Contingent Consideration

9 Months Ended

Sep. 30, 2023

Business Combination and Asset Acquisition [Abstract]

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):


	September 30, 2023		December 31, 2022
Reported under the following captions in the condensed consolidated balance sheets:	(unaudited)
Contingent consideration, current portion	$	45,880	$	21,120
Contingent consideration, long-term	7,774		33,847
Total	$	53,654	$	54,967

The Company's contingent consideration liabilities are related to the USWM Acquisition in 2020 and the Adamas Acquisition in 2021 (each acquisition as defined below). The contingent consideration liabilities are measured at fair value 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 condensed consolidated statement of earnings (loss) 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 for regulatory and development milestones and sales-based milestones. As of September 30, 2023, the potential contingent consideration payments are up to $85 million, which is comprised of the potential $55 million in regulatory and development milestones and $30 million in sales-based milestones.

•Regulatory and development milestones:

The potential $55 million in regulatory and development milestones is comprised of (1) $25 million related to the FDA's approval of the SPN-830 NDA and (2) $30 million related to the subsequent commercial product launch.

•Sales-based milestones:

The potential $30 million sales-based milestone relates to the achievement of certain net product sales of the acquired USWM products in 2023. As of September 30, 2023, 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, and the estimated amount and timing of projected revenues from the acquired USWM products.

Adamas Contingent Consideration

On November 24, 2021 (the Adamas Closing Date), the Company completed its acquisition of all the outstanding equity of Adamas (Adamas 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.

Each CVR represents the contractual right to receive a contingent payment of $0.50 per share in cash, less any applicable withholding taxes and without interest, upon the achievement of the applicable milestone (each such amount, a Milestone Payment) in accordance with the terms of a Contingent Value Rights Agreement entered into between the Company and American Stock Transfer & Trust Company, LLC, as rights agent, as further defined in the CVR agreement. One Milestone Payment is payable (subject to certain terms and conditions) upon the first occurrence of the achievement of aggregate worldwide net sales of GOCOVRI in excess of $150 million during any consecutive 12-month period ending on or before December 31, 2024 (Milestone 2024). Another Milestone Payment is payable (subject to certain terms and conditions) upon the first occurrence of the achievement of aggregate worldwide net sales of GOCOVRI in excess of $225 million during any consecutive 12-month period ending on or before December 31, 2025 (Milestone 2025 and, together with Milestone 2024, the Milestones). Each Milestone may only be achieved once. The possible outcomes for the contingent consideration range from $0 to $50.9 million on an undiscounted basis.

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.

Change in the Fair Value of Contingent Consideration

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


	USWM Acquisition		Adamas Acquisition		Total
Balance at December 31, 2022	$	46,270	$	8,697	$	54,967
Change in fair value recognized in earnings	(1,710)		63		(1,647)
Balance at March 31, 2023 (unaudited)	44,560		8,760		53,320
Change in fair value recognized in earnings	660		130		790
Balance at June 30, 2023 (unaudited)	45,220		8,890		54,110
Change in fair value recognized in earnings	660		(1,116)		(456)
Balance at September 30, 2023 (unaudited)	$	45,880	$	7,774	$	53,654


	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	1,720		(1,055)		665
Balance at March 31, 2022 (unaudited)	46,890		9,252		56,142
Change in fair value recognized in earnings	350		393		743
Balance at June 30, 2022 (unaudited)	47,240		9,645		56,885
Change in fair value recognized in earnings	350		136		486
Balance at September 30, 2022 (unaudited)	$	47,590	$	9,781	$	57,371

The Company recorded a $0.7 million expense and a $0.4 million gain due to the change in the fair value of the contingent consideration liabilities for the USWM milestones for the three and nine months ended September 30, 2023 primarily driven by the passage of time in both periods, as well as the change in timing of milestone achievement and estimated discount rate in the first quarter of 2023. The Company recorded a $0.4 million expense and a $2.4 million expense due to the change in the fair value of the contingent consideration liabilities for the USWM milestones for the three and nine months ended September 30, 2022 primarily driven by the 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 $1.1 million gain and a $0.9 million gain due to the change in fair value of the contingent consideration liabilities for the Adamas CVRs for the three and nine months ended September 30, 2023 primarily driven by the passage of time. The Company recorded a $0.1 million expense and a $0.5 million gain due to the change in fair value of the contingent consideration liabilities for the Adamas CVRs for the three and nine months ended September 30, 2022 primarily driven by the passage of time.

The Company paid $25 million in the first quarter of 2022 of which $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. The amount paid was for the milestone that was due upon the FDA acceptance of the SPN-830 NDA for review, which was achieved in the first quarter of 2022.