		14,554
Prepaid expenses and other current assets		1,547
Total current assets held for sale		33,295
Property and equipment, net		1,553
Intangible assets, net		3,977
Goodwill		3,605
Total long-term assets held for sale		9,135
Liabilities
Current liabilities:
Accounts payable, accrued expenses and other		20,613
Deferred revenues		36,226
Total current liabilities held for sale		56,839
Deferred revenues, net of current portion		25,673
Total liabilities held for sale		25,673

Inventory

Inventory of the Commercial Business as of December 31, 2016 consisted of the following:

(in thousands)	December 31, 2016
Raw materials	$	4,483
Work in process		8,651
Finished goods		1,420
Total inventory	$	14,554

Restructuring Activities

On January 8, 2017, the Company announced a reduction in headcount by approximately 30% in connection with the Asset Sale and the completion of its strategic pipeline review. Upon the closing of the Asset Sale and the completion of its strategic pipeline review, the Company had approximately 80 employees.

Under this corporate restructuring, for the three and six months ended June 30, 2017, the Company recognized total restructuring expenses of $4.2 million and $9.5 million, respectively, which was related to contractual termination benefits for employees with pre-existing severance arrangements. These one-time employee termination benefits are comprised of severance, benefits and related costs, all of which are expected to result in cash expenditures. The majority of these payments were made during the second quarter of 2017. The remaining payments represent severance payments that will be paid over one year. The expense of $9.5 million was included in discontinued operations, as the costs are directly associated with the sale of the Commercial Business.

The following table summarizes the charges related to the restructuring activities as of June 30, 2017:

(in thousands)	Accrued Restructuring Expenses at December 31, 2016		Expenses		Less: Payments		Accrued Restructuring Expenses at June 30, 2017
Severance, benefits and related costs	$	—	$	9,521	$	8,124	$	1,397
Totals	$	—	$	9,521	$	8,124	$	1,397

These amounts are included in accounts payable, accrued expenses and other in the June 30, 2017 balance sheet.

License and Collaboration Agreements Related to the Asset Sale

Baxalta

On September 23, 2014, the Company and Baxter International Inc., Baxter Healthcare Corporation and Baxter Healthcare SA entered into a license and collaboration agreement (the “Baxalta Agreement”) for the development and commercialization of ONIVYDE outside of the United States and Taiwan (the “Licensed Territory”). In connection with Baxter International Inc.’s separation of the Baxalta business, the Baxalta Agreement was assigned to Baxalta during the second quarter of 2015. As part of the Baxalta Agreement, the Company granted Baxalta an exclusive, royalty-bearing right and license under the Company’s patent rights and know-how to develop and commercialize ONIVYDE in the Licensed Territory.

On April 3, 2017, the Baxalta Agreement and all related agreements, including the Company’s agreement related to the commercial supply of ONIVYDE, were assigned to Ipsen in connection with the Asset Sale. Pursuant to the Asset Sale Agreement, the Company retained the right to receive net milestone payments of up to $33.0 million that may become payable pursuant to the Baxalta Agreement for the ex-U.S. development and commercialization of ONIVYDE, which is comprised of potential payments of $18.0 million from the sale of ONIVYDE in two additional major European countries, $5.0 million related to the sale of ONIVYDE in the first major non-European, non-Asian country and $10.0 million for the first patient dosed in a pivotal clinical trial in an indication other than pancreatic cancer.

PharmaEngine, Inc.

On May 5, 2011, the Company and PharmaEngine, Inc. (“PharmaEngine”) entered into an assignment, sublicense and collaboration agreement (the “PharmaEngine Agreement”) under which the Company reacquired rights in Europe and certain countries in Asia to ONIVYDE. In exchange, the Company agreed to pay PharmaEngine a nonrefundable, noncreditable upfront payment of $10.0 million and up to an additional $80.0 million in aggregate development and regulatory milestones and $130.0 million in aggregate sales milestones.

On April 3, 2017, the PharmaEngine Agreement and all related agreements, including the Company’s agreement related to its commercial supply of ONIVYDE, were assigned to Ipsen in connection with the Asset Sale.