Contingent Consideration

12 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

The Company's contingent consideration liabilities are related to the USWM Acquisition in 2020 (as defined below) and the Adamas Acquisition in 2021. The contingent consideration liabilities are measured at fair value on a recurring basis using either a Monte Carlo simulation or the income approach. The Company classifies its contingent consideration liabilities as Level 3 fair value measurements based on the significant unobservable inputs used to estimate fair value. These reflect the inputs and assumptions the Company believes would be made by market participants. Changes in any of those inputs together or in isolation may result in significantly lower or higher fair value measurement. The change in fair value is reported on the consolidated statement of earnings in Contingent consideration (gain) expense.

USWM Contingent Consideration

On June 9, 2020 (the USWM Closing Date), the Company completed its acquisition of all the outstanding equity of

USWM Enterprises, LLC (USWM Enterprises) (USWM Acquisition). The USWM Acquisition included potential additional contingent consideration payments of up to $230 million comprised of $130 million in regulatory and developmental milestones and $100 million in sales-based milestones.

•Regulatory and developmental milestones:

The $130 million in regulatory and developmental milestones consists of: 1) a $50 million milestone which had a time-based mechanism and was not achieved 2) a $25 million milestone due upon the FDA acceptance of the SPN-830 NDA for review, which was paid in the first quarter of 2022 and, 3) a remaining $55 million, of which $25 million relates to the FDA's approval of the SPN-830 NDA and $30 million relates to the subsequent commercial product launch.

Regarding the $25 million paid in the first quarter of 2022, $22.9 million represents the acquisition date fair value of the contingent consideration liability and was reported under cash flows from financing activities. The remaining $2.1 million represents the excess of the acquisition date fair value and was reported under cash flows from operating activities.

•Sales-based milestones:

The $100 million in sales-based milestones consists of: 1) $70 million in milestones due upon the achievement of certain U.S. net product sales of APOKYN in 2021 and 2022 which were not achieved and, 2) a remaining $30 million milestone which relates to the achievement of certain net product sales of the acquired USWM products in 2023. As of December 31, 2022, the Company assessed that this remaining $30 million sales-based milestone will not be achieved based on net sales projections.

The key assumptions considered in estimating the fair value include the estimated probability and timing of milestone achievement, such as the probability and timing of obtaining regulatory approval, discount rate, the estimated revenue volatility and the estimated amount and timing of projected revenues from the acquired USWM products.

The Company recorded a $1.1 million expense due to the change in fair value of the contingent consideration liabilities for the USWM milestones during the year ended December 31, 2022. The change in the fair value of contingent consideration for USWM milestones was primarily driven by the increase in estimated fair value of regulatory and developmental milestones due to passage of time and the accretion to the payout amount related to the milestone achieved in the first quarter of 2022.

The Company recorded a $6.5 million gain due to the change in fair value of the contingent consideration liabilities for the USWM milestones during the year ended December 31, 2021. The change in fair value was primarily due to the write-down of the sales based contingent consideration liabilities offset by an increase in the estimated fair value of regulatory and developmental milestones due to the passage of time. The Company assessed that these sales-based milestones will not be achieved based on the revised net sales projections. The probability of achieving these milestones were significantly lower compared to prior estimates. The Company updated its projected net sales of the Products based on recent historical sales trend experience.

Adamas Contingent Consideration

As discussed in Note 3, Acquisition, the Adamas Acquisition included payment of two non-tradable contingent value rights (CVRs) each of which represents the contractual right to receive a contingent payment upon the achievement of the applicable aggregate worldwide net product sales of GOCOVRI.

The Company recorded a $1.6 million gain due to the change in fair value of the contingent consideration liabilities for the year ended December 31, 2022. The change in estimated fair value of contingent consideration for the sales-based Adamas milestones was primarily due to changes in market data and revenue projections. The key assumptions considered in estimating the fair value of the Adamas sales-based milestones include the estimated revenue projections, volatility, estimated discount rates and risk-free interest rate. Refer to Note 3, Acquisition, for further discussion of significant inputs and assumptions used in the valuation of the contingent consideration for the Adamas Acquisition.

The following table provides a reconciliation of the beginning and ending balances related to the contingent consideration liabilities for the USWM Acquisition and Adamas Acquisition (dollars in thousands):


	USWM Acquisition		Adamas Acquisition		Total
Balance at December 31, 2021	$	70,170	$	10,307	$	80,477
Milestone payments	(25,000)		—		(25,000)
Change in fair value recognized in earnings	1,100		(1,610)		(510)
Balance at December 31, 2022	$	46,270	$	8,697	$	54,967

Regulatory and developmental contingent consideration liabilities	$	46,270	$	—	$	46,270
Sales-based contingent consideration liabilities	—		8,697		8,697
Balance at December 31, 2022	$	46,270	$	8,697	$	54,967

The following table provides the current and long-term portions related to the contingent consideration for the USWM Acquisition and Adamas Acquisition (dollars in thousands):


	December 31, 2022		December 31, 2021
Reported under the following captions in the consolidated balance sheets:
Contingent consideration, current portion	$	21,120	$	44,840
Contingent consideration, long-term	33,847		35,637
Total	$	54,967	$	80,477