9. Discontinued Operations

On April 3, 2017, the Company completed the sale of the Commercial Business. As of March 31, 2017, the Commercial Business met all the conditions to be classified as a discontinued operation since the disposal of the Commercial Business represented a strategic shift that had a major effect on the Company’s operations and financial results.

The condensed consolidated financial statements for the three and nine months ended September 30, 2018 and 2017 reflect the operations of the Commercial Business as a discontinued operation. Discontinued operations for the three and nine months ended September 30, 2018 and 2017 includes the following:

(in thousands)	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Revenues:
Product revenues, net	$	—		$	—	$	—		$	16,135
License and collaboration revenues		—			—		—			7,797
Other revenues		—			—		—			1,973
Total revenues		—			—		—			25,905
Costs and expenses:
Cost of revenues		—			—		—			3,890
Research and development expenses		171			—		171			3,730
Selling, general and administrative expenses		—			—		—			8,732
Restructuring expenses		—			—		—			9,535
Total costs and expenses		171			—		171			25,887
Other income and expenses:
Other income		—			—		—			—
Interest expense		—			—		—			(6,743	)
Gain on sale of commercial business		23,000			3,497		23,000			601,670
Income from discontinued operations	$	22,829		$	3,497	$	22,829		$	594,945
Income tax (expense) benefit		(6,499	)		4,959		(6,499	)		(46,951	)
Total income from discontinued operations	$	16,330		$	8,456	$	16,330		$	547,994

On January 8, 2017, the Company announced a reduction in headcount by approximately 30% in connection with the sale of the Commercial Business and the completion of its strategic pipeline review.

Under this corporate restructuring, for the three and nine months ended September 30, 2017, the Company recognized total restructuring expenses of $0.0 million and $9.5 million, respectively, which in the nine month period 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 resulted in cash expenditures. The expense of $9.5 million was included in discontinued operations, as the costs are directly associated with the sale of the Commercial Business.

In connection with the sale of the Commercial Business, the Company retained the right to receive net milestone payments that may become payable related to the development and commercialization of ONIVYDE for up to $33.0 million pursuant to a license and collaboration agreement (the “Baxalta Agreement”) between Baxalta Incorporated, Baxalta US Inc., Baxalta GmbH and Ipsen S.A. (“Ipsen”). Shire plc was the parent entity of the Baxalta entities and assigned the Baxalta Agreement to Les Laboratoires Servier SAS (“Servier”).

During the three and nine months ended September 30, 2018, the Company received $23.0 million of the potential $33.0 million in milestone payments related to the development and commercialization of ONIVYDE under the Baxalta Agreement. The Company included the $23.0 million in discontinued operations because the amounts directly relate to the Commercial Business, which was classified as a discontinued operation. The disposal of the Commercial Business represented a strategic shift that had a major effect on the Company’s operations and financial results. The Company also recorded $0.2 million of research and development expense in discontinued operations in the three and nine months ended September 30, 2018, as this expense is directly associated with the $23.0 million in milestones.

Intraperiod tax allocation rules require the Company to allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations. In periods in which there is a pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as discontinued operations, the Company must allocate to continuing operations a tax benefit for the loss in continuing operations with an offsetting tax expense to discontinued operations. For the three and nine months ended September 30, 2018, the Company recognized an income tax benefit of $4.8 million in continuing operations and income tax expense in discontinued operations of $6.5 million.